10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period

Commission File No. 001-39914

Affinity Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		82-1147778
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

3175 Highway 278 Covington, Georgia		30014
(Address of Principal Executive Offices)		(Zip Code)

(770) 786-7088

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	AFBI	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 4, 2024, 6,412,430 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding.

Affinity Bancshares, Inc.

Form 10-Q

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Balance Sheets at September 30, 2024 (unaudited) and December 31, 2023	2

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	3

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	4

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

	SIGNATURES	36

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AFFINITY BANCSHARES, INC.

Consolidated Balance Sheets



	September 30, 2024			December 31, 2023
	(Dollars in thousands except per share amounts)
Assets
Cash and due from banks	$	5,316		$	6,030
Interest-earning deposits in other depository institutions		46,983			43,995
Cash and cash equivalents		52,299			50,025
Investment securities available-for-sale		48,400			48,561
Investment securities held-to-maturity (estimated fair value of $32,571, net of allowance for credit losses of $45 at September 30, 2024 and estimated fair value of $33,835, net of allowance for credit losses of $45 at December 31, 2023)		32,273			34,206
Other investments		6,167			5,434
Loans		697,572			659,876
Allowance for credit loss on loans		(8,398	)		(8,921	)
Net loans		689,174			650,955
Other real estate owned		—			2,850
Premises and equipment, net		3,469			3,797
Bank owned life insurance		16,385			16,086
Intangible assets		18,223			18,366
Other assets		12,171			12,978
Total assets	$	878,561		$	843,258

Liabilities and Stockholders' Equity

Liabilities:
Non-interest-bearing checking	$	161,361		$	154,689
Interest-bearing checking		87,947			85,362
Money market accounts		151,232			138,673
Savings accounts		69,426			74,768
Certificates of deposit		213,804			220,951
Total deposits		683,770			674,443
Federal Home Loan Bank advances and other borrowings		58,815			40,000
Accrued interest payable and other liabilities		7,600			7,299
Total liabilities		750,185			721,742
Stockholders' equity:
Common stock (par value $0.01 per share, 40,000,000 shares authorized; 6,412,430 issued and outstanding at September 30, 2024 and 6,416,628 issued and outstanding at December 31, 2023)		64			64
Preferred stock (10,000,000 shares authorized, no shares outstanding)		—			—
Additional paid in capital		62,049			61,026
Unearned ESOP shares		(4,430	)		(4,587	)
Retained earnings		75,441			71,345
Accumulated other comprehensive loss		(4,748	)		(6,332	)
Total stockholders' equity		128,376			121,516
Total liabilities and stockholders' equity	$	878,561		$	843,258

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Income

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands except per share amounts)
Interest income:
Loans, including fees	$	10,596	$	9,113	$	30,575	$	26,131
Investment securities		1,038		1,022		3,207		2,957
Interest-earning deposits		668		889		1,964		2,527
Total interest income		12,302		11,024		35,746		31,615
Interest expense:
Deposits		4,187		3,915		12,287		10,015
FHLB advances and other borrowings		701		208		1,727		1,109
Total interest expense		4,888		4,123		14,014		11,124
Net interest income before provision for credit losses		7,414		6,901		21,732		20,491
Provision for credit losses		—		—		213		7
Net interest income after provision for credit losses		7,414		6,901		21,519		20,484
Noninterest income:
Service charges on deposit accounts		364		426		1,150		1,222
Net gain on sale of other real estate owned		—		—		135		—
Other		202		204		570		638
Total noninterest income		566		630		1,855		1,860
Noninterest expenses:
Salaries and employee benefits		3,257		3,007		9,853		9,047
Occupancy		600		637		1,833		1,919
Data processing		520		525		1,538		1,504
Professional fees		356		160		1,737		475
Other		971		1,077		3,032		2,939
Total noninterest expenses		5,704		5,406		17,993		15,884
Income before income taxes		2,276		2,125		5,381		6,460
Income tax expense		546		502		1,285		1,525
Net income	$	1,730	$	1,623	$	4,096	$	4,935
Weighted average common shares outstanding
Basic		6,412,511		6,417,754		6,415,246		6,500,562
Diluted		6,611,468		6,493,114		6,555,096		6,575,923
Basic earnings per share	$	0.27	$	0.25	$	0.64	$	0.76
Diluted earnings per share	$	0.26	$	0.25	$	0.62	$	0.75

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Comprehensive Income

(unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2024		2023			2024		2023
			(In thousands)
Net income	$	1,730	$	1,623		$	4,096	$	4,935

Other comprehensive income (loss):

Net unrealized gains (losses) on available-for-sale securities, net of taxes of $423, $(368), $537 and $(374)		1,253		(1,090	)		1,584		(1,104	)

Total other comprehensive income (loss)		1,253		(1,090	)		1,584		(1,104	)

Total comprehensive income	$	2,983	$	533		$	5,680	$	3,831

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)


	Three Months Ended September 30, 2024 and 2023
												Accumulated
			Additional									Other
	Common		Paid In				Unearned			Retained		Comprehensive
	Stock		Capital				ESOP Shares			Earnings		Income (Loss)			Total
						(In thousands)

Beginning balance June 30, 2024		64	$	61,773			$	(4,482	)	$	73,711	$	(6,001	)	$	125,065
ESOP loan payment and release of ESOP shares		—		59				52			—		—			111
Stock-based compensation expense		—		217				—			—		—			217
Change in unrealized gain on investment securities available-for-sale, net of tax		—		—				—			—		1,253			1,253
Net income		—		—				—			1,730		—			1,730
Ending balance September 30, 2024		64	$	62,049			$	(4,430	)	$	75,441	$	(4,748	)	$	128,376

Beginning balance June 30, 2023		64	$	61,027			$	(4,692	)	$	68,209	$	(6,669	)	$	117,939
ESOP loan payment and release of ESOP shares		—		21				53			—		—			74
Stock-based compensation expense		—		258				—			—		—			258
Change in unrealized loss on investment securities available-for-sale, net of tax		—		—				—			—		(1,090	)		(1,090	)
Common stock repurchase		—		(328	)			—			—		—			(328	)
Net income		—		—				—			1,623		—			1,623
Ending balance September 30, 2023		64	$	60,978			$	(4,639	)	$	69,832	$	(7,759	)	$	118,476


	Nine Months Ended September 30, 2024 and 2023
														Accumulated
				Additional										Other
	Common			Paid In				Unearned			Retained			Comprehensive
	Stock			Capital				ESOP Shares			Earnings			Income (Loss)			Total
							(In thousands)

Beginning balance December 31, 2023		64		$	61,026			$	(4,587	)	$	71,345		$	(6,332	)	$	121,516
ESOP loan payment and release of ESOP shares		—			136				157			—			—			293
Stock-based compensation expense		—			887				—			—			—			887
Change in unrealized gain on investment securities available-for-sale, net of tax		—			—				—			—			1,584			1,584
Net income		—			—				—			4,096			—			4,096
Ending balance September 30, 2024		64		$	62,049			$	(4,430	)	$	75,441		$	(4,748	)	$	128,376

Beginning balance December 31, 2022		66		$	63,130			$	(4,795	)	$	65,357		$	(6,655	)	$	117,103
ESOP loan payment and release of ESOP shares		—			63				156			—			—			219
Stock-based compensation expense		—			782				—			—			—			782
Change in unrealized loss on investment securities available-for-sale, net of tax		—			—				—			—			(1,104	)		(1,104	)
Common stock repurchase		(2	)		(2,997	)												(2,999	)
Adoption of new accounting pronouncement, net of tax (see Note 1)		—			—				—			(460	)		—			(460	)
Net income		—			—				—			4,935			—			4,935
Ending balance September 30, 2023	$	64		$	60,978			$	(4,639	)	$	69,832		$	(7,759	)	$	118,476

