ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our consolidated financial condition and results of operations. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this annual report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report.
Overview
Our business consists primarily of taking deposits from the general public in our markets and nationally for our payments
related services. We invest those deposits, together with funds generated from operations and contributed capital,
primarily into one-to four-family residential mortgage loans, commercial real estate loans, and commercial and industrial
loans, including condominium association loans. To a substantially lesser extent, we also originate home equity and
second mortgage loans, multifamily loans, construction and land loans, and consumer loans. We also invest in securities,
primarily U.S. Government-related securities and U.S. agency mortgage-backed securities.
We offer a variety of deposit accounts, including certificate of deposit accounts, IRAs, money market accounts, savings accounts, demand deposit accounts and interest-bearing and noninterest-bearing checking accounts. As part of our deposit taking activities, through our Avidia Health program, we offer Health Savings Accounts (HSAs) nationwide. In addition to our core banking business, since 2000 we have engaged in payments processing activities, serving small business merchants and other payment processing entities nationwide.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our allowance for credit losses, noninterest income, noninterest expense, and income tax expense. Noninterest income currently consists primarily of payment processing income and customer service fees, together with income on other financial services. Noninterest expense consists primarily of expenses related to salary and employee benefits, occupancy and equipment, and data processing, along with other operating expenses. Income tax expense is based on federal and Massachusetts tax regulations.
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Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Critical Accounting Policies and Use of Critical Accounting Estimates
General. The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared to conform with U.S generally accepted accounting principles ("U.S. GAAP"). The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be our critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The Jumpstart Our Business Startups Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.
We consider the following accounting policies to be our critical accounting policies:
Allowance for Credit Losses. The allowance for credit losses (“ACL”) is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management evaluates the appropriateness of the ACL on loans quarterly. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change from period to period.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. A reversion methodology is applied beyond the reasonable and supportable forecasts. Qualitative adjustments are then considered for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors, that may include, but are not limited to, results of internal loan reviews, examinations by bank regulatory agencies, or other such events such as a natural disaster. The ACL on loans represents our estimated risk of loss within its loan portfolio as of the reporting date. To appropriately measure expected credit losses, management disaggregates the loan portfolio into pools of similar risk characteristics.
Management may also adjust its assumptions to account for differences between expected and actual losses from period-to-period. The variability of management’s assumptions could alter the ACL on loans materially and impact future results of operations and financial condition. The loss estimation models and methods used to determine the ACL are continually refined and enhanced.
Off-Balance Sheet Credit Exposures. In the ordinary course of business, we enter into commitments to extend credit, including commercial letters of credit and standby letters of credit. Such financial instruments are recorded as loans when they are funded. We estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. The ACL on off-balance sheet credit exposures is adjusted through credit loss expense. To appropriately measure expected credit losses, management disaggregates the off-balance sheet credit exposures into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using historical information or industry benchmarks provided by a reputable and independent source,
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to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on off-balance sheet credit exposures as of the reporting date.
Securities Valuation and Allowance for Credit Loss. Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Debt securities not classified as held to maturity are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), net of tax. For available for sale debt securities in an unrealized loss position, we first assesses whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and conditions specifically related to the security, among other factors. If this assessment indicates that a credit exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit exists and an ACL is recorded for the credit , limited by the amount that the fair value is less than the amortized cost basis. Any that has not been recorded through an ACL is recognized in other comprehensive income.
Changes in the ACL are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Management measures expected credit losses on held to maturity debt securities on an individual basis by major security types that share similar risk characteristics, which may include, but is not limited to, credit ratings, financial asset type, collateral type, size, effective interest rate, term, geographical location, industry, and vintage. Management classifies the held to maturity portfolio into the following major security types: subordinated debt and corporate bonds. We invest in subordinated debt issued only by financial institutions.
The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Given the rarity of subordinated debt and corporate bond defaults and losses, we utilize external third-party financial analysis models as the sole source of default and loss rates. Management may exercise discretion to make adjustments based on various qualitative factors. Changes in the ACL are recorded as credit loss expense (or reversal). A held to maturity debt security is written-off in the period in which a determination is made that all or a portion of the financial asset is uncollectible. Any previously recorded allowance, if any, is reversed and then the amortized cost basis is written down to the amount deemed to be collectible, if any.
