Q1 2025 Five Star Bancorp Earnings Call
Operator: Welcome to the Five Star Bancorp First Quarter Earnings Webcast.
Welcome to the five Star Bancorp first quarter earnings webcast. Please note. This is a close conference call and you are encouraged to listen in via the webcast. After today's presentation. There will be an opportunity for those provided with the dial in number you ask questions. You ask a question you May Press Star then one.
Operator: Please note, this is a closed conference call and you are encouraged to listen via the webcast.
Operator: After today's presentation, there will be an opportunity for those provided with a dial-in number to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.
<unk> on your telephone keypad to withdraw your question. Please press Star then two.
Operator: Before we get started, we would like to remind you that today's meeting will include some forward-looking statements within the meaning of applicable securities laws. These forward-looking statements relate to, among other things, current plans, expectations, events, and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations.
Before we get started we would like to remind you that stays meeting will include some forward looking statements within the meaning of applicable securities laws. These forward looking statements relate to among other things current plans expectations events and industry trends that may affect the company's future operating results and financial position.
Such statements involve risks and uncertainties and future activities and results may differ materially from these expectations.
Operator: For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from the company's forward-looking statements, please see the company's annual report on Form 10-K for the year ended December 31, 2024, and in particular, the information set forth in Item 1A, Risk Factor. Please refer to slide two of the presentation, which includes disclaimers regarding forward-looking statements, industry data, unaudited financial data, and non-GAAP financial information included in this presentation. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP measure figures are included in the appendix to the presentation.
For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from the company's forward looking statements. Please see the company's annual report on Form 10-K for the year ended December 31st 2024, and in particular, the information set forth in item one a re.
Factors.
Please refer to slide two of the presentation, which includes disclaimers regarding forward looking statements industry data on all.
<unk> financial data and non-GAAP financial information included in this presentation.
Reconciliations of non-GAAP financial measures to their most directly comparable GAAP measure figures are included in the appendix to the presentation.
Operator: Please note this event is being recorded.
Please note this event is being recorded.
James Beckwith: I would now like to turn the presentation over to James Beckwith, Five Star Bancorp President and CEO. Please go ahead. Thank you for joining us to review Five Star Bancorp's financial results for the first quarter of 2025.
Speaker Change: I would now like to turn the presentation over to James back with five Star Bancorp, President and CEO. Please go ahead.
Speaker Change: Thank you for joining us to review five Star Bancorp's financial results for the first quarter of 'twenty 'twenty five.
James Beckwith: Joining me today is Heather Luck, Executive Vice President and Chief Financial Officer. Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy of the release, please visit our website at fivestarbank.com and click on the Investor Relations tab.
Speaker Change: Joining me today is Heather Locke, Executive Vice President and Chief Financial Officer.
Speaker Change: Our comments today will refer to the financial information that was included in the earnings announcement released yesterday.
Speaker Change: To obtain a copy of the release. Please visit our website at five Star Bank Dot Com and click on the Investor Relations tab.
James Beckwith: The first quarter of 2025 was a continuation of building strength in our historical markets, as well as our expansion into the San Francisco Bay Area. We added four more seasoned professionals to support our expansion into the San Francisco Bay Area and continue to add new core deposit accounts and relationships. as seen in the increase of non-wholesale deposits of $48.4 million during the three months ended March 31, 2025. In the first quarter, we maintained our ability to conservatively underwrite as evidenced by a 50- .03 LTV on commercial real estate. Manage expenses with our 42.58 percent efficiency ratio, and deliver value to our shareholders with our $0.20 per share dividend that declared in the first quarter of 2025.
Speaker Change: The first quarter of 2025 was a continuation of building strength in our historical markets as well as our expansion into the San Francisco Bay area.
Speaker Change: We added four more seasoned professionals to support our expansion into the San Francisco Bay area and continued to add new core deposit accounts and relationships.
Speaker Change: As seen in the increase of non wholesale deposits of $48 4 million. During the three months ended March 31 2025.
Speaker Change: In the first quarter, we maintained our ability to conservatively underwrite as evidenced by the 50 <unk>.
Speaker Change: Zero three LTV on commercial real estate manage expenses with their 42.58.
Speaker Change: Percent efficiency ratio and deliver value to our shareholders.
Speaker Change: With our <unk> 20 per share dividend declared in the first quarter of 2025. Additionally in the first quarter, we improved our net interest margin by nine basis points.
James Beckwith: Additionally, in the first quarter, we improved our net interest margin by nine basis points. and grew our total loans, assets, and deposits over prior periods. Total loans held for investment increased during the quarter by 89.1 million or 2.52% from the prior quarter. Average loan yields increased by one basis point from the prior quarter to 6.02%. The commercial real estate segment of the loan portfolio increased most significantly quarter over quarter, from 80.75% of our loan portfolio, excuse me, portfolio as of December 31st, 2024, to 81.11% at March 31st, 2025. Our commercial real estate concentration is set apart by the diversification within the portfolio and our ability to conservatively underwrite as evidenced by 50.03 percent LTV.
Speaker Change: And grew our total loans assets and deposits over prior periods.
Speaker Change: Total loans held for investment increased during the quarter by $89 1 million or 252% from the prior quarter average loan yields increased by one basis point from the prior quarter to 6.02%.
Speaker Change: The commercial real estate segment of the loan portfolio increased most significantly quarter over quarter.
Speaker Change: From 87, 5% of our loan portfolio or excuse me portfolio as of December 31, 2024 to <unk> 81 point, 11% at March 31 2025.
Speaker Change: Our commercial real estate concentration is set apart by the diversification within the portfolio and our ability to conservatively underwrite as evidenced by 50 point, both 3% L. T V.
James Beckwith: Our pipeline continues to remain solid at the end of the first quarter of 2025 within the verticals in which we have historically operated. Loan originations during the first quarter were $259.3 million, while payoffs and paydowns were $65.6 million and $104.6 million, respectively. Asset quality continues to remain strong. Non-performing loans remained at 0.05% of loans held for investment. from the end of the prior quarter to the end of the first quarter of 2025. At the end of the first quarter, the allowance for loan losses totaled $39.2 million. We recorded a 1.9 million provision for credit losses during the first quarter of 2025.
