Emerging Idea: AVBH in CA

PDF ATTACHEDEmerging Ideas – AVBH in CA- FIG Partners Update 3-31-17

Close $19.10 / HQ=Palo Alto, CA / $89.9 Mil. Mkt. Cap

AVBH-Avidbank Holdings is the holding company for Avidbank a Palo Alto, CA-based financial institution.  The bank had total assets of $647 Million, gross loans of $515 Mil and deposits of $568 Mil, as of 4Q-16.  Avidbank offers a variety of lending services and products to commercial clients including C&I-Commercial & Industrial loans (32% of the loan portfolio), C&D-Construction & Development (24%) and Investor CRE-Commercial Real Estate (22%).  The average loan yield in the most recent quarter was 5.35%.  The bank’s deposit base is 70% commercial clients and 30% retail.  Non-Interest Bearing deposits are 42% of total deposits, Non-CD deposits are 84% and Core Deposits are also 84%.

Avidbank operates a single, full-service branch in Palo Alto, CA, which is near both Stanford University and the technology-centric Silicon Valley.  The bank has loan production offices in San Francisco, San Jose and Redwood City.

Here are some fundamental observations:

  • AVBH-Avidbank Holdings reported EPS of $1.56 in 2016 (including $0.24 in 4Q-16), compared to $0.81 in 2015. The increase in earnings resulted from stronger NII-Net Interest Income (up $2 Million, or 9%, year-over-year) and a modest rise in operating costs (non-interest expenses grew by $850,000, or less than 6% year-over-year).  The company’s efficiency ratio ended the year at 57.5%, compared to 62.6% the previous year.
  • Gross loans increased $112 Mil, or 28%, from a year earlier. Growth was dominated by $34 Mil in C&D-Construction & Development credits (mostly single family residential in-fill within the company’s footprint), $29 Mil in C&I-Commercial & Industrial loans (a combination of asset-based lending, receivable financing and commercial lines of credit) and $16 Mil in Multifamily loans (also in the company’s San Francisco Bay Area footprint).
  • Approximately 40% of the loan portfolio is variable rate and priced above floors. An additional 15% of loans will float above floors following the next rate increase of 25bps.  While 40% of Avidbank’s loan portfolio is fixed rate, half of those loans are tied to residential construction loans.  Those loans have an average life of 15 months.
  • The company provisioned $813,000 in 4Q-16 to cover growth in the loan portfolio. The company reported no NPA-Non-Performing Assets and zero charge-offs in the quarter.  Reserves ended the year at 1.21% of loans.
  • Avidbank intends to maintain a spread income business model. In 2016, interest income from the loan portfolio accounted for 87% of operating revenue.  Management has identified the focus of future loan growth in four categories: CRE-Commercial Real Estate, specialty finance, commercial lending and residential construction.  The company currently has 14 lenders, including three hired in 2016.  Avidbank hopes to hire an equal number in 2017.