Income Taxes. We use the asset and liability (or balance sheet) method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments may require us to make projections of future taxable income and/or to carryback to taxable income in prior years. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.
Goodwill. Goodwill is recognized when the fair value of consideration transferred in an acquisition is greater than the fair value of assets acquired and liabilities assumed, and the excess is allocated to goodwill. Goodwill has an indefinite useful life and is evaluated on at least an annual basis for potential impairment, and more often if circumstances warrant more frequent evaluations. An impairment loss is recognized to the extent that the carrying value exceeds fair value.
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Significant judgment and assumptions are utilized by management in the impairment analysis. Avidia Bank was created by a merger between Hudson Savings Bank and The Westborough Savings Bank in 2007. Goodwill of $11.9 million resulting from the merger is not amortized but is evaluated for impairment on an annual basis. Impairment of goodwill is recognized in earnings. As of December 31, 2025, no impairment has been recognized.
Mortgage Servicing Rights. Servicing rights are recognized as separate assets when rights are acquired through sale of financial assets and recorded at fair value. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Changes in fair value are reported in mortgage banking income.
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SELECTED FINANCIAL DATA
The following summary data is based in part on the Consolidated Financial Statements and accompanying notes, and other schedules appearing elsewhere in this Form 10-K. Historical data is also based in part on, and should be read in conjunction with, prior filings with the SEC.
At or for the Years Ended
(Dollars in thousands, except per share data)
December 31, 2025
December 31, 2024
Earnings Data:
Net interest income
Total non-interest income
Total non-interest expense
Credit loss expense
(Loss) income before income tax expense
Net (loss) income
Per-Share Data:
(Loss) per share, basic
(Loss) per share, diluted
Book value per share
Tangible book value per share (non-GAAP)
Performance Ratios:
Return on average assets
Return on average equity
Net interest margin (1)
Cost of deposits
Yield on loans
Interest rate spread (2)
Noninterest income as a percentage of average assets
Noninterest expense as a percentage of average assets
Efficiency ratio (3)
Average interest-earning assets as a percentage of average interest-bearing liabilities
Balance Sheet, (end of period):
Total assets
Total earning assets
Total loans
Total deposits
Total shareholders' equity
Asset Quality:
Allowance for credit losses
Allowance for credit losses as a percentage of total loans
Allowance for credit losses as a percentage of non-performing loans
Allowance for credit losses as a percentage of non-accrual loans
Non-accrual loans as a percentage of total loans
Net (charge-offs) recoveries as a percentage of average loans (annualized)
Total non-accruing assets as a percentage of total assets
Total non-performing assets as a percentage of total assets
Capital Ratios:
Total shareholders' equity as a percentage of total assets
Tangible shareholders' equity as a percentage of tangible assets (non-GAAP)
Total capital as a percentage of risk-weighted assets
Tier 1 capital as a percentage of risk-weighted assets
Common equity tier 1 capital as a percentage of risk-weighted assets
Tier 1 capital as a percentage of average assets
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Non-GAAP Financial Measures.
This document contains certain non-GAAP financial measures in addition to results presented in accordance with U.S. GAAP. These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. Each non-GAAP measure used by the Company in this document as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information. The Company adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community. A reconciliation of non-GAAP financial measures to GAAP measures is provided below.
(Dollars in thousands, except per share data)
December 31, 2025
December 31, 2024
Tangible shareholders' equity:
Total shareholders' equity (GAAP)
Less: Goodwill
Tangible shareholders' equity (non-GAAP)
Tangible assets:
Total assets (GAAP)
Less: Goodwill
Tangible assets (non-GAAP)
Shareholders' equity to assets (GAAP)
Tangible shareholders' equity to tangible assets (non-GAAP)
Common shares outstanding, including unallocated ESOP shares
Book value per common share (GAAP)
Tangible book value per common share (non-GAAP)
Comparison of Financial Condition at December 31, 2025 and December 31, 2024
Total Assets. Total assets increased $180.6 million, or 6.8%, to $2.84 billion at December 31, 2025 from $2.66 billion at December 31, 2024. The increase was primarily the result of increases in loans and short-term investments. Loan growth was funded primarily by core deposit growth. The $194.9 million increase in paid in capital resulting from the Company's initial public offering ("IPO") primarily funded higher short-term investments and a reduction in borrowings.
