Year-to-Date and Third Quarter 2020 Financial Highlights
- Net income was $6,864,000 in the first nine months of 2020 compared to $9,808,000 in the first nine months of 2019. Net income in the first nine months of 2020 was impacted by a $2.9 million increase in employee costs resulting from the expansion of our staff to support our growth strategy. At the same time, the sharp drop in interest rates in March 2020 hindered net interest income growth. Net interest income was $33,177,000 in the first nine months of 2020, a decrease of $455,000 or 1.4% compared to the figure recorded in the first nine months of 2019.
- Diluted earnings per common share were $1.15 in the first nine months of 2020, compared to $1.66 in the first nine months of 2019. Weighted average common fully diluted shares outstanding were 5,957,949 and 5,904,960 in the first nine months of 2020 and 2019, respectively.
- Net interest income was $10,961,000 for the third quarter of 2020, a decrease of $203,000 over the $11,164,000 we recorded in the third quarter of 2019. The 1.8% decrease over the prior year quarter reflects declining loan and investment yields partially offset by year over year loan growth.
- Net income was $2,359,000 for the third quarter of 2020, compared to $3,452,000 for the third quarter of 2019. Results for the third quarter of 2020 were impacted by increased staffing expenses of $0.8 million, primarily from the hiring of additional personnel across the entire Bank.
- Diluted earnings per common share were $0.39 for the third quarter of 2020, compared to $0.58 for the third quarter of 2019.
- Total assets grew by 28% in the first nine months of 2020, ending the third quarter at $1.4 billion.
- Total loans net of deferred fees grew by 14% in the first nine months of 2020, ending the third quarter at $1.0 billion.
- Total deposits grew by 30% in the first nine months of 2020, ending the third quarter at $1.3 billion.
- The Company continues to be well capitalized for regulatory purposes with a Tier 1 Leverage Ratio of 8.79%, a Tier 1 Risk Based Capital and Common Equity Tier 1 Risk Based Capital Ratio of 10.33%, and a Total Risk Based Capital Ratio of 13.19%.
Mark D. Mordell, Chairman and Chief Executive Officer, stated, "More than seven months have passed since the Bay Area shelter-in-place order enacted in response to the pandemic, and we are very pleased that our employees and their families have remained healthy and safe. While over 80% of our staff continues to work remotely full-time, selected groups are returning to the office on a limited and distant basis. Our growth in loans and deposits slowed in the third quarter of 2020 compared to the surge we experienced in the second quarter as activity returned to a more normal pace. While problem loans have decreased during this time, our staff has been focused on carefully underwriting new loans and reviewing our existing portfolio for potential credit issues if the economy weakens. The loan modifications we made in response to the pandemic declined from 14% of the portfolio in the second quarter to under 3% of the portfolio in the third quarter. Our exposure to higher risk COVID-19 impacted industries such as hotels, restaurants and retail stores, is limited. Our credit quality remains strong and we have reduced the amount of non-performing loan balances by over two-thirds. We are selectively adding key staff positions to build our infrastructure and accommodate our growth. Our focus will continue to be employee health and safety along with our fiduciary responsibility to our clients and shareholders. For those reasons, we are being very cautious in our plans for returning employees to the workplace."
Mr. Mordell added, "The sharp drop in interest rates in March 2020 has led to a drop in net interest income compared to the prior year. Net interest income decreased to $11.0 million in the third quarter of 2020, a 1.8% decrease over the third quarter of 2019, as declining loan and investment yields more than offset year over year loan growth. Loans grew $9 million in the third quarter, primarily as a result of increases in Construction and Invoice Financing loans, partially offset by declines in Commercial Real Estate and Commercial loans."
Mr. Mordell continued, "Non-interest expense increased by $1,370,000 to $8,363,000 in the third quarter of 2020, up from $6,993,000 in the third quarter of 2019 primarily due to increased investments in personnel across the entire Bank. Our efficiency ratio increased to 72.6% in the third quarter of 2020, up from 59.0% in the third quarter of 2019 as a result of increased staffing costs and reduced interest income on investments and overnight funds. Total deposits increased by $18 million in the third quarter of 2020 compared to the second quarter of 2020 and increased by $380 million from the third quarter of 2019. The increase in deposits from June 30, 2020 was due to higher demand deposits and CDs over $250,000 partially offset by lower brokered deposits. The increase in deposits over the third quarter of 2019 was due to an increase in demand deposits and money market accounts, with the Venture Lending division having the largest growth. Our net interest margin dropped to 3.22% in the third quarter of 2020, compared to 4.49% in the third quarter of 2019 primarily due to a drop in loan and investment yields and an increase in overnight funds. Return on assets was 0.66% in the third quarter of 2020 compared to 0.63% in the second quarter of 2020 and 1.32% in the third quarter of 2019."
