Five Star Bancorp NASDAQ: FSBC reported first-quarter 2026 results highlighted by higher earnings, continued loan and deposit growth, and a further shift away from wholesale funding, as executives also discussed new business development efforts in Southern California and expectations for the rest of the year.
Quarterly performance and profitability metrics
President and CEO James Beckwith said the company delivered “another period of outstanding achievement” in Q1 2026, pointing to growth across markets and ongoing investments in talent and technology to support organic expansion.
Beckwith reported earnings per share of $0.87, up $0.04 from the prior quarter. Net income was $18.6 million, a 6% increase from Q4 2025. The company posted a return on average assets of 1.55% (up 5 basis points quarter-over-quarter) and return on average equity of 16.73% (up 76 basis points).
Net interest margin rose to 3.70% from 3.66% in the prior quarter, while the average cost of total deposits declined 10 basis points to 2.13%, according to management.
Balance sheet growth and funding mix shift
Beckwith attributed the quarter’s results to “robust loan and deposit growth.” Loans held for investment increased by $138.5 million, which management characterized as 14% annualized growth. Total deposits increased by $268.3 million, or 26% on an annualized basis, with non-wholesale deposits up $350.2 million. That gain was partially offset by an $81.9 million reduction in wholesale deposits.
Management emphasized the strategic focus on relationship-based funding. Beckwith said non-interest-bearing deposits represented about 28% of total deposits at quarter-end, up from approximately 26% at Dec. 31, 2025. He also noted that about 61% of total deposit relationships exceed $5 million, with an average tenure of roughly eight years.
Total assets increased by $276.9 million during the quarter, which Beckwith said was “largely driven by loan growth within the commercial real estate portfolio,” including a $116.2 million increase in that category.
Net interest income drivers, expenses, and taxes
Chief Financial Officer Heather Luck said net interest income rose to $43.5 million, up 3% from Q4 2025, supported by both volume and margin expansion. She attributed higher interest income largely to a 4% increase in average loan balances, while interest expense declined by $166,000 due to the lower cost of deposits.
Non-interest income increased to $1.6 million from $1.4 million in the prior quarter. Luck said the increase was “primarily due to an increase in fees from swap referrals and a special FHLB stock dividend” recognized during the quarter, partially offset by lower earnings from venture-backed fund investments.
Non-interest expense declined by $263,000 quarter-over-quarter, which Luck said was “primarily due to the release of a $1 million loss contingency on an SBA loan that did not occur during the prior quarter.” The reduction was partially offset by higher salaries and benefits tied to increased headcount. The efficiency ratio improved to 38.57% from 40.62%.
Luck also said the provision for income taxes increased by $1 million compared with the prior year, driven by higher taxable income and a net reduction in transferable tax credits recognized during the quarter of about $664,000.
Credit quality, capital, and dividends
Beckwith said asset quality remained strong, with non-performing loans at seven basis points of total loans held for investment. He added that non-performing loans declined by $280,000 during the quarter. The company recorded a $2.7 million provision for credit losses, which Beckwith said was “primarily related to loan growth.”
Management said Five Star remained well-capitalized, with capital ratios “well above regulatory thresholds.”
On shareholder returns, Beckwith said the company paid a cash dividend of $0.25 per share during Q1 and declared another $0.25 dividend expected to be paid in May 2026.
Southern California expansion, deposit strategy, and outlook
During the Q&A, Beckwith described the company’s early momentum in Southern California following recent hiring. In response to a question from Raymond James’ David Feaster about the SoCal buildout, Beckwith said Five Star brought on “4 business development officers and 2 support staff,” adding that deal flow had been “very strong” and “C&I-based.” He said the current footprint includes teams in Newport Beach and in areas including Los Angeles County and Ventura County, and that as the teams mature the next step would be opening full-service offices in those localities.
On broader origination strength, Beckwith said production was coming from multiple geographies and verticals, noting that the company had 46 business development officers at present (42 during the quarter). He highlighted strength from Redding to Walnut Creek, along with agriculture, government banking, and manufactured home and RV segments.
Management reiterated its plan to continue reducing wholesale deposits. Beckwith told analysts the bank aims to be out of wholesale deposits by Dec. 31, and “hopefully” sooner, tying the strategy to lowering funding costs and expanding core relationship deposits. He said non-interest-bearing deposits saw “substantial growth” in Q1, and pointed to the government banking team’s momentum, including a focus on cities, counties, and special districts.
In response to questions from Stephens’ Andrew Terrell, Beckwith quantified government deposit growth in Q1 at about $190 million. He said those inflows were “priced right on top of” brokered deposits, describing it as “pretty much just swapping dollar for dollar,” and referenced broker deposit costs around 3.82% at quarter-end with a “late rate” around the 3.80% range.
Terrell also asked about the surge in non-interest-bearing deposits. Beckwith pointed to a title company relationship and escrow-related deposits associated with the Newport Beach office. D.A. Davidson’s Gary Tenner followed up on whether escrow deposits could introduce earnings credit impacts; Beckwith said earnings credits are “pretty robust” in that space and acknowledged there would be some associated cost, which management said it had planned for.
On margin expectations, KBW’s Woody Ley asked about further net interest margin expansion. Beckwith said the company expects the margin to “settle” around current levels, adding that it may move a couple of basis points but not see the same type of increases as the past four quarters. He said management is “settling in on this NIM range of 3.70-3.75,” with net interest income growth expected to come primarily from balance sheet growth.
Regarding competition, Beckwith said it has increased and is most intense for high-quality deals. He said the bank is “winning our fair share,” while emphasizing disciplined pricing and diversification across relationships.
As for the full-year outlook, Beckwith said that while the company had guided to roughly 10% growth previously, the stronger start could support “maybe 10%-12% growth on both sides of the balance sheet” for the remainder of the year, citing robust pipelines and the new Southern California team as potential drivers. On expenses, he indicated that investment in hiring would likely continue at a similar pace, describing a “stair-stepping” pattern with quarterly resets to expense expectations.
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.
Further Reading
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