Affinity Bancshares(US:AFBI)2025-08-12 20:31PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Affinity Bancshares, Inc.'s unaudited consolidated financial statements for Q2 2025, including Balance Sheets, Income, Comprehensive Income, Equity, Cash Flows, and detailed notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024) | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total assets | $933,799 | $866,817 | $66,982 | 7.73% | | Cash and cash equivalents | $89,666 | $41,425 | $48,241 | 116.45% | | Net loans | $722,593 | $705,619 | $16,974 | 2.41% | | Total deposits | $749,338 | $673,481 | $75,857 | 11.26% | | Total liabilities | $809,699 | $737,702 | $71,997 | 9.76% | | Total stockholders' equity | $124,100 | $129,115 | $(5,015) | -3.88% | Consolidated Statements of Income Consolidated Statements of Income Highlights (Three Months Ended June 30) | Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total interest income | $12,823 | $12,222 | $601 | 4.92% | | Total interest expense | $5,045 | $4,654 | $391 | 8.40% | | Net interest income before provision | $7,778 | $7,568 | $210 | 2.77% | | Provision for credit losses | $17 | $213 | $(196) | -92.02% | | Net income | $2,152 | $1,031 | $1,121 | 108.73% | | Basic earnings per share | $0.34 | $0.16 | $0.18 | 112.50% | | Diluted earnings per share | $0.33 | $0.16 | $0.17 | 106.25% | Consolidated Statements of Income Highlights (Six Months Ended June 30) | Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total interest income | $24,928 | $23,443 | $1,485 | 6.33% | | Total interest expense | $9,813 | $9,125 | $688 | 7.54% | | Net interest income before provision | $15,115 | $14,318 | $797 | 5.57% | | Provision for credit losses | $67 | $213 | $(146) | -68.54% | | Net income | $3,983 | $2,366 | $1,617 | 68.34% | | Basic earnings per share | $0.63 | $0.37 | $0.26 | 70.27% | | Diluted earnings per share | $0.61 | $0.36 | $0.25 | 69.44% | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights (Three and Six Months Ended June 30) | Item | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $2,152 | $1,031 | $3,983 | $2,366 | | Net unrealized gains on AFS securities (net of tax) | $77 | $317 | $711 | $331 | | Total comprehensive income | $2,229 | $1,348 | $4,694 | $2,697 | Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity decreased by $5.0 million from December 31, 2024, to June 30, 2025, primarily due to an $8.8 million special dividend payment and $2.1 million in common stock repurchases, partially offset by $4.0 million in net income and a $711,000 change in unrealized gain on available-for-sale investment securities19114115 Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Cash Flow Activity | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash provided by operating activities | $5,692 | $1,836 | $3,856 | | Net cash used in investing activities | $(17,603) | $(28,570) | $10,967 | | Net cash provided by financing activities | $60,152 | $27,106 | $33,046 | | Net change in cash and cash equivalents | $48,241 | $372 | $47,869 | | Cash and cash equivalents at end of period | $89,666 | $50,397 | $39,269 | Notes to Unaudited Consolidated Financial Statements (1) Nature of Operations - Affinity Bancshares, Inc. is a bank holding company operating primarily in Newton, Cobb, and Fulton Counties, Georgia, through its subsidiary Affinity Bank, National Association. The Bank offers customary banking services including consumer and commercial checking, savings, CDs, and various loans, with a focus on dental practice loans and indirect automobile loans across the Southeastern U.S.25 Earnings per Share Earnings Per Share (Three and Six Months Ended June 30) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (in thousands) | $2,152 | $1,031 | $3,983 | $2,366 | | Basic EPS | $0.34 | $0.16 | $0.63 | $0.37 | | Diluted EPS | $0.33 | $0.16 | $0.61 | $0.36 | - The Company had 117,000 anti-dilutive options for the three and six months ended June 30, 2025, compared to 339,500 for the same periods in 202432 (2) Investment Securities Investment Securities Available-for-Sale (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 (Fair Value, in thousands) | December 31, 2024 (Fair Value, in thousands) | | :----------------------------------- | :--------------------------------------- | :----------------------------------------- | | U.S. Treasury securities | $4,761 | $4,567 | | Municipal securities - tax exempt | $415 | $433 | | Municipal securities - taxable | $1,735 | $1,671 | | U.S. Government sponsored enterprises | $8,666 | $8,481 | | Government agency mortgage-backed securities | $16,004 | $12,344 | | Corporate securities | $9,158 | $9,006 | | Total | $40,739 | $36,502 | - As of June 30, 2025, the Company had 46 available-for-sale securities with unrealized losses totaling $6.7 million, primarily due to changing interest rates, but these are considered temporary due to acceptable investment grades and the Bank's intent not to sell before anticipated recovery3536 (3) Loans and Allowance for Credit Losses Major Loan Classifications (June 30, 2025 vs. December 31, 2024) | Loan Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------------ | :----------------------------- | :------------------------------- | | Commercial (secured by real estate - owner occupied) | $163,696 | $156,923 | | Commercial (secured by real estate - non-owner occupied) | $165,169 | $166,662 | | Commercial and industrial | $148,302 | $148,150 | | Construction, land and acquisition & development | $73,538 | $67,622 | | Residential mortgage 1-4 family | $50,651 | $54,142 | | Consumer installment | $129,779 | $120,616 | | Total loans | $731,135 | $714,115 | | Less allowance for credit losses | $(8,542) | $(8,496) | | Total loans, net | $722,593 | $705,619 | - The allowance for credit losses to total loans was 1.17% at June 30, 2025, a slight decrease from 1.19% at December 31, 2024. The allowance for credit losses to non-performing loans improved to 190.3% at June 30, 2025, from 177.9% at December 31, 2024133147 Allowance for Credit Losses (June 30, 2025 vs. December 31, 2024) | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Beginning balance | $8,496 | $8,496 | | Provision | $125 | $0 (implied from change) | | Charge-offs | $(144) | $0 (implied from change) | | Recoveries | $65 | $0 (implied from change) | | Ending balance | $8,542 | $8,496 | (4) Intangible Assets - The core deposit premium intangible asset had a gross carrying amount of $1.9 million at June 30, 2025, with accumulated amortization of $1.1 million. Goodwill remained at $17.2 million, with no impairment loss recognized during the six months ended June 30, 20256061 (5) Deposits - Certificates of deposit of $250,000 or more totaled approximately $37.5 million at June 30, 2025, up from $35.2 million at December 31, 2024. Brokered CDs amounted to $106.8 million with a weighted average rate of 4.32% and an 18-month maturity at June 30, 20256364 (6) Borrowings - FHLB advances totaled $54.0 million at June 30, 2025, collateralized by $444.1 million in loans and $3.2 million in FHLB stock. The Company also had a $13.0 million FHLB letter of credit and unsecured Federal Funds lines of credit totaling $32.5 million, with no amounts borrowed6667 - The $4.8 million outstanding under the Federal Reserve's Bank Term Funding Program at December 31, 2024, was paid in full during the first quarter of 202568 (7) Employee Stock Ownership Plan - The ESOP expense for the six months ended June 30, 2025, was approximately $632,000, with $422,000 related to a special dividend. The ESOP's note payable balance decreased to $4.2 million at June 30, 2025, from $5.0 million at December 31, 202472 (8) Stock-Based Compensation - The Company recognized $549,000 in stock-based compensation expense for the six months ended June 30, 2025, compared to $670,000 for the same period in 2024. As of June 30, 2025, there was approximately $1.9 million of unrecognized compensation cost, expected to be recognized over a weighted average remaining vesting period of 1.26 years8081 Stock Option Activity (June 30, 2025) | Stock Options | Outstanding | Weighted Average Exercise Price | | :-------------------------- | :---------- | :------------------------------ | | Outstanding - Dec 31, 2024 | 640,766 | $12.58 | | Exercised | 11,921 | $12.98 | | Forfeited | 13,406 | $14.38 | | Granted | 7,000 | $18.53 | | Outstanding - June 30, 2025 | 622,439 | $12.60 | | Exercisable - June 30, 2025 | 401,568 | $11.44 | (9) Fair Value Measurements and Disclosures - The Company's available-for-sale securities are recorded at fair value on a recurring basis, totaling $40.7 million at June 30, 2025, and are classified as Level 2. Collateral-dependent loans, measured at fair value on a nonrecurring basis, amounted to $1.8 million at June 30, 2025, and are classified as Level 398100 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of financial condition and operating results, covering assets, liabilities, equity, income, market risk, and liquidity General - This section aims to help readers understand the Company's financial condition and results of operations, and should be read with the unaudited consolidated financial statements104 Cautionary Note Regarding Forward-Looking Statements - The report contains forward-looking statements