Key Highlights

  • AVBH is trading up 0.39% at $31.18 on October 21, with a market capitalization of about $342.21 million.
  • The company reports third-quarter results Monday, October 26 after the market close.
  • Second-quarter adjusted EPS was $0.76 against GAAP EPS of $0.71, after a $2.6 million litigation settlement.
  • The second-quarter net interest margin was 4.26%, down from 4.38% in the first quarter.
  • The company completed a $30 million subordinated debt offering on August 26.

Will Avidbank Show a Clean Quarter on Monday After Second-Quarter One-Off Charges?

Avidbank (NASDAQ:AVBH) is trading up 0.39% at $31.18 on October 21, and no company announcement was identified for the session. The move is within about 1% of the prior close, and a small drift ahead of earnings or in regional bank shares is context only and is not confirmed as the cause.

The company announced on October 7 that it will report fiscal third-quarter results on Monday, October 26 after the market close. The central question is whether the litigation and construction-loan charges that hit the second quarter were one-time items, as the company described them.

Avidbank is a San Jose, California business bank serving venture-backed and commercial clients.

What Did the Second-Quarter Report Set Up?

In the second quarter, reported on July 23, net income was $7.6 million, or $0.71 per share, against $9.0 million, or $0.84, in the first quarter. Adjusted net income was $8.2 million, or $0.76 per share, excluding a $2.6 million litigation settlement expense and $1.3 million of life insurance death benefit income. Return on assets was 1.20%, or 1.28% adjusted, and the efficiency ratio was 55.41%, or 48.73% adjusted.

Net interest income was $26.7 million, up 31% from a year earlier, and the margin was 4.26%, down from 4.38% in the first quarter, partly because a lower Federal Home Loan Bank dividend rate reduced income. Loans rose 16% year over year to $2.22 billion, and deposits rose 16% to $2.32 billion, with short-term borrowings reduced to zero.

Management offered no formal guidance. It said it sees no systemic or broad-based deterioration across the portfolio and pointed to disciplined growth, a new SBA lending division and added bankers.

How Clean Is the Credit Picture Behind the Trailing Figures?

The provision for credit losses was $2.8 million, including a $1.9 million partial charge-off on one construction loan. Net charge-offs were 0.35% of average loans against 0.52% in the first quarter, and nonperforming loans were 0.65% of loans against 0.75%. Criticized loans rose to 2.16% from 1.57%, and classified loans were 0.96%. The tier 1 leverage ratio was 11.50%.

Trailing EPS is negative $1.92 and trailing EPS growth is negative 162.60%. Both are affected by one-time items and are not a clean guide to current earnings power, given positive GAAP EPS in the last two reported quarters. The P/E is blank because trailing earnings are negative, and the company pays no dividend. The consensus analyst rating is Strong Buy.

What Would a Good or Bad Quarter Look Like for Avidbank?

A positive reading would be continued loan and deposit growth, GAAP earnings close to the adjusted level, a stable or higher margin and criticized loans easing from 2.16%. The $30 million subordinated debt offering, completed on August 26, adds capital for growth.

A negative reading would be further one-off charges, a build in nonperforming loans, a further rise in criticized loans or a gap between adjusted and GAAP earnings that stays wide. Investors will check both measures, along with the contribution from the new SBA and homeowners-association businesses, when the company reports on October 26. These are readings to look for, not predictions.