Avidbank Holdings (AVBH) Q3 2026 earnings review
Avidbank grows core deposits and profit, while troubled loans tick up
Avidbank Holdings, a San Jose commercial bank serving Bay Area businesses and venture-backed firms, grew its core lending and deposit book while a temporary cash inflow squeezed its headline margin. Net interest income rose 27% from a year ago, lifting profit per share to $0.94 against a year-ago loss caused by bond sales. Chief executive Mark Mordell noted that a temporary $270 million client deposit inflated third-quarter balances and will leave in the fourth quarter, but underlying client deposits still grew by $76 million by our math.
| Net interest income | $28.7M +27% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.94 +31% from a year ago |
| Period-end loans | $2.28B +17% from a year ago |
| Period-end deposits, excluding temporary inflow | +14% from a year ago by our math (reported: +27%) |
⚖️ Verdict: 🟢 Bullish
The story got better because core deposit inflows allowed the bank to pay off almost all of its high-cost brokered funding while keeping its underlying lending margin steady. Stripping out the 17-basis-point drag from parking that temporary deposit in cash, the net interest margin held at 4.24% by our math, inside the range management targeted. One caution: operating costs rose 9% from last quarter excluding one-offs as the bank hired nine more employees, and a new $1.5 million troubled land loan pushed non-performing loans up to 0.70%.
The question now is whether the twenty employees hired over the past year will bring in enough commercial loans to pay for the higher salary bill without loosening credit standards. Optimists see the slowdown in construction loan payoffs as a sign that loan growth will accelerate, while skeptics worry about lingering Bay Area real estate stress and rising legal fees. Fourth-quarter loan additions—which need to reach $81 million by our math to hit the bank's 10% full-year floor—and the upcoming filing's problem-loan tables will tell.
🐂 Bull Case
Core Deposits Grew While Brokered Funding Fell
Avidbank relies on business checking and savings accounts to fund its loans without paying high wholesale rates. Chief executive Mark Mordell said that "a significant amount of that deposit growth came from a temporary large client deposit that we expect to leave in the fourth quarter, but our bankers also delivered meaningful core deposit growth across the franchise".
- Total period-end deposits: $2.61 billion, up $290.1 million from last quarter
- Temporary client deposit: about $270 million in money market accounts
- Non-reciprocal brokered deposits (high-cost wholesale funding): $10.0 million, down from $65.5 million in June
- Underlying client deposits: up $75.6 million from last quarter by our math
This underlying inflow matters because it let the bank pay off $55.5 million of brokered funding, beating the $40 million mark management aimed for. In addition, a new federal housing law raised the cap on reciprocal deposits, which are accounts swapped with other banks to give clients full federal insurance. That legal change removed $513 million of those accounts from the regulatory brokered list.
What to watch: fourth-quarter non-interest-bearing checking balances in the next earnings release. Period-end checking balances fell $33.4 million this quarter even though the quarterly average rose, and another drop would force the bank back into higher-cost accounts.
Temporary Cash Hid a Steady Lending Margin
A bank's main profit rate is its net interest margin (NIM), the gap between what it earns on loans and what it pays on deposits. Last quarter, management warned that this margin could slip from 4.26% to 4.20% as deposit costs crept up. In the third quarter, the reported margin fell 19 basis points to 4.07%, missing that range.
The miss was an optical quirk rather than a lending problem. Avidbank parked the temporary client deposit at the Federal Reserve, which raised average cash balances by $205 million earning 3.75%. The company said this cash cut the margin by 17 basis points, putting the underlying margin at 4.24% by our math, while net interest income rose $2.0 million to $28.7 million and interest-bearing deposit costs fell 9 basis points to 2.97%.
What to watch: fourth-quarter net interest margin after the $270 million temporary deposit leaves. A rebound above 4.20% would confirm that funding costs have peaked.
Business Lending Outpaced Construction Payoffs
Avidbank targets at least 10% annual loan growth, which required $139.2 million of net additions in the second half of the year by our math. For the past two years, customers paying off finished construction loans have dragged down the total book. Management said last quarter that this payoff cycle was nearing its bottom.
In the third quarter, total loans rose $58.4 million, or 10% annualized, to $2.28 billion. Commercial and industrial loans to businesses grew $20.7 million and multi-family apartment loans rose $17.8 million, while construction and land balances shrank by just $2.6 million compared with a $36.1 million drop in the second quarter.
What to watch: fourth-quarter net loan additions against the $80.8 million needed to reach the 10% full-year floor by our math. Hitting that mark would prove that new commercial lending can carry the bank without construction growth.
