Avidbank Holdings Inc (AVBH) 2025 Q3 法說會逐字稿

Good morning. My name is Eric, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Avidbank Holdings Incorporated third quarter 2025 earnings conference call.

(Operator Instructions)

I'd like to introduce the presenters, Chairman and CEO Mark Mordell, Chief Financial Officer Pat Oaks, and Chief Operating Officer Gina Thomas Peterson.

You may begin your conference.

Good morning.

Thank you for joining us today for Avidbank Holdings’ third quarter 2025 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.

These statements are intended to be covered by the safe harbour 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.

Thank you, Gina, and thank you all for attending our first public earnings call. Hopefully, we'll get this right today. Our third quarter was certainly significant for us. It marked a milestone as we completed our initial public offering, as most people are aware, and netted approximately $61 million.

And the objectives of the IPO were multi-faceted. It allowed us to restructure our securities portfolio, which significantly enhances our profitability.

It spread out our tightly held share ownership, along with a 100% participation from our board, executive management, and our existing investors. We brought in approximately 40 new investors into being shareholders for A Bank. It gives us better currency to trade, and it's really put us on a platform to take this bank to the next level.

We're really excited about the enhanced footings that we have at this point.

As I mentioned, this IPO closed on August 8th, essentially mid-quarter. Therefore, there's a lot of moving parts and a lot of quote-unquote noise on our income statement and our balance sheet for the quarter. Pat's going to give more detail on that when he takes it over. Overall, from a core operations perspective, we had a solid Q3. We had a loan growth of $46 million, or 10% on an annualized basis.

Deposits grew by $72 million, or 15% on an annual basis—both solid metrics for us going forward.

Credit continues to hold up with 12 basis points. MPAs at 12 basis points, slightly up from Q2 due to one credit.

Credit quality has always been a top concern for us, and we're going forward. We're just going to continue to focus on that. We've enjoyed a nice run of solid credit, and we're going to continue to actively manage those credits going forward.

I'd like now to just turn it over to Pat and highlight the financial highlights for the quarter, and open up to questions after that.

Hey, thanks, Mark. Good morning, everyone. Let me start by providing some details into the impact of our recent IPO and then the repositioning of the investment portfolio we did.

In August, we completed our IPO, as Mark mentioned, issuing just over $3 million shares at $23 per-share, generating net proceeds of $61.3 million.

And then during August and September, we sold $275 million in available-for-sale securities, realizing a pre-tax loss of $62.4 million, and we began the process of reinvesting a portion of those proceeds in new securities.

During the quarter, we reinvested $163 million, primarily in mortgage-backed CMOs with an average yield of 4.54%. Due to this loss on the security sale, we reported a GAAP net loss of $37.7 million for the third quarter. Exclude this charge, adjusted net income was $6.7 million, or $0.72 per share.

So we saw immediate benefits from this repositioning, with our margin expanding to 3.90%, up from 3.60% in Q2. Our adjusted ROA improved to 1.13%, compared to 1% last quarter.

The fourth quarter will include the full impact from the repositioning, leading to further improvements in profitability. This repositioning was an important step to improve our long-term profitability.

The margin improvement was also supported by a 4 basis point decline in interest-bearing deposit costs and an 11 basis point decrease in total deposit costs,

driven by a $58 million increase in average non-interest-bearing deposits. Deposit growth is not only strong but also high-quality, with this meaningful increase in DDA balances.

Since the Fed began cutting rates in 2024, our deposit beta has been approximately 59%, contributing to the margin expanding from 3.35% in the third quarter of 2024.

As of September 30th, 48% of our loan portfolio is floating rate, with approximately 13% of these loans at their floor rate. Our liquidity position remains strong. With the IPO proceeds and deposit growth, we fully repaid all short-term borrowings, including brokered CDs.

Our non-interest expense rose to $13.5 million, an increase of $869,000 from the previous quarter. This did include approximately $300,000 in one-time IPO-related expenses.

The additional increase in expenses was primarily driven by higher compensation expense and lower capitalized loan origination costs.

As Mark mentioned, credit quality remains strong, with non-performing assets at just 14 basis points. Criticized loans declined to 148 basis points, down from 187 basis points in Q2.

