Avidbank Holdings, Inc. (AVBH) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with increased NIM, net interest income, and improved efficiency ratio. Despite a rise in credit loss provisions and noninterest expenses, management's optimistic guidance on growth and margin expectations, coupled with a proactive market strategy, suggests positive sentiment. The Q&A highlights some uncertainties, but management's confidence in resolving issues and leveraging market opportunities supports a positive outlook. The absence of negative catalysts like guidance cuts or secondary offerings further strengthens this sentiment.
Key Financial Performance
Loan Growth Loans were up $190 million for the quarter and $283 million for the year, representing a 15% annualized growth rate. This growth was led by sponsor finance and corporate banking, with contributions from all verticals except construction.
Deposit Growth Deposits increased by $92 million for the quarter and $241 million for the year, reflecting a 13% annualized growth rate. Growth was driven by corporate banking and venture lending, with all divisions contributing to core deposit growth.
Net Income Net income for the fourth quarter was $6.9 million or $0.65 per diluted share. Adjusted net income for the full year was $24.9 million or $2.80 per share. The increase was supported by strong loan and deposit growth, IPO impact, and investment portfolio repositioning.
Net Interest Margin (NIM) NIM expanded to 4.13% in the fourth quarter from 3.90% in the third quarter. This improvement was due to loan and deposit growth, IPO impact, and a decrease in the cost of interest-bearing deposits.
Net Interest Income Net interest income rose to $25 million in the fourth quarter from $22.7 million in the third quarter, driven by loan and deposit growth, IPO impact, and investment portfolio repositioning.
Provision for Credit Losses Provision for credit losses increased to $2.8 million in the fourth quarter from $1.4 million in the third quarter. The rise was primarily due to $190 million in loan growth and a $1.2 million specific reserve on a downgraded commercial loan.
Noninterest Expense Noninterest expense rose to $13.9 million in the fourth quarter, an increase of $372,000 from the third quarter. The rise was due to higher credit-related legal fees, increased FDIC assessment, and consulting fees, partially offset by lower salary and benefits expenses.
Adjusted Efficiency Ratio The adjusted efficiency ratio improved to 51.72% in the fourth quarter from 55.72% in the third quarter, reflecting better cost management and operational efficiency.
Tax Rate The tax rate increased to 31.1% in the fourth quarter from 28.9% in the third quarter. The rise was due to a decrease in the California tax rate, which impacted the effective rate calculation for the quarter.
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Operating Highlights
Loan Growth: Loans increased by $190 million in Q4 and $283 million for the year, representing a 15% annualized growth rate. Growth was led by sponsor finance and corporate banking, with contributions from all verticals except construction.
Deposit Growth: Deposits grew by $92 million in Q4 and $241 million for the year, achieving a 13% annualized growth rate. Growth was driven by corporate banking and venture lending, with all divisions contributing to core deposit increases.
Net Income: Reported net income of $6.9 million for Q4 and adjusted net income of $24.9 million for the full year.
Net Interest Margin (NIM): Expanded to 4.13% in Q4 from 3.90% in Q3, supported by loan and deposit growth, IPO impact, and investment portfolio repositioning.
Investment Securities: Purchased $62 million in investment securities in Q4, increasing the total available-for-sale balance to $218 million with a yield of 4.61%.
Provision for Credit Losses: Increased to $2.8 million in Q4, driven by $190 million in loan growth and a $1.2 million specific reserve on a downgraded commercial loan.
Noninterest Expense: Rose to $13.9 million in Q4, primarily due to higher credit-related legal fees, increased FDIC assessment, and consulting fees.
Credit Management: Addressed nonperforming assets (NPAs) related to two construction loans and one sponsored finance loan. One $3.7 million construction loan was resolved, while a $16 million construction loan in Palo Alto remains under management with no expected losses.
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Risk or Challenges
Non-Performing Assets (NPAs): The increase in NPAs, specifically related to two construction loans and one sponsored finance loan, poses a risk. While one loan has been resolved, the $16 million construction loan in Palo Alto remains a challenge due to delays from COVID-19 and is expected to stay on the books for 4-6 months.
