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DATE

Tuesday, April 28, 2026 at 1 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — James Beckwith
  • Executive Vice President and Chief Financial Officer — Heather Luck

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TAKEAWAYS

  • Earnings per share -- $0.87, an increase of $0.40 per share sequentially from Q4 2025.
  • Net income -- $18.6 million, up 6% from the prior quarter.
  • Return on average assets -- 1.55%, up 5 basis points from the prior quarter.
  • Return on average equity -- 16.73%, up 76 basis points from the prior quarter.
  • Net interest margin -- 3.7%, a sequential increase of 4 basis points; management expects this range to remain stable.
  • Net interest income -- $43.5 million, a 3% increase from Q1 2025 due to volume and margin expansion.
  • Total assets -- Increased by $276.9 million, mainly from commercial real estate loan growth of $116.2 million.
  • Loans held for investment -- Grew by $138.5 million, representing 14% annualized growth.
  • Total deposits -- Increased by $268.3 million, or 26% annualized; non-wholesale deposits rose by $350.2 million, offset by an $81.9 million decline in wholesale deposits.
  • Noninterest-bearing deposits -- Accounted for approximately 28% of total deposits, up from 26% at year-end 2025; end-of-period noninterest-bearing deposit balance was $1.23 billion.
  • Deposit portfolio composition -- Approximately 61% of deposit relationships exceed $5 million, with an average age of eight years.
  • Average cost of total deposits -- 2.13%, a decrease of 10 basis points from the previous quarter.
  • Nonperforming loans -- 7 basis points of total loans held for investment, a reduction of $280,000 during the quarter.
  • Provision for credit loss -- $2.7 million, mainly linked to loan growth.
  • Noninterest income -- $1.6 million in Q1, up from $1.4 million prior quarter, driven by swap referral fees and an FHLB stock dividend, partly offset by lower venture fund earnings.
  • Noninterest expense -- Decreased by $263,000, primarily due to the release of a $1 million SBA loan loss contingency, offset by higher salaries and benefits related to increased headcount.
  • Efficiency ratio -- Improved to 38.57% from 40.62%, mostly attributed to contingency release.
  • Dividend activity -- Q1 cash dividend of $0.25 per share paid; additional $0.25 per share dividend declared for May 2026.
  • Loan and deposit pipeline -- Management reported a "robust" pipeline, with strong C&I deal flow led by expansion teams in Southern California.
  • Deposit growth drivers -- Significant contribution from government banking, with $189 million-$190 million in growth; expansion attributed to both new and existing customer relationships across verticals.
  • Headcount -- 46 business development professionals as of the call, up from 42 in the quarter; ongoing recruitment is supporting both core and geographic expansion.
  • Wholesale deposit strategy -- Intention to fully exit brokered deposits by year-end 2026, with a strong emphasis on replacing with core deposits.
  • Loan portfolio structure -- Approximately 75% of loans held for investment are adjustable or floating, positioning the bank for interest rate volatility.
  • Expense guidance -- Normalized noninterest expense anticipated at $14.8 million-$15.5 million per quarter for the next two quarters, exclusive of one-time releases.
  • Balance sheet growth outlook -- Management projected potential 10%-12% growth for both loans and deposits through year-end, reflecting recent hiring initiatives and market expansion.
  • Southern California expansion -- Four new business development officers and two support staff hired; management cited "very, very strong" deal flow and plans to consider full-service offices as teams mature.

SUMMARY

Five Star Bancorp (FSBC 0.14%) delivered sequential and annual improvements across earnings, capital, asset quality, and operational efficiency, while executing a strategic reduction in wholesale funding. Management emphasized deposit stability, growth in commercial real estate, and geographic expansion—particularly in Southern California—supported by increased business development personnel. The mix shift from brokered to core deposits is immediate, with no incremental funding cost reduction from recent government-related deposit inflows, but reflects a deliberate effort to enhance relationship-based funding sources.

  • Management confirmed that noninterest expense growth, after adjusting for one-time items, will remain consistent with recent levels due to ongoing investments in talent and geographic expansion.
  • Management said, "We could probably see maybe 10% to 12% growth on both sides of the balance sheet for the remainder of the year," signaling confidence in loan and deposit growth targets.
  • Heather Luck stated, "our brokered book at the end of the quarter was sitting at about 3.82% for the actual brokered deposits, and the ladder rate is about the 3.80% range," confirming that replacing brokered with government deposits does not lower funding cost in the short term.
  • James Beckwith said, "our loan pipeline remains strong," highlighting broad-based growth across verticals and geographies, with notable progress in government and C&I segments.
  • Management indicated ongoing investment in new market entry, especially via hiring teams—citing this playbook as successful for both the Bay Area and Southern California rollouts.

