RANCHO CORDOVA, Calif., Jan. 30, 2023 (GLOBE NEWSWIRE) — Five Star Bancorp (Nasdaq: FSBC) (the “Company” or “Five Star”), the holding company for Five Star Bank, today reported net income of $13.3 million for the three months ended December 31, 2022, as compared to $11.7 million for the three months ended September 30, 2022 and $11.3 million for the three months ended December 31, 2021. Net income for the year ended December 31, 2022 was $44.8 million, as compared to $42.4 million for the year ended December 31, 2021.
Financial Highlights
Performance highlights and other developments for the Company for the periods noted below included the following:
- Pre-tax net income, pre-tax, pre-provision net income, net income, and earnings per share were as follows for the periods indicated:
| Three months ended | ||||||||
| (dollars in thousands, except share and per share data) | December 31, 2022 |
September 30, 2022 |
December 31, 2021 |
|||||
| Pre-tax net income | $ | 18,769 | $ | 16,534 | $ | 12,630 | ||
| Pre-tax, pre-provision net income(1) | $ | 20,019 | $ | 18,784 | $ | 14,130 | ||
| Net income | $ | 13,282 | $ | 11,704 | $ | 11,309 | ||
| Basic earnings per common share | $ | 0.77 | $ | 0.68 | $ | 0.66 | ||
| Diluted earnings per common share | $ | 0.77 | $ | 0.68 | $ | 0.66 | ||
| Weighted average basic common shares outstanding | 17,143,920 | 17,140,435 | 17,096,230 | |||||
| Weighted average diluted common shares outstanding | 17,179,863 | 17,168,447 | 17,139,693 | |||||
| Shares outstanding at end of period | 17,241,926 | 17,245,983 | 17,224,848 | |||||
| Year ended | |||||
| (dollars in thousands, except share and per share data) | December 31, 2022 |
December 31, 2021 |
|||
| Pre-tax net income | $ | 62,858 | $ | 47,148 | |
| Pre-tax, pre-provision net income(1) | $ | 69,558 | $ | 48,848 | |
| Net income | $ | 44,801 | $ | 42,441 | |
| Basic earnings per common share | $ | 2.61 | $ | 2.83 | |
| Diluted earnings per common share | $ | 2.61 | $ | 2.83 | |
| Weighted average basic common shares outstanding | 17,128,282 | 14,972,637 | |||
| Weighted average diluted common shares outstanding | 17,165,610 | 14,995,213 | |||
| Shares outstanding at end of period | 17,241,926 | 17,224,848 | |||
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
- Loan and deposit growth was as follows at the dates indicated:
| (dollars in thousands) | December 31, 2022 |
September 30, 2022 |
$ Change | % Change | ||||||||
| Loans held for investment | $ | 2,791,326 | $ | 2,582,978 | $ | 208,348 | 8.07 | % | ||||
| Non-interest-bearing deposits | 971,246 | 1,020,625 | (49,379 | ) | (4.84 | )% | ||||||
| Interest-bearing deposits | 1,810,758 | 1,593,707 | 217,051 | 13.62 | % | |||||||
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | ||||||||
| Loans held for investment | $ | 2,791,326 | $ | 1,934,460 | $ | 856,866 | 44.29 | % | ||||
| Loans held for investment, excluding Paycheck Protection Program ("PPP") loans(1) | 2,791,326 | 1,912,336 | 878,990 | 45.96 | % | |||||||
| PPP loans | — | 22,124 | (22,124 | ) | (100.00 | )% | ||||||
| Non-interest-bearing deposits | 971,246 | 902,118 | 69,128 | 7.66 | % | |||||||
| Interest-bearing deposits | 1,810,758 | 1,383,772 | 426,986 | 30.86 | % | |||||||
(1) Loans held for investment, excluding PPP loans, is a non-GAAP measure. For reconciliation to the closest GAAP measure, loans held for investment, see table above.
- At December 31, 2022, the Company reported total loans held for investment, total assets, and total deposits of $2.8 billion, $3.2 billion, and $2.8 billion, respectively, as compared to $1.9 billion, $2.6 billion, and $2.3 billion, respectively, at December 31, 2021.
- The ratio of nonperforming loans to loans held for investment, or total loans at period end, decreased from 0.03% at December 31, 2021 to 0.01% at December 31, 2022.
- On December 15, 2022, the Company exercised its right of prepayment and redeemed subordinated notes with an aggregate principal amount of $28.8 million.
- The Company’s Board of Directors declared, and the Company subsequently paid, a cash dividend of $0.15 per share during the three months ended December 31, 2022.
- For the three months ended December 31, 2022, net interest margin was 3.83%, as compared to 3.86% for the three months ended September 30, 2022 and 3.67% for the three months ended December 31, 2021. For the year ended December 31, 2022, net interest margin was 3.75%, as compared to 3.64% for the year ended December 31, 2021.
- For the three months ended December 31, 2022, the Company’s return on average assets (“ROAA”) was 1.70% and return on average equity (“ROAE”) was 21.50%, as compared to ROAA and ROAE of 1.60% and 19.35%, respectively, for the three months ended September 30, 2022, and 1.82% and 19.15%, respectively, for the three months ended December 31, 2021. For the year ended December 31, 2022, the Company’s ROAA and ROAE were 1.57% and 18.80%, respectively, as compared to ROAA and ROAE of 1.86% and 22.49%, respectively, for the year ended December 31, 2021.
“While we focus on the future and maintaining a position of distinction and respect in the markets we serve, we proudly look back at 2022 as another outstanding year of consistent, sustainable financial performance. The bank achieved year-over-year growth in loans, a consistent shareholder dividend, and stable net interest margin. We managed expenses and executed on conservative underwriting practices, which continue to be foundational to our success,” said Five Star Bank President and Chief Executive Officer, James Beckwith.
“Five Star Bank consistently executes on client and community-focused initiatives, and in 2022, we received a Super Premier rating from Findley Reports, an IDC rating of three hundred out of three hundred, and a Bauer rating of ‘5’ stars. We were also awarded the prestigious 2021 Raymond James Community Bankers Cup, ranking in the top 10% of community banks in the nation. In 2022, our executives were awarded by the Sacramento Business Journal a C-Suite Award, a Women Who Mean Business honor, and a 40 Under 40 recognition. Being recognized as community leaders ensures Five Star Bank remains top-of-mind in the markets we serve as we continue to build-out our verticals. We are well-positioned to withstand an array of economic conditions as we enter 2023. I am humbled and proud of our team’s accomplishments and look forward to the future,” Beckwith concluded.
Summary Results
Three months ended December 31, 2022, as compared to three months ended September 30, 2022
The increase in the Company’s net income from the three months ended September 30, 2022 to the three months ended December 31, 2022 was primarily due to a $1.6 million increase in net interest income driven by an increase in average loan balances and higher yields earned on interest-earning assets during the period, along with $0.2 million of growth in other income. The increase in average assets was largely the result of an increase in average loans held for investment and sale funded by increases in average interest-bearing deposits, subordinated debt and other borrowings, combined with an increase in average equity related to earnings during the period.
Three months ended December 31, 2022, as compared to three months ended December 31, 2021
The increase in the Company’s net income from the three months ended December 31, 2021 to the three months ended December 31, 2022 was primarily due to an increase in net interest income of $7.8 million, driven by loan growth. This increase was partially offset by an increase in the provision for income taxes of $4.2 million and an increase in non-interest expense of $1.7 million due to operational growth. The increase in average assets was largely the result of an increase in average loans held for investment and sale funded by increases in average interest-bearing deposits, demand accounts, subordinated debt and other borrowings. The increase in average equity was primarily due to earnings growth, partially offset by an increase in accumulated other comprehensive loss period-over-period.
