Five Star Bancorp

Welcome to the Five Star Bancorp First Quarter Earnings Webcast. Please note, this is a closed conference call and you are encouraged to listen via the webcast. After today's presentation, there will be an opportunity for those provided with a dial-in number to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Before we get started, let me remind you that today's meeting will include some forward-looking statements within the meaning of applicable securities laws. These forward-looking statements relate to, among other things, current plans, expectations, events, including the continuing impact of the COVID-19 pandemic, and industry trends that may affect the company's future operating results and financial position. Such statements involve risk and uncertainties, and future activities and results may differ materially from these expectations. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from the company's forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31st, 2021, and in particular, the information set forth in Item 1A, Risk Factors Therein. Please refer to slide two of the presentation, which includes disclaimers regarding forward-looking statements, industry data, and non-GAAP financial information included in this presentation, as well as reconciliations to non-GAAP financial measures to their most directly comparable GAAP figures, which is included in the appendix to the presentation. Please note, this event is being recorded. I would now like to turn the presentation over to James Beckwith Five Star Bancorp President and CEO.

Thank you for joining us to review Five Star Bancorp's financial results for the first quarter of 2022. Joining me today is Heather Luck, Senior Vice President and Chief Financial Officer. Our comments today will refer to the financial information that was included in the earnings announcements released yesterday. To obtain a copy of the release, please visit our website at 5starbank.com and click on the investor relations tab. In the company overview section, we have provided a brief overview of our geographic footprint and executive management team. In the first quarter of 2022, It exhibited a continued execution of our organic growth strategy as evidenced by our earnings, expense management, and balance sheet trends during the quarter. Additionally, loans and deposits and total assets have consistently grown since the previous quarter. Our pipeline continues to remain substantial at the end of the first quarter of 2022 within the verticals we have historically operated in. as presented in the loan portfolio diversification slide. Non-PPP loans held for investment, a non-GAAP measurement that is reconciled in our press release, increased during the quarter by 166.3 million, or 8.7% from the prior quarter, primarily within the commercial real estate concentration of the loan portfolio. Approximately 20.6 million of PPP loans were forgiven and 0.6 million of PPP income was recognized during the first quarter, leaving 1.5 million of PPP loans outstanding and 42,000 of deferred fees to be recognized at quarter end. We anticipate the full balance of the PPP loans to be forgiven in the near term. Loan originations excluding PPP loans during the quarter were approximately 312 million, and payoffs excluding PPP loans were 146 million. Additionally, 20.6 million of PPP loans were forgiven, ultimately resulting in a net increase of loans of 145.7 million from the prior quarter. Asset quality continues to remain strong. with non-performing loans representing only 0.06% of the portfolio, increasing from the last several quarters. At quarter end, there were six loans totaling $12.2 million in aggregate on the COVID-19 deferment. We anticipate all borrowers to return to their pre-COVID-19 contractual payment status after their COVID-19 deferments end. At the end of the first quarter, the allowance for loan losses totaled 23.9 million. We recorded a 1 million provision for loan losses during the quarter. The ratio of the allowance for total loans, excuse me, total loan losses to total loans excluding PPP loans, a non-GAAP measure that is reconciled in our press release, was 1.15% at quarter end. Loans designated as watch and substandard totaled approximately $17 million at the end of the quarter, representing an increase in watch loans of $5.4 million and a decrease in substandard loans of $7.6 million from the previous quarter. This reduced our reserves related to classified and watch loans by approximately $100,000, which is offset by additional provisions for loan growth during the quarter. Now that we have discussed the loan portfolio I will hand it over to Heather to discuss deposits, capital, and the results of operations. Heather?

Thank you, James, and hello, everyone. During the first quarter, deposits increased by 217.2 million, or 9.5%, as compared to the previous quarter. Approximately 39.2 million of the change related to non-interest-bearing deposits. Noninterest-bearing deposits as a percent of total loans for the first quarter decreased to 37.6% from 39.5% in the previous quarter. We have had strong deposit growth over the last several quarters, including the current quarter. Cost of total deposits was nine basis points during the first quarter of 2022. We continue to be well capitalized with all capital ratios well above regulatory thresholds for the quarter. Net income for the quarter was $9.9 million. Return on average assets was 1.53% and return on average equity was 17.07%. Average loan yield for the quarter was 4.53% and average loan yield excluding PPP loans a non-GAAP measure that is reconciled in our presentation, was 4.43%, representing a decrease of 13 basis points over the prior quarter. This decrease was primarily due to changes in the macroeconomic environment, which caused the majority of the company's fixed-rate loans funded in the current quarter to recognize lower yields than those recognized in prior quarters. As a result of these factors, our net interest margin was 3.6% for the quarter, which included $600,000 of PPP income recognized based on forgiven loans, while net interest margin for the prior quarter was 3.67%, which included $1.1 million of PPP income recognized based on forgiven loans. The change in the yield curve as a result of interest rate hikes that occurred during the quarter had a negative impact on the company's accumulated other comprehensive income in the amount of $7.2 million, primarily in our mortgage-backed and municipal securities portfolios of $4.4 million and $2.6 million, respectively. This caused a decline in tangible book value per share, which is a non-GAAP financial measure discussed in our press release, which was partially offset by increases to equity as a result of net income earned in the quarter for a net decline tangible book value per share of 25 cents. Non-interest income increased to $2.2 million in the first quarter from $1.8 million in the previous quarter due primarily to increases in loan-related fees from the recognition of $300,000 in swap referral fees during the quarter and a $300,000 gain recorded on a distribution received on an investment in a venture-backed fund. These increases were partially offset by a decrease in gain on sales loans of $200,000, largely due to a decline in effective yields as a result of declining premiums paid in the secondary market and uncertainty surrounding the timing of rising interest rates. Non-interest expense increased to $9.6 million in the first quarter from $9 million in the previous quarter, driven primarily by increased salaries and employee benefits as a result of increases in headcount and increases in employer taxes for commissions and executive bonus payments made during the quarter. Now that we have discussed the overall results of operations, I will now hand it back to James to provide some closing remarks.