Avidbank Holdings Q1 2026 Earnings Call - Navigating the SaaS Bifurcation and Deposit Cost Pressures

Tiffany, Conference Operator: Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Avidbank Holdings, Inc. First Quarter 2026 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 would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Thank you. I’d like to introduce the presenters, Chairman and CEO, Mark Mordell, Chief Financial Officer, Patrick Oakes, and Chief Operating Officer, Gina Thoma-Peterson. You may begin your conference.

Gina Thoma-Peterson, Chief Operating Officer, Avidbank Holdings, Inc.: Good morning. Thank you for joining us today for the Avidbank Holdings’ first quarter 2026 earnings call. Before we begin, let me remind you that today’s call is being recorded and is available in the investor relations section of our website at avidbank.com, along with our earnings release and presentation materials. 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. Those statements are intended to be covered in 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 Chief Executive Officer, Avidbank Holdings, Inc.: Thanks, Gina, thank you all for attending our Q1 earnings call. We appreciate your interest as well as your support. You know, as we stated in the release overall, we’re pleased what we’ve accomplished not only for Q1, but certainly what we’ve done over the last several quarters in putting ourselves in a more profitable metrics situation. You know, I’m not a big believer in seasonality, as far as first quarters goes, this was a pretty good quarter for us. We usually have some pullback and shrinkage, and we were able to grow loans by about $25 million, and our core deposits were reasonably flat.

Although Pat’s going to give you certainly some more metric information, and we’re going to follow it up with some questions after that. At this point, I’d like to turn it over to Pat to kind of go through the quarter, the high level metrics, and we’ll open up for questions.

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: Thanks, Mark. Good morning, everyone. Let me start with the headline numbers. In the first quarter, we earned net income of $9 million or $0.84 per diluted share. That was up from $6.9 million or $0.65 per diluted share in the fourth quarter. Return on assets improved to 1.46 from 1.12, and return on average equity increased to 12.7%. Turning to the balance sheets, as Mark said, loans grew $24 million in the first quarter. That was driven mainly by a $26 million increase in non-owner occupied CRE loans, partially offset by a $9 million decline in C&I balances due to higher payoffs and pay downs. Overall, loans are up $332 million or 18% since March 31, 2025.

Deposits also moved higher, up $13 million in the first quarter, and they’re up $270 million or 14% since March 31, 2025. We reported a net interest margin of 4.38 in the first quarter, up 25 basis points from the fourth quarter. Loan yields were essentially flat, and our interest-bearing deposit costs came down 20 basis points. Just a reminder, the fourth quarter included a $726 thousand interest reversal on non-performing loans, which reduced our margin in the fourth quarter by 12 basis points. In the first quarter, we also had the benefit of a special FHLB dividend, which added about 4 basis points to the margin. During the first quarter, we did see some upward pressure on our cost of interest-bearing deposits.

The average cost for the quarter was $2.98. The spot rate was $3.03 at March 31. The provision for credit losses was $1.4 million in the first quarter, down from $2.8 million in the fourth quarter. Net charge-offs for the quarter were $2.8 million or 52 basis points of average loans, primarily driven by the charge-off of 2 C&I credits. Non-performing loans declined to $16.3 million or 75 basis points of loans, mainly reflecting the payoff of a construction loan and the charge-off of those 2 C&I credits. Non-interest income was $1.5 million compared to $1.8 million in the fourth quarter. We saw higher core banking fee income, including service charges, FX, and credit card income. That was offset by lower warrant and success fee income and fund investment income.

On the expense side, non-interest expense totaled $14.1 million, up $231,000 from the fourth quarter, mainly due to higher credit-related legal and professional fees. We also saw another improvement in our efficiency ratio, which came down to 50.4%. Salary and benefits were flat at $9.6 million. Lower salary and bonus expense was offset by higher payroll taxes and benefits expense, along with fewer capitalized loan origination costs. We added three people in the first quarter, bringing total head count to 154, and we expect to hire additional bankers in the second quarter. Book value per share increased to $26.33, and Tier 1 capital increased to $11.39. During the quarter, we also repurchased 25,000 shares at an average price of $27.69 for a total of $693,000.