INDUSTRY GLOSSARY

  • FHLB stock dividend: A special nonrecurring cash or stock payout distributed to member banks by the Federal Home Loan Bank system, often reflecting excess profits or capital adjustments.
  • Brokered deposits: Deposits sourced through third-party intermediaries, typically at market or above-market rates, used by banks to supplement core deposit funding.
  • Ladder rate: The average yield or cost across a series of time-staggered (laddered) deposit maturities, allowing banks to manage reinvestment and interest rate risk.
  • SBA loan loss contingency: A provision established for potential losses on Small Business Administration (SBA)-guaranteed loans, later reversed if the expected loss does not materialize.

Full Conference Call Transcript

James Beckwith: Thank you for joining us to review Five Star Bancorp financial results for Q1 2026. These results were released yesterday and are available on our website, fivestarbank.com, under the Investor Relations section. Joining me today is Heather Luck, Executive Vice President and Chief Financial Officer. Q1 2026 marked another period of outstanding achievement for Five Star Bancorp. Underscored by robust growth across all markets we serve and consistent strong performance. During the quarter, we continued to deepen our client relationships and expanded our presence in key geographies while investing in both talent and technology to support ongoing organic growth. Our commitment to disciplined execution and differentiated customer service was evident in our solid results.

Q1 2026 earnings per share increased to $0.87 per share, up $0.40 per share from the prior quarter, with annualized growth in loans held for investment of 14% and annualized deposit growth of 26%. We remain well positioned to capitalize on new opportunities and drive sustainable value for our shareholders, customers, and communities.

Financial highlights during Q1 2026 include net income of $18.6 million, up 6% from the prior quarter; return on average assets of 1.55%, an increase of 5 basis points from the prior quarter; return on average equity of 16.73%, an increase of 76 basis points from the prior quarter; net interest margin of 3.7%, an increase of 4 basis points from the prior quarter; and average cost of total deposits of 2.13%, a decrease of 10 basis points from the prior quarter. Our Q1 results were driven by robust loan and deposit growth. Loans held for investment grew by $138.5 million, or 14% on an annualized basis.

Total deposits grew by $268.3 million, or 26% on an annualized basis, with non-wholesale deposits up $350.2 million offsetting an $81.9 million reduction in wholesale deposits. This shift reflects our focus on building stable, relationship-based core deposit funding. Our asset quality remains strong, with nonperforming loans representing just 7 basis points of total loans held for investment, a reflection of our conservative underwriting. We continue to be well capitalized with all capital ratios well above regulatory thresholds for the quarter. We remain committed to delivering value to our shareholders. In Q1, we paid a cash dividend of $0.25 per share and declared an additional $0.25 dividend expected to be paid in May 2026.

Our total assets increased by $276.9 million during the quarter, largely driven by loan growth within the commercial real estate portfolio, which increased by $116.2 million. Competition has increased, but our loan pipeline remains strong. Ongoing uncertainty surrounding energy supply chains and global economic consequences of the Iran conflict has triggered volatility in interest rates. We believe we are well positioned for changes in interest rates, as approximately 75% of our loans held for investment are adjustable or floating. This gives us flexibility to respond to market shifts and helps protect our earnings in a volatile environment. Our prudent underwriting standards, comprehensive loan monitoring, and focus on relationship-driven lending have contributed to maintaining strong credit quality.

As a result, we have a very low volume of nonperforming loans, which declined by $280,000 during the quarter. We recorded a $2.7 million provision for credit loss during the quarter, primarily related to loan growth. The increase in total liabilities during the quarter was the result of growth in interest-bearing and noninterest-bearing deposits, related to both new accounts and inflows from existing customers. Non-wholesale deposits increased by $350.2 million while wholesale deposits decreased by $81.9 million. Noninterest-bearing deposits accounted for approximately 28% of total deposits, an increase from approximately 26% as of December 31, 2025. Approximately 61% of our total deposit relationships totaled more than $5 million.

These deposits have a long tenure with the bank, with an average age of approximately eight years. We believe our deposit portfolio to be a stable funding base for our future growth. On that note, I will now turn the call over to Heather Luck for the results of operations.

