Affinity Bancshares(AFBI) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 2025, covering balance sheets, income, comprehensive income, equity, cash flows, and accounting notes Consolidated Balance Sheets Balance Sheet Summary | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------------------ | :------------------------------- | :-------------------- | :------- | | Total Assets | $912,496 | $866,817 | $45,679 | 5.27% | | Cash and cash equivalents | $74,704 | $41,425 | $33,279 | 80.34% | | Net Loans | $712,523 | $705,619 | $6,904 | 0.98% | | Total Deposits | $730,292 | $673,481 | $56,811 | 8.43% | | Total Liabilities | $790,217 | $737,702 | $52,515 | 7.12% | | Total Stockholders' Equity | $122,279 | $129,115 | $(6,836) | -5.29% | Consolidated Statements of Income Income Statement Summary | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Total Interest Income | $12,105 | $11,221 | $884 | 7.88% | | Total Interest Expense | $4,768 | $4,472 | $296 | 6.62% | | Net Interest Income before provision for credit losses | $7,337 | $6,749 | $588 | 8.71% | | Provision for credit losses | $50 | $0 | $50 | N/A | | Total Noninterest Income | $481 | $584 | $(103) | -17.64% | | Total Noninterest Expenses | $5,359 | $5,570 | $(211) | -3.79% | | Net Income | $1,831 | $1,335 | $496 | 37.15% | | Basic Earnings Per Share | $0.29 | $0.21 | $0.08 | 38.10% | | Diluted Earnings Per Share | $0.28 | $0.20 | $0.08 | 40.00% | Consolidated Statements of Comprehensive Income Comprehensive Income Summary | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net Income | $1,831 | $1,335 | | Net unrealized gains on available-for-sale securities, net of taxes | $634 | $14 | | Total Comprehensive Income | $2,465 | $1,349 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' Equity Changes | Item | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Beginning balance December 31 | $129,115 | $121,516 | | ESOP loan payment and release of ESOP shares | $317 | $86 | | Stock-based compensation expense | $305 | $349 | | Exercise of stock options | $59 | $0 | | Change in unrealized gain on investment securities available-for-sale, net of tax | $634 | $14 | | Common stock repurchase | $(1,181) | $0 | | Dividend | $(8,801) | $0 | | Net income | $1,831 | $1,335 | | Ending balance March 31 | $122,279 | $123,300 | Consolidated Statements of Cash Flows Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $1,917 | $1,217 | | Net cash used in investing activities | $(10,710) | $(14,685) | | Net cash provided by financing activities | $42,073 | $24,838 | | Net change in cash and cash equivalents | $33,280 | $11,370 | | Cash and cash equivalents at end of period | $74,704 | $61,395 | Notes to Unaudited Consolidated Financial Statements (1) Nature of Operations - Affinity Bancshares, Inc. is a bank holding company headquartered in Covington, Georgia, with its operating subsidiary, Affinity Bank, primarily conducting banking activities in Newton, Cobb, and Fulton Counties, Georgia, and originating dental practice and indirect automobile loans throughout the Southeastern U.S[26] - The financial statements are unaudited and prepared in accordance with GAAP, with results for the three months ended March 31, 2025, not necessarily indicative of a full year[27] Earnings Per Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Basic earnings per common share | $0.29 | $0.21 | | Diluted earnings per common share | $0.28 | $0.20 | (2) Investment Securities Available-for-Sale Securities | Investment Securities Available-for-Sale | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------------- | :---------------------------- | :------------------------------- | | Amortized Cost | $47,777 | $44,147 | | Estimated Fair Value | $40,979 | $36,502 | | Gross Unrealized Losses | $(6,888) | $(7,712) | Held-to-Maturity Securities | Investment Securities Held-to-Maturity | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------- | :---------------------------- | :------------------------------- | | Amortized Cost | $27,383 | $27,344 | | Estimated Fair Value | $27,505 | $27,286 | | Gross Unrealized Losses | $(146) | $(269) | | Allowance for Credit Losses | $(45) | $(45) | - As of March 31, 2025, there were 46 available-for-sale securities with unrealized losses totaling $6.9 million, primarily due to changing interest rates, not credit quality. The Bank does not intend to sell these securities and expects recovery[36][37] (3) Loans and Allowance for Credit Losses Loan Classification Breakdown | Loan Classification | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------------ | :---------------------------- | :------------------------------- | | Commercial (secured by real estate - owner occupied) | $157,550 | $156,923 | | Commercial (secured by real estate - non-owner occupied) | $166,606 | $166,662 | | Commercial and industrial | $149,009 | $148,150 | | Construction, land and acquisition & development | $71,624 | $67,622 | | Residential mortgage 1-4 family | $52,327 | $54,142 | | Consumer installment | $123,864 | $120,616 | | Total Loans | $720,980 | $714,115 | | Less allowance for credit