FIVE STAR BANCORP (FSBC)

Executive Summary

Net income for the three and six months ended June 30, 2026 totaled $19.4 million and $38.0 million, respectively, as compared to net income of $14.5 million and $27.6 million for the three and six months ended June 30, 2025, respectively.

The following are highlights of our operating and financial performance, and financial condition for the dates and periods presented:

•Deposits. Total deposits increased by $598.3 million, or 14.24%, from $4.2 billion at December 31, 2025 to $4.8 billion at June 30, 2026. Non-wholesale deposits increased by $813.3 million in the first six months of 2026 to $4.5 billion at June 30, 2026. Wholesale deposits, which the Company defines as brokered deposits and California Time Deposit Program deposits, decreased by $215.0 million in the first six months of 2026 to $250.0 million. Non-interest-bearing deposits increased by $89.9 million in the first six months of 2026 to $1.2 billion, and represented 24.47% of total deposits at June 30, 2026, as compared to 25.82% of total deposits at December 31, 2025. Our loan to deposit ratio was 94.17% at June 30, 2026, as compared to 97.00% at December 31, 2025.

•Assets. Total assets were $5.4 billion at June 30, 2026, representing a $622.2 million, or 13.09%, increase compared to $4.8 billion at December 31, 2025.

•Loans. Total loans held for investment were $4.5 billion at June 30, 2026, as compared to $4.1 billion at December 31, 2025, an increase of $444.8 million, or 10.91%. The increase was a result of $1.0 billion in loan originations and advances, partially offset by $162.1 million and $421.9 million in loan payoffs and paydowns, respectively.

•Credit Quality. Credit quality remains strong, with non-accrual loans representing $13.4 million, or 0.30% of total loans held for investment at June 30, 2026, as compared to $3.1 million, or 0.08% of total loans held for investment at December 31, 2025. This increase was due to a $10.3 million, or 331.20% increase in nonperforming loans due to one Community Reinvestment Act loan that was placed on non-accrual status during the period. The balance of the loan is $11.4 million as of June 30, 2026, and it was originally downgraded to substandard in 2025. This was partially offset by improvements across the remainder of the nonperforming loan portfolio. The ratio of the allowance for credit losses to total loans held for investment was 1.05% at June 30, 2026 and 1.09% at December 31, 2025.

•Net Interest Margin. Net interest margin was 3.63% and 3.66%, respectively, for the three and six months ended June 30, 2026, and 3.53% and 3.49%, respectively, for the three and six months ended June 30, 2025. The increase in net interest margin for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 is driven by balance sheet growth and a favorable shift in funding mix, which more than offset pressure from declining federal funds rates over the periods.

•Efficiency Ratio. Efficiency ratio was 40.91% for the three months ended June 30, 2026, down from 41.03% for the corresponding period of 2025, mainly due to a $9.6 million, or 26.20%, increase in net interest income during the same period, partially offset by a $3.9 million, or 24.74%, increase in non-interest expense. Additionally, efficiency ratio was 39.77% for the six months ended June 30, 2026, down from 41.77% for the corresponding period of 2025, mainly due to a $19.0 million, or 27.02%, increase in net interest income.

•Capital Ratios. All capital ratios were above well-capitalized regulatory thresholds as of June 30, 2026. The total risk-based capital ratio for the Company was 12.50% at June 30, 2026, as compared to 13.33% at December 31, 2025. The Tier 1 leverage ratio was 9.21% at June 30, 2026, as compared to 9.70% at December 31, 2025. For additional information about the regulatory capital requirements applicable to the Company and the Bank, see the section entitled “—Financial Condition Summary—Capital Adequacy” below.

•Dividends. The board of directors declared a cash dividend of $0.25 per share on April 16, 2026.

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Highlights of our financial results are presented in the following tables:

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1Tangible shareholders’ equity to tangible assets is considered a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measure. Tangible shareholders’ equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholders’ equity to total assets. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible shareholders’ equity to tangible assets is the same as total shareholders’ equity to total assets at the end of each of the periods indicated.

