Five Star Bancorp signals 1%–2% deposit growth target for Q4 2025 while expanding Bay Area presence

Earnings Call Insights: Five Star Bancorp (FSBC) Q3 2025

MANAGEMENT VIEW

* James Beckwith, President, CEO & Director, highlighted "outstanding growth in loans and core deposits attributable to our differentiated client experience and organic growth strategy." He reported $16.3 million of net income, earnings per share of $0.77, return on average assets of 1.44%, return on average equity of 15.35%, and a net interest margin of 3.56%. Beckwith stated that loans held for investment grew by $129.2 million and total deposits increased by $208.8 million during the quarter, noting "non-wholesale deposits increased by $359 million," while wholesale deposits decreased by $150.2 million.
* Beckwith emphasized a strategic focus on organic growth, credit quality, and technology, adding: "We continue to ensure our technology stack, operating efficiencies, conservative underwriting practices, exceptional credit quality and a prudent approach to portfolio management will benefit our customers, employees, community and shareholders."
* Beckwith announced the opening of a ninth full-service office in Walnut Creek, expanding Bay Area operations, and highlighted the growing food agribusiness and diversified industry business lines.
* Heather Luck, Executive VP & CFO, stated: "Net interest income increased $2.8 million from the previous quarter, primarily due to a $4.3 million increase in interest income, driven by new loan production at higher rates, contributing to overall improvement in the average yield on loans."

OUTLOOK

* Beckwith commented, "We're looking for deposit growth on an absolute basis, not annualized between -- probably anywhere between 1% to 2% in the fourth quarter."
* He noted, "We don't anticipate that type of growth on a go-forward basis," in reference to the strong third quarter.
* The company reiterated a long-term desire to eliminate broker deposits, which may limit total deposit growth as these are paid off and not renewed.

FINANCIAL RESULTS

* The company reported $16.3 million in net income and $0.77 earnings per share for Q3 2025. Return on average assets reached 1.44%, and return on average equity was 15.35%, with a net interest margin of 3.56%.
* Beckwith indicated nonperforming loans represented only 5 basis points of total loans held for investment, and nonperforming loans declined by $149,000 during the quarter.
* Total assets increased by $228.3 million, primarily driven by $77.7 million growth in the commercial real estate portfolio. The company recorded a $2.5 million provision for credit losses.
* Luck reported noninterest income rose to $2 million, with swap referral fees offsetting the absence of gain on sale of loans due to a strategic reduction in wholesale SBA loan production.
* Noninterest expense grew by $900,000, mainly due to higher salaries and benefits from increased headcount and continued Bay Area expansion.

Q&A

* David Feaster, Raymond James: Asked about core deposit growth and funding base optimization. Beckwith responded, "We were pretty happy about where we ended up... We don't anticipate that type of growth on a go-forward basis. We're looking for deposit growth... between 1% to 2% in the fourth quarter."
* Feaster inquired about loan payoffs and pipeline. Beckwith explained payoffs are typical for the business model and stated, "It's just really the nature of our business. There's nothing that we think is unusual about it."
* Feaster asked about growth areas. Beckwith highlighted the ag team's strong performance, MHC and RV business, storage, and robust Bay Area pipeline, noting national platform expansion and continued hiring.
* Wood Lay, KBW: Questioned net interest margin outlook. Luck and Beckwith discussed potential $850,000 improvement for a 25 basis point rate cut, expecting "continued margin expansion with these rate cuts."
* Lay asked about balancing operating leverage with reinvestment. Beckwith said, "We like to think we've got this balance between earnings growth and reinvesting back into our business."
* Lay inquired about loan-to-deposit ratio targets. Beckwith stated, "We're comfortable at 95%. That's kind of a line that we all look at every month with our Board."
* Andrew Terrell, Stephens: Sought margin guidance details. Luck confirmed, "Yes. For the full quarter, though, because it will take some time for our wholesale book to reprice."
* Terrell asked about M&A appetite. Beckwith replied, "We lean organic, most definitely. We lean organic... But like you never -- and none of our Board wants to roll out an M&A deal."
* Gary Tenner, D.A. Davidson: Inquired about deposit cost betas and hiring competitiveness. Luck said, "When we did that, we were about 30% beta." Beckwith addressed increased competition for talent and higher costs for experienced bankers.

SENTIMENT ANALYSIS

* Analysts focused on sustainability of core deposit growth, margin outlook, loan pipeline health, expansion in the Bay Area, cost structure, and hiring competitiveness. The tone was constructive, inquisitive, and occasionally pressing for specifics, as seen in Lay's and Terrell's margin questions.
* Management expressed confidence in the business model and growth prospects, as reflected in Beckwith's statements: "We're excited where that business is going" and "We are confident in the company's resilience." In Q&A, management was candid about growth expectations and cautious on replicating Q3's deposit growth pace, signaling a slightly more measured tone compared to prepared remarks.
* Compared to the previous quarter, both analysts and management maintained a proactive and optimistic tone, though current management responses showed more emphasis on near-term moderation of growth expectations.

QUARTER-OVER-QUARTER COMPARISON

* Q3 guidance language shifted to a more tempered outlook on deposit growth (1%–2%) compared to the previous quarter's focus on strong pipelines and double-digit growth.
* Strategic focus remains on organic growth and expansion, with the opening of the Walnut Creek office and investment in new business lines such as food agribusiness continuing.
* Key metrics improved quarter over quarter: net income rose from $14.5 million to $16.3 million, and net interest margin increased from 3.53% to 3.56%.
* Analysts' questions continued to center on deposit growth, margin outlook, and loan portfolio composition, but with a new emphasis on the sustainability of recent strong performance and competitiveness in talent acquisition.
* Management's tone remains confident but now includes more explicit caution regarding the ability to repeat the exceptional deposit growth seen in Q3.

RISKS AND CONCERNS

* Management cited the challenge of sustaining exceptional deposit growth and the ongoing process of reducing broker deposits, which may limit overall deposit growth in the near term.
* Risks related to loan payoffs and paydowns were addressed as a normal part of the business model, with management emphasizing the importance of staying ahead with strong pipelines.
* Increased competition for experienced bankers was highlighted as driving up talent costs and creating a more challenging hiring environment.

FINAL TAKEAWAY

Five Star Bancorp delivered another quarter of solid organic growth, highlighted by notable expansion in loans, core deposits, and Bay Area presence. Management emphasized ongoing investment in talent, new business lines, and operational infrastructure, while signaling a more measured outlook for deposit growth in the coming quarter. The company continues to prioritize credit quality, operational efficiency, and a relationship-driven approach as it adapts to evolving market dynamics and competitive pressures.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/fsbc/earnings/transcripts]

MORE ON FIVE STAR BANCORP

* Five Star Bancorp (FSBC) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4834266-five-star-bancorp-fsbc-q3-2025-earnings-call-transcript]
* Five Star Bancorp 2025 Q3 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4834245-five-star-bancorp-2025-q3-results-earnings-call-presentation]
* Seeking Alpha’s Quant Rating on Five Star Bancorp [https://seekingalpha.com/symbol/FSBC/ratings/quant-ratings]
* Historical earnings data for Five Star Bancorp [https://seekingalpha.com/symbol/FSBC/earnings]
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