Speaker Change: Our pipeline continues to remain solid at the end of the first quarter of 2025 within the verticals in which we have historically operated.
Speaker Change: Loan originations during the first quarter were $259 3 million, while payoffs and pay downs were $65 6 million.
Speaker Change: And 104.
Speaker Change: $4 6 million respectively.
Speaker Change: Quality continues to remain strong nonperforming loans remained at 0.05% of loans held for investment.
Speaker Change: From the end of the prior quarter to the end of the first quarter of 2025.
Speaker Change: At the end of the first quarter the allowance for loan losses totaled $39 2 million.
Speaker Change: We recorded a $1 9 million provision for credit losses during the first quarter of 2025.
James Beckwith: Reflecting Adjustments to Expectations for Credit Losses Based upon Economic Trends and Forecasts. The ratio of the allowance for credit losses to loans held for investment was 1.08% at quarter end. Loans designated as substandard or doubtful totaled approximately $3.7 million at the end of the quarter and an increase from $2.6 million at the end of the previous quarter.
Speaker Change: Reflecting adjustments to expectations for credit losses based upon economic trends.
Speaker Change: And forecasts.
Speaker Change: The ratio of the allowance for credit losses to loans held for investment was 1.08% at quarter end.
Speaker Change: Loans designated as sub standard or doubtful.
Speaker Change: Totaled approximately $3 7 million at the end of the quarter and the increase from $2.6 million at the end of the previous quarter.
James Beckwith: During the first quarter, deposits increased. by 178.4 million or 5.0% as compared to the previous quarter. A quarter-over-quarter increase was largely driven by increases in non-interest-bearing demand and substantially all types of interest-bearing deposits. partially offset by a decrease in interest-bearing transaction deposits. Non-interest bearing deposits as a percent of total deposits decreased slightly to 24.99% at the end of the first quarter from 25.93% at the end of the prior quarter. As noted earlier, we are pleased We net non-wholesale deposit inflows for the first three months ended March 2025. Our ability to grow deposit accounts supports our differentiated customer-centric model that our customers trust and value.
Speaker Change: During the first quarter deposits increased by.
Speaker Change: By $178 4 million or 5.0% as compared to the previous quarter.
Speaker Change: <unk> over quarter increase was largely largely driven by increases in noninterest bearing demand and substantially all types of interest bearing deposits.
Speaker Change: Partially offset by a decrease in interest bearing transaction deposits.
Speaker Change: Noninterest bearing deposits as a percent of total deposits decreased slightly to $24, 99% at the end of the first quarter from 25, 93%.
Speaker Change: At the end of the prior quarter.
Speaker Change: As noted earlier, we are pleased.
Speaker Change: We net non wholesale deposit inflows for the first three months ended March 2025, our ability to grow deposits accounts supports our differentiated customer centric model that our customers trust and value.
James Beckwith: as seen through the mix of high-dollar accounts and the duration of certain customer relationships. We believe we have a reliable core deposit base. To offer more detail of our deposit composition, I want to highlight that deposit relationships totaling greater than $5 billion constitute 60.87% of total deposits. And the average age on these accounts was approximately 8.80 years as of March 31st, 2025. Local agency deposits accounted for 22.4% of deposits as of March 31, 2025. Overall deposit balances have increased when compared to the prior quarter. Wholesale deposits, which we defined as broker deposits, and California time deposit program deposits.
Speaker Change: As seen through the mix of high dollar accounts and the duration of certain customer relationships.
Speaker Change: We believe we have a reliable core deposit base.
Speaker Change: We will offer more detail of our deposit composition I want to highlight that deposit relationships totaling greater than 5 billion constitute 68, 7% of total deposits.
Speaker Change: And the average age on these accounts was approximately 880 years as of March 31 2025.
Speaker Change: Local agency deposits accounted for 22, 4% of deposits as of March 31, 2025.
Speaker Change: Overall deposit balances have increased when compared to the prior quarter.
Speaker Change: Wholesale deposits, which we define as broker deposits in California time deposit program deposits increased by $130 million or 20, 321% quarter over quarter.
James Beckwith: increased by 130 million, or 23.21% quarter over quarter. non-wholesale deposits increased by 48.4 million or 1.61% quarter over quarter. driven by a $37.4 million increase in non-wholesale interest-bearing deposits. and an $11 million increase in non-interest bearing deposits. Cost of total deposits was 248 basis points during the first quarter, a decrease of 10 basis points from the previous quarter.
Speaker Change: Non wholesale deposits increased by $48 4 million or 1.61% quarter over quarter drew.
Speaker Change: Driven by a $37 4 million increase in non wholesale interest bearing deposits.
Speaker Change: And an $11 million increase in noninterest bearing deposits.
Speaker Change: Cost of total deposits was 248 basis points during the first quarter, a decrease of 10 basis points from the previous quarter.
Speaker Change: Yeah.
James Beckwith: We continue to be well capitalized, with all capital ratios well above the regulatory thresholds for the quarter. Common Equity Tier 1 ratio decreased from 11.02% to 11% between December 31st, 2024 and March 31st, 2025.
Speaker Change: We continue to be well capitalized with all capital ratios well above regulatory thresholds for the quarter.
Speaker Change: Our common equity tier one ratio decreased from 11 point below 2% to 11% between December 31, 2024, and March 31 2025.
James Beckwith: On April 17th, our board declared a cash dividend of 20 cents per share on the company's voting common stock, expected to be paid on May 12th, 2025 to shareholders of record as of May 5th, 2025.
Speaker Change: On April 17th our board declared a cash dividend of <unk> 20 per share on the company's voting common stock expected to be paid on May 12, 2025 to shareholders of record as of May five 2025.
