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FIVE STAR BANCORP (FSBC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 was cleanly positive: diluted EPS rose to $0.63 from $0.52 in Q3 as net interest income grew 10% QoQ and the efficiency ratio improved to 41.21% (from 43.37%), while net interest margin (NIM) held essentially flat at 3.36% (down 1 bp) . Versus Q4 2023, NII rose 26% and NIM expanded 17 bps, supporting a 23% YoY increase in net income to $13.3M .
  • Balance sheet growth was healthy: loans +2.08% QoQ and deposits +4.65% QoQ; liquidity stood at ~$1.9B and CET1 improved to 11.02% (from 10.93% in Q3) .
  • Mixed funding mix: wholesale deposits rose $150M QoQ (+36.6%), while non‑wholesale increased $8M (+0.27%); management laddered wholesale CDs (3‑month tenor, 4.59% weighted rate on ~$560M) to benefit from prospective rate cuts .
  • 2025 setup: management targets ~8% loan and deposit growth, expects slight NIM expansion and operating leverage as SF Bay Area investments begin to pay off; dividend maintained at $0.20/share (declared Jan 16 for Feb 10 payment) .

What Went Well and What Went Wrong

  • What Went Well

    • Operating momentum: net interest income up 10% QoQ to $33.5M; efficiency ratio improved to 41.21% as expense discipline held and revenues advanced .
    • Stable margin, strong growth: “we were able to maintain our net interest margin, which decreased by only 1 basis point and grow our total loans, assets and deposits over prior periods” (CEO) .
    • Liquidity/capital robust: liquidity ~$1.9B; CET1 11.02% and bank remains well‑capitalized under regulatory guidelines .

  • What Went Wrong

    • Funding mix reliance: wholesale deposits increased $150M QoQ (+36.6%), while non‑wholesale rose only $8M; cost of funds remained elevated at 2.65% (vs 2.50% in Q4’23) .
    • AOCI pressure: other comprehensive loss of $2.6M in Q4 as AFS unrealized losses (net of tax) increased to $12.4M; effective tax rate also lifted by a $0.6M provision‑to‑return true‑up .
    • Early warning metrics: watch‑rated loans increased to $123.4M vs $39.6M at 12/31/23, though NPLs stayed very low at 0.05% of loans HFI .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Net Interest Income ($000)$26,678 $29,092 $30,386 $33,489
Total Non-Interest Income ($000)$1,936 $1,573 $1,381 $1,666
Pre-tax Income ($000)$15,151 $15,152 $15,241 $19,367
Diluted EPS ($)$0.63 $0.51 $0.52 $0.63
Net Interest Margin %3.19% 3.39% 3.37% 3.36%
Efficiency Ratio %44.25% 44.07% 43.37% 41.21%
ROAA %1.26% 1.23% 1.18% 1.31%
ROAE %15.45% 11.72% 11.31% 13.48%

KPIs (end of period unless noted):

KPIQ2 2024Q3 2024Q4 2024
Loans HFI ($000)$3,266,291 $3,460,565 $3,532,686
Total Deposits ($000)$3,149,631 $3,399,979 $3,557,994
Non-Interest-Bearing Deposits ($000)$825,733 $906,939 $922,629
Cost of Funds %2.56% 2.72% 2.65%
CET1 Ratio %11.28% 10.93% 11.02%
NPLs / Loans HFI %0.06% 0.05% 0.05%
Cash & Equivalents ($000)$190,359 $250,852 $352,343
Liquidity Available ($000)$1,627,435 $1,839,991 $1,900,188

Narrative drivers:

  • QoQ improvement in pre‑tax and EPS was driven by higher average interest‑earning assets (interest income +$5.1M QoQ) and a lower provision (−$1.45M QoQ) with NIM essentially flat; non‑interest income benefited from venture fund income vs a loss in Q3 .
  • YoY gains were propelled by higher loan balances and yields; deposit costs were higher YoY but manageable; efficiency improved YoY .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan Growth2025Not providedTarget ~8%Introduced
Deposit Growth2025Not providedTarget ~8%Introduced
Net Interest Margin2025Not providedExpect slight expansionIntroduced
Wholesale Deposit Strategy2025Not providedMaintain/roll short 3‑mo CDsClarified/Maintained
BHG Loan Purchases2025Not providedMaintain ~$300M portfolio (Q4 purchases $17M; $270M balance YE)Clarified/Maintained
Opex Run‑Rate1H25Not providedUse Q4’24 expense as baseline; reassess H2Introduced
Common DividendQ1’25$0.20/qtr in 2024$0.20 declared (payable Feb 10)Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (Prev‑2)Q3 2024 (Prev‑1)Q4 2024 (Current)Trend
NIM trajectoryNIM +25 bps QoQ to 3.39% NIM 3.37% (−2 bps QoQ) NIM 3.36% (−1 bp QoQ) Stabilizing near mid‑3%
Deposit mix & wholesale strategyBoth non‑wholesale and wholesale up; no ST borrowings at Q2 end Wholesale +$157.4M QoQ; non‑wholesale +$92.9M Wholesale +$150M; non‑wholesale +$8M; 3‑mo CDs, 4.59% wtd on ~$560M Elevated wholesale reliance, tactically laddered
SF Bay Area expansion19 employees; $161.3M deposits Office opened; 24 employees; $189.0M deposits 27 employees; $229.5M deposits; next: East Bay/Walnut Creek Continued buildout, broader diversification
Asset qualityNPLs 0.06%; watch $58.0M NPLs 0.05%; watch $90.9M NPLs 0.05%; watch $123.4M; ACL 1.07% NPLs stable, watch rising
Capital/LiquidityCET1 11.28%; liquidity $1.63B CET1 10.93%; liquidity $1.84B CET1 11.02%; liquidity $1.90B Strong and improving

