UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): April 24, 2023
(Exact Name of Registrant as Specified in Charter)
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
(Address of Principal Executive Offices, and Zip Code)
(916 ) 626-5000
Registrant’s Telephone Number, Including Area Code
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||||||
| Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||||||
| Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☑
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On April 24, 2023, Five Star Bancorp (the “Company”) issued a press release announcing its results of operations and financial condition for the quarter ended March 31, 2023. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.
This information (including Exhibit 99.1) is being furnished under Item 2.02 hereof and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and such information shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 7.01 Regulation FD Disclosure
The Company is conducting an earnings call on April 25, 2023 at 10:00 am PT/1:00 pm ET to discuss its first quarter 2023 financial results. A copy of the investor presentation to be used during the earnings call is attached to this Current Report on Form 8-K as Exhibit 99.2 and is incorporated herein by reference.
This information (including Exhibit 99.2) is being furnished under Item 7.01 hereof and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and such information shall not be deemed incorporated by reference into any filing under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Number | Description | ||||||||||
99.1 | |||||||||||
| 99.2 | |||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL) | ||||||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FIVE STAR BANCORP | ||||||||
| By: | /s/ Heather C. Luck | |||||||
| Name: Heather C. Luck | ||||||||
| Title: Senior Vice President and Chief Financial Officer | ||||||||
| Date: April 24, 2023 | ||||||||
| PRESS RELEASE | FOR IMMEDIATE RELEASE | ||||
Five Star Bancorp Announces First Quarter 2023 Results
RANCHO CORDOVA, Calif. April 24, 2023 (GLOBE NEWSWIRE) – Five Star Bancorp (Nasdaq: FSBC) (the “Company” or “Five Star”), the holding company for Five Star Bank (the “Bank”), today reported net income of $13.2 million for the three months ended March 31, 2023, as compared to $13.3 million for the three months ended December 31, 2022 and $9.9 million for the three months ended March 31, 2022.
Financial Highlights
Performance highlights and other developments for the Company for the periods noted below included the following:
•Pre-tax income, pre-tax, pre-provision income, net income, and earnings per share were as follows for the periods indicated:
| Three months ended | |||||||||||||||||
(dollars in thousands, except share and per share data) | March 31, 2023 | December 31, 2022 | March 31, 2022 | ||||||||||||||
| Return on average assets (“ROAA”) | 1.65 | % | 1.70 | % | 1.53 | % | |||||||||||
| Return on average equity (“ROAE”) | 20.94 | % | 21.50 | % | 17.07 | % | |||||||||||
| Pre-tax income | $ | 18,501 | $ | 18,769 | $ | 13,522 | |||||||||||
Pre-tax, pre-provision income(1) | $ | 19,401 | $ | 20,019 | $ | 14,472 | |||||||||||
| Net income | $ | 13,161 | $ | 13,282 | $ | 9,862 | |||||||||||
| Basic earnings per common share | $ | 0.77 | $ | 0.77 | $ | 0.58 | |||||||||||
| Diluted earnings per common share | $ | 0.77 | $ | 0.77 | $ | 0.58 | |||||||||||
| Weighted average basic common shares outstanding | 17,150,174 | 17,143,920 | 17,102,508 | ||||||||||||||
| Weighted average diluted common shares outstanding | 17,194,884 | 17,179,863 | 17,164,519 | ||||||||||||||
| Shares outstanding at end of period | 17,258,904 | 17,241,926 | 17,246,199 | ||||||||||||||
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
James E. Beckwith, President and Chief Executive Officer, commented on the financial results:
“Disruption in the market historically leads to opportunities at Five Star Bank and recent events in the banking industry are no exception. In the first quarter of 2023, we experienced record deposit growth with the onboarding of new customers and the opening of new accounts. We attribute this growth to seizing opportunities, the strength of our brand, and our differentiated customer experience, which have earned us the trust of our customers, community, and employees. We will continue to expand our verticals to meet this demand in the markets we serve and will focus on disciplined business practices to endure any market condition.
This quarter, we declared an increased dividend of $0.20 per share, which exemplifies our focus on shareholder value. We are also pleased to have earned the #1 ranking on the S&P Global Market Intelligence annual rankings of 2022’s best-performing community banks in the nation with assets between $3 billion and $10 billion.”
1
•Total deposits increased by 4.97%, or $138.4 million, in the three months ended March 31, 2023. Total deposits increased by $21.9 million during the month of March 2023.
•Cash and cash equivalents as of March 31, 2023 were $347.9 million, representing 11.91% of total deposits at March 31, 2023, compared to 9.35% as of December 31, 2022.
•Adoption of Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and all subsequent amendments that modified ASU 2016-13 (collectively, “ASC 326”) on January 1, 2023. ASC 326 replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model. The impact of the adoption included an increase to the allowance for credit losses of approximately $5.3 million, as well as an increase to the reserve for unfunded commitments of approximately $1.1 million. The impact of the adoption also included a decrease in retained earnings, net of tax effect, of approximately $4.5 million. For purposes of regulatory capital calculations, an election was made to phase-in the day one impact of adopting ASC 326 on retained earnings over three years. For the three months ended March 31, 2023, the provision for credit losses was $0.9 million.
•Net interest margin of 3.75% for the three months ended March 31, 2023 was consistent with expectations, as the effective federal funds rate increased to 4.83% as of March 31, 2023.
•Other comprehensive income improved by $1.5 million during the three months ended March 31, 2023 as unrealized losses, net of tax effect, declined on available-for-sale debt securities from $13.4 million to $11.9 million as of December 31, 2022 and March 31, 2023, respectively. Total held-to-maturity and available-for-sale securities as of March 31, 2023 represented 0.11% and 3.46% of total interest-earning assets, respectively.
•Consistent, disciplined management of expenses contributed to our efficiency ratio of approximately 36.43% for the three months ended March 31, 2023.
•Common equity Tier 1 capital ratio was 9.02% and 8.99% as of March 31, 2023 and December 31, 2022, respectively. The Bank continues to meet all requirements to be considered “well-capitalized” under applicable regulatory guidelines.
•Loan and deposit growth in the three months ended March 31, 2023 was as follows:
(dollars in thousands) | March 31, 2023 | December 31, 2022 | $ Change | % Change | |||||||||||||||||||
Loans held for investment | $ | 2,869,848 | $ | 2,791,326 | $ | 78,522 | 2.81 | % | |||||||||||||||
Non-interest-bearing deposits | 836,673 | 971,246 | (134,573) | (13.86) | % | ||||||||||||||||||
Interest-bearing deposits | 2,083,733 | 1,810,758 | 272,975 | 15.08 | % | ||||||||||||||||||
| (dollars in thousands) | March 31, 2023 | March 31, 2022 | $ Change | % Change | |||||||||||||||||||
| Loans held for investment | $ | 2,869,848 | $ | 2,080,158 | $ | 789,690 | 37.96 | % | |||||||||||||||
| Non-interest-bearing deposits | 836,673 | 941,285 | (104,612) | (11.11) | % | ||||||||||||||||||
| Interest-bearing deposits | 2,083,733 | 1,561,807 | 521,926 | 33.42 | % | ||||||||||||||||||
•At March 31, 2023, the Company reported total loans held for investment, total assets, and total deposits of $2.9 billion, $3.4 billion, and $2.9 billion, respectively, as compared to $2.8 billion, $3.2 billion, and $2.8 billion, respectively, at December 31, 2022.
•The ratio of nonperforming loans to loans held for investment, or total loans at period end, remained consistent at 0.01% at December 31, 2022 compared to 0.01% at March 31, 2023.
•The Company’s Board of Directors declared, and the Company subsequently paid, a cash dividend of $0.15 per share during the three months ended March 31, 2023. The Company's Board of Directors declared a cash dividend of $0.20 per share on April 20, 2023, representing an increase of 33.33% over the most recent cash dividend declared.
•For the three months ended March 31, 2023, net interest margin was 3.75%, as compared to 3.83% for the three months ended December 31, 2022 and 3.60% for the three months ended March 31, 2022.
2
Summary Results
Three months ended March 31, 2023, as compared to three months ended December 31, 2022
The Company’s net income for the three months ended March 31, 2023 compared to the three months ended December 31, 2022 remained relatively consistent, due to a decrease in non-interest income attributable to lower loan production and a corresponding increase in non-interest expense, partially offset by a lower provision for credit loss due to lower loan growth. Non-interest expense grew due to an increase in salaries and benefits, partially offset by a decrease in other operating expenses.
Three months ended March 31, 2023, as compared to three months ended March 31, 2022
The increase in the Company’s net income for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to an increase in net interest income of $7.3 million, driven by loan growth and increased yields. The overall increase in net interest income was partially offset by a decrease in non-interest income and higher non-interest expenses due to growth at the Bank.
