FSBC Five Star Bancorp

Five Star Bancorp (Nasdaq: FSBC) (“Five Star” or the “Company”), a holding company that operates through its wholly owned banking subsidiary, Five Star Bank (the “Bank”), today reported net income of $10.8 million for the three months ended June 30, 2024, as compared to $10.6 million for the three months ended March 31, 2024 and $12.7 million for the three months ended June 30, 2023.

Second Quarter Highlights

Performance and operating highlights for the Company for the periods noted below included the following:

	Three months ended
(in thousands, except per share and share data)	June 30,2024				March 31,2024				June 30,2023
Return on average assets (“ROAA”)		1.23	%			1.22	%			1.55	%
Return on average equity (“ROAE”)		11.72	%			14.84	%			19.29	%
Pre-tax income	$	15,152			$	14,961			$	17,169
Pre-tax, pre-provision income(1)		17,152				15,861				18,419
Net income		10,782				10,631				12,729
Basic earnings per common share	$	0.51			$	0.62			$	0.74
Diluted earnings per common share		0.51				0.62				0.74
Weighted average basic common shares outstanding		21,039,798				17,190,867				17,165,344
Weighted average diluted common shares outstanding		21,058,085				17,272,994				17,168,995
Shares outstanding at end of period		21,319,583				17,353,251				17,257,357
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.

James E. Beckwith, President and Chief Executive Officer, commented on the financial results:

“We delivered strong second quarter results driven by continued momentum in the markets we serve. Total loans increased by $157.2 million, or 20.2% when annualized, and total deposits increased by $193.9 million, or 26.2% when annualized, which we attribute to the growing demand for our differentiated customer experience and the strength of our team.

We are seeing a positive turn in net interest margin with a 25 basis point increase from 3.14% in the first quarter to 3.39% in the second quarter of 2024. We are pleased to have decreased short-term borrowings from $120.0 million to zero. We are also pleased that, in addition to a first quarter cash dividend in 2024, we declared a second quarter cash dividend of $0.20 per share, exemplifying our focus on shareholder value. To safeguard this value, we diligently monitor changing market conditions and are confident in the Bank’s resilience in any interest rate environment.

In the second quarter, our successful public offering resulted in the issuance of 3,967,500 additional shares of common stock with net proceeds of approximately $80.9 million, allowing us to execute on our organic growth strategy and maintain momentum in the San Francisco Bay Area. We now have 19 employees in the San Francisco Bay Area who have contributed $161.3 million in deposits since the expansion began in June 2023. We expect this momentum to continue and to benefit our shareholders, employees, clients, and community.

In the first half of 2024, the Company and our employees received numerous awards and recognition.

The employee awards include a:

• Sacramento Business Journal’s Women Who Mean Business award
• Sacramento Business Journal C-Suite award
• National Association of Women Business Owners Outstanding Women Leader’s Executive award
• Independent Community Bankers of American 40 Under 40: Emerging Community Bank Leaders award

The Company awards include:

• The 2024 Greater Sacramento Economic Council’s Sustainability award
• The 2023 Raymond James Community Bankers Cup
• Being listed among the S&P Global Market Intelligence 2023 Top 20 Best-Performing Community Banks in the nation (banks with assets between $3 billion and $10 billion).”

Financial highlights during the quarter included the following:

• The Company sold an aggregate of 3,967,500 shares of its common stock at a public offering price of $21.75 per share in a public offering that closed in April 2024. The net proceeds to the Company, after deducting underwriting discounts, commissions, and offering expenses, were approximately $80.9 million.
• The Company’s San Francisco Bay Area team increased from 15 to 19 employees who generated deposit balances totaling $161.3 million at June 30, 2024, an increase of $65.1 million from March 31, 2024.
• Cash and cash equivalents were $190.4 million, representing 6.04% of total deposits at June 30, 2024, as compared to 6.27% at March 31, 2024.
• Total deposits increased by $193.9 million, or 6.56%, during the three months ended June 30, 2024, due to increases in both non-wholesale and wholesale deposits, which the Company defines as brokered deposits and public time deposits. During the three months ended June 30, 2024, non-wholesale deposits increased by $118.3 million, or 4.26%, and wholesale deposits increased by $75.5 million.
• The Company had no short-term borrowings at June 30, 2024, a decrease from $120.0 million at March 31, 2024.
• Consistent, disciplined management of expenses contributed to our efficiency ratio of 44.07% for the three months ended June 30, 2024, as compared to 44.50% for the three months ended March 31, 2024.
• For the three months ended June 30, 2024, net interest margin was 3.39%, as compared to 3.14% for the three months ended March 31, 2024 and 3.45% for the three months ended June 30, 2023. The effective Federal Funds rate remained at 5.33% as of June 30, 2024 and March 31, 2024 and increased from 5.08% as of June 30, 2023.
• Other comprehensive income was $0.2 million during the three months ended June 30, 2024. Unrealized losses, net of tax effect, on available-for-sale securities were $12.2 million as of June 30, 2024. Total carrying value of held-to-maturity and available-for-sale securities represented 0.08% and 2.91% of total interest-earning assets, respectively, as of June 30, 2024.
• The Company’s common equity Tier 1 capital ratio was 11.28% and 9.13% as of June 30, 2024 and March 31, 2024, respectively, with the additional common stock issued through the public offering that closed in April 2024 as the leading driver of the increase. The Bank continues to meet all requirements to be considered “well-capitalized” under applicable regulatory guidelines.
• Loan and deposit growth in the three and twelve months ended June 30, 2024 was as follows:

(in thousands)	June 30,2024				March 31,2024				$ Change				% Change
Loans held for investment	$	3,266,291			$	3,104,130			$	162,161				5.22	%
Non-interest-bearing deposits		825,733				817,388				8,345				1.02	%
Interest-bearing deposits		2,323,898				2,138,384				185,514				8.68	%
(in thousands)	June 30,2024				June 30,2023				$ Change				% Change
Loans held for investment	$	3,266,291			$	2,927,411			$	338,880				11.58	%
Non-interest-bearing deposits		825,733				833,707				(7,974	)			(0.96	)%
Interest-bearing deposits		2,323,898				2,096,032				227,866				10.87	%

• The ratio of nonperforming loans to loans held for investment at period end remained at 0.06% at June 30, 2024 and March 31, 2024.
• The Company’s Board of Directors declared, and the Company subsequently paid, a cash dividend of $0.20 per share during the three months ended June 30, 2024. The Company’s Board of Directors subsequently declared another cash dividend of $0.20 per share on July 18, 2024, which the Company expects to pay on August 12, 2024 to shareholders of record as of August 5, 2024.

Summary Results

Three months ended June 30, 2024, as compared to three months ended March 31, 2024

The Company’s net income was $10.8 million for the three months ended June 30, 2024, as compared to $10.6 million for the three months ended March 31, 2024. Net interest income increased by $2.3 million, primarily due to an increase in interest income due to loan growth at higher yields bolstered by a decrease in interest expense due to lower average wholesale deposit balances, as compared to the three months ended March 31, 2024. The provision for credit losses increased by $1.1 million, with loan growth and increases in net charge-offs in the three months ended June 30, 2024 as the leading drivers. Non-interest income decreased by $0.3 million, primarily due to a reduction in gains from distributions received on equity investments in venture-backed funds during the three months ended June 30, 2024, as compared to the three months ended March 31, 2024. Non-interest expense increased by $0.8 million, primarily related to increases in: (i) commissions related primarily to higher loan production; (ii) travel, conferences, and professional membership fees; and (iii) sponsorships and donations, as compared to the three months ended March 31, 2024.

Three months ended June 30, 2024, as compared to three months ended June 30, 2023

The Company’s net income was $10.8 million for the three months ended June 30, 2024, as compared to $12.7 million for the three months ended June 30, 2023. Net interest income increased by $1.5 million as increases in interest income due to loan growth at higher yields more than offset increases in interest expense due to larger average deposit balances at higher rates. The provision for credit losses increased by $0.8 million primarily due to loan growth and increases in net charge-offs in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Non-interest income decreased by $1.2 million, primarily due to a reduction in gains from distributions received on equity investments in venture-backed funds during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Non-interest expense increased by $1.5 million, with an increase in salaries and employee benefits related to the Company’s expansion into the San Francisco Bay Area as the leading driver.

The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:

