Company: FSBC
Filing Date: 2025-05-08
Form Type: 10-Q
Source: 0001275168-25-000106
Chunk: 127

Company: FIVE STAR BANCORP
Filing Date: 2025-05-08
Form: 10-Q
Item: Part I, Item 8
Chunk 127
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 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 and other environmental factors to reflect current conditions. The most significant components of the qualitative and environmental factors used to estimate the allowance for credit losses are adjustments relating to prevailing economic conditions, concentrations within the loan portfolio, and external factors. 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. The concentrations within the loan portfolio factor is estimated based on concentrations at the loan pool level. The external factor is estimated based on current external factors, such as environmental factors, which could impact the loan portfolio. 

During the twelve months ended December 31, 2024, we refined our methodology of measuring the ACL on three pools of loans: Multifamily, C&I SBA, and CRE Non-Owner Occupied loans. Within the Multifamily pool, Manufactured Home Community (“MHC”) loans were segregated from traditional Multifamily as we identified a data source to provide sufficient historical peer loss data specific to MHC loans. This segregation now adjusts for differences in the risk characteristics and performance of MHCs compared to traditional Multifamily properties. Losses are estimated using a discounted cash flow analysis using individual probability of default and loss given default rates on a loan-by-loan basis. Applying this adjusted loss rate led to a decrease in the ACL for the MHC pool as of June 30, 2024 of approximately $5.8 million. During routine monitoring of charge-off activity within the C&I SBA pool, we identified an increased level of charge-offs during the first six months of 2024, reflecting a change in the credit quality of the pool. In response to this, we increased the expected loss rates to be more in line with net charge-off rates during the first six months of 2024, as this time 

30

period reflects what is expected based on our current economic outlook for loans in the C&I SBA pool. This adjustment reflects our estimate for future loss rates and increased the required reserves related to the C&I SBA pool by approximately $4.6 million as of June 30, 2024. Within the CRE Non-Owner Occupied portfolio, RV Park loans were segregated