Five Star Bancorp NASDAQ: FSBC reported higher second-quarter 2026 earnings as loan and deposit growth continued to drive balance sheet expansion, while management highlighted ongoing market expansion in California and a continued focus on core deposit relationships.
President and Chief Executive Officer James Beckwith said the quarter reflected “continued execution of our organic growth strategy and the strength of our relationship-driven model.” The company reported net income of $19.4 million for the quarter, up from $18.6 million in the first quarter of 2026. Earnings per share rose to $0.91, an increase of $0.04 from the prior quarter and $0.23 from the second quarter of 2025.
Five Star did not conduct a question-and-answer session on the call. Beckwith said the company had announced the pricing of an underwritten public offering of common stock the prior day and that, because the offering had not yet settled, the call would be limited to second-quarter financial results.
Loan and Deposit Growth Drive Results
Loans held for investment increased by $306.3 million during the quarter, or 29% on an annualized basis, reaching $4.5 billion as of June 30, 2026. Beckwith said total assets increased by $345.3 million during the quarter, driven largely by growth in the commercial real estate portfolio, which rose by $175.3 million, as well as $124.5 million in purchased loans within the consumer segment.
Total deposits grew by $330 million, or 30% on an annualized basis. The company said non-wholesale deposits increased by $463.1 million, more than offsetting a $133.1 million reduction in wholesale deposits. Non-wholesale deposit accounts represented approximately 94.79% of total deposits at June 30, up from 91.43% at March 31.
Beckwith said the shift reflected the bank’s “continued focus on building a stable, relationship-based core deposit funding base.” Non-interest-bearing deposits accounted for approximately 24.5% of total deposits at quarter-end.
The company also reported that approximately 64% of its total deposit relationships exceeded $5 million, with an average tenure of about seven years. Beckwith described the deposit base as “a durable foundation for our continued growth.”
Net Interest Income Rises, Margin Narrows
Executive Vice President and Chief Financial Officer Heather Luck said net interest income increased to $46.1 million in the second quarter, up 6.04% from $43.5 million in the first quarter. Net interest margin contracted by seven basis points quarter over quarter to 3.63%.
Luck said the increase in net interest income was primarily volume driven, while rapid balance sheet expansion “modestly diluted the overall yield in earning assets.” Interest income rose by $5 million from the previous quarter, primarily because of a 4% increase in the average balance of loans and a 32% increase in the average balance of interest-earning deposits in banks.
Interest expense increased by $2.4 million, driven by a $330.1 million increase in average deposit balances and a three-basis-point increase in the average cost of deposits. Luck said growth in average non-interest-bearing deposits of $41.9 million helped partially offset the increase in deposit funding costs.
Non-interest income rose to $1.9 million from $1.6 million in the prior quarter. Luck said the increase was primarily due to improved earnings related to investments in venture-backed funds, partially offset by lower swap referral fees and reduced Federal Home Loan Bank stock dividends.
Non-interest expense increased by $2.2 million from the first quarter. Luck attributed the increase primarily to a $1 million loss contingency release on an SBA loan that benefited first-quarter results and did not recur, as well as higher advertising, promotional and data processing costs tied to organizational growth. The efficiency ratio was 40.91%, compared with 38.57% in the first quarter and 41.03% in the second quarter of 2025.
Asset Quality Remains in Focus
Beckwith said asset quality remained strong, though the ratio of non-performing loans increased to 0.30% at June 30 from 0.07% at March 31. The increase was attributed to one Community Reinvestment Act loan that was placed on non-accrual status during the quarter.
The loan had a balance of $11.4 million as of June 30 and was originally downgraded to substandard in 2025. Beckwith said the loan was “well collateralized” and that a current appraised value provided “significant cushion” above the carrying amount.
The company recorded a $2.3 million provision for credit losses during the quarter, primarily reflecting loan growth. The allowance for credit losses totaled $47.3 million at June 30, up from $44.4 million at Dec. 31, 2025. Beckwith said the increase reflected $4.6 million in credit loss provisions recorded during the first half of the year, partially offset by $1.6 million in net charge-offs, primarily related to commercial and industrial loans.
The allowance as a percentage of loans held for investment was 1.05% at June 30, compared with 1.09% at the end of 2025.
Capital, Dividends and Market Expansion
Five Star said it remained well capitalized, with all capital ratios above regulatory thresholds. As of June 30, the company reported a common equity Tier 1 capital ratio of 9.98% and a Tier 1 leverage ratio of 9.21%.
The company paid a cash dividend of $0.25 per share during the second quarter and declared an additional $0.25 cash dividend expected to be paid in August 2026.
Management also discussed the company’s continued geographic expansion. In April, Five Star announced the addition of five banking professionals to lead its efforts across the Greater Los Angeles area, building on an existing administrative office in Newport Beach. Beckwith said the company plans to open an additional Southern California office later this year.
The bank also opened a full-service branch in Lodi on July 13. Beckwith said the market is a natural fit because of its agricultural economy and growing base of small and mid-sized businesses, and that the branch strengthens the company’s Food, Agribusiness & Diversified Industries vertical.
Looking ahead, Beckwith said the company remains focused on disciplined growth, risk management, deepening client relationships, expanding in key markets and making targeted investments in technology and talent. He said management expects to discuss third-quarter earnings in October.
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.
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