	Three months ended
(in thousands, except per share data)	June 30,2024				March 31,2024				$ Change				% Change
Selected operating data:
Net interest income	$	29,092			$	26,744			$	2,348				8.78	%
Provision for credit losses		2,000				900				1,100				122.22	%
Non-interest income		1,573				1,833				(260	)			(14.18	)%
Non-interest expense		13,513				12,716				797				6.27	%
Pre-tax income		15,152				14,961				191				1.28	%
Provision for income taxes		4,370				4,330				40				0.92	%
Net income	$	10,782			$	10,631			$	151				1.42	%
Earnings per common share:
Basic	$	0.51			$	0.62			$	(0.11	)			(17.74	)%
Diluted		0.51				0.62				(0.11	)			(17.74	)%
Performance and other financial ratios:
ROAA		1.23	%			1.22	%
ROAE		11.72	%			14.84	%
Net interest margin		3.39	%			3.14	%
Cost of funds		2.56	%			2.62	%
Efficiency ratio		44.07	%			44.50	%
	Three months ended
(in thousands, except per share data)	June 30,2024				June 30,2023				$ Change				% Change
Selected operating data:
Net interest income	$	29,092			$	27,578			$	1,514				5.49	%
Provision for credit losses		2,000				1,250				750				60.00	%
Non-interest income		1,573				2,820				(1,247	)			(44.22	)%
Non-interest expense		13,513				11,979				1,534				12.81	%
Pre-tax income		15,152				17,169				(2,017	)			(11.75	)%
Provision for income taxes		4,370				4,440				(70	)			(1.58	)%
Net income	$	10,782			$	12,729			$	(1,947	)			(15.30	)%
Earnings per common share:
Basic	$	0.51			$	0.74			$	(0.23	)			(31.08	)%
Diluted		0.51				0.74				(0.23	)			(31.08	)%
Performance and other financial ratios:
ROAA		1.23	%			1.55	%
ROAE		11.72	%			19.29	%
Net interest margin		3.39	%			3.45	%
Cost of funds		2.56	%			2.04	%
Efficiency ratio		44.07	%			39.41	%

Balance Sheet Summary

(in thousands)	June 30,2024				December 31,2023				$ Change				% Change
Selected financial condition data:
Total assets	$	3,634,217			$	3,593,125			$	41,092				1.14	%
Cash and cash equivalents		190,359				321,576				(131,217	)			(40.80	)%
Total loans held for investment		3,266,291				3,081,719				184,572				5.99	%
Total investments		106,177				111,160				(4,983	)			(4.48	)%
Total liabilities		3,253,747				3,307,351				(53,604	)			(1.62	)%
Total deposits		3,149,631				3,026,896				122,735				4.05	%
Subordinated notes, net		73,822				73,749				73				0.10	%
Total shareholders’ equity		380,470				285,774				94,696				33.14	%

• Insured and collateralized deposits were approximately $2.0 billion, representing approximately 64.70% of total deposits as of June 30, 2024. Net uninsured and uncollateralized deposits were approximately $1.1 billion as of June 30, 2024.
• Commercial and consumer deposit accounts constituted approximately 78% of total deposits. Deposit relationships of at least $5 million represented approximately 60% of total deposits and had an average age of approximately 8.46 years as of June 30, 2024.
• Cash and cash equivalents as of June 30, 2024 were $190.4 million, representing 6.04% of total deposits at June 30, 2024, as compared to 6.27% as of March 31, 2024.
• Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth below) was approximately $1.6 billion as of June 30, 2024.

	June 30, 2024												Available
(in thousands)	Line of Credit				Letters of Credit Issued				Borrowings
FHLB advances	$	1,004,397			$	571,500			$	—			$	432,897
Federal Reserve Discount Window		829,179				—				—				829,179
Correspondent bank lines of credit		175,000				—				—				175,000
Cash and cash equivalents		—				—				—				190,359
Total	$	2,008,576			$	571,500			$	—			$	1,627,435

The increase in total assets from December 31, 2023 to June 30, 2024 was primarily due to a $184.6 million increase in total loans held for investment, partially offset by a $131.2 million decrease in cash and cash equivalents. The $184.6 million increase in total loans held for investment between December 31, 2023 and June 30, 2024 was a result of $539.9 million in loan originations and advances, partially offset by $150.0 million and $205.3 million in loan payoffs and paydowns, respectively. The $184.6 million increase in total loans held for investment included a purchase of loans within the consumer concentration of the loan portfolio, representing $73.3 million. The $131.2 million decrease in cash and cash equivalents primarily resulted from net cash outflows related to investing activities of $173.4 million, partially offset by net cash inflows related to financing and operating activities of $25.9 million and $16.3 million, respectively.

The decrease in total liabilities from December 31, 2023 to June 30, 2024 was primarily due to a decrease in other borrowings of $170.0 million, partially offset by an increase in interest-bearing deposits of $128.1 million. The increase in interest-bearing deposits was largely due to an increase in money market deposits of $281.8 million, partially offset by decreases in time deposits and interest-bearing demand deposits of $133.1 million and $20.5 million, respectively.

The increase in total shareholders’ equity from December 31, 2023 to June 30, 2024 was primarily a result of $80.9 million of additional common stock outstanding and net income recognized of $21.4 million, partially offset by $7.7 million in cash distributions paid during the period.