Capital ratios improved meaningfully,

with consolidated total risk-based capital rising to 13.48%, up from 12.76% in Q2,

reflecting the strength of our balance sheet post-IPO. With that, I'll turn it back over to Mark.

Thanks, Pat. And a lot of people on the call know us pretty well, so I think at this point it's wanting to are what's on your mind and then we're open for any questions at this point.

(Operator Instructions)

Andrew Terrell ,Stephens .

Hey, good morning. Hey, maybe just to start, thank you guys for hosting this call. I appreciate it. Maybe just to start, just on the margin, as you guys mentioned, lots of moving pieces in the quarter and really got kind of a partial, partial quarter impact from the securities restructure and some of the higher-cost funding paydown.

I'm just hoping maybe you could help us out a little bit with what the kind of fully loaded margin is post those actions—either in the month of September or how the margin's kind of trending in the 4th quarter so far. It seems like it should go above 4%, but I just want to kind of check in and see if you had expectations there.

Yeah, no, I, it obviously you go well above 4%. If you, kind of just back out all the IPO related activities, we kind of estimate the margin was just from the core margin expanded to about 370. And if you add in all the impact of, restructuring this bond portfolio, it'll be well over 4%. I'm not sure if one disclosure was in September because that's kind of a one-time month, but it should be 410 plus, right, at this point, maybe even higher than that, depending how things shake out.

Perfect. Okay, and yes, I did also want to ask—just it feels like it looks like you guys got a little more asset sensitive post-restructure. We're obviously looking at a few more cuts potentially, or a couple more cuts in Q4 and maybe some in 2026. Just your thoughts on kind of go-forward margin.

Do you feel like 4-plus is achievable, acknowledging we've got maybe a few more cuts in the curve than previously expected?

Yeah, yes, obviously, especially at quarter-end. I think you'll see in our 10-Q we're going to show ourselves as more asset sensitive. Now, a big piece of that is because we're sitting on a lot of cash at this point. As we re-invest some of that cash, that will take some of that down, but we are going to be more asset sensitive because we also have more DDA now.

I would think, at 100, we at this point as of 9/30, interest income would drop about 4%, right? That's not significant even with all the cash that we have. So I think it's manageable at this point.

I don't think there's much we need to do, but I think that margin will still stay at a good, reasonable level.

Yeah, okay. And then I also wanted to ask on the floors—you get the disclosure; I think it's 13% of floating rate loans that are at floor rates right now. I was just wondering if you guys had any kind of schedule, how material those floors become if we do get another 25, 50, 100 basis points of rate cuts. Just any colour on how the floors pick up as a percentage of the total floating.

Yeah, so I can give you a little bit of detail on that, but you need to also realize that at some point—so another 25 basis points, another $40 million hits that; another 25 basis points, it's close to $100 million. So if rates get lower, we get more and more clients hitting the floors. We know at some point we're going to hear back from these clients and how sustainable some of these floors are, so we may lose some of them as rates go—to offset some of the clients hitting those floors.

So, we'll get a benefit, but I'll be curious to see how much that benefit is if rates decrease.

It definitely helps. If they go further south, it won't be a 1 to 1. It's.

Yes, got it. Okay, I'll step back. Thank you for taking the questions and congrats on the IPO this quarter.

Matthew Clark, Piper Sandler.

Hey, good morning, everyone.

On the deposit cost side, your beta—at least interest-bearing—has been running, cycle to date, around 59%. I guess, what are your thoughts with the additional rate cuts that are potentially coming?

Your ability to kind of mitigate some of that asset sensitivity—do you think you can maintain a beta in that 55%–60% range through the cycle? I'm sure it'll get more difficult with more rate cuts but just want to get your thoughts there.

Yeah, so we model a 50% beta, and obviously we've been able to beat that, right? Which has helped, especially with the loan floors that we have. I'm hoping the next few, we can keep that 50% plus beta. You're right, as rates continue to move down, it's going to get more and more difficult, but it feels like at least the next one or two rate cuts—hopefully we can keep that. Somewhere closer to 59% beta.