Heather Luck: On that note, I will hand it over to Heather to discuss the results of operations. Heather? Thank you, James. And hello, everyone. Net income for the quarter was $13.1 million, return on average assets was 1.3%, and return on average equity was 13.28%. Average loan yield for the quarter was 6.02%, representing an increase of one basis point over the prior quarter. Our net interest margin was 3.45% for the quarter, while net interest margin for the prior quarter was 3.36%.
Speaker Change: On that note I will hand, it over to Heather to discuss the results of operations.
Speaker Change: Sure.
Heather Locke: Thank you James and Hello, everyone.
Heather Locke: Net income for the quarter was $13 1 million return on average assets was one 3% and return on average equity was $13 two 8%.
Heather Locke: Average loan yield for the quarter was $6, 2%, representing an increase of one basis point over the prior quarter.
Heather Locke: Our net interest margin was $3 four 5% for the quarter, while net interest margin for the prior quarter with $3 three 6%.
Heather Luck: with lower average cost of deposit as the primary driver. As a result of changes in interest rates and other factors, our other comprehensive income was $0.7 million during the three months ended March 31, 2025, as unreliable losses, net of tax effect, decreased on available for sale debt securities from $12.4 million as of December 31, 2024, to $11.6 million as of March 31, 2025.
With lower average cost of deposit as the primary driver.
Heather Locke: As a result of changes in interest rates and other factors or other comprehensive income was <unk> 7 million. During the three months ended March 31, 2025, as unrealized losses net of tax effect decrease on available for sale debt securities.
Heather Locke: For the $12 4 million as of December 31, 2024 to $11 6 million as of March 31 2025.
Heather Luck: Non-interest income decreased to $1.4 million in the first quarter from $1.7 million in the previous quarter due primarily to a reduction in income received on equity investments and venture-backed funds during the three months ended March 31, 2020. Non-interest expense grew by $0.6 million in the three months ended March 31, 2025, compared to the three months ended December 31, 2024, primarily due to increases in salaries and employee benefits, partially offset by decreases in advertising, promotional, and other operating expenses during the pandemic.
Heather Locke: Noninterest income decreased to $1 4 million in the first quarter from $1 7 million in the previous quarter due primarily to a reduction in income received on equity investment and venture backed funds. During the three months ended March 31 2025.
Heather Locke: Noninterest expense grew by $1 6 million in the three months ended March 31, 2025 compared to the three months ended December 31, 2024, primarily due to increases in salaries and employee benefits.
Heather Locke: Partially offset by decreases in advertising promotional and other operating expenses during the quarter.
Heather Locke: Yeah.
James Beckwith: Now that we've discussed the overall results of operations, I will hand it back to James to provide some closing remarks. Thank you, Heather. I want to thank everyone for joining us as we discuss the first quarter results. Five Star Bank has a reputation built on trust, speed to serve, and certainty of execution, which support our clients' success. Our financial performance is the result of a truly differentiated customer experience, which continues to power the demand for Five Star Bank's relationship-based services. We are very proud to have earned the trust of those who we serve, including our shareholders.
Heather Locke: Now that we've discussed the overall results of operations I will hand, it back to James to provide some closing remarks.
James Back: Thank you Heather I want to thank everyone for joining us as we discuss the first quarter results.
Speaker Change: Five Star Bank has a reputation built on trust speed to serve and certainty of execution, which support our client success. Our financial performance is the result of a truly differentiated customer experience, which continues to power the demand for five star banks relationship based <unk>.
James Back: Services.
James Back: We are very proud to have earned the trust of those who we serve.
James Back: Including our shareholders.
James Beckwith: As we move into the second quarter of 2025, we are confident in the company's resilience and demonstrated ability to adapt to changing economic conditions and remain focused on the future and our long-term strategy. We will continue to execute on our organic growth and discipline business practices, which we believe will benefit our customers, employees, community, and shareholders.
James Back: As we move into the second quarter of 2025, we are confident in the company's resilience and demonstrated ability to adapt to changing economic conditions and remain focused on the future and our long term strategy.
James Back: We will continue to execute on our organic growth and disciplined business practices, which we believe will benefit our customers employees community and shareholders.
James Beckwith: We appreciate your time today.
James Back: We appreciate your time today. This concludes today's presentation now Heather and I will be happy to take any questions.
Operator: This concludes today's presentation.
Operator: Now Heather and I will be happy to take any questions. that you might have.
James Back: You might have.
Operator: We will now begin the question and answer session. To ask a question, those dialed in may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Questions will be taken in the order received.
Speaker Change: We will now begin the question and answer session to ask a question those dialed in May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Your question. Please press Star then two.
Speaker Change: Questions will be taken in the order received.
Andrew Terrell: Today's first question comes from Andrew Terrell with Stevens. Please go ahead. Hey, good morning. Hey, good morning, Andrew. Hey, just wanted to, you know, maybe if I could start on on loan growth, you know, James, obviously a very good quarter, especially given the backdrop of maybe some slower growth right now. I think you're tracking I think we talked about 8% or so loan growth last quarter looks like you're tracking a little bit above that to start the year just I know you've got some tailwinds from a hiring standpoint.
Speaker Change: Today's first question comes from Andrew <unk> with Stephens. Please go ahead.
Hey, good morning.
Speaker Change: Hey, good morning, Andrew.
Speaker Change: Hey, just wanted to.
Speaker Change: If I could start on.
Speaker Change: On loan growth.
Speaker Change: James I would say a very good quarter, especially given the backdrop of maybe some slower growth right now.
Speaker Change: You are tracking I think we talked about 8% or so loan growth last quarter. It looks like you're tracking below and above that to start the year, just I know you've got some tailwind from a hiring standpoint.
James Beckwith: Maybe just refresh us on where you see loan growth shaking out for the year. Well, I think we're a little more bullish than the last time we spoke, Andrew. We certainly have seen that in our pipelines and what we've been able to do, you know, so far in the second quarter. So I think you're going to see, you know, a 10 to 12 percent loan growth here on out for the rest of the year. It could be higher. You know, Andrew, we've got 36 BDOs working for us right now. 16 in San Francisco and 20 out here in the Capital Region in the North State.