Management Commentary

  • Strategic message: “we were able to maintain our net interest margin... and grow our total loans, assets and deposits over prior periods” with a 41.21% efficiency ratio and conservative underwriting (CRE LTV ~49.92%) .
  • Expansion focus: “we continue to add new core deposit accounts... successful execution of our San Francisco market expansion,” with 27 Bay Area employees and $229.5M deposits at 12/31/24 .
  • Funding and growth outlook: “we’re targeting about 8% annual [deposit] growth... we also think we can grow loans by 8%,” and “we do see some slight margin expansion in our future” .
  • Wholesale CD ladder: “very short‑term CDs... rolling every 3 months... weighted average rate... 4.59% on about $560 million” .

Notable quotes:

  • “Our pipeline continues to remain solid... We think we have a competitive advantage in terms of growth” (CEO) .
  • “Noninterest income increased... due primarily to income received on equity investments in venture‑backed funds” (CFO) .
  • “Use Q4’s expenses as your proxy [for 1H25]... that’s a good new baseline” (CFO) .

Q&A Highlights

  • Deposit funding mechanics: management is laddering wholesale CDs in 3‑month maturities to capture potential rate cuts; ~$560M outstanding at a 4.59% weighted rate .
  • Core deposit competitiveness: deposit market “always very competitive”; guiding to ~8% annual deposit growth in 2025 .
  • Margin and operating leverage: expect slight NIM expansion with prior SF Bay Area hiring largely complete; operating leverage should emerge in 2025 .
  • Loan growth dynamics: originations driven by expanded business development (“how many lines... in the water”); some payoffs are planned rollovers to agency/life/CMBS markets .
  • Bay Area strategy: positive momentum and talent attraction; next physical expansion likely East Bay/Walnut Creek .
  • BHG portfolio & wholesale: maintain BHG around ~$300M (Q4 purchases $17M; YE $270M); plan to keep wholesale deposit book consistent and rolling .
  • Seasonal outflows: late‑December distributions by commercial customers (> $50M) impacted non‑wholesale deposit growth optics .

Estimates Context

  • We attempted to pull Wall Street consensus (S&P Global) for EPS and revenue for Q4 2024 and recent quarters; access was unavailable due to a daily request limit exceeded. As a result, estimate comparisons are not included here. Values would normally be anchored to S&P Global consensus; please advise if you want us to re‑run once access resets. [Values retrieved from S&P Global]*

Key Takeaways for Investors

  • Core profitability is firming: NIM held at 3.36% despite funding costs, while NII growth and expense discipline drove better efficiency (41.21%) and EPS of $0.63; YoY operating leverage improved .
  • Growth remains intact: loans +2.08% QoQ/+14.6% YoY; deposits +4.65% QoQ/+17.6% YoY; management targets ~8% 2025 growth for both .
  • Funding is the swing factor: wholesale reliance rose again; however laddered, short‑tenor CDs position FSBC to benefit from rate cuts, limiting NIM downside near term .
  • Asset quality resilient, but monitor watch‑rated loans: NPLs remain 0.05%, ACL 1.07%; watch list increased during 2024—worth tracking amid CRE cycle normalization .
  • Capital/liquidity headroom supports growth and dividend: CET1 11.02%, liquidity ~$1.9B, and dividend maintained at $0.20/share .
  • 2025 setup: management foreshadows slight NIM expansion and operating leverage as SF hiring subsides and production scales, with continued Bay Area geographic expansion .
  • Near‑term focus: pace and mix of deposit growth (core vs wholesale), NIM trajectory vs rate path, and evolution of watch‑rated credits in CRE.

Notes:

  • Primary sources include the Q4 2024 earnings press release (Item 2.02 8‑K and Exhibit 99.1), the Q4 2024 earnings call transcript, and related Q2/Q3 2024 earnings materials for trend analysis .