The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:
| Three months ended | ||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | March 31, 2023 | December 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Selected operating data: | ||||||||||||||||||||||||||
| Net interest income | $ | 29,148 | $ | 29,135 | $ | 13 | 0.04 | % | ||||||||||||||||||
| Provision for credit losses | 900 | 1,250 | (350) | (28.00) | % | |||||||||||||||||||||
| Non-interest income | 1,371 | 1,601 | (230) | (14.37) | % | |||||||||||||||||||||
| Non-interest expense | 11,118 | 10,717 | 401 | 3.74 | % | |||||||||||||||||||||
| Pre-tax income | 18,501 | 18,769 | (268) | (1.43) | % | |||||||||||||||||||||
| Provision for income taxes | 5,340 | 5,487 | (147) | (2.68) | % | |||||||||||||||||||||
| Net income | $ | 13,161 | $ | 13,282 | $ | (121) | (0.91) | % | ||||||||||||||||||
| Earnings per common share: | ||||||||||||||||||||||||||
| Basic | $ | 0.77 | $ | 0.77 | $ | — | — | % | ||||||||||||||||||
| Diluted | $ | 0.77 | $ | 0.77 | $ | — | — | % | ||||||||||||||||||
| Performance and other financial ratios: | ||||||||||||||||||||||||||
| ROAA | 1.65 | % | 1.70 | % | ||||||||||||||||||||||
| ROAE | 20.94 | % | 21.50 | % | ||||||||||||||||||||||
| Net interest margin | 3.75 | % | 3.83 | % | ||||||||||||||||||||||
| Cost of funds | 1.53 | % | 1.16 | % | ||||||||||||||||||||||
| Efficiency ratio | 36.43 | % | 34.87 | % | ||||||||||||||||||||||
3
| Three months ended | ||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | March 31, 2023 | March 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Selected operating data: | ||||||||||||||||||||||||||
| Net interest income | $ | 29,148 | $ | 21,883 | $ | 7,265 | 33.20 | % | ||||||||||||||||||
| Provision for credit losses | 900 | 950 | (50) | (5.26) | % | |||||||||||||||||||||
| Non-interest income | 1,371 | 2,164 | (793) | (36.65) | % | |||||||||||||||||||||
| Non-interest expense | 11,118 | 9,575 | 1,543 | 16.11 | % | |||||||||||||||||||||
| Pre-tax income | 18,501 | 13,522 | 4,979 | 36.82 | % | |||||||||||||||||||||
| Provision for income taxes | 5,340 | 3,660 | 1,680 | 45.90 | % | |||||||||||||||||||||
| Net income | $ | 13,161 | $ | 9,862 | $ | 3,299 | 33.45 | % | ||||||||||||||||||
| Earnings per common share: | ||||||||||||||||||||||||||
| Basic | $ | 0.77 | $ | 0.58 | $ | 0.19 | 32.76 | % | ||||||||||||||||||
| Diluted | $ | 0.77 | $ | 0.58 | $ | 0.19 | 32.76 | % | ||||||||||||||||||
| Performance and other financial ratios: | ||||||||||||||||||||||||||
| ROAA | 1.65 | % | 1.53 | % | ||||||||||||||||||||||
| ROAE | 20.94 | % | 17.07 | % | ||||||||||||||||||||||
| Net interest margin | 3.75 | % | 3.60 | % | ||||||||||||||||||||||
| Cost of funds | 1.53 | % | 0.17 | % | ||||||||||||||||||||||
| Efficiency ratio | 36.43 | % | 39.82 | % | ||||||||||||||||||||||
Balance Sheet Summary
| (dollars in thousands) | March 31, 2023 | December 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Selected financial condition data: | ||||||||||||||||||||||||||
| Total assets | $ | 3,397,308 | $ | 3,227,159 | $ | 170,149 | 5.27 | % | ||||||||||||||||||
| Cash and cash equivalents | 347,939 | 259,991 | 87,948 | 33.83 | % | |||||||||||||||||||||
| Total loans held for investment | 2,869,848 | 2,791,326 | 78,522 | 2.81 | % | |||||||||||||||||||||
| Total investments | 118,654 | 119,744 | (1,090) | (0.91) | % | |||||||||||||||||||||
| Total liabilities | 3,136,652 | 2,974,334 | 162,318 | 5.46 | % | |||||||||||||||||||||
| Total deposits | 2,920,406 | 2,782,004 | 138,402 | 4.97 | % | |||||||||||||||||||||
| Subordinated notes, net | 73,640 | 73,606 | 34 | 0.05 | % | |||||||||||||||||||||
| Total shareholders’ equity | 260,656 | 252,825 | 7,831 | 3.10 | % | |||||||||||||||||||||
•Insured and collateralized deposits were approximately $1.9 billion, representing approximately 64.53% of total deposits as of March 31, 2023.
•Commercial and consumer deposit accounts constituted approximately 75% of total deposits. Deposit relationships of at least $5 million represented approximately 64% of total deposits and had an average age of approximately 9.8 years as of March 31, 2023.
•Cash and cash equivalents as of March 31, 2023 were $347.9 million, representing 11.91% of total deposits at March 31, 2023, compared to 9.35% as of December 31, 2022.
•The Federal Reserve created the Bank Term Funding Program in response to recent events, which allows any federally insured deposit institution to pledge its investment portfolio at par as collateral value. At March 31, 2023, there had been no need for the Bank’s use of the facility.
4
•Total liquidity (consisting of cash and cash equivalents and unused and available borrowing capacity as set forth below) was approximately $892.7 million as of March 31, 2023.
| March 31, 2023 | Available | ||||||||||||||||
| (dollars in thousands) | Line of Credit | Borrowings | |||||||||||||||
Federal Home Loan Bank of San Francisco (“FHLB”) advances | $ | 398,145 | $ | 120,000 | $ | 278,145 | |||||||||||
| Federal Reserve discount window | 76,665 | — | 76,665 | ||||||||||||||
| Correspondent bank lines of credit | 190,000 | — | 190,000 | ||||||||||||||
| Cash and cash equivalents | — | — | 347,939 | ||||||||||||||
| Total | $ | 664,810 | $ | 120,000 | $ | 892,749 | |||||||||||
The increase in total assets from December 31, 2022 to March 31, 2023 was primarily due to an $87.9 million increase in cash and cash equivalents and a $78.5 million increase in total loans held for investment. The increase in cash and cash equivalents primarily resulted from net cash provided from financing activities of $155.8 million, partially offset by net cash used in investing activities of $68.6 million. The $78.5 million increase in total loans held for investment between December 31, 2022 and March 31, 2023 was a result of $135.0 million in loan originations, partially offset by $56.5 million in loan payoffs and paydowns.
The increase in total liabilities from December 31, 2022 to March 31, 2023 was primarily attributable to an increase in FHLB advances of $20.0 million and an increase in deposits of $138.4 million, largely due to increases in money market, interest checking, and time deposits over $250 thousand of $220.8 million, $33.6 million, and $30.9 million, respectively, partially offset by decreases in non-interest-bearing and savings of $134.6 million and $11.5 million, respectively.
Total shareholders’ equity increased by $7.8 million from $252.8 million at December 31, 2022 to $260.7 million at March 31, 2023. The increase in total shareholders’ equity was primarily a result of net income recognized of $13.2 million and $1.5 million in other comprehensive income, partially offset by $2.6 million in cash distributions paid during the period and a reduction to retained earnings of $4.5 million, net of tax effect, due to the adoption of ASC 326.