Speaker Change: Maybe just refresh us on where you see loan growth shaking out for the year.
Speaker Change: Well I think we're a little more bullish than the last time, we spoke Andrew we certainly.
Speaker Change: <unk> seen that in our pipelines and what we've been able to do so.
Speaker Change: So far in the second quarter, So I think youre going to see.
Speaker Change: At 10% to 12% loan growth here on out for the rest of the year it could be higher.
Speaker Change:
Andrew: Andrew We've got 36 BDO is working for us right now.
Andrew: 16 in San Francisco in 'twenty out here in the capital region and the North state. So we've got it.
Andrew Terrell: So we've got a very experienced I'm going to say aggressive sales force out there, and I think that's how we have been able to differentiate ourselves in the marketplace. So, I'm bullish on growth on both sides of the balance sheet. Andrew, and probably more bullish than I was the last time we spoke. Yeah, that's, that's great. I appreciate it.
Speaker Change: <unk> experienced.
Andrew: And.
Andrew: I'm going to say aggressive sales force out there and I think thats, how we have been able to differentiator differentiate ourselves in the marketplace.
Andrew: So I'm I'm bullish on growth on both sides of the balance sheet Andrew.
Speaker Change: Andrew and I'm, probably more bullish than I was the last time, we spoke.
Andrew: Yeah. That's that's great I appreciate that and then if I could tie it into <unk>.
Andrew Terrell: And then, you know, if I could tie it into Some of the deposit commentary, I maybe just want to understand if I if I if I look at the balance sheet in aggregate, I mean, you've got a really strong cash position. the deposit growth outpaced loan growth this quarter. But, you know, some of that was was more wholesale. And I would I would presume, you know, higher costs in nature, you know, with all of that, you know, in context together. And you obviously sound bullish on the deposit growth as well.
Andrew: Some of the deposit commentary I just wanted to understand if I if I if I look at the balance sheet in aggregate I mean, you've got a really strong cash position.
Andrew: The deposit growth outpaced loan growth this quarter, but some of that was once more wholesale and I would presume higher cost in nature.
Andrew: With all of that.
Andrew: Context, together and you obviously sound bullish on the deposit growth as well, but.
James Beckwith: But, you know, why bring on the maybe higher costs, more wholesale funding this quarter and then just overall, you know, outlook for does that wholesale funding stick around? Do you expect to work that lower? And, you know, do you think core deposit growth can match the match the loan growth? Yeah, we think core deposit growth will match the loan growth. So we're not anticipating, as we sit here today, any additional wholesale funding. And, you know, we like to maintain 10% in cash. Okay. And, you know, something less than 100% loan to deposit ratio. So, you know, those are two parameters that are, I know they're just numbers, okay, but, you know, they have some meaning to us as we look at our franchise.
Andrew: Why bring on the maybe higher cost more wholesale funding this quarter.
Andrew: And then just the overall outlook for <unk>.
Andrew: Is that wholesale funding stick around do you expect to work that lower end core deposits do you think core deposit growths can match the.
Andrew: National loan growth.
Andrew: Yes, we think core deposit growth will match the loan growth. So we're not in anticipating as we sit here today any additional.
Andrew: Wholesale funding.
Andrew: And we like to maintain 10% in cash okay.
Andrew: And something less than 100% loan to deposit ratio.
Andrew: So.
Andrew: Those are two parameters that are I know I know theyre just numbers okay.
But they have some meaning to us as we look at our franchise.
James Beckwith: And our long-term goals, in terms of a fortress balance sheet, is to bring those numbers down. And I think that as each quarter unfurls, and the opportunities to add a new business, new relationships New Low Sometimes it requires us to do spot funding, of which we have the ability to do it. We're also, you know, Andrew provides us, you know, an opportunity to take advantage of the declining rate environment and we're, Heather, we're pretty tight on our... in terms of our maturity schedules for our wholesale deposits. And we keep them pretty, you know, like 90 days out.
Andrew: And our long term goals in terms of a fortress balance sheet is to bring those numbers down.
Andrew: And and I think that.
Andrew: As each quarter in <unk> and the opportunities to add new business new relationships.
Andrew: New loans.
Andrew: Sometimes you were.
Andrew: Requires us to do spot funded.
Andrew: Which we have the ability to do it.
We're also.
Andrew: Andrew provides us.
Andrew: <unk> opportunity to take advantage of the declining rate environment.
Andrew: And there we're pretty tight.
Andrew: In terms of our maturity schedules for our wholesale deposits and we keep them pretty like a 90 days out we are yes, yes, we've been able to just if you look at the wholesale but compared to last quarter compared to this quarter you know just by keeping our deposit shore at both the state.
Heather Luck: We are, yeah. Yeah, we've been able to, you know, just if you look at the wholesale book compared to last quarter, compared to this quarter, you know, just by keeping our, those deposits short at both the state of California, as well as on the broker's side, you know, we were able to roll that down by 24. So that's been a nice way to provide some liquidity while riding the yield curve. And we expect, you know, the beta to be 100%, right? So that's something to look forward to, if and when it happens.
Andrew: California, as well as on the brokerage side.
Andrew: We were able to roll that down by 24 basis points. So that's been a nice nice way to provide some liquidity well right in the yield curve down at all.
Andrew: And we expect the beta will be 100% right yes.
Andrew: And so that's something.
Andrew: We'll look forward to if and when it happens.
Andrew Terrell: When that happens, Andrew, I'll leave it up to you, you're crystal ball. Well, I wouldn't bank too much on that one, James, but I appreciate all the color there.
Speaker Change: When that happens is Andrew I'll leave it up to your your Crystal ball.
Speaker Change: Well I wouldn't I wouldn't bank too much on that one James but I appreciate all the color there.
