Five Star Bancorp (FSBC) 25 Oct 222022 Q3 Earnings call transcript

Good day, everyone. And welcome to the Five Star Bancorp Third Quarter Earnings Webcast. Please note, this is a closed conference call and you are encouraged to listen via the webcast. After today’s presentation, there will be an opportunity for those provided with a dial-in numbers to ask question. [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. the to continuing things, pandemic impact trends may relate events plans, and statements results that the operating including of affect forward-looking among position. current other expectations, industry and These financial future company’s the COVID-XX and Such expectations. activities and from and results statements uncertainties future differ may involve materially risks these

event report results for please discussion from the non-GAAP well the information materially XX, presentation, Item figures, the complete more measures financial Risk the presentation, non-GAAP financial to which Please and December see this regarding year to is turn to in being this set a appendix at differ Factors information as Five I’d the the company’s Please the risks XX-K of like And in uncertainties recorded. to disclaimers Star to and forward-looking to go and Bancorp statements, two refer on that For floor most ahead. of presentation. may comparable the CEO. note annual President cause particular Form as to included the ended actual forward-looking in and this is XXXX, statements, industry Please forth directly over the XA GAAP in includes Beckwith, reconciliations data slide which James therein. company’s time, included

of Thank you quarter results XXXX. for third joining us the to review financial Five Star for Bancorp’s

today Luck, and Heather Financial Senior is me Officer. President Joining Vice Chief

In section, the was To provided at financial the website release, tab. a our that obtain click visit the overview and to included of released and the copy executive please of refer will fivestarbank.com geographic Relations brief information the today team. we comments footprint on a earnings in overview Our announcement have management yesterday. company Investor our

quarter. by of quarter execution our as XXXX trends management strategy, balance sheet growth evidenced earnings, third expense and exhibited during of our the The organic continued

and periods. prior total consistently grown assets Additionally loans, deposits have since the

primarily within XXXX quarter Loans for by have operated end held at the the in, $XXX.X of quarter real payoffs million. have investment within historically the in the continues and from as Loan of were concentration the slide. approximately as All of paid XXXX. were originations pipeline borrower the portfolio. the been during quarter, to remain prior during million PPP diversification substantial off the $XXX.X estate X.XX% or presented quarter the verticals or September increased forgiven by Our third the commercial XX, loans we portfolio loan million $XXX.X loan

of quarter total the million during to loan with X.XX% growth. substandard approximately for for to loans the losses was ratio previous losses primarily end. a loan $X.X representing loan quarters. X.XX% to several quality At At the The remain of loans were quarter, third no the from at $X.X the the loans related COVID-XX in on substandard representing of designated provision last million decrease strong the at as totaled end loans the a non-performing end, only decreasing slightly quarter, million $XX.X quarter approximately million. allowance of loan We for $X.X of recorded Asset quarter. the quarter, allowance there from continues Loans portfolio, totaled the end losses deferments.

results over have and I it Heather? capital portfolio, hand that to of loan discuss to Now Heather deposits, the we will the discussed operations.

everyone. Thank you, hello, James, and

quarter. quarter. the or decreased the total quarter third During previous end of by deposits to end Non-interest-bearing of X.XX% as the as $XXX million XX% from at the third percent deposits quarter, previous of a compared XX.X% deposits increased to the at the

the deposits $XX.X deposits XX deposits of during $XX.X while total the deposit prior million, We have cost had growth was strong interest-bearing quarter. increased the several basis with Non-interest-bearing increased compared deposit quarters last balances when million. to over points by increasing by The quarter. third

capital all well with quarter. be ratios We regulatory capitalized thresholds above the for continue to well

a September of of due notes, notes August amount will on XXXX $XX.X subordinated during fixed XX, Additionally, to and servicing costs million previously quarter. XX.XX%. was redeem XXXX, Five notes XXth. to floating on placement $XX debt for average we million equity return income issuance was used was remaining debt Net to rate of principal assets subordinated X.X% $XX.X completed quarter from of $XX the net X, reserves existing required the Star on aggregate in million, subordinated The December downstream be Bank million on and with private proceeds the the return average received

quarter period-over-period. the New basis loan prior representing the an yield loans Average increase drove originations balance for of of average quarter. increases X.XX%, loan daily XX over was in the points

