Five Star Bancorp Q4 Earnings Call Highlights

Five Star Bancorp (NASDAQ:FSBC) executives highlighted strong growth and improved profitability during the bank’s fourth-quarter and year-end earnings call, pointing to loan and deposit expansion, a widening net interest margin, and a higher dividend as key developments in 2025.

Full-year results featured double-digit loan and deposit growth

President and CEO James Beckwith said 2025 marked “another outstanding year of achievement,” supported by expansion efforts and hiring across the company’s markets. The bank opened a Walnut Creek office to expand its San Francisco Bay Area footprint, expanded its agribusiness vertical, and added seasoned business development professionals to support organic growth.

Beckwith reported year-over-year increases of 15% in total loans held for investment and 18% in total deposits, alongside 35% growth in net income. Earnings per share rose 28% to $2.90.

For the full year, the company posted net income of $61.6 million, return on average assets of 1.41%, and return on average equity of 14.74%. Net interest margin expanded 23 basis points to 3.55%, while the cost of total deposits declined 16 basis points to 2.40%. The annual efficiency ratio was 41.03%.

Fourth-quarter performance included margin expansion and deposit cost improvement

Fourth-quarter net income was $17.6 million, with earnings per share of $0.83. Beckwith said return on average assets was 1.50% and return on average equity was 15.97%.

In the quarter, net interest margin expanded 10 basis points to 3.66% and the total cost of deposits declined 21 basis points to 2.23%. The efficiency ratio for the quarter was 40.62%.

Balance sheet growth continued late in the year. Loans held for investment increased $187.7 million in the fourth quarter, which management described as 19% annualized growth, while total deposits rose $97.6 million, or 10% annualized.

Funding mix shifted away from wholesale deposits as core balances rose

Beckwith emphasized a shift in deposit composition during 2025, including reductions in wholesale funding. Over the year, the bank reduced wholesale deposits by $95 million, or 17%, and grew non-wholesale deposits by $738.1 million, or 25%.

For the fourth quarter alone, non-wholesale deposits increased $139.1 million and wholesale deposits decreased $41.4 million. Non-interest-bearing deposits represented 26% of total deposits, and Beckwith said about 61% of deposit relationships total more than $5 million, with an average tenure of eight years, which management views as supportive of a stable funding base.

Credit quality remained strong; provision tied largely to growth

Management said asset quality remained solid, with non-performing loans at 8 basis points of total loans held for investment. Beckwith noted a $1.0 million increase in non-performing loans during the fourth quarter tied to “two separate faith-based real estate loans” entering non-performing status.

The company recorded a $2.8 million provision for credit losses in the fourth quarter, which Beckwith said was primarily related to loan growth. For the year ended Dec. 31, 2025, total provision for credit losses was $9.7 million.

Operating trends: higher net interest income, mixed fee income, and expense growth from hiring

Executive Vice President and CFO Heather Luck said net interest income increased $2.7 million, or 7%, from the prior quarter, driven by higher loan interest income and lower interest expense. She attributed the decline in interest expense primarily to the 21-basis-point drop in the average cost of deposits, which she said was “driven primarily by two rate cuts” during the quarter, even as average deposit balances rose 4%.

For the full year, Luck said net interest income increased $32.2 million, or 27%, from 2024, primarily due to a $35.9 million rise in loan interest income from new production at higher rates. That benefit was partially offset by a $10 million increase in deposit interest expense tied to a 19% increase in average deposit balances. Luck said the lower average cost of deposits compared to the prior year helped moderate the increase in interest expense.

Non-interest income fell to $1.4 million in the fourth quarter from $2.0 million in the prior quarter, primarily due to a decline in earnings related to equity investments and venture-backed funds. For 2025, non-interest income increased by $100,000, which Luck said reflected higher fees from swap referrals, credit card income, improved earnings on equity investments and venture-backed funds, and higher bank-owned life insurance income following additional policy purchases. Those gains were “almost entirely offset” by lower gains on loan sales due to a strategic reduction in loans originated for sale.

Non-interest expense increased by $1.1 million in the fourth quarter and by $10.5 million for the year, with Luck citing headcount growth and higher salaries and benefits as the main driver.

Luck also discussed taxes, noting the provision for income taxes declined $500,000 quarter over quarter due partly to a $900,000 benefit recorded in the fourth quarter related to the purchase of transferable tax credits. For the full year, the tax provision increased $3.1 million, or 16%, versus 2024, reflecting higher pre-tax income, partially offset by the tax credit benefit.

During the Q&A portion, management said fourth-quarter origination strength reflected broad performance across business lines, including seasonal activity in the food and agribusiness group and contributions from Bay Area production. Looking ahead, Beckwith described the loan pipeline as “good,” while cautioning that matching 2025’s pace would be difficult. The company said it is targeting 10% growth in both loans and deposits in 2026, with Beckwith noting expected payoffs on the loan side and an effort to reduce remaining brokered deposits, which management said totaled $175 million at year-end.

On pricing, Beckwith said competition remains high, particularly in more commoditized loan categories, while the bank sees an advantage in certain niches where fewer lenders compete. He also said the bank expects a meaningful level of loan resets in 2026 tied to prior years’ originations, and noted some customers may refinance elsewhere, including with agency lenders, as terms reset.

Beckwith also addressed capital, saying the bank believes it can maintain capital positions under a 10% growth rate supported by earnings generation, but that materially higher growth could change capital needs. Management said if growth accelerated to 15% to 20%, the company would likely require a capital event in 2027 or 2028, depending on the pace.

The company also announced an increase in its cash dividend by $0.05 per share, bringing the quarterly dividend to $0.25 per share. Beckwith said this marked the first dividend increase since April 2023. The dividend is payable to shareholders of record as of Feb. 2, 2026, and is expected to be paid on Feb. 9, 2026.

About Five Star Bancorp (NASDAQ:FSBC)

Five Star Bancorp, Inc is the bank holding company for Five Star Bank, a community-focused financial institution serving retail and commercial customers primarily in Upstate New York. Headquartered in Rochester, the company provides a range of banking and financial services designed to meet the needs of individuals, families and businesses throughout its regional footprint.

The company’s core business activities include deposit services—such as checking, savings and money market accounts—alongside consumer and mortgage lending.