Earnings Call: Five Star Bancorp Announces Growth and New Office Opening

image

Earnings Call: Five Star Bancorp Announces Growth and New Office Opening

In a recent earnings webcast, Five Star Bancorp (FSBC) presented its financial results for the third quarter of 2024, emphasizing organic growth and strategic expansions. President and CEO James Beckwith and CFO Heather Luck highlighted the opening of a new full-service office in San Francisco, a significant increase in non-wholesale deposits, and strong lending figures.

Despite a slight decline in net interest margin, the bank declared a cash dividend and reported strong returns on average assets and equity. Moving forward, Five Star Bancorp anticipates steady credit growth and a gradual decline in deposit yields impacted by recent cuts from the Federal Reserve.

Key Points:

  • Five Star Bancorp opened a new full-service office in San Francisco as a sign of expansion and growth.
  • The bank reported an increase of $92.9 million in non-wholesale deposits and a $194.3 million (5.95%) increase in investment-purpose loans.
  • A cash dividend of $0.20 per share was declared, payable in November 2024.
  • Net income for the quarter was $10.9 million, with an average return on assets of 1.18% and return on equity of 11.31%.
  • The expected decline in deposit yields over the next 3-6 months could further impact the net interest margin in the first and second quarters of 2025.

Company Outlook: Five Star Bancorp is maintaining a $300 million loan cap, expecting mid-single-digit loan growth in the fourth quarter of 2024. The bank anticipates stable balances at this cap by focusing on disciplined business practices.

Negative Highlights:

  • Net interest margin decreased slightly from 3.39% in the previous quarter to 3.37%.
  • The core capital adequacy ratio (Tier 1) also showed a decline, falling to 10.93%.

Positive Highlights:

  • Non-performing loans decreased to 0.05%, with loan loss provisions standing at $37.6 million.
  • Deposits increased by $250.3 million (7.95%), with the share of non-interest-bearing deposits slightly rising to 26.67% of total deposits.
  • The bank saw strong deposit growth, particularly in non-interest-bearing accounts, and this trend is expected to continue as new relationships mature.

Misses: No specific missed targets were reported during the earnings call.

Q&A Highlights: In response to Gary Tenner's question, Beckwith noted that there was no significant volatility in the non-wholesale interest-earning book or liquidity usage for loan repayments. As of September 30, the spot rate for deposits was 2.66%. Beckwith expressed optimism about the deposit line but mentioned that growth may not reach the levels of the third quarter.

Five Star Bancorp's recent earnings call highlighted the company's ongoing organic growth and strategic initiatives. The bank's focus on maintaining a disciplined business approach, along with its optimistic outlook on deposit growth and lending lines, positions it favorably for future performance. The next earnings call is scheduled for January 2025, during which the bank is likely to provide updates on its progress and financial status.

InvestingPro Insights: Five Star Bancorp's recent financial performance aligns with several key metrics and insights from InvestingPro. The bank's strong quarterly results are reflected in its market performance; InvestingPro data shows a significant total price return of 41.54% over the last six months. This upward trend is supported by an InvestingPro Tip stating that FSBC has seen "a significant price increase in the last six months."

The company's highlighted profitability during the earnings call is corroborated by InvestingPro data showing a P/E ratio of 13.92, indicating reasonable valuation relative to earnings. Additionally, an InvestingPro Tip states that FSBC has been "profitable over the last twelve months," consistent with the reported net income of $10.9 million for the quarter.

The dividend policy mentioned in the earnings report is part of a broader trend. An InvestingPro Tip reveals that the bank has "increased its dividend for four consecutive years," which could be attractive to income-focused investors. According to InvestingPro data, the current dividend yield stands at 2.66%.

The bank's strong performance is also reflected in its proximity to a 52-week high; InvestingPro data indicates that the price is at 98.27% of its 52-week peak. This is consistent with another InvestingPro Tip stating that FSBC is "trading close to its 52-week high."

For investors seeking a more comprehensive analysis, InvestingPro offers seven additional tips on Five Star Bancorp, providing deeper insights into the company's financial health and market position.