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
	2024			2023
	(In thousands)
Cash flows from operating activities:
Net income	$	4,096		$	4,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, (accretion) and amortization		513			576
Stock-based compensation expense		887			782
Deferred income tax expense		241			—
Provision for credit losses		213			7
ESOP expense		293			219
Net loss (gain) on sale of other real estate owned		(135	)		—
Increase in cash surrender value of bank owned life insurance		(299	)		(267	)
Change in:
Accrued interest receivable and other assets		29			(531	)
Accrued interest payable and other liabilities		88			341
Net cash provided by operating activities		5,926			6,062
Cash flows from investing activities:
Purchases of investment securities held-to-maturity		—			(7,609	)
Purchases of investment securities available-for-sale		—			(5,710	)
Purchases of premises and equipment		(399	)		(352	)
Proceeds from paydowns of investment securities available-for-sale		2,368			2,424
Proceeds from paydowns of investment securities held-to-maturity		2,076			37
Purchases of other investments		(733	)		(5,716	)
Proceeds from sales of other investments		—			1,913
Net change in loans		(38,091	)		(14,720	)
Proceeds from sales of other real estate owned		2,985			—
Net cash used in investing activities		(31,794	)		(29,733	)
Cash flows from financing activities:
Net change in deposits		9,327			51,875
Stock repurchase		—			(2,999	)
Proceeds from FHLB advances		24,000			65,000
Repayment of FHLB advances		(10,000	)		(55,000	)
Proceeds from federal funds purchased		27			26
Repayment of federal funds purchased		(27	)		(51	)
Proceeds from other borrowings		11,838			—
Repayment of other borrowings		(7,023	)		—
Net cash provided by financing activities		28,142			58,851
Net change in cash and cash equivalents		2,274			35,180
Cash and cash equivalents at beginning of period		50,025			26,324
Cash and cash equivalents at end of period	$	52,299		$	61,503
Supplemental disclosures of cash flow information:
Cash paid for interest		13,916			10,306
Cash paid for income taxes		1,469			1,543
Change in unrealized loss on investment securities available-for-sale, net of tax		1,584			(1,104	)

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(1) Nature of Operations

Affinity Bancshares, Inc. (the “Company”) is a bank holding company, headquartered in Covington, Georgia. The Company has one operating subsidiary, Affinity Bank, National Association (the “Bank”, and formerly named “Affinity Bank”), a national bank, conducting banking activities primarily in Newton County, Georgia and surrounding counties and in Cobb and Fulton Counties, Georgia and surrounding counties, and originating dental practice loans and indirect automobile loans throughout the Southeastern United States. The Bank offers such customary banking services as consumer and commercial checking accounts, savings accounts, certificates of deposit, mortgage, commercial and consumer loans, including indirect automobile loans, money transfers and a variety of other banking services. The Company was incorporated in 2020 to be the successor corporation to Community First Bancshares, Inc., a federal corporation, upon completion of the second-step mutual-to-stock conversion (the “Conversion”) of Community First Bancshares, MHC, the top tier mutual holding company of Community First Bancshares, Inc, the former mid-tier holding company for the Bank.

Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company as of September 30, 2024 and the results of its operations and its cash flows for the periods presented. The interim consolidated financial information should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for a full year or for any other period.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for credit losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Summary of Significant Accounting Policies – The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in the Company’s financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K.

Proposed Transaction

On May 30, 2024, the Company, Affinity Bank, and Atlanta Postal Credit Union (“APCU”) entered into a Purchase and Assumption Agreement (the “Agreement”), pursuant to which APCU will acquire substantially all of the assets and assume substantially all of the liabilities (including deposit liabilities) of Affinity Bank. Following the consummation of the purchase and assumption transaction, the Bank and the Company intend to voluntarily dissolve and liquidate, and the Company expects to distribute its remaining net assets to the stockholders of the Company.

Earnings per Share

Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards (outstanding stock options), if any. Presented below are the calculations for basic and diluted earnings per common share.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands except per share data)

Net income	$	1,730	$	1,623	$	4,096	$	4,935
Weighted average common shares outstanding		6,412,511		6,417,754		6,415,246		6,500,562
Effect of dilutive common stock awards		198,957		75,360		139,850		75,361
Diluted weighted average common shares outstanding		6,611,468		6,493,114		6,555,096		6,575,923
Basic earnings per common share	$	0.27	$	0.25	$	0.64	$	0.76
Diluted earnings per common share		0.26	$	0.25		0.62		0.75

There were 10,000 and 110,000 anti-dilutive options for the three and nine months ended September 30, 2024 and 285,454 anti-dilutive options for the three and nine months ended September 30, 2023.

(2) Investment Securities

Investment securities available-for-sale at September 30, 2024 and December 31, 2023 are as follows: (in thousands)



September 30, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Treasury securities	$	5,177	$	—	$	(479	)	$	4,698
Municipal securities - tax exempt		522		—		(68	)		454
Municipal securities - taxable		2,530		—		(287	)		2,243
U. S. Government sponsored enterprises		11,837		—		(2,638	)		9,199
Government agency mortgage-backed securities		17,190		—		(2,156	)		15,034
Corporate securities		17,501		53		(782	)		16,772
Total	$	54,757	$	53	$	(6,410	)	$	48,400
December 31, 2023
U.S. Treasury securities	$	5,147	$	—	$	(649	)	$	4,498
Municipal securities - tax exempt		527		—		(85	)		442
Municipal securities - taxable		2,530		—		(395	)		2,135
U. S. Government sponsored enterprises		11,837		—		(3,207	)		8,630
Government agency mortgage-backed securities		18,643		—		(2,695	)		15,948
Corporate securities		18,355		30		(1,477	)		16,908
Total	$	57,039	$	30	$	(8,508	)	$	48,561

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Investment securities held-to-maturity at September 30, 2024 and December 31, 2023 are as follows: (in thousands)



September 30, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Estimated Allowance for Credit Losses
U.S. Treasury securities	$	1,000	$	—	$	—		$	1,000	$	—
Government agency mortgage-backed securities		733		—		(74	)		659		—
Corporate securities		30,585		391		(64	)		30,912		(45	)
Total	$	32,318	$	391	$	(138	)	$	32,571	$	(45	)
December 31, 2023
U.S. Treasury securities	$	999	$	—	$	(4	)	$	995	$	—
Government agency mortgage-backed securities		795		—		(76	)		719		—
Corporate securities		32,457		58		(394	)		32,121		(45	)
Total	$	34,251	$	58	$	(474	)	$	33,835	$	(45	)

Corporate securities account for the majority of the held-to-maturity portfolio as of September 30, 2024. These corporate securities are accounted for as securities, but are underwritten as loans with features that are typically found in commercial loans. Accordingly, the Bank monitors the credit quality of these corporate bonds through quarterly credit reviews to determine impairment, if any. At September 30, 2024, these securities are all rated as investment grade and the $45,000 of allowance for credit losses associated with these securities was calculated using a Moody's report on the cumulative default rates of corporate issuers.

Investment securities available-for-sale in an unrealized loss position at September 30, 2024 and December 31, 2023 are as follows: (in thousands)


	Less Than 12 Months					12 Months or More					Total
September 30, 2024	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury securities	$	—	$	—		$	4,698	$	(479	)	$	4,698	$	(479	)
Municipal securities - tax exempt		—		—			454		(68	)		454		(68	)
Municipal securities - taxable		—		—			2,243		(287	)		2,243		(287	)
U. S. Government sponsored enterprises		—		—			9,199		(2,638	)		9,199		(2,638	)
Government agency mortgage-backed securities		—		—			15,034		(2,156	)		15,034		(2,156	)
Corporate securities		—		—			14,206		(782	)		14,206		(782	)
Total	$	—	$	—		$	45,834	$	(6,410	)	$	45,834	$	(6,410	)
December 31, 2023
U.S. Treasury securities	$	—	$	—		$	4,498	$	(649	)	$	4,498	$	(649	)
Municipal securities - tax exempt		—		—			442		(85	)		442		(85	)
Municipal securities - taxable		—		—			2,135		(395	)		2,135		(395	)
U. S. Government sponsored enterprises		—		—			8,630		(3,207	)		8,630		(3,207	)
Government agency mortgage-backed securities		—		—			15,948		(2,695	)		15,948		(2,695	)
Corporate securities		5,557		(214	)		8,774		(1,263	)		14,331		(1,477	)
Total	$	5,557	$	(214	)	$	40,427	$	(8,294	)	$	45,984	$	(8,508	)

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

There were 67 available-for-sale securities in an unrealized loss position for 12 months or greater totaling $6.4 million as of September 30, 2024. The unrealized losses on the debt securities arose due to changing interest rates and market conditions and are considered to be temporary because of acceptable investment grades and are reviewed regularly. Four of the securities are agency bonds and five are U.S. Treasury bonds, so all of these are direct obligations of the U.S. Government. Thirty-eight of the securities are mortgage-backed bonds that have the direct or implied backing of the U.S. Government. Four of the bonds are municipal securities and the remaining 16 securities are corporate securities that are either trust preferred securities or subordinated debentures where the Bank performs a credit review regularly and such review has raised no concerns.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises ("GSEs"), and the U.S. Treasury, including notes and mortgage-backed securities, accounted for the majority of the available-for-sale portfolio as of September 30, 2024, and the Bank expects no credit losses on these securities, given the explicit and implicit guarantees provided by the U.S. federal government. The available-for-sale portfolio also includes corporate securities, but are underwritten as loans with features that are typically found in commercial loans. Accordingly, the Bank monitors the credit quality of these corporate bonds through quarterly credit reviews to determine impairment, if any. The decline in fair value is attributable to changes in interest rates, and not credit quality, and the Bank does not have the intent to sell the U.S. government and agencies debt securities and the corporate securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Bank does not consider impairments on these securities to be credit related as of September 30, 2024.

