Avidbank Fourth Quarter 2025 Earnings Call - Strong Loan and Deposit Growth, Margin Lift Blunted by Three New NPAs

Pat Oakes, Chief Financial Officer, Avidbank: Good morning. My name is Jordan, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Avidbank Holdings, Inc. fourth quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you’d like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you’d like to withdraw your question, press the pound key. Thank you. I’d like to introduce the presenters, Chairman and CEO, Mark Mordell, Chief Financial Officer, Pat Oakes, and Chief Operating Officer, Gina Thoma Peterson. You may begin your conference.

Mark Mordell, Chairman and CEO, Avidbank: Thank you, Jordan, and thank-

Unidentified Presenter, Avidbank: Good morning. Thank you for joining us today for Avidbank fourth quarter 2025 earnings call. Before we begin, let me remind you that today’s call is being recorded and is available on the investor relations section of our website at avidbank.com, along with our earnings release and presentation material. Today’s call contains forward-looking statements which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. These statements are intended to be covered by the Safe Harbor Provisions of the Federal Securities Laws. For a list of factors that may cause actual results to differ materially from expectations, please refer to our earnings release under the heading Forward-Looking Statements, as well as the disclosures contained within our SEC filings. We will also reference non-GAAP financial measures alongside our discussion of GAAP results.

We encourage you to review the GAAP to non-GAAP reconciliations provided in our earnings release. With that, I’d like to turn the call over to our Chairman and CEO, Mark Mordell.

Mark Mordell, Chairman and CEO, Avidbank: Now, thank you, Gina. Thank you, Jordan, and thank you all for joining us for our second actual, you know, as we’ve been, second earnings call from being a public company. And I apologize for my voice. I’m just getting over a little bit of a flu from the beginning of this week. So, you know, we had a great quarter, I think, a real strong quarter of growth, which is really what we’ve been striving for, really since the crisis in 2023. And we’re leaning into being that growth bank again, and we’ve been demonstrating that for the last couple of years at this point.

You know, loans were up $190 million for the quarter and $283 million for the year, which is a 15% annualized growth rate. Deposits were up $92 million for the quarter and $241 million for the year. Again, a 13% growth rate for the year. You know, when you look at the loans, they were led significantly by our sponsor finance and corporate banking team for the quarter, but really every vertical, with the exception of construction, contributed to that growth in terms of loan growth for the quarter. Deposits were similar.

It was led by corporate banking and venture lending, and venture lending, but all divisions contributed to those growth in core deposits, which is really setting us up, for a strong, 2026 for sure, given those balances are, you know, met our goals and are, setting us up for a better earning engine for, for 2026. Now, talking about the elephant in the room, NPAs did go up. That’s clear. You know, but, that centered around, as the earnings release mentioned, around 2 construction loans and 1 sponsor finance loan.

The good news is that we said that we’re well collateralized in those two construction loans, and one is already taking care of itself because we’ve taken care of it, it’s already been paid off, and that was about a $3.7 million construction loan. Because we were well collateralized, it didn’t have to go to NPA, and they took care of that. The other loan is a $16 million construction loan, a multi-unit, mixed-use in Palo Alto, and that’s been a hangover from COVID, a lot of delays. We feel we’re well collateralized there as well. We have houses and guarantees, and we just have to work through this.

It’s gonna be on our books for, you know, anywhere from 4-6 months, probably, unless we can find a softer landing. So, but we feel we’re well collateralized. So credit migration has not changed all that much when you consider that criticized classifieds are pretty much holding steady at $37 million and $38 million respectively. So, we don’t see any trends in credit. These are... You know, we don’t take credit for granted here, as you all know very well. We’re always anxious about credit, but I think where we sit with these loans, we feel that we’ll have to work through them, but we’ll get out of them, and it shouldn’t result in any losses as we can see at this point.

I’ll turn it over to Pat to talk about some of the income items and some of the metrics.

Pat Oakes, Chief Financial Officer, Avidbank: Thanks, Mark. Good morning, everyone. So we reported net income of $6.9 million or $0.65 per diluted share for the fourth quarter and adjusted net income for the full year of $24.9 million or $2.80. Pre-provision net revenue for the fourth quarter was $12.9 million, compared to $10.7 million for the third quarter. The NIM expanded to 4.13% in the fourth quarter, compared to 3.90% in the third quarter, and net interest income increased to $25 million from $22.7 million as we benefited from the strong loan growth, the strong growth in loans and core deposits, the full impact from the IPO and repositioning of the investment portfolio, a 32 basis point decrease in the cost of interest-bearing deposits.

