RANCHO CORDOVA, Calif., April 29, 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 $10.6 million for the three months ended March 31, 2024, as compared to $10.8 million for the three months ended December 31, 2023 and $13.2 million for the three months ended March 31, 2023. First 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) March 31,2024   December 31,2023   March 31,2023 Return on average assets ("ROAA")   1.22 %     1.26 %     1.65 % Return on average equity ("ROAE")   14.84 %     15.45 %     20.94 % Pre-tax income $ 14,961     $ 15,151     $ 18,501   Pre-tax, pre-provision income(1)   15,861       15,951       19,401   Net income   10,631       10,799       13,161   Basic earnings per common share $ 0.62     $ 0.63     $ 0.77   Diluted earnings per common share   0.62       0.63       0.77   Weighted average basic common shares outstanding   17,190,867       17,175,445       17,150,174   Weighted average diluted common shares outstanding   17,272,994       17,193,114       17,194,884   Shares outstanding at end of period   17,353,251       17,256,989       17,258,904   (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: "In the first quarter of 2024, we announced the launch and pricing of an underwritten public offering of 3,450,000 shares of our common stock with the intention of using the net proceeds for general corporate purposes, to support our continued growth, and for working capital. We are very pleased that the offering, which closed on April 2, 2024, was successful, which is a testimony to the strength of our organization and our reputation for providing a differentiated approach to purpose-driven banking. Following this offering, we look forward to the continued execution of our organic growth strategy as we focus on the San Francisco Bay Area market. We have hired seasoned professionals who are committed to maintaining and enhancing the Bank's reputation, which was built on trust, a speed to serve, and a certainty of execution in support of our clients' success. While there was continued margin compression in the first quarter, it is slowing compared to prior quarters. Our reliance on wholesale deposits decreased by $183.1 million, or 50.85%, during the first quarter of 2024 as a result of our strategy to grow less costly, non-wholesale deposits, which increased by $112.0 million, or 4.20%, during the first quarter. The continuation of disciplined business practices and expense management have resulted in an efficiency ratio of 44.50%. In the first quarter, we were pleased to have declared another cash dividend of $0.20 per share, which exemplifies our focus on shareholder value. To safeguard this value, we diligently monitor changing market conditions and are confident in the Bank's resilience in any interest rate environment. As we lean into 2024, we expect our forward momentum and accelerated growth to benefit our shareholders, employees, clients, and community." The Company's San Francisco Bay Area team increased to 15 employees who generated deposit balances totaling $96.2 million at March 31, 2024, an increase of $22.5 million from December 31, 2023. Cash and cash equivalents were $185.3 million, representing 6.27% of total deposits at March 31, 2024, as compared to 10.62% at December 31, 2023. Total deposits decreased by $71.1 million, or 2.35%, during the three months ended March 31, 2024, primarily due to significant decreases in wholesale deposits, which the Company defines as brokered deposits and public time deposits. During the three months ended March 31, 2024, brokered deposits decreased by $58.1 million, or 58.06%, and public time deposits decreased by $125.0 million, or 48.08%. Non-wholesale deposits increased by $112.0 million, or 4.20%, during the same period. The Company's short-term borrowings decreased by $50.0 million, or 29.41%, from $170.0 million at December 31, 2023 to $120.0 million at March 31, 2024. Consistent, disciplined management of expenses contributed to our efficiency ratio of 44.50% for the three months ended March 31, 2024. For the three months ended March 31, 2024, net interest margin was 3.14%, as compared to 3.19% for the three months ended December 31, 2023 and 3.75% for the three months ended March 31, 2023. The effective Federal Funds rate remained at 5.33% as of March 31, 2024 and December 31, 2023 and increased from 4.83% as of March 31, 2023. Other comprehensive loss was $0.7 million during the three months ended March 31, 2024. Unrealized losses, net of tax effect, on available-for-sale securities were $12.4 million as of March 31, 2024. Total held-to-maturity and available-for-sale securities represented 0.09% and 3.10% of total interest-earning assets, respectively, as of March 31, 2024. The Company's common equity Tier 1 capital ratio was 9.13% and 9.07% as of March 31, 2024 and December 31, 2023, respectively. The