Avidbank's Temporary Deposit Lifts Net Interest Income

The Tip Desk · October 26, 2026 · 4 min read

Net interest income rose to $28.7 million as a $270 million client deposit lifted cash, while the net interest margin compressed 19 bps to 4.07%.

Avidbank Holdings, Inc. (AVBH), the holding company for Avidbank, a California state-chartered commercial lender, reported net interest income of $28.7 million for the third quarter of 2026, up $2.0 million, or 30% annualized, from the second quarter. The company said the increase was primarily due to temporarily higher deposit balances that raised cash, along with higher average loan balances and higher balances of debt securities.

Net income was $10.2 million, or $0.94 a diluted share, compared with $7.6 million, or $0.71 a share, in the second quarter. Return on average equity was 13.43% and return on average assets was 1.42%.

The deposit story dominated the quarter. Average deposits increased $283.8 million, or 51% annualized, from the second quarter, after a $59.2 million, or 11% annualized, increase in the prior quarter. Period-end deposits rose $290.1 million, or 50% annualized, to $2.61 billion. Money market and savings deposits included about $270.0 million from a temporary deposit. Interest-bearing demand deposits rose $30.3 million and time deposits $3.2 million, while non-reciprocal brokered deposits fell $55.5 million and non-interest-bearing checking fell $33.4 million.

Chairman and Chief Executive Officer Mark Mordell said a significant amount of the deposit growth came from that temporary large client deposit, which the company expects to leave in the fourth quarter, and that bankers also delivered meaningful core deposit growth. He said the temporary deposit contributed to net interest income but created pressure on the net interest margin.

Net interest margin was 4.07%, down 19 basis points from 4.26% in the second quarter. The company attributed the decline primarily to a $205 million increase in average interest-earning cash, which it estimated impacted the margin by about 17 basis points. The prior quarter’s margin had already fallen 12 basis points from 4.38% in the first quarter.

The loan book continued to expand. Period-end loans, net of deferred fees, totaled $2.28 billion, up $58.4 million, or 10% annualized, from June 30, 2026, after a $51.3 million, or 9% annualized, increase in the second quarter. Growth included $20.7 million in commercial and industrial loans, $17.8 million in multi-family, $13.6 million in owner-occupied real estate and $8.8 million in non-owner-occupied real estate, offset by a $2.6 million decline in construction and land. The loan yield was 6.66%, relatively flat from the second quarter.

Funding costs eased. The cost of interest-bearing deposits was 2.97%, down 9 basis points from the second quarter; overall funding costs declined 9 basis points. The cost of deposits was 2.29%, flat versus the second quarter.

Credit costs receded. The provision for credit losses was $1.2 million, compared with $2.8 million in the second quarter. The company said the third-quarter provision was lower partly because a $1.9 million partial charge-off of a non-performing construction loan occurred in the second quarter. Annualized net charge-offs to average loans were 0.00%. Non-performing loans to total loans rose to 0.70% from 0.65% at June 30, 2026, after a $1.5 million land loan was placed on nonaccrual. The allowance for credit losses on loans was $22.8 million. The allowance for loans and unfunded commitments was 1.11% of total loans.

Non-interest income was $1.7 million, down from $3.1 million in the second quarter, which included about $1.3 million of BOLI death-benefit proceeds. Non-interest expense was $15.1 million, compared with $16.5 million in the second quarter, which included a $2.6 million litigation settlement. Excluding that settlement, adjusted expense rose $1.3 million on $615 thousand higher salaries and $419 thousand higher legal and professional fees. Full-time equivalents were 171. The efficiency ratio was 49.80%.

The company redeemed $22.0 million of callable subordinated notes due 2029 and issued $30.0 million of new 7.00% fixed-to-floating notes due 2036. Book value per share was $27.24. No shares were repurchased in the third quarter. Mordell said the company remains focused on generating consistent growth with strong capital, a diversified balance sheet and proactive credit management.