Five Star Bancorp Reports Strong Loan Growth and Positive Outlook

Five Star Bancorp ((FSBC)) has held its Q1 earnings call. Read on for the main highlights of the call.

During the recent earnings call, Five Star Bancorp expressed a generally positive sentiment, highlighting strong loan growth and improved net interest margins. These achievements were attributed to effective deposit management and a robust sales force. Despite some concerns over an increase in substandard loans and a decrease in non-interest income, the overall performance and strategic growth initiatives suggest a positive outlook for the company.

Strong Loan Growth

The company reported a significant increase in total loans held for investment, which rose by $89.1 million or 2.52% from the prior quarter. This growth was notably driven by the commercial real estate segment, showcasing Five Star Bancorp’s ability to expand its loan portfolio effectively.

Improved Net Interest Margin

Five Star Bancorp’s net interest margin saw an improvement of nine basis points, reaching 3.45% for the quarter. This enhancement was primarily due to a lower average cost of deposits, reflecting the bank’s successful deposit management strategies.

Deposit Growth

Deposits increased by $178.4 million or 5.0% compared to the previous quarter, with non-wholesale deposits contributing $48.4 million to this growth. This rise in deposits underscores the bank’s strong market position and customer trust.

Low Non-performing Loans

The bank maintained a low level of non-performing loans, which remained at 0.05% of loans held for investment. This indicates strong asset quality and effective risk management practices.

Recognition and Awards

Five Star Bancorp was recognized for its performance, ranking third on the S&P Global Market Intelligence list of best-performing community banks. The company also received multiple local business accolades, highlighting its strong market reputation.

Increase in Substandard Loans

There was an increase in loans designated as substandard or doubtful, rising to approximately $3.7 million from $2.6 million in the previous quarter. This increase is a point of concern that the bank will need to address moving forward.

Decrease in Non-interest Income

Non-interest income decreased to $1.4 million in the first quarter from $1.7 million in the previous quarter. This decline was primarily due to a reduction in income from equity investments, which the company will need to monitor closely.

Slight Decrease in Non-interest-bearing Deposits

Non-interest-bearing deposits as a percentage of total deposits saw a slight decrease, moving to 24.99% from 25.93%. This shift may reflect changes in customer preferences or market conditions.

Provision for Credit Losses

The bank recorded a $1.9 million provision for credit losses, reflecting adjustments to expectations for credit losses based on economic trends. This provision indicates the bank’s proactive approach to managing potential credit risks.

Forward-looking Guidance

Looking ahead, Five Star Bancorp demonstrated robust financial performance and strategic growth during the first quarter of 2025. The company expanded into the San Francisco Bay Area, adding four seasoned professionals to support this venture. Despite a rise in loans designated as substandard or doubtful, asset quality remained strong. The bank’s net income was $13.1 million, with a return on average assets of 1.3% and a return on average equity of 13.28%. As the company moves forward, it remains confident in its resilience and continued growth.

In summary, Five Star Bancorp’s earnings call reflected a positive sentiment with strong loan and deposit growth, improved net interest margins, and recognition for its performance. While challenges such as increased substandard loans and decreased non-interest income were noted, the company’s strategic initiatives and forward-looking guidance suggest a resilient and promising future.