Avidbank Holdings posts net loss of $37.7 million in Q3, but adjusted income hits $6.7 million as IPO enhances profitability outlook.

Eric - Operator - (00:01:08)

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. 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 would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. 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.

Gina Thomas Peterson - Chief Operating Officer - (00:01:56)

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 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 the safe harbor provisions of the federal securities law. 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 Wardell.

Mark Mordell - Chairman and CEO - (00:03:04)

Thank you Gina. And thank you all for attending our first public earnings call. Hopefully we'll get this right today. You know, 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 netting approximately $61 million. And the objectives of the IPO were multifaceted. It allowed us to restructure our securities portfolio that significantly enhances our profitability. It spread out our tightly held share ownership along with 100% participation from our board, executive management and our existing investors. We brought in approximately 40 new investors into being shareholders for Avid 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 8, essentially mid quarter. Therefore there's A lot of moving parts and a lot of 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 Q2, Q3 we had loan growth $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 NPAs at 12 basis points, slightly up from Q2 due to one credit. Credit quality has always been a top concern for us. We're 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 going to continue to actively manage those credits going forward. I'd like to now just turn it over to Pat and let him highlight the financial highlights for the quarter and then open it up to questions after that.

Pat Oaks - Chief Financial Officer - (00:05:11)

Hey, thanks Mark. Good morning everyone. Let me start by providing some details into the impact of our recent IPO and then the strategic 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 into new securities. During the quarter we reinvested 163 million primarily in mortgage back and CMOs with an average yield of 454. Due to this loss on the security sale we reported a a GAAP net loss of 37.7 million for the third quarter if you exclude this charge, adjusted net income was 6.7 million or 72 per share. $0.72 per share. So we saw immediate benefits from this repositioning with our margin expanding to 390 up from 360. In Q2 our adjusted ROA improved to 113 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, an 11 basis point decrease in total deposit costs driven by a $58 million increase in average non interest-bearing deposits. Deposit growth was 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 335 in the third quarter of 2024. As of September 30, 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 brokerage 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 one time IPO rented 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. Non performance was just 14 basis points. Criticized. Loans declined to 1 in 48 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 strong the strength of our balance sheet post ipo. With that I'll turn it back over to Mark.

Mark Mordell - Chairman and CEO - (00:08:21)

Thanks Pat. And you know a lot of people on the call know us pretty well. So I think at this point we want to hear what's on your mind and we're open for any questions at this point.

Operator - (00:08:36)

At this time I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Andrew Terrell with Stevens. Please go ahead.

Andrew Terrell - Equity Analyst - (00:08:50)

Hey, good morning.

Mark Mordell - Chairman and CEO - (00:08:52)

Morning Andrew.

Andrew Terrell - Equity Analyst - (00:08:56)

Hey, maybe just to start, thank you guys for hosting this call. I appreciate it. Maybe just to start just on the margin. You know, as you guys mentioned, lots of moving pieces in the quarter and we only got kind of a partial quarter impact from the securities restructuring. 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 you know, in the month of September or how the margin is kind of trending in the fourth quarter so far it seems like it should go above 4% but I just want to kind of check in, see if you had expectations there.

Pat Oaks - Chief Financial Officer - (00:09:34)

Yeah, no, you know, that obviously should go well above 4%. You know if you kind of just back out all the IPO-related activities we kind of estimate. The margin was just from the core margin expansion to about 370. And if you add in all the impact of, you know, 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 you know, it should be 4.10 plus right at this point, maybe even higher than that, depending how things shake out.

Andrew Terrell - Equity Analyst - (00:10:05)

Perfect. Okay. And yeah, I did also want to ask, just it feels like or 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 4Q and maybe some in 2026. Just, you know, your thoughts on kind of go forward margin. Do you feel like four plus is, is achievable, acknowledging we've got maybe a few more cuts in the curve?

Pat Oaks - Chief Financial Officer - (00:10:34)

Yeah, yes. You know, yes. Obviously, especially at quarter end, I think you'll see in our 10Q we're going to show ourselves more asset sensitive. Not big piece of that is because we're sitting on a lot of cash at this point as we reinvest 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 demand deposit accounts (DDA) now. So you know, you know, I would think, you know, at minus 100 we, at this point, as of 9:30, you know, net interest income would drop about 4%. 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.

Andrew Terrell - Equity Analyst - (00:11:15)

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

Pat Oaks - Chief Financial Officer - (00:11:44)

So I can give you a little bit of detail on that. But you need to also realize that at 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 hit the floors. We know at some point we're going to hear back from these clients and how sustainable are some of these floors? 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 as rates decrease. But it definitely helps if rates go further south. It won't be a one to one. Yep, got it.

Andrew Terrell - Equity Analyst - (00:12:23)

Okay, I'll sit back. Thank you for taking the questions and congratulations on the IPO this quarter.

