10-K: Five Star Bancorp Reports Strong 2025 Growth

Sentiment:

Annual Report 27 February 2026 2:51 PM

Five Star Bancorp reported significant growth in assets, loans, and deposits for the fiscal year ended December 31, 2025, alongside increased net interest income and net income.

Capital raiseIn April 2024, the company sold 3,967,500 shares of common stock in a public offering, raising approximately $80.9 million in net proceeds for general corporate purposes and to support continued growth.As of December 31, 2025, approximately $163.7 million remained available for future offerings under a prior shelf registration statement.In February 2026, a new shelf registration statement became effective, registering the offer and sale of up to $300.0 million of various securities for future offerings.

Better than expectedNet income increased significantly by 34.8% year-over-year.Net interest income grew by 26.89%, and net interest margin improved by 23 basis points.Strong growth in total assets, loans, and deposits.Efficiency ratio improved, indicating better operational leverage.

Summary

Total assets grew by $701.6 million to $4.8 billion at December 31, 2025, from $4.1 billion at December 31, 2024.
Total loans held for investment increased by $542.2 million to $4.1 billion at December 31, 2025, from $3.5 billion at December 31, 2024.
Total deposits increased by $643.1 million to $4.2 billion at December 31, 2025, from $3.6 billion at December 31, 2024.
Net interest income increased by $32.2 million, or 26.89%, to $151.9 million for the year ended December 31, 2025, compared to $119.7 million in 2024.
Net interest margin improved by 23 basis points to 3.55% for the year ended December 31, 2025.
Net income for the year ended December 31, 2025, was $61.6 million, up from $45.671 million in 2024.
Basic and diluted earnings per common share increased to $2.90 for 2025, from $2.26 in 2024.
The allowance for credit losses increased to $44.4 million at December 31, 2025, from $37.8 million at December 31, 2024, primarily due to loan growth and an increase in loss rates.
Nonperforming loans to total loans held for investment increased to 0.08% at December 31, 2025, from 0.05% at December 31, 2024.
The company opened a full-service branch in Walnut Creek in September 2025 as part of its expansion into the San Francisco Bay Area.
Total liquidity was approximately $2.3 billion as of December 31, 2025.
The efficiency ratio improved to 41.03% for 2025, down from 43.19% in 2024.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance report, demonstrating robust growth across key financial metrics and effective operational management, despite a slight uptick in nonperforming loans.

Positives

Significant growth in total assets, increasing by $701.6 million to $4.8 billion.
Strong loan growth, with total loans held for investment increasing by $542.2 million to $4.1 billion.
Substantial deposit growth, with total deposits rising by $643.1 million to $4.2 billion.
Net interest income increased by 26.89% to $151.9 million, driven by higher average balances and yields on loans.
Net interest margin improved by 23 basis points to 3.55%, indicating effective asset-liability management.
Net income increased by 34.8% to $61.6 million, reflecting strong overall profitability.
Earnings per share (basic and diluted) increased to $2.90, demonstrating enhanced shareholder value.
The efficiency ratio improved to 41.03%, indicating better cost management relative to revenue generation.
The Bank remains 'well-capitalized' under regulatory frameworks, exceeding all minimum capital requirements.
Successful expansion into the San Francisco Bay Area with a new full-service branch in Walnut Creek, supported by new hires.
Maintained a high liquidity position of approximately $2.3 billion, providing ample resources for future growth and obligations.
Cash dividend payout ratio on common stock decreased to 27.59% from 35.45%, suggesting higher earnings retention for reinvestment or strengthening capital.

Negatives

Nonperforming loans to total loans held for investment increased to 0.08% from 0.05%, indicating a slight deterioration in asset quality.
The ratio of allowance for credit losses to nonperforming loans decreased to 14.34x from 21.02x, suggesting reduced coverage per nonperforming loan.
Loans designated as substandard increased from $2.6 million to $22.3 million, primarily due to one borrower experiencing financial difficulty.
Gain on sale of loans decreased significantly by $1.03 million (80.85%) due to a strategic reduction in originations of loans held for sale.
Provision for credit losses increased by $2.8 million (39.57%) to $9.7 million, driven by loan growth and an overall increase in loss rates.
Total capital, Tier 1 capital, Common equity Tier 1 capital, and Tier 1 leverage ratios for both Bancorp and the Bank decreased slightly from 2024 to 2025.
Total non-interest expense increased by $10.5 million (19.30%), primarily due to higher salaries and employee benefits, data processing, professional services, and advertising costs.
Time deposits decreased by $115.5 million, largely driven by a $95.0 million decrease in wholesale deposits.

