Five Star Bancorp

Welcome to the Five Star Bancorp Third Quarter 2026 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, 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. 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 31, 2025 and quarterly reports on Form 10-Q for the three months ended March 31, 2026 and June 30, 2026, and in particular, the information set forth in Item 1A, Risk Factors in Those Reports. Please refer to slide 2 of the presentation, which includes disclaimers regarding forward-looking statements, industry data on audited 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 to the presentation. The presentation will be referenced during this call but not followed exactly and is available for closer viewing on the company's website under the Investor Relations tab. 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 2026. These results were released yesterday and are available on our website. under the Investor Relations section. Joining me today is Heather Luck, Executive Vice President and Chief Financial Officer. Q3 2026 was another quarter of solid execution for Five Star Bancorp, highlighted by continued balance sheet growth, net interest margin expansion, strong profitability, and the successful completion of our underwritten public offering. Net income increased to 21.9 million from 19.4 million in the second quarter of 2026. Basic earnings per share rose to 92 cents despite an 11% increase in weighted average basic common shares outstanding following our underwritten public offering in July. Loans held for investment grew by 184.5 million during the quarter, or approximately 16% annualized. Growth was driven primarily by commercial real estate lending activity and continued production from our commercial banking teams. Deposits grew by 25.1 million, while non-wholesale deposits increased by 75.1 million. reflecting continued improvement in our funding mix. During the quarter, Five Star Bancorp completed an underwritten public offering providing approximately $130 million of net proceeds after deducting underwriting discounts, commissions, and offering expenses. The offering was completed to support general corporate purposes, continued growth, including through the investments in the bank to pursue growth opportunities and for working capital. We believe the offering enhanced our capacity to pursue strategic opportunities while maintaining our conservative approach to capital management. As expected, the 11% increase in weighted average basic shares outstanding from the offering had a modest dilutive effect on return on average equity and earnings per share for the quarter. The issuance meaningfully strengthened our capital position, improving our common equity tier one capital ratio to 12.52% at September 30, 2026, an increase of 255 basis points over the prior quarter, We continued executing on our statewide organic expansion strategy during the quarter, with the opening of our newest full-service branch in Lodi, strengthening our presence to support the agricultural and business communities in the Central Valley. We also expanded our presence in Southern California and the San Francisco Bay Area through the opening of our Calabasas Administrative Office and the addition of four experienced banking professionals in Palo Alto during the quarter. Our business development officer team increased from 45 to 50 during the quarter, enhancing our ability to deepen existing relationships and drive future loan and deposit growth. Financial highlights during Q3 2026 include net income of $21.9 million, up 13% from the prior quarter. Pre-tax, pre-provision income of 32 million up 13% from the prior quarter. Return on average assets of 155 basis points compared to 149 basis points in Q2 2026. Return on average equity of 15.04% compared to 16.67% in Q2, 2026. Net interest margin of 3.69%, an increase of six basis points from the prior quarter. Average loan yield of 16.14%, an increase of six basis points from the prior quarter. Average cost of total deposits of 2.19%, an increase of three basis points from the prior quarter. The efficiency ratio of 39.13% compared to 40.91% in the prior quarter and book value per share of 25.15 cents, a 14% increase from the prior quarter. Our Q3 results were driven by robust balance sheet growth. loans held for investment grew by 184.5 million, or approximately 16% on an annual basis, reaching 4.7 billion at September 30th, 2026. Total deposits grew by 25.1 million during the quarter. More importantly, non-wholesale deposits increased 75.1 million, more than offsetting a planned reduction in wholesale funding and further improving our deposit mix. Non-wholesale deposits accounts constituted approximately 96% of total deposits at quarter end. We also maintained a strong liquidity position, ending the quarter with approximately $2.5 billion in available liquidity. Our asset quality remains strong. Non-performing loans decreased to 0.28% of total loans at September 30, 2026 from 0.30% at June 30, 2026. Consistent with the prior quarter, the non-performing loan balance related primarily to a single Community Reinvestment Act related credit that was originally downgraded during 2025 and placed on non-accrual status during the second quarter of 2026. As of September 30, 2026, the outstanding balance was $11.4 million and the loan remains well secured by collateral with an appraised value that is meaningfully exceeds its carrying amount. We continue to view this relationship as an isolated credit issue rather than an indication of a broader portfolio weakness. Credit trends across the remainder of the portfolio remain stable and generally consistent with our expectations. Our commercial real estate portfolio continues to benefit from conservative underwriting with a weighted average loan to value of approximately 56%, providing significant collateral support across the portfolio. We recorded a $2.5 million provision for credit losses during the quarter, primarily related to loan growth and changes resulting from our annual CECL model refresh. The public offering during the quarter drove meaningful improvement across all capital ratios. Our common equity Tier 1 capital ratio increased to 12.52% Our Tier 1 leverage ratio increased to 11.21%, and our total risk-based capital ratio increased to 15%. Total shareholders' equity increased to approximately $617 million at quarter end, providing flexibility to support continued balance sheet growth and strategic expansion opportunities. The bank continues to exceed