Avidbank Holdings Inc (AVBH) 2026 Q3 法說會逐字稿

Good morning. My name is Ben, and I will be your conference operator today. At this time, I would like to welcome everyone to the Avidbank Holdings Inc third quarter 2026 earnings conference call. (Operator Instructions)

I would like to introduce the presenters, Chairman and CEO, Mark Mordell, Chief Financial Officer, Pat Oakes, and Chief Operating Officer, Gina Peterson. You may begin your conference.

Good morning. Thank you for joining us today for the Avidbank Holdings third quarter 2026 earnings conference 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 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 would like to turn the call over to our Chairman and CEO, Mark Mordell.

Thank you, Gina. Thank you all for joining us this morning. We appreciate your continued interest and support in our company and our story. Overall, the third quarter was very strong for us. Profitability improved. We continued to grow loans, and our bankers generated meaningful core deposit growth across the franchise. Net income increased to $10.2 million for the quarter. Return on average assets improved to 1.42%, and our efficiency ratio was below 50%. I think these results demonstrate the improvement earnings power of our franchise and the benefit of the investments we have made in our people and business lines. Turning to growth, loans increased approximately $58 million for the quarter or 10% annualized, and were up 17% over the past year. Growth was broad-based with contributions from C&I, multifamily, and owner-occupied commercial real estate being the chief drivers.

Our loan pipelines continue to be healthy into Q4 and hopefully into next year. Our construction land portfolio continues to decline because of the elevated payoffs, so the growth we generated across the rest of the bank was particularly encouraging. As mentioned earlier, our loan pipelines continue to be strong, and we do expect construction payoffs to remain elevated here in the fourth quarter. We believe we are getting closer to the point where that headwind begins to moderate and becomes more normalized as it has over the last 15 years. On deposits, the reported increase included approximately a $270 million deposit from an existing client following the sale from a portion of their business. We knew from the beginning that these funds would be temporary, and we expect them to leave over the course of the fourth quarter.

More importantly, excluding that temporary inflated balance and brokered deposits, we generated approximately $76 million of core deposit growth. That growth came from relationships across the franchise and is a good indication of the progress our bankers are making on the funding side of the balance sheet. Turning to credit, non-performing loans increased modestly to 70 basis points of total loans after we placed a $1.5 million land loan on non-accrual. As I said many times before, we never take credit for granted. We continue to monitor the portfolio closely and actively manage the credits that require additional attention. At the same time, net charge-offs were essentially zero during the quarter, and we are not seeing any broad-based credit deterioration across the portfolio. We also strengthened our capital during the quarter by issuing the $30 million of new subordinated debt and redeeming our existing $22 million issuance.

That provided additional support for continued organic growth while maintaining strong capital ratios. Overall, I am pleased with the quarter. We are generating better profitability, maintaining solid growth across diversified commercial banking platform, and are continuing to invest in the franchise. There is always more work to do, particularly around the funding and the credits we are actively managing, but I believe we are well-positioned to move into the fourth quarter. With that, I will end my remarks and turn the call over to Pat to walk through the quarter in more detail.

Thanks, Mark. Good morning, everyone. For the third quarter, we recorded $0.94 per diluted share compared with $0.71 per diluted share in the second quarter. Net interest income increased $2 million to $28.7 million, benefiting from higher cash balance related to the increase in deposits, higher loan balances, and a larger investment securities portfolio. The net interest margin was 407 basis points in the third quarter, down 19 basis points from the second quarter. We estimate that 17 basis points of the decline resulted from average interest earning cash balances that were $205 million higher during the quarter, including the impact from the temporary deposits Mark mentioned earlier, along with the overall strong growth in deposit average balances. The September increase in the Fed funds rate occurred late in the quarter so it only had a minimal impact on the third quarter margin.

Looking ahead, we anticipate that our asset-sensitive balance sheet will benefit from the rate increase in the fourth quarter. The cost of our interest-bearing deposits decreased 9 basis points to 97 in the quarter, primarily because of the impact of the temporary deposits. Excluding those deposits, the spot rate at September 30 increased to 313 from 307 at June 30th, primarily due to the September increase in the Fed funds rate. Non-interest income was $1.7 million, compared with $3.1 million in the second quarter. The second quarter included approximately $1.3 million of tax-exempt BOLI death benefit proceeds. Non-interest expense was $15.1 million, compared with $16.5 million in the second quarter. The prior quarter included a $2.6 million litigation settlement. Without that settlement, expenses increased $1.3 million, driven primarily by higher compensation expense and credit-related legal expenses and professional fees.