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 30, 2024, by contractual maturity, are shown below. Maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties. Therefore, these securities are not included in the maturity categories. (in thousands)


	Available-for-Sale				Held-to-Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Within 1 year	$	—	$	—	$	1,950	$	1,955
Greater than 1 to 5 years		11,966		11,737		13,857		13,949
Greater than 5 to 10 years		15,264		13,667		15,778		16,008
Greater than 10 years		10,337		7,962		—		—
		37,567		33,366		31,585		31,912
Government agency mortgage-backed securities		17,190		15,034		733		659
Total	$	54,757	$	48,400	$	32,318	$	32,571

There were no sales of investment securities available-for-sale during the three and nine months ended September 30, 2024 or 2023.

Available-for-sale securities with a carrying value of approximately $3.5 million and $4.2 million were pledged to secure public deposits at September 30, 2024 and December 31, 2023, respectively.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(3) Loans and Allowance for Credit Losses

Major classifications of loans, by collateral code, at September 30, 2024 and December 31, 2023 are summarized as follows:(in thousands)


	September 30, 2024			December 31, 2023
Commercial (secured by real estate - owner occupied)	$	158,189		$	157,691
Commercial (secured by real estate - non-owner occupied)		158,250			145,100
Commercial and industrial		146,863			140,407
Construction, land and acquisition & development		63,717			47,685
Residential mortgage 1-4 family		52,684			53,650
Consumer installment		117,869			115,343
Total		697,572			659,876
Less allowance for credit losses		(8,398	)		(8,921	)
Total loans, net	$	689,174		$	650,955

The Bank grants loans and extensions of credit to individuals and a variety of firms and corporations located primarily in the Atlanta, Georgia Metropolitan Statistical Area. A substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market. The Bank also conducts lending within professional markets, with a primary focus on the dental industry in Georgia and adjoining states. The majority of these loans are commercial and industrial credits for practice acquisitions and equipment financing with the remainder being owner-occupied real estate. Accrued interest on loans totaled $2.4 million on September 30, 2024 and $2.1 million on December 31, 2023 and is included in other assets on the consolidated balance sheet.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

The following table presents the balance in the allowance for credit losses as of and for the three and nine months ended September 30, 2024 and 2023 (in thousands)


	Commercial (Secured by Real Estate - Owner Occupied)			Commercial (Secured by Real Estate - Non-Owner Occupied)			Commercial and Industrial			Construction, Land and Acquisition & Development		Residential Mortgage			Consumer Installment			Unallocated			Total
Allowance for Credit Loss
Beginning balance June 30, 2024	$	1,309		$	1,319		$	1,707		$	1,176	$	1,106		$	1,550		$	294		$	8,461
Provision		4			52			24			39		(38	)		93			(174	)		—
Charge-offs		—			—			—			—		—			(75	)		—			(75	)
Recoveries		—			—			—			—		—			12			—			12
Ending balance, September 30, 2024	$	1,313		$	1,371		$	1,731		$	1,215	$	1,068		$	1,580		$	120		$	8,398
Allowance for Credit Loss
Beginning balance December 31, 2023	$	1,397		$	1,298		$	1,806		$	927	$	1,038		$	1,534		$	921		$	8,921
Provision		(84	)		238			(75	)		288		80			354			(801	)		—
Charge-offs		—			(165	)		—			—		(50	)		(372	)		—			(587	)
Recoveries		—			—			—			—		—			64			—			64
Ending balance September 30, 2024	$	1,313		$	1,371		$	1,731		$	1,215	$	1,068		$	1,580		$	120		$	8,398
Allowance for Credit Loss
Beginning balance, June 30, 2023	$	1,492		$	1,331		$	1,116		$	1,010	$	1,475		$	2,321		$	507		$	9,252
Provision		(81	)		(71	)		(196	)		24		89			24			211			—
Charge-offs		—			—			—			—		—			(64	)		—			(64	)
Recoveries		—			—			1			—		13			9			—			23
Ending balance, September 30, 2023	$	1,411		$	1,260		$	921		$	1,034	$	1,577		$	2,290		$	718		$	9,211
Allowance for Credit Loss
Beginning balance, December 31, 2022	$	2,403		$	2,079		$	2,292		$	487	$	345		$	1,675		$	44		$	9,325
Provision		(996	)		(819	)		(1,369	)		547		1,183			780			674			—
Charge-offs		(4	)		—			(3	)		—		—			(212	)		—			(219	)
Recoveries		8			—			1			—		49			47			—			105
Ending balance, September 30, 2023	$	1,411		$	1,260		$	921		$	1,034	$	1,577		$	2,290		$	718		$	9,211

No provision for credit losses on loans was recorded for the three and nine months ended September 30, 2024 and 2023. A provision on unfunded commitments for the three months ended September 30, 2024 and 2023 of $213,000 and $0 was recorded, respectively, and is included in accrued interest payable and other liabilities on the consolidated balance sheet. A provision on unfunded commitments for the nine months ended September 30, 2024 of $213,000 and a release of $3,000 was recorded for the nine months ended September 30, 2023. The allowance for unfunded commitments as of September 30, 2024 and December 31, 2023 was $744,000 and $531,000, respectively and is included in accrued interest payable and other liabilities on the consolidated balance sheet.. The Bank also recorded a provision of $0 and $10,000 for credit losses for held-to-maturity securities for the three and nine months ended September 30, 2024 and 2023, respectively.

The Bank individually evaluates loans meeting a certain threshold for impairment that are on nonaccrual status or are rated substandard (as described below).

Collateral-Dependent Loans
We classify a loan as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of collateral. Our commercial loans have collateral that is comprised of real estate and business assets. Our consumer loans have collateral that is substantially comprised of residential real estate. There were no significant changes in the extent to which collateral secures our collateral-dependent loans during the nine months ended September 30, 2024 and 2023, respectively and we had $2.0 million and $4.3 million, respectively, of

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

collateral-dependent loans without an allowance and no collateral-dependent loans with an allowance at September 30, 2024 and December 31, 2023.

The following table presents the aging of the recorded investment in past due loans, as well as the recorded investment in nonaccrual loans, as of September 30, 2024 and December 31, 2023 by class of loans: (in thousands)


September 30, 2024	30 -59 Days Past Due		60- 89 Days Past Due		90 Days or Greater Past Due		Total Accruing Loans Past Due		Nonaccrual with Allowance		Nonaccrual without Allowance		Current		Total
Commercial (secured by real estate - owner occupied)	$	—	$	—	$	—	$	—	$	—	$	2,006	$	156,183	$	158,189
Commercial (secured by real estate - non-owner occupied)		—		—		—		—		—		158		158,092		158,250
Commercial and industrial		—		—		—		—		—		—		146,863		146,863
Construction, land and acquisition & development		—		—		—		—		—		18		63,699		63,717
Residential mortgage		55		—		—		55		—		2,437		50,192		52,684
Consumer installment		424		—		—		424		—		252		117,193		117,869
Total	$	479	$	—	$	—	$	479	$	—	$	4,871	$	692,222	$	697,572

December 31, 2023	30 -59 Days Past Due		60- 89 Days Past Due		90 Days or Greater Past Due		Total Accruing Loans Past Due		Nonaccrual with Allowance		Nonaccrual without Allowance		Current		Total
Commercial (secured by real estate - owner occupied)	$	—	$	—	$	—	$	—	$	—	$	—	$	157,691	$	157,691
Commercial (secured by real estate - non-owner occupied)		—		—		—		—		—		4,505		140,595		145,100
Commercial and industrial		—		—		—		—		—		—		140,407		140,407
Construction, land and acquisition & development		—		—		—		—		—		—		47,685		47,685
Residential mortgage		2,534		—		—		2,534		—		2,504		48,612		53,650
Consumer installment		246		—		—		246		—		417		114,680		115,343
Total	$	2,780	$	—	$	—	$	2,780	$	—	$	7,426	$	649,670	$	659,876

There was one commercial (secured by real estate - owner occupied) loan modification to a borrower with financial difficulty during the three and nine months ended September 30, 2024 for $2.0 million. The loan modification provided for a six-month period with fixed payments of $5,000. There were no loan modifications to a borrower with financial difficulty during the three and nine months ended September 30, 2023.

