Five Star Bancorp

Welcome to the Five Star Bancorp Third 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 1 on your telephone keypad. To withdraw your question, please press star then 2. Before we get started, let me remind you that today's meeting will include some forward-looking statements within the meanings of applicable securities laws. These forward-looking statements relate to, among other things, current plans, expectations, events, and industry trends that may affect the company's future operating results and financial position. Such statements involve risks 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, 2022, and quarterly report on Form 10-Q for the quarter ended June 30th, 2023. And in particular, the information set forth in item 1A risk factors in those reports. 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. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures are 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. Please go ahead.

Thank you for joining us to review Five Star Bancorp's financial results for the third quarter of 2023. 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 announcement released yesterday. To obtain a copy of the release, please visit our website at 5starbank.com and click on the Investor Relations tab. During the three months ended September 30, 2023, our return on average assets and return on average equity were 1.30 and 16.09, respectively, positioning us to remain near the top of our peer group In the third quarter, we enhanced our expansion into the Bay Area market with an addition of another seasoned team of professionals. Our organic growth story also continued in the third quarter with the addition of new deposit accounts and relationships as seen in the growth of non-broker deposits of $137.5 million in the three months ended September 30, 2023. Despite expected hit ones on the horizon, our ability to conservatively underwrite, as evidenced by a 51% LTV on commercial real estate, manage expenses with our 42% efficiency ratio, and deliver value to shareholders with our $0.20 per share dividend, we believe we are well positioned to continue to endure and succeed as conditions change. In the company overview section, we have provided a brief overview of our geographic footprint and executive management team. In the third quarter of 2023 exhibited continued execution of our growth strategy as evidenced by our earnings, expense management, and balance sheet trends during the quarter. Additionally, loans, deposits, and total assets have consistently grown since the prior periods. Our pipeline continues to remain solid at the end of the third quarter of 2023 within verticals we have historically operated in, as presented in the loan portfolio diversification slide. Loans held for investment increased during the quarter by 82.5 million, or 2.82% from the prior quarter. primarily within the commercial real estate concentration of the portfolio. Loan originations during the quarter were approximately $134.6 million, while payoffs and paydowns were $52.1 million. Asset quality continues to remain strong, though non-performing assets have increased from the last several quarters as a result of financial challenges experienced by a small subset of our borrowers. They represent 0.07 of the portfolio. At the end of the third quarter, the allowance for credit losses totaled $34.0 million. We recorded a $1.1 million provision for credit losses during the quarter, primarily related to loan growth, loan type mix, and updates to the macro environment. The ratio of the allowance for credit losses to total loans held for investment was 1.13% at quarter end. Loans designated as substandard totaled approximately $2.0 million at the end of the quarter, which was an increase from $0.3 million at the end of the previous quarter. Now that we have discussed the loan portfolio, we will continue on to deposits and capital. During the third quarter, deposits increased 102.5 million, or 3.5%, as compared to the previous quarter. Non-interest-bearing deposits, as the percent of total deposits at the end of the third quarter, decreased slightly to 27.5 million from 28.4% at the end of the previous quarter. To offer more detail on our deposit composition, I want to highlight that deposit relationships Totaling at least 5 million constitute approximately 62% of our total deposits. And the average age on these accounts was approximately nine years. Local agency depositors accounted for approximately 25% of deposits as of September 30, 2023. As noted earlier, we are pleased we have net deposit inflows for the first three months excuse me, for the three months ended September 30th, 2023, our ability to grow deposit accounts supports our differentiated customer-centric model that our customers trust and value. As seen through the mix of high dollar accounts and the duration of certain customer relationships, we believe we have a reliable core deposit base. Overall, deposit balances have increased when compared to the prior quarter. Non-broker deposits increased by 137.5 million. Interest-bearing deposits increased by 101.7 million. And non-interest-bearing deposits increased by 0.8 million. Total cost of deposits was 218 basis points during the third quarter. We continue to be well capitalized, with all capital ratios well above regulatory thresholds for the quarter. Our common equity tier one ratio increased from 9.05% to 9.07% between June 30, 2023 and September 30, 2023. On Friday, October 20, we announced a declaration by our board, a cash dividend of $0.20 per share on the company's voting common stock expected to be paid on November 13, 2023. to shareholders of record as of November 6, 2023. On that note, I will hand it over to Heather to discuss the results of operations. Heather?

Thank you, James. And hello, everyone. Net income for the quarter was $11 million. Return on average assets was 1.3%. And return on average equity was 16.09%. Average loan yield for the quarter was 5.57%, representing an increase of seven basis points over the prior quarter as rate increases continued with the fourth increase this year taking place in July. Our net interest margin was 3.31% for the quarter, while net interest margin for the prior quarter was 3.45%. The most recent Fed rate increase continues to put pressure on deposit costs. As a result of changes in interest rates and other factors, our other comprehensive loss was $3 million during the three months ended September 30th, 2023, as unrealized losses net of tax effect increased on available for sale debt securities from 12.9 million as of June 30th to 15.9 million as of September 30th, 2023. Non-interest income decreased to $1.4 million in the third quarter from $2.8 million in the previous quarter due primarily to a $1.3 million gain in other income recognized on distributions received on investments in venture-backed funds during the three months ended June 30th. Non-interest expense grew by $36,000 in the three months ended September 30th as compared to the three months ended June 30th, primarily due to a $0.5 million increase in salaries and employee benefits, which was partially offset by decreases of $0.3 million and $0.2 million in other operating and advertising and promotional expenses. Now that we've discussed the overall results of operations, I will now hand it back to James to provide some closing remarks.