Avidbank Holdings, Inc. Announces Net Income of $3,049,000 for the Fourth Quarter of 2019

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 $3,049,000 for the fourth quarter of 2019 compared to $3,481,000 for the same period in 2018.

Full Year and Fourth Quarter 2019 Financial Highlights

• Net income was $12,857,000 in 2019 compared to $11,120,000 in 2018. Net income in 2019 included a $1.4 million loan loss provision while net income in 2018 reflected a $1.6 million loan loss provision. Net interest income was $44,702,000 in 2019, an increase of $6,836,000 or 18% over the figure recorded in 2018.
• Diluted earnings per common share were $2.17 in 2019, compared to $1.90 in 2018. The increase in earnings per share was the result of higher earnings in 2019. Weighted average common fully diluted shares outstanding were 5,914,339 and 5,866,401 in 2019 and 2018, respectively.
• Net interest income was $11,070,000 for the fourth quarter of 2019, an increase of $335,000 over the $10,735,000 we recorded in the fourth quarter of 2018. The 3% increase over the prior year quarter reflects year over year loan growth partially offset by increased interest expense and subordinated debt offering expenses.
• Net income was $3,049,000 for the fourth quarter of 2019, compared to $3,481,000 for the fourth quarter of 2018. Results for the fourth quarter of 2019 were impacted by increased staffing expenses of $1.7 million, primarily from the hiring of additional personnel across the entire Bank. These expenses were partially offset by lower loan loss provision charges of $805,000. The fourth quarter of 2018 also benefited from a number of non-core income producing items totaling $383,000 including a gain on the sale of Other Real Property Owned (OREO), investment fund income and income from FHLB special dividends.
• Diluted earnings per common share were $0.51 for the fourth quarter of 2019, compared to $0.59 for the fourth quarter of 2018.
• Total assets grew by 23% in 2019, ending the fourth quarter at $1.1 billion.
• Total loans net of deferred fees grew by 10% in 2019, ending the fourth quarter at $889 million.
• Total deposits grew by 22% in 2019, ending the fourth quarter at $973 million.
• The Company continues to be well capitalized for regulatory purposes with a Tier 1 Leverage Ratio of 10.51%, a Tier 1 Risk Based Capital and Common Equity Tier 1 Risk Based Capital Ratio of 10.72%, and a Total Risk Based Capital Ratio of 13.78%.

Mark D. Mordell, Chairman and Chief Executive Officer, stated, "Net interest income increased to $11.1 million in the fourth quarter of 2019, a 3% increase over the fourth quarter of 2018, as year over year loan growth was partially offset by increased interest expense. Loans declined $20.5 million in the fourth quarter primarily as a result of Commercial Real Estate, Multi-Family and Construction loan payoffs. We continue to be committed to a strong growth strategy to achieve scale and optimal profitability and previously announced a $22 million subordinated debt raise in December to support that effort and to retire existing subordinated debt which reduced our borrowing cost from 6.875% to 5.00%. We are also continuing to be opportunistic when identifying additional personnel and infrastructure that can be accretive to our cause. We added several new employees in 2019 reflecting the expansion of our Venture Lending and Structured Finance divisions that are key areas for diversification and growth. Additionally, we invested further in administrative infrastructure by adding personnel in Credit Administration, Operations, BSA and Gina Thoma-Peterson, our first Chief Operating Officer. The individuals we have in leadership and support roles position us well to continue our franchise growth strategy to scale our balance sheet and operations to serve our markets."

Mr. Mordell continued, "Our investments in increased staffing and expanded infrastructure over the last 24 to 36 months are generating results according to plan as our robust loan and deposit growth provide increased economies of scale. Non-interest expense increased by $1,563,000 to $7,439,000 in the fourth quarter of 2019, up from $5,876,000 in the fourth quarter of 2018 primarily due to these increased investments. Our efficiency ratio increased to 64.0% in the fourth quarter of 2019, up from 50.4% in the fourth quarter of 2018 as a result of increased staffing and interest expense and costs related to our subordinated debt offering. Total deposits increased by $85 million in the fourth quarter of 2019 compared to the third quarter of 2019 and increased by $176 million from the fourth quarter of 2018. The increase in deposits from September 30, 2019 was due to higher money market accounts and demand deposits. The increase in deposits over the fourth quarter of 2018 was primarily due to an increase in demand deposits, money market accounts and brokered deposits. Our net interest margin dropped to 4.17% in the fourth quarter of 2019, compared to 4.71% in the fourth quarter of 2018 primarily due to a drop in loan yields and increased interest expense. Return on assets was 1.09% in the fourth quarter of 2019 compared to 1.32% in the third quarter of 2019 and 1.46% in the fourth quarter of 2018."

