Avidbank Holdings, Inc.

Before we begin, let me remind you that today's call is being recorded and is available in the investor relations section of our website at avidbank.com, along with our earnings release and presentation materials. Today's call contains forward-looking statements which are subject to certain risks, uncertainties, and other factors that can cause actual results to differ materially from those discussed. These statements are intended to be covered by the safe harbor provisions of the Federal For a list of factors that may cause actual results to differ materially from expectations, please refer to our earnings release under the heading Forward-Looking Statements, as well as the disclosures contained within our SEC filing. We will also reference non-GAAP financial measures alongside our discussion of GAAP results. We encourage you to review the GAAP to non-GAAP reconciliations provided in our article. With that, I'd like to turn the call over to our Chairman and CEO, Mark Mordell.

Thank you, Gina, and thank you all for joining us this morning. We appreciate your continued interest and support, for sure. Overall, this is another solid quarter for us, albeit a bit noisy. We continue to grow loans and deposits. The margin held up. Our core profitability remains strong. As you saw in the release, our reporting results for this quarter included two discrete items, a charge to settle a litigation matter and a gain on bank-owned life insurance with the net effect reducing reported earnings. Excluding those items, adjusted net income was 8.2 million or 76 cents a share. And our adjusted return on assets was 1.28%. So underneath the reported numbers, the core earnings and power of the franchise continue to improve. And Pat will take you through that in more detail in a few minutes. Let's talk about the litigation settlement. During the quarter, we reached an agreement to settle a litigation matter arising fraudulent wire transfer involving a client account back in the fall of 2024 that was settled this quarter and recorded a pre-tax charge of $2.6 million. This is an isolated matter, and resolving it was the right decision. It puts the issue behind us and avoids the cost and distraction of prolonged litigation and ambiguity of the outcome. We obviously take the security of our clients' funds and the integrity of our operational controls very seriously, and we've used this experience to reinforce our processes. As you're all aware, given the sensitivity of these matters, I'm only going to confirm that it's resolved. I'm not going to address it much further. On credit, asset quality continued to move in the right direction. Non-performing loans declined to 0.65% of total loans. During the quarter, we took a partial charge off of approximately $1.9 million on one construction loan as we worked that credit towards resolution. Criticized loans did tick up and are higher than I would like. This is primarily due to a non-owner-occupied real estate relationship with three loans for only $21 million and very low LTDs. We proactively risk-rated those and are actively managing them. As I said many times before, we never take credit for granted. We watch it very closely and stay proactive. It seems we're always going to have a few credits that we need to work through, but we're not seeing anything broad-based deterioration in the Turn into growth, which is really what we're all about, loans grew $51 million in the quarter, or about 9% annualized, and are up $312 million, or 16% over the past year. Deposits grew $123 million, or 22% annualized, with continued strength in our core commercial relationship. Growth was again broad-based across our lending and deposit teams, Our loan growth of $51 million was driven primarily by CNI and CRE. Our overall loan growth was offset by another $36 million in construction and land loans or payoffs. We've had consistent payoffs in construction over the past going on 24 months at this point, and it just seems to be that time of the cycle. So I think we're getting close to bottoming out on that. We're going to continue to target low-double-digit growth in loans and deposits, and we feel good about our positioning for the balance of the year. A big part of that positioning is talent. We ended the quarter with 162 full-time employees, up from 154 at the end of the first quarter. These additions include five senior revenue-generating bankers, as well as We continue to be able to attract experienced bankers from a number of other larger institutions to drive our growth. These investments will add some expense in the near term, but it's an investment in the future and the power of the bank. Additionally, as many of you saw, we announced the launch of our new SBA lending division. This is an important and natural expansion of our commercial lending platform. We have brought on an experienced, purpose-built team led by Brian Harper, Our new Managing Director of SBA Lending who brings more than two decades of SBA experience along with a full complement of business development, credit, and operations professionals. As most of you know, SBA Lending allows us to deliver government guaranteed financing to help small and mid-sized business owners fund growth, acquisitions, working capital equipment, and real estate. And it deepens the relationship driven service that defines us. We are excited about the opportunity this creates for our clients as well as the franchise. With that, let me turn it over to Pat. I'll walk you through the quarter in more detail. Thanks, Mark.

Good morning, everyone. Let me start off with the margin. The net interest margin for the second quarter was 426, down 12 basis points from 438 in the first quarter, and in line with the guidance we provided last earnings call. Net interest income was 26.7 million, up 181,000 from the first quarter. as higher average earning assets were partially offset by a lower FHLB dividend and higher deposit costs. Our loan yield was relatively flat at $667 compared to $668 in the first quarter. The cost of interest-rearing deposits rose eight basis points to $306 from the increased deposit pricing pressure we experienced in Q1 and early Q2. The spot rate was $307 at June 30th compared to $303 at March 31st. as deposit pricing pressure moderated some during the quarter. The provision for credit losses was 2.8 million, up from 1.4 million in the first quarter, driven primarily by the $1.9 million partial charge-off on the non-performing construction loan. Net charge-offs were 35 basis points of average loans for the quarter. Non-performing loans declined to 65 basis points of total loans, down from 75 basis points at the end of the first quarter. and our allowance of credit losses was 97 basis points, an increase of 96 basis points in the first quarter. Non-interest income was 3.1 million, driven by the $1.3 million only death benefit proceeds. Excluding these proceeds, non-interest income was 1.7 million for the quarter, compared to 1.5 million in the first quarter. Non-interest expense was 16.5 million, including the $2.7 million litigation settlement. Including the settlement, core expenses decreased to $13.8 million from $14.1 million last quarter, primarily from lower credit-related legal and professional fees. Salary and benefits were flat at $9.6 million, as higher salary expense was offset by lower payroll taxes, lower bonus accruals, and higher capitalized loan retention costs. The increase in revenue and decreasing expenses helped push our efficiency ratio lower. The adjusted efficiency ratio was 48.7% compared to 15.4% last quarter. Our effective tax rate for the quarter was 27%, and we expect that around the mid-27s range for the remainder of the year as we benefit from the tax-exempt holy death benefit proceeds. On capital, book value per share increased 64 cents to $26.97. Thanks, Pat. So I think we'll just open it up to questions at this point because I'm sure there's going to be a few out there, so please.