Avidbank Q2 Earnings Call Highlights

Avidbank reported that adjusted net income came in at $8.2 million, or $0.76 per share, after a $2.6 million litigation settlement charge and a bank-owned life insurance gain affected reported results. Core profitability improved, with the adjusted efficiency ratio falling to 48.7% from 50.4% in the prior quarter. Loan and deposit growth remained strong : loans rose $51 million in the quarter and deposits increased $123 million, while management reiterated a full-year target of low-double-digit growth. The bank said its funding mix remains core-oriented, even as some brokered deposits mature. Credit quality was mixed, with nonperforming loans improving to 0.65% of total loans, but the bank also took a partial charge-off on a construction loan and raised its provision for credit losses to $2.8 million. Management said it is not seeing broad-based deterioration, though it is refining its approach to mixed-use construction projects and monitoring a $29 million criticized real estate relationship. Avidbank NASDAQ: AVBH said its second-quarter results included a litigation settlement charge and a gain from bank-owned life insurance proceeds, while management characterized underlying loan and deposit growth and core profitability as continuing to improve. Chairman and Chief Executive Officer Mark Mordell said the company recorded a $2.6 million pre-tax charge to settle litigation related to a fraudulent wire transfer involving a client account in fall 2024. The matter was resolved during the quarter. The company also recorded a gain associated with bank-owned life insurance, with the combined effect of the two discrete items reducing reported earnings, Mordell said. Excluding those items, Avidbank reported adjusted net income of $8.2 million, or $0.76 per share, and an adjusted return on assets of 1.28%. Credit trends and construction exposure Asset quality improved in some measures during the quarter. Nonperforming loans declined to 0.65% of total loans from 0.75% at the end of the first quarter, according to Executive Vice President and Chief Financial Officer Pat Oakes. However, the bank took a partial charge-off of about $1.9 million on a construction loan while working toward a resolution. The charge-off contributed to a $2.8 million provision for credit losses, up from $1.4 million in the prior quarter. Net charge-offs equaled 35 basis points of average loans for the period. The allowance for credit losses was 0.97% of loans at quarter-end, compared with 0.96% in the first quarter. Mordell said criticized loans increased, primarily because of a non-owner-occupied real estate relationship consisting of three loans totaling $29 million. He said the loans have low loan-to-value ratios and that the bank had proactively downgraded them. Oakes said one property triggered a debt-service-coverage covenant default, requiring the bank to downgrade all three loans. He said the relationship is expected to be paid down and worked through over the next 24 months. Management said it was not seeing broad-based deterioration in the loan portfolio. Mordell also said the bank is refining its approach to mixed-use construction projects following recent challenges, while remaining bullish on its core business of financing spec single-family homes in the Bay Area. Loan and deposit growth Loans increased $51 million during the quarter, representing annualized growth of about 9%, and were up $312 million, or 16%, over the past year. Growth was primarily driven by commercial and industrial lending and commercial real estate, though it was partly offset by $36 million of construction and land loan payoffs. Mordell said construction payoffs have been consistent for nearly 24 months but may be nearing a bottom.