AVBC

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2025, for Avidia Bancorp, Inc. (the "Company"). The Company was incorporated on February 28, 2025, to serve as the bank holding company for Avidia Bank following a conversion from a mutual holding company (Assabet Valley Bancorp) to a stock form of organization. As of the reporting date, the conversion had not been completed; consequently, the financial statements presented relate to Assabet Valley Bancorp and its subsidiary, Avidia Bank. The Company is classified as a non-accelerated filer and a smaller reporting company.

Key Financial Metrics

Material Changes vs. Prior Period

• Significant Net Loss: The Company reported a net loss of $11.6 million, a reversal from the $3.5 million net income in Q1 2024. This was primarily driven by a $17.0 million increase in the provision for credit losses.
• Major Loan Charge-Off: The increase in credit loss expense was almost entirely due to a $16.7 million charge-off on a $25.0 million construction and land loan. The loan defaulted after missing an interest payment. An updated appraisal valued the collateral at $7.1 million (down from $52 million in 2022) due to a shift in highest and best use from life sciences to multi-family, reflecting a downturn in the Greater Boston life sciences market.
• Expense Growth: Non-interest expenses rose 20.6% year-over-year. Salaries and employee benefits increased by $3.0 million, largely due to the termination of a long-term incentive plan and immediate vesting ($1.1 million) and increased short-term incentives. Data processing costs rose $1.2 million due to a new online banking platform and contract termination fees.
• Deposit Growth: Core deposits increased by $78.2 million, driven by growth in interest-bearing checking and savings accounts, offsetting a decline in certificates of deposit.

Outlook, Risks, and Contingencies

• Conversion Status: The Company is in the process of converting from a mutual to a stock holding company. As of March 31, 2025, $682,000 in conversion costs had been incurred. The stock offering is subject to regulatory approval.
• Asset Quality Risk: Management highlighted the specific risk associated with the life sciences real estate market, noting that the charged-off loan was a unique asset and that current underwriting standards would not permit a similar non-cash-flowing, collateral-dependent loan today.
• Interest Rate Risk: The Company utilizes interest rate swaps (notional amount of $160 million for hedges and $87.5 million for customer loans) to manage exposure. Sensitivity analysis indicates a 200 basis point increase in rates would decrease Net Interest Income by 7.9% and Economic Value of Equity (EVE) by 12.6%.
• Liquidity: The Company maintains strong liquidity with $684.5 million available at the Federal Home Loan Bank (with $325 million outstanding) and $330 million available at the Federal Reserve Bank of Boston.

Investor Verification Checklist

• Loan Charge-Off Details: Verify the specific terms of the $25 million construction loan and the methodology used for the updated $7.1 million collateral valuation.
• Conversion Timeline: Confirm the status of the mutual-to-stock conversion and the expected closing date for the stock offering.
• Expense Run-Rate: Assess whether the $3.0 million increase in compensation expenses is a one-time event (due to plan termination) or indicative of a higher ongoing cost structure.
• Life Sciences Exposure: Review the total exposure to the life sciences sector beyond the charged-off loan to ensure no other material concentrations exist.
• Regulatory Capital: Confirm that the net loss has not impacted the Bank's "well-capitalized" status under Prompt Corrective Action provisions.