Yahoo Finance Five Star Bancorp (NASDAQ:FSBC) Q1 2024 Earnings Call Transcript
Five Star Bancorp (NASDAQ:FSBC) Q1 2024 Earnings Call Transcript April 30, 2024
Five Star Bancorp isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Five Star Bancorp First Quarter Earnings Webcast. Please note this is a closed conference call, and you are encouraged to listen via the webcast. [Operator Instructions]. Before we get started, let me remind you that today's meeting will include some forward-looking statements within the meaning of applicable securities laws. These forward-looking statements relate to among other things, current plans, expectations, events, and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from the company's forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2023, and in particular, the information set forth in Item 1A Risk Factors.
Please refer to slide 2 of the presentation, which includes disclaimers regarding forward-looking statements, industry data, and non-GAAP financial information included in this presentation. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP figures are included in the appendix to the presentation. Please note this event is being recorded. I would now like to turn the presentation over to James Beckwith, Five Star Bancorp's President and CEO. Please go ahead.
James Beckwith: Thank you for joining us to review Five Star Bancorp's financial results for the first quarter of 2024. Joining me today is Heather Luck, Senior Vice President and Chief Financial Officer. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy of the release, please visit our website at fivestarbank.com and click on the Investor Relations tab. Our organic growth story continued in the first quarter with the announcement of our underwritten public offering of 3.45 million shares of the bank's common stock and underwriter's option to purchase up to an additional 517,500 shares, with the intention of using the net proceeds for general corporate purposes to support our continued growth and for working capital.
We also added five more seasoned professionals to support our expansion in the San Francisco Bay Area market and continue to add new core deposit accounts and relationships as seen in the increase of non-wholesale deposits of $112 million in the three months ended March 31, 2024. Despite continued external headwinds, we maintained our ability to conservatively underwrite as evidenced by a 50% LTV on commercial real estate, manage expenses with our 45% efficiency ratio, and deliver value to our shareholders with our $0.20 per share dividends for the fourth quarter of 2023 and the first quarter of 2024. The first quarter of 2024 exhibited continued margin compression. Although slowing compared to prior quarters, we remain focused on the execution of our organic growth strategy, and we're able to maintain earnings and expense management trends during the quarter.
Loans have consistently grown since prior periods. The decrease in deposits and total assets during the quarter is the result of relying less on wholesale deposits and short-term borrowings, which positions us well for future growth. Our pipeline continues to remain solid at the end of the first quarter of 2024 within verticals we have historically operated in as presented in the loan portfolio diversification slide. Loans held for investment increased during the quarter by $22.4 million or 0.73% from the prior quarter, primarily within the consumer concentration of the loan portfolio. Loan originations during the quarter for approximately $149.9 million, while payoffs and paydowns were $77.2 million and $50.3 million, respectively. Asset quality continues to remain strong.
The non-performing loans increased beginning in the third quarter of 2023. They continued to represent only 0.06% of the portfolio at the end of the first quarter. At the end of the first quarter, the allowance for credit losses totaled $34.7 million. We recorded a $0.9 million provision for credit losses during the quarter, primarily related to the net effect of charge-offs, increases and qualitative reserves, and reduction in reserves for qualitative factors. The ratio of the allowance for credit losses to total loans held for investment was 1.12% at quarter end. Loans designated as substandard totaled approximately $1.9 million at the end of the quarter, which was a decrease from the $2.0 million at the end of the previous quarter. During the first quarter, deposits decreased by $71.1 million or 2.35% as compared to the previous quarter.
Non-interest-bearing deposits as a percentage of total deposits at the end of the first quarter increased slightly to 27.7% from 27.5% at the end of the previous quarter. As noted earlier, we are pleased we had a net non-wholesale deposit inflows for the three months ended March 31, 2024. Our ability to grow deposit accounts supports our differentiated customer-centric model that our customers trust and value has seen through the mix of high dollar accounts and the duration of certain customer relations. We believe we have a reliable core deposit base. To offer more detail on our deposit composition, I want to highlight that deposit relationships totaling at least $5 million constituted approximately 58% of total deposits. And the average age of these accounts was approximately nine years.
Local agency depositors accounted for approximately 24% of deposits as of March 31, 2024. Overall deposit balances have decreased when compared to the prior quarter as a result of our focus to rely less on costly wholesale deposits. Wholesale deposits, which we defined as broker deposits and public time deposits, decreased by $183.1 million. Non-wholesale deposits increased by $112 million, driven by a $125.7 million increase in interest-bearing deposits, partially offset by a $13.7 million decrease in non-interest-bearing deposits. Cost of total deposits was 253 basis points during the fourth quarter. We continue to be well capitalized with all capital ratios well above regulatory thresholds for the quarter. Our common equity Tier 1 ratio increase from 9.07% to 9.13% between December 31, 2023 and March 31, 2024.
On April 19, we announced the declaration by our Board of Directors a cash dividend of $0.20 per share on the company's voting common stock, expected to be paid on May 13, 2024, to shareholders of record as of May 6, 2024. On that note, I will hand it over to Heather to discuss the results of operations. Heather?
Heather Luck: Thank you, James, and hello, everyone. Net income for the quarter was $10.6 million. Return on average assets was 1.22% and return on average equity was 14.84%. Average loan yield for the quarter was 5.71%, representing an increase of 7 basis points over the prior quarter. Our net interest margin was 3.14% for the quarter, while net interest margin for the prior quarter was 3.19%. Fed rate increases in 2023 continue to put pressure on deposit costs. As a result of changes in interest rates and other factors, our other comprehensive loss was $0.7 million during the three months ended March 31, 2024, as unrealized losses, net of tax effect increased on available for sale debt securities from $11.8 million as of December 31, 2023 to $12.4 million as of March 31, 2024.
Non-interest income decreased to $1.8 million in the first quarter from $1.9 million in the previous quarter, due primarily to reductions in gains from distributions on investments in venture backed funds and the recognition of rate lock and swap referral fees during the three months ended March 31, 2024. The decreases were partially offset by reduction in net losses on the sale of securities, which did not occur in the first quarter of 2024. Non-interest expense grew by $53,000 in the three months ended March 31, 2024 compared to the three months ended December 31, 2023. This is primarily due to an increase in salaries and employee benefits, partially offset by declines in advertising and preferred promotional expenses as well as other operating expenses during the quarter.
Now that we have discussed the overall results of operations, I will now hand it back to James to provide some closing remarks.
James Beckwith: Thank you, Heather. I want to thank everyone for joining us as we discuss first-quarter results. Five Star Bank has a reputation built on trust, speed to serve, and certainty of execution, which support our clients' success, our financial performance to the result of a truly differentiated customer experience, which continues to power the demand for Five Star Bank's relationship-based services. We attribute sustained success to our prudent business model and treating customers with an empathetic spirit, understanding and care. We are very proud to have earned the trust of those we serve, including our shareholders. As we lean into 2024, we are guided by continued focus on shareholder value. As we monitor market conditions, we are confident in the company's resilience in any environment and remain focused on the future and our long-term strategy.
We will continue to execute on our organic growth and disciplined business practices, which we believe will benefit our customers, employees, community, and shareholders. We appreciate your time today. This concludes today's presentation. Now Heather and I will be happy to take any questions that you might have.
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