No loan modifications made to a borrower with financial difficulty subsequently defaulted during the three and nine months ended September 30, 2024 and 2023.

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Bank uses the following definitions for its risk ratings:

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Special Mention. Loans have potential weaknesses that may, if not corrected, weaken or inadequately protect the Bank's credit position at some future date. Weaknesses are generally the result of deviation from prudent lending practices, such as over advances on collateral. Credits in this category should, within a 12-month period, move to Pass if improved or drop to Substandard if poor trends continue.

Substandard. Inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans have a well-defined weakness or weaknesses such as primary source of repayment is gone or severely impaired or cash flow is insufficient to reduce debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans have the same weaknesses as those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable. The likelihood of a loss on an asset or portion of an asset classified Doubtful is high.

Loss. Loans considered uncollectible and of such little value that the continuance as a Bank asset is not warranted. This does not mean that the loan has no recovery or salvage value, but rather the asset should be charged off even though partial recovery may be possible in the future.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. As of September 30, 2024 and December 31, 2023, and based on the most recent analysis performed, the risk category and year of origination of loans by class of loans is as follows: (in thousands)


September 30, 2024	2024		2023		2022		2021		2020		Prior		Revolvers		Total
Pass
Commercial (secured by real estate - owner occupied)	$	12,289	$	14,234	$	25,756	$	21,471	$	21,158	$	57,929	$	3,037	$	155,874
Commercial (secured by real estate - non-owner occupied)		29,698		24,331		39,840		27,698		4,776		24,990		2,722		154,055
Commercial and industrial		21,515		20,841		19,076		27,407		14,368		36,039		7,617		146,863
Construction, land and acquisition & development		30,612		20,539		8,064		3,951		103		382		48		63,699
Residential mortgage		3,064		6,157		5,659		2,202		1,529		25,561		5,575		49,747
Consumer installment		37,658		31,303		33,288		11,245		2,543		879		548		117,464
Total pass		134,836		117,405		131,683		93,974		44,477		145,780		19,547		687,702
Special Mention
Commercial (secured by real estate - owner occupied)		—		—		—		—		—		309		—		309
Commercial (secured by real estate - non-owner occupied)		—		—		—		3,474		—		536		—		4,010
Commercial and industrial		—		—		—		—		—		—		—		—
Construction, land and acquisition & development		—		—		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		216		—		216
Consumer installment		1		49		42		38		22		—		—		152
Total special mention		1		49		42		3,512		22		1,061		—		4,687
Substandard
Commercial (secured by real estate - owner occupied)		—		—		—		—		—		2,006		—		2,006
Commercial (secured by real estate - non-owner occupied)		—		—		—		—		—		185		—		185
Commercial and industrial		—		—		—		—		—		—		—		—
Construction, land and acquisition & development		—		—		—		—		18		—		—		18
Residential mortgage		—		—		187		98		99		2,337		—		2,721
Consumer installment		—		36		81		127		4		5		—		253
Total substandard		—		36		268		225		121		4,533		—		5,183

Total	$	134,837	$	117,490	$	131,993	$	97,711	$	44,620	$	151,374	$	19,547	$	697,572
Current year to date period gross charge-offs
Commercial (secured by real estate - owner occupied)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial (secured by real estate - non-owner occupied)		—		—		—		—		—		165		—		165
Commercial and industrial		—		—		—		—		—		—		—		—
Construction, land and acquisition & development		—		—		—		—		—		—		—		—
Residential mortgage		—		—		5		—		—		45		—		50
Consumer installment		—		47		259		61		—		5		—		372
Total current period gross write-offs	$	—	$	47	$	264	$	61	$	—	$	215	$	—	$	587

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements


December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolvers		Total
Pass
Commercial (secured by real estate - owner occupied)	$	11,210	$	23,441	$	29,832	$	22,982	$	11,287	$	49,744	$	8,863	$	157,359
Commercial (secured by real estate - non-owner occupied)		32,830		37,395		25,702		4,436		10,015		15,546		10,562		136,486
Commercial and industrial		22,473		21,590		27,252		14,764		16,697		25,317		12,314		140,407
Construction, land and acquisition & development		21,557		17,392		5,034		721		216		210		2,534		47,664
Residential mortgage		5,354		5,672		2,447		1,289		1,424		28,710		5,736		50,632
Consumer installment		42,601		46,869		17,488		4,866		1,919		247		543		114,533
Total pass		136,025		152,359		107,755		49,058		41,558		119,774		40,552		647,081
Special Mention
Commercial (secured by real estate - owner occupied)		—		—		—		—		—		332		—		332
Commercial (secured by real estate - non-owner occupied)		—		—		3,539		—		—		540		—		4,079
Commercial and industrial		—		—		—		—		—		—		—		—
Construction, land and acquisition & development		—		—		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		222		—		222
Consumer installment		73		190		99		21		31		—		—		414
Total special mention		73		190		3,638		21		31		1,094		—		5,047
Substandard
Commercial (secured by real estate - owner occupied)		—		—		—		—		—		—		—		—
Commercial (secured by real estate - non-owner occupied)		—		—		—		—		—		4,535		-		4,535
Commercial and industrial		—		—		—		—		—		—		—		—
Construction, land and acquisition & development		—		—		—		21		—		—		—		21
Residential mortgage		—		202		108		107		113		2,266		—		2,796
Consumer installment		50		205		118		11		12		—		—		396
Total substandard		50		407		226		139		125		6,801		-		7,748

Total	$	136,148	$	152,956	$	111,619	$	49,218	$	41,714	$	127,669	$	40,552	$	659,876
Gross charge-offs
Commercial (secured by real estate - owner occupied)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial (secured by real estate - non-owner occupied)		—		—		—		—		—		204		—		204
Commercial and industrial		—		—		—		—		—		3		—		3
Construction, land and acquisition & development		—		—		—		—		—		—		—		—
Residential mortgage		—		—		—		—		—		—		—		—
Consumer installment		9		159		125		14		—		—		—		307
Total current period gross write-offs	$	9	$	159	$	125	$	14	$	—	$	207	$	—	$	514

(4) Intangible Assets

The core deposit premium intangible asset had a gross carrying amount of $1.9 million and accumulated amortization of $908,000 at September 30, 2024. The core deposit premium intangible asset had a gross carrying amount of $1.9 million and accumulated amortization of $765,000 at December 31, 2023. Aggregate amortization expense was $47,000 for the three months ended September 30, 2024 and 2023. Aggregate amortization expense was $143,000 for the nine months ended September 30, 2024 and 2023.

Goodwill acquired through acquisition was $17.2 million at September 30, 2024 and 2023. No impairment loss was recognized during the nine months ended September 30, 2024 and 2023.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(5) Deposits

The aggregate amount of certificates of deposit ("CDs") of $250,000 or more, the standard FDIC deposit insurance coverage limit per depositor, was approximately $30.8 million at September 30, 2024, and $31.2 million at December 31, 2023. Due to the FDIC insurance coverage rules and limits for a depositor's specific group of deposit accounts, it is important to note that not all deposits in excess of $250,000 are uninsured.

Brokered CDs totaled $107.3 million and had a weighted average rate of 4.65% and a weighted average maturity of 22 months at September 30, 2024 and $107.3 million and had a weighted average rate of 4.87% and a weighted average maturity of 28 months at December 31, 2023.

(6) Borrowings

The following Federal Home Loan Bank ("FHLB") advances, which required monthly or quarterly interest payments, were outstanding at September 30, 2024


Advance Date	Advance		Interest Rate			Maturity	Rate	Call Feature
1/6/2023	$	10,000,000		4.22	%	1/6/2026	Fixed	N/A
1/6/2023		10,000,000		3.94	%	1/6/2028	Fixed	N/A
10/25/2023		10,000,000		3.99	%	10/25/2028	Convertible	10/25/2024
6/14/2024		10,000,000		5.45	%	12/13/2024	Fixed	N/A
7/11/2024		14,000,000		3.50	%	7/11/2029	Convertible	1/11/2025
	$	54,000,000

At September 30, 2024 and December 31, 2023, the FHLB advances were collateralized by certain loans which totaled approximately $421.9 million and $392.6 million, and by the Company’s investment in FHLB stock which totaled approximately $3.2 million and $2.5 million at September 30, 2024 and December 31, 2023, respectively.

The Company had one FHLB letter of credit of $12.5 million, used to collateralize public deposits, outstanding at both September 30, 2024 and December 31, 2023.