Bank continues to meet all requirements to be considered "well-capitalized" under applicable regulatory guidelines. Loan and deposit growth in the three months ended March 31, 2024 was as follows: (in thousands) March 31,2024   December 31,2023   $ Change   % Change Loans held for investment $ 3,104,130   $ 3,081,719   $ 22,411     0.73  % Non-interest-bearing deposits   817,388     831,101     (13,713 )   (1.65 )% Interest-bearing deposits   2,138,384     2,195,795     (57,411 )   (2.61 )%                 (in thousands) March 31,2024   March 31,2023   $ Change   % Change Loans held for investment $ 3,104,130   $ 2,869,848   $ 234,282     8.16  % Non-interest-bearing deposits   817,388     836,673     (19,285 )   (2.30 )% Interest-bearing deposits   2,138,384     2,083,733     54,651     2.62  % The ratio of nonperforming loans to loans held for investment at period end remained at 0.06% at March 31, 2024 and December 31, 2023. 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 March 31, 2024. The Company's Board of Directors subsequently declared another cash dividend of $0.20 per share on April 18, 2024, which the Company expects to pay on May 13, 2024 to shareholders of record as of May 6, 2024. Summary Results Three months ended March 31, 2024, as compared to three months ended December 31, 2023 The Company's net income was $10.6 million for the three months ended March 31, 2024, as compared to $10.8 million for the three months ended December 31, 2023. Net interest income increased by $0.1 million as increases in interest income more than offset increases in interest expense, with an increase in the average balance of interest-earning assets as the leading driver. The provision for credit losses increased by $0.1 million as increases in quantitative reserves more than offset reductions in reserves for qualitative factors in the three months ended March 31, 2024, as compared to the three months ended December 31, 2023. Non-interest income decreased by $0.1 million, primarily due to a reduction in gains from distributions on investments in venture-backed funds and the recognition of rate lock and swap referral fees, partially offset by a reduction in net losses on the sale of securities during the three months ended March 31, 2024, as compared to the three months ended December 31, 2023. Non-interest expense increased by $53.0 thousand as decreases in advertising, promotional, and other operating expenses were more than offset by increases in all other expenses. Three months ended March 31, 2024, as compared to three months ended March 31, 2023 The Company's net income was $10.6 million for the three months ended March 31, 2024, as compared to $13.2 million for the three months ended March 31, 2023. Net interest income decreased by $2.4 million as increases in interest expense exceeded increases in interest income, with increases in rates paid on interest-bearing liabilities as the leading driver. The provision for credit losses remained at $0.9 million as increases in quantitative reserves offset reductions in reserves for qualitative factors in the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Non-interest income increased by $0.5 million, primarily due to an increase in gains from distributions on investments in venture-backed funds, Federal Home Loan Bank of San Francisco ("FHLB") dividend income, and the recognition of rate lock and swap referral fees during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Non-interest expense increased by $1.6 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)   March 31,2024   December 31,2023   $ Change   % Change Selected operating data:                 Net interest income   $ 26,744     $ 26,678     $ 66     0.25  % Provision for credit losses     900       800       100     12.50  % Non-interest income     1,833       1,936       (103 )   (5.32 )% Non-interest expense     12,716       12,663       53     0.42  % Pre-tax income     14,961       15,151       (190 )   (1.25 )% Provision for income taxes     4,330       4,352       (22 )   (0.51 )% Net income   $ 10,631     $ 10,799     $ (168 )   (1.56 )% Earnings per common share:                 Basic   $ 0.62     $ 0.63     $ (0.01 )   (1.59 )% Diluted     0.62       0.63       (0.01 )   (1.59 )% Performance and other financial ratios:                 ROAA     1.22  %     1.26  %         ROAE     14.84  %     15.45  %         Net interest margin     3.14  %     3.19  %         Cost of funds     2.62  %     2.50  %         Efficiency ratio     44.50  %     44.25  %                               Three months ended         (in thousands, except per share data)   March 31,2024   March 31,2023   $ Change   % Change Selected operating data:                 Net interest income   $ 26,744     $ 29,148     $ (2,404 )   (8.25 )% Provision for credit losses     900       900       —     —  % Non-interest income     1,833       1,371       462     33.70  % Non-interest expense     12,716       11,118       1,598     14.37  % Pre-tax income     14,961       18,501       (3,540 )   (19.13 )% Provision for income taxes     4,330       5,340       (1,010 )   (18.91 )% Net income   $ 10,631     $ 13,161     $ (2,530 )   (19.22 )% Earnings per common share:                 Basic   $ 0.62     $ 0.77     $ (0.15 )   (19.48 )% Diluted     0.62       0.77       (0.15 )   (19.48 )% Performance and other financial ratios:                 ROAA     1.22  %     1.65  %         ROAE     14.84  %     20.94  %         Net interest margin     3.14  %     3.75  %         Cost of funds     2.62  %     1.53  %         Efficiency ratio     44.50  %     36.43  %           Balance Sheet Summary (in thousands)   March 31,2024   December 31,2023   $ Change   % Change Selected financial condition data:                 Total assets   $ 3,476,360   $ 3,593,125   $ (116,765 )   (3.25 )% Cash and cash equivalents     185,325     321,576     (136,251 )   (42.37 )% Total loans held for investment     3,104,130     3,081,719     22,411     0.73  % Total investments     108,006     111,160     (3,154 )   (2.84 )% Total liabilities     3,183,780     3,307,351     (123,571 )   (3.74 )% Total deposits     2,955,772     3,026,896     (71,124 )   (2.35 )% Subordinated notes, net     73,786     73,749     37     0.05  % Total shareholders' equity     292,580     285,774     6,806     2.38  % Insured and collateralized deposits were approximately $1.9 billion, representing approximately 63.02% of total deposits as of March 31, 2024. Net uninsured and uncollateralized deposits were approximately $1.1 billion as of March 31, 2024. Commercial and consumer deposit accounts constituted approximately 76% of total deposits. Deposit relationships of at least $5 million represented approximately 58% of total deposits and had an average age of approximately 8.64 years as of March 31, 2024. Cash and cash equivalents as of March 31, 2024 were $185.3 million, representing 6.27% of total deposits at March 31, 2024, as compared to 10.62% as of December 31, 2023. Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth below) was approximately $1.5 billion as of March 31, 2024.     March 31, 2024   Available (in thousands)   Line of Credit   Letters of Credit Issued   Borrowings   FHLB advances   $ 1,002,910   $ 571,500   $ 20,000   $ 411,410 Federal Reserve Discount Window     807,143     —     100,000     707,143 Correspondent bank lines of credit     175,000     —     —     175,000 Cash and cash equivalents     —     —     —     185,325 Total   $ 1,985,053   $ 571,500   $ 120,000   $ 1,478,878   The decrease in total assets from December 31, 2023 to March 31, 2024 was primarily due to a $136.3 million decrease in cash and cash equivalents, partially offset by a $22.4 million increase in total loans held for investment. The decrease in cash and cash equivalents primarily resulted from net cash used in financing and investing activities of $124.6 million and $11.9 million, respectively, partially offset by net cash provided from operating activities of $0.2 million. The $22.4 million increase in total loans held for investment between December 31, 2023 and March 31, 2024 was a result of $149.9 million in loan originations, partially offset by $77.2 million and $50.3 million in loan payoffs and paydowns, respectively. The decrease in total liabilities from December 31, 2023 to March 31, 2024 was primarily attributable to decreases in deposits and other borrowings of $71.1 million and $50.0 million, respectively. The decrease in deposits was largely due to decreases in wholesale deposits, interest-bearing demand deposits, and non-interest-bearing demand deposits of $183.1 million, $24.6 million, and $13.7 million, respectively, partially offset by an increase in money market deposits of $150.6 million. The increase in total shareholders' equity from December 31, 2023 to March 31, 2024 was primarily a result of net income recognized of $10.6 million, partially offset by $3.5 million in cash distributions paid during the period and an increase of $0.7 million in accumulated other comprehensive loss. 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)   March 31,2024   December 31,2023   $ Change   % Change Interest and fee income   $ 47,541     $ 46,180     $ 1,361     2.95  % Interest expense     20,797       19,502       1,295     6.64  % Net interest income   $ 26,744     $ 26,678     $ 66     0.25  % Net interest margin     3.14  %     3.19  %                               Three months ended         (in thousands)   March 31,2024   March 31,2023   $ Change   % Change Interest and fee income   $ 47,541     $ 40,311     $ 7,230     17.94  % Interest expense     20,797       11,163       9,634     86.30  % Net interest income   $ 26,744