losses | $(8,457) | $(8,496) | | Total loans, net | $712,523 | $705,619 | Allowance for Credit Loss Movement | Allowance for Credit Loss (ACL) | March 31, 2025 (in thousands) | March 31, 2024 (in thousands) | | :------------------------------ | :---------------------------- | :---------------------------- | | Beginning balance | $8,496 | $8,921 | | Provision | $50 | $0 | | Charge-offs | $(106) | $(358) | | Recoveries | $17 | $32 | | Ending balance | $8,457 | $8,595 | - As of March 31, 2025, total past due loans (30 days or more) were $1.55 million, with nonaccrual loans totaling $4.44 million. There was one commercial loan modification for $1.8 million to a borrower with financial difficulty during the three months ended March 31, 2025[48] (4) Intangible Assets - The core deposit premium intangible asset had a gross carrying amount of $1.9 million with accumulated amortization of $956,000 at March 31, 2025. Amortization expense was $48,000 for the three months ended March 31, 2025 and 2024[61] - Goodwill remained at $17.2 million at March 31, 2025 and 2024, with no impairment loss recognized[62] (5) Deposits - Certificates of deposit of $250,000 or more totaled approximately $34.6 million at March 31, 2025, down from $35.2 million at December 31, 2024[64] - Brokered CDs amounted to $106.8 million at March 31, 2025, with a weighted average rate of 4.32% and a 21-month weighted average maturity[65] (6) Borrowings FHLB Advances Details | FHLB Advance Date | Advance Amount | Interest Rate | Maturity Date | Call Feature | | :---------------- | :------------- | :------------ | :------------ | :----------- | | 1/6/2023 | $10,000,000 | 4.22% | 1/6/2026 | N/A | | 1/6/2023 | $10,000,000 | 3.94% | 1/6/2028 | N/A | | 10/25/2023 | $10,000,000 | 3.99% | 10/25/2028 | 4/25/2025 | | 7/11/2024 | $14,000,000 | 3.50% | 7/11/2029 | 4/11/2025 | | 12/13/2024 | $10,000,000 | 3.55% | 12/13/2029 | 6/13/2025 | | Total | $54,000,000 | | | | - FHLB advances were collateralized by approximately $436.6 million in loans and $3.2 million in FHLB stock at March 31, 2025[67] - The Company had $0 outstanding under the Federal Reserve's Bank Term Funding Program at March 31, 2025, after repaying a $4.8 million advance in the first quarter of 2025[69] (7) Employee Stock Ownership Plan - Total ESOP expense for the three months ended March 31, 2025, was approximately $317,000, including $211,000 related to a special dividend[73] - The ESOP's note payable balance was approximately $4.2 million at March 31, 2025, down from $5.0 million at December 31, 2024[73] (8) Stock-Based Compensation Stock Options Summary | Stock Options | March 31, 2025 | December 31, 2024 | | :------------------------------ | :------------- | :---------------- | | Outstanding Shares | 615,439 | 640,766 | | Weighted Average Exercise Price | $12.53 | $12.58 | | Aggregate Intrinsic Value (in thousands) | $3,582 | $5,724 | Restricted Stock Summary | Restricted Stock | March 31, 2025 | December 31, 2024 | | :----------------------- | :------------- | :---------------- | | Outstanding Shares | 104,143 | 107,609 | | Weighted Average Grant Date Fair Value | $13.86 | $13.88 | - The Company recognized $305,000 in stock-based compensation expense for the three months ended March 31, 2025, compared to $349,000 for the same period in 2024[81] (9) Fair Value Measurements and Disclosures - The Company classifies assets and liabilities at fair value into three levels based on observability of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[84][85][86] Assets Recorded at Fair Value (Nonrecurring) | Assets Recorded at Fair Value on a Nonrecurring Basis | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------------------------- | :---------------------------- | :------------------------------- | | Collateral dependent loans (Level 3) | $1,841 | $2,000 | | Total assets at fair value | $1,841 | $2,000 | Financial Instrument Fair Values | Financial Instrument | March 31, 2025 Estimated Fair Value (in thousands) | December 31, 2024 Estimated Fair Value (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Cash and cash equivalents (Level 1) | $74,704 | $41,425 | | Investment securities available-for-sale (Level 2) | $40,979 | $36,502 | | Investment securities held-to-maturity (Level 2) | $27,505 | $27,286 | | Loans, net (Level 3) | $705,320 | $693,346 | | Deposits (Level 3) | $730,322 | $672,708 | | FHLB advances and other borrowings (Level 3) | $53,851 | $58,944 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operating results, covering key financial changes, forward-looking statements, market risk, liquidity, and capital General - This section aims to help readers understand the Company's financial condition and results of operations for the periods ended March 31, 2025, and December 31, 2024, and for the three months ended March 31, 2025, and 2024[104] Cautionary Note Regarding Forward-Looking Statements - The report contains forward-looking statements subject to significant business, economic, and competitive uncertainties and contingencies, including general economic conditions, changes in loan