Risks

Business and operations are concentrated in Northern California, making the company sensitive to adverse changes in the local economy and real estate sector.
Operates in a highly competitive market, facing increasing competition from traditional and new financial services providers.
Subject to various banking risks including credit, market, liquidity, interest rate, and compliance risks.
May be unable to effectively manage growth, which could adversely affect business, financial condition, and results of operations.
Operates in a highly regulated industry, and current/future legislative/regulatory changes may have an adverse effect.
Subject to laws regarding privacy, information security, and protection of personal information; system failures or cybersecurity breaches could damage reputation.
Charter documents contain anti-takeover and exclusive forum provisions that limit shareholder actions and could delay or discourage takeover attempts.
Lending to small to medium-sized businesses, which may have fewer resources to weather adverse business developments.
Significant dependence on real estate markets, with a substantial portion of the loan portfolio secured by real estate.
Higher credit risk and other costs associated with commercial real estate, commercial land and construction, commercial construction, and farmland loans.
Curtailment of government-guaranteed loan programs or changes in federal government funding could affect business.
Liquidity risk could impair the ability to fund operations and meet obligations, especially with large deposit relationships.
May be adversely affected by the soundness of other financial institutions, as seen with bank failures in 2023.
Regulatory requirements affecting commercial real estate loans could limit capital leverage and adversely affect growth and profitability.
Lack of a liquid secondary market for commercial real estate loans and mortgage-backed securities could reduce recovery on foreclosures.
Appraisals and other valuation techniques for real property and OREO may not accurately reflect the net value of the asset.
Federal, state, and local consumer lending laws may restrict the ability to originate certain loans or increase liability.
Allowance for credit losses may be inadequate to absorb losses inherent in the loan portfolio.
Could recognize losses on investment securities held in the portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
Dependent on the accuracy and completeness of information provided by customers and counterparties.
Monetary policies and regulations of the Federal Reserve could have an adverse effect on business, financial condition, and results of operations.
Federal and state regulators periodically examine the business and may require remediation of adverse examination findings or take enforcement action.
Subject to stringent capital requirements, which could have an adverse effect on operations.
Subject to numerous fair and responsible banking laws, and failure to comply could lead to a wide variety of sanctions.
Dependent upon the Bank for cash flow, and the Bank's ability to make cash distributions is restricted; the Federal Reserve may require commitment of capital resources to support the Bank.
Faces a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The market price of common stock may be volatile, and the company may not be able to meet investor or analyst expectations.
As an emerging growth company, reduced disclosure requirements could make common stock less attractive to investors.
Significant shareholders have the ability to control significant corporate activities, and their interests may not coincide with other shareholders.
May not pay dividends on common stock in the future, and the ability to pay dividends is subject to certain restrictions.
California law and charter documents may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control.
Bylaws have an exclusive forum provision, which could limit a shareholder's ability to obtain a favorable judicial forum for disputes.
Failure to design, implement, and maintain effective internal control over financial reporting or remediate any future material weakness.
Success is largely dependent upon the management team and key employees and ability to successfully execute the business strategy.
No assurance that the company will be able to continue to grow and to remain profitable in future periods.
If new lines of business, products, or services are implemented, they may not be successful.
May pursue strategic acquisitions in the future, and may not be able to overcome risks associated with such transactions.
Reputation is critical to business, and damage to it could have an adverse effect.
Operations could be interrupted if third-party service providers experience difficulty, terminate their services, or fail to comply with banking regulations.
System failure or cybersecurity breaches of network security could subject the company to increased operating costs, litigation, and damage to reputation.
The adoption of artificial intelligence tools by the company and third-party vendors may increase the risk of errors, omissions, unfair treatment, or fraudulent behavior.
Ability to conduct business could be disrupted by natural or man-made disasters or the effects of climate change, particularly in California.
Litigation and regulatory actions, including possible enforcement actions, could subject the company to significant fines, penalties, judgments, or other requirements.
Subject to an extensive body of accounting rules and best practices; periodic changes to such rules may change the treatment and recognition of critical financial line items.
Could be subject to changes in tax laws, regulations and interpretations or challenges to the income tax provision.

