Affinity Bancshares, Inc. (NASDAQ:AFBI) is a bank holding company headquartered in Covington, Georgia. The company's primary operating subsidiary is Affinity Bank, National Association, a national bank that conducts banking activities primarily in the Atlanta metropolitan area and surrounding counties.

Financials

Affinity Bancshares has demonstrated steady growth despite the challenging economic environment. For the full year 2023, the company reported annual net income of $6.45 million and annual revenue of $45.17 million. The company's annual operating cash flow was $7.87 million, while its annual free cash flow reached $7.34 million.

In the first quarter of 2024, Affinity Bancshares continued its positive momentum. The company reported net income of $1.34 million, a slight decrease from the $1.72 million recorded in the same period of the prior year. This decline was primarily attributable to an increase in interest expense, which offset the growth in interest income.

Interest income for the first quarter of 2024 increased by 15.3% to $11.22 million, driven by higher yields on loans, investment securities, and interest-earning deposits. The average yield on loans increased by 59 basis points to 5.75%, reflecting the changes in the interest rate environment. Additionally, the average balance of loans grew by 2.0% to $664.7 million, indicating steady loan demand.

However, the increase in interest income was partially offset by a significant rise in interest expense, which grew by 58.0% to $4.47 million. This was primarily due to higher rates paid on interest-bearing deposits, particularly certificates of deposit, as well as increased borrowings from the Federal Home Loan Bank and the Federal Reserve Bank. The average rate paid on certificates of deposit increased by 131 basis points to 4.18%.

As a result, Affinity Bancshares' net interest income for the first quarter of 2024 decreased by 2.2% to $6.75 million, and the net interest margin declined from 3.58% in the prior year period to 3.38%. The company's net interest rate spread also decreased from 2.86% to 2.49% during this time.

Affinity Bancshares' non-interest income remained relatively stable, increasing by 5.8% to $584,000 in the first quarter of 2024. The company did not record any provision for credit losses during the quarter, compared to a $7,000 provision in the same period of the prior year.

Non-interest expenses increased by 7.2% to $5.57 million, primarily due to higher salaries and employee benefits, as well as increased professional fees and FDIC insurance premiums. The company's effective tax rate for the first quarter of 2024 was 24.3%, compared to 23.4% in the same period of the prior year.

Balance Sheet

Affinity Bancshares' balance sheet remained strong, with total assets increasing by 3.1% to $869.5 million as of March 31, 2024, compared to $843.3 million at the end of 2023. The growth in assets was driven by a 22.7% increase in cash and cash equivalents, as well as a 2.2% increase in gross loans to $674.5 million.

The company's deposit base grew by 1.9% to $687.4 million, with non-interest-bearing deposits increasing by 6.4% and brokered deposits accounting for $107.4 million, or 15.6% of total deposits. Affinity Bancshares' loan-to-deposit ratio stood at 98.1% as of March 31, 2024, compared to 97.8% at the end of 2023.

Capital Position

Affinity Bancshares' capital position remained robust, with the Bank exceeding all regulatory capital requirements and being categorized as "well capitalized" as of March 31, 2024. The company's common equity tier 1 capital ratio was 12.50%, and its total capital ratio was 13.68%.

Outlook

Looking ahead, Affinity Bancshares has not provided any specific guidance or outlook for the remainder of 2024. However, the company's management has expressed cautious optimism about the bank's ability to navigate the current economic environment and continue its growth trajectory.

Business Overview

The company's geographic footprint is primarily concentrated in the Atlanta metropolitan area and surrounding counties, with a focus on commercial and industrial lending, commercial real estate, and residential mortgage lending. Affinity Bancshares has also established a presence in the dental industry, providing financing solutions for practice acquisitions and equipment.

Risks and Challenges

In terms of risk factors, Affinity Bancshares is exposed to the typical risks associated with the banking industry, such as credit risk, interest rate risk, and operational risk. The company's loan portfolio is concentrated in commercial real estate, which could be vulnerable to changes in the local real estate market. Additionally, the company's reliance on brokered deposits and wholesale funding sources could expose it to liquidity risks.

Conclusion

Overall, Affinity Bancshares has demonstrated its ability to navigate the challenging economic environment and maintain steady growth. The company's focus on commercial and industrial lending, as well as its presence in the dental industry, have contributed to its performance. However, the company will need to closely monitor its interest rate risk and credit quality to ensure continued success in the future.