Avidbank Holdings, Inc. Announces Net Income of $2,764,000 for the Fourth Quarter of 2020

SAN JOSE, CA / ACCESSWIRE / February 1, 2021 / 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 $2,764,000 for the fourth quarter of 2020 compared to $3,049,000 for the same period in 2019.

Full Year and Fourth Quarter 2020 Financial Highlights

• Net income was $9,627,000 in 2020 compared to $12,857,000 in 2019. Net income in 2020 was impacted by a $3.5 million increase in employee costs due to staff additions in the second half of 2019 and the first quarter of 2020 to support our growth strategy. At the same time, the 150 basis point drop in the prime rate in March 2020 hindered net interest income growth. Net interest income was $44,945,000 in 2020, an increase of $243,000 or 0.5% compared to the figure recorded in 2019.
• Diluted earnings per common share were $1.61 in 2020, compared to $2.17 in 2019. Weighted average common fully diluted shares outstanding were 5,967,780 and 5,914,339 in 2020 and 2019, respectively.
• Net interest income was $11,769,000 for the fourth quarter of 2020, an increase of $699,000 over the $11,070,000 we recorded in the fourth quarter of 2019. The 6.3% increase over the prior year quarter reflects year over year loan growth partially offset by declining loan and investment yields.
• Net income was $2,764,000 for the fourth quarter of 2020, compared to $3,049,000 for the fourth quarter of 2019. Results for the fourth quarter of 2020 were impacted primarily by increased staffing expenses of $0.6 million.
• Diluted earnings per common share were $0.46 for the fourth quarter of 2020, compared to $0.51 for the fourth quarter of 2019.
• Total assets grew by 26% in 2020, ending the fourth quarter at $1.4 billion.
• Total loans net of deferred fees grew by 12% in 2020, ending the fourth quarter at $1.0 billion.
• Total deposits grew by 29% in 2020, ending the fourth quarter at $1.3 billion.
• The Company continues to be well capitalized for regulatory purposes with a Tier 1 Leverage Ratio of 8.67%, a Tier 1 Risk Based Capital and Common Equity Tier 1 Risk Based Capital Ratio of 10.35%, and a Total Risk Based Capital Ratio of 13.15%.

Mark D. Mordell, Chairman and Chief Executive Officer, stated, "More than ten months have passed since the Bay Area shelter-in-place order and over 90% of our staff continues to work remotely. We have maintained productivity during this time, but a high level of payoffs, including Paycheck Protection Program (PPP) loans, and a slowdown of traditional commercial lending, led to a 2% decline in loans in the fourth quarter. In spite of the drop in loans, net interest income grew 6% in the fourth quarter as a result of fee recognition from payoffs and lower deposit interest expense. We have maintained our credit quality and reduced our level of Watch List loans while keeping non-accrual loans at a low level. The loan modifications we made in response to the pandemic have served their purpose and none are in effect at this time. Our exposure to higher risk COVID-19 impacted industries such as hotels, restaurants and retail stores, is limited. We are selectively 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 continue to be cautious in our plans for returning employees to the workplace."

Mr. Mordell continued, "Non-interest expense increased by $1,157,000 to $8,596,000 in the fourth quarter of 2020, up from $7,439,000 in the fourth quarter of 2019, primarily due to increased investments in personnel across the entire Bank. Our efficiency ratio increased to 68.9% in the fourth quarter of 2020, up from 64.0% in the fourth quarter of 2019, as a result of increased staffing costs and reduced interest income from investments and overnight funds. Total deposits decreased by $15 million in the fourth quarter of 2020 compared to the third quarter of 2020 and increased by $281 million from the fourth quarter of 2019. The decrease in deposits from September 30, 2020 was due to lower brokered deposits partially offset by higher money market accounts. The increase in deposits over the fourth quarter of 2019 was due to an increase in demand deposits and money market accounts, with the Venture Lending division having the largest growth. The increase in deposits has led to a substantial increase in our liquidity ratio and decrease in our loan-to-deposit ratio over the prior year and strengthened our balance sheet. It has enabled us to invest $129 million of excess overnight funds into long term mortgage backed securities which will provide a significant benefit to our net interest income as we move forward in this low interest rate environment. Our net interest margin dropped to 3.33% in the fourth quarter of 2020, compared to 4.17% in the fourth quarter of 2019 primarily due to a drop in loan and investment yields and an increase in overnight funds. Return on assets was 0.75% in the fourth quarter of 2020 compared to 0.66% in the third quarter of 2020 and 1.09% in the fourth quarter of 2019."