as expenses those share tangible decline value in a loans these in $X of quarter on in loan to during decrease which gain while of million is quarter, previous loans that share, of quarter. book as relatively to book lower per was a the $X.X net the remained of Non-interest tangible referral a equity share sold each quarter swap the million, and related increase earned income interest a lower prior during and million interest in matters press completed was non-GAAP municipal fees the an value $X.X result corporate a This travel organizational incurred to in and X.XX% a mortgage-backed portfolios relating volumes of $X.X our offset million services to related related of the decline million attendance offset in and in in portfolios measure flat $X.X result decrease increased respectively. on curve with in for quarter, net of increases professional interest of by primarily X.X%. release. impact in fees the million in other and quarter-over-quarter, book $X related negative per in other company’s million million the expenses, a for expense due margin due The was for the of factors, quarter lower XXXX, from per increase conferences income, events, during yield margin rate combined incurred operating change during As in loan had resulting quarter million of quarter by travel professional a a net to securities other hikes the with to of to the were our tangible incurred. net due a $X.XX. amount for the quarter $X.X the declines occurred $X.X financial $X.X during third expenses expenses related decreases of discussed This primarily legal in further to million, quarter to sale decreased Non-interest to comprehensive our related reduced the $X.X accumulated income business result value earned

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

financial Thank the want The I quarter Bank’s which results. certainty third success. speed everyone of strength built serve quarter client’s is support you, to trust, a for thank joining our to Heather. third on execution, reputation on of of as emblematic the us discuss results and we built

sustained experience, Our an results business for customers financial Bank’s and Star prudent are a powers We customer of with services. result relationship-based Five truly model treating understanding care. through attribute our success which also empathetic spirit, and demand the the differentiated

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

market by Looking focus a to conditions. as be XXXX XXXX, monitor on remainder of we shareholder the and will guided value we

today. We interest time on We environment continue disciplined strategy shareholders. which to we community are our our This in and today’s will benefit growth we in confident rate business your any appreciate organic resilience presentation. and and company’s practices, will the employees, believe execute customers, concludes

have. might Heather be questions Now happy I and take you will any to

our go comes [Operator Instructions] ahead your first from Andrew And from Stephens. Terrell question. question today with Please

Hey. Good Good morning, Heather. morning, James.

Good Andrew. morning, you How doing?

guys? Good. are How you

shiny. here are We and bright

we think time. quarter. and any will I a here, cadence James, a growth kind on to would could assuming think resiliency just pipeline. specific I bit curious kind the quarter start, I Good. I for and thoughts Good. this think, in quarter’s comments that portfolio Maybe could better about loan strength? maybe of us than you moving areas forward call, from fourth moderation came loan of bit you drive better provide spoke strength about maybe that Thanks hear last the if if am the your in am on the but and in of kind about we anticipated a than expectation we growth think of I on then should of growth your for love

we Sure. the still into be the roll still We it did in third our same, it we expect loan loan it are growth don’t quarter experience but strong be be decent. growth the we a already, fourth as will and quarter, to -- into

its what peak. sit here today, Andrew, now substantially right was we pipeline it less at Our as than is

our of we And have so slow of things segments, verticals. all down all and our -- seen in we in expect

are growth the as at I growth. loan expect but Five Bank, growth for think, decent or loan it’s at loan been opportunities those we waning, Star still think that least I

As we comfortable an importantly, more annualized XX% into are to What’s basis loan move growth happened XX% in move we XXXX, on with and rates obviously, to loan forward, finishing as the all just the that’s rolling forward so spaces off up we is very deal segments estate real commercial across volume and in rates have is growth. cause, that slowdown think going some increased, I cap interest increased, have XXXX.

quarters throughout still same Now in was not it okay, but first the there, of is three the the XXXX. as business degree -- XX

pipeline? think industry about loan being across know kind Yeah. the of kind balance I you the growth XX% just that. to I range, of past of forward from sheet, you Understood. growth growth you core comfortable can perspective the of fund the growth And and as your XX% couple on has deposit other been can think you side of of to level appreciate tougher to speak maybe deposit seeing a are within Do going kind what you quarters. that loan

me of statement, about, believe fund XXXX. deposits team. into we business also we and the a We development well-developed roll core with me, the comfortable What Andrew that have year is about very gets remainder Sure. can excuse comfortable for we as that, that

that they and have the We incentives, to service we unique the that, that’s capability do, to have that’s think right have And their job the technology, deposits. we people right we are we right we our XX what have core in grow respect. really

thing it’s confident that. area of we do deposits. the to number pretty it’s be of do will So core one able we to deposits, grow I grow that that right trying now, top Certainly, feel emphasis is now are right probably an

of and do of all it’s in that. to our certainly So efforts all got attention our

we will I So that to very achieve that. confident be feel able

Okay.

