AVBH 10-K & 10-Q changes, risk factors and insider trading

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this report.report, and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under sections entitled “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements except as required by law.

Certain statements contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “strive,” “intend,” “plan” or words or phasesphrases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Such forward-looking statements are based on various assumptions (some of which may be beyond our control) and are subject to risks and uncertainties, which change over time, and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:

We are a bank holding company headquartered in San Jose, California that operates through our wholly owned banking subsidiary, Avidbank, or the Bank, a California state-chartered bank. We are registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California in 2007 for the principal purpose of engaging in activities permitted for a bank holding company. As a bank holding company, the Company is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and the regulations thereunder. We own 100% of the issued and outstanding common shares of our banking subsidiary, Avidbank.

We specialize in commercial and industrial lending, venture lending, structured finance, asset-based lending, sponsor finance, fund finance, real estate construction and commercial real estate lending. We recently established a Small Business Administration lending division to enhance our commercial banking suite of products and services. In addition to providing products and services, the Bank emphasizes the establishment of long-standing relationships with its customers and regularly modifies the products and services it offers to meet the unique demands of its customers. Our mission is to collaborate with our customers to meet their banking needs whether individual or business. We aim to consistently deliver value that exceeds our clients’ expectations.

We reported net income for the three months ended MarchJune 31,30, 2026 of $9.0$7.6 million, or $0.84$0.71 per diluted share, compared to net income of $5.4$5.8 million, or $0.71$0.75 per diluted share, for the same period in 2025. InNet Augustincome ofincreased 2025,while earnings per share decreased primarily due to the Companyadditional completed3 anmillion shares issued in connection with the initial public offering ("“IPO"”) ofcompleted itsin commonAugust stock, issuing an aggregate total of 3,001,500 shares of common stock at the public offering price of $23.00 per share. After deductions for underwriting fees, commissions and offering expenses, the Company's net proceeds from the IPO totaled $61.3 million.2025. In the third and fourth quarters of 2025, we repositioned the securities portfolio and sold $274.7 million in available-for-sale securities for a loss of $62.4 million and purchased $205.4 million in available-for-sale securities with an average purchase yield of 4.57%. We paid off existing short-term borrowings at the time using proceeds from the IPO and securities sales.

The following provides highlights of our financial results for the three and six months ended MarchJune 31,30, 2026:

Management believes that taxable equivalentadjusted net interestincome, incomeadjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity, adjusted efficiency ratio and taxable equivalent net interest marginincome are reasonable measures to understand the Company’s core operating performance and are important to many investors in the marketplace who are interested in understanding our profitability prospects from our core operations. In addition, management reviews yields on certain asset categories and the net interest margin of the Company on a fully taxable equivalent basis. The non-GAAP taxable equivalent net interest income andadjustment net interest margin adjustments facilitatefacilitates performance comparisons between taxable and tax-freetax-exempt assets by increasing the tax-freetax-exempt income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Company's 21% Federal statutory rate.

The following table shows the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin (on a taxable equivalent basis, a non-GAAP measure) for the three months ended MarchJune 31,30, 2026 and 2025:

The securities repositioning and repayment of short-term borrowings completed in 2025 continued to benefit earnings during 2026 through a higher-yielding investment portfolio and lower funding costs. Net interest income on a taxable equivalent basis for the three months ended MarchJune 31,30, 2026, was $26.5$26.7 million, an increase of $7.1$6.4 million, or 37%,31%, compared to $19.4$20.3 million for the three months ended MarchJune 31,30, 2025. The increase in net interest income was primarily attributabledriven toby an increase in the balance ofhigher average loansloan balances, higher yields on securities and alower decreaseaverage inshort-term interest expense. Additionally, the improvement in interest income was positively impacted by the repositioning of our available-for-sale securities portfolio during 2025.borrowings.