Future Outlook

The company anticipates that interest rates may be lowered over the next few years, with the Federal Open Market Committee projecting one additional decrease in 2026. A steepened yield curve could have a slight negative impact on net interest income over the next year, while a continued flat yield curve is expected to maintain net interest income. Non-interest expense is expected to continue to grow due to growth initiatives, but the efficiency ratio is projected to improve. The company plans to spend $0.5 million on IT systems and processes and allocate $21.4 million for common stock dividends in 2026. Future off-balance sheet commitments are expected to be funded primarily through loan repayments, deposit growth, and liquid assets, with no material change expected in product or geographic concentrations. The company believes maturing time deposits will be replenished through organic growth.

Management Comments

Our mission is to strive to become the top business bank in all markets we serve through exceptional service, deep connectivity, and customer empathy.
We are dedicated to serving real estate, agricultural, faith-based, and small to medium-sized enterprises.
We aim to consistently deliver value that meets or exceeds expectations of our shareholders, customers, employees, business partners, and community.
We refer to our mission as purpose-driven and integrity-centered banking.
We believe that our market growth confirms the quality of the purpose-driven and integrity-centered banking that we strive to deliver to our customers.
We believe that our past success is attributable to focusing on products and markets where we have significant expertise.
Management has extensive experience in commercial real estate lending and has implemented and continues to maintain heightened portfolio monitoring and reporting, and strong underwriting criteria with respect to our commercial real estate portfolio.
We believe our emphasis on local deposits and our San Francisco Bay Area expansion provide a stable funding base.
Management believes the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.
Management believes that, as of December 31, 2025, the Company and the Bank met all capital adequacy requirements to which they are subject.
Management reviews capital ratios on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs.

Industry Context

StockSavvy.ai notes that Five Star Bancorp's strong growth in assets, loans, and deposits, coupled with an improved net interest margin and efficiency ratio, positions it favorably within the competitive Northern California banking market. The expansion into the San Francisco Bay Area and focus on small to medium-sized businesses, real estate, and agricultural sectors align with regional economic drivers. The increase in nonperforming loans, while still low, warrants monitoring given broader economic uncertainties and interest rate fluctuations impacting the banking sector. The company's robust liquidity and capital levels provide a buffer against potential industry volatility, which has been a concern since the bank failures in early 2023.

Comparison to Industry Standards

The company's Return on Average Assets (ROAA) of 1.41% and Return on Average Equity (ROAE) of 14.74% for 2025 are strong, generally exceeding the average for U.S. community banks, which often range from 1.0-1.2% for ROAA and 10-12% for ROAE.
The efficiency ratio of 41.03% is highly competitive, indicating effective cost management compared to many regional banks which often operate with efficiency ratios in the 50-60% range.
The net interest margin of 3.55% is solid, reflecting effective asset-liability management in a dynamic interest rate environment, comparable to or slightly above many peers.
The nonperforming loan ratio of 0.08% remains exceptionally low compared to the industry average for U.S. banks, which typically ranges from 0.5% to 1.0%, indicating strong credit quality despite a slight increase.
Capital ratios (e.g., Common Equity Tier 1 of 10.58% for Bancorp and 11.89% for the Bank) are well above regulatory 'well-capitalized' thresholds (6.5%), demonstrating a robust capital position relative to peers.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Policy Update	The company's bylaws include an exclusive forum provision, which could limit a shareholder's ability to obtain a favorable judicial forum for disputes with the company or its directors, officers, or other employees.	NA	May discourage certain lawsuits by shareholders by restricting forum choice, potentially reducing litigation costs but also limiting shareholder recourse.
Board Composition Focus	The Governance and Nominating Committee is committed to diversity on the board of directors and compliance with applicable rules, regulations, and guidance regarding the composition of leadership.	NA	Aims to enhance decision-making, oversight, and stakeholder representation through diverse perspectives, potentially improving long-term performance and reputation.
Program Approval	The Information Security Program is approved on an annual basis by the board of directors.	NA	Ensures ongoing board oversight and adaptation of cybersecurity measures to evolving threats, critical for protecting data and maintaining trust.
Risk Management Integration	Cybersecurity risk management is incorporated into the overall enterprise risk management model, which is updated on a quarterly basis and subject to oversight by the board of directors.	NA	Provides a holistic and continuous approach to identifying, assessing, and mitigating cybersecurity risks across the organization, enhancing resilience.
Reporting Structure	The board of directors receives quarterly updates from the Director of Information Security regarding the Information Security Program and compliance with relevant regulations.	NA	Facilitates informed decision-making and proactive risk mitigation by the board regarding cybersecurity posture and regulatory adherence.
Committee Oversight	Members of the Audit Committee of the board of directors receive presentations and minutes of the meetings of the information technology steering committee on a quarterly basis.	NA	Enhances the Audit Committee's ability to oversee IT and cybersecurity risks, ensuring alignment with financial reporting and internal control objectives.
Policy Implementation	The company has insider trading policies and procedures that govern the purchase, sale, and/or other disposition of the company's securities by directors, officers, and employees, and the company itself.	March 2021	Designed to promote compliance with insider trading laws and regulations, safeguarding the company's reputation and investor confidence.