Net Interest Income and Net Interest Margin
The following is a summary of the components of net interest income for the periods indicated:
| Three months ended | ||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2023 | December 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Interest and fee income | $ | 40,311 | $ | 37,402 | $ | 2,909 | 7.78 | % | ||||||||||||||||||
| Interest expense | 11,163 | 8,267 | 2,896 | 35.03 | % | |||||||||||||||||||||
| Net interest income | $ | 29,148 | $ | 29,135 | $ | 13 | 0.04 | % | ||||||||||||||||||
| Net interest margin | 3.75 | % | 3.83 | % | ||||||||||||||||||||||
| Three months ended | ||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2023 | March 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Interest and fee income | $ | 40,311 | $ | 22,871 | $ | 17,440 | 76.25 | % | ||||||||||||||||||
| Interest expense | 11,163 | 988 | 10,175 | 1,029.86 | % | |||||||||||||||||||||
| Net interest income | $ | 29,148 | $ | 21,883 | $ | 7,265 | 33.20 | % | ||||||||||||||||||
| Net interest margin | 3.75 | % | 3.60 | % | ||||||||||||||||||||||
5
The following table shows the components of net interest income and net interest margin for the quarterly periods indicated:
| Three months ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | December 31, 2022 | March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | |||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning deposits with banks | $ | 200,541 | $ | 2,167 | 4.38 | % | $ | 200,395 | $ | 1,841 | 3.64 | % | $ | 339,737 | $ | 192 | 0.23 | % | ||||||||||||||||||||||||||||||||||||||
Investment securities | 119,489 | 650 | 2.21 | % | 117,364 | 643 | 2.17 | % | 148,736 | 567 | 1.54 | % | ||||||||||||||||||||||||||||||||||||||||||||
Loans held for investment and sale | 2,836,070 | 37,494 | 5.36 | % | 2,703,865 | 34,918 | 5.12 | % | 1,977,509 | 22,112 | 4.53 | % | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets | 3,156,100 | 40,311 | 5.18 | % | 3,021,624 | 37,402 | 4.91 | % | 2,465,982 | 22,871 | 3.76 | % | ||||||||||||||||||||||||||||||||||||||||||||
Interest receivable and other assets, net | 69,253 | 73,664 | 150,116 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 3,225,353 | $ | 3,095,288 | $ | 2,616,098 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing transaction accounts | $ | 379,593 | $ | 433 | 0.46 | % | $ | 223,473 | $ | 174 | 0.31 | % | $ | 276,690 | $ | 70 | 0.10 | % | ||||||||||||||||||||||||||||||||||||||
Savings accounts | 155,233 | 545 | 1.42 | % | 136,753 | 247 | 0.72 | % | 90,815 | 25 | 0.11 | % | ||||||||||||||||||||||||||||||||||||||||||||
Money market accounts | 1,087,122 | 5,436 | 2.03 | % | 1,060,597 | 3,652 | 1.37 | % | 920,767 | 367 | 0.16 | % | ||||||||||||||||||||||||||||||||||||||||||||
Time accounts | 300,952 | 2,964 | 3.99 | % | 299,771 | 2,467 | 3.26 | % | 128,183 | 83 | 0.26 | % | ||||||||||||||||||||||||||||||||||||||||||||
Subordinated debt and other borrowings | 125,691 | 1,785 | 5.76 | % | 114,858 | 1,727 | 5.96 | % | 28,393 | 443 | 6.33 | % | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 2,048,591 | 11,163 | 2.21 | % | 1,835,452 | 8,267 | 1.79 | % | 1,444,848 | 988 | 0.28 | % | ||||||||||||||||||||||||||||||||||||||||||||
Demand accounts | 901,491 | 997,815 | 922,128 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest payable and other liabilities | 20,344 | 17,002 | 14,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 254,927 | 245,019 | 234,322 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities & shareholders’ equity | $ | 3,225,353 | $ | 3,095,288 | $ | 2,616,098 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest spread | 2.97 | % | 3.12 | % | 3.48 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income/margin | $ | 29,148 | 3.75 | % | $ | 29,135 | 3.83 | % | $ | 21,883 | 3.60 | % | ||||||||||||||||||||||||||||||||||||||||||||
6
Factors affecting interest income and yields
Interest income increased during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022, due to the following:
•Rates. The average yields on interest-earning assets were 5.18% and 4.91% for the three months ended March 31, 2023 and December 31, 2022, respectively. The increase in yields period-over-period was primarily due to increased rates earned on loans held for investment and sale originated in the current environment of rising rates, and increases in yields earned on interest-earning deposits with banks.
•Volume. Average interest-earning assets increased by approximately $134.5 million period-over-period, primarily driven by new loan originations which drove increases in the average daily balances of loans for the three months ended March 31, 2023.
Interest income increased during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, due to the following:
•Rates. The average yields on interest-earning assets were 5.18% and 3.76% for the three months ended March 31, 2023 and March 31, 2022, respectively. The increase in yields period-over-period was primarily due to increased rates earned on loans held for investment and sale originated in the current environment of rising rates, and increases in yields earned on interest-earning deposits with banks.
•Volume. Average interest-earning assets increased by approximately $690.1 million period-over-period, driven by new loan originations which drove increases in the average daily balances of loans for the three months ended March 31, 2023.
Factors affecting interest expense and rates
Interest expense increased during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022, due to the following:
•Rates. The average costs of interest-bearing liabilities were 2.21% and 1.79% for the three months ended March 31, 2023 and December 31, 2022, respectively. The increase in cost period-over-period was due to increases in the rates paid on interest-bearing deposit accounts, with the most significant rate increases in time and savings accounts. The average cost of subordinated debt and other borrowings decreased from 5.96% to 5.76% for the three months ended December 31, 2022 and March 31, 2023, respectively, due to a lower rate on subordinated debt outstanding in the three months ended March 31, 2023 as subordinated debt expense in the three months ended December 31, 2022 consisted of debt redeemed in December 2022 at higher rates, partially offset by an increase in rates on FHLB advances during the same time period. Additionally, the cost of funds increased from 1.16% for the quarter ended December 31, 2022, to 1.53% for the quarter ended March 31, 2023.
•Volume. Average interest-bearing liabilities increased by $213.1 million period-over-period, primarily driven by increases in average balances for interest-bearing deposit accounts, with the most substantial average balance increase in interest-bearing transaction accounts. Average subordinated debt and other borrowings increased by $10.8 million period-over-period, due to an increase in the average balance of FHLB advances that was partly offset by a decrease in the average balance of subordinated debt.
Interest expense increased during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, due to the following:
•Rates. The average costs of interest-bearing liabilities were 2.21% and 0.28% for the three months ended March 31, 2023 and March 31, 2022, respectively. The increase in cost period-over-period was due to increases in the rates paid on interest-bearing deposit accounts, with the most significant increases in time and money market accounts. The average cost of subordinated debt and other borrowings decreased from 6.33% to 5.76% for the three months ended March 31, 2022 and March 31, 2023, respectively, due to a reduction of interest expenses as a percentage of the average balance during the three months ended March 31, 2023. Additionally, the cost of funds increased from 0.17% for the quarter ended March 31, 2022 to 1.53% for the quarter ended March 31, 2023.
•Volume. Average interest-bearing liabilities increased by $603.7 million period-over-period, primarily driven by increases in average balances for interest-bearing deposit accounts, with the most substantial average balance increases in time accounts. Average subordinated debt and other borrowings increased by $97.3 million period-over-period, consisting of FHLB advances which did not occur during the three months ended March 31, 2022, combined with an increase in the average balance of subordinated debt.
7
Asset Quality
Allowance for Credit Losses
Beginning January 1, 2023, the Company adopted ASC 326, which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Utilizing CECL may have an impact on our allowance for credit losses going forward and resulted in a lack of comparability between 2022 and 2023 quarterly periods. Refer to information below on the provision for credit losses recorded during the three months ended March 31, 2023.
At March 31, 2023, the Company’s allowance for credit losses was $34.2 million, as compared to $28.4 million at December 31, 2022. The $5.8 million increase in the allowance is due to a $5.3 million adjustment recorded in connection with the adoption of CECL and a $0.9 million provision for credit losses recorded during the three months ended March 31, 2023, partially offset by net charge-offs of $0.4 million during the same period.
The Company’s ratio of nonperforming loans to loans held for investment remained consistent at 0.01% at December 31, 2022 and March 31, 2023. Loans designated as substandard remained largely unchanged at $0.4 million at both December 31, 2022 and March 31, 2023. The provision for credit losses recorded during the three months ended March 31, 2023 was primarily related to loan growth. There were no loans with doubtful risk grades at March 31, 2023 or December 31, 2022.
A summary of the allowance for credit losses by loan class is as follows:
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| (dollars in thousands) | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||
| Commercial | $ | 26,846 | 78.56 | % | $ | 19,216 | 67.69 | % | ||||||||||||||||||
| Commercial land and development | 224 | 0.66 | % | 54 | 0.19 | % | ||||||||||||||||||||
| Commercial construction | 1,423 | 4.16 | % | 645 | 2.27 | % | ||||||||||||||||||||
| Residential construction | 173 | 0.51 | % | 49 | 0.17 | % | ||||||||||||||||||||
| Residential | 179 | 0.52 | % | 175 | 0.62 | % | ||||||||||||||||||||
| Farmland | 217 | 0.64 | % | 644 | 2.27 | % | ||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||
| Secured | 4,215 | 12.33 | % | 7,098 | 25.00 | % | ||||||||||||||||||||
| Unsecured | 150 | 0.44 | % | 116 | 0.41 | % | ||||||||||||||||||||
| Consumer and other | 400 | 1.17 | % | 347 | 1.22 | % | ||||||||||||||||||||
| Unallocated | 345 | 1.01 | % | 45 | 0.16 | % | ||||||||||||||||||||
| Total allowance for credit losses | $ | 34,172 | 100.00 | % | $ | 28,389 | 100.00 | % | ||||||||||||||||||
The ratio of allowance for credit losses to loans held for investment, or total loans at period end, was 1.19% at March 31, 2023, as compared to 1.02% at December 31, 2022.
8
Non-interest Income
Three months ended March 31, 2023, as compared to three months ended December 31, 2022
The following table presents the key components of non-interest income for the periods indicated:
| Three months ended | ||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2023 | December 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Service charges on deposit accounts | $ | 117 | $ | 97 | $ | 20 | 20.62 | % | ||||||||||||||||||
| Gain on sale of loans | 598 | 637 | (39) | (6.12) | % | |||||||||||||||||||||
| Loan-related fees | 308 | 407 | (99) | (24.32) | % | |||||||||||||||||||||
| FHLB stock dividends | 193 | 193 | — | — | % | |||||||||||||||||||||
| Earnings on bank-owned life insurance | 102 | 119 | (17) | (14.29) | % | |||||||||||||||||||||
| Other income | 53 | 148 | (95) | (64.19) | % | |||||||||||||||||||||
| Total non-interest income | $ | 1,371 | $ | 1,601 | $ | (230) | (14.37) | % | ||||||||||||||||||
Gain on sale of loans. The decrease in gain on sale of loans resulted primarily from a decline in the volume of loans sold. During the three months ended March 31, 2023, loans totaling $12.7 million were sold with an effective yield of 4.72% compared to the three months ended December 31, 2022, when loans totaling $14.5 million were sold with an effective yield of 4.40%.