identified by words like 'estimate,' 'project,' and 'believe,' which are subject to significant business, economic, and competitive uncertainties. Actual results may differ materially due to factors such as general economic conditions, changes in loan delinquencies, funding access, real estate values, interest rates, and regulatory changes105106107108 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, 2024109 Comparison of Financial Condition at June 30, 2025 and December 31, 2024 - Total assets increased by $67.0 million (7.8%) to $933.8 million at June 30, 2025, driven by increases in loans and cash and cash equivalents110 - Gross loans grew by $17.0 million (2.4%) to $731.1 million, with notable increases in construction loans ($5.9 million, 8.7%), owner-occupied commercial real estate loans ($6.8 million, 4.3%), and consumer installment loans ($9.2 million, 7.6%)111 - Total deposits increased by $75.9 million (11.3%) to $749.3 million, reflecting growth across all deposit types. The loan-to-deposit ratio decreased to 97.6% from 106.0%112 - Stockholders' equity decreased by $5.0 million (3.9%) to $124.1 million, primarily due to an $8.8 million special dividend and $2.1 million in common stock repurchases, partially offset by $4.0 million in net income114115 Average Balance Sheets Average Balance Sheet Highlights (Three Months Ended June 30) | Item | 2025 Average Balance (in thousands) | 2024 Average Balance (in thousands) | Change (in thousands) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | :-------------------- | | Total interest-earning assets | $874,197 | $820,181 | $54,016 | | Total interest-bearing liabilities | $643,788 | $591,269 | $52,519 | | Net interest rate spread | 2.74% | 2.82% | -0.08% | | Net interest margin | 3.57% | 3.71% | -0.14% | Average Balance Sheet Highlights (Six Months Ended June 30) | Item | 2025 Average Balance (in thousands) | 2024 Average Balance (in thousands) | Change (in thousands) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | :-------------------- | | Total interest-earning assets | $859,615 | $811,376 | $48,239 | | Total interest-bearing liabilities | $627,550 | $583,380 | $44,170 | | Net interest rate spread | 2.70% | 2.66% | 0.04% | | Net interest margin | 3.55% | 3.55% | 0.00% | Rate/Volume Analysis Net Interest Income Change (Three Months Ended June 30, 2025 vs. 2024) | Category | Volume Effect (in thousands) | Rate Effect (in thousands) | Total Change (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------- | :-------------------------- | | Interest-earning assets | $2,020 | $(1,419) | $601 | | Interest-bearing liabilities | $1,540 | $(1,149) | $391 | | Change in net interest income | $480 | $(270) | $210 | Net Interest Income Change (Six Months Ended June 30, 2025 vs. 2024) | Category | Volume Effect (in thousands) | Rate Effect (in thousands) | Total Change (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------- | :-------------------------- | | Interest-earning assets | $2,633 | $(1,148) | $1,485 | | Interest-bearing liabilities | $1,345 | $(657) | $688 | | Change in net interest income | $1,288 | $(491) | $797 | Comparison of Operating Results for the Three Months Ended June 30, 2025 and 2024 - Net income increased by $1.1 million to $2.2 million for the three months ended June 30, 2025, compared to $1.0 million in the prior year, driven by higher net interest income and lower noninterest expenses121 Interest Income - Total interest income rose by $601,000 (4.9%) to $12.8 million, primarily due to a $716,000 (6.8%) increase in loan interest income, as the average balance of loans grew by $46.1 million (6.8%) to $728.0 million122 - Interest income from investment securities (available-for-sale and held-to-maturity) decreased by $242,000 to $766,000, while interest-earning deposits and federal funds income increased by $122,000 to $770,000, despite a decrease in yields123124 Interest Expense - Total interest expense increased by $391,000 to $5.0 million, mainly due to a $426,000 rise in deposit interest expense, with certificates of deposit interest expense increasing by $291,000 due to a $37.2 million increase in average balance125126 - Interest expense on borrowings decreased by $35,000 to $520,000, attributed to a $9.7 million decrease in average borrowings127 Net Interest Income - Net interest income before provision for credit losses increased by $210,000 (2.8%) to $7.8 million. However, the net interest rate spread decreased to 2.74% (from 2.82%) and net interest margin decreased to 3.57% (from 3.71%) as asset yields declined more than liability rates128 Provision for Credit Losses - A provision