Five Star Bancorp (NASDAQ:FSBC) Q4 2021 Earnings Conference Call February 1, 2022 1:00 PM ET Company Participants James Beckwith - President and Chief Executive Officer Heather Luck - Senior Vice President and Chief Financial Officer Conference Call Participants Stuart Lotz - KBW Andrew Terrell - Stephens Gary Tenner - D.A. Davidson Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you naviga ...

Financial Performance - Net income for the three months ended September 30, 2021, was $11,026 thousand, compared to $9,337 thousand for the same period in 2020, reflecting a year-over-year increase of 18.1%[17] - Net income for the nine months ended September 30, 2021, was $31,132,000, an increase of 17.8% compared to $26,466,000 for the same period in 2020[28] - For the three months ended September 30, 2021, the net income before provision for income taxes was $13,296 thousand, compared to $9,678 thousand for the same period in 2020, representing a year-over-year increase of approximately 37%[41] - The actual/pro forma net income for the nine months ended September 30, 2021, was $26,494 thousand, up from $19,325 thousand in 2020, indicating a growth of about 37%[41] Asset Growth - Total assets increased to $2,434,493 thousand as of September 30, 2021, up from $1,953,765 thousand at December 31, 2020, representing a growth of approximately 24.6%[14] - Total assets at September 30, 2021, were $226,638,000, up from $133,775,000 at December 31, 2020, reflecting a significant growth in the company's asset base[28] - Cash and cash equivalents increased to $530,832 thousand as of September 30, 2021, from $290,493 thousand at December 31, 2020, a growth of 82.7%[14] - Loans held for investment rose to $1,682,868,000, up from $1,480,970,000, indicating a growth of approximately 13.6%[58] Deposit Growth - Total deposits reached $2,168,394 thousand as of September 30, 2021, compared to $1,784,001 thousand at December 31, 2020, indicating an increase of 21.5%[14] - The net change in deposits was $384,393,000 for the nine months ended September 30, 2021, compared to $579,835,000 in 2020, indicating a robust deposit growth[28] - As of September 30, 2021, total interest-bearing deposits increased to $1,272.9 million from $1,088.3 million as of December 31, 2020, representing a growth of 16.9%[106] Shareholder Returns - The company declared cash dividends of $0.15 per share for the three months ended September 30, 2021, totaling $2,584 thousand[21] - Cash dividends paid increased to $49,359,000 for the nine months ended September 30, 2021, compared to $18,890,000 for the same period in 2020, indicating a higher return to shareholders[28] - The Company declared a dividend of $0.15 per common share on July 6, 2021, totaling $2.6 million[119] Loan Quality and Provisions - The provision for loan losses was $200 thousand for the nine months ended September 30, 2021, significantly lower than $6,000 thousand in the same period of 2020, indicating improved asset quality[17] - The provision for loan losses for the three months ended September 30, 2021, was $1,587,000, compared to a provision of $549,000 for the same period in 2020, indicating an increase of 188% year-over-year[101] - The allowance for loan losses was $21,848,000 as of September 30, 2021, slightly down from $22,189,000 as of December 31, 2020, showing a decrease of 1.5%[76] Taxation - The effective tax rate for the nine months ended September 30, 2021, was 23.25%, excluding a discrete deferred tax adjustment of $4.6 million[41] - The effective tax rate for the nine months ended September 30, 2021, was 23.25%, compared to 29.56% for the same period in 2020[117] - The provision for income taxes for the three months ended September 30, 2021, was $2.27 million, compared to $0.34 million for the same period in 2020[118] Securities and Investments - The fair value of available-for-sale securities as of September 30, 2021, was $153,821 thousand, compared to $114,949 thousand as of December 31, 2020, reflecting an increase of approximately 34%[52] - The company invests in a diverse portfolio including U.S. government agencies, mortgage-backed securities, and corporate bonds, reflecting a strategic approach to investment securities[65] - The company recorded derivatives at fair value based on observable Level 2 market inputs, with a total of $108 thousand for interest rate swaps as of September 30, 2021[52] Related Party Transactions - The company expects to continue banking transactions with related parties under normal terms and conditions[105] - The company maintains that related party transactions do not present significant risks of collectability[105] - Related party loans to insiders and affiliates amounted to $9.6 million at September 30, 2021, an increase from $1.6 million at December 31, 2020[105] Other Financial Metrics - The company raised $111,243,000 through a stock offering in 2021, contributing to its capital position[28] - The company had total financing availability of $523.3 million as of September 30, 2021, compared to $519.3 million as of December 31, 2020[112] - Letters of credit issued totaled $319.5 million as of September 30, 2021, an increase from $293.5 million as of December 31, 2020[113]