Legal Proceedings

The company is a party to various litigation matters incidental to the conduct of its business from time to time.
Management does not believe that any currently pending legal proceedings will have a material adverse effect on the company's business, financial condition, or results of operations.

Related Party Transactions

Loans to related parties (directors, executive officers, and principal shareholders) totaled $13,863,000 at December 31, 2025, compared to $14,497,000 at December 31, 2024.
Deposits from related parties totaled $39,242,000 at December 31, 2025, compared to $53,607,000 at December 31, 2024.
The company leases its Sacramento administrative office from a partnership comprised of certain shareholders and members of the board of directors, with rent expense of $33,000 in 2025.
No rent expense was paid in 2025 to an entity affiliated with a board member for a temporary administrative office in San Francisco, which was previously leased.

Stakeholder Impact

Shareholders: Experienced increased net income and EPS, continued quarterly cash dividends (though not guaranteed), and potential for future capital raises. However, they face risks from market volatility, anti-takeover provisions, and the influence of significant shareholders.
Customers: Benefit from the expansion of services in Northern California and the San Francisco Bay Area, a continued focus on small and medium-sized businesses, real estate, agriculture, and faith-based enterprises, and a high level of customer service. Technology tools are also provided to help reduce their carbon footprint.
Employees: The company saw a 13.66% increase in headcount and offers a competitive compensation and benefits program, including salaries, bonuses, 401(k) matching, and healthcare. Investment in learning and development and a commitment to inclusion are also highlighted.
Community: The company demonstrates dedication to serving local communities by supporting affordable housing projects, assisting unhoused populations, prioritizing non-profit donations, and sponsoring environmental impact initiatives.
Regulators: The company maintains compliance with extensive federal and state banking laws, capital adequacy requirements, anti-money laundering initiatives, and cybersecurity oversight, which is crucial for maintaining operational licenses and avoiding penalties.

Next Steps

The FOMC projects one additional decrease in the federal funds rate in 2026.
Projected spending of $0.5 million related to continued build-out of IT systems and processes in 2026.
Allocating $21.4 million of cash for dividends on common stock in 2026.
Expects to fund off-balance sheet commitments primarily through repayment of existing loans, deposit growth, and liquid assets.
Expects main sources and uses of cash in future years to relate primarily to regular operating activities.
The board of directors intends to continue payment of cash dividends on a quarterly basis.
The company plans to continually seek out opportunities that can positively impact the effect that climate change has on the environment.
The company plans to continue to grow organically by leveraging existing core competencies and positioning the business for success in the evolving banking landscape.
The company may explore opportunities to invest in, or to acquire, other financial institutions and businesses.