for credit losses of $17,000 was recorded for the three months ended June 30, 2025, a significant decrease from $213,000 in the prior year. This included a $75,000 provision for loans, a $50,000 reversal for unfunded commitments, and an $8,000 reversal for held-to-maturity securities133 - Net loan recovery was $9,000 for the three months ended June 30, 2025, compared to net loan charge-offs of $134,000 in the prior year133 Noninterest Income - Noninterest income decreased by $166,000 (23.5%) to $540,000, primarily due to a decline in merchant services volume and the absence of a gain on sale of other real estate owned recorded in the prior year135 Noninterest Expenses Noninterest Expenses (Three Months Ended June 30) | Expense Category | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Salaries and employee benefits | $3,260 | $3,417 | $(157) | -4.6% | | Occupancy | $595 | $615 | $(20) | -3.3% | | Data processing | $550 | $508 | $42 | 8.3% | | Other | $1,062 | $2,179 | $(1,117) | -51.3% | | Total non-interest expenses | $5,467 | $6,719 | $(1,252) | -18.6% | - Total non-interest expenses decreased by $1.3 million (18.6%) to $5.5 million, mainly due to a $1.1 million reduction in 'Other' fees, primarily from lower professional fees related to a prior-year merger transaction that was not completed137 Income Tax Expense - Income tax expense increased to $682,000 (effective tax rate of 24.1%) for the three months ended June 30, 2025, from $311,000 (effective tax rate of 23.2%) in the prior year138 Comparison of Operating Results for the Six Months Ended June 30, 2025 and 2024 - Net income increased by $1.6 million to $4.0 million for the six months ended June 30, 2025, compared to $2.4 million in the prior year, driven by higher net interest income and lower noninterest expenses139 Interest Income - Total interest income increased by $1.5 million (6.3%) to $24.9 million, primarily from a $1.9 million (9.3%) increase in loan interest income, as average loan balances grew by $47.7 million (7.1%) and average loan yields increased by 14 basis points to 6.11%140 - Interest income from interest-earning deposits and federal funds increased by $89,000 to $1.4 million, despite a decrease in yields, due to a $15.4 million increase in average balances held for liquidity141 - Interest income from available-for-sale and held-to-maturity securities decreased by $469,000 to $1.7 million, with average securities balances decreasing by $15.6 million142 Interest Expense - Total interest expense increased by $688,000 to $9.8 million. The largest increase was in certificates of deposit interest expense, up $450,000 to $5.0 million, driven by a $28.2 million increase in average CD balances as customers sought higher-yielding accounts143144 - Money market account interest expense also increased by $163,000 to $2.4 million due to an $18.3 million increase in average balance144 Net Interest Income - Net interest income increased by $797,000 (5.6%) to $15.1 million. The net interest rate spread increased to 2.70% (from 2.66%), and the net interest margin remained stable at 3.55%145 Provision for Credit Losses - A provision for credit losses of $67,000 was recorded for the six months ended June 30, 2025, down from $213,000 in the prior year. This included a $125,000 provision for loans, a $50,000 reversal for unfunded commitments, and an $8,000 reversal for held-to-maturity securities147 - Net charge-offs were $79,000 for the six months ended June 30, 2025, a significant decrease from $460,000 in the prior year147 Noninterest Income - Noninterest income decreased by $269,000 to $1.0 million, primarily due to a decline in merchant services volume and the absence of a gain on sale of other real estate owned recorded in the prior year148 Noninterest Expenses Noninterest Expenses (Six Months Ended June 30) | Expense Category | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Salaries and employee benefits | $6,619 | $6,596 | $23 | 0.3% | | Occupancy | $1,200 | $1,233 | $(33) | -2.7% | | Data processing | $1,093 | $1,019 | $74 | 7.3% | | Other | $1,914 | $3,442 | $(1,528) | -44.4% | | Total non-interest expenses | $10,826 | $12,290 | $(1,464) | -11.9% | - Total non-interest expenses decreased by $1.5 million (11.9%) to $10.8 million, mainly due to a $1.5 million reduction in 'Other' fees, primarily from lower professional fees related to a prior-year merger transaction that was not completed150 Income Tax Expense - Income tax expense increased to $1.3 million (effective tax rate of 24.0%) for the six months ended June 30, 2025, from $739,000 (effective tax rate of 23.8%) in the prior year151 Management of Market