anywhere growth, the our XXXX deposit am in growth to to a loan what going are that’s than have X% probably growth. more slightly of loan And we our than neighborhood X% say, of, between planning I in greater

expectations a in color. helpful appreciate came That’s curious good kind were Heather, of of on and the and it. the we bit expenses am non-interest if everything, than is a on base, about your gears, then cadence run know Maybe good. we should shift better I of of I pieces of inflation us Very quarter kind rate the expense this year remind probably curious, of think fourth a expense, kind heading your could expectations. lot you Okay. the I forecasting. I in into I throughout there’s the how can moving the the just think, XXXX?

Sure.

perspective. So, good events. going was where professional a of for timing are salaries to we wildcard think of a and just is The timing attendance of QX usually travel QX really expenses for proxy really from land

the recognizing in subordinated want the we additional though rather amortized the can there. of costs of would to will subordinated the of those be should with grant item I as and just will will recognizing walk we a debt I of and call you of total kind your of be of I take method model. about as original to issuance that assets we good were for XXX highlight One kind believe when QX redeemed do than that that date so previously note a that, think about expenses notes, be So date, you maturity percent good $XXX,XXX be we see tranches QX ratio kind is, a forward grow, proxy the it we then

million on I could, notes are Andrew, I through XXth. of that, if of subordinated this, a way to Just we you do December $XX.X that, the aware is to add all that have carry think, on

fourth XXXX. not that be we in So but dealing the quarter with in will

just So that. to of aware are make want you sure

flag. the appreciate I Absolutely. Yeah.

queue. Okay. on Congrats a hop I good the back and quarter Thanks for taking questions. in my will

you. Thank

ahead next Tenner D.A. our And your from go question from Gary with question. Please comes Davidson.

Thanks. questions Good morning. for to to I loan wanted quarter. deposit of about back the third the go growth kind

was there this growth quarter, fund that as the think, or to intra around kind commentary of the be I with that loan may and match ahead call an well pipeline expectation last quarter deposit. be on as maybe running the James, quarter, of loans able pipeline deposit of the

I -- disappointing, than a am flat, or Was quarter curious, net I the of in So was I last this quotes? guess growth am more and growth was if deposit just strong -- I loan versus that that. your so being obviously the was quarter deposit stronger put growth surprise positive loan the growth

Sure. we I mean, -- to that very with Yeah. fluid a are we see. flow it’s respect deal matter

We do will have a move some $X needle. $XX tenancy that million to of loans the million to

priced sponsorship they that frequently and up and they we have those and safe if come well have taken relative loans. so of opportunities, great are So advantage well, structured

than a But condition today. pipeline more we have substantial today that loan a pipeline. exists Gary, So still I was, deposit us. surprise for significantly we as our that’s That still sit, think, nice

know it’s thinking, a can more loans. is than don’t you wishful but developing I that core if I lengthy Now making deposits process lot tell

that So also industry think I the understands well. that

And customer, it it a so to major a takes lot takes onboard sometimes longer. --

pipeline efforts ongoing so take those are customer, board in and sometimes months months customers. to our deposit up deposit to nine on what could six it to a substantial And a that’s exist deposit and

grow on able we growth. greater I go expect and core XXXX, be very fact especially our us as to forward, bullish the being growth So, deposit than to in our am still of loan we and deposits,

quite am sticky, that comment? little think a I in-house the they more fair sure from I to conversion is be pipeline but in bringing appreciate door, them those I are are deposits that. might fickle, once

It takes longer.

Yeah.

Okay. that that non-interest sub-debt is -- I interest through through And that be income? that Heather, those your going $XXX,XXX, or then to cost the the -- is comment going are redeem, just, of on you so think, going for you said, expense is to to

interest That will be through income.

Okay.

$XXX,XXX.

Great. Thank you.

Yeah.

KBW. Instructions] question. ahead Our comes next [Operator Please your question go Lay from from with Woody

Hey. Good morning, guys.