Average interest-earning assets for the three months ended MarchJune 31,30, 2026 increased $226.5$252.0 million compared to the same period in 2025, which included increases of $292.0$307.9 million in average total loans and $14.5$17.8 million in average balances in interest-bearinginterest-earning deposits in banks,deposits, partially offset by a $79.9$73.7 million decrease in average debt securities. Average interest-bearing liabilities decreasedincreased $7.8$22.9 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, primarily due to a $144.6$111.3 million decrease in average short-term borrowings, a $73.0 million decrease in average non-reciprocal brokered deposits and a $32.7 million decrease in average time deposits, partially offset by increases of $110.5 million in average interest-bearing demand deposits and an increase of $131.9 million in average money market and savings.savings and a $17.2 million increase in average interest-bearing demand deposits, partially offset by decreases of $87.7 million in average short-term borrowings, $11.9 million in average time deposits and $6.0 million in average non-reciprocal brokered deposits. Average non-interest-bearing deposits for the three months ended MarchJune 31,30, 2026, increased to $534.0$552.7 million from $405.7$425.2 million for the same period in 2025.

TheNet averageinterest rate paid for short-term borrowingsmargin for the three months ended MarchJune 31,30, 2026, was 3.82%4.26% compared to 4.56%3.60% for the same period in 2025. OurThe increase was primarily driven by higher yields on securities, lower cost of deposits and lower rates and balances on short-term borrowings typically consist of overnight borrowings.

The following table shows the effect of the interest differential of volume and rate changes for the three and six months ended MarchJune 31,30, 2026 compared to the same period in 2025. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each.

The provision for credit losses was $1.4$2.8 million for the three months ended MarchJune 31,30, 2026, compared to $0$925 thousand for the three months ended MarchJune 31,30, 2025. For the six months ended June 30, 2026, provision for credit losses was $4.2 million, an increase of $3.3 million compared to the six months ended June 30, 2025. The provision was higher in the firstsecond quarter of 2026 compared to the same period of 2025 and was higher for the first six months of 2026 compared to the six months ended June 30, 2025, primarily due to higher loan balances.balances and a $1.9 million partial charge-off of one non-performing construction loan. The allowance for credit losses, including loans and unfunded commitments, as a percentage of outstanding loans was 1.07%1.09% and 1.14%1.15% atas Marchof 31,June 30, 2026 and 2025, respectively. See further discussion of the Provision for Credit Losses and Allowance for Credit Losses in “Financial Condition—Allowance for Credit Losses.”

The following table details the components of the Company's provision for credit losses for the three and six months ended MarchJune 31,30, 2026 and 2025.

Non-interest income increased $296$1.5 thousand,million, or 25%,98%, and $1.8 million, 67%, respectively, for the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods of 2025. The increase was primarily attributabledriven toby income of approximately $1.3 million on BOLI death benefits received during the second quarter of 2026 as well as higher foreign exchange income, higher other investment income and higher other income resulting from increased credit card interchange fee income. Partially offsetting the increase was a decrease in otherwarrant investmentand incomesuccess duefee to fair value marks on fund investments.income.

The following table reflects the major components of the Company’s non-interest income for the three and six months ended MarchJune 31,30, 2026 and 2025:

Service charges and bank fees for the three and six months ended MarchJune 31,30, 2026, increased $59$11 thousand, or 8%,1%, and $70 thousand, or 4%, respectively, from the same periodperiods in 2025, primarily due to an increase in the number of client relationships.

During the three and six months ended MarchJune 31,30, 2026, foreign exchange income increased $143$144 thousand, or 65%,73%, and $287 thousand, or 69%, respectively, compared to the same periodperiods in 2025 as a result of the volume of transaction commissions. Foreign exchange income represents commissions earned on foreign exchange transactions, net of related commissions charged by our correspondent bank partners.

