Affinity Bancshares(AFBI) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The financial statements present the company's financial position and operating results, highlighting asset growth and a decline in nine-month net income to $4.9 million due to rising interest expense Consolidated Balance Sheets Total assets grew to $855.4 million by September 30, 2023, driven by increases in cash and loans, while deposits shifted to higher-yielding certificates Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $855,431 | $791,283 | $64,148 | 8.1% | | Cash and cash equivalents | $61,503 | $26,324 | $35,179 | 133.6% | | Net loans | $651,805 | $636,909 | $14,896 | 2.3% | | Total investment securities | $82,195 | $72,727 | $9,468 | 13.0% | | Total Liabilities | $736,955 | $674,180 | $62,775 | 9.3% | | Total deposits | $709,045 | $657,172 | $51,873 | 7.9% | | - Certificates of deposit | $222,329 | $125,989 | $96,340 | 76.5% | | - Non-interest-bearing checking | $170,654 | $190,297 | ($19,643) | -10.3% | | FHLB advances and other borrowings | $20,000 | $10,025 | $9,975 | 99.5% | | Total stockholders' equity | $118,476 | $117,103 | $1,373 | 1.2% | Consolidated Statements of Income Net income declined to $1.6 million for Q3 2023 and $4.9 million for the nine-month period, primarily due to a substantial increase in interest expense Income Statement Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total interest income | $11,024 | $8,224 | $31,615 | $23,156 | | Total interest expense | $4,123 | $698 | $11,124 | $738 | | Net interest income | $6,901 | $7,526 | $20,491 | $22,418 | | Provision for credit losses | $0 | $187 | $7 | $654 | | Total noninterest income | $630 | $593 | $1,860 | $1,836 | | Total noninterest expenses | $5,406 | $5,490 | $15,884 | $16,485 | | Net income | $1,623 | $1,861 | $4,935 | $5,435 | | Diluted EPS | $0.25 | $0.27 | $0.75 | $0.80 | Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income for the nine months ended September 30, 2023, was $3.8 million, a significant improvement from the prior year's loss Comprehensive Income (Loss) (in thousands) | Component | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | | Net income | $4,935 | $5,435 | | Other comprehensive loss (net of tax) | ($1,104) | ($6,586) | | Total comprehensive income (loss) | $3,831 | ($1,151) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $118.5 million, driven by net income but partially offset by stock repurchases and other comprehensive loss - Net income: +$4.9 million[16] - Common stock repurchase: -$3.0 million[16] - Change in unrealized loss on securities (AOCI): -$1.1 million[16] - Adoption of new accounting pronouncement (CECL): -$0.5 million[16] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $35.2 million for the nine-month period, primarily due to strong cash generation from financing activities Cash Flow Summary (in thousands) | Activity | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,062 | $8,215 | | Net cash used in investing activities | ($29,733) | ($67,417) | | Net cash provided by (used in) financing activities | $58,851 | ($12,068) | | Net change in cash and cash equivalents | $35,180 | ($71,270) | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, including CECL adoption, loan portfolio concentration, unrealized losses on securities, and a significant increase in brokered CDs - Effective September 15, 2023, the Bank converted from a federal savings association to a national bank, and the Company became a bank holding company[21] - The company adopted the CECL standard (ASC 326) on January 1, 2023, recording a one-time charge to retained earnings of $0.5 million, net of tax[31] - At September 30, 2023, available-for-sale securities had gross unrealized losses of $10.4 million, primarily attributed to changes in interest rates, not credit quality[53][56][57] - Brokered CDs increased significantly, totaling $107.3 million at September 30, 2023, up from $34.9 million at year-end 2022[89] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses asset growth, net income decline due to net interest margin compression, and the company's strong liquidity and capital positions Comparison of Financial Condition Total assets increased by 8.1% to $855.4 million, driven by cash and loan growth, while deposits increased with a shift to certificates of deposit - Total assets increased by 8.1% to $855.4 million, primarily due to increases in cash and loans[136] - Net loans increased by 2.3% to $651.8 million, with growth in construction, non-owner-occupied CRE, and residential loans[138] - Total deposits increased by 7.9%, driven by a 76.5% surge in certificates of deposit, as customers sought higher yields[141] - Stockholders' equity increased by $1.4 million, impacted by $4.9 million in net income and offset by $3.0 million in common stock repurchases[143] Comparison of Operating Results Net income declined for both Q3 and the nine-month period due to significant net interest margin compression from rising interest expenses Q3 Operating Results Comparison (in thousands) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $6,901 | $7,526 | ($625) | | Provision for Credit Losses | $0 | $187 | ($187) | | Net Income | $1,623 | $1,861 | ($238) | Nine-Month Operating Results Comparison (in thousands) | Metric | 9 Months 2023 | 9 Months 2022 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $20,491 | $22,418 | ($1,927) | | Provision for Credit Losses | $7 | $654 | ($647) | | Total Non-interest Expenses | $15,884 | $16,485 | ($601) | | Net Income | $4,935 | $5,435 | ($500) | - Net interest margin compressed to 3.36% for Q3 2023 from 4.12% in Q3 2022, as the cost of funds rose faster than asset yields[157] Management of Market Risk The company manages interest rate risk using an NII sensitivity model, showing slight asset sensitivity to rising rates but vulnerability to falling rates Net Interest Income Sensitivity Analysis (as of Sep 30, 2023) | Rate Shock (basis points) | Estimated 12-Month NII Change (%) | | :--- | :--- | | +400 | 1.41% | | +200 | 0.87% | | 0 (Level) | — | | -200 | (4.20)% | | -400 | (14.13)% | - Strategies to manage interest rate risk include diversifying the loan portfolio, growing transaction deposits, and originating adjustable-rate loans[188][196] Liquidity and Capital Resources The company maintains strong liquidity through diverse funding sources and exceeds all regulatory capital requirements, categorized as 'well capitalized' - Primary liquidity sources include deposits, loan/security cash flows, and FHLB borrowings. The company has access to a $219.2 million FHLB line of credit and other unsecured lines[197] - To enhance liquidity in Q1 2023, the company issued $85.6 million of brokered deposits and borrowed $45.0 million from the FHLB[200] Bank Regulatory Capital Ratios (as of Sep 30, 2023) | Ratio | Actual | To Be Well Capitalized | | :--- | :--- | :--- | | Common Equity Tier 1 Ratio | 12.14% | 6.50% | | Tier 1 Capital Ratio | 12.14% | 8.00% | | Total Capital Ratio | 13.39% | 10.00% | | Tier 1 Leverage Ratio | 10.89% | 5.00% | Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures, primarily interest rate risk, are detailed in the MD&A, showing sensitivity to interest rate changes - This section refers to the 'Management of Market Risk' discussion in Item 2 of the report for details on market risk disclosures[205] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[205] - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are likely to materially affect, these controls[206] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any material legal proceedings beyond routine business matters - As of September 30, 2023, the company was not involved in any material legal proceedings[208] Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company repurchased 23,746 shares of common stock in Q3 2023 under an authorized program, with 86,997 shares remaining available Share Repurchases for Q3 2023 | Period | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 5,590 | $12.42 | | August 2023 | 5,593 | $14.14 | | September 2023 | 12,563 | $14.89 | | Total Q3 2023 | 23,746 | $14.13 | - The stock repurchase program, approved on October 31, 2022, authorizes the repurchase of up to 331,997 shares. As of September 30, 2023, 245,000 shares have been purchased under the plan[213] Exhibits The report includes various exhibits, such as corporate documents, CEO/CFO certifications, and financial statements in inline XBRL format - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32) and financial data in inline XBRL format (101.0)[215]