The effective tax rate for the quarter was 27.5%. That included a discrete tax benefit related to equity board vesting. We continue to expect the tax rate to be in the mid-28s for the remainder of 2026. With that, Mark, right back to you.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Thanks, Pat. As y’all can see, we’ve had a lot of improvements in our profitability metrics, which we mentioned earlier. At this point, just like to open it up for questions because, you know, that’s what’s really on your mind. Please.

Tiffany, Conference Operator: We’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andrew Terrell with Stephens. Your line is open.

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

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Morning, Andrew.

Andrew Terrell, Analyst, Stephens: Hey, I wanted to start off asking just a question around the SaaS exposure in venture lending. I appreciate the commentary you put in the presentation. It’s about $165 million of exposure, it looks like. Can you just talk about, it looks like you conducted a review in the quarter, and there’s obviously a lot of headlines out there right now. Just maybe sum up for us what the conclusions around, you know, this review were. If you could talk about just kind of the any reserves specifically against this pool, whether you’re worried about lost content. How should we think about, you know, your interest in this space, software specifically, going forward? Are you pulling back the reins a bit, modifying underwriting standards?

Just kinda wanna run the gambit on the SaaS exposure.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Well, from a 30,000 feet, the SaaS exposure’s evolving. We did do kind of a deep dive and really looked at where we were exposed. What we’re finding is that companies that it’s just not SaaS, it’s how they’re dealing with AI. A lot of these companies that have a good space that are SaaS-based have been utilizing AI or starting to utilize it more in their business plan in order to compete. Those companies are gonna be the top end of the food chain. It’s the companies that aren’t adapting that are gonna be more suspect as we go forward.

If they’re not able to get those funding, the funding that’s necessary because their metrics are off, because their platform is just not gonna be as competitive as people anticipated, those are the ones that we’re concerned about. Pat can get into some kind of the detail of how much dollar exposure we do have. What we found is that the vertical integration of AI and SaaS models is really where we wanna be. Those are much more specialized in workflow versus the horizontal type, which is, you know, kinda encompassing more broad-based aspects of it. It doesn’t mean one’s necessarily better than the other, but one just has a little bit more legs to it than the other at this point.

We’ve done, you know, a strong analysis, talked to VCs. You know, is there gonna be additional losses embedded? You know, I don’t know. When we’re talking about early-stage investing, it’s really, are we gonna let their cash balances cross over to loan balances. It gives us another factor that we have to monitor months ahead before that cash gets approaches their loan balance. We know if we need to pull an investor abandonment clause or something of that nature. Are we gonna let them borrow, or are we gonna let that cash cross over? We’re being pretty critical of that from across the board from a credit perspective. Pat, you got any additional color there?

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: Yeah, yeah. As you can see from the schedule we provided, right? With the breakdown we give with the venture group. It was really that horizontal stuff, this smaller piece of that that’s more general that, I think is the most concern that are they gonna be able to raise funds going forward? You know, that portfolio is small. There’s two loans in there that are either criticized or classified, and it’s about $4 million total. Okay. In fact, one of those is cash flow positive, right? So far the portfolio is doing well. I mean, the concern is what’s gonna happen 6 to 12 months from now, right? I think between our bankers and I think the investors and everybody else, I think everybody’s on this and tracking this quite closely.

Andrew Terrell, Analyst, Stephens: Great. Okay. I guess it sounds like important bifurcation of horizontal versus vertical. It sounds like, you know, within the vertical space, you’re still going to, you know, be lending and forming new relationships, picking up new clients in that specific vertical. No kind of change there. Just still being, you know, critical and diligent from a credit standpoint.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Well, I think everybody’s looking at it a little bit differently in terms of new fundings. Obviously, there’s a lot more fundings going into the AI space in the venture community at this point. If there isn’t the new funding, you know, you could argue have a very strong model going forward, you know, because they started off with integrating AI. Some of these companies that are two, three, four years old are needing to pivot, and they’ve needed to pivot, you know, just not today, but, you know, months or quarters ago in order to be more competitive given the explosive growth that AI has had on the industry.

I think it all pours into the underwriting, Everything that we’re looking at, and it’s very similar to what we’ve done for the last several years, is how viable are these early stage companies and what’s their backing like? You know, how strong is their business plan? It’s just another factor that we’re taking into account. Yes, we do have some legacy credits, and we’re monitoring those pretty closely.