Total Cash and Cash Equivalents. Cash and cash equivalents increased $83.0 million, or 132.9%, to $145.5 million at December 31, 2025 from $62.4 million at December 31, 2024. Short-term investments increased $82.8 million from the July 2025 stock offering proceeds in anticipation of future investment in loan growth and other strategic objectives.
Total Securities. Total securities decreased $541 thousand, or 0.2%, to $282.1 million at December 31, 2025 from $282.7 million at December 31, 2024. The primary change was a $24.8 million reduction to $88.2 million in available for sale U.S. government related securities and a $30.7 million increase to $173.8 million in higher-yielding mortgage-backed securities. Due primarily to the decrease in market interest rates during the year, debt securities market values improved and the net unrealized loss on securities available for sale decreased to $16.1 million, or 5.6% of amortized cost, at December 31, 2025 compared to a loss of $27.7 million, or 9.4% of amortized cost, at December 31, 2024.
Total Loans. Total loans increased $100.3 million, or 4.6%, to $2.30 billion at December 31, 2025 from $2.20 billion at December 31, 2024. Most major categories of loans increased, and loan growth was primarily concentrated in a $50.7 million, or 10.5%, increase in commercial real estate loans and a $20.8 million, or 24.8%, increase in commercial real estate multifamily loans. Due to the stock offering, the Bank’s supervisory regulatory ratio of non-owner occupied commercial real estate loans to regulatory capital decreased to 292% at December 31, 2025 from 387% at December 31, 2024.
Asset Quality. Nonaccruing loans increased by $16.2 million to $20.2 million, or 0.88% of total loans, at December 31, 2025 from a comparatively low $4.0 million, or 0.18% of total loans, at December 31, 2024 due principally to increases related to construction loans, commercial real estate loans, and commercial and industrial loans. Year-end modified loans to distressed borrowers increased to $16.8 million from $5.7 million all of which were in compliance with modified terms
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at year-end 2025. Delinquent loans totaled $10.9 million, or 0.47% of total loans at December 31, 2025, compared to $7.2 million, or 0.33% of total loans, at December 31, 2024.
The ratio of net loan charge-offs to average loans increased to 0.96% in 2025 from a comparatively low 0.05% in 2024, due principally to a $19.2 million charge-off of one land loan which was described in the earlier discussion of Lending Activities. Year-end loans rated as criticized increased to 4.52% of total loans from 3.44% of total loans, including loans rated as classified, which increased to 0.89% of total loans, from 0.52% of total loans.
Allowance for Credit Losses. The allowance for credit losses increased to $22.0 million at December 31, 2025 from $21.7 million at December 31, 2024. The ratio of the allowance to total loans decreased to 0.96% at December 31, 2025 from 0.99% at December 31, 2025. The ratio of the allowance to nonaccrual loans decreased to 109% at December 31, 2025 from 544% at December 31, 2024 due to the increase in nonaccrual loans.
Deposits. Deposits increased $61.5 million, or 3.0%, to $2.13 billion at December 31, 2025 from $2.07 billion at December 31, 2024. Core deposits (which we define as all deposits, other than certificates of deposit and brokered deposits) increased $129.4 million, or 7.7%, to $1.81 billion at December 31, 2025 from $1.67 billion at December 31, 2024. Most categories of core deposits increased, with growth concentrated in an $86.8 million, or 12.7%, increase in NOW accounts and a $38.6 million, or 10.0%, increase in savings accounts. The increase in NOW was driven by $121.1 million in growth in payment customers' deposits. Higher cost time deposits decreased $67.9 million, or 17.4%, to $322.7 million at December 31, 2025 from $390.6 million at December 31, 2024. This included a $27.0 million decrease in brokered deposits, which were paid out as of December 31, 2025.
Federal Home Loan Bank Advances. Advances decreased $65.0 million, or 20.0%, to $260.0 million at December 31, 2025 from $325.0 million at December 31, 2024 with the benefit of funding provided from the stock offering.
Total Shareholders' Equity. Total shareholders' equity increased $185.2 million, or 95.5%, to $379.0 million at December 31, 2025 from $193.8 million at December 31, 2024. This increase was primarily attributable to the common equity capital raised during the IPO. Shareholders’ equity benefited from an $8.6 million, or 40.2%, reduction in the accumulated other comprehensive loss to $12.8 million at December 31, 2025 from $21.4 million at December 31, 2024 due primarily to the impact of the lower market interest rate environment on our unrealized loss on securities available for sale and cash flow hedges.