OtherIncome investmentfrom incomebank-owned life insurance for the three and six months ended MarchJune 31,30, 2026, decreasedincreased $69$1.4 thousand,million during both periods compared to the same periodperiods in 2025 primarily duedriven toby fairincome valueof marksapproximately $1.3 million on funddeath investments.benefit proceeds received during the second quarter of 2026.

OtherCredit card income increased $144 thousand for the three months ended MarchJune 31,30, 2026, compareddecreased $37 thousand, or 25%, due to a vendor contract payout in the samesecond periodquarter inof 2025the prior year and increased $17 thousand, or 9%, for the six months ended June 30, 2026, primarily drivendue byto an increase in credit card interchange fee income.

DuringFor the three months ended MarchJune 31,30, 2026, non-interest expense increased by $1.2$3.9 million, or 10%,31%, to $14.1$16.5 million compared to the same period in 2025.The increase was primarily driven by a charge of $2.6 million for the settlement of outstanding litigation, higher salaries and employee benefits expense, increased legal and professional fees and higher datadirectors' processing expense, partially offset by a decrease in occupancyfees and equipment expense.expenses.

The following table reflects the major components of the Company’s non-interest expense for the three and six months ended MarchJune 31,30, 2026 and 2025:

Salaries and employee benefits expense for the three and six months ended MarchJune 31,30, 2026, was $9.6 million, an increase of $458$585 thousand, or 5%,7%, and $19.1 million, an increase of $1.0 million, or 6%, compared to the threesame monthsperiods ended March 31,in 2025. The increaseincreases waswere primarily driven by increased investment in personnel across the entire Bank.Bank, partially offset by higher capitalized loan origination costs. Full-time equivalent headcount totaled 154162 atas Marchof 31,June 30, 2026 compared to 143149 atas Marchof 31,June 30, 2025.

Legal and professional fees were $1.2$897 thousand and $2.1 million for the three and six months ended MarchJune 31,30, 2026, an increase of $677$182 thousandthousand, or 25%, and $860 thousand, or 70%, respectively, compared to the same periodperiods in 2025. The increaseincreases waswere driven by higher credit-related legal and professional fees.

Data processing expense was $799$787 thousand,thousand and $1.6 million for the three and six months ended June 30, 2026, an increase of $184$28 thousand, or 30%,4%, and $212 thousand, or 15%, respectively, compared to the same periodperiods in 2025. The increaseincreases waswere due to higher transaction volume.

Occupancy and equipment expense totaled $790$777 thousand,thousand and $1.6 million for the three and six months ended June 30, 2026, reflecting aan decreaseincrease of $206$18 thousand, or 21%,2%, from the same period in 2025. For the six months ended June 30, 2026, occupancy and equipment expense decreased $188 thousand, or 11%, compared to the same period in 2025 due to lower rent expense at one of our loan production offices.

Total assets of the Company were $2.58$2.66 billion atas Marchof 31,June 30, 2026 and $2.57 billion atas of December 31, 2025. LoansLoans, net of deferred fees increased $24.4$75.7 million compared to December 31, 2025, and debt securities increased $14.0 million over the same period. Partially offsetting the increase were partially offset by decreases in cash andthe cash equivalents,surrender thevalue securitiesof portfolioBOLI policies and other assets.

As of MarchJune 31,30, 2026, loans, net of deferred fees, totaled $2.17$2.22 billion compared to $2.15 billion atas of December 31, 2025. The increase from December 31, 2025, was primarily due to the increase in commercial and industrial loans and commercial real estate loans, partially offset by a decrease in commercial and industrialconstruction loans. The loan portfolio was comprised of approximately 48%50% and 49% of commercial and industrial loans atas Marchof 31,June 30, 2026 and December 31, 2025, respectively. Commercial real estate loans comprised 41% of our loans atas Marchof 31,June 30, 2026 compared to 40% atas of December 31, 2025. The loan portfolio information presented in this section should be read in conjunction with Note 3 — Loans and Note 4 — Allowance for Credit Losses on Loans of the consolidated financial statements.

