Five Star Bancorp plans to take advantage of the recent turmoil in the San Francisco Bay banking market by expanding there later this year.
The Roseville, California-based bank will open a loan production office in the city's Financial District managed by DJ Kurtze, who will serve as regional president for the area. The $3.4 billion-asset bank plans to add $500 million in deposits in the area over the next five years and eventually open full-service branches.
Though Five Star had always intended to expand south, James Beckwith, president and CEO, said that the bank failures in March and in May presented an opportune entrance.
"There's just been a tremendous amount of turmoil in the Bay Area banking community," he added. "And so we felt we could take advantage of that."
In March,
First Republic Bank, which was based in San Francisco and served an upscale clientele, suffered widespread deposit outflows in the aftermath of SVB's collapse. It was never able to fully recover and failed in May. Frank Fahrenkopf, a long-time board member of First Republic, blamed his institution's failure on its geographic proximity to Silicon Valley.
"I've spent a lot of nights not sleeping thinking about this: What could we have done to have avoided this?" Fahrenkopf
None of this has deterred Five Star. The bank plans to target small to midsize businesses in the service sector and reach customers and employees who have been displaced by the regional failures. (First Republic's failure was the
Beckwith believes that his personal familiarity with the Bay Area will be an advantage during the expansion. He grew up nearby and fondly remembers going to see the 49ers and Warriors play. These connections give rise to close business relationships, he argued. Building long-term relationships with customers has been a key to Five Star's existing business. On average, customers who have at least $5 million in deposits have been with the bank for almost a decade, according to a 2023 investor presentation.
"Having lived there builds an understanding that is relatable," he said.
Attracting depositors is important to "support the growth franchise in mind," said Andrew Terrell, an analyst with Stephens. The bank's loan-to-deposit ratio stood at almost 99% in the first quarter.
Hiring a team focused on commercial-and-industrial loans could help to further improve the bank's funding. In general, C&I bankers tend to bring in more deposits than loans, which should further lower Five Star's loan-to-deposit ratio, Terrell added. The company is aiming to hire 10 to 12 bankers for the new office by the end of 2024.
"They've historically had a very strong growth engine on both the loan side and the deposit side," Terrell said. "Relative to some other banks that do this a lot through mergers and acquisitions, they've done it all organically."
Beckwith is optimistic about appropriately managing risks to calm depositor concerns after the recent bank runs. "It's those who take advantage of this turmoil right now and execute well, they're the ones that are going to make out in the long run," said Beckwith.
"We hope to be one of those banks," he added.
