Avidbank Holdings, Inc. Announces Net Income of $2,070,000 for the Second Quarter of 2020

SAN JOSE, Calif.–(BUSINESS WIRE)–Avidbank Holdings, Inc. (“the Company”) (OTC Pink: AVBH), a bank holding company and the parent company of Avidbank (“the Bank”), an independent full-service commercial bank serving businesses and individuals primarily in Northern California, announced unaudited consolidated net income of $2,070,000 for the second quarter of 2020 compared to $3,183,000 for the same period in 2019.

Year-to-Date and Second Quarter 2020 Financial Highlights

Net income was $4,505,000 in the first six months of 2020 compared to $6,356,000 in the first six months of 2019. Net income in the first six months of 2020 was impacted by a $2.1 million increase in employee costs resulting from the expansion of our staff to support our growth strategy. At the same time, the sharp drop in interest rates in March 2020 hindered net interest income growth. Net interest income was $22,215,000 in the first six months of 2020, a decrease of $253,000 or 1.1% compared to the figure recorded in the first six months of 2019.
Diluted earnings per common share were $0.76 in the first six months of 2020, compared to $1.08 in the first six months of 2019. Weighted average common fully diluted shares outstanding were 5,951,185 and 5,897,476 in the first six months of 2020 and 2019, respectively.
Net interest income was $11,136,000 for the second quarter of 2020, a decrease of $289,000 over the $11,425,000 we recorded in the second quarter of 2019. The 2.5% decrease over the prior year quarter reflects declining loan and investment yields partially offset by year over year loan growth.
Net income was $2,070,000 for the second quarter of 2020, compared to $3,183,000 for the second quarter of 2019. Results for the second quarter of 2020 were impacted by increased staffing expenses of $1.1 million, primarily from the hiring of additional personnel across the entire Bank.
Diluted earnings per common share were $0.35 for the second quarter of 2020, compared to $0.54 for the second quarter of 2019.
Total assets grew by 25% in the first six months of 2020, ending the second quarter at $1.4 billion.
Total loans net of deferred fees grew by 13% in the first six months of 2020, ending the second quarter at $1.0 billion. Loan growth of $36 million in the second quarter was significantly due to our participation in the SBA Paycheck Protection Program (PPP).
Total deposits grew by 28% in the first six months of 2020, ending the second quarter at $1.3 billion.
The Company continues to be well capitalized for regulatory purposes with a Tier 1 Leverage Ratio of 9.16%, a Tier 1 Risk Based Capital and Common Equity Tier 1 Risk Based Capital Ratio of 10.28%, and a Total Risk Based Capital Ratio of 13.19%.

Mark D. Mordell, Chairman and Chief Executive Officer, stated, “While our primary focus has been keeping our employees and their families safe, our business has been and is fully functioning during this time of pandemic with over 93% of employees working remotely. At the same time, we have increased our communication through a series of weekly online meetings at all levels of our organization. Our staff is working harder than ever as we have achieved record levels of loans, deposits and total assets. The sharp drop in interest rates in March 2020 led to a drop in net interest income compared to the prior year. We have funded approximately $30 million in loans to many of our business clients through the SBA Paycheck Protection Program (PPP) and received over $100 million in deposits from PPP participants. Additionally, in response to the pandemic, we have made financial loan modifications for approximately 10% of our portfolio involving 36 clients. While we recorded a $1 million loan loss provision in the second quarter due to uncertain and volatile economic conditions, our exposure to higher risk COVID-19 impacted industries such as hotels, restaurants and retail stores, is limited. Our credit quality remains strong and we have reduced the amount of non-performing loan balances by over two thirds. While we have taken decisive measures to control our costs, we are prudently adding key staff positions to build our infrastructure and accommodate our growth. Our focus will continue to be employee health and safety along with our fiduciary responsibility to our clients and shareholders. For those reasons, we are being very cautious in our plans for returning employees to the workplace.”

Mr. Mordell added, “Net interest income decreased to $11.1 million in the second quarter of 2020, a 2.5% decrease over the second quarter of 2019, as declining loan and investment yields more than offset year over year loan growth. Loans grew $36 million in the second quarter, primarily as a result of our participation in the SBA PPP program mentioned above.”