Net Interest Income and Net Interest Margin

The following is a summary of the components of net interest income for the periods indicated:

	Three months ended
(in thousands)	June 30,2024				March 31,2024				$ Change				% Change
Interest and fee income	$	48,998			$	47,541			$	1,457				3.06	%
Interest expense		19,906				20,797				(891	)			(4.28	)%
Net interest income	$	29,092			$	26,744			$	2,348				8.78	%
Net interest margin		3.39	%			3.14	%
	Three months ended
(in thousands)	June 30,2024				June 30,2023				$ Change				% Change
Interest and fee income	$	48,998			$	42,793			$	6,205				14.50	%
Interest expense		19,906				15,215				4,691				30.83	%
Net interest income	$	29,092			$	27,578			$	1,514				5.49	%
Net interest margin		3.39	%			3.45	%

The following table shows the components of net interest income and net interest margin for the quarterly periods indicated:

	Three months ended
	June 30, 2024												March 31, 2024												June 30, 2023
(in thousands)	AverageBalance				InterestIncome/Expense				Yield/Rate				AverageBalance				InterestIncome/Expense				Yield/Rate				AverageBalance				InterestIncome/Expense				Yield/Rate
Assets
Interest-earning deposits in banks	$	148,936			$	1,986				5.36	%		$	233,002			$	3,102				5.35	%		$	179,894			$	2,218				4.95	%
Investment securities		105,819				650				2.47	%			109,177				653				2.41	%			116,107				646				2.23	%
Loans held for investment and sale		3,197,921				46,362				5.83	%			3,082,290				43,786				5.71	%			2,914,388				39,929				5.50	%
Total interest-earning assets		3,452,676				48,998				5.71	%			3,424,469				47,541				5.58	%			3,210,389				42,793				5.35	%
Interest receivable and other assets, net		84,554												93,983												75,416
Total assets	$	3,537,230											$	3,518,452											$	3,285,805
Liabilities and shareholders’ equity
Interest-bearing demand	$	291,470			$	1,104				1.52	%		$	300,325			$	1,126				1.51	%		$	290,404			$	825				1.14	%
Savings		120,080				856				2.87	%			124,561				861				2.78	%			139,522				758				2.18	%
Money market		1,547,814				13,388				3.48	%			1,410,264				12,155				3.47	%			1,283,353				8,136				2.54	%
Time		272,887				3,369				4.96	%			429,586				5,369				5.03	%			370,864				4,250				4.60	%
Subordinated debt and other borrowings		75,747				1,189				6.31	%			82,775				1,286				6.25	%			80,192				1,246				6.23	%
Total interest-bearing liabilities		2,307,998				19,906				3.47	%			2,347,511				20,797				3.56	%			2,164,335				15,215				2.82	%
Demand accounts		817,668												842,105												828,748
Interest payable and other liabilities		41,429												40,730												28,034
Shareholders’ equity		370,135												288,106												264,688
Total liabilities & shareholders’ equity	$	3,537,230											$	3,518,452											$	3,285,805
Net interest spread										2.24	%											2.02	%											2.53	%
Net interest income/margin					$	29,092				3.39	%						$	26,744				3.14	%						$	27,578				3.45	%

Net interest income during the three months ended June 30, 2024 increased $2.3 million and net interest margin increased 25 basis points compared to the three months ended March 31, 2024. Interest income increased $1.5 million compared to the prior quarter, primarily due to loan growth at higher yields. Average loan yields increased 12 basis points compared to the prior quarter, while average balances increased 3.75%. The increase in interest income compared to the prior quarter was bolstered by a $0.9 million decrease in interest expense, primarily due to lower average wholesale deposit balances. Average cost of wholesale deposits, individually, decreased 11 basis points compared to the prior quarter, while average balances decreased 38.93%. Average cost of total deposits, including wholesale deposits, decreased 6 basis points compared to the prior quarter, while average balances decreased 1.83%.

As compared to the three months ended June 30, 2023, net interest income increased $1.5 million and net interest margin decreased 6 basis points. The increase in net interest income is primarily attributable to loan growth at higher yields, partially offset by deposit growth at higher interest rates. Interest income increased by $6.2 million, as compared to the same quarter of the prior year. Average loan yields increased 33 basis points while average balances increased 9.73%, as compared to the same quarter of the prior year. The increase in interest income was partially offset by an additional $4.7 million in interest expense compared to the same quarter of the prior year. Average cost of total deposits, including wholesale deposits, increased 55 basis points compared to the same quarter of the prior year, while average balances increased 4.70%. Average cost of wholesale deposits, individually, increased 23 basis points compared to the same quarter of the prior year, while average balances decreased 29.52%. In addition, the average balance of non-interest-bearing deposits decreased by $11.1 million compared to the same quarter of the prior year.