The Company has Federal Funds unsecured lines of credit totaling $32.5 million. No amount was borrowed under these lines as of September 30, 2024.

We also have a line of $73.3 million and $67.4 million with the Federal Reserve Bank secured by $96.7 million and $96.1 million in loans and investment securities as of September 30, 2024 and December 31, 2023, respectively. There was $4.8 million and $0 outstanding under the Bank Term Funding Program at September 30, 2024 and December 31, 2023, respectively. The following advances under Bank Term advances, which require interest paid in full at maturity, were outstanding at September 30, 2024:

        Advance Date

        Advance

        Interest Rate

        Maturity

        Rate

1/17/2024

4,815,000

4.85

1/17/2025

Fixed

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(7) Employee Stock Ownership Plan

The Company sponsors an employee stock ownership plan (“ESOP”) that covers all employees who meet certain service requirements. The Company makes annual contributions to the ESOP in amounts as defined by the plan document. These contributions are used to pay debt service and purchase additional shares. Certain ESOP shares are pledged as collateral for debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.

In 2017, the ESOP borrowed $3.0 million payable to the Company for the purpose of purchasing shares of the Company’s common stock. A total of 295,499 shares were purchased with the loan proceeds as part of the Company’s initial stock offering. In 2021, the ESOP borrowed $3.0 million payable to the Company for the purpose of purchasing additional shares of the Company’s common stock. A total of 225,721 shares were purchased with the loan proceeds as part of the Company’s second stock offering. Total ESOP expense for the three months ended September 30, 2024 and 2023 was approximately $111,000 and $74,000, respectively. Total ESOP expense for the nine months ended September 30, 2024 and 2023 was approximately $293,000 and $219,000, respectively. The balance of the note payable of the ESOP was approximately $5.1 million at September 30, 2024 and December 31, 2023. Because the source of the loan payments is contributions received by the ESOP from the Company, the related note receivable is shown as a reduction of stockholders’ equity. As of September 30, 2024 and December 31, 2023, 101,000 shares had been released.

(8) Stock-Based Compensation

In 2018, shareholders approved the Company’s 2018 Equity Incentive Plan, which authorizes the issuance of up to 133,987 shares of common stock pursuant to restricted stock grants and up to 334,970 shares of common stock pursuant to the exercise of options.

In May 2022, shareholders approved the Company’s 2022 Equity Incentive Plan, which authorizes the issuance of up to 148,060 shares of common stock pursuant to restricted stock grants and up to 370,150 shares of common stock pursuant to the exercise of options.

A Black-Scholes model is utilized to estimate the fair value of stock option grants, while the market price of the Company’s stock at the date of grant is used to estimate the fair value of restricted stock awards.

A summary of the Company’s stock option activity is summarized below.


Stock Options	Option Shares Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)		Aggregate Intrinsic Value (in thousands)

Outstanding - December 31, 2023		640,766	$	12.58		7.75	$	1,419
Outstanding - March 31, 2024		640,766		12.58		7.51		2,476
Outstanding - June 30, 2024		640,766		12.58		7.26		3,517
Outstanding - September 30, 2024		640,766	$	12.58		7.00	$	5,596
Exercisable - September 30, 2024		336,895	$	11.30		5.97	$	3,372

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock options. A summary of the Company’s restricted stock activity is summarized below.


Restricted Stock	Restricted Shares Outstanding			Weighted Average Grant Date Fair Value

Outstanding - December 31, 2023		166,591		$	13.46
Vested		(3,467	)
Outstanding - March 31, 2024		163,124			13.44
Vested		(27,174	)
Outstanding - June 30, 2024		135,950			14.06
Vested *		(20,867	)
Outstanding September 30, 2024		115,083		$	13.92

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

* The terms of the restricted stock agreements permit the surrender of shares to the Company upon vesting in order to satisfy applicable tax withholding requirements at the minimum statutory withholding rate, and accordingly, 4,198 shares were surrendered during the three and nine months ended September 30, 2024.

The Company recognized approximately $217,000 and $258,000, of stock-based compensation expense during the three months ended September 30, 2024 and 2023 respectively, associated with its common stock awards granted to directors and officers. The Company recognized approximately $887,000 and $782,000, of stock-based compensation expense during the nine months ended September 30, 2024 and 2023 respectively, associated with its common stock awards granted to directors and officers. This expense is net of approximately $90,000 and $28,000 during the three months ended September 30, 2024 and 2023, respectively and $90,000 and $46,000 during the nine months ended September 30, 2024 and 2023, respectively for shares surrendered to satisfy applicable tax withholding requirements

As of September 30, 2024, there was approximately $2.8 million of unrecognized compensation cost related to equity award grants. The cost is expected to be recognized over the weighted average remaining vesting period of approximately 1.82 years.

(9) Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent loans and other real estate owned. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following are descriptions of valuation methodologies used for assets and liabilities recorded at fair value.

Cash and Cash Equivalents

The carrying value of cash and cash equivalents is a reasonable estimate of fair value.

Investment Securities Available-for-Sale

Available-for-sale securities are recorded at market value. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and state, county and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Investments

The carrying value of other investments includes FHLB stock and First National Bankers Bank stock and approximates fair value.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Loans

The Company does not record loans at fair value on a recurring basis, unless a loan is considered collateral dependent and a specific reserve may be required to be established within the allowance for credit losses. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered individually evaluated. Once a loan is identified as collateral dependent, management measures impairment in accordance with GAAP. The fair value of collateral dependent loans is estimated using one of three methods, including collateral value, market value of similar debt, and discounted cash flows. Those collateral dependent loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. In accordance with GAAP, collateral dependent loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price, the Company records the collateral dependent loan as nonrecurring Level 2. When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the collateral dependent loan as nonrecurring Level 3. For disclosure purposes, the fair value of fixed rate loans which are not considered collateral dependent is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For non collateral dependent variable rate loans, the carrying amount is a reasonable estimate of fair value for disclosure purposes.

Other Real Estate Owned

Other real estate owned properties are adjusted to fair value upon transfer of the loans to other real estate. Subsequently, other real estate assets are carried at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price, the Bank records the other real estate as nonrecurring Level 2. When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the other real estate asset as nonrecurring Level 3.

Deposits

The fair value of savings accounts, interest bearing checking accounts, non-interest bearing checking accounts and market rate checking accounts is the amount payable on demand at the reporting date, while the fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using current rates at which comparable certificates would be issued.

FHLB Advances and Other Borrowings

FHLB advances are carried at cost and the fair value is obtained from the Federal Home Loan Bank of Atlanta. Federal Funds
Purchased are carried at cost and because they are overnight funds, the carrying value is a reasonable estimate of fair value.

Commitments to Extend Credit

Commitments to extend credit are short-term and, therefore, the carrying value and the fair value are considered immaterial for disclosure.

Assets Recorded at Fair Value on a Recurring Basis

The Company’s only assets recorded at fair value on a recurring basis are available-for-sale securities that had fair values of approximately $48.4 million and $48.6 million at September 30, 2024 and December 31, 2023, respectively. They are classified as Level 2.

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of September 30, 2024 and December 31, 2023 (in thousands).


September 30, 2024	Level 1		Level 2		Level 3		Total
Other real estate owned	$	—	$	—	$	—	$	—
Collateral dependent loans		—		—		2,000		2,000
Total assets at fair value	$	—	$	—	$	2,000	$	2,000

December 31, 2023	Level 1		Level 2		Level 3		Total
Other real estate owned	$	—	$	—	$	2,850	$	2,850
Collateral dependent loans		—		—		1,440		1,440
Total assets at fair value	$	—	$	—	$	4,290	$	4,290

The carrying amounts and estimated fair values (in thousands) of the Company’s financial instruments at September 30, 2024 and December 31, 2023 are as follows:


		September 30, 2024				December 31, 2023
		Carrying		Estimated		Carrying		Estimated
		Amount		Fair Value		Amount		Fair Value
Financial assets:
Cash and cash equivalents	Level 1	$	52,299	$	52,299	$	50,025	$	50,025
Investment securities available-for-sale	Level 2		48,400		48,400		48,561		48,561
Investment securities held-to-maturity	Level 2		32,273		32,571		34,206		33,835
Other investments	Level 3		6,167		6,167		5,434		5,434
Loans, net	Level 3		689,174		685,123		650,955		635,957
Financial liabilities:
Deposits	Level 2		683,770		684,865		674,443		673,854
FHLB advances and other borrowings	Level 3		58,815		58,271		40,000		39,830