Andrew Terrell: If I could just ask one more question, there's obviously a lot of conversations going on around tariffs and slowdown in economic growth, specifically some concerns around the lower end of the consumer right now, given those tariff impacts, maybe just be helpful to remind us how you think the RV manufactured housing business performs in that type of backdrop, and then more broadly, what kind of work have you guys done in terms of analyzing the portfolio to determine where you could or could not see credit stress, just any extra thoughts there would be helpful. Oh, that'd be great.
Speaker Change: If I could just ask one more question.
Speaker Change: Obviously.
Speaker Change: A lot of a lot of conversations going on around tariffs and a slowdown in economic growth.
Speaker Change: I think there are some concerns around you know maybe some of the lower end of that consumer right now given some of the tariff impacts maybe it'd just be helpful to remind us how you think about the RV and manufactured housing business performs in that type of backdrop, and then more more broadly.
Speaker Change: You know what what kind of work have you guys done in terms of analyzing the portfolio to determine where you could or could not see credit stress just any extra thoughts there would be helpful.
Speaker Change: That'd be great.
James Beckwith: You know, we thought, you know, When this first came up a month or so ago, six weeks ago, on... What did President Trump call it? What did he call it? Liberation Day. You know, we looked at our portfolio and, you know, given the concentrations we have in our mobile home park and RV park, we feel comfortable about that. You know, they operate slightly different, but, you know, if you looked at how those books performed or those asset classes performed over the last Great Recession, they were clearly the best performing asset class amongst all CRE. I mean, it wasn't even close.
Speaker Change: Thought.
Speaker Change: When this first came up a month or so ago six weeks ago on.
Speaker Change: What does the president Trump call it weighted coloration proliferation separation day.
Speaker Change: We looked at our portfolio.
Speaker Change: Given the concentrations we have in our mobile home Park in RV Park, we feel comfortable about that.
<unk>.
Speaker Change: They operate.
Speaker Change: Slightly different but.
Speaker Change: You looked at how those books performed or those asset classes performed over the.
Speaker Change: The last great recession, they were clearly.
Speaker Change: The best performing asset class amongst all CRE.
Speaker Change: It wasn't even close.
James Beckwith: So we feel comfortable about where that stands.
So we feel comfortable about where that stands.
Speaker Change: There are some.
James Beckwith: If I look at the rest of the portfolio, we do have a consumer book that we bought from BHG. We like that position. that PHG has provided us, and we're not overly concerned about it at this particular point. There is uncertainty with respect to what's out there at the consumer level. We don't know how that's going to shake out, but we are a CRE shop. Will tariffs ultimately have some impact on us? Yeah, I mean, it would be imprudent to think that they wouldn't, but I think, relatively speaking, Our bank is in a better position.
Speaker Change: If I look at the rest of the portfolio. We do have a consumer book that we bought from BHG.
Speaker Change: We like that position.
Speaker Change:
Speaker Change: That BHG has provided us and we're not overly concerned about it at this particular point and there is there is uncertainty with respect to what's out there from the at the consumer level, we don't know how thats going to shake out, but we are a CRE shop and.
Speaker Change: Well tariffs ultimately have some impact on us yeah, I mean, it would be imprudent to think.
Speaker Change: They wouldn't be.
Speaker Change: But I think relatively speaking.
Speaker Change: Our bank is in a is in a better position.
James Beckwith: given the construct of our loan portfolio. and other shops. Yep.
Speaker Change: Given the construct of our loan portfolio.
Speaker Change: Then other shops are.
Andrew Terrell: Well, I appreciate your perspective. Thanks for taking the questions.
Speaker Change: Yeah, well I appreciate your perspective, thanks for taking the questions.
Gary Tenner: Next question comes from Gary Tenner with D.A. Devidson. Please go ahead. Thanks, good morning. So a little bit of a follow-up to that last series of comments. In terms of the allowance and the increase this quarter, could you go into a little more color as to kind of changes you made in the in the model that drove that? You know, any change in weightings or other factors you used in terms of increasing the the allowance? Sure. You know, growth of the portfolio had a significant impact, and our model, you know, given how the ACL works here, is that it's extremely sensitive to any movement.
Speaker Change: Next question comes from Gary Tenner with D. A Davidson. Please go ahead.
Gary Tenner: Thanks, Good morning.
Gary Tenner: So more than a little bit of a follow up to that less.
Gary Tenner: Sure.
Gary Tenner: Comments.
Gary Tenner: In terms of the allowance and increase this quarter.
Speaker Change: Could you go into a little more color as to kind of changes you've made in the in the model that drove that.
Gary Tenner: Any change in weightings or other factors you used.
Speaker Change: Terms of increasing the allowance.
Gary Tenner: Sure.
Gary Tenner: Growth of the portfolio had a significant impact.
Gary Tenner: And our model.
Gary Tenner: Giving given how the ACL works here is that it's extremely sensitive to any movement.
Heather Luck: in terms of GDP, in terms of unemployment.
Gary Tenner: In terms of GDP.
Heather Locke: In terms of unemployment so heather.
Heather Luck: So Heather. Yeah, so really, as to your question there, so we really base our, our economic forecast model just on the FOMC published models there, and that was refreshed as of February. And so we do anticipate that we will likely have some more increases and in our economic reserve requirements. Once we get into Q2 and once we start to see some revisions to the economic model there. You know, from that perspective though, like nothing really from a weighting perspective that really drove the increase in the reserves. It really just was a function of the revised forecast from FOMC, the growth, as well as the net charge up of about $700.
Gary Tenner: Yeah, so really.
Gary Tenner: Does it take to your question there. So we really base, our our economic forecast model just on the epilepsy published models, there and that was refreshed as of February and so we do anticipate that we will likely have some more increases than in our economic reserve requirement.
Gary Tenner:
Gary Tenner: Once we get into Q2 and once we start to see some some revised some revisions to the economic model there.
Gary Tenner: Yes from that perspective, though like nothing really from a weighting perspective that that really drove the increase in the reserve that really just a function of.