Operator - (00:12:30)

Your next question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark - Equity Analyst - (00:12:38)

Hey, good morning everyone. On the deposit cost side, your beta at least interest bearings been running, you know, cycle to date, around 59% I guess. What are your thoughts with the additional rate cuts that are potentially coming, you know, your ability to kind of mitigate some of that asset sensitivity, you think you can maintain a beta in that 55, 60% range through the cycle, do you think? I'm sure it'll get more difficult, you know, with more rate cuts, but just wanted to get your thoughts there.

Pat Oaks - Chief Financial Officer - (00:13:13)

Yeah, we model a 50% beta and obviously we've been able to beat that.

Matthew Clark - Equity Analyst - (00:13:17)

Right.

Pat Oaks - Chief Financial Officer - (00:13:17)

Which has helped, especially with the loans floors that we have. I'm hoping the next few we can keep that 50 plus beta.

Matthew Clark - Equity Analyst - (00:13:25)

You're right.

Pat Oaks - Chief Financial Officer - (00:13:26)

As race 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 close to that 59% beta.

Matthew Clark - Equity Analyst - (00:13:37)

Okay, great. And then do you have the spot rate on deposits, on deposit costs at the end of September just to give us.

Pat Oaks - Chief Financial Officer - (00:13:46)

Yeah, at 930 interest bearing was 336. Okay, great.

Matthew Clark - Equity Analyst - (00:13:53)

And then on the deposit growth this quarter, nice increase in non-interest bearing. Just could you give us some color on where that came from and where your venture deposits stand at the end of September? I think they were 754 million at the end of June?

Pat Oaks - Chief Financial Officer - (00:14:18)

Yeah. So the venture and fund finance together was 798 million or so.

Matthew Clark - Equity Analyst - (00:14:33)

Okay, great. And then just in terms of the pipeline for loans and deposits going forward, I assume you're sticking I assume you're sticking to the kind of double digit loan and deposit growth guidance, but just want to get a sense of how the pipelines look?

Mark Mordell - Chairman and CEO - (00:14:56)

The pipelines on both loans and deposits are strong. You know, we have typically been a second half company if you look historically over years and Q4s have been always pretty strong for us. So what we're seeing going into Q4 looks real solid, I'm very optimistic. We should have a solid quarter.

Matthew Clark - Equity Analyst - (00:15:19)

Okay. And then just a nitpicky question, the small uptick in non-performers this quarter, just if 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?

Pat Oaks - Chief Financial Officer - (00:15:37)

The uptick in MPAs was 1 credit venture client. It's 14 if I'm not mistaken. Those kind of credits are kind of binary. So we took a full reserve on it. So. And that's one of the reasons for the uptick in the acl.

Matthew Clark - Equity Analyst - (00:15:57)

Okay, great. Thank you.

Operator - (00:16:01)

Your next question comes from the line of Gary Tenner with DA Davidson. Please go ahead.

Gary Tenner - Equity Analyst - (00:16:08)

Thanks. Good morning. I wanted to ask about kind of longer term balance sheet management. Pat, you kind of alluded to it a bit, you know, that you might be, you know, you may continue to deploy some of that cash. Just as you're thinking about the securities 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?

Pat Oaks - Chief Financial Officer - (00:16:34)

Yeah, no, it will be a smaller percentage earning assets, I would think. We don't need as big of a portfolio. You know, it's hard to say.

Gary Tenner - Equity Analyst - (00:16:41)

Right.

Pat Oaks - Chief Financial Officer - (00:16:41)

It depends on deposit growth and loan growth and everything else. But I think, you know that probably 10%, the small side, maybe 15%, a large side. Now you'll probably see us add some additional securities here in the fourth quarter. But you know, maybe that's 50 million. Or so, 75 million, it won't be a significant amount. You know, get us to that 10 number, then we'll go from there.

Gary Tenner - Equity Analyst - (00:17:07)

Okay, great. And then follow up on the kind of loan pipeline question you're, you know, the, the growth this quarter was, was pretty broad across the different lending segments. Where are you seeing as you look. At the pipeline, fourth quarter and maybe even early into 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?

Mark Mordell - Chairman and CEO - (00:17:36)

Well, certainly fund finance and real estate are having a significant year this year and it seems that the, you know, CRE has been, there's a strong pipeline there. Excuse me. And then also, you know, venture doesn't have a whole lot of volume, 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 (asset-based lending). So sponsor and asset based lending, they have pretty robust pipelines going into Q4.

Gary Tenner - Equity Analyst - (00:18:17)

And how is the pricing competition developing in those segments.

Mark Mordell - Chairman and CEO - (00:18:23)

You know, it seems that a lot of banks are having a hard time growing. So there's some larger banks are, you know, from a CRE perspective are going down into the low fives. And so pricing is an issue and it's competitive. I think the transactional sponsor finance and fund finance, you know, the competition is pretty stiff and you know, most of everything we're doing is prime plus. So I think it's, you know, I think it's balanced. You know, one of the big impediments we've had this year in terms of growth, this is probably the biggest year that we've ever had of construction loan payoffs. It's, we have an excess of 130 million to $140 million this year of, of construction payoffs. And so, so that portfolio is going to take a while to build back up again. And, and we don't view construction as a growth animal for us. We just like that 250 plus or minus million because it's a great earner for us. So this year there was a pretty good landslide of construction payoffs.