Andrew Terrell, Analyst, Stephens: Okay, great. I appreciate it. If I could move over. Pat, just on the margin, you obviously outperformed a bit this quarter even, you know, normalizing for the FHLB special. You know, it sounds like maybe some deposit cost pressure into period end. Just talk about, you know, relative to that $2.99 interest-bearing costs, and I think you said $3.03 on the spot rate. Just, you know, where you’re bringing on new deposits at on a weighted average basis and kind of general expectations for the margin as we move forward.

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: Yeah, I think that’s why I wanted to throw that 3.03 out there because, you know, look, we’re a growth bank. We’re having to put some deposit costs on at a higher cost than we’d like at this point, right? Which is probably in the low 3s at this point on average. You know, I think, hopefully we can drive that down over time, but at this point we want to grow deposits, right? I would assume that that’s going to stay above 3% at this point, cost of interest-bearing deposits. Could it creep up a little bit? Yes, potentially short term. You know, that’s going to take the margin down a little bit from where it is today. We realize that. You know, loan yield I’m not as worried about.

I think that loan yield will be, you know, relatively stable. Could it go up or down a few basis points? Sure, with loan fees and the mix change and all that stuff. You know, you’ll see that margin move down a little bit here, that’s for sure. One other factor too is just to keep in mind DDA. DDA was probably a little bit high at 331. We had some clients bring in some money late in the quarter, that moved to the DDA account. That change has moved in April, you know, I wouldn’t count on that DDA remaining as high as it is today. You know, that’s a little bit of pressure too that we’re seeing is to grow that.

Hopefully we can keep it in the, you know, in the mid-twenties, but it is probably a little bit elevated.

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

Tiffany, Conference Operator: Your next question comes from the line of Matthew Clark with Piper Sandler. Your line is open.

Adam Kroll, Analyst, Piper Sandler: Hey, good morning. This is Adam Kroll. I’m for Matthew Clark, and thanks for taking my questions.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Hello. Good morning.

Adam Kroll, Analyst, Piper Sandler: Maybe just, if we could get your updated thoughts on loan and deposit growth expectations for the year. I think your previous target was in the low double digit range. I was just curious if that’s changed at all, and maybe more broadly, what you’re hearing from your borrowers, given some of the macro uncertainty.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Well, I think we did experience a little softness in the quarter in terms of people making decisions and fundraising and that aspect of it. You know, I don’t think our outlook has really changed. I think it’s a low double digits going forward. I, you know, we have some work to do on the deposit side as Pat had mentioned, but feel pretty good about the overall pipelines that we’re seeing across the all verticals as far as loans go. In terms of deposits, we have a strong pipeline, I think timing is an issue at this point, a little bit more because I think fundings are seemingly taking a little bit longer. People are doing a little extra diligence.

There’s geopolitical noise that’s been out there, which is constantly out there, so I don’t know why that should be as much of a factor, you know, in this quarter as it was, you know, historically every quarter in the last several years. Our outlook hasn’t changed. I think, we are built for a growth bank, and we should be, you know, low double digits for the year. You know, we do have some work to do on the, on the liability side of the balance sheet, as I mentioned.

Adam Kroll, Analyst, Piper Sandler: Got it. I appreciate the color there. Maybe switching to expenses. You know, they were really well managed during the quarter. I was just curious how you’re thinking about maybe a 2Q run rate and overall growth for the year.

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: You know, what I would say is, you know, I kind of mentioned that we’ve been doing some hiring here. Mark can talk a little bit more detail around that in the first quarter than more in the second quarter. That’s going to put a little pressure on the growth and expenses here, along with Q1 merit increases and some other things. You know, it’s really the variable here is really that personnel expense. You know, it was $9.5 million-ish. You know, I could see that creeping up to closer to $10 for the quarter when you factor in everything. You know, we did have a little bit of higher legal and professional fees that could come down a little bit to offset some of that.

You know, expenses will definitely be up in the second quarter, but hopefully that’s all investment in growth here.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: I think Pat’s spot on on that. I think we have, you know, with the successful IPO that we had and our profitability metrics going where they are, and with our long-term plan of scaling our operation, I think we will likely add more bankers this year than we have, you know, in the last several years. As we mentioned, we brought on, I think, 3 in Q1, and we’re probably gonna have, you know, 2-4 more in Q2 and probably even more, a couple more after that as we look down the road. I think there’s some opportunity out there. There’s been some consolidation, and we’re going to take advantage of it, given our overall business plan.