Financial Performance - Net interest income for the three months ended June 30, 2021, was $18,296 thousand, up from $15,583 thousand in the same period of 2020, representing a year-over-year increase of about 11%[15] - Net income for the six months ended June 30, 2021, was $20,106 thousand, compared to $17,129 thousand for the same period in 2020, marking an increase of approximately 12%[17] - Basic earnings per share for the three months ended June 30, 2021, was $0.67, down from $1.05 in the same period of 2020, indicating a decrease of about 36%[15] - Basic EPS for the three months ended June 30, 2021, was $0.51, down from $0.76 in the same period of 2020, indicating a decrease of approximately 32.9%[39] - Diluted EPS for the six months ended June 30, 2021, was $1.16, compared to $1.29 for the same period in 2020, representing a decrease of about 10.1%[39] - Pro forma net income for the three months ended June 30, 2021, was $7,440,000, compared to $7,390,000 for the same period in 2020, reflecting a slight increase[39] Asset Growth - Total assets increased to $2,327,867 thousand as of June 30, 2021, compared to $1,953,765 thousand at December 31, 2020, reflecting a growth of approximately 19%[13] - Total shareholders' equity increased to $218,314 thousand as of June 30, 2021, from $133,775 thousand at December 31, 2020, representing a growth of approximately 63%[13] - Cash and cash equivalents increased to $536,604 thousand as of June 30, 2021, compared to $290,493 thousand at December 31, 2020, reflecting a growth of about 85%[13] - Total cash and cash equivalents at the end of the period increased to $536,604,000 from $485,064,000 year-over-year, reflecting a growth of 10.4%[26] - Loans held for investment rose to $1,563,309 as of June 30, 2021, compared to $1,480,970 on December 31, 2020, marking an increase of 5.6%[56] - The total carrying value of loans held for investment increased to $1.6 billion as of June 30, 2021, compared to $1.5 billion as of December 31, 2020, representing a growth of 6.7%[73] Deposit Activity - Total deposits rose to $2,066,285 thousand as of June 30, 2021, from $1,784,001 thousand at December 31, 2020, an increase of approximately 16%[13] - The net change in deposits for the six months ended June 30, 2021, was $282,284,000, compared to $647,065,000 in 2020, showing a decline in deposit growth[26] - Total interest-bearing deposits increased to $1.237 billion as of June 30, 2021, from $1.088 billion at December 31, 2020[106] - Time deposits amounted to $54.7 million as of June 30, 2021, compared to $47.6 million at December 31, 2020[106] - Deposits from related parties totaled $57.8 million as of June 30, 2021, compared to $42.5 million at December 31, 2020[106] Expense and Provisions - Non-interest expense for the six months ended June 30, 2021, was $18,384 thousand, compared to $12,112 thousand for the same period in 2020, reflecting an increase of about 52%[15] - The provision for loan losses was $200 thousand for the six months ended June 30, 2021, significantly lower than $4,150 thousand in the same period of 2020, indicating improved asset quality[15] - The provision for loan losses for the three months ended June 30, 2021, was a recapture of $111,000, compared to a provision of $251,000 for the same period in 2020, indicating a decrease in provisions year-over-year[101] - Charge-offs for the three months ended June 30, 2021, totaled $255,000, while recoveries amounted to $137,000, resulting in a net charge-off of $118,000[101] Securities and Investments - As of June 30, 2021, the fair value of available-for-sale securities was $160,074,000, an increase from $114,949,000 as of December 31, 2020[50] - The total available-for-sale securities amounted to $160,074 as of June 30, 2021, compared to $114,949 on December 31, 2020, reflecting an increase of 39.1%[66] - The fair value of held-to-maturity securities was $6,858 as of June 30, 2021, down from $8,755 on December 31, 2020, indicating a decrease of 21.6%[64] - The company reported gross unrealized gains of $1,232 on available-for-sale securities as of June 30, 2021, compared to $1,761 on December 31, 2020, reflecting a decrease of 30.0%[66] Loan Quality and Management - The total allowance for loan losses allocation methodology was not detailed in the provided content, but it is a critical aspect of the financial health assessment[98] - The ending allowance balance for loan losses was $22,153,000 as of June 30, 2021, an increase from $16,491,000 as of June 30, 2020, reflecting a year-over-year growth of approximately 34.5%[101] - The total impaired loans as of June 30, 2021, were $431,000, with an average recorded investment of $442,000[92] - The total nonaccrual loans as of June 30, 2021, were $431,000, a decrease from $452,000 as of December 31, 2020[93] - Management regularly reviews the Company's loans for accuracy of risk grades, with monitoring intervals based on borrower type and loan complexity[87] Dividends and Shareholder Returns - The company declared cash dividends of $3.25 per share during the second quarter of 2021, compared to $0.50 per share in the same quarter of 2020[20] - Cash dividends paid for the six months ended June 30, 2021, amounted to $46,775,000, compared to $11,614,000 for the same period in 2020, representing a significant increase[26] - The Company declared a $0.80 per share dividend totaling $8.8 million on April 6, 2021, and an aggregate distribution of $27.0 million due to its conversion to a C Corporation[119] - The Company declared a dividend of $0.15 per common share on July 6, 2021, totaling $2.6 million[139] Regulatory and Compliance - The company is currently evaluating the impact of new accounting standards, including ASU No. 2016-02 on leases, which is effective for annual periods beginning after December 15, 2021[42] - The company anticipates that the transition to the CECL model under ASU No. 2016-13 may increase the allowance for loan losses at the adoption date, although the exact impact cannot be quantified at this time[43] - Management believes that legal proceedings will not materially affect the Company's financial position or results of operations[130]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission File Number 001-40379 FIVE STAR BANCORP (Exact name of Registrant as specified in its charter) | | Califor ...