Q1 2023 Five Star Bancorp Earnings Call

Business I am pleased with these results as the first quarter is generally slower a generally slower periods of growth.

And I'm also pleased considering the current backdrop of intense competition on rates from other financial institutions.

And customers.

In response to recent events, we strengthened our liquidity position as our cash and cash equivalents to deposit ratio reached approximately 11, 9% as of March 31 2023.

I am pleased to note the stability of our net interest margin, which was 375% for the three months ended March 31 2023.

Additionally, our consistent disciplined management of expenses is seen in our efficiency ratio of approximately 36%.

We are carefully and purposely added to our deposit portfolio faster than our loan portfolio. This focus on deposits is integral to our priority of long term growth.

Net loans held for investment grew by approximately 3% or 12% annualized.

As of March 31, 2023 accumulated other comprehensive income as a proportion of total equity was 458%.

Debt securities constitute only 358% of interest earning assets.

Held to maturity securities constituted only one 1% as a proportion of interest earning assets.

And the company overview section, we have provided a brief overview of our geographic footprint.

And executive management team.

In the first quarter of 2023 exhibited continued execution of our growth strategy as evidenced by our earnings expense management balance sheet trends during the quarter. Additionally, loans deposits and total assets.

Have consistently grown since prior periods.

Our pipeline continues to remain solid at the end of the first quarter of 2023 within verticals. We have historically operated as presented in the loan portfolio diversification slide.

Loans held for investment increased during the quarter by $78 5 million or $2 eight 1% from the prior quarter.

Primarily within the commercial real estate concentration of the loan portfolio.

Loan originations during the quarter were approximately $135 million and payoffs were $56 5 million.

Asset quality continues to remain strong with nonperforming loans, representing only 0.0% to 1% of the portfolio remaining largely unchanged from the last several quarters.

At the end of the first quarter the allowance for credit losses totaled $34 2 million on January one 2023, we adopted ASC 326, and recorded an adjustment to the allowance for credit losses of approximately $5 3 million for.

The day one entry.

We recorded a <unk> 9 million provision for credit losses during the quarter primarily related to loan growth.

The ratio of the allowance for credit losses to total loans held for investment was $1, 109% at quarter end.

Loans designated as substandard totaled approximately $4 million at the end of the quarter.

Which was largely unchanged from the previous quarter.

Now that we have discussed the loan portfolio I will continue onto deposits and capital.

During the first quarter deposits increased by $138 4 million or 497% as compared to the previous quarter.

Noninterest bearing deposits as a percent of total positive at the end of the first quarter decreased to 28, 6% from 34 and 34, 9% at being earned at the end of the previous quarter.

To offer a more detail.

On our deposit composition I want to highlight that the positive accounts totaling at least 5 million constituted approximately 64% of total deposits and.

And the average age of these accounts was approximately 10 years.

Local agency depositors accounted for approximately 25% of all deposits.

And the average deposit account balance was approximately 280000.

At March 31 2023.

Okay.

As highlighted earlier, we are pleased we've had net deposit inflows for the three months of March 30 ended March 31, 2023 <unk>.

Including inflows during the month of March.

Being able to hold and grow deposit accounts supports our differentiated customer centric model that customers trust and value.

As seen through the mix of high dollar accounts and the length of time, we've had certain customer relationships.

We believe we have a reliable core deposit base.

We've had strong deposit growth over the last several several quarters.

Orders with deposit balances, increasing when compared to the prior quarter.

Noninterest bearing deposits.

Increased by $136 million, while interest bearing deposits increased by $270 million.

The cost of total deposits was 135 basis points during the first quarter.

We continue to be well capitalized.

With all capital ratios, well above regulatory thresholds for the quarter.

Our CET one ratio increased from $8, 99% to nine 2% between December 31, 2022, and March 31 2023. This change includes the effect of the adoption of ASC 326 on January one.

One 2023.

Which resulted in a day one decrease to retained earnings of approximately $4 5 million net.

Net of the tax effect.

Where the day, one impact is phased into regular regulatory capital over three years.

Our CET. One also includes the effect of continuing to make dividend payments, which reduces CET one.