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Average Balances and Yields. The following table sets forth average balance sheets, average yields and rates, and other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using daily average balances. Non-accrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Net deferred loan fees/costs are immaterial.
For the Year Ended December 31,
(Dollars in thousands)
Average
Outstanding
Balance
Interest
Average
Yield/Rate
Average
Outstanding
Balance
Interest
Average
Yield/Rate
Interest-earning assets:
Cash and short-term investments
Securities
Loans
Total interest-earning assets
Noninterest-earning assets
Total assets
Interest-bearing liabilities:
NOW accounts
Money market accounts
Regular and other savings accounts
Certificates of deposit
Total interest-bearing deposits
Federal Home Loan Bank advances
Subordinated debt
Total interest-bearing liabilities
Noninterest-bearing demand
deposits
Other noninterest-bearing liabilities
Total liabilities
Total capital
Total liabilities and capital
Net interest income
Net interest rate spread (1)
Net interest-earning assets (2)
Net interest margin (3)
Average interest-earning assets
to interest-bearing liabilities
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
Net interest margin represents net interest income divided by average total interest-earning assets.
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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
2025 Compared with 2024
2024 Compared with 2023
Increase (Decrease) Due to:
Increase (Decrease) Due to:
(In thousands)
Volume
Rate
Net
Volume
Rate
Net
Interest-earning assets:
Cash and due from banks
Securities
Loans
Total interest-earning assets
Interest-bearing liabilities:
NOW accounts
Money market accounts
Regular and other savings accounts
Certificates of deposit
Total interest-bearing deposits
Federal Home Loan Bank and Federal Reserve advances
Subordinated debt
Total interest-bearing liabilities
Change in net interest income
Comparison of Operating Results for the Years ended December 31, 2025 and December 31, 2024
Net Loss/Income. Operating results were a net loss of $3.3 million, or ($0.18) per share for the twelve months ended December 31, 2025, decreasing $14.8 million from net income of $11.5 million for the twelve months ended December 31, 2024. Pre-tax income decreased $21.1 million primarily due to a $19.6 million increase in credit loss expense. Additionally, 2025 results were reduced by a one-time $10.0 million charitable contribution expense to establish the Avidia Bank Charitable Foundation. Results in 2025 benefited from higher net interest income related to loan and deposit growth as well as the investment of stock offering proceeds. These benefits outweighed the impact of higher operating expenses.
Interest and Dividend Income. Interest and dividend income increased $6.8 million, or 5.5%, to $130.6 million for year ended December 31, 2025, from $123.7 million for the year ended ended December 31, 2024, primarily due to a $6.0 million increase in interest on loans. The increase in loan interest reflected both volume and rate related improvements resulting from the emphasis on growth in higher yielding commercial-related loans. The average balance of loans increased $60.5 million, or 2.8%, to $2.25 billion for the year ended December 31, 2025 from $2.19 billion for the year ended ended December 31, 2024. The weighted average yield on loans increased for these periods to 5.23% from 5.10%.
Average interest-earning assets increased $96.2 million, or 3.8%, to $2.63 billion for the year ended December 31, 2025, from $2.53 billion for the year ended December 31, 2024. This included a $34.6 million increase in average cash and short-term investments, in addition to loan growth. The yield on interest-earning assets for these periods increased to 4.97% from 4.89%.
Interest Expense. Total interest expense decreased $6.4 million, or 12.7%, to $44.0 million for the year ended December 31, 2025, from $50.5 million for the year ended December 31, 2024 due to a $3.6 million decrease in interest on certificates of deposit and a $3.2 million decrease in interest on Federal Home Loan Bank advances due to paydowns of these higher cost funds with proceeds from the stock offering.
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Average interest-bearing liabilities increased $73.6 million, or 3.7%, to $2.08 billion for the year ended December 31, 2025, from $2.00 billion for the year ended December 31, 2024. A $129.4 million, or 21.8%, increase in lower cost average NOW account balances was primarily responsible for the $142.4 million increase in average interest-bearing deposits. Interest-bearing deposit growth was partially offset by a $69.0 million decrease in average Federal Home Loan Bank advances. The cost of interest-bearing liabilities decreased to 2.12% for the year ended December 31, 2025, from 2.52% for the year ended December 31, 2024.