Mr. Mordell continued, “Non-interest expense increased by $1,304,000 to $7,974,000 in the second quarter of 2020, up from $6,670,000 in the second quarter of 2019 primarily due to increased investments in lending and administrative personnel made throughout 2019. Our efficiency ratio increased to 68.2% in the second quarter of 2020, up from 55.4% in the second quarter of 2019 as a result of increased staffing costs and reduced interest income on investments and overnight funds. Total deposits increased by $256 million in the second quarter of 2020 compared to the first quarter of 2020 and increased by $420 million from the second quarter of 2019. The increase in deposits from March 31, 2020 was due to higher demand deposits and money market accounts as a result of marketing activities in our Venture Lending division and PPP program deposits. The increase in deposits over the second quarter of 2019 was primarily due to a dramatic increase in demand deposits for the reasons noted above and a smaller increase in money market accounts. Our net interest margin dropped to 3.52% in the second quarter of 2020 compared to 4.74% in the second quarter of 2019 primarily due to a drop in loan and investment yields. Return on assets was 0.63% in the second quarter of 2020 compared to 0.88% in the first quarter of 2020 and 1.25% in the second quarter of 2019.”

Results for the six months ended June 30, 2020

Net interest income before provision for loan losses was $22.2 million in the first six months of 2020, a decrease of $0.3 million or 1% over the same period of the prior year. Lower loan and investment yields were the primary reason for the decrease. Average total loans were $962 million in the first six months of 2020 compared to $827 million in the first six months of 2019. Average earning assets were $1.2 billion in the first six months of 2020, a 24% increase over the prior year. Net interest margin was 3.84% in the first six months of 2020 compared to 4.81% for the same period in 2019. The decrease in net interest margin was primarily caused by a decline in loan and investment yields and an increase in overnight fund balances. A loan loss provision of $1.3 million was recorded in the first six months of 2020 and a $1.2 million loan loss provision was recorded in the first six months of 2019. We had $31,000 of charge-offs and no recoveries in the first six months of 2020 compared to no charge-offs and $151,000 of recoveries for the same period in 2019.

Non-interest income was $1,361,000 in the first six months of 2020, a decrease of $150,000 or 10% over the first six months of 2019. The first six months of 2019 included a $306,000 gain from the sale of collateral on a workout loan that more than offset higher service charge and investment fund income in the first six months of 2020.

Non-interest expense increased by $2.5 million to $16.2 million in the first six months of 2020 compared to $13.7 million in 2019 due primarily to increased investments in personnel across the entire Bank.

The effective tax rate was 26.0% in the first six months of 2020 compared to 29.3% for the same period in 2019.

Results for the quarter ended June 30, 2020

For the three months ended June 30, 2020, net interest income before provision for loan losses was $11.1 million, a decrease of $289,000 or 2.5% compared to the second quarter of 2019. The decrease was primarily the result of lower loan and investment yields offsetting higher average loans outstanding. Average total loans outstanding for the quarter ended June 30, 2020 were $1.0 billion, compared to $844 million for the same quarter in 2019, an increase of 19%. Average earning assets were $1.3 billion in the second quarter of 2020, a 31% increase over the second quarter of the prior year. Loans made up 79% of average earning assets at the end of the second quarter of 2020 compared to 87% at the end of the second quarter of 2019. Net interest margin was 3.52% for the second quarter of 2020, compared to 4.74% for the second quarter of 2019. A loan loss provision of $1,011,000 was taken in the second quarter of 2020 compared with a $787,000 loan loss provision taken in the second quarter of 2019.

Non-interest income was $551,000 in the second quarter of 2020, a decrease of $70,000 or 11% compared to the second quarter of 2019. The reduction resulted from lower service charges, wire fees and FHLB dividends.

Non-interest expense increased by $1,304,000 in the second quarter of 2020 to $7,974,000 compared to $6,670,000 for the second quarter of 2019. This increase was primarily due to higher compensation costs related to increased staffing. The Company’s full-time equivalent employees at June 30, 2020 and 2019 were 116 and 105, respectively. The Company’s efficiency ratio increased from 55.4% in the second quarter of 2019 to 68.2% in the second quarter of 2020 due to increased expenses from the growth in staff and lower interest income from investments and overnight funds.