Gary Tenner: The revised forecast from epilepsy, the growth as well as the net charge offs of about 700 brands right. So there is some sensitivity with respect.
James Beckwith: Right. So, you know, there is some sensitivity with respect to, you know, the numbers based upon what the Federal Reserve is going to tell us. And I don't think we're unlike anybody else. I think a lot of us are using. the same construction of ACL, so we anticipate there will be some impact. We'll see what happens next week in terms of any model changes they may have that comes out of these meetings. And so we'll just have to see how that goes. You know, we like, you know, how we're positioned right now, you know. because of our low level of non-performers.
Gary Tenner: The numbers are based upon what the federal reserve is going to tell us.
Gary Tenner: And I don't think we're unlike anybody else.
Gary Tenner: So a lot of us are using.
Gary Tenner: It's the same construction.
Gary Tenner: So we anticipate there will be some impact we'll see what happens next.
Gary Tenner: Next week.
Gary Tenner: In terms of any model changes they may they may have that comes out of these meetings.
Gary Tenner: And so we'll just have to see how that goes.
Gary Tenner: We like how we're positioned right now.
Gary Tenner:
Gary Tenner: Because of our such a low level of non performers.
Gary Tenner: So we'll just have to see how that goes. I think, Gary, I have seen people writing on sensitivity in our reserving methodologies, too. Federal Reserve will come up with. But again, relatively speaking, we're all in the same boat. Great.
Gary Tenner: So.
Have to see how that Holly.
Gary Tenner: How that goes I think you know I have Gary I have seen people writing on.
Gary Tenner: Sensitivity in our reserving methodologies to.
Gary Tenner: Federal Reserve will come up with.
Gary Tenner: But again relatively speaking we're all in the same boat.
Gary Tenner: I appreciate the call around that.
Gary Tenner: Great I appreciate the color on that and then second question in terms of the loan production I. Appreciate the bullish comments on loan growth for the rest of the year can you talk a little bit about our pricing we've been hearing a lot.
Gary Tenner: And then second question, in terms of the loan production, you know, appreciate the bullish comments on loan growth for the rest of the year. Can you talk a little bit about pricing? We've been hearing a lot over the last several weeks about pretty intent loan pricing competition seems to have picked up. So any comments or thoughts on that would be appreciated. Well, I think that we have always worked in a very competitive environment. You know, spreads have... you know, relatively speaking, have come in a little bit, especially in the multifamily side. You're seeing some pretty tight spreads.
Gary Tenner: Over the last several weeks about a pretty.
Gary Tenner: Loan pricing competition.
Gary Tenner: Stewart picked up so I need any comments or thoughts on that would be appreciated.
Gary Tenner: Well I think that we have always worked in a very competitive environment.
Spreads have.
Gary Tenner: Relatively speaking have come in a little bit, especially in the multifamily side youre seeing some pretty tight spreads.
James Beckwith: We're still able to get decent pricing when you look at our aggregate loan production. anywhere between 185 over the 5 all the way to 350 over the 5. So there is a. You know, if you average everything out, we like where our spreads are.
Gary Tenner: We're still able to get.
Gary Tenner: Decent.
Gary Tenner: Decent pricing.
Gary Tenner: When you look at <unk>.
Gary Tenner: Aggregate loan production anywhere between 185 over the five all the way to $3 50 over the five.
Gary Tenner: So there is a.
If you average everything out we like where our spreads are.
James Beckwith: There's no shape to the yield curve. That's not ideal for us folks that are in this business. If you look from funds out to the five-year, it's really based upon what spreads are going to tell us. And we're getting them. We're getting something that's pretty decent. Now, having said that, Gary, you know, we're seeing a lot of repricing that's happened in the portfolio as those credits that we put on five years ago repriced. In fact, we had a pretty big one in April repriced, and that went up about 220 basis points. Now, the client was easily going to handle that, and we obviously underwrite and re-underwrite based upon changes in interest rate environments.
Gary Tenner: Theres no shape to the yield curve, that's not ideal for us folks that are in this business.
Gary Tenner: If you look from funds out to the five year.
Gary Tenner: So you know it is.
Gary Tenner: Based upon what spreads are going to tell us.
Gary Tenner: And we're getting them.
Gary Tenner: We're getting something Thats pretty decent now having said that Gary we still we're seeing a lot of repricing that's happened in the portfolio as those.
Gary Tenner: Credits in that we put on.
Gary Tenner: Five years ago Reprice in fact, we had a pretty big one and in April we re price.
Gary Tenner: That went up about 220 basis points now the client was easily going to handle that and we obviously underwrite.
Gary Tenner: And re underwrite based upon changes in interest rate environments, and we havent seen anything thats popped up yet it gives us concern we are looking at it very intently as it relates to.
James Beckwith: And we haven't seen anything that's popped up yet that gives us concern. We are looking at it very intently as it relates to as it relates to the impact of repricing. So right now, where we sit is that we're benefiting from it and with really. No actual concerns. Now, we know it's out there's a risk. But as we sit here right now, we think we're in pretty good shape.
Gary Tenner: As it relates to the impact of repricing.
Gary Tenner: So right now as where we sit is that we're benefiting from it.
Gary Tenner: With really.
Gary Tenner: Not no actual concerns now we know its out there is a risk.
Gary Tenner: But as we sit here right now we think we're in pretty good shape.
Operator: Great, appreciate the call. Again, if you have a question, you may press star then 1.
Gary Tenner: Great appreciate the color.
Gary Tenner: Okay.
Speaker Change: Again, if you have a question you May Press Star then one the next question is from David Feaster with Raymond James. Please go ahead.
David Feaster: The next question is from David Feaster with Raymond James. Please go ahead. Hi guys, this is Liam Cuhill on for David Feaster. How are you doing today? Doing great, Liam. I guess David's flying around someplace. He is, he's always out and about. But I did want to ask on, you know, appreciate all the color on asset quality and, you know, on tariff impacts, but kind of on the more forward part of the book. I mean, originations have been really encouraging. But what have you been seeing from customers in the environment? Is there more of a hesitancy to borrow?
