Five Star Bancorp (FSBC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with significant increases in net income, EPS, and net interest margin. The company also reports stable deposit portfolio and successful Bay Area expansion. Despite competitive challenges and increased expenses, the company maintains a positive outlook on growth and capital position. The Q&A section reveals strong originations and strategic deposit growth plans, although some management responses lacked detail. Overall, the positive financial metrics and strategic initiatives suggest a positive sentiment for the stock price.
Key Financial Performance
Total loans held for investments Grew by 15% year-over-year. This growth was driven by the expansion of the commercial real estate portfolio and prudent underwriting standards.
Total deposits Increased by 18% year-over-year. This was attributed to growth in both interest-bearing and noninterest-bearing deposits from new accounts and inflows from existing customers.
Net income Increased by 35% year-over-year. This was due to higher loan interest income driven by new loan production at higher rates.
Earnings per share (EPS) Increased by 28% year-over-year to $2.90 per share. This was supported by the overall growth in net income.
Net interest margin Expanded by 23 basis points year-over-year to 3.55%. This was due to higher yields on loans and a decrease in the average cost of deposits.
Cost of total deposits Declined by 16 basis points year-over-year to 2.40%. This was due to rate cuts and a reduction in wholesale deposits.
Noninterest income Increased by $100,000 year-over-year. This was driven by higher fees from swap referrals, credit card activity, and earnings on bank-owned life insurance, partially offset by a lower gain on the sale of loans.
Noninterest expense Increased by $10.5 million year-over-year. This was primarily due to an increase in headcount, leading to higher salaries and benefits.
Provision for credit losses Totaled $9.7 million for the year, primarily related to loan growth.
Provision for income taxes Increased by $3.1 million or 16% year-over-year. This was due to a 29% increase in pretax income, partially offset by a $900,000 benefit from the purchase of tax credits.
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Operating Highlights
Expansion of agribusiness vertical: Five Star Bank expanded its agribusiness vertical in 2025.
New office in San Francisco Bay Area: Opened a new office in Walnut Creek, expanding its footprint in the San Francisco Bay Area.
Loan growth: Loans held for investment grew by $542.2 million (15%) in 2025, with $187.7 million growth in Q4 alone.
Deposit growth: Total deposits increased by $643.1 million (18%) in 2025, with $97.6 million growth in Q4.
Reduction in wholesale deposits: Reduced wholesale deposits by $95 million (17%) in 2025, while non-wholesale deposits grew by $738.1 million (25%).
Net interest margin improvement: Net interest margin expanded by 23 basis points to 3.55% for the year.
Efficiency ratio: Efficiency ratio improved to 41.03% for the year.
Focus on relationship-driven lending: Maintained strong loan quality through prudent underwriting and relationship-driven lending.
Digital and market expansion strategy: Committed to blending technology with personalized service and expanding into new markets.
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Risk or Challenges
Nonperforming loans: An increase of $1.0 million in nonperforming loans during the fourth quarter, related to two faith-based real estate loans entering nonperforming status, indicates potential credit risk.
Provision for credit losses: A provision of $2.8 million for credit losses in the fourth quarter and $9.7 million for the year reflects potential risks associated with loan growth and credit quality.
Noninterest income decline: A decrease in noninterest income in the fourth quarter, primarily due to lower earnings from equity investments and venture-backed funds, could impact overall profitability.
Increased noninterest expense: A $1.1 million increase in noninterest expense for the fourth quarter and $10.5 million for the year, driven by higher headcount and related costs, may pressure operating margins.
Deposit concentration: Approximately 61% of deposit relationships exceed $5 million, which could pose liquidity risks if large depositors withdraw funds.
Strategic reduction in loan origination: A lower gain on the sale of loans due to a strategic reduction in the origination of loans held for sale may limit revenue growth.
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Guidance & Outlook
Future growth and market expansion: The company plans to further develop all business verticals and expand its reach into new markets in 2026 and beyond.
Digital transformation: Five Star Bank aims to blend cost-cutting technology with its high-touch approach to business, emphasizing innovation and service excellence.
Loan pipeline and growth: The loan pipeline remains strong, with continued focus on prudent underwriting standards and relationship-driven lending to maintain loan quality.
Deposit portfolio stability: The deposit portfolio, with an average tenure of 8 years, is considered a stable funding base for future growth.
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Shareholder Return Plan
Dividend Increase: The company announced an increase in its cash dividend by $0.05 per share, resulting in a total dividend of $0.25 per share for the fourth quarter. This marks the first increase in the dividend since April 2023.
Dividend Payment Details: The dividend is payable to shareholders of record as of February 2, 2026, and is expected to be paid on February 9, 2026.
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Key Q&A
Q:What were the drivers behind the acceleration in originations this quarter?
A:The acceleration in originations was driven by strong performance across all verticals, particularly the food and agriculture group, which onboarded clients during their seasonal lending cycle. Additionally, deals in the Bay Area contributed significantly to the volume. The pipeline for 2026 looks good, though it has fluctuated.
Q:What is the competitive landscape for deposits, and how does the company plan to sustain core deposit growth?