Okay, great. And then do you have the spot rate on deposits on deposit cost at the end of, September.

Just to give usability. Yeah, at 9:30 interest-bearing was 336.

Okay, great.

And then on the deposit growth this quarter and you know nice increase and non-interest-bearing just could you give us some colour on you know where that came from and where your venture deposits stand at the end of. September, they were, $754 million at the end of June.

Yeah, so, The Venture and fund finance together was $798 million.

Great and then just in terms of the pipeline. For loans and deposits going forward, I assume, we're stick, I assume you're sticking to the kind of double-digit loan and deposit growth. Guidance but just want to get a sense for how the pipelines look.

The pipelines on both loans and deposits are strong. We have typically been a second half, company, if you look historically over years and Q4 have been always pretty strong for us. So, what we're seeing going in Q4, Looks really solid. I mean, very optimistic, we should have a solid quarter.

Okay, and then just nitpicky question, the small uptick in non-performers this quarter, just you could describe the type of credit it is and whether or not the reserve build was related to that or was that just more macro driven?

The uptick in MPAs was one credit. It's a venture client, it's a four, if I'm not mistaken. We, those kinds of credits are kind of binary, so we took a full reserve on it. So, and that's one of the reasons for the uptake in the, ACL.

Okay, great, thank you.

Gary Tenner, DA Davidson.

Thanks. Good morning.

I wanted to ask about kind of longer-term balance sheet management. How your kind of alluded to it a bit—that you might be con—you may continue to deploy some of that cash. Just as you're thinking about the ST portfolio, the size as it is today versus pre-IPO, where would you like to manage that to as a percentage of assets or earning assets over time?

Yeah, no, it'll be a smaller percentage of earning assets, I would think. We don't need a bigger portfolio—it's hard to say, right? It depends on deposit growth and loan growth and everything else. But I think that probably 10% on the small side, maybe 15% on the large side.

You'll probably see us add some additional securities here in the fourth quarter, but maybe that's $50 million or so, $75 million—it won't be a significant amount. It'll get us to that 10% number.

Then we'll go from there.

Okay, great. And then follow-up on the kind of loan pipeline question—you, the growth this quarter was pretty broad across the different lending segments.

Where are you seeing, as you look at the pipeline for the fourth quarter and maybe even early '26 from what you're hearing, where are you seeing kind of the opportunity set that is out there for you?

From a segment perspective.

Well, certainly, fund finance and real estate are having a significant year this year, and it seems that the CRE has been—there's a strong pipeline there, excuse me.

And then also, venture doesn't have a whole lot of outs, although they're doing business because we're primarily early stage. So I think the significant growth on the loan side is going to come from fund finance.

CRE and specialty in ABL—so sponsor and asset-based lending—they have pretty robust pipelines going into Q4.

And how is the pricing competition developing in those segments?

These—it seems that a lot of banks are having a hard time growing, so some larger banks, from a CRE perspective, are going down into the 5s, and so pricing is an issue and it's competitive.

I think the transactional sponsor finance and fund finance—the competition is pretty stiff. And most of everything we're doing is prime plus.

So I think it's balanced. One of the big impediments we've had this year in terms of growth is this is probably the biggest year that we've ever had of construction loan payoffs.

We have an excess of like $130 million–$140 million this year of construction payoffs. And so that portfolio is going to take a while to build back up again.

We don't view construction as a growth animal for us—we just like that $250 million, plus or minus, because it's a great earner for us. So this year, there was a pretty good landslide of construction payoffs.

Do you think the second quarter—$205 million on construction—is the bottom? And the third quarter was up a few million, but do you think the mid part of this year was effectively the bottom in that portfolio?

I think the majority of the pig is through the python at this point. We'll still have payoffs—because it's going to happen—but not the amount and size that have paid off in 2025 thus far.

Great, thanks very much.

Timothy Coffey, Jenny.

Great, thanks. Good morning, everybody.

If we look at the loan deposit ratio, would your anticipation that it would kind of stay in that mid 90s going forward?

I personally would still like to drive that down and get to a stabilized, plus or minus 90%, but given where we're going, I think the 95% number is a pretty good number for us, given our planned growth for next year.

