Avidbank NASDAQ: AVBH reported improved profitability in its fiscal first quarter of 2026, driven by a higher net interest margin and lower provision expense, while management spent much of the earnings call addressing credit performance and its exposure to venture lending—particularly software-as-a-service (SaaS) borrowers amid broader industry disruption tied to artificial intelligence.
First-quarter earnings and profitability metrics improved
Chief Financial Officer Patrick Oakes said the company earned net income of $9.0 million, or $0.84 per diluted share, compared with $6.9 million, or $0.65 per diluted share, in the fourth quarter. Profitability ratios also rose, with return on assets improving to 1.46% from 1.12% and return on average equity increasing to 12.7%.
Chairman and CEO Mark Mordell said the company was “pleased” with its progress over several quarters in “putting ourselves in a more profitable metrics situation,” adding that the first quarter was “a pretty good quarter” despite typical seasonal patterns he said the bank has seen in prior years.
Balance sheet: loan growth led by non-owner CRE; deposits increased modestly
Oakes said loans grew $24 million during the quarter. Growth was “driven mainly by a $26 million increase in non-owner occupied CRE loans,” partially offset by a $9 million decline in C&I balances due to payoffs and paydowns. On a year-over-year basis, the bank’s loan portfolio was up $332 million, or 18%, since March 31, 2025.
Deposits increased $13 million in the quarter and were up $270 million, or 14%, year-over-year, according to Oakes. Mordell characterized core deposits as “reasonably flat,” while noting loan growth of about $25 million.
Net interest margin expanded; deposit costs and mix remain a focus
The bank reported a net interest margin of 4.38%, up 25 basis points from the prior quarter. Oakes said loan yields were “essentially flat,” while interest-bearing deposit costs declined 20 basis points.
Oakes noted two items affecting comparability and the quarter’s margin performance:
- The fourth quarter included a $726,000 interest reversal on non-performing loans, which reduced that period’s margin by 12 basis points.
- The first quarter benefited from a special FHLB dividend, adding roughly 4 basis points to net interest margin.
Even with the improvement, management flagged some pressure building in deposit pricing. Oakes said the average cost of interest-bearing deposits was 2.98% in the quarter, with a spot rate of 3.03% at March 31. In response to an analyst question about new deposit pricing and the margin outlook, Oakes said the bank is “having to put some deposit costs on at a higher cost than we’d like,” describing new deposit costs as “probably in the low 3s” on average. He added that the cost of interest-bearing deposits would likely “stay above 3%” and “could…creep up a little bit” in the near term, which he said would “take the margin down a little bit from where it is today.”
Oakes also pointed to deposit mix as a variable, noting that DDA balances were “probably a little bit high” at quarter end due to late-quarter client inflows that moved into DDA accounts and then shifted in April. He said he would not “count on that DDA remaining as high as it is today.”
Later on the call, Oakes said his estimate for margin going forward was “below that 4.30, maybe 4.25-ish,” adding that he hoped the company could “stay above 4.25,” citing deposit costs as a key swing factor.
Credit quality: charge-offs tied to two C&I credits; nonperformers declined
Credit metrics were mixed during the quarter. Oakes said the provision for credit losses was $1.4 million, down from $2.8 million in the fourth quarter. However, the company recorded net charge-offs of $2.8 million, or 52 basis points of average loans, “primarily driven by the charge-off of 2 C&I credits.”
Non-performing loans declined to $16.3 million, or 75 basis points of loans, which Oakes attributed mainly to the payoff of a construction loan and the charge-offs tied to those C&I credits.
During Q&A, management was asked about criticized loans. Mordell said the increase was driven primarily by “a criticized real estate loan,” which he said the bank believed was “a money good loan” and performing, but was downgraded due to “concerns about a near-term tenant vacating.” He described the exposure as having a low loan-to-value and said it consisted of “two buildings in the South Bay.”
Venture and SaaS exposure: monitoring AI disruption, funding pace, and borrower cash burn
A significant portion of the Q&A focused on the bank’s venture lending portfolio and SaaS exposure. In response to a question referencing about $165 million of SaaS exposure, Mordell said the bank conducted a “deep dive” review of where it was exposed and concluded that the key differentiator is how SaaS companies are “dealing with AI.” He said companies that are integrating AI into their business plans “are gonna be the top end of the food chain,” while those “that aren’t adapting” could be more at risk if they cannot raise funding.
Mordell also drew a distinction between vertical SaaS models—specialized in workflow—and more horizontal offerings, which he described as broader. Oakes added that the bank’s greater concern is in the smaller, more general horizontal segment. He said there are “two loans” in that area that are criticized or classified totaling “about $4 million,” and noted that one of them is cash-flow positive.
Management emphasized ongoing monitoring of borrower liquidity and investor support. Mordell said that in early-stage lending, a key risk is whether the bank allows “their cash balances [to] cross over to loan balances,” and that the bank is being “pretty critical of that” from a credit perspective. He said the bank tracks performance metrics monthly and may act if investor backing weakens.
Asked about the broader pace of venture investment, Mordell said venture lending has “gained a lot more momentum over the last couple of quarters,” but funding decisions have become more analytical as investors “pick their horses.” He also said new funding rounds are being done at better valuations than for companies funded two or three years ago, and that some companies are being funded for shorter runways—“4 to 6 months as opposed to 2 years”—especially in more challenged areas.
On exit markets, Mordell said the IPO market has been “quiet at best,” and he described M&A as “slowing down” as participants assess which companies are viable amid disruption.
Elsewhere in the quarter, Oakes said non-interest income was $1.5 million, down from $1.8 million, as higher core banking fee income was offset by lower warrant, success fee, and fund investment income. Non-interest expense totaled $14.1 million, up $231,000 due mainly to higher credit-related legal and professional fees, while the efficiency ratio improved to 50.4%. The company added three employees in the quarter, bringing headcount to 154, and said it expects additional hiring—particularly bankers—during the second quarter.
Oakes said book value per share increased to $26.33 and Tier 1 capital rose to $11.39. The company also repurchased 25,000 shares at an average price of $27.69 for a total of $693,000. The effective tax rate was 27.5% due to a discrete benefit related to equity board vesting, and management reiterated an expectation for a tax rate in the mid-28% range for the remainder of 2026.
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.
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