Results for the twelve months ended December 31, 2019

Net interest income before provision for loan losses was $44.7 million in 2019, an increase of $6.8 million or 18% over the previous year. Higher average outstanding loan balances were the primary reason for the increase. Average total loans were $857 million in 2019 compared to $707 million in 2018. Average earning assets were $982 million in 2019, a 19% increase over the prior year. Net interest margin was 4.55% in 2019 compared to 4.58% for 2018. The decrease in net interest margin was primarily caused by an increase in the cost of funds. A loan loss provision of $1.4 million was recorded in 2019 and a $1.6 million loan loss provision was recorded in 2018. We had $107,000 of charge-offs and $190,000 of recoveries in 2019 compared to $151,000 of charge-offs and minimal recoveries for 2018.

Non-interest income was $2,751,000 in 2019, an increase of $32,000 or 1% over 2018 reflecting increased service charges on deposit accounts. Non-interest income in 2019 included a $306,000 gain from the sale of collateral on a workout loan while non-interest income in 2018 included $281,000 of earnings from an investment in an SBIC fund and a $288,000 gain on sale of an OREO property.

Non-interest expense increased by $4.7 million to $28.2 million in 2019 compared to $23.5 million in 2018 due primarily to increased investments in personnel across the entire Bank.

The effective tax rate was 28.0% in 2019 compared to 28.0% for the same period in 2018.

Results for the quarter ended December 31, 2019

For the three months ended December 31, 2019, net interest income before provision for loan losses was $11.1 million, an increase of $0.3 million or 3% compared to the fourth quarter of 2018. The increase was primarily the result of higher average loans outstanding partially offset by higher interest expense and expenses related to our subordinated debt offering. Average total loans outstanding for the quarter ended December 31, 2019 were $893 million, compared to $777 million for the same quarter in 2018, an increase of 15%. Average earning assets were $1.1 billion in the fourth quarter of 2019, a 17% increase over the fourth quarter of the prior year. Loans made up 85% of average earning assets at the end of the fourth quarter of 2019 compared to 86% at the end of the fourth quarter of 2018. Net interest margin was 4.17% for the fourth quarter of 2019, compared to 4.71% for the fourth quarter of 2018. A loan loss provision of $142,000 was taken in the fourth quarter of 2019 compared with a $947,000 loan loss provision taken in the fourth quarter of 2018.

Non-interest income was $554,000 in the fourth quarter of 2019, a decrease of $369,000 or 40% compared to the fourth quarter of 2018. The decrease resulted from non-core sources of income in the fourth quarter of 2018 including a $288,000 gain on sale of an OREO property, $46,000 of income from investment in an SBIC fund and a $49,000 special dividend from the FHLB.

Non-interest expense increased by $1,563,000 in the fourth quarter of 2019 to $7,439,000 compared to $5,876,000 for the fourth quarter of 2018. This increase was primarily due to higher compensation costs related to increased staffing. The Company's full- time equivalent employees at December 31, 2019 and 2018 were 114 and 92, respectively. The Company's efficiency ratio increased from 50.4% in the fourth quarter of 2018 to 64% in the fourth quarter of 2019 due to increased expenses from the growth in staff, higher costs of deposits and costs associated with our subordinated debt offering.

Balance Sheet

Total assets were $1.132 billion as of December 31, 2019, compared to $1.115 billion at September 30, 2019 and $917 million on the same day one year ago. The increase in total assets of $17 million, or 2%, from September 30, 2019 was primarily due to higher overnight funds that were funded by increased money market accounts and demand deposits. The Company reported loans net of deferred fees at December 31, 2019 of $889 million, which represented a decrease of $20 million, or 2%, from $909 million at September 30, 2019, and an increase of $82 million, or 10%, over $807 million at December 31, 2018. The decrease in total loans from September 30, 2019 was primarily a result of Commercial Real Estate, Multi-Family and Construction loan payoffs. The increase in loans from December 31, 2018 was due to higher C&I, Specialty Finance, Multi-Family and Commercial Real Estate loans.

"We had $3.8 million in non-accrual loans on December 31, 2019, which was up from a $1.7 million balance at the end of the prior year. The non-accrual amount represents two loans secured by real estate," observed Mr. Mordell.

The Company's total deposits were $973 million as of December 31, 2019, which represented an increase of $85 million, or 10%, compared to $888 million at September 30, 2019 and an increase of $176 million, or 22%, compared to $797 million at December 31, 2018. The increase in deposits from September 30, 2019 was due to higher money market accounts and demand deposits. The increase from December 31, 2018 was primarily due to an increase in demand deposits, money market accounts and brokered deposits. The Company had no FHLB advances outstanding as of December 31, 2019 compared to $80 million at September 30, 2019 and none as of December 31, 2018.

Demand and interest bearing transaction deposits represented 47% of total deposits at December 31, 2019, compared to 47% at September 30, 2019 and 49% for the same period one year ago. Core deposits, which include transaction deposits, money market accounts and CDs below $250,000, represented 82% of total deposits at December 31, 2019, compared to 82% at September 30, 2019 and 85% at December 31, 2018. The Company's loan to deposit ratio was 91% at December 31, 2019 compared to 102% at September 30, 2019 and 101% at December 31, 2018.

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.