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations at September 30, 2024 and December 31, 2023 and for the three and nine months ended September 30, 2024 and 2023 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the quality of our loan and investment portfolios; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Accordingly, you should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

our proposed purchase and assumption transaction with Atlanta Postal Credit Union or the Company dissolution may not be consummated in a timely manner or at all, which may adversely affect our business and the price of the Company’s common stock;

•

the amount of cash to be received by the Bank in the purchase and assumption transaction, the amount of cash to be utilized by the Bank and the Company following the completion of the transaction, and the resulting amount available for distribution to Company stockholders are each subject to change and cannot be precisely determined at this time;

•

the proposed purchase and assumption transaction may disrupt the current plans and operations of the Company, divert management’s attention, and create potential difficulties in the Company’s employee and customer retention;

•

legal proceedings may be instituted against the Company related to the purchase and assumption transaction;

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;

•

our ability to access cost-effective funding;

•

changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

competition among depository and other financial institutions, including with respect to service charges and fees;

•

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

•

adverse changes in the securities or secondary mortgage markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

•

changes in tax laws;

•

changes in the quality or composition of our loan or investment portfolios;

•

technological changes that may be more difficult or expensive than expected;

•

failure or breaches of our IT security systems;

•

the inability of third-party providers to perform as expected;

•

our ability to manage market risk, credit risk and operational risk in the current economic environment;

•

our ability to introduce new products and services, enter new markets successfully and capitalize on growth opportunities;

•

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

•

our ability to retain key employees;

•

the effects of global or national war, conflict or acts of terrorism;

•

changes in the value of our goodwill or other intangible assets;

•

risks related to the COVID-19 pandemic or any other pandemic;

•

the effects of any Federal government shutdown;

•

our compensation expense associated with equity allocated or awarded to our employees; and

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Summary of Significant Accounting Policies

A summary of our accounting policies is described in Note 1 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Proposed Transaction

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

Total assets increased $35.3 million, or 4.2%, to $878.6 million at September 30, 2024 from $843.3 million at December 31, 2023, due primarily to an increase in loans.

Gross loans increased $37.7 million, or 5.7%, to $697.6 million at September 30, 2024 from $659.9 million at December 31, 2023. Construction loans increased $16.0 million, or 33.6%, to $63.7 million at September 30, 2024 from $47.7 million at December 31, 2023. Non-owner-occupied commercial real estate loans increased $13.2 million, or 9.1%, while commercial and industrial loans increased $6.5 million, or 4.6%, owner-occupied commercial real estate loans increased $498,000 or 0.3%, and consumer installment loans increased $2.5 million or 2.2%. We experienced a decrease in residential mortgages of $1.0 million or 1.8%.

Total deposits increased $9.3 million, or 1.4%, to $683.8 million at September 30, 2024 from $674.4 million at December 31, 2023, reflecting increases in demand deposits and money market accounts. Demand deposits increased $9.2 million, or 3.9%, and money market accounts increased $12.6 million or, 9.1% as a result of our business customers' cyclical demands at year-end. Our certificates of deposit include brokered deposits at September 30, 2024, totaling $107.3 million, which had an average life of 22 months and an average interest rate of 4.65%. The loan-to-deposit ratio at September 30, 2024 was 102.0%, as compared to 97.8% at December 31, 2023.

We had $54.0 million of FHLB advances and $4.8 million in other borrowings at September 30, 2024, and $40.0 million of FHLB advances at December 31, 2023. During the first quarter of 2024, we borrowed $11.8 million in funds through the Federal Reserve Bank Term Funding Program and repaid $7.0 million in third quarter of 2024.

Stockholders’ equity increased by $6.9 million, or 5.7% to $128.4 million at September 30, 2024 compared to $121.5 million at December 31, 2023, primarily due to net income of $4.1 million during the first nine months of 2024, stock compensation expense of $887,000 and a change in unrealized gain on investment securities available-for-sale, net of tax, of $1.6 million.

Average Balance Sheets

The following tables set forth average balance sheets, average annualized yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are monthly average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.


	For the Three Months Ended September 30,
	2024							2023
	Average Outstanding Balance		Interest		Average Yield/Rate			Average Outstanding Balance		Interest		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	698,877	$	10,596		6.03	%	$	660,456	$	9,113		5.47	%
Investment securities held-to-maturity		33,235		511		6.12	%		34,158		525		6.10	%
Investment securities available-for-sale		47,600		435		3.64	%		49,242		461		3.71	%
Interest-earning deposits and federal funds		52,250		668		5.09	%		68,892		889		5.12	%
Other investments		6,091		92		6.01	%		2,053		36		6.96	%
Total interest-earning assets		838,053		12,302		5.84	%		814,801		11,024		5.37	%
Non-interest-earning assets		47,471							51,971
Total assets	$	885,524						$	866,772

Interest-bearing liabilities:
Interest-bearing checking accounts	$	87,569	$	127		0.58	%	$	90,682	$	73		0.32	%
Money market accounts		149,321		1,238		3.30	%		142,346		987		2.75	%
Savings accounts		71,003		509		2.85	%		81,756		569		2.76	%
Certificates of deposit		217,307		2,313		4.23	%		232,276		2,286		3.90	%
Total interest-bearing deposits		525,200		4,187		3.17	%		547,060		3,915		2.84	%
FHLB advances and other borrowings		63,323		701		4.40	%		20,000		208		4.13	%
Total interest-bearing liabilities		588,523		4,888		3.30	%		567,060		4,123		2.88	%
Non-interest-bearing liabilities		170,197							180,868
Total liabilities		758,720							747,928
Total stockholders' equity		126,804							118,844
Total liabilities and stockholders' equity	$	885,524						$	866,772
Net interest rate spread						2.54	%						2.49	%
Net interest income			$	7,414						$	6,901
Net interest margin						3.52	%						3.36	%


	For the Nine Months Ended September 30,
	2024							2023
	Average Outstanding Balance		Interest		Average Yield/Rate			Average Outstanding Balance		Interest		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	681,876	$	30,575		5.99	%	$	659,416	$	26,131		5.30	%
Investment securities held-to-maturity		33,892		1,567		6.18	%		33,733		1,549		6.14	%
Investment securities available-for-sale		47,783		1,377		3.85	%		49,616		1,299		3.50	%
Interest-earning deposits and federal funds		51,105		1,964		5.13	%		69,340		2,527		4.87	%
Other investments		5,676		263		6.19	%		2,285		109		6.38	%
Total interest-earning assets		820,332		35,746		5.82	%		814,390		31,615		5.19	%
Non-interest-earning assets		50,238							51,675
Total assets	$	870,570						$	866,065

Interest-bearing liabilities:
Interest-bearing checking accounts	$	88,243	$	344		0.52	%	$	92,614	$	172		0.25	%
Money market accounts		145,284		3,496		3.21	%		139,726		2,472		2.37	%
Savings accounts		73,056		1,563		2.86	%		88,528		1,680		2.54	%
Certificates of deposit		218,641		6,884		4.21	%		207,734		5,691		3.66	%
Total interest-bearing deposits		525,224		12,287		3.12	%		528,602		10,015		2.53	%
FHLB advances and other borrowings		53,857		1,727		4.28	%		33,975		1,109		4.36	%
Total interest-bearing liabilities		579,081		14,014		3.23	%		562,577		11,124		2.64	%
Non-interest-bearing liabilities		166,911							184,871
Total liabilities		745,992							747,448
Total stockholders' equity		124,578							118,617
Total liabilities and stockholders' equity	$	870,570						$	866,065
Net interest rate spread						2.59	%						2.55	%
Net interest income			$	21,732						$	20,491
Net interest margin						3.54	%						3.36	%

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods 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.


	Three Months Ended September 30, 2024 vs. 2023									Nine Months Ended September 30, 2024 vs. 2023
	Increase (Decrease) Due to						Total			Increase (Decrease) Due to						Total
							Increase									Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	1,346		$	137		$	1,483		$	3,675		$	769		$	4,444
Investment securities held-to-maturity		(25	)		11			(14	)		17			1			18
Investment securities available-for-sale		(25	)		(1	)		(26	)		(236	)		314			78
Interest-earning deposits and federal funds		(221	)		—			(221	)		(826	)		263			(563	)
Other investments		101			(45	)		56			175			(21	)		154
Total interest-earning assets		1,176			102			1,278			2,805			1,326			4,131

Interest-bearing liabilities:
Interest-bearing checking accounts		(370	)		424			54			(290	)		462			172
Market rate checking accounts		225			26			251			839			185			1,024
Savings accounts		(189	)		129			(60	)		(573	)		456			(117	)
Certificates of deposit		(1,360	)		1,387			27			1,075			118			1,193
Total interest-bearing deposits		(1,694	)		1,966			272			1,051			1,221			2,272
FHLB advances and other borrowings		491			2			493			699			(81	)		618
Total interest-bearing liabilities		(1,203	)		1,968			765			1,750			1,140			2,890

Change in net interest income	$	2,379		$	(1,866	)	$	513		$	1,055		$	186		$	1,241

Comparison of Operating Results for the Three Months Ended September 30, 2024 and 2023

General. Net income was $1.7 million for the three months ended September 30, 2024, compared to $1.6 million for the three months ended September 30, 2023. The increase was caused by an increase in net interest income offset partially by an increase in noninterest expense.