delinquencies, funding access, liquidity, real estate values, competition, interest rate environment, regulatory changes, and technological changes[105][107] Summary of Significant Accounting Policies - There have been no material changes to the Company's significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2024[109] Comparison of Financial Condition at March 31, 2025 and December 31, 2024 Financial Condition Comparison | Metric | March 31, 2025 (in millions) | December 31, 2024 (in millions) | Change (in millions) | % Change | | :------------------------- | :--------------------------- | :----------------------------- | :------------------- | :------- | | Total Assets | $912.5 | $866.8 | $45.7 | 5.3% | | Gross Loans | $721.0 | $714.1 | $6.9 | 1.0% | | Total Deposits | $730.3 | $673.5 | $56.8 | 8.4% | | FHLB Advances | $54.0 | $54.0 | $0.0 | 0.0% | | Other Borrowings | $0.0 | $4.8 | $(4.8) | -100.0% | | Stockholders' Equity | $122.3 | $129.1 | $(6.8) | -5.3% | - The decrease in stockholders' equity was primarily due to an $8.8 million special dividend payment and $1.2 million in common stock repurchases, partially offset by $1.8 million in net income[114] Average Balance Sheets Average Balance Sheet Metrics | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Average Outstanding Balance - Loans | $713,878 (in thousands) | $664,660 (in thousands) | | Average Yield - Loans | 6.05% | 5.75% | | Average Outstanding Balance - Total Interest-Earning Assets | $844,869 (in thousands) | $802,572 (in thousands) | | Average Yield - Total Interest-Earning Assets | 5.81% | 5.62% | | Average Outstanding Balance - Total Interest-Bearing Liabilities | $611,128 (in thousands) | $575,490 (in thousands) | | Average Rate - Total Interest-Bearing Liabilities | 3.16% | 3.13% | | Net Interest Rate Spread | 2.65% | 2.49% | | Net Interest Margin | 3.52% | 3.38% | Rate/Volume Analysis Interest Income and Expense Rate/Volume Analysis | Item | Volume Change (in thousands) | Rate Change (in thousands) | Total Increase (Decrease) (in thousands) | | :---------------------------------- | :--------------------------- | :------------------------- | :--------------------------------------- | | Interest Income - Loans | $1,101 | $48 | $1,149 | | Interest Income - Total Interest-Earning Assets | $1,920 | $(1,036) | $884 | | Interest Expense - Total Interest-Bearing Deposits | $700 | $(456) | $244 | | Interest Expense - FHLB advances and other borrowings | $49 | $3 | $52 | | Interest Expense - Total Interest-Bearing Liabilities | $749 | $(453) | $296 | | Change in Net Interest Income | $1,171 | $(583) | $588 | Comparison of Operating Results for the Three Months Ended March 31, 2025 and 2024 General - Net income increased by $496,000, or 37.15%, to $1.8 million for the three months ended March 31, 2025, compared to $1.3 million for the prior year period, driven by higher net interest income partially offset by lower noninterest income[119] Interest Income - Total interest income rose by $884,000, or 7.9%, to $12.1 million, primarily due to a $1.1 million (12.1%) increase in loan interest income[120] - The average yield on loans increased by 30 basis points to 6.05%, and the average balance of loans grew by $49.2 million (7.4%) to $713.9 million[120] - Interest income from interest-earning deposits decreased by $32,000, as yields declined to 4.21% from 5.20%, despite a $9.2 million increase in average balance[121] Interest Expense - Total interest expense increased by $296,000 to $4.8 million, driven by higher average balances and rates on interest-bearing liabilities[122] - Interest expense on deposits rose by $244,000 to $4.2 million, with certificates of deposit contributing the largest increase of $159,000, despite a slight decrease in average rate[123] - Interest expense on borrowings increased by $52,000 to $522,000 due to a $2.2 million increase in average borrowings[124] Net Interest Income - Net interest income before provision for credit losses increased by $588,000, or 8.7%, to $7.3 million[125] - Net interest rate spread improved to 2.65% from 2.49%, and net interest margin increased to 3.52% from 3.38%, as asset yields grew faster than liability rates[125] Provision for Credit Losses - A provision for credit losses of $50,000 was recorded for the three months ended March 31, 2025, compared to no provision in the prior year period[130] - The allowance for credit losses to total loans was 1.17% at March 31, 2025, down from 1.19% at December 31, 2024[130] - Net loan charge-offs were $89,000 for the three months ended March 31, 2025, a decrease from $326,000 in the prior year period[130] Non-interest Income - Non-interest income decreased by $103,000, or 17.6%, to $481,000, primarily due to a decline in merchant services volume[132] Non-interest Expenses Non-interest Expenses Breakdown | Expense Category | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Salaries and employee benefits | $3,359 | $3,179 | $180 | 5.7% | | Occupancy | $605 | $618 | $(13) | -2.1% | | Data processing | $543 | $511 | $32 | 6.3% | | Other | $852 | $1,262 | $(410) | -32.5% | | Total