Speaker Change: Hi, guys. This is <unk> on for David Feaster, How're you doing that.
Speaker Change: Hey, doing great limb I guess, David flying around someplace.
Speaker Change: He is he is always out and about but.
Speaker Change: Did want to ask on I appreciate all the color on asset quality and tariff impacts, but kind of on the more forward part of the book.
Speaker Change: Originations had been really encouraging but what have you been seeing from customers and the environment is there more of a hesitancy to borrow.
James Beckwith: Or is there anything you would note there? Well, I think that there's a tremendous amount of economic opportunity that exists in certain asset classes still. You know, our basic engine of MHC seems to be going very strong. There's still, you know, these underperforming assets that are professional clients are still very active in terms of buying. So we're still seeing a strong environment on, you know, purchase financing. And given them the depth and breadth of that. that our penetration in that market, we don't see demand necessarily waning.
Speaker Change: Is there anything you would note there.
Speaker Change: Well.
Speaker Change: I think that Theres, a tremendous amount of economic opportunity that exists in certain asset classes still are our basic engine of MHC seems to be going very strong there's still.
Speaker Change: These underperforming assets that arent professional clients are still very active in terms of buying so we're still seeing a strong environment.
Speaker Change: Purchase financing.
Speaker Change: And given the depth and breadth of that.
Speaker Change: That our penetration in that market.
Speaker Change: We don't see demand necessarily waning.
Speaker Change:
James Beckwith: But, you know, in other aspects, it's, and here's the interesting thing, Liam, we just have a lot of salespeople. Okay. And I can't Maybe stress that enough in terms of its impact. in terms of our ability to generate new relationships. And very purposely, we have built that team, if you will. and relative to other folks in our business. I'm gonna, and I don't know this empirically, you may, but we just have more people. in that function. And so... You want to expect us to grow at an above average rate, given you know, our intentions in terms of our sales.
Speaker Change: But in other aspects in here.
Liam: Here's the interesting think Liam we just have a lot of salespeople.
Speaker Change: And I can.
Speaker Change: Maybe stress that enough in terms of its impact.
Speaker Change: In terms of our ability to generate new relationships.
Speaker Change: And very purposely we have built that team if you will.
Speaker Change: And relative to other folks in our business.
Speaker Change: I'm going to I don't know this empirically you may but we just have more people in there.
Speaker Change: That function and so.
You ought to expect us to grow at above average rates given.
Speaker Change: You know our attention in terms of our sales force.
David Feaster: Oh, thank you. That makes a lot of sense.
Speaker Change: No. Thank you that makes a lot of sense and I guess to the point of hiring more people I mean, it's really encouraging to see the growth in our San Francisco office.
James Beckwith: And I guess to the point of, you know, hiring more people. I mean, it's really encouraging to see the growth in the San Francisco office. Just wondering, have you seen a difference in loan demand across the footprint? I know, especially you've been investing in San Francisco recently, but has that market been a little bit more challenging than the capital region? Just curious on some thoughts there. No, I wouldn't say it's been more challenging. I think, relatively speaking, we've gone up market in terms of the sophistication of clientele in the Bay Area. We've run into some great operators that we're very happy with.
Speaker Change: Just wondering have you seen a difference in loan demand across the footprint.
Especially you have been investing in San Francisco recently, but has that market been a little bit more challenging than the capital region I'm.
Speaker Change: I'm just curious on some thoughts there.
No I wouldn't say, it's been more challenging.
Speaker Change: I think relatively speaking we've gone upmarket in terms of the sophistication of clientele.
Speaker Change: In the Bay area.
Speaker Change:
Speaker Change: We've.
Speaker Change: Run into some great operators that we're very happy with.
Speaker Change: Whether they are in the student housing business.
James Beckwith: or just as CRE experienced investors. and or their operators of businesses. So I'm, I'm a. I wouldn't say that we're at all challenged with respect to what's going on in the Bay Area. In fact, those opportunities continue to come up, and we're on top of them. We've got a very, I'm going to say, energetic sales force down there that are not only bringing their book over that they once had at, let's say, at other institutions, but also we're seeing that second derivative of new business that previously were not banked. by those individuals. coming to us because of the reputation that we're building down here.
Speaker Change: Or.
Speaker Change: Just as CRE experienced investors.
Speaker Change: And are there operators of businesses.
Speaker Change: So I'm I'm.
Speaker Change: I don't I wouldn't say that we're all challenged with respect to what's going on in the Bay area and in fact, those opportunities continue to come up.
Speaker Change: We're on top of them, we've got a very.
Speaker Change: I'm going to say energetic.
Speaker Change: Salesforce down there that are not only bringing their book over that they once had let's say at other institutions, but also we're seeing that second derivative.
Speaker Change: Of new business that previously were not banked by those individuals.
Speaker Change: Coming to us because of the reputation that we're building down there.
James Beckwith: and it's exciting to see that. And I think that's just going to continue. And we're out competing, folks. Again. because we just have more people. Okay, we're very niche and very focused now. as we are across our entire platform. So we're seeing a lot of activity right now. not only in the Bay Area, but also in the Capital Region and in the North State. That's great to hear.
Speaker Change: And it's exciting to see that and I think that's just going to continue and we're out competing folks again.
Speaker Change: Because we just have more people.
Speaker Change: And we're very niche very focused down there.
Speaker Change: As we are across our entire platform.
Speaker Change: So we're seeing we're seeing a lot of activity right now.
Speaker Change: And not only in the Bay area, but also in the capital region and in the North state.
Speaker Change: That's great to hear.