Gary Tenner - Equity Analyst - (00:19:40)

Do you think the second quarter, 205 million on construction is the bottom and third quarter was up, you know, a few million. But do you think the mid part of this year was effectively the bottom in that portfolio?

Mark Mordell - Chairman and CEO - (00:19:51)

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

Gary Tenner - Equity Analyst - (00:20:08)

Great, thanks very much.

Operator - (00:20:13)

The next question comes from the line of Timothy Coffey with Jenny, please go ahead.

Timothy Coffey - (00:20:20)

Great, thanks, Morning everybody.

Mark Mordell - Chairman and CEO - (00:20:22)

Morning, Tim.

Timothy Coffey - (00:20:24)

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

Mark Mordell - Chairman and CEO - (00:20:36)

You know, I personally would still like to drive that down and get to a stabilized, you know, 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.

Timothy Coffey - (00:21:13)

Okay, sounds good. And then Pat, what's a good expense number next quarter is the run rate closer to 13 million.

Pat Oaks - Chief Financial Officer - (00:21:21)

Yeah, so if you take out the, so the one time expenses of 300,000?

Timothy Coffey - (00:21:26)

Yeah.

Pat Oaks - Chief Financial Officer - (00:21:26)

That's probably a good run rate, around 13 million. So that's how we think about it. Probably.

Timothy Coffey - (00:21:34)

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

Mark Mordell - Chairman and CEO - (00:21:50)

Yes, is a short answer. I think a lot of those folks are still trying to find homes and there isn't really a bank to replicate what they had at First Republic. So there's a significant amount of frustration out there. So clients are, those clients are recalibrating their expectations. And so we picked up a fair amount of personal banking from our existing business clients because of the service and the attention. But, you know, they're not getting the other things they like, which is the lowest, you know, low mortgage rates and high interest rates on deposits. So there's still a lot of turmoil that's out there. And with Comerica getting purchased, that's going to create additional turmoil out there. That's going to be opportunistic for us both from a client perspective as well as from a talent perspective.

Timothy Coffey - (00:22:44)

Okay. Just related to the First Republic piece is that, is that kind of outflows included in your growth outlooks?

Mark Mordell - Chairman and CEO - (00:22:55)

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

Timothy Coffey - (00:23:10)

Okay. Yeah. I guess I was just trying to ask you whether or not you saw that as kind of a bonus to what you see as your line of. Sight on the pipeline.

Mark Mordell - Chairman and CEO - (00:23:17)

It sounds like you kind of do. Yeah, I think it's, it's, 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.

Timothy Coffey - (00:23:29)

Okay, and then you brought up Comerica. Right.

Mark Mordell - Chairman and CEO - (00:23:32)

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, you know, you know, we are focused significantly on the earlier stage investing. So. 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 looking around a little bit more, both from a client perspective as well as from a talent perspective.

Timothy Coffey - (00:24:13)

Okay, great. Incredibly helpful. Thanks. Those are my questions.

Operator - (00:24:20)

As a reminder, if you'd like to ask a question at this time, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Ross Haberman with RLH Investments. Please go ahead.

Ross Haberman - Equity Analyst - (00:24:35)

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. By now.

Mark Mordell - Chairman and CEO - (00:24:58)

As far as the new capital goes, of course it does raise our legal lending limit. You know, our balance sheet 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. So we're a firm believer in building a port, building portfolios. And so, you know, when you consider a $2 billion loan portfolio, we don't want to do a lot of $25 million and above deals just because of downgrade risk and overall credit risk. So we're still focused Primarily in that $25 million under level even though our, our legal lending limits are much higher. So we will be opportunistic, you know, keeping credits that we, that have been with us a while and we will go higher on those because we know those credits well and we don't feel the risk is anything greater. So not until we grow our balance sheet significantly will we start doing, you know, larger deals. And that's, you know, one of the, our biggest challenges for the verticals in which we're competing is our balance sheet size. And we've been doing a pretty good job of it over the years of, you know, participating a portion of it to keep clients. So, you know, I don't see a bunch of movement in the overall portfolio management doing a lot of larger deals. As far as participations go, you know, we will do some participations primarily on the fund finance side. We've I think we have about 70 million that we, that are, that's out there in terms of syndications, you know, that's a pretty good yield with very low risk. We'll do those to solidify ourselves in the venture community as well as deploy capital, you know, with acceptable risk for a higher yield. Okay, thank you very much.

Operator - (00:27:21)

There are no further questions at this time. I would now like to turn the call back over to the presenters.

Mark Mordell - Chairman and CEO - (00:27:28)

Well, this is our first, you know, our first public earnings call. We appreciate everybody showing up, 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.

Operator - (00:27:46)

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