Year ended December 31, 2022, as compared to year ended December 31, 2021
The increase in the Company’s net income from the year ended December 31, 2021 to the year ended December 31, 2022 was primarily due to an increase in net interest income of $25.5 million, driven by loan growth. This increase was partially offset by: (i) a $13.4 million increase in the provision for income taxes due to an increase in tax rates caused by the Company’s transition from an S Corporation to a C Corporation during 2021; (ii) a $5.0 million increase in the provision for loan losses, largely due to loan growth; and (iii) a $4.6 million increase in non-interest expense due to operational growth. The increase in average assets was largely a result of an increase in average loans held for investment and sale, which was funded by an increase in average interest-bearing deposits, demand accounts, subordinated debt and other borrowings. The increase in average equity was primarily due to earnings growth, partially offset by an increase in accumulated other comprehensive loss year-over-year.
The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:
| Three months ended | |||||||||||||||
| (dollars in thousands, except per share data) | December 31, 2022 |
September 30, 2022 |
$ Change | % Change | |||||||||||
| Selected operating data: | |||||||||||||||
| Net interest income | $ | 29,135 | $ | 27,523 | $ | 1,612 | 5.86 | % | |||||||
| Provision for loan losses | 1,250 | 2,250 | (1,000 | ) | (44.44 | )% | |||||||||
| Non-interest income | 1,601 | 1,433 | 168 | 11.72 | % | ||||||||||
| Non-interest expense | 10,717 | 10,172 | 545 | 5.36 | % | ||||||||||
| Pre-tax net income | 18,769 | 16,534 | 2,235 | 13.52 | % | ||||||||||
| Provision for income taxes | 5,487 | 4,830 | 657 | 13.60 | % | ||||||||||
| Net income | $ | 13,282 | $ | 11,704 | $ | 1,578 | 13.48 | % | |||||||
| Earnings per common share: | |||||||||||||||
| Basic | $ | 0.77 | $ | 0.68 | $ | 0.09 | 13.24 | % | |||||||
| Diluted | $ | 0.77 | $ | 0.68 | $ | 0.09 | 13.24 | % | |||||||
| Performance and other financial ratios: | |||||||||||||||
| ROAA | 1.70 | % | 1.60 | % | |||||||||||
| ROAE | 21.50 | % | 19.35 | % | |||||||||||
| Net interest margin | 3.83 | % | 3.86 | % | |||||||||||
| Cost of funds | 1.16 | % | 0.62 | % | |||||||||||
| Efficiency ratio | 34.87 | % | 35.13 | % | |||||||||||
| Three months ended | |||||||||||||||
| (dollars in thousands, except per share data) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Selected operating data: | |||||||||||||||
| Net interest income | $ | 29,135 | $ | 21,358 | $ | 7,777 | 36.41 | % | |||||||
| Provision for loan losses | 1,250 | 1,500 | (250 | ) | (16.67 | )% | |||||||||
| Non-interest income | 1,601 | 1,790 | (189 | ) | (10.56 | )% | |||||||||
| Non-interest expense | 10,717 | 9,018 | 1,699 | 18.84 | % | ||||||||||
| Pre-tax net income | 18,769 | 12,630 | 6,139 | 48.61 | % | ||||||||||
| Provision for income taxes | 5,487 | 1,321 | 4,166 | 315.37 | % | ||||||||||
| Net income | $ | 13,282 | $ | 11,309 | $ | 1,973 | 17.45 | % | |||||||
| Earnings per common share: | |||||||||||||||
| Basic | $ | 0.77 | $ | 0.66 | $ | 0.11 | 16.67 | % | |||||||
| Diluted | $ | 0.77 | $ | 0.66 | $ | 0.11 | 16.67 | % | |||||||
| Performance and other financial ratios: | |||||||||||||||
| ROAA | 1.70 | % | 1.82 | % | |||||||||||
| ROAE | 21.50 | % | 19.15 | % | |||||||||||
| Net interest margin | 3.83 | % | 3.67 | % | |||||||||||
| Cost of funds | 1.16 | % | 0.16 | % | |||||||||||
| Efficiency ratio | 34.87 | % | 38.96 | % | |||||||||||
| Year ended | |||||||||||||||
| (dollars in thousands, except per share data) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Selected operating data: | |||||||||||||||
| Net interest income | $ | 103,070 | $ | 77,611 | $ | 25,459 | 32.80 | % | |||||||
| Provision for loan losses | 6,700 | 1,700 | 5,000 | 294.12 | % | ||||||||||
| Non-interest income | 7,157 | 7,280 | (123 | ) | (1.69 | )% | |||||||||
| Non-interest expense | 40,669 | 36,043 | 4,626 | 12.83 | % | ||||||||||
| Pre-tax net income | 62,858 | 47,148 | 15,710 | 33.32 | % | ||||||||||
| Provision for income taxes | 18,057 | 4,707 | 13,350 | 283.62 | % | ||||||||||
| Net income | $ | 44,801 | $ | 42,441 | $ | 2,360 | 5.56 | % | |||||||
| Earnings per common share: | |||||||||||||||
| Basic | $ | 2.61 | $ | 2.83 | $ | (0.22 | ) | (7.77 | )% | ||||||
| Diluted | $ | 2.61 | $ | 2.83 | $ | (0.22 | ) | (7.77 | )% | ||||||
| Performance and other financial ratios: | |||||||||||||||
| ROAA | 1.57 | % | 1.86 | % | |||||||||||
| ROAE | 18.80 | % | 22.49 | % | |||||||||||
| Net interest margin | 3.75 | % | 3.64 | % | |||||||||||
| Cost of funds | 0.57 | % | 0.19 | % | |||||||||||
| Efficiency ratio | 36.90 | % | 42.46 | % | |||||||||||
Balance Sheet Summary
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Selected financial condition data: | |||||||||||||||
| Total assets | $ | 3,227,159 | $ | 2,556,761 | $ | 670,398 | 26.22 | % | |||||||
| Cash and cash equivalents | 259,991 | 425,329 | (165,338 | ) | (38.87 | )% | |||||||||
| Total loans held for investment | 2,791,326 | 1,934,460 | 856,866 | 44.29 | % | ||||||||||
| Total investments | 119,744 | 153,753 | (34,009 | ) | (22.12 | )% | |||||||||
| Total liabilities | 2,974,334 | 2,321,715 | 652,619 | 28.11 | % | ||||||||||
| Total deposits | 2,782,004 | 2,285,890 | 496,114 | 21.70 | % | ||||||||||
| Subordinated notes, net | 73,606 | 28,386 | 45,220 | 159.30 | % | ||||||||||
| Total shareholders’ equity | 252,825 | 235,046 | 17,779 | 7.56 | % | ||||||||||
The increase in total assets from December 31, 2021 to December 31, 2022 was primarily due to a $856.9 million increase in total loans held for investment, partially offset by a $165.3 million decrease in cash and cash equivalents and a $34.0 million decrease in investments. The $856.9 million increase in total loans held for investment between December 31, 2021 and December 31, 2022 was a result of $1.4 billion in non-PPP loan originations, partially offset by $22.1 million in PPP loan forgiveness and payoffs received, and $491.7 million in non-PPP loan payoffs and paydowns.
The increase in total liabilities from December 31, 2021 to December 31, 2022 was primarily attributable to an increase in Federal Home Loan Bank of San Francisco ("FHLB") advances of $100.0 million, an increase in subordinated notes, net, of $45.2 million, and an increase in deposits of $496.1 million, largely due to increases in time deposits over $250 thousand, money market deposits, and non-interest-bearing deposits of $120.3 million, $161.0 million, and $69.1 million, respectively.