Loan-related fees. The decrease in loan-related fees resulted primarily from a decline of approximately $0.1 million of fee income earned on SBA 7(a) loans during the three months ended March 31, 2023 compared to the three months ended December 31, 2022.
Other income. The decrease in other income resulted primarily from a $0.1 million gain recorded on a distribution received on an investment in a venture-backed fund during the three months ended December 31, 2022, which did not recur during the three months ended March 31, 2023.
Three months ended March 31, 2023, as compared to three months ended March 31, 2022
The following table presents the key components of non-interest income for the periods indicated:
| Three months ended | ||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2023 | March 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Service charges on deposit accounts | $ | 117 | $ | 108 | $ | 9 | 8.33 | % | ||||||||||||||||||
| Net gain on sale of securities | — | 5 | (5) | (100.00) | % | |||||||||||||||||||||
| Gain on sale of loans | 598 | 918 | (320) | (34.86) | % | |||||||||||||||||||||
| Loan-related fees | 308 | 596 | (288) | (48.32) | % | |||||||||||||||||||||
| FHLB stock dividends | 193 | 102 | 91 | 89.22 | % | |||||||||||||||||||||
| Earnings on bank-owned life insurance | 102 | 90 | 12 | 13.33 | % | |||||||||||||||||||||
| Other income | 53 | 345 | (292) | (84.64) | % | |||||||||||||||||||||
| Total non-interest income | $ | 1,371 | $ | 2,164 | $ | (793) | (36.65) | % | ||||||||||||||||||
Gain on sale of loans. The decrease in gain on sale of loans related primarily to an overall decline in the effective yields on loans sold during the three months ended March 31, 2023 compared to the three months ended March 31, 2022. During the three months ended March 31, 2023, approximately $12.7 million of loans were sold with an effective yield of 4.72%, as compared to approximately $11.7 million of loans sold with an effective yield of 7.84% during the three months ended March 31, 2022.
Loan-related fees. The decrease in loan-related fees was primarily a result of $0.3 million of swap referral fees recognized during the three months ended March 31, 2022 which did not recur in the three months ended March 31, 2023.
9
Other income. The decrease in other income resulted primarily from a $0.3 million gain recorded on a distribution received on an investment in a venture-backed fund during the three months ended March 31, 2022 which did not recur during the three months ended March 31, 2023.
Non-interest Expense
Three months ended March 31, 2023, as compared to three months ended December 31, 2022
The following table presents the key components of non-interest expense for the periods indicated:
| Three months ended | ||||||||||||||||||||||||||
(dollars in thousands) | March 31, 2023 | December 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
Salaries and employee benefits | $ | 6,618 | $ | 5,698 | $ | 920 | 16.15 | % | ||||||||||||||||||
Occupancy and equipment | 523 | 511 | 12 | 2.35 | % | |||||||||||||||||||||
Data processing and software | 872 | 839 | 33 | 3.93 | % | |||||||||||||||||||||
Federal Deposit Insurance Corporation (“FDIC”) insurance | 402 | 245 | 157 | 64.08 | % | |||||||||||||||||||||
Professional services | 631 | 553 | 78 | 14.10 | % | |||||||||||||||||||||
Advertising and promotional | 418 | 568 | (150) | (26.41) | % | |||||||||||||||||||||
Loan-related expenses | 255 | 358 | (103) | (28.77) | % | |||||||||||||||||||||
Other operating expenses | 1,399 | 1,945 | (546) | (28.07) | % | |||||||||||||||||||||
Total non-interest expense | $ | 11,118 | $ | 10,717 | $ | 401 | 3.74 | % | ||||||||||||||||||
Salaries and employee benefits. The increase in salaries and employee benefits was primarily a result of: (i) a $0.6 million increase in salaries, insurance, and benefits as a result of a 1.69% increase in headcount and recognition of employer taxes and 401(k) contributions recorded for bonuses and commissions paid during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022; (ii) a $0.7 million decrease in loan origination costs due to lower loan production; and (iii) a $0.2 million increase in estimated bonus expense based on increased headcount and salaries. These increases were partially offset by $0.6 million of lower commission expenses due to lower loan production during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022.
FDIC insurance. The increase related primarily to a final rule adopted by the FDIC to increase initial base deposit insurance assessment rates for insured depository institutions by two basis points, beginning with the first quarterly assessment period of 2023.
Advertising and promotional. The decrease related primarily to an overall decline in events attended and donations made, as more events were scheduled during the three months ended December 31, 2022 than the three months ended March 31, 2023.
Loan-related expenses. Loan-related expenses decreased primarily as a result of a net overall decrease in loan expenses incurred to support loan production during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022, including decreased expenses for insurance and taxes, environmental reports, and inspections.
Other operating expenses. The decrease in other operating expenses was primarily due to $0.3 million of subordinated debt issuance costs recognized during the three months ended December 31, 2022 in connection with the redemption of subordinated notes in December 2022, combined with a $0.2 million decrease in travel, conference fees, and professional membership fees during the three months ended March 31, 2023, as compared to the three months ended December 31, 2022.
10
Three months ended March 31, 2023, as compared to three months ended March 31, 2022
The following table presents the key components of non-interest expense for the periods indicated:
| Three months ended | ||||||||||||||||||||||||||
| (dollars in thousands) | March 31, 2023 | March 31, 2022 | $ Change | % Change | ||||||||||||||||||||||
| Salaries and employee benefits | $ | 6,618 | $ | 5,675 | $ | 943 | 16.62 | % | ||||||||||||||||||
| Occupancy and equipment | 523 | 520 | 3 | 0.58 | % | |||||||||||||||||||||
| Data processing and software | 872 | 716 | 156 | 21.79 | % | |||||||||||||||||||||
| FDIC insurance | 402 | 165 | 237 | 143.64 | % | |||||||||||||||||||||
| Professional services | 631 | 554 | 77 | 13.90 | % | |||||||||||||||||||||
| Advertising and promotional | 418 | 344 | 74 | 21.51 | % | |||||||||||||||||||||
| Loan-related expenses | 255 | 278 | (23) | (8.27) | % | |||||||||||||||||||||
| Other operating expenses | 1,399 | 1,323 | 76 | 5.74 | % | |||||||||||||||||||||
| Total non-interest expense | $ | 11,118 | $ | 9,575 | $ | 1,543 | 16.11 | % | ||||||||||||||||||
Salaries and employee benefits. The increase in salaries and employee benefits was primarily a result of: (i) a $0.7 million increase in salaries, insurance, and benefits as a result of a 7.10% increase in headcount and recognition of employer taxes and 401(k) contributions recorded for bonuses and commissions paid during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022; (ii) a $0.7 million decrease in loan origination costs due to lower loan production; and (iii) a $0.3 million increase in estimated bonus expense based on increased headcount and salaries. These increases were partially offset by $0.7 million of lower commission expenses due to lower loan production during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.
Data processing and software. Data processing and software increased, primarily due to: (i) increased usage of our digital banking platform; (ii) higher transaction volumes related to the increased number of loan and deposit accounts; and (iii) increased number of licenses required for new users on our loan origination and documentation system.
FDIC insurance. The increase related primarily to a final rule adopted by the FDIC to increase initial base deposit insurance assessment rates for insured depository institutions by two basis points, beginning with the first quarterly assessment period of 2023. FDIC insurance also increased for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to a $539.7 million increase in the assessment base period-over-period.
Provision for Income Taxes
Three months ended March 31, 2023, as compared to three months ended December 31, 2022
Provision for income taxes for the quarter ended March 31, 2023 decreased by $0.2 million, or 2.68%, to $5.3 million, as compared to $5.5 million for the quarter ended December 31, 2022, which was primarily due to the decrease in pre-tax income recognized during the three months ended March 31, 2023.
Three months ended March 31, 2023, as compared to three months ended March 31, 2022
Provision for income taxes increased by $1.6 million, or 45.90%, to $5.3 million for the three months ended March 31, 2023, as compared to $3.7 million for the three months ended March 31, 2022. This increase was primarily due to an increase in pre-tax income for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022. Additionally, the provision for income taxes for the three months ended March 31, 2022 included a provision to tax return true-up of approximately $0.3 million relating to the 2021 tax return filed in 2022, which did not recur during the three months ended March 31, 2023.
Webcast Details
Five Star Bancorp will host a live webcast for analysts and investors on Tuesday, April 25, 2023 at 1:00 p.m. ET (10:00 a.m. PT) to discuss its first quarter financial results. To view the live webcast, visit the “News & Events” section of the Company’s website under “Events” at https://investors.fivestarbank.com/news-events/events. The webcast will be archived on the Company’s website for a period of 90 days.