non-interest expenses | $5,359 | $5,570 | $(211) | -3.8% | - Salaries and employee benefits increased due to additional stock compensation from ESOP, while other fees decreased due to lower professional fees[134] Income Tax Expense - Income tax expense was $578,000 for the three months ended March 31, 2025, up from $428,000 in the prior year, with effective tax rates of 24.0% and 24.3%, respectively[135] Management of Market Risk General - The Company's primary market risk is interest rate risk, managed by the Asset/Liability Management Committee to limit exposure of financial condition and results of operations to interest rate changes[136] - Strategies include limiting reliance on wholesale funding, growing transaction deposit accounts, increasing investment securities with shorter maturities, diversifying the loan portfolio with more commercial and consumer loans, and pricing residential loans to encourage balloon options[137][138] - The Company does not engage in hedging activities or invest in high-risk mortgage derivatives[139] Net Interest Income Net Interest Income Sensitivity to Interest Rates | Change in Interest Rates (basis points) | Year 1 Forecast Net Interest Income (in thousands) | Year 1 Change from Level (%) | | :-------------------------------------- | :----------------------------------------------- | :--------------------------- | | +400 | $33,116 | -3.03% | | +200 | $33,727 | -1.24% | | Level | $34,152 | — | | -200 | $32,996 | -3.38% | | -400 | $30,915 | -9.48% | - At March 31, 2025, an instantaneous 200 basis point increase in interest rates would result in a 1.24% decrease in net interest income, while a 200 basis point decrease would lead to a 3.38% decrease[143] Liquidity and Capital Resources - Primary funding sources include deposits, loan/security payments, and proceeds from loan sales and security maturities. The Company also has access to FHLB lines of credit ($216.7 million, with $54.0 million outstanding) and Federal Reserve Bank lines ($60.1 million)[147] Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :--------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $1.9 | $1.2 | | Net cash used in investing activities | $(10.7) | $(14.7) | | Net cash provided by financing activities | $42.1 | $24.8 | Capital Ratios | Capital Ratio | March 31, 2025 Actual Ratio | December 31, 2024 Actual Ratio | Well Capitalized Ratio | | :--------------------------------- | :-------------------------- | :--------------------------- | :--------------------- | | Common Equity Tier 1 (to RWA) | 11.47% | 12.96% | 6.50% | | Total Capital (to RWA) | 12.61% | 14.12% | 10.00% | | Tier I Capital (to RWA) | 11.47% | 12.96% | 8.00% | | Tier I Capital (to Average Assets) | 10.57% | 12.01% | 5.00% | Off-Balance Sheet Arrangements and Aggregate Contractual Obligations - Outstanding commitments to originate loans totaled $88.9 million at March 31, 2025[153] - Time deposits maturing within one year from March 31, 2025, totaled $146.8 million, with management expecting a substantial portion to be renewed[153][154] Item 3. Quantitative and Qualitative Disclosures About Market Risk Refers to market risk disclosures within Item 2, 'Management's Discussion and Analysis,' specifically the 'Management of Market Risk' section - The required information for this item is included in Part I, Item 2 of this quarterly report under 'Management of Market Risk'[156] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, with no material changes to internal controls over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025[156] - No material changes to internal controls over financial reporting occurred during the quarter ended March 31, 2025[157] PART II. OTHER INFORMATION Item 1. Legal Proceedings No material legal proceedings were ongoing as of March 31, 2025, that would impact financial condition or results - No material legal proceedings were ongoing as of March 31, 2025[160] Item 1A. Risk Factors This section is not applicable for smaller reporting companies, as per SEC regulations - Risk Factors are not applicable for smaller reporting companies[161] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the Company for the reporting period - This item is not applicable[162] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[163] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[164] Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during Q1 2025 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended March 31, 2025[165] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including articles, bylaws, officer certifications, and XBRL financial statements - Exhibits include Articles of Incorporation, Bylaws, Certifications of Principal Executive and Financial Officers (Sections 302 and 906 of Sarbanes-Oxley Act), and XBRL formatted financial statements[166] SIGNATURES Report signed by President & CEO Edward J. Cooney and SVP & CFO Brandi Pajot for Affinity Bancshares, Inc. on May 9, 2025 - The report was signed by Edward J. Cooney, President and CEO, and Brandi Pajot, Senior Vice President and CFO, on May 9, 2025[168][169][170]