Avidbank's $270 Million Ghost
A record quarter, a rate regime that flipped, and the credit worry that quietly left the room
AVBH · Earnings Call · 2026-10-27
A clean quarter with one very large asterisk
Avidbank printed the kind of quarter a $360 million regional bank dreams about: $0.94 per diluted share against $0.71, return on average assets of 1.42%, an efficiency ratio below 50%, and loan growth that management described in the plainest possible terms — “Loans increased approximately 58 million for the quarter or 10% annualized and were up 17% over the past year.” — Mark D. Mordell, Chief Executive Officer · 2026-10-27 Growth was broad: C&I, multifamily, owner-occupied commercial real estate. The most revealing number, though, never made the release. One existing client sold a piece of its business and parked roughly $270 million with the bank. Management flagged it immediately as temporary deposits — “We knew from the beginning that these funds would be temporary.” — Mark D. Mordell, Chief Executive Officer · 2026-10-27 That single balance sheet visitor distorted three headline metrics at once: it inflated average earning assets, shaved 17 basis points off net interest margin (4.07%, down 19bps), and pushed the reported cost of interest-bearing deposits down 9bps to 0.97% even while the actual spot rate on deposits rose to 3.13% from 3.07%. One customer, three optical illusions. Patrick Oakes gave the clean read: “a normalized margin probably is closer to, you know, the low 420s.” — Patrick Timothy Oakes, Chief Financial Officer · 2026-10-27 Strip out the ghost and the brokers and the quarter is arguably better than reported — roughly $76 million of core deposit growth built from relationships rather than rate promos, with broker deposits down to $10 million and maturing this quarter.The rate regime did a U-turn — and Avid is now on the right side of it
Six months ago this management team was talking about cuts. On the January call: “with every Fed rate cut, so far, we're pretty successful lowering deposit costs” — Patrick Oakes, CFO · 2026-01-30 — the entire beta conversation assumed a downward path. The Q3 call is the mirror image. A September Fed funds increase, explicitly called late in the quarter, an asset-sensitive balance sheet, and a company keyword list where rate increase, rate hike and Fed funds rate have shoved aside the "rate cut" vocabulary that topped the same list in Q1. That is the Fed rate hike wave that dominated the market's curated keyword list this quarter — a broad, shared tide, not an Avid invention. But Avid is genuinely levered to it: “Looking ahead, we anticipate that our asset sensitive balance sheet will benefit from the rate increase in the fourth quarter.” — Patrick Timothy Oakes, Chief Financial Officer · 2026-10-27 The pushback came exactly where you would expect, on loan beta versus deposit beta. Oakes is targeting “below 50... closer to 40 somewhere” — Patrick Timothy Oakes, Chief Financial Officer · 2026-10-27 — a far cry from the 80% deposit beta he was apologizing for a year ago. His honest caveat matters more than the target: “Really dependent on deposit cost and how much we need to pay up. It is pretty competitive out there.” — Patrick Timothy Oakes, Chief Financial Officer · 2026-10-27The worry that vanished
The most striking feature of this transcript is absence. April's Q&A was effectively a venture-lending credit seminar: $165 million of SaaS exposure, horizontal versus vertical AI, investor-abandonment clauses, two criticized loans worth about $4 million. Mark Mordell then: “We are finding it is not just SaaS; it is how companies are dealing with AI.” — Mark Mordell, CEO · 2026-04-28 Six months later, venture lending is barely a sentence. Credit consists of one $1.5 million landlord on nonaccrual in commercial real estate, lifting nonperforming loans to 70bps, with net charge-offs essentially zero and no broad-based deterioration. Either the venture book quietly healed, or the conversation simply moved. The analysts moved with it — every question went to margin, hiring, expense run-rate and the efficiency ratio. That is a meaningful drop after quarters of emphasis, and it deserves a flag rather than a round of applause: the fastest way to stop hearing about a risk is for management to stop being asked.The headwind that is always one quarter from normalizing
Construction payoffs are the recurring crutch. In January: “This year was exceptional in construction. We had a significant amount of payoffs in our construction division, and that really held our loan growth down.” — Mark Mordell, Chairman and CEO · 2026-01-30 In October: we are getting closer to the point where that headwind moderates. Then, in the closing remarks, the candor breaks through:That is the fourth consecutive quarter in which elevated payoffs were framed as nearly finished. Believe the $76 million of deposits and the 10% annualized loan growth; discount the normalization language until it appears in the funded balance. What is genuinely new is the plumbing: preferred lender status for SBA expected in Q1 2027, plus HOA and specialty deposit teams positioned as the structural cure for deposit cost — “having 2027 being the year that they are much more impactful on our balance sheet.” — Mark D. Mordell, Chief Executive Officer · 2026-10-27I think we are coming to the end of it like I mentioned earlier. But that is probably the wildcard for Q4. We have been booking new commitments, but... we are trading 100% funded loans for 10% funded loans for the new ones that are coming on.