I don't think—unless something significant happens on the liability side of the balance sheet—I don't think it gets down. It may get down a couple of basis points or a couple of percentage points, but I think something around 95% is probably okay for us at this point.

Okay, sounds good. And then Pat, what's a good expense number next quarter? Is it the run rate closer to $13Million?

Yeah, so if you take out the, so the one-time expenses of 3,000, yeah, that's probably a good run rate, that low or $2 million ish, so that's how I would think about it probably.

Okay, and then I had a couple of market related questions for you though, so about a year ago we started seeing customer outflows from, the old First Republic franchise. I'm wondering, is that still occurring?

Yes, is the short answer. I think a lot of those folks are still trying to find homes, and there's not really a bank to replicate what they had at First Republic, so there's a significant amount of frustration out there.

So, clients—those clients—are recalibrating their expectations, and we've picked up a fair amount of personal banking from our existing business clients because of the service and the attention.

But they're not getting the other things they like, which are the low mortgage rates and high interest rates on deposits.

So there's still a lot of turmoil out there, and with [First Republic] getting purchased, that's going to create additional turmoil that's going to be opportunistic for us—both from a client perspective as well as a talent perspective.

Okay, just related to the first republic piece, is that kind of outflows included in your growth outlooks?

We don't segment it to that extent, Tim. I think the, we just see that, we see that there is opportunity and there's a lot of movement, or inquiries by former First Republican, clients.

Okay, yeah, I guess I was just trying to ask if you know whether or not you saw that as kind of a bonus to what you see as your line of sight on the pipeline, which it sounds like you kind of do.

Yeah, I think it's just, it's just in the mix and it's a portion of the mix as we TRY and evaluate all opportunities out there.

Okay, and then you brought up, right? They're about to go through some stuff. Is there anything on the venture banking side that they do that you would that you like?

There's nothing they do that we like. I mean, we compete against them every now and again. We are focused significantly on the earlier-stage investing, so it's not anything that they do that's special that we want to take advantage of.

I just think there's going to be one less player that's going to be out there, that's not going to be at full strength. And that's going to cause some people to look around a little bit more—both from a client perspective as well as from a talent perspective.

Okay, great, incredibly helpful, thanks, those are my questions.

(Operator Instructions)

Ross Haberman, RLH Investments.

Good morning, guys. Thanks for taking the call.

Just a quick question for you, Mark—on the new money you brought in, are you making adjustments to the size of the loans you're doing now with the new capital?

And are you doing any sort of participation?

Thank you. Bye now.

As far as the new capital goes—yes, of course it does raise our legal lending limit. Our balancing has not grown significantly over the last couple of years due to the turmoil in the industry and the liquidity—I don't want to say crunch—that we had in '23, but we had to obviously strengthen our balance sheet back to where it needs to be.

We're firm believers in building portfolios. And so, when you consider a $2 billion loan portfolio, we don't want to do a lot of $25 million-and-north deals just because of downgrade risk and overall credit risks. So we're still focused primarily on that $25 million-and-under level, even though our legal lending limits are much higher.

We will be opportunistic—keeping credits that have been with us a while—and we will go higher on those because we know those credits well and don't feel the risk is anything greater.

So not until we grow our balance sheet significantly will we start doing larger deals. And that's one of our biggest challenges for the verticals in which we're competing—our balance sheet size. We've been doing a pretty good job of it over the years and participating out a portion of it to keep clients.

I don't see a bunch of movement in the overall portfolio management doing a lot of larger deals.

As far as participations go, we will do some—primarily on the fund finance side. I think we have about $70 million that's out there in terms of syndications.

That's a pretty good deal with very low risk. We'll do those to solidify ourselves in the venture community as well as deploy capital with acceptable risk for a higher yield.

Okay, thank you very much.

There are no further questions at this time. I would not like to turn the call back over to the presenters.

Well, this is our first public earnings call. We appreciate everybody, showing up and your interest and your confidence and if there's further follow-up you need, obviously feel free to reach out to us and contact us.

Ladies and gentlemen, this concludes today's call. Thank you all for joining.