A:The deposit market is highly competitive across all geographies. The company’s strategy includes leveraging its 42 business development officers to bring in core deposits and relationships. Growth was observed in Orange County, the Bay Area, North State, Redding, and Yuba City offices. The company aims for 10% growth in deposits in 2026, requiring a 13% growth rate to offset the reduction of $175 million in broker deposits.
Q:How does the company view its ability to recruit bankers and business development officers (BDOs)?
A:The company has successfully expanded in areas like the East Bay and Walnut Creek and is considering further expansion into the Peninsula and South Bay. Recruiting qualified bankers is competitive, with salaries being bid up, especially in the Bay Area. The company remains focused on hiring seasoned business development professionals.
Q:What are the expectations for expense growth in 2026?
A:Expenses are expected to grow moderately, with Q1 expenses increasing by approximately $300,000. For the full year, expenses as a percentage of average assets are projected to range between 1.48% and 1.55%. This range accommodates growth and regular maintenance.
Q:What is the competitive environment for loan rates, and how does the company manage spreads?
A:The competitive environment for loan rates is intense, especially for owner-occupied real estate and operating lines of credit. Spreads can range from 200 to 350 basis points over the 5-year rate. The company has a competitive advantage in the MHC and RV markets, which face less competition. Many loans are expected to reset in 2026, and the company is actively discussing options with clients to retain them.
Q:What is the company’s outlook on capital and growth?
A:The company is comfortable with its current capital position, with CET1 at 10.5%-10.6%. It expects to sustain 10% growth through organic earnings. However, growth beyond 15% would require a capital event by 2027 or 2028. The company remains focused on profitability to fund growth.
Q:What is the company’s approach to efficiency and reinvestment?
A:The company’s efficiency ratio is around 40%, and further improvement is limited due to ongoing investments in business development and support staff. The focus is on long-term organic growth, with continuous reinvestment in front-end personnel and infrastructure to sustain growth.
Q:Does the company have sufficient headcount to achieve its 10% growth target?
A:Yes, the company believes it has sufficient headcount to achieve 10% growth in 2026. Recent hires, including 12 BDOs in 2025, are expected to contribute as they become fully integrated into the company’s systems and processes.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the competitive dynamics for loan rates and spreads, using general terms like 'highly competitive' and 'constant pressure.' Additionally, while discussing capital needs for growth beyond 10%, they did not provide a clear plan for addressing potential capital shortfalls in the event of outsized growth.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Area opening
Bancorp End
Bank loan
End Webcast
Instructions Slide
Loans investment
Officer achievement
Provision income
Relations section
balance deposit
base
benefit purchase
decline
decrease
deposit balance
equity interest
equity investment
expense increase
gain
highlight income
improvement
income increase
income loan
income share
income tax
increase income
increase loan
interest expense
interest income
investment deposit
investment venture
loan increase
loan interest
loan production
point cost
point efficiency
purchase tax
quality loan
reduction
report
share asset
sheet Loans
tax credit
venture fund
FSBC Transcript
Five Star Bancorp (FSBC) Q4 2025 Earnings Call Transcript
Positive1-27
The earnings call highlights strong financial performance with significant increases in net income, EPS, and net interest margin. The company also reports stable deposit portfolio and successful Bay Area expansion. Despite competitive challenges and increased expenses, the company maintains a positive outlook on growth and capital position. The Q&A section reveals strong originations and strategic deposit growth plans, although some management responses lacked detail. Overall, the positive financial metrics and strategic initiatives suggest a positive sentiment for the stock price.
Five Star Bancorp (FSBC) Q3 2025 Earnings Call Transcript
Positive10-28
The company shows strong financial performance with significant growth in loans and deposits, and a decline in nonperforming loans. The expansion in various business segments and geographies, along with a strategic focus on organic growth, indicates a positive outlook. The Q&A highlights confidence in managing payoffs and paydowns, and a clear plan for margin expansion. Despite some management vagueness, overall sentiment remains positive due to strong fundamentals and a robust strategic plan.
Five Star Bancorp (FSBC) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call summary indicates strong financial performance with loan and deposit growth, improved net interest margin, and a positive outlook. The Q&A section highlights sustainable growth in noninterest-bearing deposits and strategic expansion plans, particularly in the Bay Area. Despite some concerns about unclear management responses, the overall sentiment is positive, supported by strategic initiatives and growth potential in new verticals. The dividend declaration also adds to the positive sentiment. However, no strong positive catalysts like new partnerships or record high revenue were mentioned, justifying a 'Positive' rating.
Earnings call transcript: Five Star Bancorp beats EPS forecast in Q1 2025
Unknown4-29
The earnings call presents a mixed picture. Financial performance is solid with a net income of $13.1 million, improved net interest margin, and strong deposit growth. However, economic uncertainty, increased competition, and reliance on wholesale funding pose risks. The Q&A reveals optimism in loan growth but concerns about tariff impacts and vague management responses. The dividend declaration is positive, but no new shareholder return plans were announced. Given these factors, the stock price is likely to remain stable in the short term, leading to a neutral sentiment rating.
FSBC Report
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