We ended the quarter with 171 full-time equivalent employees, compared with 162 at June 30th and 151 at year-end. Turning to capital, at quarter-end, our Tier 1 leverage ratio was 10.82, and our total risk-based capital was 13.48. Book value per share was $27.24, a 4% annualized increase from the second quarter, despite the negative impact of higher unrealized losses as long-term interest rates increased. Book value per share has increased 9% since last September. With that, Mark, I turn it back to you.

All right. Thank you, Pat. That kind of summarizes the quarter. Now I think we're ready to open up to questions, please.

(Operator Instructions)

Matthew Clark, Piper Sandler.

Hey, good morning, everyone. Just to round out the margin discussion, Pat, I think you gave a spot margin, but do you have the spot rate on deposit at the end of September? Maybe even an adjusted spot rate, assuming those balances, that 270 leaves. What kind of beta are you trying to manage through the cycle here?

Sure. So, excluding all these temporary deposits, we estimate the spot rate at September 30th was around 3.13%, up from a 3.07% last quarter. A bout six basis points increase so far. That was all driven by the September rate increase. Obviously, we will see a little more pressure here going forward, but we think that we will be able to keep that beta. We are pretty optimistic below 50. How much below that? We will have to see. Hopefully quite a bit, but I do not think it will go above 50. Hopefully, closer to 40 somewhere.

Okay. Maybe, sorry I missed that earlier. Just the adjusted margin in September. I know it is 17 basis points impact from the temporary balances, but I guess in the month of September, how did that adjusted margin look?

With all this noise, I do not really want to give a September margin. That is kind of what we guided you to, that 17 basis point increase. If you kind of normalize-

cash balances, right, that margin was probably down a little bit, a couple basis points here from last quarter. That normalized margin probably is closer to the low 420s before the rate increase, obviously, or the September rate increase.

Yep. Understood. Okay. On expenses, the run rate here, do you expect going forward on operating expenses?

We will probably still see salary and benefits increase here, but I think that is going to be pretty much offset by some of these higher legal and professional fees that we saw in the quarter. So, my best guess is flattish to maybe up slightly for the fourth quarter.

Okay. Okay.

Thank you.

Gary Tenner, D.A. Davidson

Hey. I wanted to just ask a question on the loan front. Mark, you gave some color, obviously, on the construction book, and this quarter's growth overall was good. I know historically the fourth quarter has been a good quarter for C&I. As you look at the pipelines now and think about the fourth quarter, any reason to think that that will not be kind of the typical outcome in the fourth quarter?

There's no reason to expect that Q4 shouldn't be a pretty strong quarter for us. It seems, I don't like patterns all that much, but you go back five or six years, it seems Q3, Q4 are always stronger, and Q4s are typically one of the top quarters. So we feel good about what we're seeing in the pipeline and what can close for the remainder of the year.

Okay. Appreciate that. Just a minor question on the brokered deposits, I think down to about $10 million at the end of September. Pat, will those go to zero in the fourth quarter, or will any linger into 2027?

Well, that $10 million will mature in the fourth quarter, and then we'll decide if we want to add some before year-end, depending how from a funding perspective, we feel like it's a good deal to do that as a funding tool. But the existing stuff should all be gone, and we'll just make some decisions going forward how we use it.

Okay, thank you.

Thank you.

Andrew Terrell, Stephens.

Pat or Mark, maybe just to start, can you just talk about some of the new hires you've made? It seemed like a really good quarter from a hiring standpoint. I'd be curious on just the HOA group, the SBA team, and then can you just give us an update or refresh on the hiring pipeline more broadly?

The hiring pipeline for the balance of the year is going to be pretty modest. We'll still always be opportunistic, but I think the focus in SBA right now is we got a reasonable pipeline. We're focused on becoming a preferred lender. We expect that to happen realistically Q1. I don't think we're going to sell any loans or anything of that nature. We're just getting our infrastructure underneath us and getting these things processed. Taking a little bit longer because we're not a preferred lender at this point. I think the HOA team is doing what they need to be doing. Pretty focused. They'll make an impact on some balances this year, but it'll be pretty modest. Next year's the expectation of really getting some traction. The specialty deposits folks that we have, the HOA, they've been pretty active.