Adam Kroll, Analyst, Piper Sandler: Got it. Thanks for taking my questions. I’ll step back.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Thank you.

Tiffany, Conference Operator: Your next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open.

Gary Tenner, Analyst, D.A. Davidson: Thanks. Good morning, everybody. I wanted to kind of follow up on the SaaS conversation earlier and just kind of broaden it to the larger venture lending business. obviously, SaaS is a big part of that business. just curious about kind of the pace of what you’re seeing in the pace of venture investment into startups at this point. Has that, you know, have you seen much diminution of that flow? and then how that impacts both the venture lending and potentially the capital call business.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Well, as far as venture lending goes, I think it has, you know, gained a lot more momentum over the last couple of quarters. This, you know, SaaSpocalypse or whatever they’re calling it at this point. I think everyone’s doing the homework that’s necessary because nobody wants to throw good money after bad. There’s no question that the new fundings are at better valuations than a company that’s two or three years old. The question is how can they pivot? Do they need to pivot? I think the VCs and the entrepreneurs out there are looking at it, you know, very analytically. When this kind of transition or disruption happens, they really choose, decide to pick their horses.

For us, again, we monitor everything on a monthly basis, you know, in terms of growth, in terms of metrics. If they’re not on plan or if they’re falling off plan, we know that ahead of time. We’re having these conversations way ahead of time. I do think just like any time a vertical gets really hot, which AI is, just like cyber was a few years ago, there’s more money going into AI-based investments than most anything else at this point. You know, we just gotta use solid judgment across the board and, you know, as far as the new investments are being made, and really be ultra-critical on the investments that we do have at this point.

You know, determining do they have an opportunity for new funding or are they gonna die on the vine, and are we gonna let that cash cross over, like I mentioned earlier, our loan balance? That’s our only savior at that point, is to not let them borrow and, or sweep the account if necessary, because the investors are not gonna continue to support the company.

Gary Tenner, Analyst, D.A. Davidson: Got it. Thank you for that. I’m sure you would have flagged this, I just wanted to confirm the $3.1 million construction loan that paid off in the quarter, there was no related interest recovery or benefit from that, correct?

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: No, we had everything that was owed to us on that one.

Gary Tenner, Analyst, D.A. Davidson: Okay. Thank you.

Tiffany, Conference Operator: If you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Tim Coffey with Brean Capital. Your line is open.

Tim Coffey, Analyst, Brean Capital: Thank you. Morning, everybody.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Morning, Tim.

Tim Coffey, Analyst, Brean Capital: Mark, if I could just kinda, you know, follow back up on the SaaS discussion. Just, you know, I appreciate the details in the deck. Kinda parsing through the loans and deposits stuff, it looks like the SaaS portfolio, both vertical and horizontal, have loan-to-deposit ratios somewhere around 45%, whereas the total venture portfolio is somewhere around a 30% loan-to-deposit ratio. I’m wondering, historically speaking, has the SaaS book always kind of been there in that kind of, you know, 45% ratio?

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: No, you know, I would say, you know, look, I think what I would hear from our bankers is, you know, these companies are still getting funding, right? I would say it’s at a slower pace than it was previously, right? You know, this is almost like 2022, right? Where the rounds of funding, you know, shrink a little bit. They’re not getting as much, right? I think they’re just being a little bit more careful, I think, if they’re giving out funding, especially in some of the horizontal stuff, right? It probably is a little bit less than it has been historically. We could run that analysis. I haven’t done it, but my gut would tell me that a little bit. I think what Pat Oakes’ saying does make sense.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: I think when you do have a little stress in a vertical, they do tend to spoon feed it as opposed to give it, you know, 2 years of runway, which is, which is what is typically happening in a more, you know, a less, concerning vertical. I think companies are getting funded, but it’s more metric-based. They may, you know, just fund it for the next 4 to 6 months as opposed to 2 years, see where they end up on that, see if they’re getting the traction that’s necessary. That’s kind of typical when there’s this kind of disruption in the market.