On Friday April 21, we announced a declaration by our board of a cash dividend dividend of 20.

Per share on the company's voting common stock expected to be paid on May 15, 2023 to shareholders of record as of May eight 2023.

On that note I will hand, it over to Heather to discuss the results of operations further.

Thank you Jane and Hello, everyone.

Net income for the quarter was $13 2 million return on average asset was 165%.

Return on average equity was 29, 4%.

Average loan yield for the quarter with 536% record representing an increase of 24 basis points over the prior quarter is driven by the rate increases that have continued for the last 12 months.

Our net interest margin was 375% for the quarter, while net interest margin for the prior quarter was 383%.

Consistent with exit expectations with Hal mentioned with health net interest margin despite pressure from deposit costs.

As a result of changes in interest rate and other factors or other comprehensive income improved by $1 5 million drain at three months ended March 31, 2023, as unrealized losses net of tax effect declined on available for sale debt securities from 13.

$4 million as of December 31, 2022 to $11 9 million as at March 31, 2023.

Noninterest income decreased to $1 4 million in the first quarter from $1 6 million in the previous quarter due primarily to a $1 $1 million decrease in loan related fees on SBA loans due to fluctuations in volume and.

And a <unk> 1 million decrease in other income detailed onetime distribution received on an investment in a venture backed fund in the three months ended December 31 2022.

Noninterest expense grew by $4 million in the three months ended March 31, 2023 as compared to the three months ended December 31, 2022, primarily due to a $9 million increase largely related to increased employee compensation expense and lower alone.

Origination costs.

Partially offset by a decrease in other operating expenses of approximately $9 million.

Mainly due to a noncash charge and deferred financing costs.

$3 million on redemption of the subordinated debt in December 2022.

Now that we've discussed the overall results of operations I will now hand, it back to Jane provide some closing remarks.

Thank you Heather.

I want to thank everyone for joining us as we discuss first quarter results.

The strength of the bank's first quarter 2023 financial results is emblematic of our reputation built on trust speed to serve and certainty of execution, which supports our clients' success.

Our financial results.

There are also the result of a truly differentiated customer experience, which powers the demand for five star Bank relationship based services.

We attribute sustained success to our prudent business model and treating customers with an empathetic spirit understanding and care.

We're very proud to have earned the trust of those we serve including our shareholders.

Looking to the remainder of 2023, we will be guided by our focus on shareholder value as we monitor market conditions. We are confident in the company's resilience in any environment and we.

We'll continue to execute on our organic growth strategy and disciplined business practices, which we believe will benefit our customers employees community and shareholders.

We appreciate your time today. This concludes today's presentation now Heather and I will be happy to take any questions that you may have.

We will now begin the question and answer session to ask a question Bill style, Dan May Press Star then one on the telephone keypad.

Youre using a speakerphone please pick up your handset before pressing the keys.

If you wish to withdraw your question. Please press Star then two.

<unk> will be taken in the order that they are received.

Yes.

And again press star one to ask a question.

With no questions being presented this concludes the session I would like to turn the conference back over.

<unk> management for any closing remarks, thank you.

Well, we were hoping and anticipating.

Some questions and some dialogue but.

I know, it's a busy time for everybody and just wanted to make sure everybody knew that we were open for questions.

And happy to take them offline also.

So anyway. Thank you everybody five Star Bank Corp is on a continued pattern of growth as we execute our strategic initiatives, which include growing our verticals and geographies, while attracting and retaining talent our people technology operating efficiencies.

Conservative underwriting practices and expense management have also contributed to the success, we share with employees and shareholders.

Recent successes include the company, earning the number one ranking on the S&P Global market Intelligence intelligence annual rankings of 2022 best performing community banks emanation with assets between $3 billion to $10 billion.

We are very pleased to be recognized and believe this ranking builds on the trust, we have created with our customers and community.

The company also has a borrower financial superior rating of five out of five stars and IDC superior rating of 300 out of 300 to.

The company is also a super Premier performing bank with the Finley reports.

We are a driving force for economic development, a trusted resource for our customers and a committed advocate of our communities. We look forward to speaking with you again in July to discuss earnings for the second quarter of 2023.

Have a great day and thank you for listening.