FIVE STAR BANCORP Q3 FY2024 earnings call

• Organic Growth: Successfully opened a whole service office in San Francisco’s Financial District, added 5 seasoned professionals, and saw non-wholesale deposits increase by $92.9 million.
• Underwriting and Expenses: Conservatively underwrote with a 50% loan-to-value on commercial real estate, maintained a 43.37% efficiency ratio.
• Dividend: Declared a $0.20 per share cash dividend, expected to be paid November 12, 2024.
• Loan Portfolio: Loans held for investment increased by $194.3 million, pipeline remains solid, with expected mid-single-digit loan growth in Q4.
• Deposits: Non-interest-bearing deposits as a percent of total deposits increased to 26.67%, with deposit relationships over $5 million accounting for 60.58% of total deposits.
• Capital: Well capitalized, with common equity Tier 1 ratio decreasing from 11.27% to 10.93% between June 30, 2024, and September 30, 2024.

Loans: Loans held for investment increased by $194.3 million (5.95%) during the quarter, with loan originations at $333.8 million, and payoffs/pay-downs at $40.7 million and $98.8 million respectively. Nonperforming loans decreased to 0.05% of loans held for investment. Deposits: Deposits increased by $250.3 million (7.95%), with non-wholesale deposits up $92.9 million and wholesale deposits up $157.4 million. Non-interest-bearing deposits as a percent of total deposits rose to 26.67%. Income Metrics: 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 was 5.98% (up 15 basis points from prior quarter), net interest margin was 3.37% (down 2 basis points from prior quarter).

• Loan Growth: Expect mid-single-digit loan growth in the fourth quarter.
• Purchase Strategy: Loans purchased from Bankers Health Group (BHG) capped at $300 million; Q4 expected to see some increase but then steady at $300 million.
• Dividend: Board declared a $0.20 per share cash dividend, payable November 12, 2024, to shareholders of record November 4, 2024.

• Forward-looking statements involve risks and uncertainties; for a complete discussion, refer to the company’s annual report on Form 10-K for the year ended December 31, 2023, and quarterly reports on Form 10-Q for the 3 months ended March 31, 2024, and June 30, 2024, particularly Item 1A, Risk Factors.

Q: Non-interest-bearing deposit growth granularity and future expectations?

A: One relationship accounted for ~20% of the increase, with the rest granular; expect Q4 increases, though not to Q3 extent but noticeable.

Q: Loan purchase strategy and pipeline?

A: BHG loans capped at $300 million; Q4 expected to have some increase, then steady at $300 million; loan growth in Q4 expected to be mid-single-digit.

Q: NIM and CD costs?

A: CDs reprice expected to cause rate decline; marginal loan yield for BHG purchases was 8.11% weighted average.

Q: Bay Area talent and pipeline?

A: Hiring pipeline good, attracting high-quality talent from various banks, with three biz dev candidates and others in pipeline.

Q: Deposit growth mix and churn?

A: Non-interest-bearing deposits from new relationship onboarding; no notable churn in non-wholesale interest-bearing deposits.