Tim Coffey, Analyst, Brean Capital: Okay.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: That’s why we’re taking a closer look at these, you know, 60-plus counts, right? Watching them very, very carefully.

Tim Coffey, Analyst, Brean Capital: Right. Right. This sounds like a topic I should follow up with, next quarter to kind of see how things are playing out.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Probably have a nice couple of quarters then. Yeah.

Tim Coffey, Analyst, Brean Capital: I’ll mark that down. Mark, as you talk to clients in the technology space and in the venture space, do you get a sense that there’s been any material slowdown in planned IPOs or takeout activity?

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Yeah. I think the IPO market has been certainly quiet at best for a period of time. M&A, given some of the disruption, is slowing down at this point until people kind of figure out what’s viable and what’s not. I think there’s going to be a lot of companies out there that are going to be looking for soft landings that aren’t going to find a soft landing. Whenever there’s this kind of disruption, people are pretty cautious at this point because I think with this kind of disruption, some people feel there’s bound to be more opportunities the more stress there is in the marketplace, as opposed to getting too far ahead of it. I think we got to just continue to monitor the overall space like we do.

Certainly with this disruption, we have to really pay attention to where money’s flowing and, what’s happening there from an M&A perspective. The IPO market just, I think is not something we’re focused on at this point.

Tim Coffey, Analyst, Brean Capital: Okay. All right. Appreciate that color. Mark, as you go look to add bankers, is there specific geographies or business lines you’re looking to support?

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: I think, you know, the overall feeling is continuing to be the same, that the bankers that we’re adding are gonna be more in the business lines than real estate. You know, we’re, we do a good job in commercial real estate, a good job in construction, but as far as the number of employees go, you can run that, those two verticals with a lot less employees than we’re talking about in the business lines and venture and traditional C&I, asset base, sponsor, search. I think what you’re gonna see, those bankers are gonna be more in the business lines of the overall strategy because we feel that adds more to our franchise value.

Tim Coffey, Analyst, Brean Capital: Okay. Okay, great. And then Pat, question about the margin. Coming into the quarter, I think, you know, we were kind of looking for margin to, in the fourth quarter to be somewhere around 4.20%-4.25%. Does that still seem reasonable given all the puts and takes we’ve discussed today?

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: Yeah. You know, that probably My guess is below that 430, maybe 425-ish, right? In that general range, that’d be my guess. Hopefully, we can stay above 425. It’s probably that 425-430 range, I would guess. You know, so many moving pieces to it, right?

Tim Coffey, Analyst, Brean Capital: Right. Yeah. Deposit costs being the kind of the biggest one, sounds like.

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: Yeah.

Tim Coffey, Analyst, Brean Capital: All right.

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: Yeah.

Tim Coffey, Analyst, Brean Capital: Yep. All right. Well, those are my questions. Thank you very much.

Patrick Oakes, Chief Financial Officer, Avidbank Holdings, Inc.: Thanks, Tim.

Tiffany, Conference Operator: Your next question comes from the line of Matthew Clark with Piper Sandler. Your line is open.

Adam Kroll, Analyst, Piper Sandler: Hi, guys. Maybe just to follow up on credit quality, was wondering if you could just provide some additional color on, you know, what drove the increase in criticized loans during the quarter, and if there’s any concern there.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: You know, we’re always concerned about credit, for sure. I think the biggest increase was a criticized real estate loan, which drove that up. We think it’s a money good loan again, but it’s performing. There’s some concerns about a near-term tenant vacating. Low loan-to-value, I think it’s fine. I think we’re gonna get through it. That’s the main reason for the increase, was a relationship that needed to be downgraded, that consisted of two buildings in the South Bay here.

Adam Kroll, Analyst, Piper Sandler: Got it. Appreciate it, for taking my question.

Tiffany, Conference Operator: There are no further questions at this time. I would like to turn the call back over to the presenters.

Mark Mordell, Chairman and Chief Executive Officer, Avidbank Holdings, Inc.: Well, again, we certainly do appreciate everyone’s interest and support, and appreciate you attending our Q1 earnings release and earnings call. You know, look forward to a solid quarter for Q2.

Tiffany, Conference Operator: This concludes today’s conference call. You may now disconnect.