Balance Sheet

Total assets were $1.4 billion as of June 30, 2020, compared to $1.2 billion at March 31, 2020 and $1.0 billion on the same day one year ago. The increase in total assets of $208 million, or 17%, from March 31, 2020 was primarily due to increased deposits causing an increase in overnight funds with the Federal Reserve. The Company reported loans net of deferred fees at June 30, 2020 of $1.0 billion, which represented an increase of $36 million, or 4%, from $966 million at March 31, 2020, and an increase of $144 million, or 17%, over $858 million at June 30, 2019. The increase in total loans from March 31, 2020 was primarily a result of SBA PPP loans. The increase in loans from June 30, 2019 was due to higher Construction, Specialty Finance, Venture Lending and Commercial Real Estate loans.

“We had $1.1 million in one non-accrual loan on June 30, 2020, compared to a balance of $3.9 million at the end of the prior quarter. The non-accrual loan is secured by real estate,” observed Mr. Mordell.

The Company’s total deposits were $1.3 billion as of June 30, 2020, which represented an increase of $256 million, or 26%, compared to $994 million at March 31, 2020 and an increase of $420 million, or 51%, compared to $830 million at June 30, 2019. The increase in deposits from March 31, 2020 was due to higher demand deposits and money market accounts. The increase from June 30, 2019 was also due to an increase in demand deposits and money market accounts, with demand deposits being the largest factor. The Company had no FHLB advances outstanding as of June 30, 2020 compared to $50 million as of March 31, 2020 and June 30, 2019.

Demand and interest bearing transaction deposits represented 52% of total deposits at June 30, 2020, compared to 51% at March 31, 2020 and 48% for the same period one year ago. Core deposits, which include transaction deposits, money market accounts and CDs below $250,000, represented 84% of total deposits at June 30, 2020, compared to 82% at March 31, 2020 and 85% at June 30, 2019. The Company’s loan to deposit ratio was 80% at June 30, 2020 compared to 97% at March 31, 2020 and 103% at June 30, 2019.

About Avidbank

Avidbank Holdings, Inc. (OTC Pink: AVBH), headquartered in San Jose, California, offers innovative financial solutions and services. We specialize in commercial & industrial lending, venture lending, structured finance, asset-based lending, sponsor finance, real estate construction and commercial real estate lending. Avidbank provides a different approach to banking. We do what we say.

Forward-Looking Statement:

This news release contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and generally include the words “believes,” “plans,” “intends,” “expects,” “opportunity,” “anticipates,” “targeted,” “continue,” “remain,” “will,” “should,” “may,” or words of similar meaning. While we believe that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions, are, by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect. Accordingly, actual results could materially differ from forward-looking statements for a variety of reasons, including, but not limited to local, regional, national and international economic conditions and events and the impact they may have on us and our customers, and in particular in our market areas; ability to attract deposits and other sources of liquidity; oversupply of property inventory and deterioration in values of California real estate, both residential and commercial; a prolonged slowdown or decline in construction activity; changes in the financial performance and/or condition of our borrowers; changes in the level of non-performing assets and charge-offs; the cost or effect of acquisitions we may make; the effect of changes in laws and regulations (including laws, regulations and judicial decisions concerning financial reform, capital requirements, taxes, banking, securities, employment, executive compensation, insurance, and information security) with which we and our subsidiaries must comply; changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; ability to adequately underwrite for our asset based and corporate finance lending business lines; our ability to raise capital; inflation, interest rate, securities market and monetary fluctuations; cyber-security threats including loss of system functionality or theft or loss of data; political instability; acts of war or terrorism, or natural disasters, such as earthquakes, or the effects of pandemic flu; destabilization in international economies resulting from the European sovereign debt crisis; the effects of the Tax Cuts and Jobs Act; the timely development and acceptance of new banking products and services and perceived overall value of these products and services by users; changes in consumer spending, borrowing and savings habits; technological changes; the ability to increase market share, retain customers and control expenses; ability to retain and attract key management and personnel; changes in the competitive environment among financial and bank holding companies and other financial service providers; continued volatility in the credit and equity markets and its effect on the general economy; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our management team; the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; our success at managing the risks involved in the foregoing items. We do not undertake, and specifically disclaim any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law.

