What Five Star Bancorp (FSBC) Said on Its Q3 Earnings Call

Key Points

• Strong third-quarter performance: Net income rose to $21.9 million, or $0.92 per share, supported by 16% annualized loan growth, a higher net interest margin of 3.69% and improved efficiency.
• Capital and funding strengthened: A July public offering generated approximately $130 million in net proceeds, lifting the common equity Tier 1 ratio to 12.52%. Management also reduced wholesale-funding reliance as non-wholesale deposits grew.
• Growth outlook remains positive: Management targeted 10%–12% loan growth in the fourth quarter and in 2027, while maintaining stable credit quality and expanding its Southern California banking presence.

Five Star Bancorp NASDAQ: FSBC reported third-quarter 2026 net income of $21.9 million, up from $19.4 million in the second quarter, as loan growth, a higher net interest margin and improved operating efficiency supported results. Basic earnings per share rose to $0.92 despite an 11% increase in weighted-average basic shares outstanding following the company’s July public offering.

President and CEO James Beckwith said the quarter reflected “solid execution,” citing balance-sheet growth, margin expansion, profitability and the completion of an underwritten public offering that generated approximately $130 million in net proceeds. The company said the proceeds are intended to support general corporate purposes, growth investments, working capital and potential strategic opportunities.

The capital raise increased Five Star’s common equity Tier 1 capital ratio by 255 basis points from the prior quarter to 12.52% at Sept. 30. Its Tier 1 leverage ratio rose to 11.21%, while its total risk-based capital ratio reached 15%. Total shareholders’ equity was approximately $617 million at quarter-end.

Loan Growth and Deposit Mix

Loans held for investment increased by $184.5 million during the quarter, representing approximately 16% annualized growth, to reach $4.7 billion. The company attributed the increase primarily to commercial real estate lending and continued production from its commercial banking teams. Commercial real estate loans rose $81.8 million, while consumer loans increased by $50.9 million.

Total deposits increased by $25.1 million, although non-wholesale deposits rose by $75.1 million as wholesale deposits declined by $50 million. Beckwith said the movement reflected Five Star’s strategy to deepen core customer relationships and reduce dependence on wholesale funding. Non-wholesale deposits represented about 96% of total deposits at quarter-end, while noninterest-bearing deposits accounted for about 25.1%.

The company reported that insured and collateralized deposits rose to 68% of total deposits, while net uninsured and uncollateralized deposits declined. Five Star ended the quarter with $679.5 million in cash and cash equivalents, or 14.08% of total deposits, and approximately $2.5 billion of total available liquidity, including borrowing capacity.

During the analyst question-and-answer session, Beckwith said the company’s loan pipeline remained strong, although real estate acquisition financing had slowed somewhat amid the interest-rate environment. He said Five Star was targeting loan growth of 10% to 12% in the fourth quarter and expected a similar growth range in 2027.

Margin Expansion and Earnings Trends

Net interest income increased 10.5% from the prior quarter to $50.9 million. Net interest margin expanded six basis points sequentially to 3.69%, supported by higher-yielding loans and an increase in the yield on interest-earning assets. Average loan yield increased six basis points to 6.14%, while the average cost of total deposits increased three basis points to 2.19%.

Chief Financial Officer Heather Luck said average interest-earning assets increased 7% from the prior quarter, including a 7% increase in average loans and a 14% increase in average interest-earning deposits at banks. Interest expense increased by $2 million due to higher average deposit balances and deposit costs, partially offset by growth in noninterest-bearing deposits.

In response to analyst questions, management said net interest margin increased modestly during September as earning assets repriced faster than deposits. Beckwith said the company was comfortable with a margin range of approximately 3.65% to 3.75%, while noting that funding costs were expected to rise over the next several quarters.

Management also highlighted upcoming loan repricing activity. Luck said approximately $135 million of five-year loans with a weighted-average rate of 4.27% were scheduled to reprice in the fourth quarter. About $694 million of loans with a weighted-average rate of 5% are expected to reprice during 2027.

Expenses, Credit Quality and Expansion

Noninterest expense increased by $1 million from the second quarter, primarily due to salaries, benefits, headcount growth and recruiting fees. Still, the efficiency ratio improved to 39.13% from 40.91% in the prior quarter. Luck said quarterly noninterest expense of roughly $20.6 million represented a reasonable run rate, though she expects about $200,000 of additional fourth-quarter expense related to planning sessions, events and business development officer commissions.

Pre-tax pre-provision income increased 13% sequentially to $32 million. Return on average assets improved to 1.55% from 1.49%, while return on average equity declined to 15.04% from 16.67%, reflecting the impact of the public offering and higher share count. Book value per share increased 14% from the prior quarter to $25.15.

Asset quality remained stable, with nonperforming loans declining to 0.28% of total loans from 0.30%. The company said the nonperforming balance was primarily related to one Community Reinvestment Act-related credit with an outstanding balance of $11.4 million that remained secured by collateral with an appraised value exceeding its carrying amount. Five Star recorded a $2.5 million provision for credit losses, largely reflecting loan growth and its annual CECL model refresh.

The company opened a full-service branch in Lodi during the quarter, added a Calabasas administrative office and hired four banking professionals in Palo Alto. Its business development officer team expanded to 50 from 45. Beckwith said the Southern California expansion was generating commercial and industrial, owner-occupied commercial real estate, construction and core-deposit opportunities, though growth in those markets would be “slow and steady.”

About Five Star Bancorp (NASDAQ:FSBC)

Five Star Bancorp is the bank holding company for Five Star Bank, a community bank headquartered in the Sacramento, California, area. The bank provides commercial banking services to businesses, professionals, nonprofit organizations and individuals, with an emphasis on relationship-based banking and local market expertise.

Five Star Bank offers a range of deposit products, including checking, savings, money market and time deposit accounts, along with commercial lending solutions. Its lending activities include commercial real estate, construction and land development, commercial and industrial, small business and residential real estate loans.

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