11
About Five Star Bancorp
Five Star is a bank holding company headquartered in Rancho Cordova, California. Five Star operates through its wholly owned banking subsidiary, Five Star Bank. Five Star Bank has seven branches and one loan production office in Northern California.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of the Company’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on the Company’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company’s control. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties, which change over time, and other factors, which could cause actual results to differ materially from those currently anticipated. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company. If one or more of the factors affecting the Company’s forward-looking information and statements proves incorrect, then the Company’s actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this press release. Therefore, the Company cautions you not to place undue reliance on the Company’s forward-looking information and statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 under the section entitled “Risk Factors,” and other documents filed by the Company with the Securities and Exchange Commission from time to time.
The Company disclaims any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.
12
Condensed Financial Data (Unaudited)
| Three months ended | ||||||||||||||||||||
(dollars in thousands, except share and per share data) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||||||||||||
Revenue and Expense Data | ||||||||||||||||||||
Interest and fee income | $ | 40,311 | $ | 37,402 | $ | 22,871 | ||||||||||||||
Interest expense | 11,163 | 8,267 | 988 | |||||||||||||||||
Net interest income | 29,148 | 29,135 | 21,883 | |||||||||||||||||
Provision for credit losses | 900 | 1,250 | 950 | |||||||||||||||||
Net interest income after provision | 28,248 | 27,885 | 20,933 | |||||||||||||||||
Non-interest income: | ||||||||||||||||||||
Service charges on deposit accounts | 117 | 97 | 108 | |||||||||||||||||
Gain on sale of securities | — | — | 5 | |||||||||||||||||
Gain on sale of loans | 598 | 637 | 918 | |||||||||||||||||
Loan-related fees | 308 | 407 | 596 | |||||||||||||||||
FHLB stock dividends | 193 | 193 | 102 | |||||||||||||||||
Earnings on bank-owned life insurance | 102 | 119 | 90 | |||||||||||||||||
Other income | 53 | 148 | 345 | |||||||||||||||||
Total non-interest income | 1,371 | 1,601 | 2,164 | |||||||||||||||||
Non-interest expense: | ||||||||||||||||||||
Salaries and employee benefits | 6,618 | 5,698 | 5,675 | |||||||||||||||||
Occupancy and equipment | 523 | 511 | 520 | |||||||||||||||||
Data processing and software | 872 | 839 | 716 | |||||||||||||||||
FDIC insurance | 402 | 245 | 165 | |||||||||||||||||
Professional services | 631 | 553 | 554 | |||||||||||||||||
Advertising and promotional | 418 | 568 | 344 | |||||||||||||||||
Loan-related expenses | 255 | 358 | 278 | |||||||||||||||||
Other operating expenses | 1,399 | 1,945 | 1,323 | |||||||||||||||||
Total non-interest expense | 11,118 | 10,717 | 9,575 | |||||||||||||||||
Income before provision for income taxes | 18,501 | 18,769 | 13,522 | |||||||||||||||||
Provision for income taxes | 5,340 | 5,487 | 3,660 | |||||||||||||||||
Net income | $ | 13,161 | $ | 13,282 | $ | 9,862 | ||||||||||||||
| Comprehensive Income | ||||||||||||||||||||
| Net income | $ | 13,161 | $ | 13,282 | $ | 9,862 | ||||||||||||||
| Net unrealized holding loss (gain) on securities available-for-sale during the period | 2,140 | 3,714 | (9,438) | |||||||||||||||||
| Reclassification adjustment for net realized gains included in net income | — | — | (5) | |||||||||||||||||
| Income tax benefit (expense) related to other comprehensive (income) loss | 632 | 1,098 | (2,791) | |||||||||||||||||
| Other comprehensive income (loss) | 1,508 | 2,616 | (6,652) | |||||||||||||||||
| Total comprehensive income | $ | 14,669 | $ | 15,898 | $ | 3,210 | ||||||||||||||
13
| Three months ended | ||||||||||||||||||||
(dollars in thousands, except share and per share data) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||||||||||||
Share and Per Share Data | ||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||
Basic | $ | 0.77 | $ | 0.77 | $ | 0.58 | ||||||||||||||
Diluted | $ | 0.77 | $ | 0.77 | $ | 0.58 | ||||||||||||||
Book value per share | $ | 15.10 | $ | 14.66 | $ | 13.40 | ||||||||||||||
Tangible book value per share(1) | $ | 15.10 | $ | 14.66 | $ | 13.40 | ||||||||||||||
Weighted average basic common shares outstanding | 17,150,174 | 17,143,920 | 17,102,508 | |||||||||||||||||
Weighted average diluted common shares outstanding | 17,194,884 | 17,179,863 | 17,164,519 | |||||||||||||||||
Shares outstanding at end of period | 17,258,904 | 17,241,926 | 17,246,199 | |||||||||||||||||
Credit Quality | ||||||||||||||||||||
Allowance for credit losses to period end nonperforming loans | 8,167.68 | % | 7,027.38 | % | 1,799.99 | % | ||||||||||||||
Nonperforming loans to loans held for investment | 0.01 | % | 0.01 | % | 0.06 | % | ||||||||||||||
Nonperforming assets to total assets | 0.01 | % | 0.01 | % | 0.05 | % | ||||||||||||||
Nonperforming loans plus performing problem loan modifications to loans held for investment | 0.01 | % | 0.01 | % | 0.06 | % | ||||||||||||||
Selected Financial Ratios | ||||||||||||||||||||
ROAA | 1.65 | % | 1.70 | % | 1.53 | % | ||||||||||||||
ROAE | 20.94 | % | 21.50 | % | 17.07 | % | ||||||||||||||
Net interest margin | 3.75 | % | 3.83 | % | 3.60 | % | ||||||||||||||
Loan to deposit | 98.66 | % | 100.67 | % | 83.52 | % | ||||||||||||||
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
14
(dollars in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Cash and due from financial institutions | $ | 26,556 | $ | 32,561 | $ | 66,747 | ||||||||||||||
Interest-bearing deposits in banks | 321,383 | 227,430 | 438,217 | |||||||||||||||||
Time deposits in banks | 9,617 | 9,849 | 14,464 | |||||||||||||||||
Securities - available-for-sale, at fair value | 115,140 | 115,988 | 134,813 | |||||||||||||||||
Securities - held-to-maturity, at amortized cost | 3,514 | 3,756 | 4,486 | |||||||||||||||||
Loans held for sale | 11,315 | 9,416 | 10,386 | |||||||||||||||||
Loans held for investment | 2,869,848 | 2,791,326 | 2,080,158 | |||||||||||||||||
Allowance for credit losses - loans | (34,172) | (28,389) | (23,904) | |||||||||||||||||
Loans held for investment, net of allowance for credit losses | 2,835,676 | 2,762,937 | 2,056,254 | |||||||||||||||||
FHLB stock | 10,890 | 10,890 | 6,667 | |||||||||||||||||
| Operating leases, right-of-use asset | 5,175 | 3,981 | 4,718 | |||||||||||||||||
Premises and equipment, net | 1,677 | 1,605 | 1,836 | |||||||||||||||||
Bank-owned life insurance | 16,771 | 14,669 | 14,343 | |||||||||||||||||
Interest receivable and other assets | 39,594 | 34,077 | 25,318 | |||||||||||||||||
Total assets | $ | 3,397,308 | $ | 3,227,159 | $ | 2,778,249 | ||||||||||||||
Non-interest-bearing deposits | $ | 836,673 | $ | 971,246 | $ | 941,285 | ||||||||||||||
Interest-bearing deposits | 2,083,733 | 1,810,758 | 1,561,807 | |||||||||||||||||
Total deposits | 2,920,406 | 2,782,004 | 2,503,092 | |||||||||||||||||
Subordinated notes, net | 73,640 | 73,606 | 28,403 | |||||||||||||||||
| FHLB advances | 120,000 | 100,000 | — | |||||||||||||||||
Operating lease liability | 5,433 | 4,243 | 4,987 | |||||||||||||||||
Interest payable and other liabilities | 17,173 | 14,481 | 10,706 | |||||||||||||||||
Total liabilities | 3,136,652 | 2,974,334 | 2,547,188 | |||||||||||||||||
Common stock | 219,785 | 219,543 | 218,721 | |||||||||||||||||
Retained earnings | 52,817 | 46,736 | 19,558 | |||||||||||||||||
Accumulated other comprehensive loss, net | (11,946) | (13,454) | (7,218) | |||||||||||||||||
Total shareholders’ equity | 260,656 | 252,825 | 231,061 | |||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 3,397,308 | $ | 3,227,159 | $ | 2,778,249 | ||||||||||||||
Quarterly Average Balance Data | ||||||||||||||||||||
Average loans held for investment and sale | $ | 2,836,070 | $ | 2,703,865 | $ | 1,977,509 | ||||||||||||||
Average interest-earning assets | 3,156,100 | 3,021,624 | 2,465,982 | |||||||||||||||||
Average total assets | 3,225,353 | 3,095,288 | 2,616,098 | |||||||||||||||||
Average deposits | 2,824,391 | 2,718,409 | 2,338,583 | |||||||||||||||||
Average total equity | 254,927 | 245,019 | 234,322 | |||||||||||||||||
Capital Ratios | ||||||||||||||||||||
Total shareholders’ equity to total assets | 7.67 | % | 7.83 | % | 8.32 | % | ||||||||||||||
Tangible shareholders’ equity to tangible assets(1) | 7.67 | % | 7.83 | % | 8.32 | % | ||||||||||||||
Total capital (to risk-weighted assets) | 12.61 | % | 12.46 | % | 13.07 | % | ||||||||||||||
Tier 1 capital (to risk-weighted assets) | 9.02 | % | 8.99 | % | 10.70 | % | ||||||||||||||
Common equity Tier 1 capital (to risk-weighted assets) | 9.02 | % | 8.99 | % | 10.70 | % | ||||||||||||||
Tier 1 leverage ratio | 8.54 | % | 8.60 | % | 9.02 | % | ||||||||||||||
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
15
Non-GAAP Reconciliation (Unaudited)
The Company uses financial information in its analysis of the Company’s performance that is not in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company’s financial condition, results of operations, and cash flows computed in accordance with GAAP. However, the Company acknowledges that its non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with GAAP. Additionally, these non-GAAP measures are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those the Company uses for the non-GAAP financial measures the Company discloses, but may calculate them differently. Investors should understand how the Company and other companies each calculate their non-GAAP financial measures when making comparisons.