Good morning.

was The over the rate that is ahead going from deposit think expect deposit to Do this forward? good a beta interest it’s calculation. bearing pretty you quarter to the quarters in up in XX% little beta fair or my run trend

pricing each customer. quarterly unique XX% -- and of see customized a since and looked think on all of basis. have at fair basis it still We you is a is, will what estimate, our monthly data And a I lot our is a to

XX% in And so on a even will the value, monthly basis, it for but quarter. it will about out peak

those Got the should debt it. expansion think noise see it additional or you forward? I the will then relatively know there going redemption. Do And about some and we stripping be some issuance in the how parts, could out NIM stable here? we just think But from moving NIM with

we XXXX X.X% look we on what it, as to as at of and to go are forward planning X.X% a anywhere we it’s between roll think basis we into Well, going that’s be see. kind and

it, they makes as our that. how to understand unique, our our with difficult what but predict, And to especially certainly arising to am And have have environment. so customers price we on to pricing -- And we will I funding in mentioned, going cost. in just say, rate we relationships execute Heather is deposit not

on think I maintain maintain X.X% our be deposit we are margins So and able basis. X.X% to going forward between beta go also and a that to XX%

point credit, to credit remained last from That classified shifting good view. an just And hear. of then clean NPA and to loan super

as borrowers, As the feeling you head the you talk how credit to quarter? fourth your about are we into environment

of loan recognize that But at cautious look stress. need borrowers think We our about our the are it, composition feel to -- very we have some you portfolio. Woody, I may also. look at good but of We some

is economic home lot and have loans We stable in asset we of think community class that a very mobile any environment.

class. And to we better recession asset so perform think than a it’s in going any other

we So bit protected, if you are we feel like will. a

at down this office it’s the CRE is not probably concentration, well wrong fact, very concern, our which Our a manageable. component, certainly and it’s top point in

focused good have credits they and segment sponsorship. we So particular are think we are that in that we got on good and

exist but are and we may do that quality a make to sure we credit, So today, take we quickly are credit mitigate are of act to risks. are downside that our reserving understand we appropriate that and we dark we clouds us comfortable that want we action any as here will ahead we prepared on with any

That’s right. Thanks, All great guys. color. all me. from That’s

Thank you.

follow-up. And our next follow-up is Terrell a question go with Stephens. your Please Andrew from from

question of all your dovetail or the kind you for of altering any credit. kind to the kind wanted last terms and current recently I Thanks just kind the at contemplating Hey. changes made portfolio more credit am off standards of go of the follow-up. of curious I just you range backdrop? underwriting have tightening of monitoring in if on forward are

changes of to so terms spreads have who what any put tell with in we whatnot, to have really I us, to you our and and In do borrowers they will deal in terms that that deal. business money more that going want forces are increased -- every our

their have so to sponsorship to that be payments significant. be down is going -- and much And more their

So to to that that and it’s interest increased make with, underwriting also business. good want -- be on but are are, very, to as it’s have There’s we one business at be solid particular but sure from we credit have move forward rate a really we to we very putting begin this risk. point got had, our to practices for solid. spreads But compensate we we

Yeah.

backdrop and build this X% us from Can think and capital the sheet you kind the of forward, remind your kind guess, Okay. balance metric current is, expectation CETX fair ratio is Board the ratio for to this across And on is growth just capital that targeted it capital then I your moving low of what quarter. kind of level? territory given

Yeah.

we planning going As years. our we are out, at our in going right for plan out of process looking middle look Heather, five plan our at the

we to we with a XX% be loan factor. growth able capital will believe levels So grow our

that So comfortable we with ratios. are current our scenario payout given that,

regulatory value we think we building book that and capital. So tangible will be

Yeah. And just do capital, that focus metric, you whether have metric or target kind you capital CETX total any on? targeted of and it’s

towards you have to we to X of We north very XX%, XX.X% target know been XX% Tier it oriented like historically, be capital. Well, capital. total

to Now that XX%. grow subordinated on trying to we did another debt, we that round focused of are

yet. there that’s get goal. not to are our there We to It’s quarters a take few but going

the ups. for Thanks follow Okay.

gentlemen, we end the floor like reached that, I’d remarks. any with over question-and-answer and the Ladies management today’s to have turn for of to session. closing back

Great. on Thank talent, execute Five At practices you. of success contributed share great Bancorp retaining verticals quarter for Five and our challenges growing growth operating January to and technology, thank Bancorp efficiencies, organic on the to a have shareholders. our day the for Star strategic a discuss the include underwriting speaking We and with XXXX. conservative management Star expense and robust you while is reward path initiatives, serving attracting of earnings which people, we of seize as you with and in intrinsic again we continued we to embrace employees our fourth geographies, Have and also others. opportunities, forward value look listening.

joining. We conclude And presentation. do with that, we thank you will today’s for

your You may lines. disconnect now