Avidbank Holdings, Inc.
Consolidated Balance Sheets
($000, except share and per share amounts) (Unaudited)

Assets	6/30/20	3/31/20	12/31/19	9/30/19	6/30/19
Cash and due from banks	$16,797	$17,042	$13,068	$24,649	$12,887
Due from Federal Reserve Bank	315,110	141,405	139,780	90,180	57,530
Total cash and cash equivalents	331,907	158,447	152,848	114,829	70,417

Investment securities – available for sale	43,601	44,983	52,014	53,571	55,002

Loans, net of deferred loan fees	1,002,029	965,684	888,780	909,312	857,831
Allowance for loan losses	(12,521)	(11,540)	(11,267)	(11,087)	(11,155)
Loans, net of allowance for loan losses	989,508	954,144	877,513	898,225	846,676

Bank owned life insurance	11,288	11,222	11,156	11,088	11,019
Premises and equipment, net	5,435	5,522	5,542	5,238	5,296
Other real estate owned	–	–	–	–	–
Accrued interest receivable & other assets	31,729	30,812	32,484	31,751	33,031
Total assets	$1,413,468	$1,205,130	$1,131,557	$1,114,702	$1,021,441

Liabilities
Non-interest-bearing demand deposits	$621,777	$477,404	$431,638	$401,360	$374,407
Interest bearing transaction accounts	26,837	25,104	21,465	20,114	21,076
Money market and savings accounts	382,776	292,051	320,683	287,082	283,734
Time deposits	218,634	199,841	199,357	179,645	150,952
Total deposits	1,250,024	994,400	973,143	888,201	830,169

FHLB advances	–	50,000	–	80,000	50,000
Subordinated debt, net	21,540	21,509	21,570	11,908	11,887
Other liabilities	19,475	19,806	20,449	21,897	20,750
Total liabilities	1,291,039	1,085,715	1,015,162	1,002,006	912,806

Shareholders’ equity
Common stock/additional paid-in capital	70,012	69,444	69,377	68,851	68,583
Retained earnings	51,414	49,345	46,910	43,861	40,408
Accumulated other comprehensive income (loss)	1,003	626	108	(16)	(356)
Total shareholders’ equity	122,429	119,415	116,395	112,696	108,635

Total liabilities and shareholders’ equity	$1,413,468	$1,205,130	$1,131,557	$1,114,702	$1,021,441

Capital ratios
Tier 1 leverage ratio	9.16%	10.64%	10.51%	10.84%	10.69%
Common equity tier 1 capital ratio	10.28%	10.33%	10.72%	10.16%	10.28%
Tier 1 risk-based capital ratio	10.28%	10.33%	10.72%	10.16%	10.28%
Total risk-based capital ratio	13.19%	13.24%	13.78%	12.26%	12.49%

Book value per common share	$19.92	$19.46	$19.12	$18.54	$17.88
Total common shares outstanding	6,144,578	6,136,189	6,087,160	6,079,160	6,075,429

Other Ratios
Non-interest bearing deposits to total deposits	49.7%	48.0%	44.4%	45.2%	45.1%
Core deposits to total deposits	84.3%	82.2%	82.1%	82.5%	84.7%
Loan to deposit ratio	80.2%	97.1%	91.3%	102.4%	103.3%
Allowance for loan losses to total loans	1.25%	1.20%	1.27%	1.22%	1.30%

Avidbank Holdings, Inc.
Condensed Consolidated Statements of Income
($000, except share and per share amounts) (Unaudited)

	Quarter Ended			Year-to-Date
	6/30/20	3/31/20	6/30/19	6/30/20	6/30/19
Interest and fees on loans and leases	$12,420	$12,175	$12,307	$24,595	$24,137
Interest on investment securities	247	306	359	553	733
Other interest income	45	295	418	340	701
Total interest income	12,712	12,776	13,084	25,488	25,571

