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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations and Principles of Consolidation

Nature of Operations and Principles of Consolidation

Five Star Bank (the “Bank”) was chartered on October 26, 1999 and began operations on December 20, 1999. Five Star Bancorp (“Bancorp” or the “Company”) was incorporated on September 16, 2002, and subsequently obtained approval from the Board of Governors of the Federal Reserve System (“Federal Reserve”) to be a bank holding company in connection with its acquisition of the Bank. The Company became the sole shareholder of the Bank on June 2, 2003 in a statutory merger, pursuant to which each outstanding share of the Bank’s common stock was exchanged for one share of common stock of the Company.

The Company, through the Bank, provides financial services to customers who are predominately small and middle-market businesses, professionals, and individuals residing in the northern California region. Its primary loan products are commercial real estate loans, land development loans, construction loans, and operating lines of credit; and its primary deposit products are checking accounts, savings accounts, money market accounts, and term certificate accounts. The Bank currently has seven branch offices in Roseville, Natomas, Rancho Cordova, Redding, Elk Grove, Chico, and Yuba City, and two loan production offices in Santa Rosa and Sacramento.

The Company terminated its status as a Subchapter S corporation as of May 5, 2021, in connection with the Company’s Initial Public Offering (“IPO”) and became a taxable C Corporation. Prior to that date, as an S Corporation, the Company had no U.S. federal income tax expense.

On April 9, 2021, the Company publicly filed a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) in connection with its IPO (the “Registration Statement”), which was subsequently amended on April 26, 2021 and May 3, 2021. The Registration Statement was declared effective by the SEC on May 4, 2021. In connection with the IPO, the Company issued 6,054,750 shares of common stock, no par value, which included 789,750 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares. The securities were sold to the public at a price of $20.00 per share and began trading on the Nasdaq Stock Market LLC on May 5, 2021. On May 7, 2021, the closing date of the IPO, the Company received total net proceeds of $111.2 million. The net proceeds less other related expenses, including audit fees, legal fees, listing fees, and other expenses totaled $109.1 million.

Basis of financial statement presentation and consolidation

Basis of financial statement presentation and consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and rules and regulations of the SEC, including the instructions to Regulation S-X. These interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in shareholders’ equity, and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, 2020, and the notes thereto, as filed in the Company’s Form S-1, which was declared effective by the SEC on May 4, 2021.

The unaudited consolidated financial statements include Five Star Bancorp and its wholly owned subsidiary, Five Star Bank. All significant intercompany transactions and balances are eliminated in consolidation.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2021.

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed, and financial performance is evaluated, on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

The Company’s accounting and reporting policies conform to GAAP and to general practices within the banking industry.

The Company qualifies as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, may take advantage of specified reduced reporting requirements and is relieved of other significant requirements that are otherwise generally applicable to other public companies.

Use of Estimates

Use of Estimates

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the amounts reported in the unaudited consolidated financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses is the most significant accounting estimate reflected in the Company’s consolidated financial statements.

Earnings Per Share (“EPS”)

Earnings Per Share (“EPS”)

Basic EPS is net income divided by the weighted average number of common shares outstanding during the period less average unvested restricted stock awards. Diluted EPS includes the dilutive effect of additional potential common shares related to unvested restricted stock awards using the treasury stock method. The Company has two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings, and therefore are considered participating securities. However, under the two-class method, the difference in EPS is not significant for these participating securities.

Schedule of Earning Per Share

		For the three months ended								For the six months ended
(in thousands, except per share data)		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
Net income		$	9,828			$	10,123			$	20,106			$	17,129
Weighted average basic common shares outstanding			14,650,208				9,671,455				12,824,125				9,670,361
Add: Dilutive effects of assumed vesting of restricted stock			17,596				—				8,841				—
Weighted average diluted common shares outstanding			14,667,804				9,671,455				12,832,966				9,670,361
Income per common share:
Basic EPS		$	0.67			$	1.05			$	1.57			$	1.77
Diluted EPS		$	0.67			$	1.05			$	1.57			$	1.77

During the three and six months ended June 30, 2021 and 2020, there were no outstanding stock options. Anti-dilutive shares, which are excluded from the dilutive EPS calculation, were deemed to be immaterial.

Pro forma EPS is calculated by applying a C Corporation effective tax rate of 29.56% to net income before provision for income taxes and using the determined pro forma net income balance to calculate EPS. The following reconciliation table provides a detailed calculation of pro forma EPS:

Schedule of Pro forma Earning Per Share

		For the three months ended								For the six months ended
(in thousands, except per share data)		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
Net income before provision for income taxes - GAAP		$	10,562			$	10,491			$	21,222			$	17,756
Pro forma provision for income taxes			(3,122	)			(3,101	)			(6,273	)			(5,249	)
Pro forma net income			7,440				7,390				14,949				12,507
Weighted average basic common shares outstanding			14,650,208				9,671,455				12,824,125				9,670,361
Add: Dilutive effects of assumed vesting of restricted stock			17,586				—				8,841				—
Weighted average diluted common shares outstanding			14,667,794				9,671,455				12,832,966				9,670,361
Income per common share:
Basic EPS		$	0.51			$	0.76			$	1.17			$	1.29
Diluted EPS		$	0.51			$	0.76			$	1.16			$	1.29

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