Average non-interest bearing demand deposits decreased by $41.6 million, or 10.3%, to $361.0 million for the year ended December 31, 2025, compared to $402.6 million for the year ended December 31, 2024. Due to the IPO, total average capital increased $83.7 million, or 45.1%, to $269.4 million from $185.7 million for these respective periods.
Net Interest Income. Net interest income increased $13.3 million, or 18.1%, to $86.5 million for the year ended December 31, 2025, from $73.3 million for the year ended December 31, 2024, primarily due to an increase in the net interest margin to 3.29% for the year ended December 31, 2025, from 2.89% for the year ended December 31, 2024. Net interest income benefited from growth in higher yielding loans funded by a reduction in cost of deposits. Net interest income also benefited from the reinvestment of stock offering proceeds into short-term investments and reductions in the balance of higher priced borrowings.
Credit Loss Expense. Based on management’s analysis of the adequacy of the allowance for credit losses, a credit loss expense of $21.7 million was recorded for the year ended December 31, 2025, compared to a credit loss expense of $2.1 million for the year ended December 31, 2024. The $19.6 million increase is primarily due to the $19.2 million net charge-off related to a land loan, as previously disclosed.
Non-interest Income. Non-interest income increased $5 thousand, or 0.03%, to $17.0 million for the year ended December 31, 2025. An $800 thousand improvement in net securities gains/losses was more than offset by a $1.2 million, or 74.4%, decrease in mortgage banking income reflecting market conditions. Payment processing income increased $360 thousand, or 4.8%, while customer service fees decreased $67 thousand, or 1.8%. Income on bank-owned life insurance increased $205 thousand, or 22.1%.
Non-interest Expense. Non-interest expense increased $14.7 million, or 20.1%, to $87.8 million for the year ended December 31, 2025, from $73.1 million for the year ended December 31, 2024. The increase was primarily due to the $10.0 million cost of a contribution of stock and cash to the Avidia Bank Charitable Foundation. The increase was also due to a $5.0 million increase in salaries and employee benefits. Salaries increased $1.3 million. Compensation related cost increases were primarily due to changes in conjunction with the conversion and IPO, including costs of $1.1 million for the termination of the long-term incentive plan and a $1.7 million increase in short-term incentives and retirement expenses. Occupancy and data processing expenses together increased $1.1 million due to a new on-line banking platform, increased account volume and licensing costs recorded in these accounts. Higher conversion-related professional expenses were offset by lower payment processing expenses.
Income Tax Benefit/Expense. The income tax benefit was $2.4 million for the twelve months ended December 31, 2025, compared to an income tax expense of $3.9 million for the year ended December 31, 2024.
Management of Market Risk
General . Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in market interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk according to the policy and guidelines approved by our board of directors. The Asset Liability Committee meets at least quarterly, is comprised of executive officers and certain senior management, and reports to the board risk committee on at least a quarterly basis. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.
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We seek to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:
maintaining capital levels that exceed the thresholds for well-capitalized status under applicable regulations;
maintaining a prudent level of liquidity;
growing our volume of low-cost core deposit accounts;
using our investment securities portfolio and interest rate derivatives as part of our balance sheet asset and liability and interest rate risk management strategy to reduce the impact of market interest rate movements on net interest income and economic value of equity;
using wholesale funding, in the form of Federal Home Loan Bank advances and brokered deposits in a prudent manner;
continuing to diversify our loan portfolio by seeking to grow commercial-related loans, which typically have shorter maturities; and
continuing to sell long term, fixed-rate one-to-four family residential mortgage loans in the secondary market while retaining adjustable-rate one-to-four family residential mortgage loans in our loan portfolio.
Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities better, thereby reducing the exposure of our net interest income to changes in market interest rates.
Interest Rate Derivatives. We employ various financial risk methodologies that limit, or “hedge,” the adverse effects of increasing or decreasing market interest rates on our investment or loan portfolio and short-term liabilities, such as Federal Home Loan Bank advances. At December 31, 2025, we had interest rate swaps related to Federal Home Loan Bank advances of a notional amount of $100 million and interest rate swaps related to investments of a notional amount of $35 million. We also engage in hedging strategies with respect to arrangements where our commercial banking customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa. At December 31, 2025, we had interest rate swaps related to customer loans of a notional amount of $105.3 million. Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions. For additional information regarding these activities, see note 4 in notes to consolidated financial statements.
