Avidbank Holdings, Inc. (AVBH) Q4 2025 Earnings Call Transcript

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 Avid Bank Holdings, Inc. 4th 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.

Thank you, Jordan.

Good morning. Thank you for joining us today for Avid Bank's fourth 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 AbbottBank.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 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-gap financial measures alongside our discussion of gap results we encourage you to review the gap to non-gap reconciliations provided in our earnings release. With that, I'd like to turn the call over to our Chairman and CEO, Mark Mordell.

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 23, 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. 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, 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 met our goals and are setting us up for a better earning engine for 2026. You know, talking about the elephant in the room, MPAs did go up. That's clear. You know, but that centered around, as the earnings release mentioned, about around two construction loans and one sponsor finance loan. The good news is that we said that we're well collateralized in those two construction loans, and one has already taken 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 MPA, and they took care of that. The other loan is a $16 million construction loan, 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 going to be on our books for, you know, anywhere from four to six months, probably, unless we can find a softer landing. So, we feel we're well collateralized. So, credit migration has not changed all that much when you consider that criticized and classifieds are pretty much holding steady at at 37 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 the income items and uh and some of the metrics thanks mark uh good morning everyone so we reported net income of 6.9 million or 65 cents per diluted share for fourth quarter and adjusted net income for the full year of 24.9 million or two dollars and eighty cents 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 413 in the fourth quarter compared to 390 in the third quarter and net interest income increased to 25 million from 22.7 million as we benefited from the strong loan growth strong growth in loans and core deposits the full impact from the ipo and reposition of the investment portfolio a 32 basis point decrease in the cost of interest-bearing deposits and the 44 million an increase in average nine inch sparing deposits these items help offset the impact of the 726 000 interest reversal on the three new non-performing loans we purchased an additional 62 million investment securities during the fourth quarter at an average yield of 448 increasing the total available for sale balance to 218 million at the end of the year with a yield of 461 compared to 255 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 loan growth along with a 1.2 million dollar specific reserve on the downgraded commercial loan star jobs totaled 30 basis points in the fourth quarter and seven basis points for all of 2025. Non-interest expense rose to $13.9 million, an increase of $372,000 from the third quarter. The increase is primarily due to higher credit-related legal fees, an increase in our FDI assessment 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 percent from 55.72 percent the third quarter the tax rate in the fourth quarter increased to 31.1 percent compared to 28.9 percent 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 and a half percent mark turn back over to you cool well i think we're again as i mentioned earlier we're kind of pleased with the progress that we've been making uh getting the noise out off our balance sheet from the uh securities restructuring and really looking to having uh more of an evened out earnings uh projection for uh for 26. so with that um i'm sure there questions out there we're happy to open it up for questions at this time 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 hey good morning um yeah i just wanted to start on the margin, if you had the spot rate on deposits at the end of the year?

I'm sorry, the spot rate on deposits. Oh, the spot rate on deposits. Yeah, so for interest-bearing deposits at year-end was 291.

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?

Yeah, so a couple of pieces there, right? We do have some of our deposits, about 20% of our interest-sparing deposits that are indexed that will move down directly. And then with every fake rate cut, so far we've been pretty successful lowering deposit costs that's kind of higher than we model, probably 60% beta on the rest of them for the December rate cut. you know without a rate cut it's hard to reduce stuff deposit costs in fact there could be a risk it could go up a little bit because of where we put on new deposits um but with every federal 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 data down so okay good good and then um just update us on this on the sub debt that's outstanding what your plans might be there That's a 2026 thing for sure, Matthew.

We have been working on getting our investment grade rating, and we'll do something certainly before another 20% burns off, given where rates have been and what we expect rates to We'll take care of that in 26 years.

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

You know, some of it can be a little bit lumpy for us, 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. had a great year in dda um so did our fund finance group so did corporate banking um so 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 um in 26 that we saw in 25. the goal will be hopefully we can grow it at a similar pace to overall growth and deposits that will be our goal at this point um but it does bounce around quite a bit yep okay great thank you next question comes from the line of Andrew Terrell and Stephens.

Your line is live.

Hey, good morning.

Good morning, Andrew.

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

Yeah, so three loans we put on non-accrual, the $726,000 interest reversal, impacted the margin of about 12 basis points. So for the quarter, it probably would have been closer to 425 without that.

Okay. So I guess once you normalize that, if it's kind of 425 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 430-ish plus. Is that an unfair assumption or any color on where you think the margin can go kind of near-term, Pat?

So, yeah, I mean, you could 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. It could put a little pressure on the deposit costs. it's not significant, but that's a headwind. And then look, we're benefiting from a lot of flown floors at this point, right? We have 240 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 at 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.

Got it. Okay. No, that makes sense. I appreciate it. Um, and just overall, I mean, um, Mark, you kind of, you touched on it a bit in your, in your comments, just, you guys have a banner year and in growth for the balance sheet, both loans and deposits, just, um, 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 kind of your, your growth expectations for the year? 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 and first quarter has 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 organ 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 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% to 15% type of asset growth, you know, every year. So that's what we're targeting this year and feel that it's very accomplishable.

Great. thank you for taking the questions as a reminder if you'd like to ask a question press start the number one on your telephone keypad your next question comes from ross haberman from rlh investments your line is live morning gentlemen uh thanks for taking my call um uh pat could could you just talk about your your expected loan growth and in 26 and and and how is your backlog today We're expecting, again, we're expecting loan growth for 26 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.

And just 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?

Ross, they all keep me up at night because they can go one way or the other. And just as that criticized and classified is pretty dynamic, both 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. 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 negatively. But these – 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.

Okay. Thank you very much, Doug. Best of luck. Thank you.

Next question. comes from the line of Timothy Coffey from Jannie. Your line is live.

Okay, thanks. Morning, gentlemen.

Morning, Tim.

Yeah, is it a reasonable expectation to think that the loan to deposit ratio is either flat or slightly down this next year?

Yes.

Okay.

I think we'd like to drive it down, 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 substantial.

Because of the cost that Pat was talking about earlier. And then looking at kind of the non-interest expense run rate, these last two quarters obviously elevated for, you know, specific reasons. Is that the kind of go forward run rate where we're talking 13 and a half million plus?

Yeah. Yeah. In fact, you know, the first quarter is always a little bit higher in the first place. So we'll 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 accruals 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 in the first quarter and then hopefully back back down a little bit.

But, you know, it's that run rate is definitely going to be higher than the 13 and a half. it'll be you know 14 plus here at this point going forward okay that's awful thanks um and then mark just kind of talk about the opportunities in the market obviously you've been benefiting from the dislocation that happened almost three years ago now plus we've got comerica exiting the market um do you feel more optimistic about the opportunity to take business from other banks may have in part of the recent past?

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 think if our bankers are out there doing what they should be doing they're going to uncover more and more more opportunity but i don't think it's a it's a 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 always are opportunistic on people as well as clients okay great those are my questions thank you very much thank you there are no further questions i'd like to turn the call back over to the presenters for closing remarks. Well, again, thank you all for attending our earnings call. And, you know, we're pretty optimistic going into 26 here. We're pleased with how we ended the year in 25 and are going to 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 as your rate. So hopefully in Q2 that, you know, we have this, or in the Q1 earnings, we have an earnings call that kind of matches up with this. So appreciate everybody's interest and support over time.

This concludes today's conference call. You may disconnect.