🐻 Bear Case
Another Real Estate Loan Stopped Paying Interest
Real estate and construction loans make up nearly half of Avidbank's loan book, and Mordell highlighted the bank's "proactive credit management" this quarter. After the bank wrote off $1.9 million on a troubled construction project in the second quarter, $14.4 million of that loan remained on nonaccrual, meaning the bank no longer records interest on it.
Instead of clearing that balance in the third quarter, non-performing loans rose $1.5 million to $15.9 million, or 0.70% of total loans. The increase happened "due to a land loan totaling $1.5 million being placed on nonaccrual", the company said, and the bank also spent more on credit-related legal fees.
This matters because the original construction problem loan has now sat unresolved past management's initial four-to-six-month timeline, and new real estate trouble is still appearing. Even though net loan write-offs were 0.00% this quarter, the bank set aside $1.2 million for credit losses to build its loan loss reserve to $22.8 million.
What to watch: the substandard and special-mention loan tables in the upcoming third-quarter Form 10-Q filing. A rise in problem real estate loans beyond last quarter's $29 million flagged relationship would show property stress spreading across the Bay Area portfolio.
New Hires Pushed Up Operating Costs
Avidbank has been hiring relationship bankers from Bay Area rivals following local bank mergers, viewing the expanded team as a long-term growth driver. Full-time staff rose by 9 in the third quarter to 171 employees, up from 151 a year ago. That hiring spree is now lifting the bank's cost base.
Excluding last quarter's $2.6 million lawsuit settlement, operating expenses rose $1.3 million, or 9.3% from the second quarter, to $15.1 million. Salaries and benefits climbed $615 thousand, while legal and professional fees rose $419 thousand (up 1.2 percentage points of clean revenue by our math), "including higher recruiting fees and credit-related legal fees", the company said. That pushed the efficiency ratio excluding one-offs (operating costs as a share of revenue) up 1.1 percentage points to 49.80%.
What to watch: fourth-quarter operating expenses in the next release. If costs rise faster than net interest income again, the new hires are weighing on profitability.
Risks this quarter didn't answer
Four standing concerns from prior quarters cannot be read from the earnings release alone and await the conference call or the quarterly Form 10-Q filing.
- Flagged commercial real estate loans: whether the $29 million non-owner-occupied relationship that missed a debt-service coverage test in the second quarter improved or worsened; the 10-Q credit footnote will show it.
- Venture and software lending credit: how much of the software loan book is graded as criticized or classified compared with $5.8 million in June; the 10-Q or call remarks will show it.
- Quarter-end spot deposit rate: the exact interest rate paid on interest-bearing deposits on September 30, which sets the fourth-quarter cost floor; the finance chief usually gives this on the call.
- Wire-fraud controls: whether the bank faces any remaining claims after last quarter's $2.6 million lawsuit settlement; the 10-Q legal footnote will show it.
👓 Other Themes
Higher Interest Rates Cut Bond Values
Avidbank bought bonds during the third quarter, lifting its available-for-sale securities portfolio by $47.5 million to $279.7 million. Because market interest rates rose during the period, the paper loss on those bonds widened from $2.8 million in June to $13.1 million, cutting book value by $0.85 per share. Separately, the company issued $30.0 million of 10-year subordinated debt at a 7.00% interest rate and paid off $22.0 million of older notes.
💲 Other KPIs
Shareholders' equity per share rose $0.27 from June and $2.24 from a year ago. Retained profit of $10.2 million funded the gain, though a $7.4 million after-tax increase in bond portfolio paper losses held back the quarterly rise.
The average number of diluted shares rose 17.8% from a year ago because Avidbank issued 3.0 million shares in its August 2025 initial public offering. From the second quarter, the count ticked up just 0.3%, and management bought back no shares for a second straight quarter.
❓ Key Questions
What was the spot deposit cost on September 30?
Average interest-bearing deposit costs fell 9 basis points to 2.97% this quarter, helped by lower money market rates. Knowing the exact rate on the last day of the quarter will show how much funding costs will fall after the $270 million temporary deposit leaves.
Why has the $14.4 million construction loan not resolved?
At the end of 2025, management expected to resolve its large non-performing construction loan within four to six months. Nine months later it remains on nonaccrual, and a new $1.5 million land loan just joined it.
Did criticized commercial real estate loans rise in Q3?
In the first two quarters of 2026, two large real estate borrowers were downgraded to special mention or criticized status, including a $29 million relationship in June. The release does not disclose third-quarter criticized loan totals.
When will the new SBA lending team generate fee income?
Avidbank hired a Small Business Administration (SBA) lending team in the second quarter and added 9 more employees in the third quarter, lifting salary and recruiting expenses. Non-interest income showed no gain from loan sales this quarter.