2Tangible book value per share is considered a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measure. Tangible book value per share is defined as total shareholders’ equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets at the end of any period indicated. As a result, tangible book value per share is the same as book value per share at the end of each of the periods indicated.

3Total cost of funds reflects the average cost of all funding sources, including both interest-bearing and non-interest-bearing deposits and borrowings.

4Cash dividend payout ratio on common stock is calculated as dividends on common shares divided by basic earnings per common share.

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RESULTS OF OPERATIONS

The following discussion of our results of operations compares the three and six months ended June 30, 2026 to the three and six months ended June 30, 2025. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2026.

Net Interest Income

Net interest income is the most significant contributor to our net income. Net interest income represents interest income from interest-earning assets, such as loans and investments, less interest expense on interest-bearing liabilities, such as deposits, subordinated notes, and other borrowings, which are used to fund those assets. In evaluating our net interest income, we measure and monitor yields/rates on our interest-earning assets and interest-bearing liabilities as well as trends in our net interest margin. Net interest margin is a ratio calculated as net interest income divided by total interest-earning assets for the same period. We manage our earning assets and funding sources in order to maximize this margin while limiting credit risk and interest rate sensitivity to our established risk appetite levels. Changes in market interest rates and competition in our market typically have the largest impact on periodic changes in our net interest margin.

Three months ended June 30, 2026 compared to three months ended June 30, 2025

Net interest income increased by $9.6 million, or 26.20%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, and our net interest margin increased by 10 basis points during the same period. The increase in net interest income is primarily due to an increase in interest income driven by loan growth and higher interest-earning deposits in banks, partially offset by an increase in interest expense driven by deposit growth, though moderated by a decrease in the average cost of deposits. Additional detail relating to net interest margin in each period is provided below.

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Average balance sheet, interest, and yield/rate analysis. Table 3 presents average balance sheet information, interest income, interest expense, and the corresponding average yield earned or rate paid for each period reported. The average balances are daily averages and include both performing and nonperforming loans.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents management’s perspective on our financial condition and results of operations on a consolidated basis. However, because we conduct all of our material business operations through our bank subsidiary, Five Star Bank, the discussion and analysis relate to activities primarily conducted by the Bank. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and the accompanying notes presented elsewhere in this Annual Report on Form 10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.

To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to containing historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Part I, Item 1A. Risk Factors.” We assume no obligation to update any of these forward-looking statements, except to the extent required by law.

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Set forth below is a comparison of the results of operations and changes in financial condition for the fiscal years ended December 31, 2025 and December 31, 2024. For a discussion of our financial results for the fiscal year ended December 31, 2023, see the section entitled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.

Company Overview

Headquartered in the greater Sacramento metropolitan area of California, Five Star Bancorp (“Bancorp” or the “Company”) is a bank holding company that operates through its wholly owned subsidiary, Five Star Bank, a California state-chartered non-member bank. We provide a broad range of banking products and services to small and medium-sized businesses, professionals, and individuals primarily in Northern California through nine branch offices. Our mission is to strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy. We are dedicated to serving real estate, agricultural, faith-based, and small to medium-sized enterprises. We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community. We refer to our mission as “purpose-driven and integrity-centered banking.” At December 31, 2025, we had total assets of $4.8 billion, total loans held for investment of $4.1 billion, and total deposits of $4.2 billion.

Key Factors Affecting our Business

Interest Rates

Net interest income is the most significant contributor to our net income and is the difference between the interest and fees earned on interest-earning assets and the interest expense incurred in connection with interest-bearing liabilities. Net interest income is primarily a function of the average balances and yields of these interest-earning assets and interest-bearing liabilities. These factors are influenced by internal considerations such as product mix and risk appetite as well as external influences such as economic conditions, competition for loans and deposits, and market interest rates.

The cost of our deposits and short-term borrowings is primarily based on short-term interest rates, which are largely driven by the Federal Reserve’s actions and market competition. The yields generated by our loans and securities are typically affected by short-term and long-term interest rates, which are driven by market competition and market rates often impacted by the Federal Reserve’s actions. The level of net interest income is influenced by movements in such interest rates and the pace at which such movements occur.