Risk - The Company's primary market risk is interest rate risk, managed by the Asset/Liability Management Committee. Strategies include limiting reliance on wholesale funding, growing transaction deposits, increasing investment securities with shorter maturities, diversifying the loan portfolio, and pricing residential loans to encourage balloon options152154 - The Company does not engage in hedging activities or invest in high-risk mortgage derivatives155 Estimated Changes in Net Interest Income (June 30, 2025) | Change in Interest Rates (basis points) | Year 1 Forecast (in thousands) | Year 1 Change from Level (%) | | :-------------------------------------- | :----------------------------- | :--------------------------- | | +400 | $32,754 | -3.45% | | +200 | $33,428 | -1.46% | | Level | $33,924 | — | | -200 | $32,797 | -3.32% | | -400 | $31,187 | -8.07% | - At June 30, 2025, an instantaneous 200 basis points increase in interest rates would result in a 1.46% decrease in net interest income, while a 200 basis points decrease would lead to a 3.32% decrease159 Liquidity and Capital Resources - The Company maintains strong liquidity, with primary funding sources including deposits, loan/security payments, and FHLB borrowings. At June 30, 2025, it had a $216.7 million FHLB line of credit (with $54.0 million outstanding), a $13.0 million FHLB letter of credit, and $32.5 million in unsecured Federal Funds lines of credit163166 - Net cash provided by operating activities was $5.7 million for the six months ended June 30, 2025, while net cash used in investing activities was $17.6 million. Net cash provided by financing activities was $60.2 million, driven by a $75.9 million increase in deposits165 - At June 30, 2025, the Bank exceeded all regulatory capital requirements and was categorized as 'well capitalized,' with a Common Equity Tier 1 ratio of 11.66% and a Total Capital ratio of 12.79%167168 Off-Balance Sheet Arrangements and Aggregate Contractual Obligations - Outstanding commitments to originate loans totaled $83.3 million at June 30, 2025. Time deposits maturing within one year amounted to $149.3 million, with management expecting a substantial portion to be renewed169 Item 3. Quantitative and Qualitative Disclosures About Market Risk Refers to market risk disclosures in 'Management's Discussion and Analysis' under 'Management of Market Risk' - The required information for quantitative and qualitative disclosures about market risk is included in the 'Management of Market Risk' section of Item 2171 Item 4. Controls and Procedures Management concluded disclosure controls were effective, and no material changes to internal controls occurred during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025171 - No material changes to internal controls over financial reporting occurred during the quarter ended June 30, 2025172 PART II. OTHER INFORMATION Item 1. Legal Proceedings No material legal proceedings were ongoing as of June 30, 2025, that would impact financial condition or results - No material legal proceedings were ongoing as of June 30, 2025174 Item 1A. Risk Factors This section is not applicable for smaller reporting companies - Risk Factors are not applicable for smaller reporting companies175 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 53,708 common shares at $17.95 average price during Q2 2025 under an approved program Common Stock Repurchases (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------------------------- | :----------------------------- | :--------------------------- | | April 1, 2025 through April 30, 2025 | 32,959 | $17.77 | | May 1, 2025 through May 31, 2025 | 5,017 | $18.22 | | June 1, 2025 through June 30, 2025 | 15,732 | $18.24 | | Total | 53,708 | $17.95 | - As of June 30, 2025, the Company had repurchased 119,523 shares under the stock repurchase program approved on March 7, 2025, which authorized up to 320,480 shares176 Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported177 Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable178 Item 5. Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers during the quarter - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers during the quarter179 Item 6. Exhibits Lists exhibits filed with Form 10-Q, including organizational documents, CEO/CFO certifications, and XBRL financial data - Exhibits include organizational documents, CEO/CFO certifications (Sarbanes-Oxley Sections 302 and 906), and financial statements formatted in inline XBRL181 SIGNATURES - Report signed on August 12, 2025, by CEO Edward J. Cooney and CFO Brandi Pajot, pursuant to Securities Exchange Act of 1934183185