Total shareholders’ equity increased by $17.8 million from $235.0 million at December 31, 2021 to $252.8 million at December 31, 2022. The increase in total shareholders’ equity from December 31, 2021 to December 31, 2022 was primarily a result of net income recognized of $44.8 million, partially offset by a net decline of $12.9 million in other comprehensive income and $15.3 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 | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
September 30, 2022 |
$ Change | % Change | |||||||||||
| Interest and fee income | $ | 37,402 | $ | 31,646 | $ | 5,756 | 18.19 | % | |||||||
| Interest expense | 8,267 | 4,123 | 4,144 | 100.51 | % | ||||||||||
| Net interest income | $ | 29,135 | $ | 27,523 | $ | 1,612 | 5.86 | % | |||||||
| Net interest margin | 3.83 | % | 3.86 | % | |||||||||||
| Three months ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Interest and fee income | $ | 37,402 | $ | 22,253 | $ | 15,149 | 68.08 | % | |||||||
| Interest expense | 8,267 | 895 | 7,372 | 823.69 | % | ||||||||||
| Net interest income | $ | 29,135 | $ | 21,358 | $ | 7,777 | 36.41 | % | |||||||
| Net interest margin | 3.83 | % | 3.67 | % | |||||||||||
| Year ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Interest and fee income | $ | 117,918 | $ | 81,583 | $ | 36,335 | 44.54 | % | |||||||
| Interest expense | 14,848 | 3,972 | 10,876 | 273.82 | % | ||||||||||
| Net interest income | $ | 103,070 | $ | 77,611 | $ | 25,459 | 32.80 | % | |||||||
| Net interest margin | 3.75 | % | 3.64 | % | |||||||||||
The following table shows the components of net interest income and net interest margin for the quarterly periods indicated:
| Three months ended | |||||||||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| (dollars in thousands) | Average Balance |
Interest Income/ Expense |
Yield/ Rate | Average Balance |
Interest Income/ Expense |
Yield/ Rate | Average Balance |
Interest Income/ Expense |
Yield/ Rate | ||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Interest-earning deposits with banks | $ | 200,395 | $ | 1,841 | 3.64 | % | $ | 210,179 | $ | 1,145 | 2.16 | % | $ | 330,825 | $ | 143 | 0.17 | % | |||||||||
| Investment securities | 117,364 | 643 | 2.17 | % | 126,733 | 615 | 1.93 | % | 160,315 | 541 | 1.34 | % | |||||||||||||||
| Loans held for investment and sale | 2,703,865 | 34,918 | 5.12 | % | 2,494,468 | 29,886 | 4.75 | % | 1,815,627 | 21,569 | 4.71 | % | |||||||||||||||
| Total interest-earning assets | 3,021,624 | 37,402 | 4.91 | % | 2,831,380 | 31,646 | 4.43 | % | 2,306,767 | 22,253 | 3.83 | % | |||||||||||||||
| Interest receivable and other assets, net | 73,664 | 78,112 | 159,123 | ||||||||||||||||||||||||
| Total assets | $ | 3,095,288 | $ | 2,909,492 | $ | 2,465,890 | |||||||||||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||||||
| Interest-bearing transaction accounts | $ | 223,473 | $ | 174 | 0.31 | % | $ | 213,926 | $ | 115 | 0.21 | % | $ | 165,709 | $ | 42 | 0.10 | % | |||||||||
| Savings accounts | 136,753 | 247 | 0.72 | % | 103,142 | 65 | 0.25 | % | 84,290 | 21 | 0.10 | % | |||||||||||||||
| Money market accounts | 1,060,597 | 3,652 | 1.37 | % | 1,015,698 | 1,780 | 0.69 | % | 957,030 | 351 | 0.15 | % | |||||||||||||||
| Time accounts | 299,771 | 2,467 | 3.26 | % | 208,678 | 857 | 1.63 | % | 75,332 | 38 | 0.20 | % | |||||||||||||||
| Subordinated debt and other borrowings | 114,858 | 1,727 | 5.96 | % | 72,195 | 1,306 | 7.18 | % | 28,376 | 443 | 6.20 | % | |||||||||||||||
| Total interest-bearing liabilities | 1,835,452 | 8,267 | 1.79 | % | 1,613,639 | 4,123 | 1.01 | % | 1,310,737 | 895 | 0.27 | % | |||||||||||||||
| Demand accounts | 997,815 | 1,041,222 | 914,821 | ||||||||||||||||||||||||
| Interest payable and other liabilities | 17,002 | 14,687 | 5,988 | ||||||||||||||||||||||||
| Shareholders’ equity | 245,019 | 239,944 | 234,344 | ||||||||||||||||||||||||
| Total liabilities & shareholders’ equity | $ | 3,095,288 | $ | 2,909,492 | $ | 2,465,890 | |||||||||||||||||||||
| Net interest spread | 3.12 | % | 3.42 | % | 3.56 | % | |||||||||||||||||||||
| Net interest income/margin | $ | 29,135 | 3.83 | % | $ | 27,523 | 3.86 | % | $ | 21,358 | 3.67 | % | |||||||||||||||
Factors affecting interest income and yields
Interest income increased during the three months ended December 31, 2022, as compared to the three months ended September 30, 2022, due to the following:
- Rates. The average yields on interest-earning assets were 4.91% and 4.43% for the three months ended December 31, 2022 and September 30, 2022, respectively. The increase in yields period-over-period was primarily due to increases in yields earned on interest-earning deposits with banks, and increased yields earned on loans held for investment and sale originated in the current environment of rising interest rates.
- Volume. Average interest-earning assets increased by approximately $190.2 million period-over-period, driven by new loan originations during the three months ended December 31, 2022 which resulted in increases in the average daily balance of loans and contributed to the increase in interest income.
Interest income increased during the three months ended December 31, 2022, as compared to the three months ended December 31, 2021, due to the following:
- Rates. The average yields on interest-earning assets were 4.91% and 3.83% for the three months ended December 31, 2022 and December 31, 2021, respectively. The increase in yields period-over-period was primarily due to increases in yields earned on interest-earning deposits with banks and loans held for sale. Yields on the commercial real estate portfolio increased by 0.52% to 4.93% from 4.41% for the three months ended December 31, 2022 and December 31, 2021, respectively, due to increased rates on commercial real estate loans originated in the current rising rate environment.
- Volume. Average interest-earning assets increased by approximately $714.9 million period-over-period, primarily driven by new loan originations during the three months ended December 31, 2022 which resulted in increases in the average daily balance of loans and contributed to the increase in interest income.
Factors affecting interest expense and rates
Interest expense increased during the three months ended December 31, 2022, as compared to the three months ended September 30, 2022, due to the following:
- Rates. The average costs of interest-bearing liabilities were 1.79% and 1.01% for the three months ended December 31, 2022 and September 30, 2022, respectively. The increase in cost period-over-period was primarily due to increases in the rates paid on interest-bearing deposit accounts, with the most significant increases in rates paid on time and money market accounts. Rates on FHLB advances during the three months ended December 31, 2022 increased as compared to the three months ended September 30, 2022, but were offset by the rate paid on subordinated debt period-over-period. Additionally, the cost of funds increased from 0.62% for the quarter ended September 30, 2022 to 1.16% for the quarter ended December 31, 2022.
- Volume. Average interest-bearing liabilities increased by $221.8 million period-over-period, primarily driven by increases in average balances for time accounts and other borrowings, partially offset by the redemption of subordinated notes with an aggregate principal amount of $28.8 million.
Interest expense increased during the three months ended December 31, 2022, as compared to the three months ended December 31, 2021, due to the following:
- Rates. The average costs of interest-bearing liabilities were 1.79% and 0.27% for the three months ended December 31, 2022 and December 31, 2021, respectively. The increase in cost period-over-period was primarily due to increases in the rates paid on interest-bearing deposit accounts, with the most significant increases in rates paid on time and money market accounts. The rate paid on subordinated debt remained relatively consistent period-over-period, while FHLB advances had an average rate of 3.93% for the three months ended December 31, 2022, as compared to no FHLB advances for the three months ended December 31, 2021. Additionally, the cost of funds increased from 0.16% for the quarter ended December 31, 2021 to 1.16% for the quarter ended December 31, 2022.
- Volume. Average interest-bearing liabilities increased by $524.7 million period-over-period, primarily driven by increases in average balances for all types of interest-bearing deposit accounts, with the most substantial increases in time, money market, and interest-bearing transaction accounts period-over-period. Additionally, the issuance of $75.0 million of subordinated notes on August 17, 2022, combined with utilization of FHLB advances in the three months ended December 31, 2022, but not in the three months ended December 31, 2021, contributed to the increase in average interest-bearing liabilities period-over-period.
