Avidbank Holdings Earnings Call Signals Confident Growth

Avidbank Holdings ((AVBH)) has held its Q4 earnings call. Read on for the main highlights of the call.

Avidbank Holdings Projects Confident Growth Despite Credit Bumps

Avidbank Holdings’ latest earnings call struck a broadly upbeat tone, underscored by strong loan and deposit growth, expanding margins, higher-yielding securities, and better operating efficiency. Management acknowledged emerging credit and cost pressures, including higher nonperforming assets, elevated provisions, and a rising expense base, but emphasized that problem credits appear well collateralized and that the bank remains on track for solid double-digit growth in 2026.

Robust Loan Growth Led by Sponsor Finance and Corporate Banking

Avidbank delivered strong loan expansion, with balances up $190 million in the fourth quarter and $283 million for the year, translating to roughly 15% annualized growth. The momentum was broad-based across most lending verticals, with particularly strong contributions from sponsor finance and corporate banking. Construction lending was the notable exception, reflecting a more cautious stance in that segment amid isolated credit challenges. Overall, the loan book’s growth profile suggests the bank is successfully leveraging its targeted specialties to win higher-quality, higher-yielding relationships.

Deposit Growth Supports 100% Core Funding Mix

Funding kept pace with loan demand, as deposits rose $92 million in the fourth quarter and $241 million for the year, a 13% annual growth rate. Notably, noninterest-bearing deposits increased by $44 million in the quarter, strengthening the low-cost funding base. Management highlighted that the bank is now 100% core funded, a significant positive for balance-sheet stability and margin resilience. This mix positions Avidbank well to navigate a shifting rate environment while continuing to fund loan growth without excessive reliance on higher-cost wholesale sources.

Profitability and Earnings Momentum Strengthen

Earnings trends remained favorable despite higher credit costs. Fourth-quarter net income came in at $6.9 million, or $0.65 per diluted share, while adjusted full-year net income totaled $24.9 million, or $2.80 per share. Pre-provision net revenue (PPNR), a key measure of underlying earnings power, improved to $12.9 million in the fourth quarter, up from $10.7 million in the third quarter. This improvement underscores the benefits of balance-sheet growth and a richer asset mix, even as the bank absorbed higher provisions and some margin drag from interest reversals tied to new nonperforming loans.

Net Interest Margin Expands, Underlying NIM Even Stronger

Net interest margin (NIM) expanded meaningfully, rising to 4.13% in the fourth quarter from 3.90% in the prior quarter, an improvement of about 23 basis points. Net interest income climbed to $25.0 million from $22.7 million, driven by loan and deposit growth, active portfolio repositioning, and a 32 basis point decline in the cost of interest-bearing deposits. Management noted that a $726,000 interest reversal tied to new nonperforming loans reduced reported NIM by roughly 12 basis points, implying an underlying, or “normalized,” margin closer to 4.25% for the quarter.

Higher-Yielding Securities Upgrade the Earning Asset Mix

The investment portfolio is now a more meaningful contributor to earnings. Avidbank purchased $62 million of securities in the fourth quarter at an average yield of 4.48%, increasing its available-for-sale portfolio to $218 million. Overall, the AFS portfolio yield improved sharply to 4.61%, up from 2.55% in the prior quarter. This strategic repositioning significantly enhances the yield profile of earning assets, supporting net interest income and diversifying returns beyond loan growth alone.

Efficiency Ratio Improvement Signals Better Operating Leverage

Operating efficiency continued to trend in the right direction despite some cost pressures. The adjusted efficiency ratio improved to 51.72% in the fourth quarter from 55.72% in the third quarter. This improvement reflects both revenue growth from an expanding balance sheet and higher-yielding assets, as well as emerging operating leverage. While management sees expenses moving higher in the near term, the improved efficiency ratio highlights that revenue growth is currently outpacing cost growth, an encouraging sign for future profitability.

Nonperforming Assets Rise but Remain Well Collateralized

Credit quality saw some deterioration, concentrated in a small number of names. Nonperforming assets increased due to two construction loans and one sponsor finance credit moving to nonaccrual status. One $3.7 million construction loan has already been paid off, but a larger $16 million multiunit mixed-use construction loan in Palo Alto remains nonperforming and could stay that way for four to six months. Management stressed that these exposures are well collateralized, implying potential loss content should be contained even though they temporarily pressure asset quality metrics and earnings.