Heather Luck: Thank you, James, and hello, everyone. Net interest income increased to $43.5 million, a 3% increase from 2025, supported by both volume and margin expansion. Our net interest margin improved to 33.7% from 3.66% in the prior quarter, reflecting disciplined pricing and a favorable mix of assets, and interest income increased by $926,000 from the previous quarter, mainly due to a 4% increase in the average balance of loans. The increase in interest income was augmented by a $166,000 decrease in interest expense due to a 10 basis point decline in the average cost of deposits.

While the average balance of deposits increased by 5% during the quarter, a 5% increase in the average balance of noninterest-bearing deposits combined with a decrease in the costs associated with deposits resulted in a net decrease in total interest expense. Noninterest income increased to $1.6 million in the first quarter from $1.4 million in the previous quarter, primarily due to an increase in fees from swap referrals and a special FHLB stock dividend recognized during the three months ended March 31, 2026, partially offset by an overall decline in earnings related to investments in venture funds. Noninterest expense decreased by $263,000 in the three months ended 03/31/2026.

This is primarily due to the release of a $1 million loss contingency on an SBA loan that did not occur during the prior quarter. This was partially offset by an increase in salaries and employee benefits related to increased headcount to support customer-facing and back-office operations. Our efficiency ratio improved to 38.57% from 40.62% in the prior quarter, primarily driven by the release of the loss contingency. The provision for income taxes for the quarter ended 03/31/2026 increased by $1 million as compared to the prior year, primarily due to an increase in taxable income recognized and a net reduction in transferable tax credits recognized during the quarter of approximately $664,000.

And now I will hand it back to James for closing remarks.

James Beckwith: Thank you, Heather. Five Star Bancorp's success serves as strong testimony to clients who value our team of committed professionals who provide authentic relationship-based service. We continue to ensure our technology stack, operating efficiencies, conservative underwriting practices, exceptional credit quality, and prudent approach to portfolio management will benefit our customers, employees, community, and shareholders. As we look to Q2, we remain committed to our disciplined approach to growth, prudent risk management, and delivering value to all of our stakeholders. We are excited about the opportunities in our markets and confident in our ability to continually execute on our strategic priorities.

Our focus will remain on expanding our presence in key geographies, deepening client relationships, and investing in technology and talent to support our long-term success. We appreciate your time today. This concludes today's presentation. We will now open the call for questions.

Operator: We will now begin the question and answer session. To ask a question, those dialed in may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. The first question today is from Evan Kwiatkowski with Raymond James. Please go ahead.

Analyst: Hey, this is Evan on for David Pipkin Feaster. Good morning, everybody. I just wanted to start on the Southern California expansion announced earlier. I know it is early innings, but on a high level, I am just curious what you are most excited about for that market and how the team down there has been ramping up so far. I also wanted to gauge your thoughts on potential de novo expansion in Southern California alongside those hires and how you see that market evolving broadly.

James Beckwith: Well, thank you for the question. We are very excited about the team that we brought on. We have four business development officers and two support staff. They are very confident, and so far, deal flow seems to be very, very strong from them. It is a lot of fun for us engaging with them in a market which is just substantial—much bigger market than Northern California, as you know—and so the deal flow that we are seeing right now are just great credits, C&I-based, and we are excited about the opportunities that the team is presenting us.

In terms of de novo operations or potentials, we have a team in Newport Beach right now and then we have a team up in Los Angeles County and Ventura County. As they continue to mature and develop, the next step for us would be to open a full-service office in those localities. But we want to see substantial growth coming from those teams, and it will help us get to where we want to be ultimately, which is to have full-service offices.

Analyst: That is really helpful. Excited to see how that develops. And then maybe sticking on the growth side, originations were really strong during the quarter. I am just curious where that is coming from broadly. Is it more a function of increasing demand in your markets or increasing contribution from existing bankers or new hires? And then maybe just curious where you are seeing the most opportunity for growth within specific segments as well.

James Beckwith: It is coming from a lot of different places. Our existing business development people—we now have 46 of them working for the company, but during the quarter it was 42—and everybody is producing. Everybody is doing quite well across our verticals and our geographies. We are seeing substantial growth coming from all the way up into Redding, all the way down to Walnut Creek in the Bay Area, and our ag team also is doing quite well. So we are hitting on a lot of cylinders right now in terms of deal flow and really good relationships that our seasoned professionals are bringing in.

I could not really single out one, but maybe on the depository side, our government book has done quite well on growth in relationships. We are excited about that. Our manufactured home and RV folks are doing well also. But it is coming from a lot of different sources, which we are all very, very excited about.

Analyst: On the deposit side, it was good to see the growth during the quarter, which allowed you to pay down some wholesale funding. What was primarily driving that, and do you see any opportunities for additional funding cost leverage from here, especially given the prospect of no Fed cuts this year?

