Five Star Bancorp(FSBC)2025-02-28 20:04Financial Overview - As of December 31, 2024, Five Star Bancorp had total assets of 3.5 billion, and total deposits of 922.6 million in non-interest-bearing deposits, representing 25.61% of total deposits[39]. - The company's 49 largest deposit relationships, each over 1.8 billion, or 50.35% of total deposits as of December 31, 2024[44]. - The investment portfolio had a carrying value of 37.8 million as of December 31, 2024, reflecting management's judgment of probable losses in the loan portfolio[181]. Loan Portfolio - As of December 31, 2024, commercial real estate loans totaled 115.2 million in commercial land and construction loans, accounting for 3.26% of total loans before deferred fees as of December 31, 2024[28]. - As of December 31, 2024, the total commercial SBA portfolio held for investment was 1.4 billion, representing 38.68% of total loans held for investment[179]. - Commercial real estate loans represent a significant portion of the loan portfolio and involve higher credit risks, particularly during economic downturns[153]. Regulatory Environment - The company is subject to comprehensive supervision and regulation by federal and state banking laws, which may impact its growth and operations[72]. - The Company reported a common equity Tier 1 capital ratio of 11.02% as of December 31, 2024, exceeding the minimum requirement of 7.00%[93]. - The Bank's Tier 1 leverage ratio was 11.50% as of December 31, 2024, indicating it was "well-capitalized" under prompt corrective action provisions[93]. - The Company and the Bank are required to maintain a total capital to risk-weighted assets ratio of at least 10.50%[90]. - The Federal Reserve requires bank holding companies to obtain prior approval for acquisitions that would result in owning 5% or more of a bank's voting shares[78]. Risk Management - The board of directors oversees risk management processes, including quarterly assessments of various risk exposures[56][57]. - The Bank is subject to regular examinations by regulatory agencies, which can impact its operations and growth[99]. - The company is subject to various risks, including credit, market, liquidity, and compliance risks, which could adversely affect its financial condition and results of operations[139]. - The company may not adequately measure and limit credit risk, which could adversely affect profitability and result in increased provisions for credit losses[151]. - The company faces risks from rapid technological changes in the financial services industry, which could adversely affect its competitive position and profitability[147]. Market Conditions - Interest rate changes significantly impact the Bank's net interest income, with variable rate liabilities repricing faster than variable rate assets as of December 31, 2024[142]. - The Federal Reserve has indicated a potential decrease in the federal funds rate target range in 2025, which may affect the Bank's profitability[143]. - The Bank's operations are concentrated in Northern California, making it sensitive to local economic downturns[137]. - The Bank faces increasing competition from traditional and new financial services providers, which may pressure loan and deposit pricing[145]. - The rapid rise in interest rates during 2022 and 2023 has resulted in volatility and uncertainty in the banking system, impacting the company's financial condition[171]. Corporate Governance and Employee Relations - The company has 205 full-time employees and five part-time employees as of December 31, 2024, with no labor disagreements reported[61]. - Five Star provides a competitive compensation and benefits program, including annual bonuses and a 401(k) plan with employer matching contributions[62]. - Significant shareholders own approximately 34.47% of the company's common stock, allowing them to influence corporate activities and decisions[213]. - The company is classified as an "emerging growth company," allowing it to utilize reduced disclosure requirements, which may affect its attractiveness to investors[210]. - The company may not pay dividends in the future, and its ability to do so is subject to federal regulatory considerations[215]. Technology and Innovation - The company has made significant investments in information technology systems to enhance capabilities, improve customer experience, and support future growth[49]. - The majority of the company's systems, including electronic funds transfer and online banking services, are hosted by third-party service providers, ensuring scalability for growth[52]. - The company anticipates that model-derived insights will be used more widely in decision-making in the future, enhancing operational efficiency[148]. - The company is dependent on data and modeling for decision-making and regulatory compliance, with potential risks from faulty data or flawed quantitative approaches[148]. - The company may face increased costs and risks associated with foreclosure processes due to changes in consumer protection laws[161]. Environmental, Social, and Governance (ESG) - The company is committed to environmental, social, and governance (ESG) strategies, focusing on reducing its carbon footprint and supporting community initiatives[65][66]. - Federal, state, and local consumer lending laws may increase the company's risk of liability and compliance costs[176]. - The company is required to comply with anti-money laundering regulations, with potential penalties for deficiencies in its compliance program[206]. - The Bank received a "Satisfactory" rating in its most recent CRA evaluation, covering activities from 2021 to July 22, 2024[128]. - The final rule amending CRA regulations will apply to large banks, including the Bank, starting January 1, 2026, with new data reporting requirements effective January 1, 2027[130].