Interest Income. Interest income increased $1.3 million, or 11.6%, to $12.3 million for the three months ended September 30, 2024 from $11.0 million for the three months ended September 30, 2023. The increase was primarily due to an increase in income from loans. Interest income on loans increased $1.5 million, or 16.3%, to $10.6 million for the three months ended September 30, 2024 from $9.1 million for the three months ended September 30, 2023. The average yield on loans increased 56 basis points to 6.03% for the current quarter, as compared to 5.47% for the prior year period, due to the continued changes in the interest rate environment. In addition, our average balance of loans increased by $38.4 million, or 5.8%, to $698.9 million for the three months ended September 30, 2024 from $660.5 million for the three months ended September 30, 2023. The average balance of loans increased due to steady loan demand.

Interest income on interest-earning deposits and federal funds decreased $221,000 to $668,000 for the three months ended September 30, 2024 from $889,000 for the three months ended September 30, 2023. The average balance of interest-earning deposits and federal funds decreased $16.6 million to $52.3 million for the three months ended September 30, 2024 compared to $68.9 million for the three months ended September 30, 2023. The yields we received on these funds decreased to 5.09% from 5.12% due to the continued changes in the interest rate environment.

Interest Expense. Interest expense increased $765,000 to $4.9 million for the three months ended September 30, 2024, compared to $4.1 million for the three months ended September 30, 2023, due to increases in the average balances of interest-bearing liabilities as well as the rates paid.

Interest expense on deposits increased $272,000 to $4.2 million for the three months ended September 30, 2024 from $3.9 million for the three months ended September 30, 2023. The largest increase was in interest expense on money market accounts, which increased $251,000 to $1.2 million for the three months ended September 30, 2024. The average rate we paid on money market accounts increased 55 basis points to 3.30% for the three months ended September 30, 2024 from 2.75% for the three months ended September 30, 2023, due to the continued changes in the interest rate environment and an increase in the average balance increase of $7.0 million to $149.3 million for the three months ended September 30, 2024 from $142.3 million for the three months ended September 30, 2023.

Interest expense on borrowings increased $493,000 to $701,000 for the three months ended September 30, 2024 from $208,000 for the three months ended September 30, 2023, due to additional borrowings taken in the first and third quarters of 2024.

Net Interest Income. Net interest income increased $513,000, or 7.4%, to $7.4 million for the three months ended September 30, 2024 compared to $6.9 million for the three months ended September 30, 2023. Our net interest rate spread increased to 2.54% for the three months ended September 30, 2024 from 2.49% for the three months ended September 30, 2023, and our net interest margin increased to 3.52% for the three months ended September 30, 2024 from 3.36% for the three months ended September 30, 2023, as the yields we earned on our interest-earning assets increased faster than the rates we paid on interest-bearing liabilities.

Provision for Credit Losses. The provisions for credit losses consists of provisions for credit losses for loans and unfunded loan commitments, as well as held-to-maturity securities.

Provisions for credit losses for loans are charged to operations to establish an allowance for credit losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for credit losses for loans, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

Provisions for credit losses for unfunded commitments are charged to operations to establish an allowance for credit losses for contractual obligations to extend credit. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The estimate is influenced by historical loss experience, adjusted for current risk characteristics, and economic factors.

Provisions for credit losses for held-to-maturity securities are also charged to operations to establish an allowance on a collective basis by major security type. The estimate of expected credit losses for held-to-maturity securities considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

After an evaluation of these factors, we recorded no provision for credit losses for the three months ended September 30, 2024, and September 30, 2023. Our allowance for credit losses was $8.4 million at September 30, 2024, $8.9 million at December 31, 2023 and $9.2 million at September 30, 2023. The allowance for credit losses to total loans was 1.20% at September 30, 2024 compared to 1.35% at December 31, 2023. The allowance for credit losses to non-performing loans was 172.4% at September 30, 2024 compared to 120.1% at December 31, 2023. Net charge-offs were $63,000 for the three months ended September 30, 2024, compared to net loan charge-offs of $41,000 for the three months ended September 30, 2023.

To the best of our knowledge, we have recorded all credit losses that are both probable and reasonable to estimate at September 30, 2024. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for credit losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

Non-interest Income. Non-interest income decreased $64,000, or 10.2%, to $566,000 for the three months ended September 30, 2024 from $630,000 for the three months ended September 30, 2023 due to a decline in merchant services volume.

Non-interest Expenses. Non-interest expenses information is as follows.


	Three Months Ended September 30,				Change
	2024		2023		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	3,257	$	3,007		250			8.3	%
Occupancy		600		637		(37	)		(5.8	)%
Data processing		520		525		(5	)		(1.0	)%
Professional fees		356		160		196			122.5	%
Other		971		1,077		(106	)		(9.9	)%
Total non-interest expenses	$	5,704	$	5,406	$	298			5.5	%

Salaries and employee benefits expense increased related to stock compensation for restricted stock and stock options that were issued in 2023 along with timing differences from the prior year related to loan and deposit production incentives. Professional fees increased $196,000 related to costs associated with our proposed purchase and assumption agreement with Atlanta Postal Credit Union.

Income Tax Expense. We recorded income tax expense of $546,000 for the three months ended September 30, 2024 compared to $502,000 for the three months ended September 30, 2023. The effective tax rate was 24.0% and 23.6% for the respective periods.

Comparison of Operating Results for the Nine Months Ended September 30, 2024 and 2023

General. Net income was $4.1 million for the nine months ended September 30, 2024 compared to $4.9 million for the nine months ended September 30, 2023. The decrease was caused by increases in noninterest expenses and the provision for credit losses that were partially offset by an increase in net interest income.

Interest Income. Interest income increased $4.1 million, or 13.1%, to $35.7 million for the nine months ended September 30, 2024 from $31.6 million for the nine months ended September 30, 2023. The increase was due to increases in income from loans and investment securities offset by a decrease in income from interest-earning deposits. Interest income on loans increased $4.4 million, or 17.0%, to $30.6 million for the nine months ended September 30, 2024 from $26.1 million for the nine months ended September 30, 2023. Our average balance of loans increased by $22.5 million, or 3.4%, to $681.9 million for the nine months ended September 30, 2024 from $659.4 million for the nine months ended September 30, 2023. The average balance of loans increased due to steady loan demand. The average yield on loans increased 69 basis points to 5.99% for the current period, as compared to 5.30% for the prior year period, due to the continued changes in the interest rate environment.

Interest income on interest-earning deposits and federal funds decreased $563,000 to $2.0 million for the nine months ended September 30, 2024 from $2.5 million for the nine months ended September 30, 2023. The average balance of interest-earning deposits and federal funds decreased $18.2 million to $51.1 million for the nine months ended September 30, 2024 compared to $69.3 million for the nine months ended September 30, 2023, as we held excess cash to increase liquidity. The yields we received on these funds increased to 5.13% from 4.87% due to the continued changes in the interest rate environment.

Interest income on available-for-sale and held-to-maturity securities increased $96,000 to $2.9 million for the nine months ended September 30, 2024 from $2.8 million for the nine months ended September 30, 2023. The average balance of securities was $81.7 million for the nine months ended September 30, 2024 compared to $83.3 million for the nine months ended September 30, 2023.

Interest Expense. Interest expense increased $2.9 million to $14.0 million for the nine months ended September 30, 2024, compared to $11.1 million for the nine months ended September 30, 2023, due to additional borrowings taken in the first and third quarters of 2024. Average borrowings increased $20.0 million to $53.9 million for the nine months ended September 30, 2024.

We recognized increases in most categories of interest expense. Interest expense on deposits increased to $12.3 million for the nine months ended September 30, 2024 from $10.0 million for the nine months ended September 30, 2023. The largest increase was in interest expense on certificates of deposit, which increased $1.2 million to $6.9 million for the nine months ended September 30, 2024. The average rate we paid on certificates of deposit increased 55 basis points to 4.21% for the nine months ended September 30, 2024 from 3.66% for the nine months ended September 30, 2023, due to the continued changes in the interest rate environment. In addition, the average balance of certificates of deposit increased $10.9 million to $218.6 million for the nine months

ended September 30, 2024 from $207.7 million for the nine months ended September 30, 2023, as customers increased deposits in higher-yielding accounts due to the current interest rate environment. We also experienced an increase in interest expense on money market accounts of $1.0 million to $3.5 million for the nine months ended September 30, 2024 primarily due to increases in the rates we paid on these accounts of 84 basis points.

