Avidbank (NASDAQ:AVBH) executives highlighted strong balance sheet growth, improved profitability metrics, and a higher net interest margin during the company’s fourth quarter 2025 earnings call, while also addressing an increase in non-performing assets tied to a small number of credits.
Loan and deposit growth accelerated in the quarter
Chairman and CEO Mark Mordell said the company delivered “a real strong quarter of growth,” as it leaned back into operating as a growth-oriented bank following disruption in 2023.
- Loans increased $190 million in the fourth quarter and $283 million for the year, which Mordell characterized as a 15% annualized growth rate.
- Deposits increased $92 million in the fourth quarter and $241 million for the year, representing a 13% growth rate for 2025.
Mordell said loan growth in the fourth quarter was led “significantly” by the sponsor finance and corporate banking teams, though he added that “really every vertical, with the exception of construction, contributed” to the quarterly loan increase. On the deposit side, growth was led by corporate banking and venture lending, with all divisions contributing to an increase in core deposits.
Looking ahead, management reiterated a goal of double-digit loan and deposit growth in 2026, with Mordell citing ongoing pipeline momentum “throughout the bank.” He noted the bank’s portfolio has “high velocity and churn,” requiring substantial origination volume to achieve net growth, and said construction payoffs in 2025 were unusually high, which constrained net loan growth in that vertical.
Non-performing assets increased, driven by three credits
Mordell addressed what he described as “the elephant in the room,” acknowledging that non-performing assets increased during the quarter. He said the uptick centered on two construction loans and one sponsor finance loan.
According to management, one construction loan of approximately $3.7 million was paid off and “didn’t have to go to NPA” because it was well collateralized. The second construction credit was described as a $16 million multi-unit, mixed-use project in Palo Alto that experienced delays stemming from COVID-era impacts. Mordell said the company believes it is “well collateralized” through collateral, houses, and guarantees, and expects to work through the situation over “anywhere from four-six months,” unless a “softer landing” is found.
He added that broader credit migration has “not changed all that much,” pointing to criticized and classified loans holding steady at approximately $37 million and $38 million, respectively. While emphasizing that credit remains a key focus, Mordell said management did not see broader credit trends of concern and, based on current visibility, did not expect losses from the specific loans discussed.
Profitability improved as net interest margin expanded
Chief Financial Officer Pat Oakes reported net income of $6.9 million, or $0.65 per diluted share, for the fourth quarter. He also cited adjusted net income for the full year of $24.9 million, or $2.80 per share. Pre-provision net revenue increased to $12.9 million in the fourth quarter from $10.7 million in the third quarter.
The company’s net interest margin (NIM) expanded to 4.13% from 3.90% in the prior quarter, and net interest income increased to $25.0 million from $22.7 million. Oakes attributed the improvement to several factors, including strong loan growth and core deposit growth, the full impact from the IPO and investment portfolio repositioning, a 32 basis point decrease in the cost of interest-bearing deposits, and a $44 million increase in average non-interest-bearing deposits.
Those benefits were partially offset by an interest reversal of $726,000 tied to the three newly non-performing loans. In response to analyst questions, management said the interest reversal reduced margin by approximately 12 basis points, suggesting the quarterly NIM would have been closer to 4.25% absent that item.
Oakes also said the bank purchased $62 million of investment securities during the quarter at an average yield of 4.48%, bringing the available-for-sale securities balance to $218 million at year-end. The portfolio yield increased to 4.61% from 2.55% in the third quarter.
Expenses, provisioning, and funding costs
The provision for credit losses rose to $2.8 million in the fourth quarter from $1.4 million in the third quarter. Oakes said the increase was primarily driven by loan growth and included a $1.2 million specific reserve on a downgraded commercial loan. Charge-offs were 30 basis points in the fourth quarter and 7 basis points for all of 2025.
Non-interest expense increased to $13.9 million, up $372,000 from the third quarter, driven by higher credit-related legal fees, increased FDIC assessments (tied to the prior quarter’s net income loss), and higher consulting and professional fees. These increases were partly offset by lower salary and benefits expense, which Oakes said reflected higher capitalized loan origination costs from strong loan growth, as well as a higher incentive accrual. The adjusted efficiency ratio improved to 51.72% from 55.72%.
On outlook for expenses, management indicated the run rate is expected to be above recent levels, noting that the first quarter is typically higher due to items such as taxes and insurance costs. Oakes said expenses would likely “creep up” from fourth-quarter levels in the first quarter and then potentially moderate later, but guided that the ongoing run rate would be “$14 million+” per quarter.
On funding, management said the year-end spot rate on interest-bearing deposits was 2.91%. Executives discussed deposit beta dynamics, noting that about 20% of interest-bearing deposits are indexed and will move down with each Fed rate cut, while reducing costs without rate cuts is more difficult. They also cautioned that bringing on new deposits to fund loan growth could come at higher rates than the existing portfolio.
Oakes said the effective tax rate increased to 31.1% in the fourth quarter from 28.9% in the third quarter, primarily due to the impact of finalizing changes in California tax law. He said he expects the tax rate to return to around 28.5% in 2026.
In closing remarks, Mordell said the company was optimistic heading into 2026, citing the benefits of the IPO and securities restructuring and reiterating management’s intention to grow at a double-digit pace while managing the balance sheet and working through the identified non-performing credits.
About Avidbank (NASDAQ:AVBH)
Avidbank Holdings, Inc operates as a bank holding company for Avidbank that provides financial products and services to small and middle-market businesses, professionals, and individuals in the Santa Clara, San Mateo, and San Francisco counties. It offers business and personal deposit products, such as checking, money market, and savings accounts; and certificates of deposit. The company also provides personal lending products include secured and unsecured lines of credit, home equity lines of credit, remodel and new home construction loans, and term loans; corporate banking comprises working capital lines of credit, equipment loans, acquisition financing, shareholder buyouts, ESOP loans, and owner-occupied real estate loans; and commercial real estate lending, such as permanent loans and bridge financing products.