Gina Thoma Peterson, Chief Operating Officer, Avidbank: ... and the $44 million increase in average non-interest-bearing deposits. These items helped offset the impact of the $726,000 interest reversal on the 3 new non-performing loans. We purchased an additional $62 million investment securities during the fourth quarter at an average yield of 4.48%, increasing the total available for sale balance to $218 million at the end of the year, with a yield of 4.61% compared to 2.55% in the third quarter. The provision for credit losses was $2.8 million in the fourth quarter, compared to $1.4 million in the third quarter. The increase in the provision expense was primarily driven by the $190 million in loan growth, along with a $1.2 million specific reserve on the downgraded commercial loan.

Charge-offs totaled 30 basis points in the fourth quarter and 7 basis points for all of 2025. Non-interest expense rose to $13.9 million, an increase of $372,000 from third quarter. The increase was primarily due to higher credit-related legal fees, an increase in our FDIC assessments due to the impact of the net income loss in the third quarter, and an increase in consulting and professional fees. These increases were partially offset by lower salary and benefits expense, driven by an increase in capitalized loan origination costs from the strong loan growth in the quarter, and that was offset by a higher incentive accrual. Our Adjusted Efficiency Ratio improved to 51.72% from 55.72% the third quarter.

The tax rate in the fourth quarter increased to 31.1%, compared to 28.9% in the third quarter. The increase was primarily due to a decrease in the California tax rate as we finalized the impact from the change in the California tax law earlier this year. Since we reported a loss for 2025, the decrease in the California tax rate caused an increase in our effective rate for the fourth quarter. In 2026, I expect the tax rate to move back to around 28.5%. Mark, turn it back over to you.

Mark Mordell, Chairman and CEO, Avidbank: Well, I think we’re again, as I mentioned earlier, we’re kind of pleased with the progress that we’ve been making, getting the noise off our balance sheet from the securities restructuring and really looking to having more of an evened out earnings projection for 2026. So with that, I’m sure there are questions out there. We’re happy to open it up for questions at this time.

Pat Oakes, Chief Financial Officer, Avidbank: At this time, I’d like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Matthew Clark from Piper Sandler. Your line is live.

Matthew Clark, Analyst, Piper Sandler: Hey, good morning.

Mark Mordell, Chairman and CEO, Avidbank: Good morning, Matthew.

Matthew Clark, Analyst, Piper Sandler: Yeah, just wanted to start on the margin, if you had the spot rate on deposits at the end of the year.

Mark Mordell, Chairman and CEO, Avidbank: I’m sorry.

Gina Thoma Peterson, Chief Operating Officer, Avidbank: Spot rate on deposits.

Mark Mordell, Chairman and CEO, Avidbank: Oh, the spot rate on deposits. Yeah. So for interest-bearing deposits at year-end, it was 2.91%.

Matthew Clark, Analyst, Piper Sandler: 291. Okay, good. Yeah, so your beta, your deposit beta this quarter was 80%, pretty high. And the spot rate is encouraging. So how do you think about, you know, your deposit beta from here? I assume you can’t hold 80%, but how are you thinking of managing that?

Mark Mordell, Chairman and CEO, Avidbank: Yeah. So, you know, a couple of pieces there, right? We do have some of our deposits, about 20% of our interest-bearing deposits that are indexed, that will move down directly. And then with every Fed rate cut, so far, we’ve been pretty successful lowering deposit costs at, you know, kind of higher than we model. You know, probably 60% beta on the rest of them for the December rate cut. You know, without a rate cut, it’s hard to reduce deposit costs. In fact, there could be a risk it could go up a little bit because of where we put on new deposits. But with every Fed rate cut, hopefully, we can...

I don’t know if we can get 60% on the non-index, but hopefully, we can get it. It appears like continue to get a pretty good deposit beta down, so.

Matthew Clark, Analyst, Piper Sandler: Okay, good. Good. Then, just update us on the sub-debt that’s outstanding and what your plans might be there.

Mark Mordell, Chairman and CEO, Avidbank: That’s a 2026 thing for sure. Matthew, you know, we have been working on getting our investment-grade ratings, and we’ll do something certainly before another 20% burns off, given where rates have been and what we expect rates to happen. We’ll take care of that in 2026 here.

Matthew Clark, Analyst, Piper Sandler: Okay, good. And then just on the deposit growth, non-interest-bearing, really, really strong. Looks like Venture contributed some of it, but, you know, where else is that coming from? And was there anything lumpy in there or transitory, or is it all sticky?

Mark Mordell, Chairman and CEO, Avidbank: You know, and some of it is, some of it can be a little bit lumpy for us, and especially with the growth that we had. I mean, it was across the board, right? So for the fourth quarter, you know, yeah, Venture had a good quarter, they had a great year in, in DDA. So did our fund finance group, so did corporate banking. So it was, it was across the board, but, you know, this number is going to bounce around for us as a commercial bank, right? You know, we’re not going to get the same level of growth, in 2026 that we saw in 2025. The goal will be, hopefully, we can grow it at a similar pace to overall growth in deposits. That will be our goal at this point. But it does bounce around quite a bit.

