Five Star Bancorp Q3 FY2025 earnings call

• Financial highlights: Net income $16.3M, EPS $0.77, return on average assets 1.44%, return on average equity 15.35%. Net interest margin expanded 3 basis points to 3.56%, cost of deposits down 2 basis points to 2.44%, efficiency ratio 40.13%.
• Balance sheet growth: Loans held for investment grew $129.2M (14% annualized), total deposits up ~$208.8M (21% annualized). Non-wholesale deposits up $359M (11%), wholesale deposits down $150.2M (23%).
• Asset quality: Nonperforming loans 5 basis points of total loans. Well capitalized with capital ratios above regulatory thresholds.
• Dividend: Board declared $0.20 per share cash dividend, paid in November.
• Expansion: Opened ninth full-service office in Walnut Creek. Growth in various business lines including food agribusiness, diversified industries, student housing, construction, faith-based, nonprofit, and government book.

During the third quarter, Five Star Bancorp saw significant growth. Loans held for investment grew by $129.2 million (14% annualized). Total deposits increased by approximately $208.8 million (21% annualized). Non-wholesale deposits rose by $359 million (11%) while wholesale deposits decreased by $150.2 million (23%). Net income was $16.3 million, earnings per share $0.77, return on average assets 1.44%, return on average equity 15.35%. Net interest margin expanded to 3.56%, cost of total deposits declined to 2.44%, efficiency ratio was 40.13%. Asset quality remained strong with nonperforming loans at 5 basis points of total loans held for investment. Total assets increased by $228.3 million, largely driven by loan growth in the commercial real estate portfolio which grew by $77.7 million.

• Deposit growth: Anticipates 1-2% absolute deposit growth in Q4.
• Margin expansion: Sees potential margin expansion of 1 to 3 basis points in Q4, with loan repricing and deposit cost factors influencing this.
• Loan repricing: Recognizes loan repricing impact from originations done in prior years, expects continued balance sheet growth despite payoffs/paydowns.

No specific detailed risks discussed beyond general forward-looking statement disclaimers regarding risks and uncertainties that may affect future operating results and financial position, as referenced to the company's annual and quarterly reports for more complete discussion.

Q: David Feaster from Raymond James asked about deposit front, specifically core deposit growth and funding base optimization.

A: James Beckwith said third quarter deposit growth was exceptional, deposit pipeline strong, but anticipates 1-2% absolute growth in Q4, progress made on reducing broker deposits but expecting less growth than Q3.

Q: Woody Lay from KBW asked about net interest margin outlook and operating leverage.

A: James Beckwith said near-term margin potential with rate cuts, balance sheet set up well for down rate environment, and balance between earnings growth and reinvestment in business. Heather Luck mentioned $850,000 improvement for 125 basis point cut over a quarter.

Q: Andrew Terrell from Stephens asked about margin pickup, loan-to-deposit ratio, and M&A views.

A: James Beckwith discussed margin impact considering deposit maturity lags, target loan-to-deposit ratio of 95%, and leaning organic growth but open to opportunistic M&A if great deal arises.

Q: Gary Tenner from D.A. Davidson asked about money market book beta and recruitment competitiveness.

A: Heather Luck said money market book had ~30% beta with September cut, James Beckwith said recruitment is more competitive with more banks in expansion playbook, but Five Star sees competitive edge with its performance and reputation.