Five Star Bancorp

Good day, everyone, and 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 and then one using a telephone keypad. To withdraw your questions, you may press star and two. Before we get started, we would like to 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, and industry trends that may affect the company's future operating results and financial position. Those 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, 2023, and quarterly reports on Form 10-Q for the three months ended March 31st, 2024, and June 30th, 2024. 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, unaudited financial data, and non-GAAP financial information included in this presentation. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP figures are included in the appendix for the presentation. Please note this event is being recorded. At this time, I'd 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 2024. 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. Our organic growth story continued in the third quarter with the successful opening of our full service office in San Francisco's Financial District on September 3, 2024, allowing us to continue our momentum in the San Francisco Bay Area. We added five more seasoned professionals to support this expansion and also continue to add new core deposit accounts and relationships, as seen in the increase of non-wholesale deposits of $92.9 million during the three months ended September 30, 2024. In the third quarter, we maintained our ability to conservatively underwrite, as evidenced by a 50% loan to value on commercial real estate, managed expenses with our 43.37% efficiency ratio, and deliver value to our shareholders with our 20 cents per share dividend for the first, second, and third quarters of 2024. Additionally, we were able to maintain our net interest margin, which decreased by only two basis points, and loans, total assets, and deposits have grown since prior periods. Our pipeline continues to remain solid at the end of the third quarter of 2024, within verticals we have historically operated in, as presented in the loan portfolio diversification slide. Loans held for investments increased during the quarter by $194.3 million, or 5.95% from the prior quarter, primarily related to the purchase of loans within the consumer concentration of the loan portfolio, representing $129.4 million of the increase. Loan originations during the quarter were $333.8 million, while payoffs and paydowns were $40.7 million and $98.8 million respectively. Asset quality continues to remain strong. Non-performing loans decreased to 0.05% of loans held for investment at period end compared to 0.06 at the end of the prior quarter. At the end of the third quarter, the allowance for credit losses was $37.6 million. We recorded a $2.8 million provision for credit losses during the quarter. reflecting loan growth and continued risk associated with general economic trends and forecasts. The ratio of the allowance for credit losses to loans held for investment was 1.09% at quarter end. Loans designated as substandard or downfall totaled approximately $1.9 million at the end of the quarter, which is unchanged from the end of the previous quarter. During the third quarter, deposits increased by $250.3 million, or 7.95%, as compared to the previous quarter. Non-interest-bearing deposits as a percent of total deposits at the end of the third quarter increased slightly to 26.67% from 26.22% at the end of the previous quarter. As noted earlier, we are pleased we had net non-wholesale deposit inflows for the three months ended September 30, 2024. Our ability to grow deposit accounts support 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. To offer more detail on our deposit composition, I want to highlight that deposit relationships totaling at least 5 million constitute 60.58% of total deposits. And the average age on these accounts was approximately nine years as of September 30th, 2024. Local agency deposits accounted for 18.77% of deposits as of September 30, 2024. Overall deposit balances have increased when compared to the prior quarter. Wholesale deposits, which we defined as broker deposits and public time deposits, increased by $157.4 million. non-wholesale deposits increased by $92.9 million, driven by an $11.7 million increase in non-wholesale interest-bearing deposits, and a $81.2 million increase in non-interest-bearing deposits. Cost of total deposits was 263 basis points during the quarter, an increase of 16 basis points from the previous quarter. We continue to be well capitalized, with all capital ratios well above regulatory thresholds for the quarter. Our common equity tier one ratio decreased from 11.27% to 10.93% between June 30, 24, and September 30, 2024. On October 17, our board declared a cash dividend of $0.20 per share on the company's voting common stock expected to be paid on November 12, 2024 to shareholders of record as of November 4, 2024. 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 $10.9 million. Return on average assets was 1.18%, and return on average equity was 11.31%. Average loan yield for the quarter was 5.98%, representing an increase of 15 basis points over the prior quarter. Our net interest margin was 3.37% for the quarter, while net interest margin for the prior quarter was 3.39%. As a result of changes in interest rates and other factors, our other comprehensive income was $2.5 million during the three months ended September 30, 2024 as unrealized losses, net of tax effects decreased on available for sale debt securities from $12.2 million as of June 30, 2024 to $9.7 million as of September 30, 2024. Non-interest income decreased to $1.4 million in the third quarter from $1.6 million in the previous quarter. This is due primarily to a reduction in gains from loans sold during the three months ended September 30 compared to June 30, 2024. Non-interest expense grew by $0.3 million in the three months ended September 30 compared to three months ended June 30, primarily due to increases in salaries and employee benefits during the quarter. Now that we've discussed the overall results of operations, I will hand it back to James to provide some closing remarks.