Matthew Clark, Analyst, Piper Sandler: Yep. Okay, great. Thank you.

Pat Oakes, Chief Financial Officer, Avidbank: ... Next question comes from the line of Andrew Terrell from Stephens. Your line is live.

Andrew Terrell, Analyst, Stephens: Hey, good morning.

Mark Mordell, Chairman and CEO, Avidbank: Good morning, Andrew.

Andrew Terrell, Analyst, Stephens: If I could just stick on the margin quickly, just with the non-accrual migration this quarter, was there any kind of interest reversal headwind that impacted the loan yields in the fourth quarter?

Mark Mordell, Chairman and CEO, Avidbank: Yeah. So, yes, the three loans we put on nonaccrual, the $726,000 interest reversal impacted the margin about 12 basis points. So it would, for the quarter, probably been closer to 4.25 without that.

Andrew Terrell, Analyst, Stephens: Okay. So I guess once you normalize that, if it’s kind of 4.25 level post-normalizing the interest reversal, and then you’ve got what sounds like really strong repricing into the end of the period that I think should carry forward on the deposit side. I mean, could you help us with maybe near-term margin expectations? I mean, it feels like it should go like 4, 4.30-ish plus. Is that an unfair assumption or any color on where you think the margin can go kind of near-term, Pat?

Mark Mordell, Chairman and CEO, Avidbank: Yeah, I mean, it’s. You can put the math together and see that. The headwinds that we just got to be careful of for us is where we’re putting on new deposits as we’re cutting existing deposit rates. And, you know, look, we’re trying to fund loan growth here. So it’s possible that new deposits come on at a higher rate than our existing deposit portfolio. That could put a little pressure on the deposit costs. Not significant, but that’s a headwind. And then, look, we’re benefiting from a lot of flow and floors at this point, right? We have $254 million at floors. You know, about 60% of that are maturing in 2026. So we know when those loans renew, that we’re going to be resetting those rates.

So that’s going to put a little bit of pressure on there. So there is a few things that are headwinds that will offset it from going up too much, but, you know, if we can keep it that 425, maybe a little bit higher than that, that’d be great, right? But I don’t expect it to go up significantly from here.

Andrew Terrell, Analyst, Stephens: Got it. Okay. No, that makes sense. I appreciate it. And just overall, I mean, Mark, you kind of, you touched on it a bit in your, in your comments, just you guys had a banner year in, in growth for the balance sheet, both loans and deposits. Just, maybe, maybe setting yourselves a high bar for 2026, but any, any kind of initial thoughts on, on pipelines for both loans and deposits and, and kind of your, your growth expectations for the year?

Mark Mordell, Chairman and CEO, Avidbank: Well, you know, I’m not a big believer in cycles, but if you do look historically, Q4 has always been one of our stronger quarters, and first quarter’s always been a little bit softer. I think based on the pipeline we saw in the second half of the year and what closed in Q4 and what’s closing in Q1, that we do have good momentum, and good pipelines throughout the bank, virtually in all divisions going forward. So, we’re still targeting that double-digit loan and deposit growth. I mean, that’s what we are. We need to be that growth, need to be that growth bank. You know, bringing everybody back around again, I mean, we have, you know, high velocity and churn in our portfolio.

I mean, we have to do almost $2 of new loans to net $1 new loans for the year, given the portfolio churn. This year was exceptional in construction. We had a significant amount of payoffs in our construction division, and that really held our loan growth down. So, you know, I think we always, you know, always are targeting this, you know, 10%-15% type of asset growth, you know, every year. So that’s what we’re, we’re targeting this year and feel that it’s very accomplishable.

Andrew Terrell, Analyst, Stephens: Great. Thank you for taking the questions.

Pat Oakes, Chief Financial Officer, Avidbank: As a reminder, if you’d like to ask a question, press star, the number one on your telephone keypad. Your next question comes from Ross Haberman from RLH Investments. Your line is live.

Ross Haberman, Analyst, RLH Investments: Morning, gentlemen. Thanks for taking my call. Pat, could you just talk about your expected loan growth in 2026, and how is your backlog today?

Mark Mordell, Chairman and CEO, Avidbank: I missed that.

Ross Haberman, Analyst, RLH Investments: Yeah.

Mark Mordell, Chairman and CEO, Avidbank: Loan growth?

Ross Haberman, Analyst, RLH Investments: You go.

Mark Mordell, Chairman and CEO, Avidbank: Yeah. We’re expecting. Again, we’re expecting loan growth for 2026 to be, you know, something between 10% and 15%. And we feel that the team that we have, as well as what we’re seeing in the pipeline and even the things that are cyclical, that that’s an achievable number for us.

