Avidbank Q3 2026 Earnings: Net Interest Income Climbs 27%

Avidbank Holdings (NASDAQ: AVBH) reported Q3 2026 net interest income of $28.7 million, up 27% year over year, and diluted EPS of $0.94, compared with a loss per diluted share of $4.12 in Q3 2025. Net income reached $10.2 million versus a $37.7 million loss, although the year-earlier result was heavily affected by a $62.4 million securities-sale loss. Loan and deposit growth supported earnings, while a large temporary deposit increased liquidity and net interest income but pressured the net interest margin.

Core Earnings Data

The GAAP turnaround primarily reflects the absence of the prior-year loss from repositioning Avidbank’s available-for-sale securities portfolio. The underlying comparison was also positive: adjusted net income increased by approximately 52%, while adjusted diluted EPS rose by about 31%.

Net interest income growth and a lower provision for credit losses supported profitability. Non-interest expenses increased, with salaries and legal and professional fees above their year-earlier levels.

Adjusted figures are non-GAAP measures. Avidbank recorded no adjustments in Q3 2026, while the Q3 2025 adjustments mainly removed the securities-sale loss and its tax effect.

Loan and Deposit Growth

Period-end loans, net of deferred fees, reached $2.28 billion, increasing $58.4 million from the preceding quarter and $323.9 million, or 17%, from a year earlier. Commercial and industrial loans supplied most of the annual growth, rising $260.8 million. Total real estate loans increased $65.0 million, although construction and land loans declined $48.1 million.

Period-end deposits increased 27% year over year to $2.61 billion and rose $290.1 million sequentially. Money market and savings deposits accounted for a $345.4 million sequential increase, including approximately $270.0 million from a temporary client deposit. That growth was partly offset by declines in non-reciprocal brokered deposits and non-interest-bearing checking deposits.

Average deposits were $2.49 billion, up 22% year over year. Management said the bank also generated meaningful core deposit growth during the quarter, but it did not quantify that amount separately from the temporary balance.

Temporary Deposit Lifts Income but Dilutes the Margin

The temporary client deposit represented most of the sequential increase in period-end deposits and drove cash and cash equivalents to $354.1 million from $159.9 million at June 30. Average interest-earning cash balances increased by $205 million, helping net interest income rise $2.0 million sequentially.

The trade-off was a lower asset mix yield. Management estimated that the higher cash balance reduced the net interest margin by approximately 17 basis points, accounting for most of the 19-basis-point sequential decline to 4.07%. The bank expects the temporary deposit to leave during the fourth quarter.

Compared with Q3 2025, the margin still increased by 17 basis points. The securities portfolio yield rose to 4.77% from 2.55% following the 2025 balance-sheet restructuring, while the total cost of deposits declined to 2.29% from 2.67%. Loan yields moved in the opposite direction, falling 32 basis points to 6.66%, primarily because of reductions in the Prime rate.

Asset Quality and Balance Sheet

Non-performing loans increased to $15.9 million, or 0.70% of total loans, from $14.4 million and 0.65% in the preceding quarter. The sequential increase resulted from a $1.5 million land loan being placed on nonaccrual. The ratio was also above 0.14% a year earlier, although annualized net charge-offs were 0.00% for the quarter.

The allowance for credit losses on loans was $22.8 million, equal to 1.00% of total loans. Including the allowance for unfunded commitments, total reserves were $25.3 million, or 1.11% of loans.

Higher interest rates affected the valuation of Avidbank’s available-for-sale securities. The portfolio’s net unrealized loss increased to $13.1 million from $2.8 million at the end of Q2, contributing to a $7.4 million sequential increase in accumulated other comprehensive loss. Even so, book value per share rose to $27.24 from $26.97 in the preceding quarter and $25.00 a year earlier.

Avidbank also issued $30.0 million of subordinated notes due in 2036, carrying a fixed 7.00% rate for the first five years, and used part of the proceeds to redeem $22.0 million of notes due in 2029. No short-term borrowings were outstanding at quarter-end, while the estimated common equity Tier 1 capital ratio was 11.45%.

Management View

Chairman and CEO Mark Mordell attributed the quarter’s profitability to loan and deposit growth and more consistent execution. He acknowledged that a significant portion of the deposit increase was temporary but said the bank also delivered core deposit growth across the franchise. Management remains focused on balance-sheet diversification, capital strength and proactive credit management.

Risks Investors Need to Watch

• Temporary deposit runoff: Management expects the approximately $270 million client deposit to leave in Q4. Its departure will reduce reported deposits and cash from their elevated quarter-end levels and may affect net interest income comparisons.
• Net interest margin sensitivity: The larger cash position diluted the margin, while lower Prime rates reduced loan yields. Deposit costs were unchanged sequentially at 2.29%, limiting the immediate funding benefit.
• Credit deterioration: Non-performing loans rose both sequentially and year over year, while classified loans increased to 1.31% of total loans from 0.96% in Q2. Construction and land credits account for all reported non-performing loans.
• Securities valuation pressure: The available-for-sale portfolio’s unrealized loss increased substantially during the quarter, reducing accumulated other comprehensive income and weighing on book value.
• Operating cost growth: Adjusted non-interest expense increased by $1.3 million sequentially, mainly because of higher compensation and legal and professional fees. Full-time-equivalent employees also increased to 171 from 162.

Summary

Avidbank’s Q3 2026 underlying earnings improved as loan growth, lower funding costs and higher securities yields lifted net interest income. The GAAP comparison benefited substantially from the absence of the prior-year securities-sale loss, while a temporary deposit inflated liquidity and income but lowered the net interest margin. The main items to monitor are the expected deposit runoff, margin performance, rising problem loans and the effect of interest rates on securities valuation.