Tangible shareholders’ equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders’ equity to total assets. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible shareholders’ equity to tangible assets is the same as total shareholders’ equity to total assets at the end of each of the periods indicated.
Tangible book value per share is defined as total shareholders’ equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated.
Pre-tax, pre-provision income is defined as pre-tax income plus provision for credit losses. The most directly comparable GAAP financial measure is pre-tax income.
The following reconciliation table provides a more detailed analysis of this non-GAAP financial measure:
| Pre-tax, pre-provision income (dollars in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||||||||||||
| Pre-tax income | $ | 18,501 | $ | 18,769 | $ | 13,522 | ||||||||||||||
| Add: provision for credit losses | 900 | 1,250 | 950 | |||||||||||||||||
| Pre-tax, pre-provision income | $ | 19,401 | $ | 20,019 | $ | 14,472 | ||||||||||||||
Media Contact:
Heather C. Luck, Chief Financial Officer
Five Star Bancorp
(916) 626-5008
hluck@fivestarbank.com
Heather C. Luck, Chief Financial Officer
Five Star Bancorp
(916) 626-5008
hluck@fivestarbank.com
Shelley R. Wetton, Chief Marketing Officer
Five Star Bancorp
(916) 284-7827
swetton@fivestarbank.com
Five Star Bancorp
(916) 284-7827
swetton@fivestarbank.com
16
Investor Presentation First Quarter 2023
Safe Harbor Statement and Disclaimer Forward-Looking Statements In this presentation, “we,” “our,” “us,” “Five Star" or “the Company” refers to Five Star Bancorp, a California corporation, and our consolidated subsidiaries, including Five Star Bank, a California state- chartered bank, unless the context indicates that we refer only to the parent company, Five Star Bancorp. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of the Company’s beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan” or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on the Company’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company’s control. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties, which change over time, and other factors which could cause actual results to differ materially from those currently anticipated. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company. If one or more of the factors affecting the Company’s forward-looking information and statements proves incorrect, then the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this press release. Therefore, the Company cautions you not to place undue reliance on the Company’s forward-looking information and statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 under the section entitled “Risk Factors,” and other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company disclaims any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law. Industry Information This presentation includes statistical and other industry and market data that we obtained from government reports and other third-party sources. Our internal data, estimates, and forecasts are based on information obtained from government reports, trade, and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that this information (including the industry publications and third-party research, surveys, and studies) is accurate and reliable, we have not independently verified such information. In addition, estimates, forecasts, and assumptions are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. Finally, forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements in this presentation. Unaudited Financial Data Numbers contained in this presentation for the quarter ended March 31, 2023 and for other quarterly periods are unaudited. Additionally, all figures presented as year-to-date, except for periods that represent a full fiscal year ended December 31, represent unaudited results. As a result, subsequent information may cause a change in certain accounting estimates and other financial information, including the Company’s allowance for credit losses, fair values, and income taxes. Non-GAAP Financial Measures The Company uses financial information in its analysis of the Company’s performance that is not in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company’s financial condition, results of operations, and cash flows computed in accordance with GAAP. However, the Company acknowledges that its non-GAAP financial measures have a number of limitations. See the appendix to this presentation for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. First Quarter 2023 Investor Presentation | 2
Agenda First Quarter 2023 Investor Presentation | 3 •Company Overview •Financial Highlights •Loans and Credit Quality •Deposit and Capital Overview •Financial Results
Company Overview First Quarter 2023 Investor Presentation | 4
Company Overview Nasdaq: Headquarters: Asset Size: Loans Held for Investment: Deposits: Bank Branches: First Quarter 2023 Investor Presentation | 5 FSBC Rancho Cordova, California $3.4 billion $2.9 billion $2.9 billion 7 Note: Balances are as of March 31, 2023. Five Star is a community business bank that was founded to serve the commercial real estate industry. Today, the markets we serve have expanded to meet customer demand and now include manufactured housing and storage, faith-based, government, nonprofits, and more.
Executive Team First Quarter 2023 Investor Presentation | 6 James Beckwith President and Chief Executive Officer Five Star since 2003 John Dalton Senior Vice President and Chief Credit Officer Five Star since 2011 Mike Lee Senior Vice President and Chief Regulatory Officer Five Star since 2005 Michael Rizzo Senior Vice President and Chief Banking Officer Five Star since 2005 Brett Wait Senior Vice President and Chief Information Officer Five Star since 2011 Lydia Ramirez Senior Vice President and Chief Operations and Chief DE&I Officer Five Star since 2017 Heather Luck Senior Vice President and Chief Financial Officer Five Star since 2018 Shelley Wetton Senior Vice President and Chief Marketing Officer Five Star since 2015
Financial Highlights First Quarter 2023 Investor Presentation | 7
$565 $604 $811 $840 $973 $1,272 $1,480 $1,954 $2,557 $3,227 $3,397 $1,806 $2,535 $148 $22 Total Assets Excluding PPP Loans PPP Loans 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1 2023 Consistent and Organic Asset Growth First Quarter 2023 Investor Presentation | 8 Note: Dollars are in millions. Balances are end of period. References to PPP are the Paycheck Protection Program. 1. CAGR is based upon balances as of March 31, 2023. 2. A reconciliation of this non-GAAP measure is set forth in the appendix. (2) CAGR (1) 5 years 10 years Total Assets 26.00 % 21.41 %
Financial Highlights First Quarter 2023 Investor Presentation | 9 (dollars in thousands) For the three months ended 3/31/2023 12/31/2022 3/31/2022 Profitability Net income $ 13,161 $ 13,282 $ 9,862 Return on average assets ("ROAA") 1.65 % 1.70 % 1.53 % Return on average equity ("ROAE") 20.94 % 21.50 % 17.07 % Earnings per share (basic and diluted) $ 0.77 $ 0.77 $ 0.58 Net Interest Margin Net interest margin 3.75 % 3.83 % 3.60 % Average loan yield 5.36 % 5.12 % 4.53 % Average cost of interest-bearing deposits 1.98 % 1.51 % 0.16 % Average cost of total deposits 1.35 % 0.95 % 0.09 % Total cost of funds 1.53 % 1.16 % 0.17 % 3/31/2023 12/31/2022 Deposits and Securities Non-interest-bearing deposits $ 836,673 $ 971,246 Interest-bearing deposits 2,083,733 1,810,758 Total deposits 2,920,406 2,782,004 Total securities to interest-earning assets 3.56 % 3.79 % Asset Quality Nonperforming loans to loans held for investment 0.01 % 0.01 % Allowance for credit losses to loans held for investment 1.19 % 1.02 % Note: Yields are based on average balance and annualized quarterly interest income. Costs are based on average balances and annualized quarterly interest expense.
Financial Highlights - March 31, 2023 First Quarter 2023 Investor Presentation | 10 Growth • Continued balance sheet growth with $78.5 million of growth in loans held for investment and $138.4 million in deposit growth since December 31, 2022. Funding • Non-interest-bearing deposits comprised 28.65% of total deposits, as compared to 34.91% of total deposits as of December 31, 2022. • Deposits comprised 93.11% of total liabilities, as compared to 93.53% of total liabilities as of December 31, 2022. Liquidity • Insured and collateralized deposits represented approximately $1.9 billion, or 64.53% of total deposits. • Cash and cash equivalents were $347.9 million, representing 11.91% of total deposits, compared to 9.35% as of December 31, 2022. Capital • All capital ratios were above well-capitalized regulatory thresholds. • On January 20, 2023 and April 21, 2023, the Company announced cash dividends of $0.15 and $0.20 per share for the three months ended December 31, 2022 and March 31, 2023, respectively.