Results for the nine months ended September 30, 2020
Net interest income before provision for loan losses was $33.2 million in the first nine months of 2020, a decrease of $0.5 million or 1% over the same period of the prior year. Lower loan and investment yields were the primary reason for the decrease. Average total loans were $978 million in the first nine months of 2020 compared to $845 million in the first nine months of 2019. Average earning assets were $1.2 billion in the first nine months of 2020, a 28% increase over the prior year. Net interest margin was 3.61% in the first nine months of 2020 compared to 4.70% for the same period in 2019. The decrease in net interest margin was primarily caused by a decline in loan and investment yields and an increase in overnight fund balances. A loan loss provision of $1.6 million was recorded in the first nine months of 2020 compared to a $1.3 million loan loss provision recorded in the first nine months of 2019. We had $411,000 of charge-offs and no recoveries in the first nine months of 2020 compared to $107,000 of charge-offs and $151,000 of recoveries for the same period in 2019.
Non-interest income was $1,924,000 in the first nine months of 2020, a decrease of $273,000 or 12% over the first nine months of 2019. The first nine months of 2019 included a $306,000 gain from the sale of collateral on a workout loan.
Non-interest expense increased by $3.9 million to $24.6 million in the first nine months of 2020 compared to $20.7 million in 2019 due primarily to increased investments in personnel across the entire Bank.
The effective tax rate was 23.2% in the first nine months of 2020 compared to 29.0% for the same period in 2019. The effective tax rate in 2020 reflected the favorable impact of affordable housing tax credit investments and the re-allocation of income taxes to states outside of California.
Results for the quarter ended September 30, 2020
For the three months ended September 30, 2020, net interest income before provision for loan losses was $11.0 million, a decrease of $203,000 or 1.8% compared to the third quarter of 2019. The decrease was primarily the result of lower loan and investment yields offsetting higher average loans outstanding. Average total loans outstanding for the quarter ended September 30, 2020 were $1.0 billion, compared to $880 million for the same quarter in 2019, an increase of 14%. Average earning assets were $1.4 billion in the third quarter of 2020, a 37% increase over the third quarter of the prior year. Loans made up 74% of average earning assets at the end of the third quarter of 2020 compared to 89% at the end of the third quarter of 2019. Net interest margin was 3.22% for the third quarter of 2020, compared to 4.49% for the third quarter of 2019. A loan loss provision of $303,000 was taken in the third quarter of 2020 compared with a $39,000 loan loss provision taken in the third quarter of 2019.
Non-interest income was $563,000 in the third quarter of 2020, a decrease of $123,000 or 18% compared to the third quarter of 2019. The reduction resulted from lower investment fund income.
Non-interest expense increased by $1,370,000 in the third quarter of 2020 to $8,363,000 compared to $6,993,000 for the third quarter of 2019. This increase was primarily due to higher compensation costs related to increased staffing. The Company's full-time equivalent employees at September 30, 2020 and 2019 were 127 and 107, respectively. The Company's efficiency ratio increased from 59.0% in the third quarter of 2019 to 72.6% in the third quarter of 2020 due to increased expenses from the growth in staff and lower interest income from investments and overnight funds.
Balance Sheet
Total assets were $1.444 billion as of September 30, 2020, compared to $1.413 billion at June 30, 2020 and $1.115 billion on the same day one year ago. The increase in total assets of $31 million, or 2%, from June 30, 2020 was primarily due to increased deposits causing an increase in overnight funds with the Federal Reserve. The Company reported loans net of deferred fees at September 30, 2020 of $1.011 billion, which represented an increase of $9 million, or 1%, from $1.002 billion at June 30, 2020, and an increase of $102 million, or 11%, over $0.909 billion at September 30, 2019. The increase in total loans from June 30, 2020 was primarily a result of increases in Construction and Invoice Financing loans, partially offset by declines in Commercial Real Estate and Commercial loans. The increase in loans from September 30, 2019 was due to higher Venture Lending, Specialty Finance and Construction loans partially offset by lower Commercial loans.
"We had $0.3 million in one non-accrual loan on September 30, 2020, compared to a balance of $1.1 million at the end of the prior quarter. The non-accrual loan is secured by real estate," observed Mr. Mordell.
The Company's total deposits were $1.268 billion as of September 30, 2020, which represented an increase of $18 million, or 1%, compared to $1.250 billion at June 30, 2020 and an increase of $380 million, or 43%, compared to $888 million at September 30, 2019. The increase in deposits from June 30, 2020 was due to higher demand deposits and CDs over $250,000 partially offset by lower brokered deposits. The increase from September 30, 2019 was due to an increase in demand deposits and money market accounts, with the Venture Lending division having the largest growth. The Company had no FHLB advances outstanding as of September 30, 2020 and June 30, 2020 compared to $80 million as of September 30, 2019.
Demand and interest bearing transaction deposits represented 55% of total deposits at September 30, 2020, compared to 52% at June 30, 2020 and 47% for the same period one year ago. Core deposits, which include transaction deposits, money market accounts and CDs below $250,000, represented 87% of total deposits at September 30, 2020, compared to 84% at June 30, 2020 and 82% at September 30, 2019. The Company's loan to deposit ratio was 80% at September 30, 2020 compared to 80% at June 30, 2020 and 102% at September 30, 2019.
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 a pandemic; 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.
Contact: Steve Leen
Executive Vice President and Chief Financial Officer
408-831-5653
sleen@avidbank.com
