KBRA Affirms Ratings for Avidbank Holdings, Inc.

KBRA affirms the senior unsecured debt rating of BBB-, the subordinated debt rating of BB+, and the short-term debt rating of K3 for San Jose, California-based Avidbank Holdings, Inc. (OTCPK: AVBH) ("the company") ("Avid"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB, the subordinated debt rating of BBB-, and the short-term debt and deposit ratings of K3 for its subsidiary, Avidbank ("the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by the experienced executive management team, which has extensive knowledge within the bank’s core Northern California operating market and loan verticals, including the early-stage VC lending business. These initiatives, including a focus on building regulatory capital levels, reducing the level of deposit concentrations and uninsured deposits, and growing the size and diversity of the commercial loan book (and reducing the CRE concentration), are all factors supportive of the ratings.

Regulatory capital has steadily improved over time such that the difference between it and similarly rated KBRA peers has narrowed considerably. This has been accomplished primarily through earnings improvement and retention (the company does not pay dividends or repurchase common shares), and disciplined asset growth. The company raised $28 million in common stock in 2022 to bolster the balance sheet.

Consolidated bottom line earnings remain anchored by the bank’s solid and relatively durable NIM, in varying interest rate environments, which is tied to the relatively high yielding loan portfolio that generally reprices with changes in short-term rates due to the preponderance of floating rate loans. While expense management has been good, KBRA notes that revenue diversification beyond net interest income remains limited.

While the deposit mix remains lumpy in cases, the base has broadened, and the reliance on uninsured deposits has declined precipitously, driven primarily by reciprocal deposit arrangements. As of 1Q25, uninsured deposits has declined to 35% of total deposits.

A minor amount of the investment portfolio is pledged as collateral and, as such, the preponderance of asset liquidity totaling $406 million (or 18% of total assets) is available for unexpected needs. Contingent sources of funding at the Federal Reserve and FHLB totaled $1.2 billion as of March 31, 2025 ($1.6 billion in total availability). Estimated uninsured deposits as of 1Q25 amounted to $671 million per regulatory filing.

Rating Sensitivities

The ratings for the bank could be upgraded if the bank’s regulatory capital (using the CET1 ratio as the standard) were to be managed in the range of 13% (or in line with higher rated peer levels) and the double leverage ratio for the company were to continue to be held at the current 110% range or lower. The 13% CET1 ratio level would, currently, place the bank in line with KBRA's similarly rated banks and would reflect the bank’s more concentrated revenue profile and deposit funding base, albeit, the latter on an improving trend. Conversely, while unlikely, the bank’s ratings could be lowered if earnings performance deteriorated substantially, such that episodes of quarterly losses occurred or appeared likely, or bank regulatory capital ratios were likely to be managed well below rated peer levels.

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Methodologies