Change in Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.
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The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors.
December 31, 2025
Change in Interest Rates
(basis points) (1)
Net Interest Income Year 1
Forecast
Year 1 Change from Level
(Dollars in thousands)
Level
Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.
The table above indicates that at December 31, 2025, we would have experienced a 5.4 % decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.6% increase in net interest income in the event of an instantaneous parallel 200 basis point decrease in market interest rates.
The following table sets forth, as of December 31, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors.
December 31, 2024
Change in Interest Rates
(basis points) (1)
Net Interest Income Year 1
Forecast
Year 1 Change from Level
(Dollars in thousands)
Level
Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.
The table above indicates that at December 31, 2024, we would have experienced a 7.2% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 1.9% increase in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.
Economic Value of Equity . We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100 or 200 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
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The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors.
December 31, 2025
EVE as a Percentage of
Present Value of Assets (3)
Estimated Increase (Decrease) in EVE
Increase
Change in Interest Rates
(basis points) (1)
Estimated
EVE (2)
Amount
Percent
EVE Ratio (4)
(Decrease)
(basis points)
(Dollars in thousands)
Level
Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.
EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
EVE Ratio represents EVE divided by the present value of assets.
The table above indicates that at December 31, 2025, we would have experienced a 7.4% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 1.1% decrease in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.
The following table sets forth, as of December 31, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors.
December 31, 2024
EVE as a Percentage of
Present Value of Assets (3)
Estimated Increase (Decrease) in EVE
Increase
Change in Interest Rates
(basis points) (1)
Estimated
EVE (2)
Amount
Percent
EVE Ratio (4)
(Decrease)
(basis points)
(Dollars in thousands)
Level
Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.
EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
EVE Ratio represents EVE divided by the present value of assets.
The table above indicates that at December 31, 2024, we would have experienced an 11.0% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 7.5% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.
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Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.
Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, mortgage servicing rights, deposits and borrowings.
Liquidity and Capital Resources
Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. The Company also actively utilizes borrowings in managing its liquidity and may access sources of liquidity and capital in the financial markets, depending on the Company’s financial condition and market conditions.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets depend on our operating, financing, lending, and investing activities during any given period, and are reported in the statements of cash flows in our consolidated financial statements.
The Company prioritizes deposits as a primary funding source and maintains a variety of available liquidity sources, including FHLB advances and Federal Reserve borrowing capacity. When profitable lending and investment opportunities exist, the Company may access its liquidity sources to grow the balance sheet. The amount and type of assets the Company has available to pledge affects the Company’s FHLB and Federal Reserve borrowing capacity. For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a commercial loan may increase borrowing capacity in a lower amount. The Company’s lending decisions, therefore, can also affect its liquidity position.
The table below shows current and unused liquidity capacity from various sources at the dates indicated:
December 31,
(Dollars in thousands)
Outstanding
Additional Borrowing Capacity
Outstanding
Additional Borrowing Capacity
Federal Home Loan Bank borrowings
Federal Reserve Bank of Boston
Lines of credit with correspondent banks
Subordinated debt
Brokered deposits
Avidia Bancorp, Inc. is a separate legal entity from Avidia Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Avidia Bank. The amount of dividends that Avidia Bank may declare and pay to the Company is subject to regulation. At December 31, 2025, Avidia Bancorp, Inc. had liquid assets of $76.0 million on a stand-alone, unconsolidated basis.
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Capital Resources. At December 31, 2025, Avidia Bank exceeded all of its regulatory capital requirements and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change this categorization. For additional information, including tabular financial information regarding Avidia Bank’s capital levels relative to the requirements for well-capitalized status, see note 12 of the notes to consolidated financial statements.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. We anticipate that we will have sufficient funds available to meet our current lending commitments. For additional information, see note 10 to notes to consolidated financial statements.
Contractual Obligations. In the ordinary course of business, we enter into certain contractual obligations, including operating leases for premises and equipment, among others.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements on our consolidated financial condition and results of operations, see note 1 of the notes to consolidated financial statements.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this prospectus have been prepared according to U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
