📢 Earnings Summary — FSBC

Five Star Bancorp delivered a strong Q3 with solid loan and core deposit growth, NIM expansion, and excellent asset quality. Management accelerated the deposit remix away from wholesale funding, opened a new Walnut Creek office, and continues to invest in high-return verticals, particularly agribusiness and MHC/RV. Guidance points to modest deposit growth in Q4 as brokered deposits are further reduced, alongside incremental NIM expansion in a down-rate environment. While runoff in certain loan verticals and higher funding costs are ongoing considerations, the strong pipeline, disciplined underwriting, and focused expansion in the Bay Area support a constructive outlook.

📈 Growth Highlights

• Loans held for investment +$129.2m QoQ (14% annualized), led by CRE (+$77.7m)
• Total deposits +$208.8m QoQ (21% annualized); non-wholesale deposits +$359.0m (11%) while wholesale deposits −$150.2m (−23%)
• Total assets +$228.3m QoQ
• Bay Area franchise momentum: 36 employees and $548.9m deposits as of 9/30/25

🔨 Business Development

• Opened ninth full-service office in Walnut Creek (San Francisco Bay Area expansion)
• Continued build-out of food & agribusiness and diversified industry verticals; expecting to book large ag credits in Q4
• Strength in national MHC/RV and storage verticals; active student housing in Berkeley; robust nonprofit, faith-based, construction industries (deposit-focused), and small special districts/government banking
• Strategic shift to reduce wholesale SBA loan production and sales (no gain on sale this quarter)
• 41 business development bankers; continuing opportunistic hiring of senior talent

💵 Financial Performance

• Net income $16.3m; EPS $0.77
• ROAA 1.44%; ROAE 15.35%
• Net interest margin 3.56% (+3 bps QoQ); cost of total deposits 2.44% (−2 bps QoQ)
• Efficiency ratio 40.13%
• Net interest income +$2.8m QoQ driven by +$4.3m interest income (new loan production at higher rates), partially offset by +$1.4m interest expense (core deposit growth)
• Noninterest income $2.0m (vs. $1.8m prior) on higher swap referral fees; no loan sale gains
• Noninterest expense +$0.9m QoQ from higher salaries/benefits (headcount) and Walnut Creek occupancy
• Provision for credit losses $2.5m, primarily growth-related
• Asset quality strong: NPLs ~0.05% of total loans; NPLs declined ~$149k QoQ

🏦 Capital & Funding

• Well-capitalized; all regulatory capital ratios above required thresholds
• Declared $0.20/share cash dividend (payable in November)
• Ongoing remix away from higher-cost wholesale/brokered deposits toward core funding; plan to continue paying down brokered deposits
• Noninterest-bearing deposits 26% of total; ~60% of deposit relationships >$5m with ~8-year average tenure (management cites funding base as stable)

🧠 Operations & Strategy

• Relationship-first, conservative underwriting with robust ongoing monitoring
• Balanced approach: reinvest in talent and markets while driving earnings growth
• Technology stack and operating efficiency emphasized to support scalable growth
• National lending footprint in targeted verticals; continued geographic expansion in Bay Area

🌍 Market Outlook

• Expect deposit growth of ~1–2% (absolute) in Q4 while further reducing brokered deposits; optimization may temper headline deposit growth
• NIM expected to expand a further 1–3 bps in Q4; down-rate environment a net positive
• Interest-rate sensitivity: for each 25 bp Fed cut, estimated +~$850k NII for a full quarter; ~+$200k immediate-quarter impact
• Loan pipeline remains strong across geographies and verticals; management confident in outpacing anticipated payoffs/paydowns
• Long-term loan-to-deposit ratio target ~95% (down from ~104% last year)

⚠ Risks & Headwinds

• Elevated loan payoffs/paydowns inherent to MHC/RV model (3–4 year agency takeouts or asset sales) require strong originations to outpace runoff
• Higher cost of funds than peers (pays up for deposits) despite recent improvement
• Concentration risk from large depositor relationships (~60% >$5m)
• NIM tailwind from loan repricing will diminish as portfolio resets are absorbed over time
• Expense growth from ongoing hiring and market expansion may pressure operating leverage if revenue growth slows

AI-generated earnings recap sourced from company results & conference call observations. Not investment advice — verify with official filings.