The following table shows the maturity distribution for total loans outstanding as of MarchJune 31,30, 2026:

The principal balances of loans are indicated by both fixed and variable rate categories as of MarchJune 31,30, 2026 in the table below:

The following table presents the various product types of commercial and industrial loans as of MarchJune 31,30, 2026 and December 31, 2025:

As of MarchJune 31,30, 2026 and December 31, 2025, we had $882.8$909.9 million and $854.3 million, respectively, in commercial real estate loans representing 41% and 40% respectively, of our total loans. Our commercial real estate loans consist of commercial, multi-family and mixed-use property loans for investors and owner-users. Our commercial real estate loans are typically secured by multi-family, hotel/motel, retail, industrial, warehouse or other commercial properties. AtAs Marchof 31,June 30, 2026 and December 31, 2025, 21%19% and 20%, respectively, of our commercial real estate loans were for non-owner-occupied purposes. All commercial real estate loans were collateralized by properties in California as of MarchJune 31,30, 2026 and December 31, 2025.

Non-performing assets are comprised of loans on non-accrual status, loans 90 days or more past due and still accruing interest, and other real estate owned. We had no loans 90 days or more past due and still accruing interest and no other real estate owned atas Marchof 31,June 30, 2026 or December 31, 2025. A loan is placed on nonaccrual status if there is concern that principal and interest may not be fully collected or if the loan has been past due for a period of 90 days or more, unless the obligation is both well-secured and in process of legal collection. When loans are placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on non-accrual loans is subsequently recognized only to the extent that cash is received, and the loan’s principal balance is deemed collectible. Loans are returned to accrual status when they are brought current with respect to principal and interest payments and future payments are reasonably assured. Additionally, assets that have been restructured due to the borrower’s financial difficulties may also be classified as non-performing if the restructuring does not restore the asset to a performing status.

The allowance for credit losses (“ACL”) represents an amount that is intended to absorb the lifetime expected credit losses that may be sustained on outstanding loans at the balance sheet date. Additional information regarding the ACL evaluation can be found in Note 4 — Allowance for Credit Losses on Loans to our consolidated financial statements for the three and six months ended MarchJune 31,30, 2026 and 2025. The decrease in the ACL compared to December 31, 2025 was primarily due to the payoff of a $3.1 million construction loan that was non-performing and the charge-off of two commercial and industrial loans totaling $3.2 million and the partial charge-off of one non-performing construction loan totaling $1.9 million. The individual reserve on the two commercial and industrial loans prior to them being charged-off was $1.2 million each.

The ACL may be adjusted by charge-offs, net of recoveries of previous losses, and may be increased or decreased by a provision for or recapture of credit losses, which is recorded in the consolidated statements of operations. Management estimates the allowance balance using various information sources, both internal and external, relating to past events, current conditions, and reasonable and supportable forecasts. During 2026, Management transitioned from FOMC economic forecasts based on publicly available economic data to forecasts sourced from Moody's Analytics. The change did not materially alter the Company's ACL methodology but provides a consistent source of economic assumptions used in estimated expected credit losses. Historical credit loss experience typically provides a basis for the estimation of expected credit losses. Adjustments to historical loss information may be made for differences in current loan-specific risk characteristics and changes in environmental conditions. Expected credit losses are typically estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term generally excludes expected extensions, renewals, and modifications. Additional information regarding our ACL policy is included in the section titled “Critical Accounting Policies and Estimates”.

We assign a risk rating to all loans and periodically perform detailed reviews of all such loans exhibiting variances in expected payment and/or financial performance to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by us and by our regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan. We individually rate loans based on internal credit risk ratings using numerous factors, including thorough analysis of historical and expected cash flows, LTVloan-to-value (loan-to-value“LTV”) ratios, collateral, collection experience, and other internal metrics. The risk ratings can be grouped into six major categories, defined as follows: