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What changed in Affinity Bancshares, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Affinity Bancshares, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+260 added−287 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-23)

Top changes in Affinity Bancshares, Inc.'s 2023 10-K

260 paragraphs added · 287 removed · 214 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

144 edited+33 added−46 removed123 unchanged
Biggest changeAmong other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to Affinity Bank. 23 The business activities of savings and loan holding companies are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Federal Reserve Board, and certain additional activities authorized by Federal Reserve Board regulations, unless the holding company has elected “financial holding company” status.
Biggest changeAmong other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to Affinity Bank.
Treasury and the Board of Governors of the Federal Reserve Bank (the "Federal Reserve Board"); • changes in tax laws; • the effects of any Federal government shutdown; • changes in the quality or composition of our loan or investment portfolios; 2 • technological changes that may be more difficult or expensive than expected; • failure or breaches of information technology security systems; • the inability of third-party providers to perform as expected; • a failure or breach of our operational or security systems or infrastructure, including cyberattacks; • 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 have acquired or 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 ability of the U.
Treasury and the Board of Governors of the Federal Reserve Bank (the "Federal Reserve Board"); 2 • changes in tax laws; • the effects of any Federal government shutdown; • 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 information technology security systems; • the inability of third-party providers to perform as expected; • a failure or breach of our operational or security systems or infrastructure, including cyberattacks; • 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 have acquired or 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 ability of the U.
While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increased monthly payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults.
Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increased monthly payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults.
Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater.
Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 capital ratio of 6.5% or greater.
An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%.
An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 capital ratio of less than 3.0%.
The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a company’s common stock dividend. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.
The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a holding company’s common stock dividend. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.
The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock , to provide opportunity for supervisory review and possible objection, if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred.
The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock , to provide opportunity for supervisory review and possible objection, if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or 22 repurchase occurred.
The variety of deposit accounts offered allows us to be competitive in obtaining funds and 15 responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.
The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.
Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition.
Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate of earnings retention is inconsistent with the holding company’s capital needs and overall financial condition.
Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness, or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Consumer loan collections depend on the borrower’s continuing financial 8 stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness, or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. Deposits.
In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. 14 Deposits.
Generally, we require title insurance or abstracts on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. Delinquencies and Asset Quality Delinquency Procedures.
Generally, we require title insurance or abstracts on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. 9 Delinquencies and Asset Quality Delinquency Procedures.
All investment decisions are made by our Asset/Liability Management Committee, consisting of our President and Chief Executive Officer, the Chairman of the Board, another member of the board of directors, and other members of senior management. The Chief Financial Officer provides an investment schedule detailing the investment portfolio, which is reviewed at least monthly by the board of directors.
All investment decisions are made by our Asset/Liability Management Committee, consisting of our President and Chief Executive 13 Officer, the Chairman of the Board, another member of the board of directors, and other members of senior management. The Chief Financial Officer provides an investment schedule detailing the investment portfolio, which is reviewed at least monthly by the board of directors.
The following discussion of federal and state taxation is intended only to 16 summarize material income tax matters and is not a comprehensive description of the tax rules applicable to Affinity Bancshares, Inc. and Affinity Bank. Our federal and state tax returns have not been audited for the past five years. Federal Taxation Method of Accounting.
The following discussion of federal and state taxation is intended only to summarize material income tax matters and is not a comprehensive description of the tax rules applicable to Affinity Bancshares, Inc. and Affinity Bank. Our federal and state tax returns have not been audited for the past five years. Federal Taxation Method of Accounting.
Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent.
Management determines that a loan non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent.
Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project.
Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is 7 the borrower’s creditworthiness and the feasibility and cash flow potential of the project.
Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation.
Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or condition imposed by the Federal Deposit Insurance Corporation.
(“Affinity Bancshares”) is a Maryland corporation that was incorporated in September 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.
(“Affinity Bancshares”) is a Maryland corporation that 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.
Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for loan losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed.
Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for credit losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed.
Our one- to four-family residential real estate loans are generally underwritten to internal guidelines, although we generally follow the documentation practices of Fannie Mae guidelines. We generally originate one- to four-family residential real estate loans 6 in amounts up to $150,000, although we will originate loans above this amount.
Our one- to four-family residential real estate loans are generally underwritten to internal guidelines, although we generally follow the documentation practices of Fannie Mae guidelines. We generally originate one- to four-family residential real estate loans in amounts up to $150,000, although we will originate loans above this amount.
At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of 21 dividends, and restrictions on the acceptance of brokered deposits.
At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits.
Affinity Bank’s operations are also subject to federal laws applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; • Truth in Savings Act; and • rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
Affinity Bank’s operations are also subject to federal laws applicable to credit transactions, such as the: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; • Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; • Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected; • Truth in Savings Act; and 21 • rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The Federal Deposit Insurance Corporation charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments.
The Federal Deposit Insurance Corporation charges insured depository institutions premiums to maintain the Deposit Insurance Fund. 20 Under the Federal Deposit Insurance Corporation’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments.
Although balloon mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they reprice at the end of the term, the ability of the borrower to renew or repay the loan and the marketability of the underlying collateral may be adversely affected if real estate values decline prior to the expiration of the term of the loan or in a rising interest rate environment. 8 Adjustable-Rate Loans.
Although balloon mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they reprice at the end of the term, the ability of the borrower to renew or repay the loan and the marketability of the underlying collateral may be adversely affected if real estate values decline prior to the expiration of the term of the loan or in a rising interest rate environment.
Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; determine the adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees.
Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; determine the adequacy of credit loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees.
These regulatory policies may affect the ability of Affinity Bancshares to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.
These regulatory policies may affect the ability of Affinity Bancshares, Inc. to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.
The following table sets forth the contractual maturities of our total loan portfolio at December 31, 2022. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
The following table sets forth the contractual maturities of our total loan portfolio at December 31, 2023. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
The following tables set forth the allowance for loan losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated.
The following tables set forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated.
As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any loss remaining after the five-year carryover period is not deductible. At December 31, 2022 and 2021, Affinity Bancshares, Inc. had no capital loss carryovers. Corporate Dividends.
As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any loss remaining after the five-year carryover period is not deductible. At December 31, 2023 and 2022, Affinity Bancshares, Inc. had no capital loss carryovers. Corporate Dividends.
A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. Affinity Bank did not opt in to the community bank leverage ratio framework. At December 31, 2022 and 2021, Affinity Bank’s capital exceeded all applicable requirements. Loans-to-One Borrower.
A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. Affinity Bank did not opt in to the community bank leverage ratio framework. At December 31, 2023 and 2022, Affinity Bank’s capital exceeded all applicable requirements. Loans-to-One Borrower.
At December 31, 2022, this loan was performing in accordance with its terms. Commercial Real Estate Loans . Our commercial real estate loans (which includes owner occupied and non-owner occupied loans) are secured primarily by dental/medical professional properties, church campuses and other small businesses.
At December 31, 2023, this loan was performing in accordance with its terms. Commercial Real Estate Loans . Our commercial real estate loans (which includes owner occupied and non-owner occupied loans) are secured primarily by dental/medical professional properties, church campuses and other small businesses.
At December 31, 2022 and 2021, Affinity Bancshares, Inc. had no minimum tax credit carryovers. Net Operating Loss Carryovers. As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry net operating losses forward indefinitely. At December 31, 2022 and 2021, Affinity Bancshares, Inc. had no federal net operating loss carryforwards. Capital Loss Carryovers.
At December 31, 2023 and 2022, Affinity Bancshares, Inc. had no minimum tax credit carryovers. Net Operating Loss Carryovers. As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry net operating losses forward indefinitely. At December 31, 2023 and 2022, Affinity Bancshares, Inc. had no federal net operating loss carryforwards. Capital Loss Carryovers.
Among other things, these provisions generally require that extensions of credit to insiders: • be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and • not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Affinity Bank’s capital.
Among other things, these provisions generally require that extensions of credit to insiders and their related interests: • be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and • not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Affinity Bank’s capital and surplus.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses.
An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
An institution is deemed to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
The Federal Reserve Board has promulgated regulations implementing the “source of strength” doctrine that require holding companies, including savings and loan holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.
The Federal Reserve Board has promulgated regulations implementing the “source of strength” doctrine that require holding companies, including bank holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.
If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.
If an “undercapitalized” bank fails to submit an acceptable capital restoration plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including: a regulatory order to sell sufficient voting stock to become adequately capitalized; requirements to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss of directors or officers; and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company.