Again, they have goals for this year, but really getting their legs underneath them and getting some credibility in the marketplace and having 2027 being the year that they are much more impactful and much more impactful on our balance sheet. Other than that, the bankers that we've hired and certainly as everyone's aware, we hired a new President. We're really building on a team and focusing on the infrastructure for 2027. We've taken care of capital, we've taken care of facilities, we've taken care of our subordinated debt. We up-listed, we got some currency to trade, and it's about stacking up quarter to quarter and year to year in compounding earnings going forward. We're pretty focused on the production from our existing bankers as well as the new bankers

Great. I really appreciate it. To ask on maybe more of a question on longer-term expense growth, if I look at the efficiency ratio, this is the second quarter in a row, sub 50%. You guys are holding the line and revenue growth obviously helps. When we think about longer-term efficiency ratio, is mid to high 40%, is that a reasonable bar? Just as you look down and you think about the expense growth and investments you need to make, or do you think it can go further below that or just any thoughts on longer-term efficiency?

Well, I think we're really hoping we've set a bar below 50% at this point, or around 50% to down, right? It's not going to move down quickly. I think the ultimate goal is to hopefully leverage obviously all the hiring that we're doing to grow revenue at a good pace to offset that expense growth. We're still going to add people and all that stuff, so hopefully it does continue to move down. I think it'll be a slow incremental move down if it is.

I would agree with that.

Great.

Thank you for taking the questions.

Andrew Liesch, StoneX Financial.

Thanks. Morning, everyone. Just a question, Pat, if you have handy, what new loan yields we are coming on at during the quarter? Maybe a blended average.

Yeah. So, this is without fees, right? This is just the core loan yield.

Got it. So maybe a little bit higher with some fees. I think just then looking at the margin going forward, certainly you will get some benefit from the rate hike. But net net, just given that you are very much in growth mode, do you think the margin maybe will trail off a little bit over time, even with some rate hikes? I mean, still profitability gets better, but just like net net, the margin might come in a bit lower?

Right. We will benefit when the Fed increases rates. Then outside of that, you are asking what is going to happen with that. Boy, it is really dependent. Loan yield, you can see what it is going to do. It will be flattish and move up when they increase rates. It is really dependent on deposit cost and how much we need to pay up. It is pretty competitive out there. I am hoping that-

that gets better. But could there be pressure going forward, potentially? Well, it is really just hard because it is all on the funding side that really dictates that, and the new deposit growth. I am hoping with some of these new initiatives like the HOA and some other things we are working on, that we can drive down the deposit costs over time to take some of that pressure away. So I guess my long answer would be I hope not. I hope we can keep it stable.

Got it. Nope, that is very helpful. You have covered all my other questions. I will step back.

Tim Coffey, Brean Capital.

Mark, looking into the face of a rate hiking cycle here, how resilient do you think your customers and your markets are to higher rates? Is there a point where we see a certain number of rate hikes and at that point things start to stall?

It's certainly possible depending on where they go, but I think most of the companies that we're banking here have been pretty seasoned and aren't highly leveraged. Those rate hikes are painful for our clients for sure. But we monitor pretty closely. We do sensitivity tests and see where the thresholds may happen. But at this point, we're not concerned about that. I think companies have performed pretty well, and they got some margin there, so we feel pretty good about it.

Great. All right, thank you for that. Pat, is the right tax rate somewhere between 27% and 28?

For this year, it's lower than it typically is because of the BOLI proceeds received in the second quarter, kind of drove that down for the year. I think it'll tick back up next year to that mid 28s.

Okay, great. Those are my questions.

Thank you.

With no further questions, I would like to turn the call back over to the presenters.

This is Mark, and one of the things that I did fail to maybe clarify a little bit when we talked about the loan growth, we have really solid pipelines across, including construction. But we do have those elevated payoffs in construction, which were significantly delayed from getting started. I think the wild card for actual loan growth of how much that is going to be is going to be what kind of payoff actually materialize in Q4 here. I think we are coming to the end of it, like I mentioned earlier, but that is probably the wild card for Q4. They have been booking new commitments, but those of you that understand how construction works, that we are trading 100% funded loans for 10% funded loans for the new ones that are coming on, because it does take 18, 24 months to be fully drawn on.

Just a little bit of caution. That is probably the wild card because it has been a two year of consistent payoffs, which is a good thing in construction, but it does impact our overall loan growth. With that, I will close it up and say, again, thank you all for your interest in Avidbank. If you have any further questions that Pat or I can answer, please feel free to reach out, and appreciate your interest. Have a great rest of your day.

(Closing Remarks)

Thank you for attending. You may now disconnect.