The following table shows the components of net interest income and net interest margin for the annual periods indicated:
| Year ended | ||||||||||||||||||
| December 31, 2022 | December 31, 2021 | |||||||||||||||||
| (dollars in thousands) | Average Balance |
Interest Income/ Expense |
Yield/ Rate | Average Balance |
Interest Income/ Expense |
Yield/ Rate | ||||||||||||
| Assets | ||||||||||||||||||
| Interest-earning deposits with banks | $ | 260,679 | $ | 3,696 | 1.42 | % | $ | 346,522 | $ | 547 | 0.16 | % | ||||||
| Investment securities | 131,353 | 2,427 | 1.85 | % | 147,519 | 2,142 | 1.45 | % | ||||||||||
| Loans held for investment and sale | 2,353,148 | 111,795 | 4.75 | % | 1,637,280 | 78,894 | 4.82 | % | ||||||||||
| Total interest-earning assets | 2,745,180 | 117,918 | 4.30 | % | 2,131,321 | 81,583 | 3.83 | % | ||||||||||
| Interest receivable and other assets, net | 99,946 | 148,830 | ||||||||||||||||
| Total assets | $ | 2,845,126 | $ | 2,280,151 | ||||||||||||||
| Liabilities and shareholders’ equity | ||||||||||||||||||
| Interest-bearing transaction accounts | $ | 242,221 | $ | 425 | 0.18 | % | $ | 155,163 | $ | 155 | 0.10 | % | ||||||
| Savings accounts | 107,010 | 376 | 0.35 | % | 74,402 | 74 | 0.10 | % | ||||||||||
| Money market accounts | 995,048 | 6,476 | 0.65 | % | 935,445 | 1,798 | 0.19 | % | ||||||||||
| Time accounts | 203,392 | 3,646 | 1.79 | % | 53,222 | 172 | 0.32 | % | ||||||||||
| Subordinated debt and other borrowings | 61,533 | 3,925 | 6.38 | % | 28,350 | 1,773 | 6.25 | % | ||||||||||
| Total interest-bearing liabilities | 1,609,204 | 14,848 | 0.92 | % | 1,246,582 | 3,972 | 0.32 | % | ||||||||||
| Demand accounts | 982,915 | 835,834 | ||||||||||||||||
| Interest payable and other liabilities | 14,709 | 8,984 | ||||||||||||||||
| Shareholders’ equity | 238,298 | 188,751 | ||||||||||||||||
| Total liabilities & shareholders’ equity | $ | 2,845,126 | $ | 2,280,151 | ||||||||||||||
| Net interest spread | 3.38 | % | 3.51 | % | ||||||||||||||
| Net interest income/margin | $ | 103,070 | 3.75 | % | $ | 77,611 | 3.64 | % | ||||||||||
Factors affecting interest income and yields
Interest income increased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to the following:
- Rates. The average yields on interest-earning assets were 4.30% and 3.83% for the years ended December 31, 2022 and December 31, 2021, respectively. The increase in yields period-over-period was primarily due to increases in yields earned on loans held for sale and interest-earning deposits with banks.
- Volume. Average interest-earning assets increased by approximately $613.9 million period-over-period, driven by new loan originations, which drove increases in the average daily balance of loans for the year ended December 31, 2022 and contributed to the increase in interest income.
Factors affecting interest expense and rates
Interest expense increased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to the following:
- Rates. The average costs of interest-bearing liabilities were 0.92% and 0.32% for the years ended December 31, 2022 and December 31, 2021, respectively. The increase in cost period-over-period was primarily due to increases in the rates paid on interest-bearing deposit accounts, with the most significant increases in rates paid on time and money market accounts, combined with an increase of 300 basis points on the rates paid on FHLB advances during the year ended December 31, 2022 as compared to the prior year. The rate paid on the new subordinated debt issuance remained relatively consistent with prior issuances. Additionally, the cost of funds increased from 0.19% for the year ended December 31, 2021 to 0.57% for the year ended December 31, 2022.
- Volume. Average interest-bearing liabilities increased by $362.6 million period-over-period, primarily driven by increases in average balances for all types of interest-bearing deposit accounts, with the most substantial increases in time, interest-bearing transaction, and money market accounts period-over-period. Additionally, the issuance of $75.0 million of subordinated notes due September 1, 2032 on August 17, 2022 contributed to the increase in average interest-bearing liabilities period-over-period.
Asset Quality
SBA PPP
All PPP loans had been forgiven or paid off by the borrower as of December 31, 2022.
Allowance for Loan Losses
At December 31, 2022, the Company’s allowance for loan losses was $28.4 million, as compared to $23.2 million at December 31, 2021. The $5.2 million increase is due to a $6.7 million provision for loan losses recorded during the twelve months ended December 31, 2022, offset by net charge-offs of $1.6 million during the same period. At December 31, 2022, the Company’s ratio of nonperforming loans to loans held for investment decreased from 0.03% at December 31, 2021 to 0.01%, primarily due to a decrease in the Company’s nonperforming commercial secured loans. Loans designated as substandard decreased to $0.4 million at December 31, 2022, from $10.6 million at December 31, 2021. This resulted in a net reduction of $0.2 million in reserves related to classified loans, offset by an increase in the provision for loan losses related to loan growth that occurred during 2022. There were no loans with doubtful risk grades at December 31, 2022 or December 31, 2021.
A summary of the allowance for loan losses by loan class is as follows:
| December 31, 2022 | December 31, 2021 | |||||||||||||
| (dollars in thousands) | Amount | % of Total | Amount | % of Total | ||||||||||
| Real estate: | ||||||||||||||
| Commercial | $ | 19,216 | 67.69 | % | $ | 12,869 | 55.37 | % | ||||||
| Commercial land and development | 54 | 0.19 | % | 50 | 0.22 | % | ||||||||
| Commercial construction | 645 | 2.27 | % | 371 | 1.60 | % | ||||||||
| Residential construction | 49 | 0.17 | % | 50 | 0.22 | % | ||||||||
| Residential | 175 | 0.62 | % | 192 | 0.83 | % | ||||||||
| Farmland | 644 | 2.27 | % | 645 | 2.78 | % | ||||||||
| Commercial: | ||||||||||||||
| Secured | 6,975 | 24.57 | % | 6,687 | 28.77 | % | ||||||||
| Unsecured | 116 | 0.41 | % | 207 | 0.89 | % | ||||||||
| Consumer and other | 347 | 1.22 | % | 889 | 3.82 | % | ||||||||
| Unallocated | 45 | 0.16 | % | 1,111 | 4.78 | % | ||||||||
| 28,266 | 99.57 | % | 23,071 | 99.28 | % | |||||||||
| Individually evaluated for impairment: | ||||||||||||||
| Commercial secured | 123 | 0.43 | % | 172 | 0.72 | % | ||||||||
| Total allowance for loan losses | $ | 28,389 | 100.00 | % | $ | 23,243 | 100.00 | % | ||||||
The ratio of allowance for loan losses to loans held for investment, or total loans at period end, was 1.02% at December 31, 2022, as compared to 1.20% at December 31, 2021. Excluding PPP loans, the ratios of the allowance for loan losses to loans held for investment were 1.02% and 1.22% at December 31, 2022 and December 31, 2021, respectively. The decline in the ratio of allowance for loan losses to loans held for investment period-over-period is primarily due to a decline in classified loans and improvement in the historical loss factors for the SBA portfolio during 2022. The ratio of the allowance for loan losses to loans held for investment, excluding PPP loans, is considered a non-GAAP financial measure. See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.
Beginning January 1, 2023, the Company will adopt Accounting Standards Update 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Utilizing CECL may have an impact on our allowance for loan losses going forward and may result in a lack of comparability between 2022 and 2023 quarterly periods.