Deposit interest expense	1,260	1,385	1,234	2,646	2,371
Other interest expense	316	311	425	627	732
Total interest expense	1,576	1,696	1,659	3,273	3,103
Net interest income	11,136	11,080	11,425	22,215	22,468

Provision for loan losses	1,011	273	787	1,284	1,246
Net interest income after provision for loan losses	10,125	10,807	10,638	20,931	21,222

Service charges, fees and other income	485	743	555	1,229	1,033
Income from bank owned life insurance	66	66	66	132	129
Gain on sale of assets	–	–	–	–	349
Total non-interest income	551	809	621	1,361	1,511

Compensation and benefit expenses	5,639	5,876	4,605	11,515	9,402
Occupancy and equipment expenses	973	942	863	1,914	1,806
Other operating expenses	1,362	1,416	1,202	2,779	2,529
Total non-interest expense	7,974	8,234	6,670	16,208	13,737

Income before income taxes	2,702	3,382	4,589	6,084	8,996
Provision for income taxes	632	947	1,406	1,579	2,640
Net income	$2,070	$2,435	$3,183	$4,505	$6,356



Basic earnings per common share	$0.35	$0.42	$0.55	$0.77	$1.10
Diluted earnings per common share	$0.35	$0.41	$0.54	$0.76	$1.08

Average common shares outstanding	5,862,348	5,836,045	5,799,847	5,849,196	5,791,394
Average common fully diluted shares	5,947,756	5,953,208	5,907,107	5,951,185	5,897,476

Annualized returns:
Return on average assets	0.63%	0.88%	1.25%	0.74%	1.29%
Return on average common equity	6.88%	8.27%	11.90%	7.57%	12.17%

Net interest margin	3.52%	4.21%	4.74%	3.84%	4.81%
Cost of funds	0.54%	0.70%	0.75%	0.61%	0.72%
Efficiency ratio	68.23%	69.26%	55.37%	68.75%	57.29%

Avidbank Holdings, Inc.
Credit Trends
($000) (Unaudited)

	6/30/20	3/31/20	12/31/19	9/30/19	6/30/19
Allowance for Loan Losses
Balance, beginning of quarter	$11,540	$11,267	$11,087	$11,155	$10,368
Provision for loan losses, quarterly	1,011	273	142	39	787
Charge-offs, quarterly	(31)	–	–	(107)	–
Recoveries, quarterly	–	–	39	–	–
Balance, end of quarter	$12,521	$11,540	$11,267	$11,087	$11,155


Nonperforming Assets
Loans accounted for on a non-accrual basis	$1,080	$3,902	$3,817	$3,830	$1,640
Loans with principal or interest contractually past due 90 days or more and still accruing interest	–	–	–	–	–
Nonperforming loans	1,080	3,902	3,817	3,830	1,640
Other real estate owned	–	–	–	–	–
Nonperforming assets	$1,080	$3,902	$3,817	$3,830	$1,640
Loans restructured and in compliance with modified terms	–	–	–	–	–
Nonperforming assets & restructured loans	$1,080	$3,902	$3,817	$3,830	$1,640


Nonperforming Loans by Type:
Commercial	$1,080	$1,665	$1,580	$1,590	$1,640
Commercial Real Estate Loans	–	2,237	2,237	2,240	–
Residential Real Estate Loans	–	–	–	–	–
Construction Loans	–	–	–	–	–
Consumer Loans	–	–	–	–	–
Total Nonperforming loans	$1,080	$3,902	$3,817	$3,830	$1,640


Asset Quality Ratios
Allowance for loan losses (ALLL) to total loans	1.25%	1.20%	1.27%	1.22%	1.30%
ALLL to nonperforming loans	1159.33%	295.78%	295.21%	289.48%	680.18%
Nonperforming assets to total assets	0.08%	0.32%	0.34%	0.34%	0.16%
Nonperforming loans to total loans	0.11%	0.40%	0.43%	0.42%	0.19%
Net quarterly charge-offs to total loans	0.00%	0.00%	0.00%	0.01%	0.00%