Loans and Credit Quality First Quarter 2023 Investor Presentation | 11
To ta l L oa ns (M ill io ns ) $148 $22 $2 5.28% 5.45% 4.96% 4.82% 4.53% 4.48% 4.75% 5.12% 5.36% Non-PPP Loans PPP Loans Average Loan Yield Average Loan Yield Excluding PPP Loans Consistent Loan Growth First Quarter 2023 Investor Presentation | 12 Note: Loan balances are end of period loans held for investment. Yields are based on average balance and annualized quarterly interest income. 1. CAGR is based upon balances as of March 31, 2023. 2. A reconciliation of this non-GAAP measure is set forth in the appendix. (2) CAGR (1) 5 years Total Loans 29.38 %
Loan Portfolio Composition First Quarter 2023 Investor Presentation | 13 Commercial real estate 85.2% Commercial land and development 0.5% Commercial construction 3.4% Residential construction 0.3% Residential 0.8% Farmland 1.8% Secured 6.0% Unsecured 0.9% PPP 0.0% Consumer and other 1.1% Types of collateral securing commercial real estate ("CRE") loans Loan Balance ($000s) # of Loans % of CRE Manufactured home community $ 709,015 330 29.03 % RV Park 304,840 93 12.48 % Retail 266,740 83 10.92 % Multifamily 201,562 89 8.25 % Industrial 171,456 124 7.02 % Mini storage 157,339 41 6.44 % Faith-based 151,632 89 6.21 % Office 141,501 90 5.79 % All other types (1) 338,435 155 13.86 % Total $ 2,442,520 1,094 100.00 % Note: Balances are net book value as of period end, before allowance for credit losses, before deferred loan fees, and exclude loans held for sale. 1. Types of collateral in “all other types” are those that individually make up less than 5% CRE concentration.
$709M $305M $267M $202M $171M $157M $152M $142M $338M $1,230M $525M $495M $402M $410M $306M $405M $305M $700M Loan Balance Collateral Value Manufactured home community RV Park Retail Multifamily Industrial Mini storage Faith-based Office All other types $0M $200M $400M $600M $800M $1,000M $1,200M $1,400M CRE Collateral Values First Quarter 2023 Investor Presentation | 14 (1) Note: Balances are net book value as of period end, before allowance for credit losses, before deferred loan fees, and exclude loans held for sale. 1. Types of collateral in “all other types” are those that individually make up less than 5% CRE concentration.
Loan Portfolio Diversification We focus primarily on commercial lending, with an emphasis on commercial real estate. We offer a variety of loans to small and medium-sized businesses, professionals, and individuals, including commercial real estate, commercial land and construction, and farmland loans. To a lesser extent, we also offer residential real estate, construction real estate, and consumer loans. First Quarter 2023 Investor Presentation | 15Note: Balances are net book value as of period end, before allowance for credit losses, before deferred loan fees, and exclude loans held for sale. Loans by Type Loans by Purpose Real Estate Loans by Geography CML Term CRE NOO, 38.0% CML Term Multifamily, 31.5% CML Term CRE OO, 15.2% CML Secured, 3.6% CML Const CRE, 3.4% SBA 7A Secured, 1.7% CML Term Ag RE, 1.8% Others, 4.8% CA, 58.8% TX, 6.1% AZ, 4.2% NV, 3.9% NC, 2.6% OR, 2.6% FL, 2.5% CO, 1.6% GA, 1.3% WI, 1.3% MI, 1.2% WA, 1.1% ID, 1.1% Other, 11.7% CRE Manufactured Home, 24.7% CRE Other, 14.4% CRE RV Park, 10.6% CRE Retail, 9.3% CRE Multifamily, 7.1% CRE Industrial, 6.0% CRE Mini Storage, 5.5% CRE Faith Based, 5.3% CRE Office, 4.9% Commercial Other, 3.9% Commercial Construction, 3.8% Commercial SBA 7A, 1.7% Commercial Term Loan, 1.6% Others, 1.2%
Loan Rollforward First Quarter 2023 Investor Presentation | 16Note: Dollars are in millions. Beginning and ending balances are as of period end, before allowance for credit losses, including deferred loan fees, and excluding loans held for sale. Q4 2022 Q1 2023 Beginning Balance $ 2,583 $ 2,791 Originations 295 135 Payoffs and Paydowns (87) (56) Ending Balance $ 2,791 $ 2,870
Asset Quality Our primary objective is to maintain a high level of asset quality in our loan portfolio. In order to maintain our strong asset quality, we: – Place emphasis on our commercial portfolio, where we reevaluate risk assessments as a result of reviewing commercial property operating statements and borrower financials – Monitor payment performance, delinquencies, and tax and property insurance compliance – Design our practices to facilitate the early detection and remediation of problems within our loan portfolio – Employ the use of an outside, independent consulting firm to evaluate our underwriting and risk assessment process First Quarter 2023 Investor Presentation | 17 Nonperforming Loan Trend Allowance for Credit Losses and Net Charge-off Trend Note: References to loans HFI are loans held for investment, which are the equivalent of total loans outstanding at each period end. References to average loans HFI are average loans held for investment during the period. $2.1M $0.8M $0.5M $0.6M $0.4M $0.4M 0.22% 0.07% 0.03% 0.03% 0.01% 0.01% Nonperforming Loans Nonperforming Loans to Loans HFI 2018 2019 2020 2021 2022 Q1 2023 1.21% 1.26% 1.48% 1.20% 1.02% 1.19% 0.23% 0.21% 0.12% 0.04% 0.07% 0.01% Allowance for Credit Losses to Loans HFI Net Charge-offs to Average Loans HFI 2018 2019 2020 2021 2022 Q1 2023
Allocation of Allowance for Credit Losses First Quarter 2023 Investor Presentation | 18 (dollars in thousands) December 31, 2022 March 31, 2023 Allowance for Credit Losses Amount % of Total Amount % of Total Real estate: Commercial $ 19,216 67.69 % $ 26,846 78.56 % Commercial land & development 54 0.19 % 224 0.66 % Commercial construction 645 2.27 % 1,423 4.16 % Residential construction 49 0.17 % 173 0.51 % Residential 175 0.62 % 179 0.52 % Farmland 644 2.27 % 217 0.64 % Total real estate loans 20,783 73.21 % 29,062 85.05 % Commercial: Secured 7,098 25.00 % 4,215 12.33 % Unsecured 116 0.41 % 150 0.44 % Total commercial loans 7,214 25.41 % 4,365 12.77 % Consumer and other 347 1.22 % 400 1.17 % Unallocated 45 0.16 % 345 1.01 % Total allowance for credit losses $ 28,389 100.00 % $ 34,172 100.00 %
Risk Grade Migration First Quarter 2023 Investor Presentation | 19 Classified Loans (Loans Rated Substandard or Doubtful) (dollars in thousands) 2021 2022 Q1 2023 Real estate: Commercial $ 9,256 $ 106 $ 102 Commercial land & development — — — Commercial construction — — — Residential construction — — — Residential 178 175 175 Farmland — — — Commercial: Secured 1,180 123 118 Unsecured — — — Consumer and other — 26 23 Total $ 10,614 $ 430 $ 418 % o f L oa n Po rt fo lio O ut st an di ng , b y Ri sk G ra de 99.00% 99.20% 99.15% 0.45% 0.78% 0.84% 0.55% 0.02% 0.01% Pass Watch Substandard Doubtful 2021 2022 Q1 2023 Note: Loan portfolio outstanding is the total balance of loans outstanding at period end, before deferred loan fees, before allowance for credit losses, and excluding loans held for sale.