Ross Haberman, Analyst, RLH Investments: And just one—and one follow-up question about the loan quality. Anything else on the delinquent or criticized that’s keeping you up at night besides the ones you’ve described earlier?

Mark Mordell, Chairman and CEO, Avidbank: Ross, they all keep me up at night because they can go one way or the other, and criticized and classified is pretty dynamic, both you know, positive and negative, and that’s why we keep a pretty strong eye on it. But those ones are obviously you know, we feel good that we’re going to get out of the ones that we mentioned because we are well collateralized. But it is going to be a process, and that’s a distraction for all of us in order to kind of work through that. So, there’s nothing else in the in credit of any trend that we’re concerned about. It’s kind of business as usual at this point, you know, with migration happening both positive and negative. But this was a big one.

This is a $16 million one that really drove that number significantly up from where it was at the end of Q3.

Ross Haberman, Analyst, RLH Investments: Okay. Thank you very much, guys. Best of luck.

Mark Mordell, Chairman and CEO, Avidbank: Thank you.

Pat Oakes, Chief Financial Officer, Avidbank: The next question comes from the line of Timothy Coffey from Janney. Your line is live.

Timothy Coffey, Analyst, Janney: Yeah, thanks. Morning, John.

Mark Mordell, Chairman and CEO, Avidbank: Morning, Tim.

Timothy Coffey, Analyst, Janney: Yeah. Is it a reasonable expectation to think that the loan-to-deposit ratio is either flat or slightly down this next year?

Mark Mordell, Chairman and CEO, Avidbank: Yes.

Timothy Coffey, Analyst, Janney: Okay.

Mark Mordell, Chairman and CEO, Avidbank: I think we’d like to drive it down, but you know, but I think we’d like to drive it down. You know, we’re 100% core funded at this point, which is great. But I don’t expect it to come down substantially.

Timothy Coffey, Analyst, Janney: Okay. Yeah, because of the cost that Pat was talking about earlier. Got it.

Mark Mordell, Chairman and CEO, Avidbank: Exactly. Yeah.

Timothy Coffey, Analyst, Janney: And then looking at kind of the non-interest expense run rate, these last two quarters, obviously elevated for, you know, for specific reasons. Is that the kind of go-forward run rate we’re talking $13.5 million plus?

Mark Mordell, Chairman and CEO, Avidbank: Yeah. In fact, you know, look, first quarter is always a little bit higher in the first place, so it will go up from there in the first quarter from where we are in the Q4, right? With higher taxes, insurance costs going up. But, you know, we’ll get a little bit of reset on the bonus accrual since that was high in the fourth quarter. And hopefully we’ll, you know, legal credit-related costs will come down a little bit, but, you know, it will creep up here from the fourth quarter and the first quarter, and then hopefully back down a little bit. But, you know, it’s that run rate is definitely going to be higher than the 13.5. It’ll be, you know, 14+ here at this point going forward.

Timothy Coffey, Analyst, Janney: Okay. That’s helpful. Thanks. And then, Mark, just kind of talk about the opportunities in the market. Obviously, you’ve, you’ve been benefiting from the dislocation that happened almost three years ago now. Plus, we’ve got Comerica exiting the market. Do you feel more optimistic about the opportunity to take business from other banks than you have in part of the recent past?

Mark Mordell, Chairman and CEO, Avidbank: I don’t know if it’s any more opportunistic, Tim, than it has been over time. I do think we’ve benefited from a lot of disruption because of our consistency and the way we are this high touch bank, you know, big bank council with small banks service type of thing. There’s going to be opportunity for us, and I don’t... I think if our bankers are out there doing what they should be doing, they’re going to uncover more and more opportunity. But I don’t think it’s a significant change about the disruption that happened in the second half of last year to what our plan is for this year. We always are opportunistic on people as well as clients.

Timothy Coffey, Analyst, Janney: Okay, great. Those are my questions. Thank you very much.

Mark Mordell, Chairman and CEO, Avidbank: Thank you.

Pat Oakes, Chief Financial Officer, Avidbank: There are no further questions. I’d like to turn the call back over to the presenters for their closing remarks.

Mark Mordell, Chairman and CEO, Avidbank: Well, again, thank you, thank you all for attending the, our earnings call. And, you know, we’re pretty optimistic getting-- going into 2026 here. We’re pleased with how we ended the year in 2025 and are gonna do our best to, you know, take advantage of our IPO, take advantage of our restructuring, and manage our balance sheet the best way we possibly can, and continue to grow at a double-digit rate. So, hopefully in Q2, that, you know, we have this now-- or in the Q1 earnings, we have a earnings call that kind of matches up with this. So appreciate everybody’s interest and support over time.

Pat Oakes, Chief Financial Officer, Avidbank: This concludes today’s conference call. You may disconnect.