Results for the twelve months ended December 31, 2020

Net interest income before provision for loan losses was $44.9 million in 2020, an increase of $0.2 million or 1% over the previous year. Lower loan and investment yields were the primary reason for the modest increase. Average total loans were $983 million in 2020 compared to $857 million in 2019. Average earning assets were $1.3 billion in 2020, a 30% increase over the prior year. Net interest margin was 3.53% in 2020 compared to 4.55% 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 funds. A loan loss provision of $1.7 million was recorded in 2020 compared to a $1.4 million loan loss provision recorded in 2019. We had $411,000 of charge-offs and no recoveries in 2020 compared to $107,000 of charge-offs and $190,000 of recoveries for 2019.

Non-interest income was $2,631,000 in 2020, a decrease of $120,000 or 4% in 2019. The prior year included a $306,000 gain from the sale of collateral on a workout loan.

Non-interest expense increased by $5.0 million to $33.2 million in 2020 compared to $28.2 million in 2019 due primarily to increased investments in personnel across the entire Bank.

The effective tax rate was 24.2% in 2020 compared to 28.0% for the same period in 2019. The effective tax rate in 2020 reflected the favorable impact of affordable housing tax credit investments and the re-allocation of income taxes to states outside of California.

Results for the quarter ended December 31, 2020

For the three months ended December 31, 2020, net interest income before provision for loan losses was $11.8 million, an increase of $699,000 or 6.3% compared to the fourth quarter of 2019. The increase was primarily the result of higher average loans outstanding offsetting lower loan and investment yields. Average total loans outstanding for the quarter ended December 31, 2020 were $998 million, compared to $893 million for the same quarter in 2019, an increase of 12%. Average earning assets were $1.4 billion in the fourth quarter of 2020, a 33% increase over the fourth quarter of the prior year. Loans made up 71% of average earning assets at the end of the fourth quarter of 2020 compared to 85% at the end of the fourth quarter of 2019. Net interest margin was 3.33% for the fourth quarter of 2020, compared to 4.17% for the fourth quarter of 2019. A loan loss provision of $115,000 was taken in the fourth quarter of 2020 compared with a $142,000 loan loss provision taken in the fourth quarter of 2019.

Non-interest income was $707,000 in the fourth quarter of 2020, an increase of $153,000 or 28% compared to the fourth quarter of 2019. The increase resulted from higher investment fund income and deposit account service charges.

Non-interest expense increased by $1,157,000 in the fourth quarter of 2020 to $8,596,000 compared to $7,439,000 for the fourth quarter of 2019. This increase was primarily due to higher compensation costs related to increased staffing. The Company's full- time equivalent employees at December 31, 2020 and 2019 were 126 and 114, respectively. The Company's efficiency ratio increased from 64.0% in the fourth quarter of 2019 to 68.9% in the fourth 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 $1.431 billion as of December 31, 2020, compared to $1.444 billion at September 30, 2020 and $1.132 billion on the same day one year ago. The decrease in total assets of $13 million, or 1%, from September 30, 2020 was primarily due to decreased deposits causing a drop in overnight funds with the Federal Reserve. Investments increased $123.3 million primarily due to the purchase of mortgage-backed securities with excess funds. The Company reported loans net of deferred fees at December 31, 2020 of $0.993 billion, which represented a decrease of $18 million, or 2%, from $1.011 billion at September 30, 2020, and an increase of $105 million, or 12%, over $0.889 billion at December 31, 2019. The decrease in total loans from September 30, 2020 was primarily a result of a decrease in Commercial loans, partially offset by an increase in Specialty Finance loans. The increase in loans from December 31, 2019 was due to higher Construction, CRE, Venture Lending and Specialty Finance loans.

"We had $3.5 million in three non-accrual loans on December 31, 2020, compared to a balance of $0.3 million at the end of the prior quarter. We added two loans from one relationship to the non-accrual category in December. The new non-accrual loans are secured by commercial real estate with a very low loan to value," observed Mr. Mordell.

The Company's total deposits were $1.254 billion as of December 31, 2020, which represented a decrease of $14.6 million, or 1%, compared to $1.268 billion at September 30, 2020 and an increase of $281 million, or 29%, compared to $973 million at December 31, 2019. The decrease in deposits from September 30, 2020 was due to lower brokered deposits partially offset by higher money market accounts. The increase from December 31, 2019 was due to an increase in demand deposits and money market accounts, partially offset by lower brokered deposits. The Company had no FHLB advances outstanding as of December 31, 2020, September 30, 2020 or December 31, 2019.

Demand and interest-bearing transaction deposits represented 55% of total deposits at December 31, 2020, compared to 55% at September 30, 2020 and 47% for the same period one year ago. Core deposits, which include transaction deposits, money market accounts and CDs below $250,000, represented 90% of total deposits at December 31, 2020, compared to 87% at September 30, 2020 and 82% at December 31, 2019. The Company's loan to deposit ratio was 79% at December 31, 2020 compared to 80% at September 30, 2020 and 91% at December 31, 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 a pandemic; 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.

Contact: Steve Leen
Executive Vice President and Chief Financial Officer
408-831-5653
[email protected]