Non-interest Income
Three months ended December 31, 2022, as compared to the three months ended September 30, 2022
The following table presents the key components of non-interest income for the periods indicated:
| Three months ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
September 30, 2022 |
$ Change | % Change | |||||||||||
| Service charges on deposit accounts | $ | 97 | $ | 132 | $ | (35 | ) | (26.52 | )% | ||||||
| Gain on sale of loans | 637 | 548 | 89 | 16.24 | % | ||||||||||
| Loan-related fees | 407 | 447 | (40 | ) | (8.95 | )% | |||||||||
| FHLB stock dividends | 193 | 152 | 41 | 26.97 | % | ||||||||||
| Earnings on bank-owned life insurance ("BOLI") | 119 | 102 | 17 | 16.67 | % | ||||||||||
| Other income | 148 | 52 | 96 | 184.62 | % | ||||||||||
| Total non-interest income | $ | 1,601 | $ | 1,433 | $ | 168 | 11.72 | % | |||||||
Gain on sale of loans. The increase in gain on sale of loans resulted primarily from an increase in the volume of loans sold. During the three months ended December 31, 2022, loans totaling $14.5 million were sold with an effective yield of 4.40% compared to the three months ended September 30, 2022, when loans totaling $10.5 million were sold with an effective yield of 5.20%.
Other income. The increase in other income resulted primarily from a $0.1 million gain recorded on a distribution received on an investment in a venture-backed fund, which did not occur during the three months ended September 30, 2022.
Three months ended December 31, 2022, as compared to the three months ended December 31, 2021
The following table presents the key components of non-interest income for the periods indicated:
| Three months ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Service charges on deposit accounts | $ | 97 | $ | 116 | $ | (19 | ) | (16.38 | )% | ||||||
| Net gain on sale of securities | — | 15 | (15 | ) | (100.00 | )% | |||||||||
| Gain on sale of loans | 637 | 1,072 | (435 | ) | (40.58 | )% | |||||||||
| Loan-related fees | 407 | 391 | 16 | 4.09 | % | ||||||||||
| FHLB stock dividends | 193 | 102 | 91 | 89.22 | % | ||||||||||
| Earnings on BOLI | 119 | 57 | 62 | 108.77 | % | ||||||||||
| Other income | 148 | 37 | 111 | 300.00 | % | ||||||||||
| Total non-interest income | $ | 1,601 | $ | 1,790 | $ | (189 | ) | (10.56 | )% | ||||||
Gain on sale of loans. The decrease in gain on sale of loans related primarily to an overall decline in the effective yields on loans sold due to uncertainty surrounding the timing of rising interest rates during the three months ended December 31, 2022 compared to the three months ended December 31, 2021. During the three months ended December 31, 2022, approximately $14.5 million of loans were sold with an effective yield of 4.40%, as compared to approximately $9.7 million of loans sold with an effective yield of 9.38% during the three months ended December 31, 2021. Additionally, a $1.8 million consumer loan portfolio was sold for a net gain of approximately $0.2 million during the three months ended December 31, 2021, which did not occur during the three months ended December 31, 2022.
Other income. The increase in other income resulted primarily from a $0.1 million gain recorded on a distribution received on an investment in a venture-backed fund in the three months ended December 31, 2022, which did not occur during the three months ended December 31, 2021.
Year ended December 31, 2022, as compared to the year ended December 31, 2021
The following table presents the key components of non-interest income for the periods indicated:
| Year ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Service charges on deposit accounts | $ | 467 | $ | 424 | $ | 43 | 10.14 | % | |||||||
| Net gain on sale of securities | 5 | 724 | (719 | ) | (99.31 | )% | |||||||||
| Gain on sale of loans | 2,934 | 4,082 | (1,148 | ) | (28.12 | )% | |||||||||
| Loan-related fees | 2,207 | 1,306 | 901 | 68.99 | % | ||||||||||
| FHLB stock dividends | 546 | 372 | 174 | 46.77 | % | ||||||||||
| Earnings on BOLI | 412 | 237 | 175 | 73.84 | % | ||||||||||
| Other income | 586 | 135 | 451 | 334.07 | % | ||||||||||
| Total non-interest income | $ | 7,157 | $ | 7,280 | $ | (123 | ) | (1.69 | )% | ||||||
Net gain on sale of securities. The decrease in net gain on sale of securities resulted primarily from the sale of approximately $47.1 million of municipal securities, U.S. government agency securities, and U.S. Treasuries during the year ended December 31, 2021, resulting in a $0.7 million gain, compared to the sale of approximately $1.5 million of municipal securities, resulting in a gain of $5.0 thousand during the year ended December 31, 2022.
Gain on sale of loans. The decrease in gain on sale of loans related primarily to an overall decline in the effective yields on loans sold due to uncertainty of the timing and magnitude of rising interest rates during the year ended December 31, 2022 compared to the year ended December 31, 2021. During the year ended December 31, 2022, approximately $50.8 million of loans were sold with an effective yield of 5.78%, as compared to approximately $41.4 million of loans sold with an effective yield of 9.46% during the year ended December 31, 2021. Additionally, a $1.8 million consumer loan portfolio was sold for a net gain of approximately $0.2 million during the year ended December 31, 2021, which did not occur during the year ended December 31, 2022.
Loan-related fees. The increase in loan-related fees was primarily a result of: (i) an increase of $0.6 million in swap referral fees; (ii) an increase of $0.2 million in program fees earned for loans originated and serviced by a third party; and (iii) a $0.2 million increase in fee income recognized in the year ended December 31, 2022 compared to the year ended December 31, 2021. These increases were partially offset by a decline of $0.1 million in loan referral income recognized during the year ended December 31, 2022 compared to the year ended December 31, 2021.
FHLB stock dividends. The increase in FHLB stock dividends primarily relates to an increase in FHLB Class B shares held for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Earnings on BOLI. The increase in earnings on BOLI related primarily due to an additional BOLI policy purchased during the year ended December 31, 2022. Earnings on this policy were only recognized during the year ended December 31, 2022, and did not occur during the year ended December 31, 2021.
Other income. The increase in other income resulted primarily from a $0.4 million gain recorded on two distributions received on investments in two venture-backed funds during the year ended December 31, 2022, which did not occur during the year ended December 31, 2021.
Non-interest Expense
Three months ended December 31, 2022, as compared to the three months ended September 30, 2022
The following table presents the key components of non-interest expense for the periods indicated:
| Three months ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
September 30, 2022 |
$ Change | % Change | |||||||||||
| Salaries and employee benefits | $ | 5,698 | $ | 5,645 | $ | 53 | 0.94 | % | |||||||
| Occupancy and equipment | 511 | 515 | (4 | ) | (0.78 | )% | |||||||||
| Data processing and software | 839 | 797 | 42 | 5.27 | % | ||||||||||
| Federal Deposit Insurance Corporation (“FDIC”) insurance | 245 | 195 | 50 | 25.64 | % | ||||||||||
| Professional services | 553 | 792 | (239 | ) | (30.18 | )% | |||||||||
| Advertising and promotional | 568 | 512 | 56 | 10.94 | % | ||||||||||
| Loan-related expenses | 358 | 262 | 96 | 36.64 | % | ||||||||||
| Other operating expenses | 1,945 | 1,454 | 491 | 33.77 | % | ||||||||||
| Total non-interest expense | $ | 10,717 | $ | 10,172 | $ | 545 | 5.36 | % | |||||||
Professional services. Professional services decreased, primarily as a result of $0.2 million of legal expenses incurred to support corporate organizational matters during the three months ended September 30, 2022, which did not recur in the three months ended December 31, 2022.
Other operating expenses. The increase in other operating expenses was primarily due to a $0.3 million increase related to previously unamortized subordinated debt issuance costs recognized within other operating expenses upon redemption of the subordinated notes in December 2022. The remainder of the increase related to expenses incurred for travel and fees paid for attendance of professional events, conferences, and other business-related events during the three months ended December 31, 2022, as compared to the three months ended September 30, 2022.
