FIVE STAR BANCORPFSBC
FIVE STAR BANCORP Income Taxes Disclosure
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. The provision for income taxes consists of federal and state income taxes. The Company does not have any foreign operations or foreign income tax exposure.
Income Tax Rate Reconciliation
Table 11.1 presents a calculation of the Company’s income tax expense for the year ended December 31, 2025.
Table 11.1: Calculation of Income Tax Expense | ||||||||||||||
| 2025 | ||||||||||||||
| (in thousands) | Amount | Percent | ||||||||||||
Income before provision for income taxes | $ | 83,732 | ||||||||||||
Income tax expense at U.S. federal statutory rate | 17,584 | 21.00 | % | |||||||||||
State and local income tax, net of federal income tax effect1 | 5,837 | 6.97 | % | |||||||||||
Tax Credits | ||||||||||||||
IRC 45X Tax Credits | (900) | (1.07) | % | |||||||||||
Other tax credits | (139) | (0.17) | % | |||||||||||
Nontaxable and nondeductible items | ||||||||||||||
Other nontaxable and nondeductible items | (54) | (0.06) | % | |||||||||||
Other adjustments | (202) | (0.25) | % | |||||||||||
Total | $ | 22,126 | 26.42 | % | ||||||||||
1 State taxes in California made up the majority of the effect of the state and local tax category.
Table 11.2 presents a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31, 2024 and 2023.
Table 11.2: Difference Between Effective Income Tax Rate and Statutory Federal Rate | ||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||
| Statutory U.S. federal income tax | $ | 13,591 | $ | 13,989 | ||||||||||
| Increase (decrease) resulting from: | ||||||||||||||
State taxes, net of federal impact | 5,219 | 5,048 | ||||||||||||
| Other | 240 | (155) | ||||||||||||
Income tax expense | $ | 19,050 | $ | 18,882 | ||||||||||
Effective tax rate | 29.43 | % | 28.34 | % | ||||||||||
The impact of transferable tax credits purchased and utilized during the year is included in the “IRC 45X Tax Credits” line item in the Company’s reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate, as required by ASU 2023-09. For the year ended December 31, 2025, the transferable tax credits reduced the Company’s effective tax rate by 1.07%.
Table 11.3 shows the components of the consolidated provision for income taxes for the years indicated.
Table 11.3: Components of Consolidated Provision for Income Taxes | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
Current tax expense: | ||||||||||||||||||||
| Federal | $ | 15,819 | $ | 12,382 | $ | 13,234 | ||||||||||||||
| State | 6,885 | 6,911 | 6,439 | |||||||||||||||||
Total current tax expense | 22,704 | 19,293 | 19,673 | |||||||||||||||||
Deferred tax expense (benefit): | ||||||||||||||||||||
| Federal | (919) | (66) | (741) | |||||||||||||||||
| State | 341 | (177) | (50) | |||||||||||||||||
Total deferred tax benefit | (578) | (243) | (791) | |||||||||||||||||
| Provision for income taxes | $ | 22,126 | $ | 19,050 | $ | 18,882 | ||||||||||||||
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Table 11.4 shows significant components of deferred tax assets and liabilities as of December 31, 2025, 2024, and 2023.
Table 11.4: Components of Deferred Tax Assets and Liabilities | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Deferred tax assets: | ||||||||||||||||||||
| Allowance for credit losses | $ | 12,143 | $ | 11,241 | $ | 10,820 | ||||||||||||||
| Supplemental employee retirement plan | 279 | 343 | 409 | |||||||||||||||||
| Gain on available-for-sale assets | 677 | 943 | 303 | |||||||||||||||||
| Net unrealized loss on securities available-for-sale | 3,353 | 5,192 | 4,938 | |||||||||||||||||
| State tax | 1,188 | 1,268 | 751 | |||||||||||||||||
Operating lease liability | 3,195 | 1,999 | 1,759 | |||||||||||||||||
| Other | 392 | 334 | 1,891 | |||||||||||||||||
Total deferred tax assets | 21,227 | 21,320 | 20,871 | |||||||||||||||||
| Deferred tax liabilities: | ||||||||||||||||||||
| Deferred loan fees | (3,436) | (3,723) | (4,063) | |||||||||||||||||
| Depreciation | (332) | (145) | (411) | |||||||||||||||||
| ROUA | (2,907) | (1,821) | (1,648) | |||||||||||||||||
| Other | (983) | (801) | (416) | |||||||||||||||||
Total deferred tax liabilities | (7,658) | (6,490) | (6,538) | |||||||||||||||||
| Net deferred tax asset | $ | 13,569 | $ | 14,830 | $ | 14,333 | ||||||||||||||
The Company evaluates the need for a valuation allowance against deferred tax assets based on the likelihood of realization. No deferred tax asset valuation allowance was established during 2025, 2024, or 2023, as management believes it is more likely than not the Company will realize the benefits of these deductible differences as of December 31, 2025, 2024, and 2023.
Tax Impacts of Investments in Qualified Affordable Housing Projects
Table 11.5 details items the Company recognized as components of tax expense, taxable losses and amortization expense relating to investments in Qualified Affordable Housing Projects for the periods indicated.
Table 11.5: Tax Impacts of Investments in Qualified Affordable Housing Projects | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
Taxable loss - decrease in tax expense | $ | (2,689) | $ | (963) | $ | (1,626) | ||||||||||||||
| Amortization - increase in tax expense | 1,769 | 1,050 | 291 | |||||||||||||||||
| Qualified Affordable Housing Tax Credits - decrease in tax expense | (1,553) | (1,046) | — | |||||||||||||||||
The total capital contributed, net of amortization, for the Low Income Housing Tax Credit Funds was $14,312,000 as of December 31, 2025. As of December 31, 2025, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit Funds in the amount of $8,119,000, of which $3,853,000 is expected to be made in 2026.
Transferable Tax Credits
During the year ended December 31, 2025, the Company purchased IRC 45X transferable federal tax credits from a third party under the provisions of the Inflation Reduction Act of 2022, as modified by H.R. 1, the “One Big Beautiful Bill Act” in 2025, resulting in a $0.9 million benefit to the provision for income taxes. These credits were acquired to offset the Company’s current year income tax liability and were fully utilized during the year. The credits were applied in accordance with relevant tax regulations, resulting in a reduction of the Company’s income tax payable for the year ended December 31, 2025. The benefit from the utilization of the purchased tax credits is reflected in the Company’s income tax expense for the period. No gain or loss was recognized, as the credits were used at their carrying value. As of December 31, 2025, there were no remaining purchased tax credits recorded on the balance sheet, as all credits acquired during the year were utilized. The Company’s ability to utilize purchased tax credits is subject to compliance with applicable tax laws and regulations. Management has reviewed the eligibility and documentation requirements and determined that all credits purchased and utilized during the year met the necessary criteria.
Unrecognized Tax Benefits
No unrecognized tax benefits were outstanding as of December 31, 2025, 2024, or 2023. The Company does not anticipate significant changes in unrecognized tax benefits within the next twelve months.
Other Disclosures
The Company files tax returns in the U.S. federal and state jurisdictions where the Company has material nexus. The Company is no longer subject to examinations for federal and state tax purposes for the years before 2021 and 2020, respectively.
There were no material interest or penalties in 2025, 2024, and 2023. It is the Company’s policy to record such accruals in its income tax accounts.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.