Five Star Bancorp Announces Third Quarter 2024 Results
RANCHO CORDOVA, Calif., Oct. 28, 2024 (GLOBE NEWSWIRE) -- 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 $10.9 million for the three months ended September 30, 2024, as compared to $10.8 million for the three months ended June 30, 2024 and $11.0 million for the three months ended September 30, 2023.
Third 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)
September 30, 2024
June 30, 2024
September 30, 2023
Return on average assets ("ROAA")
1.18
%
1.23
%
1.30
%
Return on average equity ("ROAE")
11.31
%
11.72
%
16.09
%
Pre-tax income
$
15,241
$
15,152
$
15,795
Pre-tax, pre-provision income(1)
17,991
17,152
16,845
Net income
10,941
10,782
11,045
Basic earnings per common share
$
0.52
$
0.51
$
0.64
Diluted earnings per common share
0.52
0.51
0.64
Weighted average basic common shares outstanding
21,182,143
21,039,798
17,175,034
Weighted average diluted common shares outstanding
21,232,758
21,058,085
17,194,825
Shares outstanding at end of period
21,319,583
21,319,583
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 are pleased to have opened a full-service office in San Francisco's Financial District on September 3rd, further demonstrating our commitment to serving clients and communities in the San Francisco Bay Area. The San Francisco Bay Area now has 24 employees contributing $189.0 million in deposits since the bank's expansion there began in June 2023. Five Star Bank's high-tech and high-touch, relationship-based and purpose-driven banking continues to earn the trust and respect of those we serve.
We are also pleased with strong third quarter results. Total loans held for investment increased by $194.3 million, or 5.95%, and total deposits increased by $250.3 million, or 7.95%, during the third quarter. Non-wholesale loans held for investment increased by $75.2 million, or 2.42%, and wholesale loans held for investment, which we define as purchased loans, increased by $119.1 million, or 76.91%, in each case during the third quarter of 2024. Non-wholesale deposits increased by $92.9 million, or 3.21%, and wholesale deposits, which we define as brokered deposits and public time deposits, increased by $157.4 million, or 62.35%, in each case during the third quarter of 2024. Short-term borrowings remained at zero as of June 30, 2024 and September 30, 2024. We attribute this growth to the continued demand for our differentiated customer experience and the strength of our team.
Although cost of funds increased 16 basis points to 2.72%, we were able to maintain net interest margin which decreased by only two basis points to 3.37% during the third quarter of 2024. Our efficiency ratio decreased to 43.37% compared to 44.07% for the second quarter of 2024, exhibiting our ability to preserve disciplined business practices and expense management as we expand our footprint. We are also pleased that, in addition to first and second quarter cash dividends in 2024, we declared a third quarter cash dividend of $0.20 per share, exemplifying our focus on shareholder value.
In addition to numerous awards received in the first half of 2024, Five Star Bancorp was included among the Piper Sandler Sm-All Stars Class of 2024 and was also ranked number five by Bank Director Magazine's RankingBanking study of the 2024 Best U.S. Banks with assets less than $5 billion. Bank Director Magazine's RankingBanking study also ranked Five Star Bancorp as number 18 among the 2024 Top 25 U.S. Banks. Furthermore, a member of the Company's leadership was recognized with a Sacramento Business Journal 40 Under 40 Award."
Financial highlights during the quarter included the following:
The Company's full-service office in San Francisco's Financial District opened on September 3, 2024. The San Francisco Bay Area team increased from 19 to 24 employees who generated deposit balances totaling $189.0 million at September 30, 2024, an increase of $27.7 million from June 30, 2024.
Cash and cash equivalents were $250.9 million, representing 7.38% of total deposits at September 30, 2024, as compared to 6.04% at June 30, 2024.
Total deposits increased by $250.3 million, or 7.95%, during the three months ended September 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 September 30, 2024, non-wholesale deposits increased by $92.9 million, or 3.21%, and wholesale deposits increased by $157.4 million.
The Company had no short-term borrowings at September 30, 2024 and June 30, 2024.
Consistent, disciplined management of expenses contributed to our efficiency ratio of 43.37% for the three months ended September 30, 2024, as compared to 44.07% for the three months ended June 30, 2024.
