AvidBank Holdings stock initiated with Neutral rating by Janney

On Friday, AvidBank Holdings Inc. (OTC: AVBH) received a Neutral rating from Janney, with a Fair Value Estimate set at $21.00 per share. The rating reflects the firm's view that the near-term earnings power of AvidBank is largely contingent upon its success in substituting high-cost borrowings with more affordable core deposits. This shift is seen as a necessary step for improving Net Interest Income, which currently accounts for over 90% of the bank's operating revenue.

AvidBank's recent financial performance has been impacted by the cost of its borrowings, which represented about 20% of average interest-bearing liabilities as of the first quarter of 2024. This has led to a deceleration in loan growth and a loan-to-deposit ratio that has reached 101%, up from 85% in the fourth quarter of 2022. These are identified as potential short-term challenges that the bank is addressing.

To counter these issues, AvidBank has been actively hiring strategically to expand its core deposit base and has implemented initiatives aimed at increasing fee income. These initiatives include offering treasury management services and introducing a business credit card.

Additionally, the bank's credit quality remains robust, and it is poised to capture more market share in its specialized lending areas—venture financing and high-end residential construction—especially after the failure of two large competitors in these niches.

Despite these positive aspects and the bank's strong credit culture and innovative lending practices, Janney believes that the immediate hurdles to earnings may outweigh the long-term advantages. While recognizing that there might be a rationale for investors to purchase AvidBank shares at present, Janney suggests that it may be more judicious to wait for tangible signs of progress on the earnings front before making an investment decision.

In other recent news, AvidBank Holdings Inc. saw its share target cut by Piper Sandler, following adjustments made in response to the bank's first-quarter 2024 earnings report. AvidBank posted earnings per share (EPS) of $0.69, exceeding both Piper Sandler's and Wall Street's estimates.

Notably, the bank's provision for credit losses was smaller than anticipated, contributing $0.06 per share to the earnings upside, and the bank's fee income and net interest income also surpassed expectations.

However, AvidBank faced higher expenses than Piper Sandler had modeled, negatively impacting the EPS by $0.08. As a result, Piper Sandler has updated its model for AvidBank, factoring in thinner margins, stronger fee income, and higher expenses to support the bank's growth. Following these revisions, Piper Sandler has reduced its EPS forecasts for AvidBank for 2024 and 2025, leading to the decision to lower the price target for AvidBank's stock.

InvestingPro Insights

As AvidBank Holdings Inc. (OTC: AVBH) navigates the challenges of high-cost borrowings and seeks to bolster its Net Interest Income, the latest data from InvestingPro provides a snapshot of the company's financial health. With a market capitalization of $150.14M and a P/E Ratio of 8.85, AvidBank shows a valuation that may attract investors looking for potentially undervalued opportunities. The company's revenue for the last twelve months as of Q1 2024 stands at $67.92M, although it has experienced a slight decline in revenue growth of -13.69%. On the operational front, AvidBank has maintained a strong operating income margin of 33.32%.

Two InvestingPro Tips highlight important considerations for investors: Analysts have recently revised their earnings expectations downwards for the upcoming period, suggesting that investors should closely monitor upcoming earnings reports. Meanwhile, AvidBank's stock is characterized by low price volatility, which might appeal to investors seeking stability in their portfolio. Additionally, while the company has been profitable over the last twelve months, it is important to note that AvidBank does not pay a dividend to shareholders, which may influence the investment strategy of income-focused investors.

For those interested in a deeper analysis, InvestingPro offers additional insights on AvidBank Holdings Inc., including more InvestingPro Tips. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, providing you with comprehensive data to inform your investment decisions.

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