Affinity Bancshares reports lower 2024 earnings despite strong loan growth and higher net interest income

Affinity Bancshares, Inc. (NASDAQ: AFBI), the holding company of Affinity Bank, reported a decline in net income for both the fourth quarter and full-year 2024, despite achieving higher net interest income and continued loan growth. For the year ended December 31, 2024, Affinity Bancshares earnings stood at $5.4 million, a decrease from $6.4 million in 2023. Similarly, fourth-quarter net income dropped to $1.3 million, down from $1.5 million in Q4 2023. The reduction in earnings was primarily driven by increased noninterest expenses, including higher professional fees associated with a terminated merger and a loss on the sale of investment securities.

Why Did Net Interest Income Increase in 2024?

Despite the decline in overall profitability, Affinity Bancshares recorded an increase in net interest income, which rose to $28.7 million for the year, up from $27.2 million in 2023. This improvement was largely attributed to higher yields on loans and investment securities, offset slightly by rising deposit and borrowing costs. In the fourth quarter alone, net interest income reached $7.2 million, compared to $6.8 million in Q4 2023. The company’s net interest margin, a key measure of lending profitability, expanded to 3.54% for the full year, up from 3.35% in 2023. For Q4, the net interest margin improved to 3.56%, compared to 3.32% in the same period last year.

What Led to the Decline in Noninterest Income?

A significant factor impacting Affinity Bancshares’ financial performance was a sharp decline in noninterest income, which fell by $451,000 year-over-year, bringing total noninterest earnings to $2.0 million for 2024. The drop was primarily due to a $10.4 million loss on the sale of investment securities in Q4, as the company liquidated low-yielding assets to reinvest in higher-yielding loans. For the fourth quarter alone, noninterest income plummeted by $445,000, reducing quarterly earnings to just $161,000.

How Did Noninterest Expenses Impact Profitability?

Affinity Bancshares faced rising operating costs, with noninterest expenses increasing by $2.4 million year-over-year, bringing the total to $23.8 million in 2024. The primary contributors to this increase were professional fees associated with the terminated merger and higher salaries and employee benefits. For Q4 2024, noninterest expenses rose by $336,000 to $5.8 million, reflecting higher administrative and operational costs.

How Did Loan Growth Contribute to Affinity Bancshares’ Financial Position?

Despite lower Affinity Bancshares earnings, the company reported steady loan growth, helping drive an increase in total assets. By the end of 2024, total assets had grown by $23.6 million, reaching $866.8 million, compared to $843.3 million in 2023. Loan demand remained robust, with total gross loans increasing by $54.2 million to $714.1 million. The bank experienced strong performance in construction, commercial, and consumer lending. A key segment, non-owner-occupied office loans, totaled $44.2 million, with an average loan-to-value (LTV) ratio of 46.8%. However, cash and cash equivalents declined by $8.6 million, ending the year at $41.4 million, down from $50.0 million in 2023.

How Did Deposits and Borrowings Affect the Bank’s Liquidity?

Affinity Bancshares reported a minor decline in total deposits, which fell by $1.0 million to $673.5 million. This was mainly due to a $3.5 million reduction in demand deposits, partially offset by a $2.5 million increase in certificates of deposit. Meanwhile, borrowings increased significantly, rising by $18.8 million to $58.8 million, reflecting the bank’s strategic approach to liquidity management and ongoing funding needs.

What Was the Condition of Affinity Bancshares’ Asset Quality?

The bank’s asset quality improved, with a reduction in non-performing loans to $4.8 million, compared to $7.4 million in 2023. The allowance for credit losses as a percentage of non-performing loans increased to 177.9% in 2024, up from 120.1% in 2023. Net loan charge-offs rose to $650,000, compared to $404,000 in 2023. The allowance for credit losses as a percentage of total loans declined to 1.19%, down from 1.35% in 2023.

What Are Affinity Bancshares’ Strategic Priorities for 2025?

Looking ahead, Affinity Bancshares aims to strengthen profitability through loan growth and operational efficiencies, while carefully managing interest rate pressures and deposit costs. While higher net interest income remains a key revenue driver, rising noninterest expenses and market volatility could impact earnings growth in the coming quarters. The company will also focus on enhancing its deposit base to support lending activities, managing cost structures following the terminated merger, and continuing to evaluate investment and borrowing strategies to maintain liquidity. Affinity Bancshares’ management remains cautiously optimistic, balancing expansion opportunities with risk mitigation as economic conditions evolve.