Three months ended December 31, 2022, as compared to the three months ended December 31, 2021
The following table presents the key components of non-interest expense for the periods indicated:
| Three months ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Salaries and employee benefits | $ | 5,698 | $ | 5,209 | $ | 489 | 9.39 | % | |||||||
| Occupancy and equipment | 511 | 544 | (33 | ) | (6.07 | )% | |||||||||
| Data processing and software | 839 | 656 | 183 | 27.90 | % | ||||||||||
| FDIC insurance | 245 | 160 | 85 | 53.13 | % | ||||||||||
| Professional services | 553 | 444 | 109 | 24.55 | % | ||||||||||
| Advertising and promotional | 568 | 499 | 69 | 13.83 | % | ||||||||||
| Loan-related expenses | 358 | 136 | 222 | 163.24 | % | ||||||||||
| Other operating expenses | 1,945 | 1,370 | 575 | 41.97 | % | ||||||||||
| Total non-interest expense | $ | 10,717 | $ | 9,018 | $ | 1,699 | 18.84 | % | |||||||
Salaries and employee benefits. The increase in salaries and employee benefits was primarily a result of: (i) a $0.3 million increase in salaries, insurance, and benefits as a result of a 9.20% increase in headcount; (ii) a $0.6 million decrease in loan origination costs due to lower production; and (iii) a $0.1 million increase in bonus expense recognized during the three months ended December 31, 2022, as compared to the three months ended December 31, 2021. These increases were partially offset by a $0.6 million decline in commissions expense due to lower production during the three months ended December 31, 2022 compared to the three months ended December 31, 2021.
Data processing and software. Data processing and software increased, 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) increased number of licenses required for new users on our loan origination and documentation system.
Professional services. Professional services increased, primarily due to increased audit and legal fees for services provided for the three months ended December 31, 2022 compared to the three months ended December 31, 2021.
Loan-related expenses. Loan-related expenses increased, primarily as a result of an overall increase in expenses incurred for insurance and taxes, loan legal fees, environmental reports, UCC fees, and inspections to support loan production in the three months ended December 31, 2022 compared to the three months ended December 31, 2021.
Other operating expenses. The increase in other operating expenses was primarily due to a $0.3 million increase related to previously unamortized subordinated debt issuance costs recognized as an other expense upon redemption of the subordinated notes in December 2022. The remainder of the increase related to: (i) $0.1 million of increased bank charges incurred related to correspondent bank and letter of credit fees incurred to support operations; (ii) $0.1 million of increased insurance expenses; and (iii) an overall increase in expenses incurred for travel and fees paid for attendance of professional events, conferences, and other business-related events during the three months ended December 31, 2022, as compared to the three months ended December 31, 2021.
Year ended December 31, 2022, as compared to the year ended December 31, 2021
The following table presents the key components of non-interest expense for the periods indicated:
| Year ended | |||||||||||||||
| (dollars in thousands) | December 31, 2022 |
December 31, 2021 |
$ Change | % Change | |||||||||||
| Salaries and employee benefits | $ | 22,571 | $ | 19,825 | $ | 2,746 | 13.85 | % | |||||||
| Occupancy and equipment | 2,059 | 1,938 | 121 | 6.24 | % | ||||||||||
| Data processing and software | 3,091 | 2,494 | 597 | 23.94 | % | ||||||||||
| FDIC insurance | 850 | 700 | 150 | 21.43 | % | ||||||||||
| Professional services | 2,467 | 3,792 | (1,325 | ) | (34.94 | )% | |||||||||
| Advertising and promotional | 1,908 | 1,300 | 608 | 46.77 | % | ||||||||||
| Loan-related expenses | 1,287 | 1,045 | 242 | 23.16 | % | ||||||||||
| Other operating expenses | 6,436 | 4,949 | 1,487 | 30.05 | % | ||||||||||
| Total non-interest expense | $ | 40,669 | $ | 36,043 | $ | 4,626 | 12.83 | % | |||||||
Salaries and employee benefits. The increase in salaries and employee benefits was primarily a result of a $3.6 million increase in salaries, insurance, and benefits as a result of a 9.20% increase in headcount and a $0.2 million increase in commissions expense related to increased production during the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was partially offset by an increase in loan origination costs of $1.0 million due to increased production during the year ended December 31, 2022, as compared to the year ended December 31, 2021.
Occupancy and equipment. The increase in occupancy and equipment was primarily the result of an overall increase in depreciation recognized for furniture, fixtures, and equipment that was purchased to support the 9.20% increase in headcount described above, combined with an overall increase in occupancy expenses period-over-period.
Data processing and software. The increase in data processing and software expenditures related primarily 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) increased number of licenses required for new users on our loan origination and documentation system.
FDIC insurance. The increase in FDIC insurance related primarily to an increase in the FDIC assessment base and asset growth for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Professional services. Professional services decreased, primarily as a result of expenses recognized during the year ended December 31, 2021 related to the increased audit, consulting, and legal costs incurred to support corporate organizational matters leading up to the Company’s initial public offering in May 2021, which did not recur during the year ended December 31, 2022.
Advertising and promotional. The increase in advertising and promotional costs was primarily related to increases in business development, marketing, and sponsorship expenses due to more in-person participation in events held during the year ended December 31, 2022, as compared to the year ended December 31, 2021.
Loan-related expenses. The increase in loan-related expenses related primarily to: (i) $0.1 million of increased UCC filing fees to support consumer loans originated; and (ii) an overall increase in expenses incurred for insurance and taxes, loan legal fees, environmental reports, and inspections to support loan production for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Other operating expenses. The increase in other operating expenses includes a $0.3 million increase related to previously unamortized subordinated debt issuance costs recognized as an other expense upon redemption of the subordinated notes in December 2022. The remainder of the increase related to: (i) $0.7 million for expenses incurred for travel and fees paid for attendance of professional events, conferences, and other business-related events; (ii) $0.3 million of increased bank charges incurred related to correspondent bank and letter of credit fees incurred to support operations; and (iii) $0.2 million of increased insurance expenses during the year ended December 31, 2022, as compared to the year ended December 31, 2021. The remainder of the change related to an overall increase in expenses to support the growth in customers period-over-period.
Provision for Income Taxes
Three months ended December 31, 2022, as compared to the three months ended September 30, 2022
Provision for income taxes for the quarter ended December 31, 2022 increased by $0.7 million, or 13.60%, to $5.5 million, as compared to $4.8 million for the quarter ended September 30, 2022, which was primarily due to the increase in taxable income recognized during the three months ended December 31, 2022.
Three months ended December 31, 2022, as compared to the three months ended December 31, 2021
Provision for income taxes increased by $4.2 million, or 315.37%, to $5.5 million for the three months ended December 31, 2022, as compared to $1.3 million for the three months ended December 31, 2021. This increase is due to an increase in taxable income, combined with an increase in the effective tax rate for each period, from 10.46% to 29.23% during the three months ended December 31, 2021 and December 31, 2022, respectively. The lower effective tax rate during the three months ended December 31, 2021 was driven by the Company’s termination of its Subchapter S Corporation status as of May 5, 2021 and using a blended statutory rate of 20.77% during the three months ended December 31, 2021. The 20.77% tax rate was calculated using the statutory California tax rate of 3.50% and the federal and state statutory rate, net of federal benefit, of 29.56% based on the number of days the Company was each type of corporation during 2021.
Year ended December 31, 2022, as compared to year ended December 31, 2021
Provision for income taxes increased by $13.4 million, or 283.62%, to $18.1 million for the year ended December 31, 2022, as compared to $4.7 million for the year ended December 31, 2021. This increase is due to an increase in taxable income, combined with an increase in the effective tax rate for each period, from 9.98% to 28.73% during the years ended December 31, 2021 and December 31, 2022, respectively. The lower tax rate used during the year ended December 31, 2021 was the result of the Company’s termination of its Subchapter S Corporation status as of May 5, 2021.
Webcast Details
Five Star Bancorp will host a webcast on Tuesday, January 31, 2023, at 1:00 p.m. ET (10:00 a.m. PT), to discuss its fourth quarter and annual 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. Five Star has seven branches and one loan production office 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, 2021 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 | ||||||||||||
| (dollars in thousands, except share and per share data) | December 31, 2022 |
September 30, 2022 |
December 31, 2021 |
|||||||||
| Revenue and Expense Data | ||||||||||||
| Interest and fee income | $ | 37,402 | $ | 31,646 | $ | 22,253 | ||||||
| Interest expense | 8,267 | 4,123 | 895 | |||||||||
| Net interest income | 29,135 | 27,523 | 21,358 | |||||||||
| Provision for loan losses | 1,250 | 2,250 | 1,500 | |||||||||
| Net interest income after provision | 27,885 | 25,273 | 19,858 | |||||||||
| Non-interest income: | ||||||||||||
| Service charges on deposit accounts | 97 | 132 | 116 | |||||||||
| Gain on sale of securities | — | — | 15 | |||||||||
| Gain on sale of loans | 637 | 548 | 1,072 | |||||||||
| Loan-related fees | 407 | 447 | 391 | |||||||||
| FHLB stock dividends | 193 | 152 | 102 | |||||||||
| Earnings on BOLI | 119 | 102 | 57 | |||||||||
| Other income | 148 | 52 | 37 | |||||||||
| Total non-interest income | 1,601 | 1,433 | 1,790 | |||||||||
| Non-interest expense: | ||||||||||||
| Salaries and employee benefits | 5,698 | 5,645 | 5,209 | |||||||||
| Occupancy and equipment | 511 | 515 | 544 | |||||||||
| Data processing and software | 839 | 797 | 656 | |||||||||
| FDIC insurance | 245 | 195 | 160 | |||||||||
| Professional services | 553 | 792 | 444 | |||||||||
| Advertising and promotional | 568 | 512 | 499 | |||||||||
| Loan-related expenses | 358 | 262 | 136 | |||||||||
| Other operating expenses | 1,945 | 1,454 | 1,370 | |||||||||
| Total non-interest expense | 10,717 | 10,172 | 9,018 | |||||||||
| Total income before taxes | 18,769 | 16,534 | 12,630 | |||||||||
| Provision for income taxes | 5,487 | 4,830 | 1,321 | |||||||||
| Net income | $ | 13,282 | $ | 11,704 | $ | 11,309 | ||||||
| Comprehensive Income | ||||||||||||
| Net income | $ | 13,282 | $ | 11,704 | $ | 11,309 | ||||||
| Net unrealized holding loss on securities available-for-sale during the period | 3,714 | (4,718 | ) | (762 | ) | |||||||
| Reclassification adjustment for net realized gains included in net income | — | — | (15 | ) | ||||||||
| Income tax benefit related to other comprehensive loss | 1,098 | (1,395 | ) | (231 | ) | |||||||
| Other comprehensive loss | 2,616 | (3,323 | ) | (546 | ) | |||||||
| Total comprehensive income | $ | 15,898 | $ | 8,381 | $ | 10,763 | ||||||
| Share and Per Share Data | ||||||||||||
| Earnings per common share: | ||||||||||||
| Basic | $ | 0.77 | $ | 0.68 | $ | 0.66 | ||||||
| Diluted | $ | 0.77 | $ | 0.68 | $ | 0.66 | ||||||
| Book value per share | $ | 14.66 | $ | 13.87 | $ | 13.65 | ||||||
| Tangible book value per share(1) | $ | 14.66 | $ | 13.87 | $ | 13.65 | ||||||
| Weighted average basic common shares outstanding | 17,143,920 | 17,140,435 | 17,096,230 | |||||||||
| Weighted average diluted common shares outstanding | 17,179,863 | 17,168,447 | 17,139,693 | |||||||||
| Shares outstanding at end of period | 17,241,926 | 17,245,983 | 17,224,848 | |||||||||
| Credit Quality | ||||||||||||
| Allowance for loan losses to period end nonperforming loans | 7,027.38 | % | 6,483.87 | % | 3,954.30 | % | ||||||
| Nonperforming loans to loans held for investment | 0.01 | % | 0.02 | % | 0.03 | % | ||||||
| Nonperforming assets to total assets | 0.01 | % | 0.01 | % | 0.02 | % | ||||||
| Nonperforming loans plus performing TDRs to loans held for investment | 0.01 | % | 0.02 | % | 0.03 | % | ||||||
| COVID-19 deferments to loans held for investment | — | % | — | % | 0.63 | % | ||||||
| Selected Financial Ratios | ||||||||||||
| ROAA | 1.70 | % | 1.60 | % | 1.82 | % | ||||||
| ROAE | 21.50 | % | 19.35 | % | 19.15 | % | ||||||
| Net interest margin | 3.83 | % | 3.86 | % | 3.67 | % | ||||||
| Loan to deposit | 100.67 | % | 99.22 | % | 85.09 | % | ||||||
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
| Year ended | ||||||||
| (dollars in thousands, except share and per share data) | December 31, 2022 |
December 31, 2021 |
||||||
| Revenue and Expense Data | ||||||||
| Interest and fee income | $ | 117,918 | $ | 81,583 | ||||
| Interest expense | 14,848 | 3,972 | ||||||
| Net interest income | 103,070 | 77,611 | ||||||
| Provision for loan losses | 6,700 | 1,700 | ||||||
| Net interest income after provision | 96,370 | 75,911 | ||||||
| Non-interest income: | ||||||||
| Service charges on deposit accounts | 467 | 424 | ||||||
| Gain on sale of securities | 5 | 724 | ||||||
| Gain on sale of loans | 2,934 | 4,082 | ||||||
| Loan-related fees | 2,207 | 1,306 | ||||||
| FHLB stock dividends | 546 | 372 | ||||||
| Earnings on BOLI | 412 | 237 | ||||||
| Other income | 586 | 135 | ||||||
| Total non-interest income | 7,157 | 7,280 | ||||||
| Non-interest expense: | ||||||||
| Salaries and employee benefits | 22,571 | 19,825 | ||||||
| Occupancy and equipment | 2,059 | 1,938 | ||||||
| Data processing and software | 3,091 | 2,494 | ||||||
| FDIC insurance | 850 | 700 | ||||||
| Professional services | 2,467 | 3,792 | ||||||
| Advertising and promotional | 1,908 | 1,300 | ||||||
| Loan-related expenses | 1,287 | 1,045 | ||||||
| Other operating expenses | 6,436 | 4,949 | ||||||
| Total non-interest expense | 40,669 | 36,043 | ||||||
| Total income before taxes | 62,858 | 47,148 | ||||||
| Provision for income taxes | 18,057 | 4,707 | ||||||
| Net income | $ | 44,801 | $ | 42,441 | ||||
| Comprehensive Income | ||||||||
| Net income | $ | 44,801 | $ | 42,441 | ||||
| Net unrealized holding loss on securities available-for-sale during the period | (18,291 | ) | (1,475 | ) | ||||
| Reclassification adjustment for net realized gains included in net income | (5 | ) | (724 | ) | ||||
| Income tax benefit related to other comprehensive loss | (5,408 | ) | (288 | ) | ||||
| Other comprehensive loss | (12,888 | ) | (1,911 | ) | ||||
| Total comprehensive income | $ | 31,913 | $ | 40,530 | ||||
| Share and Per Share Data | ||||||||
| Earnings per common share: | ||||||||
| Basic | $ | 2.61 | $ | 2.83 | ||||
| Diluted | $ | 2.61 | $ | 2.83 | ||||
| Book value per share | $ | 14.66 | $ | 13.65 | ||||
| Tangible book value per share(1) | $ | 14.66 | $ | 13.65 | ||||
| Weighted average basic common shares outstanding | 17,128,282 | 14,972,637 | ||||||
| Weighted average diluted common shares outstanding | 17,165,610 | 14,995,213 | ||||||
| Shares outstanding at end of period | 17,241,926 | 17,224,848 | ||||||
| Credit Quality | ||||||||
| Allowance for loan losses to period end nonperforming loans | 7,027.38 | % | 3,954.30 | % | ||||
| Nonperforming loans to loans held for investment | 0.01 | % | 0.03 | % | ||||
| Nonperforming assets to total assets | 0.01 | % | 0.02 | % | ||||
| Nonperforming loans plus performing TDRs to loans held for investment | 0.01 | % | 0.03 | % | ||||
| COVID-19 deferments to loans held for investment | — | % | 0.63 | % | ||||
| Selected Financial Ratios | ||||||||
| ROAA | 1.57 | % | 1.86 | % | ||||
| ROAE | 18.80 | % | 22.49 | % | ||||
| Net interest margin | 3.75 | % | 3.64 | % | ||||
| Loan to deposit | 100.67 | % | 85.09 | % | ||||
(1) See the section entitled “Non-GAAP Reconciliation (Unaudited)” for a reconciliation of this non-GAAP financial measure.