James Beckwith: Right. We are going to continue to focus on reducing our wholesale deposit book, with a desire to be out of it by 12/31. Hopefully, we will be able to do that more quickly. That is our plan. So that will provide maybe some relief in our interest cost, and it is really going to be dependent upon continuing to push deposits. The value of our franchise, we recognize, is in our deposit base, and we are executing quite well on that in terms of bringing on new relationships. Noninterest-bearing deposits saw substantial growth in Q1, and we hope and expect to see that growth continue. As I mentioned previously, our government banking team has done quite well.

That team really covers the entire state. Their focus is on cities and counties, but moreover their focus is really on special districts, and they have done quite well in that space. Their pipelines remain very strong, so we are excited about that.

Analyst: That is great. Thanks, guys. Great quarter.

James Beckwith: Thank you.

Operator: The next question is from Woody Lay with KBW. Please go ahead.

Woody Lay: I had a follow-up on deposits. The focus is continuing to pay down wholesale deposits. But if I look over the past year, it is pretty incredible the mix change that has undergone there. Is that being driven by some of these sub-verticals that have allowed you to grow core deposits? Is it new customers to the bank? Is it expanding the wallet of current customers? Would love your take on that.

James Beckwith: It is a great mix between deposit flow from existing customers and new relationships that we brought on. Often a deposit relationship—or any banking relationship—takes a while to mature, and so we are seeing some growth coming from the business that we put on in 2025 as those relationships kind of work their way over to us, Woody, and so that is exciting. But also, our first three months have been very strong in terms of new deposit growth and new accounts, so we are excited about that. Again, our government book has done quite well, but our growth in deposits is coming from all different types of verticals.

It is very much aligned with our objective to pay down our wholesale book. It is pretty evident what we have been able to do for the last six months with that, and hopefully we will be out of brokered deposits, as I mentioned, by 12/31. We would certainly like to do that more quickly than by the end of the year, and we will see how the second quarter goes.

Woody Lay: I would imagine paying down the brokered has been a positive to net interest margin, and we saw the NIM take another step up in the first quarter. How are you thinking about continued NIM expansion from here, especially if cuts are flat, and then the incremental impact that rate cuts could provide?

James Beckwith: We do not know how much juice is left in terms of the impact rates will have on our NIM. We are kind of thinking it is settling around where it was for the quarter. But we do expect increases in net interest income to come from growth, and that is our sense right now. NIM might move up a couple of basis points, but nothing substantial like we have seen for the last four quarters. We are settling in on this NIM range of 3.70% to 3.75%. Hopefully we can maintain it there and have net interest income being driven by growth.

Woody Lay: On loan growth, it remains really strong. I have heard anecdotal commentary across the industry of some increased competition, especially among bigger banks. Are you seeing that within your footprint?

James Beckwith: We have been doing this for quite some time, and competition is always present. We mentioned it in the script—competition is out there. Yes, on good deals, people are fighting for them, and you have to be careful that your growth is spread out amongst several relationships and your pricing is something that you can make money on. We know it is going to be competitive for the best deals, and that is our mindset when we come to work every day. We are winning our fair share—we are not winning everything. If we were winning everything, maybe we are not pricing it right.

The function of our growth—what is really driving it—is just the number of people we have, the boots on the ground so to speak, relative to our size. In total headcount, we just have more business development people, so the opportunities that are coming to us are really being driven more than anything else by the number of folks we have in the space.

Woody Lay: That all sounds good. Thanks for taking my questions.

James Beckwith: You bet.

Operator: The next question is from Andrew Terrell with Stephens. Please go ahead.

Andrew Terrell: Good morning. I wanted to stick on margin and deposits for a bit. How much of the deposit growth this quarter was related to the government or the special district business line? And I would love to get a sense for where you are bringing on, cost-wise, the incremental dollar of core deposits versus what is rolling off on the wholesale side—pricing-wise.

James Beckwith: The growth in our government book in the first quarter was quite substantial, as I mentioned. It is about $189 million to $190 million, so it really drove the overall increases in deposits. Other verticals did quite well also, but that one kind of stands out. Now, that money that came in is really priced right on top of our brokered deposit book, so there is no incremental pickup, if you will, in terms of cost reduction with that money coming in versus having the brokered deposits go away. For some of these counties, that is their liquidity, and we hope to bring on some noninterest-bearing deposits through that process with those relationships, and we have.

But a lot of that growth is really coming right at the margin.