Loans by Type

The following table provides loan balances, excluding deferred loan fees, by type as of June 30, 2024:

(in thousands)
Real estate:
Commercial	$	2,774,001
Commercial land and development		4,766
Commercial construction		72,444
Residential construction		9,011
Residential		29,641
Farmland		48,852
Commercial:
Secured		154,080
Unsecured		23,198
Consumer and other		152,564
Net deferred loan fees		(2,266	)
Total loans held for investment	$	3,266,291

Interest-bearing Deposits

The following table provides interest-bearing deposit balances by type as of June 30, 2024:

(in thousands)
Interest-bearing demand accounts	$	299,815
Money market accounts		1,564,120
Savings accounts		126,532
Time accounts		333,431
Total interest-bearing deposits	$	2,323,898

Asset Quality

Allowance for Credit Losses

At June 30, 2024, the Company’s allowance for credit losses was $35.4 million, as compared to $34.4 million at December 31, 2023. The $1.0 million increase in the allowance is due to a $3.0 million provision for credit losses recorded during the six months ended June 30, 2024, partially offset by net charge-offs of $2.0 million, mainly attributable to commercial and industrial loans, during the same period.

The Company’s ratio of nonperforming loans to loans held for investment remained at 0.06% between June 30, 2024 and December 31, 2023. Loans designated as watch increased from $39.6 million to $58.0 million between December 31, 2023 and June 30, 2024. Loans designated as substandard decreased from $2.0 million to $1.9 million between December 31, 2023 and June 30, 2024. There were no loans with doubtful risk grades at June 30, 2024 or December 31, 2023.

A summary of the allowance for credit losses by loan class is as follows:

	June 30, 2024								December 31, 2023
(in thousands)	Amount				% of Total				Amount				% of Total
Real estate:
Commercial	$	24,708				69.79	%		$	29,015				84.27	%
Commercial land and development		72				0.20	%			178				0.52	%
Commercial construction		1,097				3.10	%			718				2.08	%
Residential construction		100				0.28	%			89				0.26	%
Residential		195				0.55	%			151				0.44	%
Farmland		402				1.14	%			399				1.16	%
		26,574				75.06	%			30,550				88.73	%
Commercial:
Secured		7,386				20.86	%			3,314				9.62	%
Unsecured		214				0.60	%			189				0.55	%
		7,600				21.46	%			3,503				10.17	%
Consumer and other		1,232				3.48	%			378				1.10	%
Total allowance for credit losses	$	35,406				100.00	%		$	34,431				100.00	%

The ratio of allowance for credit losses to loans held for investment was 1.08% at June 30, 2024, as compared to 1.12% at December 31, 2023.

Non-interest Income

The following table presents the key components of non-interest income for the periods indicated:

	Three months ended
(in thousands)	June 30,2024				March 31,2024				$ Change				% Change
Service charges on deposit accounts	$	189			$	188			$	1				0.53	%
Gain on sale of loans		449				369				80				21.68	%
Loan-related fees		370				429				(59	)			(13.75	)%
FHLB stock dividends		329				332				(3	)			(0.90	)%
Earnings on bank-owned life insurance		158				142				16				11.27	%
Other income		78				373				(295	)			(79.09	)%
Total non-interest income	$	1,573			$	1,833			$	(260	)			(14.18	)%

Gain on sale of loans. The increase resulted from an increase in the volume of loans sold, partially offset by a decline in the effective yield of loans sold. During the three months ended June 30, 2024, approximately $6.8 million of loans were sold with an effective yield of 6.60%, as compared to approximately $5.2 million of loans sold with an effective yield of 7.08% during the three months ended March 31, 2024.

Other income. The decrease resulted primarily from a $0.3 million gain from distributions received on equity investments in venture-backed funds during the three months ended March 31, 2024, which did not occur during the three months ended June 30, 2024.

The following table presents the key components of non-interest income for the periods indicated:

	Three months ended
(in thousands)	June 30,2024				June 30,2023				$ Change				% Change
Service charges on deposit accounts	$	189			$	135			$	54				40.00	%
Gain on sale of loans		449				641				(192	)			(29.95	)%
Loan-related fees		370				389				(19	)			(4.88	)%
FHLB stock dividends		329				189				140				74.07	%
Earnings on bank-owned life insurance		158				126				32				25.40	%
Other income		78				1,340				(1,262	)			(94.18	)%
Total non-interest income	$	1,573			$	2,820			$	(1,247	)			(44.22	)%

Gain on sale of loans. The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold. During the three months ended June 30, 2024, approximately $6.8 million of loans were sold with an effective yield of 6.60%, as compared to approximately $10.9 million of loans sold with an effective yield of 5.89% during the three months ended June 30, 2023.