Interest expense on borrowings increased to $1.7 million for the nine months ended September 30, 2024 from $1.1 million for the nine months ended September 30, 2023.

Net Interest Income. Net interest income increased $1.2 million, or 6.1%, to $21.7 million for the nine months ended September 30, 2024 compared to $20.5 million for the nine months ended September 30, 2023. Our net interest rate spread increased to 2.59% for the nine months ended September 30, 2024 from 2.55% for the nine months ended September 30, 2023, and our net interest margin increased to 3.54% for nine months ended September 30, 2024 from 3.36% for the nine months ended September 30, 2023 as yields we earned on our interest-earning assets increased faster than the rates we paid on interest-bearing liabilities.

Provision for Credit Losses. We recorded provisions for credit losses of $213,000 and $7,000 for the nine months ended September 30, 2024 and 2023, respectively. Our allowance for credit losses was $8.4 million at September 30, 2024, $8.9 million at December 31, 2023 and $9.2 million at September 30, 2023. The allowance for credit losses to total loans was 1.20% at September 30, 2024 compared to 1.35% at December 31, 2023. The allowance for credit losses to non-performing loans was 172.4% at September 30, 2024 compared to 120.1% at December 31, 2023. Net charge-offs were $523,000 for the nine months ended September 30, 2024, compared to net charge-offs of $114,000 for the nine months ended September 30, 2023.

Non-interest Income. Non-interest income decreased $5,000 to $1.9 million for the nine months ended September 30, 2024 compared to $1.9 million for the nine months ended September 30, 2023.

Non-interest Expenses Non-interest expenses information is as follows.


	Nine Months Ended September 30,				Change
	2024		2023		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	9,853	$	9,047	$	806			8.9	%
Occupancy		1,833		1,919		(86	)		(4.5	)%
Data processing		1,538		1,504		34			2.2	%
Professional fees		1,737		475		1,262			265.5	%
Other		3,032		2,939		93			3.2	%
Total non-interest expenses	$	17,993	$	15,884	$	2,109			13.3	%

Salaries and employee benefits expense increased related to stock compensation for restricted stock and stock options that were issued in 2023, along with timing differences from the prior year related to loan and deposit production incentives. Professional fees increased by $1.3 million to $1.7 million related to costs associated with our proposed purchase and assumption agreement with Atlanta Postal Credit Union.

Income Tax Expense. We recorded income tax expense of $1.3 million with an effective tax rate of 23.9% for the nine months ended September 30, 2024 compared to $1.5 million with an effective tax rate of 23.6% for the nine months ended September 30, 2023.

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 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 Management 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 consistent with the policy and guidelines approved by our board of directors. 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.

We have sought 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:

•

limiting our reliance on non-core/wholesale funding sources;

•

growing our volume of transaction deposit accounts;

•

increasing our investment securities portfolio, with an average maturity of less than 15 years;

•

diversifying our loan portfolio by adding more commercial-related loans and consumer loans, which typically have shorter maturities and/or balloon payments; and

•

continuing to price our one-to-four family residential real estate loan products in a way that encourages borrowers to select our balloon loans as opposed to longer-term, fixed-rate loans.

By following these strategies, we believe that we are better positioned to react to increases in market interest rates. In addition, we originate adjustable-rate, one-to-four-family residential real estate loans and home equity loans and lines of credit.

We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

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. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

The table below sets forth, as of September 30, 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.


Change in Interest Rates (basis points) (1)	Net Interest Income Year 1 Forecast		Year 1 Change from Level
	(Dollars in thousands)
+400	$	32,137		(1.44	)%
+200		32,654		0.15	%
Level		32,605	—
-200		31,236		(4.20	)%
-400		29,693		(8.93	)%

(1) Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that at September 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 0.15% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would have experienced a 4.20% decrease in net interest income. At September 30, 2023, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 0.87% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would have experienced a 4.20% decrease in net interest income.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. 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. In this regard, the net interest income table presented assumes 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 net interest income table provides 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 on net interest income and will differ from actual results. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset.

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, deposits and borrowings.

Liquidity and Capital Resources

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, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Atlanta. At September 30, 2024, we had a $218.6 million line of credit with the Federal Home Loan Bank of Atlanta, with advances of $54.0 million outstanding and a $12.5 million letter of credit outstanding, and we had a $5.0 million unsecured federal funds line of credit, a $7.5 million unsecured federal funds line of credit, and a $20.0 million unsecured federal funds line of credit. We also had a line of $74.8 million with the Federal Reserve Bank secured by $101.5 million in loans and investment securities. At September 30, 2024, we had $4.8 million outstanding under the Federal Reserve Bank Term Funding Program.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $5.9 million for the nine months ended September 30, 2024, compared to $6.1 million for the nine months ended September 30, 2023. Net cash used in investing activities was $31.8 million for the nine months ended September 30, 2024, compared to $29.7 million for the nine months ended September 30, 2023. Net cash used in investing activities typically consists primarily of disbursements for loan originations and any purchases of investment securities. Net cash provided by financing activities, which consists primarily of activity in deposit accounts and proceeds/repayments of borrowings, was $28.1 million for the nine months ended September 30, 2024 which included net proceeds from borrowing of $18.8 million from the Federal Reserve Bank compared to net cash provided by financing activities of $58.9 million for the nine months ended September 30, 2023,which reflected increases in deposits accounts and $65 million in FHLB advances, partially offset by repaying $55.0 million of FHLB borrowings, and repurchasing stock of $3.0 million.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At September 30, 2024, we exceeded all of our regulatory capital requirements and the Bank was categorized as “well capitalized.” Management is not aware of any conditions or events since the most recent notification that would change our category. The Bank’s actual capital amounts and ratios for September 30, 2024 and December 31, 2023 are presented in the table below (in thousands).


						For Capital					To Be Well Capitalized
						Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2024:

Common Equity Tier 1 (to Risk Weighted Assets)	$	101,937		12.82	%	$	35,781		4.50	%	$	51,684		6.50	%
Total Capital (to Risk Weighted Assets)		111,138		13.97	%		63,644		8.00	%		79,555		10.00	%
Tier I Capital (to Risk Weighted Assets)		101,937		12.82	%		47,708		6.00	%		63,644		8.00	%
Tier I Capital (to Average Assets)		101,937		11.66	%		34,970		4.00	%		43,712		5.00	%

As of December 31, 2023:
Common Equity Tier 1 (to Risk Weighted Assets)	$	95,335		12.41	%	$	34,570		4.50	%	$	49,934		6.50	%
Total Capital (to Risk Weighted Assets)		104,858		13.65	%		61,455		8.00	%		76,819		10.00	%
Tier I Capital (to Risk Weighted Assets)		95,335		12.41	%		46,093		6.00	%		61,455		8.00	%
Tier I Capital (to Average Assets)		95,335		11.27	%		33,837		4.00	%		42,296		5.00	%

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. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At September 30, 2024, we had outstanding commitments to originate loans of $80.9 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in less than one year from September 30, 2024 totaled $96.6 million. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included in Part 1, Item 2 of this quarterly report under “Management of Market Risk.”

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2024, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

At September 30, 2024, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

Item 1A. Risk Factors

Not applicable for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended September 30, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in Securities and Exchange Commission regulations.

Item 6. Exhibits


Exhibit
Number		Description

2.1 3.1		Affinity Bancshares, Inc. Form of Plan of Dissolution (incorporated by reference to Annex B to the Company’s Definitive Proxy Statement filed on September 18, 2024 (Commission File No. 001-39914) Articles of Incorporation of Affinity Bancshares, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-248745)



3.2		Bylaws of Affinity Bancshares, Inc.(incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-248745)

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.0		The following materials for the quarter ended September 30, 2024, formatted in inline XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Comprehensive Income, (iv) Statements of Changes in Stockholders’ Equity, (v) Statements of Cash Flows, and (vi) Notes to Financial Statements

104.0		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		AFFINITY BANCSHARES, INC.

Date:	November 6, 2024	/s/ Edward J. Cooney
		Edward J. Cooney
		President and Chief Executive Officer

Date:	November 6, 2024	/s/ Brandi Pajot
		Brandi Pajot
		Senior Vice President and Chief Financial Officer