Credit Migration: Criticized and classified loans are holding steady at $37 million and $38 million, respectively. While no worsening trends are observed, the company remains cautious about credit risks.
Provision for Credit Losses: The provision for credit losses increased to $2.8 million in the fourth quarter, driven by $190 million in loan growth and a $1.2 million specific reserve on a downgraded commercial loan. This indicates potential credit quality concerns.
Noninterest Expense: Noninterest expense rose to $13.9 million, driven by higher credit-related legal fees, increased FDIC assessment costs, and consulting and professional fees. These rising costs could pressure profitability.
Interest Reversal Impact: The $726,000 interest reversal on three new nonperforming loans negatively impacted net interest income, highlighting the financial strain from nonperforming assets.
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Guidance & Outlook
2026 Financial Projections: The company is set up for a strong 2026 due to growth in loans and core deposits, which are expected to enhance the earning engine for the year.
Tax Rate Outlook: The tax rate is expected to move back to around 28.5% in 2026, following adjustments in California tax law.
Earnings Projection: The company anticipates more even earnings projections for 2026, following balance sheet restructuring and noise reduction.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What was the spot rate on interest-bearing deposits at the end of the year?
A:The spot rate on interest-bearing deposits at year-end was 2.91%.
Q:How does the management plan to manage deposit beta moving forward?
A:Management plans to manage deposit beta by leveraging indexed deposits (20% of interest-bearing deposits) that will move down directly with every Fed rate cut. They aim for a 60% beta on non-indexed deposits during rate cuts, though achieving this is uncertain. Without rate cuts, deposit costs may increase slightly due to new deposits.
Q:What are the plans for the outstanding subordinated debt?
A:The subordinated debt is planned to be addressed in 2026. Management is working on an investment-grade rating and will act before another 20% of the debt burns off.
Q:What contributed to the strong noninterest-bearing deposit growth?
A:The growth was broad-based, with contributions from the venture group, finance group, and corporate banking. Some of the growth was lumpy and transitory, but the goal is to grow deposits at a similar pace to overall deposit growth.
Q:Was there any interest reversal headwind due to nonaccrual migration in the fourth quarter?
A:Yes, the $726,000 interest reversal from three loans on nonaccrual impacted the margin by 12 basis points. Without this, the margin would have been closer to 4.25%.
Q:What are the near-term margin expectations?
A:The margin is expected to stay around 4.25%, with potential slight increases. However, headwinds include higher rates on new deposits, maturing loan floors, and resetting rates on loans, which may limit significant margin growth.
Q:What are the growth expectations for loans and deposits in 2026?
A:Management targets double-digit growth (10%-15%) for both loans and deposits in 2026, supported by strong pipelines and momentum across divisions.
Q:What is the outlook on loan quality and criticized assets?
A:Management monitors criticized and classified assets closely. While the $16 million criticized asset significantly increased numbers, they feel well-collateralized and optimistic about resolving these issues. No concerning trends in credit were identified.
Q:What is the expected loan-to-deposit ratio for the next year?
A:The loan-to-deposit ratio is expected to remain flat or slightly decrease. Management aims to drive it down but does not expect substantial changes.
Q:What is the expected noninterest expense run rate moving forward?
A:The noninterest expense run rate is expected to exceed $14 million, with Q1 being slightly higher due to taxes and insurance costs. Legal and credit-related costs may decrease slightly.
Q:What are the opportunities in the market for the bank?
A:Management sees consistent opportunities due to their high-touch banking model and market disruptions. They aim to capitalize on these opportunities through proactive efforts by their bankers.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the exact deposit beta they can achieve on non-indexed deposits during rate cuts, stating uncertainty about reaching the 60% target. Additionally, they did not provide specific details on how much the loan-to-deposit ratio might decrease or the exact impact of market disruptions on their growth strategy.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Avidbank
CEO Mordell
California tax
Chairman CEO
Chief
Deposits
Officer
balance
banking
basis point
care
conference today
construction loan
core deposit
decrease California
expense increase
factor result
fee increase
finance
income
interest
investment
item
law
loss increase
provision
release
tax rate
AVBH Slides
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