all regulatory standards required to be considered well capitalized. We remain committed to delivering value to our shareholders. In Q3, we paid a cash dividend of $0.25 per share and declared an additional $0.25 per share dividend expected to be paid in November of 2026. Total assets increased by 182 million during the quarter, driven primarily by strong loan growth. Commercial real estate loans increased 81.8 million, while consumer loans increased by 50.9 million. Year over year, total assets grew from 4.6 billion to 5.6 billion, demonstrating continued momentum across our markets. Cash and cash equivalents stood at $679.5 million at September 30, 2026, representing 14.08% of total deposits. Total liquidity consisting of cash and cash equivalents as well as unused and immediately available borrowing capacity was approximately $2.5 billion as of September 30, 2026. compared to 2.3 billion at June 30, 2026. Insured and collateralized deposits increased to 68% of total deposits at quarter end, while net uninsured and uncollateralized deposits declined, further strengthening our funding profile. The current environment marked by evolving trade and fiscal policy Geopolitical uncertainty and continued interest rate variability requires careful balance sheet management. We believe we are well positioned to navigate this backdrop. Approximately 73% of our loans held for investment are adjustable or floating rate, providing meaningful responsiveness to rate movements. Combined with our strong liquidity position and conservative underwriting standards, We believe our balance sheet is structured to perform across a range of economic conditions as we move into Q4. While economic and policy uncertainty remains elevated, client activity continues to be constructive and our pipelines remain healthy. We believe our balance sheet, liquidity profile, and capital position leave us well positioned to pursue growth opportunities while maintaining our disciplined approach to risk management as we move into the fourth quarter. Our prudent underwriting standards, comprehensive loan monitoring, and focused on relationship-driven lending have contributed to maintaining a strong credit quality. Our allowance for credit losses totaled $49.4 million at September 30, 2026, reflecting continued loan growth and our disciplined approach to reserve management. The allowance as a percentage of loans held for investment was 1.05% at September 30th, 2026. We continue to believe our reserve levels are appropriate given the composition of the portfolio, current credit performance and the broader economic environment. The increase in total liabilities during the quarter was a result of growth of non-interest-bearing deposits reflecting inflows from new accounts and existing client relationships. Total non-wholesale deposits increased by $75.1 million, while wholesale deposits decreased by $50 million, a reflection of our ongoing strategy to deepen core deposit relationships and reduce reliance on wholesale funding. Non-interest-bearing deposits accounted for approximately 25.1% of total deposits at September 30, 2026, reflecting the strength of our commercial banking relationships. Our deposit franchise continues to be built on long-term client relationships. Approximately 62% of our deposit relationships exceed $5 million. With an average tenure of approximately seven years, we believe this long-tenured client base supports the stability and durability of our deposit franchise and contributes to the strength of our funding profile across economic cycles. With that, I'll turn it over to Heather to walk through the results of operations. Heather?

Thank you, James, and hello, everyone. Net interest income increased to $50.9 million in Q3 2026, a 10.51% increase from $46.1 million last quarter. Net interest margin improved by six basis points quarter over quarter to $369, primarily reflecting growth in higher yielding loans and an increase in the yield on interest earning assets, partially offset by higher deposit funding costs. Net interest income increased by 4.8 million from the previous quarter, mainly due to a 7% increase in average interest earning assets. This is largely made up of a 7% increase in the average balance of loans and a 14% increase in the average balance of interest earning deposits in banks. The average yield on interest earning assets increased five basis points to 574, including a six basis point increase in the average loan yield to 614. The increase in interest income was partially offset by a $2 million increase in interest expense driven by a 6% increase in the average balance of deposits combined with a three basis point increase in the average cost of deposits. This rise in deposit funding costs was partially offset by a 4% increase in the average balance of non-interest bearing deposits. Looking ahead, we continue to expect loan yields, deposit pricing discipline, and our funding mix to remain supportive of margin performance, although future rate actions and competitive market conditions may influence quarterly results. Turning to non-interest income, Q3, 2026 decreased to 1.7 million from 1.9 million in Q2, 2026. primarily driven by a decrease in loan referral income and an overall decline in earnings related to investments in venture-backed funds, partially offset by a special FHLB stock dividend received during the quarter. On the expense side, non-issuous expense increased by $1 million in Q3 2026 compared to Q2 2026, primarily due to higher salaries and employee benefits from increased headcount and increased recruiter fees related to growth, partially offset by decreases in employee-related expenses, advertising and promotional expenses, and operational losses. The efficiency ratio for Q3 2026 was 39-13, improving from 40-91 in Q2 2026 and Forty Thirteen in Q3 2025, reflecting disciplined expense management as we continue to invest in growth. The provision for income taxes increased by $900,000 compared to the prior quarter, primarily due to an increase in taxable income. Collectively, pre-tax, pre-provision income of $32 million for Q3 2026 up from 28.3 million in Q2 2026, a 13% increase. Overall, our third quarter results demonstrate the operating leverage embedded within our model. Revenue growth, expanding margin, disciplined expense management, and strong credit quality combined produce another quarter of profitable growth while we continue investing in expansion opportunities throughout California. With that, I'll turn it back to James for closing remarks.