FHLB stock dividends. The increase related to increases in the annualized dividend rate and total average shares outstanding to 8.75% and 150,000 for the three months ended June 30, 2024 from 7.00% and 108,901 shares for the three months ended June 30, 2023.

Other income. The decrease related to a $1.3 million gain from distributions received on equity investments in venture-backed funds during the three months ended June 30, 2023, which did not occur during the three months ended June 30, 2024.

Non-interest Expense

The following table presents the key components of non-interest expense for the periods indicated:

	Three months ended
(in thousands)	June 30,2024				March 31,2024				$ Change				% Change
Salaries and employee benefits	$	7,803			$	7,577			$	226				2.98	%
Occupancy and equipment		646				626				20				3.19	%
Data processing and software		1,235				1,157				78				6.74	%
Federal Deposit Insurance Corporation (“FDIC”) insurance		390				400				(10	)			(2.50	)%
Professional services		767				707				60				8.49	%
Advertising and promotional		615				460				155				33.70	%
Loan-related expenses		297				297				—				—	%
Other operating expenses		1,760				1,492				268				17.96	%
Total non-interest expense	$	13,513			$	12,716			$	797				6.27	%

Salaries and employee benefits. The increase related primarily to: (i) a $0.5 million increase in commissions related primarily to higher loan production; and (ii) a $0.3 million increase in salaries, benefits, and bonus expense related to a 2.75% increase in headcount during the quarter. These increases were partially offset by a $0.6 million increase in loan origination costs due to higher loan production.

Advertising and promotional. The increase related primarily to an overall increase in in sponsorships and donations made, as more events were sponsored and attended compared to the three months ended March 31, 2024.

Other operating expenses. The increase in other operating expenses was primarily due to a $0.2 million increase in travel, conference fees, and professional membership fees, as compared to the three months ended March 31, 2024.

The following table presents the key components of non-interest expense for the periods indicated:

	Three months ended
(in thousands)	June 30,2024				June 30,2023				$ Change				% Change
Salaries and employee benefits	$	7,803			$	6,421			$	1,382				21.52	%
Occupancy and equipment		646				551				95				17.24	%
Data processing and software		1,235				1,013				222				21.92	%
FDIC insurance		390				410				(20	)			(4.88	)%
Professional services		767				586				181				30.89	%
Advertising and promotional		615				733				(118	)			(16.10	)%
Loan-related expenses		297				324				(27	)			(8.33	)%
Other operating expenses		1,760				1,941				(181	)			(9.33	)%
Total non-interest expense	$	13,513			$	11,979			$	1,534				12.81	%

Salaries and employee benefits. The increase during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 related primarily to: (i) a $0.9 million increase in salaries, benefits, and bonus expense for new employees hired since June 2023 to support expansion into the San Francisco Bay Area; (ii) a $0.3 million increase in commissions earned, largely due to commissions paid to the San Francisco Bay Area team, which did not occur during the three months ended June 30, 2023; and (iii) a $0.2 million decrease in loan origination costs due to lower loan production period-over-period.

Data processing and software. The increase was primarily due to: (i) increased usage of our digital banking platform; (ii) higher transaction volumes related to the increased number of loan and deposit accounts; and (iii) an increased number of licenses required for new users on our loan origination and documentation system.

Professional services. The increase was primarily due to: (i) a $0.1 million increase of audit fees for 2024 audits; and (ii) a $0.1 million increase in IT consulting services due to an overall increase in service charges.

Advertising and promotional. The decrease related primarily to an overall decline in sponsorships and donations made, as fewer events were sponsored and attended compared to the three months ended June 30, 2023.

Other operating expenses. The decrease was primarily due to a $0.2 million decrease in travel, conference fees, and professional membership fees, as compared to the three months ended June 30, 2023.

Provision for Income Taxes

Three months ended June 30, 2024, as compared to three months ended March 31, 2024

Provision for income taxes increased slightly to $4.4 million for the three months ended June 30, 2024 from $4.3 million for the three months ended March 31, 2024, primarily driven by an overall increase in pre-tax income. The effective tax rates were 28.84% and 28.94% for the three months ended June 30, 2024 and March 31, 2024, respectively.