For the three months ended September 30, 2024, net interest margin was 3.37%, as compared to 3.39% for the three months ended June 30, 2024 and 3.31% for the three months ended September 30, 2023. The effective Federal Funds rate decreased to 4.83% as of September 30, 2024 from 5.33% at June 30, 2024 and September 30, 2023.
Other comprehensive income was $2.5 million during the three months ended September 30, 2024. Unrealized losses, net of tax effect, on available-for-sale securities were $9.7 million as of September 30, 2024. Total carrying value of held-to-maturity and available-for-sale securities represented 0.07% and 2.76% of total interest-earning assets, respectively, as of September 30, 2024.
The Company's common equity Tier 1 capital ratio was 10.93% and 11.27% as of September 30, 2024 and June 30, 2024, respectively. 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 September 30, 2024 was as follows:
(in thousands)
September 30, 2024
June 30, 2024
$ Change
% Change
Loans held for investment
$
3,460,565
$
3,266,291
$
194,274
5.95
%
Non-interest-bearing deposits
906,939
825,733
81,206
9.83
%
Interest-bearing deposits
2,493,040
2,323,898
169,142
7.28
%
(in thousands)
September 30, 2024
September 30, 2023
$ Change
% Change
Loans held for investment
$
3,460,565
$
3,009,930
$
450,635
14.97
%
Non-interest-bearing deposits
906,939
833,434
73,505
8.82
%
Interest-bearing deposits
2,493,040
2,198,776
294,264
13.38
%
The ratio of nonperforming loans to loans held for investment at period end decreased to 0.05% at September 30, 2024 from 0.06% at June 30, 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 September 30, 2024. The Company's Board of Directors subsequently declared another cash dividend of $0.20 per share on October 17, 2024, which the Company expects to pay on November 12, 2024 to shareholders of record as of November 4, 2024.
Summary Results
Three months ended September 30, 2024, as compared to three months ended June 30, 2024
The Company's net income was $10.9 million for the three months ended September 30, 2024, as compared to $10.8 million for the three months ended June 30, 2024. Net interest income increased by $1.3 million, primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates, as compared to the three months ended June 30, 2024. The provision for credit losses increased by $0.8 million, relating to loan growth and net charge-offs of $0.8 million in the three months ended September 30, 2024, as compared to the three months ended June 30, 2024. Non-interest income decreased by $0.2 million, primarily due to a reduction in gains from loans sold during the three months ended September 30, 2024, as compared to the three months ended June 30, 2024. Non-interest expense increased by $0.3 million, primarily related to increases in: (i) salaries and employee benefits; and (ii) data processing and software, as compared to the three months ended June 30, 2024.
Three months ended September 30, 2024, as compared to three months ended September 30, 2023
The Company's net income was $10.9 million for the three months ended September 30, 2024, as compared to $11.0 million for the three months ended September 30, 2023. Net interest income increased by $2.9 million, primarily due to an increase in interest income driven by higher yields on new and repriced loans, partially offset by an increase in interest expense due to larger average deposit balances at higher rates, as compared to the three months ended September 30, 2024. The provision for credit losses increased by $1.7 million, relating to loan growth and net charge-offs of $0.8 million in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. Non-interest income was unchanged from the three months ended September 30, 2023. Non-interest expense increased by $1.8 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)
September 30, 2024
June 30, 2024
$ Change
% Change
Selected operating data:
Net interest income
$
30,386
$
29,092
$
1,294
4.45
%
Provision for credit losses
2,750
2,000
750
37.50
%
Non-interest income
1,381
1,573
(192
)
(12.21
)%
Non-interest expense
13,776
13,513
263
1.95
%
Pre-tax income
15,241
15,152
89
0.59
%
Provision for income taxes
4,300
4,370
(70
)
(1.60
)%
Net income
$
10,941
$
10,782
$
159
1.47
%
Earnings per common share:
Basic
$
0.52
$
0.51
$
0.01
1.96
%
Diluted
0.52
0.51
0.01
1.96
%
Performance and other financial ratios:
ROAA
1.18
%
1.23
%
ROAE