Key Dates

Date	Description
December 20, 1999	Five Star Bank began operations.
September 16, 2002	Five Star Bancorp was incorporated.
June 2, 2003	Bancorp became the sole shareholder of Five Star Bank.
March 31, 2004	Start of peer loss data for CECL model.
September 1, 2007	Date of Salary Continuation Agreement with James Beckwith.
2009 (Q3 & Q4)	No cash dividends paid by the Company.
2010 (all quarters)	No cash dividends paid by the Company.
March 2021	New Insider Trading Policy implemented.
April 2021	Five Star Bancorp 2021 Equity Incentive Plan approved by board and shareholders.
May 4, 2021	IPO Registration Statement declared effective by the SEC.
May 5, 2021	Company terminated Subchapter S corporation status and became a taxable C Corporation; IPO date.
May 7, 2021	IPO closed.
July 28, 2021	End of period where all balances earned interest on excess reserves rate.
January 2022	Federal Reserve announced slowing bond purchasing and increasing the target range for the federal funds rate.
August 17, 2022	Company completed a private placement of $75.0 million fixed-to-floating rate subordinated notes.
September 1, 2022	Interest rate on subordinated notes fixed at 6.00% until this date.
October 18, 2022	FDIC adopted a final rule to increase initial base deposit insurance assessment rates for insured depository institutions.
December 18, 2023	SEC rules requiring public companies to disclose material cybersecurity incidents became effective.
January 1, 2023	Company adopted ASC 326 (CECL model) and ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.
March 2023	FASB issued ASU 2023-02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.
October 24, 2023	Federal banking agencies issued a final rule revising their framework for evaluating banks records of community reinvestment under the CRA.
November 2023	FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.
January 1, 2024	Company adopted ASU 2023-02 and ASU 2023-07.
April 2024	Company sold 3,967,500 shares of common stock in a public offering, raising approximately $80.9 million in net proceeds.
July 22, 2024	Date of the Bank's most recent CRA evaluation, which received a 'Satisfactory' rating.
September 2024	Full service branch opened in San Francisco.
November 4, 2024	FASB issued ASU 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.
December 31, 2024	Fiscal year ended.
January 2025	FASB issued ASU 2025-01, Clarifying the Effective Date.
May 5, 2025	Executive Employment Agreement between Five Star Bank and James Beckwith became effective.
June 30, 2025	Aggregate market value of voting and non-voting common equity held by non-affiliates was $477.2 million; FDIC Summary of Deposits date.
July 4, 2025	The President signed H.R. 1, the One Big Beautiful Bill Act, into law.
July 16, 2025	Federal banking agencies issued a notice of proposed rulemaking to rescind the October 2023 CRA final rule.
July 29, 2025	District court granted a motion by the CFPB to stay proceedings while the CFPB conducts a rulemaking to revise the final rule implementing Section 1033 of the Dodd-Frank Act.
August 22, 2025	CFPB issued an advance notice of proposed rulemaking to solicit comments and data as part of a reconsideration of the final rule implementing Section 1033.
September 2025	Full-service branch opened in Walnut Creek.
October 29, 2025	District court issued a preliminary injunction preventing the CFPB from enforcing the final rule implementing Section 1033 until reconsideration is complete.
December 31, 2025	Fiscal year ended.
January 15, 2026	Board of directors declared a $0.25 per common share dividend.
February 2, 2026	Record date for the $0.25 per common share dividend.
February 9, 2026	Payment date for the $0.25 per common share dividend.
February 24, 2026	Number of shares outstanding of common stock was 21,376,153.
February 27, 2026	Date of filing of the Annual Report on Form 10-K.
2026	Projected one additional decrease in the federal funds rate; projected spending of $0.5 million on IT systems; allocation of $21.4 million of cash for dividends; Sacramento administrative office lease expires.
January 1, 2026	Effective date for ASU 2024-02 for emerging growth companies electing not to opt out of the extended transition period.
August 17, 2027	Prepayment right for subordinated notes begins.
September 1, 2027	Interest rate on subordinated notes adjusts to a floating rate.
September 30, 2028	FDIC restoration plan target date to restore the DIF reserve ratio to at least 1.35%.
2030	Expected maturity of $1.7 million of time deposits.
September 1, 2032	Maturity date of subordinated notes.
2032	Corporate headquarters lease expires.
2026 through 2036	Leases on branch offices and administrative offices expire.
December 15, 2026	Effective date for ASU 2024-03 for annual periods.
December 15, 2027	Effective date for ASU 2024-03 for interim periods.

Recommendation

buy

The company demonstrates robust financial performance with significant growth in assets, loans, and deposits, coupled with improved profitability metrics like net interest income, net interest margin, and efficiency ratio. While there's a slight increase in nonperforming loans, the overall asset quality remains strong, and capital ratios are well above regulatory minimums. The strategic expansion and commitment to technology and customer service suggest continued positive momentum. The strong liquidity position and management's proactive approach to risk management further support a positive outlook, making it an attractive investment.

Keywords

Five Star Bancorp, FSBC, Banking, Financial Services, Commercial Real Estate, Northern California, Deposits, Loans, Net Interest Income, Asset Quality, Capital Adequacy, SBA Loans, Risk Management, Cybersecurity, SEC Filing, 10-K, Community Banking

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