Higher Provisions and Interest Reversals Pressure Results

The bank’s provision for credit losses rose to $2.8 million in the fourth quarter, up from $1.4 million in the third quarter, reflecting both growth in the loan portfolio and the uptick in problem credits. Additionally, Avidbank recorded a $726,000 interest reversal on three new nonperforming loans, which directly reduced net interest income and compressed reported NIM by roughly 12 basis points. Management suggested that, excluding this reversal, the core margin would have been closer to 4.25%, emphasizing that underlying earnings power remains solid despite these temporary credit-related headwinds.

Fourth-Quarter Charge-Offs Spike From Low Annual Level

Charge-offs increased notably in the fourth quarter, reaching 30 basis points of loans, compared with a modest 7 basis points for the full year 2025. This spike indicates a degree of short-term credit volatility, tied largely to the small group of weaker credits flagged by management. While any jump in charge-offs draws investor scrutiny, the still-low full-year loss rate and management’s focus on collateral coverage suggest the current issues are manageable rather than systemic. Nonetheless, investors will likely monitor whether these charge-offs represent a one-time adjustment or the start of a more sustained trend.

Noninterest Expenses Move Higher, Run Rate to Exceed $14 Million

Expenses are becoming a more visible pressure point. Noninterest expense rose to $13.9 million in the fourth quarter, up $372,000 from the third quarter. Management guided to a forward run rate above $14 million, citing higher credit-related legal costs, increased deposit insurance assessments, consulting and professional fees, and typical seasonal first-quarter expenses. While revenue growth and a better efficiency ratio help offset this, the higher expense base will be an important factor for earnings trajectory and could limit upside if revenue growth slows or credit costs remain elevated.

Margin Headwinds from High Deposit Beta and Loan Floors

The funding and rate environment remains a key swing factor for Avidbank’s margin outlook. The bank experienced a high deposit beta of about 80% in the quarter, meaning deposit costs moved up quickly with interest rates. About 20% of interest-bearing deposits are indexed, and there is some risk that new deposits needed to support continued loan growth will carry higher rates. On the asset side, approximately $240 million of loans are currently at rate floors, with around 60% of these maturing in 2026. As these loans reprice off their floors in a lower-rate environment, margin pressure could emerge, partially offsetting today’s NIM gains.

Tax Rate Volatility Weighs on Reported Earnings

Tax dynamics added another layer of complexity to the quarterly results. The effective tax rate increased to 31.1% in the fourth quarter from 28.9% in the third quarter, driven by changes in California tax law and the impact of prior-year losses. This higher tax rate weighed on bottom-line earnings in the near term. Management, however, expects the tax rate to normalize to roughly 28.5% in 2026. Until then, investors should anticipate some quarter-to-quarter variability in reported net income tied to tax adjustments rather than underlying operational performance.

Outlook: Double-Digit Growth, Stable Margins, and Managed Risks

Looking ahead, Avidbank guided to continued double-digit expansion, targeting 10–15% loan and deposit growth in 2026, building on the year’s strong fourth-quarter and full-year performance. Management aims to keep NIM in the mid-4% range, suggesting a possible 4.25%–4.30% level when normalized for temporary interest reversals, while acknowledging potential margin headwinds from deposit pricing and loan floors. The bank expects its effective tax rate to settle around 28.5% in 2026 and plans to address its subordinated debt next year as part of broader capital and balance-sheet management. Operating expenses are expected to remain above $14 million per quarter, but the improved efficiency ratio and higher-yielding asset mix provide a buffer. Overall, the guidance reflects confidence in sustaining profitable growth while navigating credit normalization and interest-rate dynamics.

In sum, Avidbank’s earnings call painted the picture of a growth-focused bank successfully expanding its loan and deposit base, upgrading its earning asset mix, and improving efficiency, even as it confronts higher credit costs and a rising expense burden. Asset-quality issues appear contained and well secured, and management’s forward guidance suggests continued momentum with a watchful eye on margin and credit trends. For investors, the story is one of solid underlying earnings power, tempered by the need to monitor how credit and funding conditions evolve over the next several quarters.