11.31
%
11.72
%
Net interest margin
3.37
%
3.39
%
Cost of funds
2.72
%
2.56
%
Efficiency ratio
43.37
%
44.07
%
Three months ended
(in thousands, except per share data)
September 30, 2024
September 30, 2023
$ Change
% Change
Selected operating data:
Net interest income
$
30,386
$
27,476
$
2,910
10.59
%
Provision for credit losses
2,750
1,050
1,700
161.90
%
Non-interest income
1,381
1,384
(3
)
(0.22
)%
Non-interest expense
13,776
12,015
1,761
14.66
%
Pre-tax income
15,241
15,795
(554
)
(3.51
)%
Provision for income taxes
4,300
4,750
(450
)
(9.47
)%
Net income
$
10,941
$
11,045
$
(104
)
(0.94
)%
Earnings per common share:
Basic
$
0.52
$
0.64
$
(0.12
)
(18.75
)%
Diluted
0.52
0.64
(0.12
)
(18.75
)%
Performance and other financial ratios:
ROAA
1.18
%
1.30
%
ROAE
11.31
%
16.09
%
Net interest margin
3.37
%
3.31
%
Cost of funds
2.72
%
2.28
%
Efficiency ratio
43.37
%
41.63
%
Balance Sheet Summary
(in thousands)
September 30, 2024
December 31, 2023
$ Change
% Change
Selected financial condition data:
Total assets
$
3,887,004
$
3,593,125
$
293,879
8.18
%
Cash and cash equivalents
250,852
321,576
(70,724
)
(21.99
)%
Total loans held for investment
3,460,565
3,081,719
378,846
12.29
%
Total investments
106,958
111,160
(4,202
)
(3.78
)%
Total liabilities
3,497,074
3,307,351
189,723
5.74
%
Total deposits
3,399,979
3,026,896
373,083
12.33
%
Subordinated notes, net
73,859
73,749
110
0.15
%
Total shareholders' equity
389,930
285,774
104,156
36.45
%
Insured and collateralized deposits were approximately $2.2 billion, representing 63.90% of total deposits as of September 30, 2024. Net uninsured and uncollateralized deposits were approximately $1.2 billion as of September 30, 2024.
Commercial and consumer deposit accounts constituted 73.14% of total deposits. Deposit relationships of at least $5 million represented 60.58% of total deposits and had an average age of approximately 8.89 years as of September 30, 2024.
Cash and cash equivalents as of September 30, 2024 were $250.9 million, representing 7.38% of total deposits at September 30, 2024, as compared to 6.04% as of June 30, 2024.
Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth below) was approximately $1.8 billion as of September 30, 2024.
September 30, 2024
(in thousands)
Line of Credit
Letters of Credit Issued
Borrowings
Available
FHLB advances
$
1,123,388
$
567,500
$
—
$
555,888
Federal Reserve Discount Window
858,251
—
—
858,251
Correspondent bank lines of credit
175,000
—
—
175,000
Cash and cash equivalents
—
—
—
250,852
Total
$
2,156,639
$
567,500
$
—
$
1,839,991
The increase in total assets from December 31, 2023 to September 30, 2024 was primarily due to a $378.8 million increase in total loans held for investment, partially offset by a $70.7 million decrease in cash and cash equivalents. The $378.8 million increase in total loans held for investment between December 31, 2023 and September 30, 2024 was a result of $873.7 million in loan originations and advances, partially offset by $190.6 million and $304.2 million in loan payoffs and paydowns, respectively. The $378.8 million increase in total loans held for investment included $254.7 million in purchases of loans within the consumer concentration of the loan portfolio. The $70.7 million decrease in cash and cash equivalents primarily resulted from net cash outflows related to investing activities of $376.5 million, partially offset by net cash inflows related to financing and operating activities of $272.0 million and $33.8 million, respectively.
The increase in total liabilities from December 31, 2023 to September 30, 2024 was primarily due to an increase in interest-bearing deposits of $297.2 million, partially offset by a decrease in other borrowings of $170.0 million. The increase in interest-bearing deposits was largely due to increases in money market and time deposits of $264.1 million and $24.4 million, respectively.
The increase in total shareholders' equity from December 31, 2023 to September 30, 2024 was primarily a result of $80.9 million of additional common stock outstanding and net income recognized of $32.4 million, partially offset by $12.0 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)
September 30, 2024
June 30, 2024
$ Change
% Change
Interest and fee income
$
52,667
$
48,998
$
3,669
7.49
%
Interest expense
22,281
19,906
2,375
11.93
%
Net interest income
$
30,386
$
29,092
$
1,294
4.45
%
Net interest margin
3.37
%
3.39