Heather Luck: And just for reference, to compare the two: our brokered book at the end of the quarter was sitting at about 3.82% for the actual brokered deposits, and the ladder rate is about the 3.80% range. So we are pretty much just swapping dollar for dollar.

Andrew Terrell: Okay, makes sense. On the noninterest-bearing deposits—fantastic growth this quarter. Was there anything in the end-of-period figure for noninterest-bearing, which I think was $1.23 billion, that was elevated specifically at period end and has normalized in the second quarter so far, or is that a good base to work off of? I am asking because it is a lot higher than the average.

James Beckwith: A couple of things drove noninterest-bearing deposits. One, we do have a title company that is doing quite well—pretty big relationship. Also, with some of our folks in our Newport Beach office, they are bringing on their customer base, which is escrow companies, and all those monies are noninterest-bearing. We expect to continue to see growth in our Newport Beach office from those two folks that we brought on. In combination with that and all the other C&I business we have been doing up and down the platform, that really drove noninterest-bearing deposits. Those two matters kind of stand out.

Andrew Terrell: Last one from me: I think last quarter we talked about kind of 10% growth for the year on both sides of the balance sheet. You are pretty close on the deposit side already. Any updated expectations on the pace of balance sheet growth or targets for the year?

James Beckwith: We guided pretty consistent with what our plan is, but obviously we exceeded that, which is a good thing. We could probably see maybe 10% to 12% growth on both sides of the balance sheet for the remainder of the year, but we will have to see how it goes. We are excited—our pipelines are pretty robust right now, frankly. With the bringing on of this new team in Southern California, we expect to really drive growth on both sides—both deposits and loans. Their book and their client and prospect base are really very strong C&I operating companies, which will bring in some nice noninterest-bearing deposits. So that is where we are right now on that 10% to 12% growth.

Andrew Terrell: If I could ask one last one: normalizing the expense base, it looks like $18.4 million or so for the quarter. Can you update your thoughts on the expense run rate going forward?

Heather Luck: You could probably add back $1 million to adjust for the release of the accrual. But if you add about $500,000 to that, we are still consistently falling in that $14.8 million to $15.5 million range, and I think we will stick to that probably for the next quarter or two.

Andrew Terrell: Great. Thanks so much.

Operator: The next question is from Gary Tenner with D.A. Davidson. Please go ahead.

Gary Tenner: Thanks. Good morning. I wanted to ask a follow-up, James, to your comments a moment ago on the Newport office and bringing escrow company deposits. Does any of that start leaning into deposits that show up on the expense line from any kind of earnings credit noise, or are these pure noninterest-bearing deposits?

James Beckwith: The earnings credits are pretty robust in that space, and we are not doing anything in terms of earnings credit rate for those new customers outside of what the market rates are. But there will be some expense associated with that based upon those earnings credits. We fully expect that and have planned for it, so it has a cost, to your point, Gary.

Gary Tenner: Thanks for that. Also a follow-up on expenses in general. You have been year-over-year expenses up about 20%, first quarter to first quarter, adjusted for that $1 million SBA liability. Obviously you are built for growth. Is the pace of investment changing at all over the next 12 months versus the last 12 months in terms of hires, etc.?

James Beckwith: We are investing in the business. We announced this month that we are bringing on—I guess the announcement was five people, but we are actually bringing on six. That is a substantial cost. These folks are not cheap, and we will continue to invest back in the business because, take the Bay Area, we are desirous of being in the South Bay from Palo Alto all the way down to San Jose. We are obviously looking at opportunities there. So we are going to continue to invest. Your question is, is the pace going to be consistent with what it has been in the past? The answer, I think, is yes.

Heather Luck: I think we are following what really worked well in the Bay—hiring smaller teams of people and smaller tranches of people. We are starting to do that in Southern California as well, and that has worked really well for us to integrate them into the company. You are going to have some stair-stepping, and we will have some resets each quarter on what our new expectation for expenses are. That likely will happen over the next year or two.

Gary Tenner: You have clearly developed a playbook that works for moving to new markets. I appreciate the thoughts on that.

James Beckwith: Thank you.

Operator: Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

James Beckwith: Thank you. I want to reiterate our appreciation for the trust and support of our shareholders, clients, and employees. The results we shared today are a direct reflection of the dedication and hard work of our entire Five Star Bancorp team, as well as the enduring relationships we have built with our customers and communities. It is our privilege to continue to be a driving force of economic development, a trusted resource for our clients, and a committed advocate for our communities. We look forward to speaking with you again in July to discuss earnings for Q2. Have a great day and thank you for listening.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.