Three months ended June 30, 2024, as compared to three months ended June 30, 2023

Provision for income taxes decreased by $0.1 million, or 1.58%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily driven by a $0.5 million state tax benefit recorded during the three months ended June 30, 2023 relating to an overall reduction in the state tax blended rate for the Company since its transition to a C Corporation, which did not occur during the three months ended June 30, 2024. The effective tax rates for the three months ended June 30, 2024 and June 30, 2023, were 28.84% and 25.86% respectively.

Webcast Details

Five Star Bancorp will host a live webcast for analysts and investors on Thursday, July 25, 2024 at 1:00 p.m. ET (10:00 a.m. PT) to discuss its second quarter financial results. To view the live webcast, visit the “News & Events” section of the Company’s website under “Events” at https://investors.fivestarbank.com/news-events/events. The webcast will be archived on the Company’s website for a period of 90 days.

About Five Star Bancorp

Five Star is a bank holding company headquartered in Rancho Cordova, California. Five Star operates through its wholly owned banking subsidiary, Five Star Bank. The Bank has seven branches in Northern California.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections, and statements of the Company’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. The Company cautions that the forward-looking statements are based largely on the Company’s expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company’s control. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties, which change over time, and other factors, which could cause actual results to differ materially from those currently anticipated. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company. If one or more of the factors affecting the Company’s forward-looking information and statements proves incorrect, then the Company’s actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this press release. Therefore, the Company cautions you not to place undue reliance on the Company’s forward-looking information and statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and Quarterly Report on Form 10-Q for the three months ended March 31, 2024, in each case under the section entitled “Risk Factors,” and other documents filed by the Company with the Securities and Exchange Commission from time to time.

The Company disclaims any duty to revise or update the forward-looking statements, whether written or oral, to reflect actual results or changes in the factors affecting the forward-looking statements, except as specifically required by law.

Condensed Financial Data (Unaudited)

	Three months ended
(in thousands, except per share and share data)	June 30,2024				March 31,2024				June 30,2023
Revenue and Expense Data
Interest and fee income	$	48,998			$	47,541			$	42,793
Interest expense		19,906				20,797				15,215
Net interest income		29,092				26,744				27,578
Provision for credit losses		2,000				900				1,250
Net interest income after provision		27,092				25,844				26,328
Non-interest income:
Service charges on deposit accounts		189				188				135
Gain on sale of loans		449				369				641
Loan-related fees		370				429				389
FHLB stock dividends		329				332				189
Earnings on bank-owned life insurance		158				142				126
Other income		78				373				1,340
Total non-interest income		1,573				1,833				2,820
Non-interest expense:
Salaries and employee benefits		7,803				7,577				6,421
Occupancy and equipment		646				626				551
Data processing and software		1,235				1,157				1,013
FDIC insurance		390				400				410
Professional services		767				707				586
Advertising and promotional		615				460				733
Loan-related expenses		297				297				324
Other operating expenses		1,760				1,492				1,941
Total non-interest expense		13,513				12,716				11,979
Income before provision for income taxes		15,152				14,961				17,169
Provision for income taxes		4,370				4,330				4,440
Net income	$	10,782			$	10,631			$	12,729
Comprehensive Income
Net income	$	10,782			$	10,631			$	12,729
Net unrealized holding gain (loss) on securities available-for-sale during the period		295				(955	)			(1,462	)
Less: Income tax expense (benefit) related to other comprehensive income (loss)		87				(282	)			(432	)
Other comprehensive income (loss)		208				(673	)			(1,030	)
Total comprehensive income	$	10,990			$	9,958			$	11,699
Share and Per Share Data
Earnings per common share:
Basic	$	0.51			$	0.62			$	0.74
Diluted		0.51				0.62				0.74
Book value per share		17.85				16.86				15.60
Tangible book value per share(1)		17.85				16.86				15.60
Weighted average basic common shares outstanding		21,039,798				17,190,867				17,165,344
Weighted average diluted common shares outstanding		21,058,085				17,272,994				17,168,995
Shares outstanding at end of period		21,319,583				17,353,251				17,257,357
Credit Quality
Allowance for credit losses to period end nonperforming loans		1,882.30	%			1,806.73	%			11,839.25	%
Nonperforming loans to loans held for investment		0.06	%			0.06	%			0.01	%
Nonperforming assets to total assets		0.05	%			0.06	%			0.01	%
Nonperforming loans plus performing loan modifications to loans held for investment		0.06	%			0.06	%			0.01	%
Selected Financial Ratios
ROAA		1.23	%			1.22	%			1.55	%
ROAE		11.72	%			14.84	%			19.29	%
Net interest margin		3.39	%			3.14	%			3.45	%
Loan to deposit		103.87	%			105.37	%			100.21	%
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.