James Beckwith: This is one last one for me, would be on the small business borrowers. Have you seen What have you been seeing from them recently in terms of their response to the broader economic environment and uncertainty? Well, you know, we touched that, I think, through our SBA book. And, you know, that that's tough. You know, that's frankly, that's tough. You know, they're they have a high cost of borrowing given the, you know, the spreads that are on. You know that those lending those loans that they have and and given where the yield curve is You know, that's hard a lot of them You know, their businesses are fundamentally driven by selling through, you know, I'm going to say fulfillment platform.
Speaker Change: One last one for me would be on the small business borrowers that have.
Speaker Change: Have you seen.
Speaker Change: And what have you been seeing from them recently in terms of their response to the broader economic environment and uncertainty.
Speaker Change: Well, we touched that ethnic through our SBA book.
Speaker Change: Well it's tough.
Speaker Change: That's frankly, that's tough.
Speaker Change: They have a high cost of borrowing given the spreads that are on.
Speaker Change:
Speaker Change: Those lending those loans that they have in and given where the yield curve is.
Speaker Change: That's hard a lot of them.
Speaker Change:
Speaker Change: Their businesses are fundamentally driven by selling through.
Speaker Change: I'm going to say fulfillment platforms.
James Beckwith: which are fed, in a lot of cases, by product from not necessarily generated in the United States. So we know that there's issues there. Now, historically, we've always had a high degree of reserves against that book, so nothing is surprising us at all. Yeah, we're at almost 9% per reserve for that book. But that is, I was going to say, that's really principally how we touch small business. So, you know, in terms of some of the ag business we do, we have seen, I think time will tell what that's going to look like. You know, on the rice side, on the walnut side, on the almond side, there has been some rebounding on the walnut side.
Speaker Change: Which are which are fed, but you know in a lot of cases by product from not necessarily generated in the United States. So we know that there's issues. There now and historically, we've had always had high degree of reserves against that book.
Speaker Change: Nothing this is surprising us at all yeah, we're at almost 9% reserve for that box.
Speaker Change: But that is.
Speaker Change: Just going to say that that's really principally how we took small business.
Speaker Change:
Speaker Change: So in terms of some of the AG business. We have seen I think time will tell what thats going to look like.
Speaker Change: On the right side on the Walnut side on the admin side. There has been some rebounding on the Walnut side, we don't have that big of a book.
James Beckwith: We don't have that big of a book. And so, you know, we'll see what... impact tariffs are going to have on this. and you just don't know how it's going to work out. And I know that that means that, you know, everybody's in a wait-and-see mode, right? We're not trying to talk ourselves into a recession, although there are some media outlets that are trying to talk everybody into a recession, the only thing we can do is choose not to listen to it. Yeah, that's true.
Speaker Change: And.
Speaker Change: So we'll see what.
Speaker Change: Impact tariffs are going to have on this but.
Speaker Change: And you just don't know, how it's going to work out.
Speaker Change: And I know that.
Speaker Change: That means that everybody is in a wait and see mode.
Speaker Change: Right.
Speaker Change: No I'm not trying to.
We're not trying to talk ourselves into a recession.
Speaker Change:
Speaker Change: Although although theres are some media outlets.
Speaker Change: We are trying to talk to everybody in the recession.
Speaker Change: What we only the only thing we can do is choose not to listen to them.
Yeah, that's true thank.
David Feaster: Thank you guys so much for the color on your markets and on some of the subcategories. I'll step back. You bet. Thank you, William.
Speaker Change: Thank you guys. So much for the color on your markets and on some of the subcategories I'll step back.
Speaker Change: You bet. Thank you Liam.
James Beckwith: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Thank you. Five Star Bancorp is expected to continue on our current path of growth as we execute on strategic initiatives. which include growing our verticals and geographies while attracting and retaining talent. Our people, technology, operating efficiencies, conservative underwriting practices, and expense management. have also contributed to the successes we share with our employees and shareholders. These successes include numerous ratings and awards. In the first quarter of 2025, Five Star Bancorp was ranked third. on the S&P Global Market Intelligence list of best performing community banks in the nation.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Yes.
Speaker Change: Thank you five star Bancorp is expected to continue on our current path of growth as we execute on strategic initiatives.
Speaker Change: Which include growing our verticals and geographies, while attracting and retaining talent.
Speaker Change: Our people technology operating efficiencies conservative underwriting practices and expense management.
Speaker Change: Have also contributed to the successes, we share with our employees and shareholders.
Speaker Change: These successes include numerous ratings and awards in the first quarter of 2025, five Star Bancorp was ranked third.
Speaker Change: On the S&P Global market Intelligence list of best performing community banks in the nation.
James Beckwith: among banks with assets between $3 billion and $10 billion. The company was also listed. among the Sacramento Business Journal's fastest-growing banks by deposits in the Sacramento area. and bank executives were honored among the Sacramento Business Journal's Power 100 list, women who mean business, and champions of D, E, and I. as well as the San Francisco Business Times 40 Under 40 and Newsmaker 100 list. The company has also an employee named as the Reading Chamber of Commerce. Ambassador of the Year.
Speaker Change: Among banks with assets between 3 billion and $10 billion.
Speaker Change: The company was also listed.
Speaker Change: Among the Sacramento business journal's fastest growing bank by deposits in the Sacramento area.
And bank executives were honored among the Sacramento business Journal's power 100 list women, who main business.
Speaker Change: <unk> D E and I.
Speaker Change: As well as the San Francisco business Times, 40, under 40 and news maker 100 list.
Speaker Change: The company is also an employee named as the Redding Chamber of Commerce.
Speaker Change: Embassador of the year.
James Beckwith: Five Star Bancorp continues to be a driving force for economic development, a trusted resource for our customers and committed advocate for our community.
Speaker Change: Five Star Bank Corp continues to be a driving force for economic development, a trusted resource for our customers and committed to advocate for our community.
James Beckwith: We look forward to speaking with you again in July to discuss the earnings for the second quarter of 2025. Have a great day and thank you for listening.
We look forward to speaking with you again in July to discuss the earnings for the second quarter of 2025.
Speaker Change: Have a great day and thank you for listening.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: You may now disconnect your lines.
Speaker Change: [music].