Five Star Bancorp

Welcome to Five Star Bank Fourth Quarter and Year-End 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 dialing number to ask questions. To ask a question, you may press star and then one on your telephone keypads. 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. Certain 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, June 30th, 2024, and September 30th, 2024. 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 figures are included in the appendix to the presentation. Please also note today's event is being recorded. At this time, I'd like to turn the floor 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 fourth quarter and year-ended December 31st, 2024. Joining me today is Heather Luck, Executive 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. 2024 was another outstanding year of achievement, underpinned by successful continuation of our San Francisco market expansion. In addition to opening a full service office in San Francisco's financial district on September 3, 2024, We added 18 more seasoned professionals during 2024 to support the expansion. We also continue to add new core deposit accounts and relationships across our full footprint, as seen in the growth of non-wholesale deposits of $331.3 million during the year ended December 31, 2024. In the fourth quarter, we maintained our ability to conservatively underwrite as evidenced by our 49.92% LTV on commercial real estate, manage expenses with our 41.21% efficiency ratio, and deliver value to shareholders with our 20 cents per share dividend for each quarter of 2024. Additionally, in the fourth quarter, we were able to maintain our net interest margin which decrease by only one basis point, and grow our total loans, assets, and deposits over prior periods. Loans held for investment increased during the quarter by 72.1 million, or 2.08%, from the prior quarter, and increased 451 million, or 14.63%, year over year. Average loan yields improved each quarter in both 2023 and 2024. Consumer and other concentrations of the loan portfolio increased most significantly year over year, from 1.2% as of December 31, 2023, to 7.9% as of December 31, 2024, due to purchased consumer loans. The commercial real estate concentration of the real estate portfolio decreased year over year from 86.76% as of December 31, 2023 to 80.75% as of December 31, 2024. Our commercial real estate concentration is differentiated by diversification within the portfolio and our ability to conservatively underwrite as evidenced by a 49.92% LTV. Our pipeline continues to remain solid at the end of 2024 within the verticals in which we have historically operated. Loan originations during the quarter were $263.3 million, while payoffs and paydowns were $72.5 million and $118.7 million, respectively. During 2024, loan originations were $1.1 billion, and payoffs and paydowns were $263 million and $423 million, respectively. Asset quality continues to remain strong. Non-performing loans remained at 0.05% of loans held for investment as compared to 0.05% at the end of the prior quarter and 0.06% at the end of the prior year. As of December 31, 2024, the allowance for credit losses totaled $37.8 million. We recorded a $1.3 million provision for credit losses during the fourth quarter, primarily related to loan growth, for a total provision for credit losses of $7 million for the year ended December 31, 2024. The ratio of allowance for credit losses to total loans held for investment was 1.07% at year end. Loans designated as substandard or doubtful totaled $2.6 million at the end of 2024, representing an increase of approximately $0.8 million from the prior quarter. and an increase of approximately 0.7 million from the previous year end. During the fourth quarter, deposits increased by 158 million, or 4.65%. During 2024, deposits increased by 531.1 million, or 17.55%. The year over year increase was largely driven by increases in money market, time, and non-interest bearing demand deposits, partially offset by decreases in interest bearing demand and savings deposits. Non-interest bearing deposits as a percent of total deposits decreased to 25.93% at the end of the fourth quarter from 26.67% at the end of the prior quarter and 27.46% at the end of the prior year. As noted earlier, we are pleased that we had a net non-wholesale deposit inflows for the year ended December 31, 2024. 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. To offer more detail on our deposit composition, I want to highlight that the deposit relationships totaling greater than $5 million constituted 61.13% of our total deposits. And the average age on these accounts was approximately 9.28 years as of December 31, 2024. Local agency deposits accounted for 23% of deposits as of December 31, 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 $150 million, or 36.59% quarter over quarter. Non-wholesale deposits increased by $8 million, or 0.27%, driven by a 15.7 million increase in non-interest-bearing deposits, partially offset by a 7.7 million decrease in non-wholesale interest-bearing deposits compared to the prior quarter. Cost of total deposits was 258 basis points during the fourth quarter of 2024 and 255 basis points for the year. We continue to be well capitalized, with all capital ratios well above regulatory thresholds for the quarter and the year. Our common equity tier one ratio increased from 10.93% to 11.2% between September 30, 2024 and December 31, 2024. On January 16, 2025, our board declared a cash dividend of $0.20 per share on the company's common voting stock expected to be paid on February 10th, 2025 to shareholders of record as of February 3rd, 2025. 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 $13.3 million, Return on average assets was 1.31%, and return on average equity was 13.48%. Net income for the year was $45.7 million. Return on average assets was 1.23%, and return on average equity was 12.72%. Average loan yield for the quarter was 6.01%. representing an increase of three basis points over the prior quarter. Average yield on loans for 2024 was 5.89%, representing an increase of 37 basis points over 2023. Our net interest margin was 3.36% for the quarter, while net interest margin for the prior quarter was 3.37%. Our net interest margin was 3.32% for the year, while net interest margin for the prior year was 3.42%. As a result of changes in interest rates and other factors, our other comprehensive loss was 2.6 million during the three months ended December 31st, 2024, as unrealized losses, net of tax effect, increase on available for sale debt securities, from $9.7 million as of September 30, 2024 to $12.4 million as of December 31, 2024. Non-interest income increased to $1.7 million in the fourth quarter from $1.4 million in the previous quarter. Due primarily to income received on equity investments and venture-backed funds during the three months ended December 31, 2024 combined with a loss from equity investments and venture-backed funds during the three months ended September 30, 2024. Non-interest income decreased to $6.5 million in 2024 from $7.5 million in 2023, due primarily to lower income received on equity investments and venture-backed funds during the year. Non-interest expense increased to $14.5 million in the fourth quarter from 13.8 million in the previous quarter, due primarily to increased commissions related to higher loan production and increased advertising and promotional expenses. Non-interest expense increased from 47.8 million in 2023 to 54.5 million in 2024, due primarily to an increase in salaries and employee benefits related to our expansion in the San Francisco Bay Area. Now that we've discussed the overall results of operations, I will hand it back to James to provide some closing remarks.