| (dollars in thousands) | December 31, 2022 |
September 30, 2022 |
December 31, 2021 |
|||||||||
| Balance Sheet Data | ||||||||||||
| Cash and due from banks | $ | 32,561 | $ | 33,280 | $ | 136,074 | ||||||
| Interest-bearing deposits in banks | 227,430 | 284,389 | 289,255 | |||||||||
| Time deposits in banks | 9,849 | 10,216 | 14,464 | |||||||||
| Securities – available-for-sale, at fair value | 115,988 | 114,041 | 148,807 | |||||||||
| Securities – held-to-maturity, at amortized cost | 3,756 | 3,764 | 4,946 | |||||||||
| Loans held for sale | 9,416 | 11,015 | 10,671 | |||||||||
| Loans held for investment | 2,791,326 | 2,582,978 | 1,934,460 | |||||||||
| Allowance for loan losses | (28,389 | ) | (27,838 | ) | (23,243 | ) | ||||||
| Loans held for investment, net of allowance for loan losses | 2,762,937 | 2,555,140 | 1,911,217 | |||||||||
| FHLB stock | 10,890 | 10,890 | 6,723 | |||||||||
| Operating leases, right-of-use asset | 3,981 | 4,227 | — | |||||||||
| Premises and equipment, net | 1,605 | 1,694 | 1,773 | |||||||||
| BOLI | 14,669 | 14,550 | 11,203 | |||||||||
| Interest receivable and other assets | 34,077 | 31,364 | 21,628 | |||||||||
| Total assets | $ | 3,227,159 | $ | 3,074,570 | $ | 2,556,761 | ||||||
| Non-interest-bearing deposits | $ | 971,246 | $ | 1,020,625 | $ | 902,118 | ||||||
| Interest-bearing deposits | 1,810,758 | 1,593,707 | 1,383,772 | |||||||||
| Total deposits | 2,782,004 | 2,614,332 | 2,285,890 | |||||||||
| Subordinated notes, net | 73,606 | 102,028 | 28,386 | |||||||||
| FHLB advances | 100,000 | 105,000 | — | |||||||||
| Operating lease liability | 4,243 | 4,492 | — | |||||||||
| Interest payable and other liabilities | 14,481 | 9,460 | 7,439 | |||||||||
| Total liabilities | 2,974,334 | 2,835,312 | 2,321,715 | |||||||||
| Common stock | 219,543 | 219,286 | 218,444 | |||||||||
| Retained earnings | 46,736 | 36,042 | 17,168 | |||||||||
| Accumulated other comprehensive loss, net | (13,454 | ) | (16,070 | ) | (566 | ) | ||||||
| Total shareholders’ equity | $ | 252,825 | $ | 239,258 | $ | 235,046 | ||||||
| Total liabilities and shareholders’ equity | $ | 3,227,159 | $ | 3,074,570 | $ | 2,556,761 | ||||||
| Quarterly Average Balance Sheet Data | ||||||||||||
| Average loans held for investment and sale | $ | 2,703,865 | $ | 2,494,468 | $ | 1,815,627 | ||||||
| Average interest-earning assets | $ | 3,021,624 | $ | 2,831,380 | $ | 2,306,767 | ||||||
| Average total assets | $ | 3,095,288 | $ | 2,909,492 | $ | 2,465,890 | ||||||
| Average deposits | $ | 2,718,409 | $ | 2,582,666 | $ | 2,197,182 | ||||||
| Average total equity | $ | 245,019 | $ | 239,944 | $ | 234,344 | ||||||
| Capital Ratio Data | ||||||||||||
| Total shareholders’ equity to total assets | 7.83 | % | 7.78 | % | 9.19 | % | ||||||
| Tangible shareholders’ equity to tangible assets(1) | 7.83 | % | 7.78 | % | 9.19 | % | ||||||
| Total capital (to risk-weighted assets) | 12.46 | % | 13.94 | % | 13.98 | % | ||||||
| Tier 1 capital (to risk-weighted assets) | 8.99 | % | 9.21 | % | 11.44 | % | ||||||
| Common equity Tier 1 capital (to risk-weighted assets) | 8.99 | % | 9.21 | % | 11.44 | % | ||||||
| Tier 1 leverage ratio | 8.60 | % | 8.66 | % | 9.47 | % | ||||||
(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 net income is defined as net income plus provision for income taxes and provision for loan losses. The most directly comparable GAAP measure is pre-tax net income.
Allowance for loan losses to total loans held for investment, excluding PPP loans, is defined as allowance for loan losses, divided by total loans held for investment less PPP loans. The most directly comparable GAAP financial measure is allowance for loan losses to total loans held for investment.
The following reconciliation tables provide a more detailed analysis of these non-GAAP financial measures.
| Three months ended | ||||||||||||
| Pre-tax, pre-provision net income (dollars in thousands) |
December 31, 2022 |
September 30, 2022 |
December 31, 2021 |
|||||||||
| Net income | $ | 13,282 | $ | 11,704 | $ | 11,309 | ||||||
| Add: provision for income taxes | 5,487 | 4,830 | 1,321 | |||||||||
| Add: provision for loan losses | 1,250 | 2,250 | 1,500 | |||||||||
| Pre-tax, pre-provision net income | $ | 20,019 | $ | 18,784 | $ | 14,130 | ||||||
| Year ended | ||||||||
| Pre-tax, pre-provision net income (dollars in thousands) |
December 31, 2022 |
December 31, 2021 |
||||||
| Net income | $ | 44,801 | $ | 42,441 | ||||
| Add: provision for income taxes | 18,057 | 4,707 | ||||||
| Add: provision for loan losses | 6,700 | 1,700 | ||||||
| Pre-tax, pre-provision net income | $ | 69,558 | $ | 48,848 | ||||
| Total loans held for investment, excluding PPP loans (dollars in thousands) |
December 31, 2022 |
December 31, 2021 |
||||||
| Total loans held for investment | $ | 2,791,326 | $ | 1,934,460 | ||||
| Less: PPP loans | — | 22,124 | ||||||
| Total loans held for investment, excluding PPP loans | $ | 2,791,326 | $ | 1,912,336 | ||||
| Allowance for loan losses to total loans held for investment, excluding PPP loans (dollars in thousands) |
December 31, 2022 |
December 31, 2021 | ||||||
| Allowance for loan losses (numerator) | $ | 28,389 | $ | 23,243 | ||||
| Total loans held for investment | $ | 2,791,326 | $ | 1,934,460 | ||||
| Less: PPP loans | — | 22,124 | ||||||
| Total loans held for investment, excluding PPP loans (denominator) | $ | 2,791,326 | $ | 1,912,336 | ||||
| Allowance for loan losses to total loans held for investment, excluding PPP loans | 1.02 | % | 1.22 | % | ||||
Media Contact:
Heather Luck, CFO
Five Star Bancorp
(916) 626-5008
hluck@fivestarbank.com
Shelley Wetton, CMO
Five Star Bancorp
(916) 284-7827
swetton@fivestarbank.com