(in thousands)	June 30,2024				March 31,2024				June 30,2023
Balance Sheet Data
Cash and due from financial institutions	$	28,572			$	29,750			$	28,568
Interest-bearing deposits in banks		161,787				155,575				271,555
Time deposits in banks		4,097				5,878				7,343
Securities - available-for-sale, at fair value		103,204				105,006				110,794
Securities - held-to-maturity, at amortized cost		2,973				3,000				3,486
Loans held for sale		5,322				10,243				8,559
Loans held for investment		3,266,291				3,104,130				2,927,411
Allowance for credit losses		(35,406	)			(34,653	)			(33,984	)
Loans held for investment, net of allowance for credit losses		3,230,885				3,069,477				2,893,427
FHLB stock		15,000				15,000				15,000
Operating leases, right-of-use asset		6,630				6,932				5,032
Premises and equipment, net		1,610				1,569				1,599
Bank-owned life insurance		19,030				18,872				16,897
Interest receivable and other assets		55,107				55,058				40,441
Total assets	$	3,634,217			$	3,476,360			$	3,402,701
Non-interest-bearing deposits	$	825,733			$	817,388			$	833,707
Interest-bearing deposits		2,323,898				2,138,384				2,096,032
Total deposits		3,149,631				2,955,772				2,929,739
Subordinated notes, net		73,822				73,786				73,677
Other borrowings		—				120,000				100,000
Operating lease liability		7,077				7,320				5,275
Interest payable and other liabilities		23,217				26,902				24,870
Total liabilities		3,253,747				3,183,780				3,133,561
Common stock		301,968				220,804				220,021
Retained earnings		90,734				84,216				62,095
Accumulated other comprehensive loss, net of taxes		(12,232	)			(12,440	)			(12,976	)
Total shareholders’ equity		380,470				292,580				269,140
Total liabilities and shareholders’ equity	$	3,634,217			$	3,476,360			$	3,402,701
Quarterly Average Balance Data
Average loans held for investment and sale	$	3,197,921			$	3,082,290			$	2,914,388
Average interest-earning assets		3,452,676				3,424,469				3,210,389
Average total assets		3,537,230				3,518,452				3,285,805
Average deposits		3,049,919				3,106,841				2,912,891
Average total equity		370,135				288,106				264,688
Capital Ratios
Total shareholders’ equity to total assets		10.47	%			8.42	%			7.91	%
Tangible shareholders’ equity to tangible assets(1)		10.47	%			8.42	%			7.91	%
Total capital (to risk-weighted assets)		14.38	%			12.34	%			12.43	%
Tier 1 capital (to risk-weighted assets)		11.28	%			9.13	%			9.05	%
Common equity Tier 1 capital (to risk-weighted assets)		11.28	%			9.13	%			9.05	%
Tier 1 leverage ratio		11.05	%			8.63	%			8.66	%
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.

Non-GAAP Reconciliation (Unaudited)

The Company uses financial information in its analysis of the Company’s performance that is not in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company believes that these non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company’s financial condition, results of operations, and cash flows computed in accordance with GAAP. However, the Company acknowledges that its non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with GAAP. Additionally, these non-GAAP measures are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those the Company uses for the non-GAAP financial measures the Company discloses, but may calculate them differently. Investors should understand how the Company and other companies each calculate their non-GAAP financial measures when making comparisons.

Tangible shareholders’ equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders’ equity to total assets. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible shareholders’ equity to tangible assets is the same as total shareholders’ equity to total assets at the end of each of the periods indicated.

Tangible book value per share is defined as total shareholders’ equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated.

Pre-tax, pre-provision income is defined as pre-tax income plus provision for credit losses. The most directly comparable GAAP financial measure is pre-tax income.

The following reconciliation table provides a more detailed analysis of this non-GAAP financial measure:

	Three months ended
(in thousands)	June 30,2024				March 31,2024				June 30,2023
Pre-tax, pre-provision income
Pre-tax income	$	15,152			$	14,961			$	17,169
Add: provision for credit losses		2,000				900				1,250
Pre-tax, pre-provision income	$	17,152			$	15,861			$	18,419

Investor Contact:Heather C. Luck, Chief Financial OfficerFive Star Bancorp(916) 626-5008hluck@fivestarbank.com

Media Contact:Shelley R. Wetton, Chief Marketing OfficerFive Star Bancorp(916) 284-7827swetton@fivestarbank.com