Five Star Bancorp's Q1 2025: Unpacking Contradictions in Deposit and Loan Growth Strategies

Deposit growth strategy, loan growth outlook, loan growth expectations, and deposit growth strategy are the key contradictions discussed in Five Star Bancorp's latest 2025Q1 earnings call.



Loan Growth and Expansion:
- Five Star Bancorp reported loan growth of 10% to 12% for the remainder of the year, following a strong start with 2.52% growth in Q1 2025.
- This growth is driven by the expansion into new markets, particularly the San Francisco Bay Area, and increased business development efforts with a robust sales team.

Deposit Growth and Structural Changes:
- The company saw a 5.0% increase in deposits in Q1 2025, with non-wholesale deposits increasing by $48.4 million.
- This growth was supported by increased non-interest-bearing and interest-bearing deposits, while wholesale deposits accounted for a significant portion of the increase, driven by the current rate environment.

Net Interest Margin and Cost Management:
- Five Star Bancorp improved its net interest margin by 9 basis points in Q1 2025, with an average loan yield of 6.02%.
- The improvement was due to lower average costs of deposits, effective management of wholesale deposit maturities, and maintaining a strong efficiency ratio of 42.58%.

Asset Quality and Credit Risk Management:
- The company maintained a low non-performing loan ratio at 0.05% and recorded a provision for credit losses of $1.9 million.
- The allowance for loan losses was maintained at 1.08% of loans held for investment, reflecting conservative underwriting and proactive risk management, particularly in the face of potential economic uncertainties.