Deposit and Capital Overview First Quarter 2023 Investor Presentation | 20
Government 24.91% Other 14.78% Practices & Professional Services 13.58% Commercial Real Estate & Construction 11.59% Small to Medium Sized Business 9.30% Manufactured Home Communities 7.57% Non-Profit 7.09% Healthcare 6.35%Faith Based 2.29% Venture 1.36% Agribusiness 0.70% SBA & Wholesale Partners 0.48% Deposit Composition 9.8 Years Average Age of Relationships > $5 million Note: Balances are end of period and include time and wholesale deposits. 1. Types of accounts in “Other” are individuals, trusts, estates, and market verticals that individually make up less than 0.4% of all deposits. 2. Local Agency Depositors includes State of California. $280,000 Average Deposit Account Balance Relationships > $5 million 64.32% Relationships ≤ $5 million 35.68% Total Deposits by Relationship Size Local Agency BreakoutTotal Deposits by Market Vertical Local Agency Depositors 24.72% All Other Depositors 75.28% First Quarter 2023 Investor Presentation | 21 (1) (2)
Diversified Funding First Quarter 2023 Investor Presentation | 22 Total Deposits(1) = $2.9 billion 93.1% of Total Liabilities Liability Mix 1. Balance as of March 31, 2023. 2. Loan balance in loan to deposit ratio is total loans held for investment and sale at period end. Loan(2) to Deposit Ratio Non-Interest-Bearing Deposits to Total Deposits 83.2% 90.5% 84.5% 85.1% 100.7% 98.7% 2018 2019 2020 2021 2022 Q1 2023 29.0% 29.6% 39.3% 39.5% 34.9% 28.6% 2018 2019 2020 2021 2022 Q1 2023 Money Market & Savings, 45.8% Non-Interest-Bearing Demand, 26.7% Interest-Bearing Demand, 8.7% Time Deposits, 11.9% Borrowings & Subordinated Debt, 6.2%Other Liabilities, 0.7%
$1.2B $1.3B $1.8B $2.3B $2.8B $2.9B $600M $708M $889M $1,001M $1,228M $1,437M$337M $389M $701M $902M $971M $837M $124M $119M $146M $279M $240M $274M $100M $97M $48M $104M $343M $373M Money Market & Savings Non-Interest-Bearing Demand Interest-Bearing Demand Time Deposits 2018 2019 2020 2021 2022 Q1 2023 Strong Deposit Growth First Quarter 2023 Investor Presentation | 23 Note: Balances are end of period. Cost of total deposits is based on total average balance of interest-bearing and non- interest-bearing deposits and annualized quarterly deposit interest expense. 1. CAGR is based upon balances as of March 31, 2023. Cost of Total Deposits 0.55% 0.81% 0.44% 0.11% 0.43% 1.35% CAGR (1) 5 years Total Deposits 24.23 %
Capital Ratios First Quarter 2023 Investor Presentation | 24 Tier 1 Leverage Ratio Tier 1 Capital to RWA Total Capital to RWA Common Equity Tier 1 to RWA Note: References to RWA are risk-weighted assets. 6.81% 7.51% 6.58% 9.47% 8.60% 8.54% 2018 2019 2020 2021 2022 Q1 2023 7.48% 8.21% 8.98% 11.44% 8.99% 9.02% 2018 2019 2020 2021 2022 Q1 2023 7.48% 8.21% 8.98% 11.44% 8.99% 9.02% 2018 2019 2020 2021 2022 Q1 2023 10.79% 11.52% 12.18% 13.98% 12.46% 12.61% 2018 2019 2020 2021 2022 Q1 2023
Financial Results First Quarter 2023 Investor Presentation | 25
Earnings Track Record First Quarter 2023 Investor Presentation | 26 $14.5M $16.3M $18.8M $20.0M $19.4M $13.5M $14.0M $16.5M $18.8M $18.5M Pre-tax, pre-provision income Pre-tax income Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 $0.0M $2.5M $5.0M $7.5M $10.0M $12.5M $15.0M $17.5M $20.0M $22.5M 1. A reconciliation of this non-GAAP measure is set forth in the appendix. (1)
Operating Metrics First Quarter 2023 Investor Presentation | 27 Efficiency RatioNet Interest Margin 3.93% 3.98% 3.68% 3.64% 3.75% 3.75% 2018 2019 2020 2021 2022 2023 YTD 42.27% 38.63% 37.92% 42.46% 36.90% 36.43% 2018 2019 2020 2021 2022 2023 YTD Note: All 2023 figures are through March 31, 2023. Total Income Before Taxes $23.4M $30.4M $37.3M $47.1M $62.9M $18.5M 2018 2019 2020 2021 2022 2023 YTD
Non-interest Income and Expense Comparison First Quarter 2023 Investor Presentation | 28 (dollars in thousands) For the three months ended 3/31/2023 12/31/2022 3/31/2022 Non-interest Income Service charges on deposit accounts $ 117 $ 97 $ 108 Net gain on sale of securities — — 5 Gain on sale of loans 598 637 918 Loan-related fees 308 407 596 FHLB stock dividends 193 193 102 Earnings on bank-owned life insurance 102 119 90 Other income 53 148 345 Total non-interest income $ 1,371 $ 1,601 $ 2,164 Non-interest Expense Salaries and employee benefits $ 6,618 $ 5,698 $ 5,675 Occupancy and equipment 523 511 520 Data processing and software 872 839 716 Federal Deposit Insurance Corporation insurance 402 245 165 Professional services 631 553 554 Advertising and promotional 418 568 344 Loan-related expenses 255 358 278 Other operating expenses 1,399 1,945 1,323 Total non-interest expense $ 11,118 $ 10,717 $ 9,575
Shareholder Returns First Quarter 2023 Investor Presentation | 29 ROAA ROAE EPS (basic and diluted) Value per Share (book and tangible book(1)) Note: All 2023 figures are through March 31, 2023. 1. A reconciliation of this non-GAAP measure is set forth in the appendix. 1.99% 2.15% 1.95% 1.86% 1.57% 1.65% 2018 2019 2020 2021 2022 2023 YTD 29.28% 31.40% 31.16% 22.49% 18.80% 20.94% 2018 2019 2020 2021 2022 2023 YTD $3.08 $3.40 $3.57 $2.83 $2.61 $0.77 2018 2019 2020 2021 2022 2023 YTD $10.88 $11.25 $12.16 $13.65 $14.66 $15.10 2018 2019 2020 2021 2022 2023
Five Star Bank proudly supports women in business and those serving our region’s most vulnerable. Our customers advocate for communities, drive collaboration, and foster responsive, community- based programs that promote healthy relationships while supporting survivors of sexual assault, domestic violence, and human trafficking. Our clients are change-agents who inspire, motivate, and uplift those who need us most. Ashlie Bryant, Co-Founder and CEO, 3Strands Global Foundation Beth Hassett, CEO and Executive Director, WEAVE Staci Anderson, President and CEO, PRO Youth and Families Five Star Bank customer Capital College & Career Academy (CCCA) provides real-world learning opportunities, ensuring students graduate with the skills and certifications needed to become change-makers in their communities. Together, we can make a difference in the lives of the next generation of leaders in the Sacramento region. Anamanu Fotofili, Student, CCCA Kevin Dobson, Founder and Executive Director, CCCA Dylan Newman, Student, CCCA Five Star Bank is proud to partner with Sacramento Municipal Utility District (SMUD), a leader in clean energy and zero carbon innovation. Together, Five Star Bank and SMUD support customers across the Sacramento region in choosing clean energy solutions that reduce their carbon footprint at home, at work, and on the road. We will continue to do our part to lead the way in protecting our environment, improving public health, and powering the Capital Region forward with innovative clean energy solutions. Brandy Bolden, Chief Customer Officer, SMUD Paul Lau, CEO and General Manager, SMUD Lora Anguay, Chief Zero Carbon Officer, SMUD We strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy. We are dedicated to serving real estate, agricultural, faith-based, and small to medium-sized enterprises. We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community.
Appendix: Non-GAAP Reconciliation (Unaudited) The Company uses financial information in its analysis of the Company's performance that is not in conformity with GAAP. The Company believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company's financial condition, results of operations, and cash flows computed in accordance with GAAP. However, the Company acknowledges that its non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with GAAP. Additionally, these non-GAAP measures are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those the Company uses for the non-GAAP financial measures the Company discloses but may calculate them differently. Investors should understand how the Company and other companies each calculate their non- GAAP financial measures when making comparisons. Average loan yield, excluding PPP loans, is defined as the daily average loan yield, excluding PPP loans, and includes both performing and nonperforming loans. The most directly comparable GAAP financial measure is average loan yield. Total assets, excluding PPP loans, is defined as total assets less PPP loans. The most directly comparable GAAP financial measure is total assets. Pre-tax, pre-provision income is defined as net income plus provision for income taxes and provision for credit losses. The most directly comparable GAAP financial measure is pre-tax net income. Tangible book value per share is defined as total shareholders’ equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated. First Quarter 2023 Investor Presentation | 31 (dollars in thousands) For the year ended For the three months ended Average loan yield, excluding PPP loans 12/31/2020 12/31/2021 3/31/2022 6/30/2022 09/30/2022 12/31/2022 3/31/2023 Interest and fee income on loans $ 71,405 $ 78,894 $ 22,112 $ 24,879 $ 29,886 $ 34,918 $ 37,494 Less: interest and fee income on PPP loans 6,535 7,417 610 25 — — — Interest and fee income on loans, excluding PPP loans 64,870 71,477 21,502 24,854 29,886 34,918 37,494 Annualized interest and fee income on loans, excluding PPP loans (numerator) 64,870 71,477 87,200 99,689 118,569 138,533 152,059 Average loans held for investment and sale 1,439,380 1,637,280 1,977,509 2,227,215 2,494,468 2,703,865 2,836,070 Less: average PPP loans 165,414 116,652 8,886 427 — — — Average loans held for investment and sale, excluding PPP loans (denominator) 1,273,966 1,520,628 1,968,623 2,226,788 2,494,468 2,703,865 2,836,070 Average loan yield, excluding PPP loans 5.09 % 4.70 % 4.43 % 4.48 % 4.75 % 5.12 % 5.36 %
Appendix: Non-GAAP Reconciliation (Unaudited) First Quarter 2023 Investor Presentation | 32 (dollars in millions) Total assets, excluding PPP loans 12/31/2020 12/31/2021 12/31/2022 3/31/2023 Total assets $ 1,954 $ 2,557 $ 3,227 $ 3,397 Less: PPP loans 148 22 — — Total assets, excluding PPP loans $ 1,806 $ 2,535 $ 3,227 $ 3,397 (dollars in millions) Three months ended Pre-tax, pre-provision income 3/31/2022 6/30/2022 9/30/2022 12/31/2022 3/31/2023 Net income $ 9,862 $ 9,953 $ 11,704 $ 13,282 $ 13,161 Add: provision for income taxes 3,660 4,080 4,830 5,487 5,340 Add: provision for credit losses 950 2,250 2,250 1,250 900 Pre-tax, pre-provision income $ 14,472 $ 16,283 $ 18,784 $ 20,019 $ 19,401