Interest rates have risen significantly following the historically low levels during the COVID-19 pandemic. Due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced in January 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The Federal Open Market Committee (“FOMC”) then increased the target range eleven times throughout 2022 and 2023. During 2024 and 2025, the Federal Reserve decreased the federal funds rate three times each year. As of December 31, 2025, the target range for the federal funds rate had been decreased to 3.50% to 3.75%, and the FOMC projects one additional decrease in 2026, as part of a strategy to return inflation to normalized levels while keeping unemployment low.

We anticipate that interest rates may be lowered over the next few years. Based on our sensitivity analysis, a steepened yield curve could have a slight negative impact on our net interest income over the next year. Additionally, a continued flat yield curve would be expected to maintain our net interest income over the next year.

Factors Affecting Comparability of Financial Results

Allowance for Credit Losses (“ACL”)

On January 1, 2023, the Company adopted ASC 326, which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model. The CECL model applies to estimated credit losses on loans receivable, held-to-maturity debt securities, unfunded loan commitments, and certain other financial assets measured at amortized cost. Under ASC 326, available-for-sale debt securities are evaluated for impairment if fair value is less than amortized cost, with any estimated credit losses recorded through a credit loss expense and an allowance, rather than a write-down of the investment. Changes in fair value that are not credit-related continue to be recorded in other comprehensive income. Under the CECL model, the calculated allowance for credit losses was $5.3 million higher on January 1, 2023 than the allowance under the incurred loss model. For further information, please see Note 2, Recently

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Issued Accounting Standards, in the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue, and expenses. We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present consolidated financial condition and results of operations. These policies and estimates are considered critical because they have a material impact, or they have the potential to have a material impact, on our consolidated financial statements and because they require us to make significant judgments, assumptions, or estimates. We believe that the judgments, estimates, and assumptions used in the preparation of our financial statements are reasonable and appropriate, based on the information available at the time they were made. However, actual results may differ from those estimates, and these differences may be material.

Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), as an emerging growth company, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have elected not to opt out of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public and private companies, we may adopt the standard on the application date for private companies. However, we may early adopt certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies to the extent early adoption is permitted.

We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.

ACL

The ACL represents the estimated probable credit losses in our loan and investment portfolios and is estimated as of December 31, 2025 using CECL. The ACL is established through a provision for credit losses charged to operations. Loans and investments are charged against the ACL when management believes that the collectability of the principal is unlikely. Subsequent recoveries of previously charged-off amounts, if any, are credited to the ACL.

The ACL is evaluated on a regular basis by management in consideration of optimistic, moderate, and pessimistic current conditions, and is based on management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions specifically impacting each loan type by purpose and by geography, and concentrations within the loan portfolio. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

A significant amount of the ACL is measured on a collective (pool) basis by loan and investment security type when similar risk characteristics exist. Pools are determined based primarily on regulatory reporting codes as the loans and investment securities within each pool share similar risk characteristics and there is sufficient historical peer loss data from the FFIEC to provide statistically meaningful support in the models developed. Reserves for credit losses identified on a pooled basis are then adjusted for qualitative factors to reflect current conditions. The most significant components of qualitative factors used to estimate the allowance for credit losses are adjustments relating to prevailing economic conditions, concentrations within the loan portfolio, and external factors. These qualitative factors are subject to significant judgment and carry a higher degree of uncertainty. The prevailing economic conditions factor is estimated based on a range of potential economic conditions and is applied at both the portfolio and individual concentration level based on various factors. This estimate is subject to significant judgment and could potentially add $3.2 million based on existing loan balances to the allowance for credit losses while using severely adverse economic conditions in the estimate. The concentrations within the loan portfolio factor is estimated based on concentrations at the loan pool level. This estimate is subject to significant judgment and could potentially add $12.0 million based on existing loan balances to the allowance for credit losses while using a severely adverse market outlook for the specifically identified concentrations. The external factor is estimated based on current external factors, such as environmental factors, which could impact the loan portfolio. This estimate is subject to significant judgment and could potentially add $9.5 million based on existing loan balances to the allowance for credit losses while using severely adverse external factors in the estimate. Other qualitative factors within

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the ACL relate to items which carry a lower degree

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