Government to remain open, function properly and manage federal debt limits; • our compensation expense associated with equity allocated or awarded to our employees; • the effects of climate change and societal, investor and governmental responses to climate change; • the effects of social and governance change and societal and investor sentiment and governmental responses to social and governance matters; • the effects of domestic and international hostilities, including terrorism; • changes in the financial condition, results of operations or future prospects of issuers of securities that we own; and • the effects of any pandemic disease, natural disaster, war, act of terrorism, accident, or similar action or event.
Government to remain open, function properly and manage federal debt limits; • our compensation expense associated with equity allocated or awarded to our employees; • the effects of climate change and societal, investor and governmental responses to climate change; • the effects of environmental, social and governance change and societal and investor sentiment and governmental responses to environmental, social and governance matters; • the effects of domestic and international hostilities, including terrorism; • changes in the financial condition, results of operations or future prospects of issuers of securities that we own; and • the effects of any public health emergencies, pandemic disease, natural disaster, war, accident, or similar action or event.
However, regulatory agencies are not directly involved in the process for establishing the allowance for loan losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. 12 The following table sets forth activity in our allowance for loan losses for the periods indicated.
However, regulatory agencies are not directly involved in the process for 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. The following table sets forth activity in our allowance for credit losses for the periods indicated.
The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies.
The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies.
Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
Federal regulations require federally-insured depository institutions, including national banks to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a Tier 1 capital to total assets leverage ratio of 4.0%.
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: • 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 loan losses; • our ability to access cost-effective funding and to continue to fund our operations; • 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 our ability to charge overdraft 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, capital requirements and insurance premiums; • monetary and fiscal policies of the U.
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: • effects of conditions in the financial markets and economic conditions generally, 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 and to continue to fund our operations; • fluctuations in real estate values and both residential and commercial real estate market conditions; • demand for loans and deposits in our market area; • changes in liquidity, which is essential to our business; • the soundness of other financial institutions could adversely affect us; • our ability to implement and change our business strategies; • competition among depository and other financial institutions, including with respect to our ability to charge overdraft 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, capital requirements and insurance premiums; • monetary and fiscal policies of the U.
As a savings and loan holding company, Affinity Bancshares, Inc. is required to comply with the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board.
As a bank holding company, Affinity Bancshares, Inc. is required to comply with the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board.
The federal system of regulation and supervision establishes a comprehensive framework of activities in which Affinity Bank may engage and is intended primarily for the protection of depositors and the Federal Deposit Insurance Corporation’s Deposit Insurance Fund.
The federal system of regulation and supervision establishes a comprehensive framework of activities in which Affinity Bank may engage and is intended primarily for the protection of depositors and the Federal Deposit Insurance Corporation’s Deposit Insurance Fund, not for the protection of security holders.
An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.
An institution is deemed to be “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.
An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.
An institution is deemed to be “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 capital ratio of less than 4.5%.
Federal savings banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the 22 condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.
National banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.
In addition to the loans included in the table below, at December 31, 2022, we had no loans held for sale, no loans in process, $877,000 of deferred loan fees, and $2.8 million in indirect auto dealer reserve costs.
In addition to the loans included in the table below, at December 31, 2023, we had no loans held for sale, no loans in process, $911,000 of deferred loan fees, and $2.8 million in indirect auto dealer reserve costs.
The allowance for 13 loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
At December 31, 2022 and 2021, Affinity Bank met the criteria for being considered “well capitalized.” Insurance of Deposit Accounts. The Deposit Insurance Fund of the Federal Deposit Insurance Corporation insures deposits at Federal Deposit Insurance Corporation-insured financial institutions such as Affinity Bank, generally up to a maximum of $250,000 per separately insured depositor.
At December 31, 2023 and 2022, Affinity Bank met the criteria for being considered “well capitalized.” Insurance of Deposit Accounts. The Deposit Insurance Fund of the Federal Deposit Insurance Corporation insures deposits at Federal Deposit Insurance Corporation-insured financial institutions such as Affinity Bank, generally up to a maximum of $250,000 per separately insured depositor per account ownership category.
We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations. ITEM 1A. Ri sk Factors Not applicable, as Affinity Bancshares, Inc. is a “smaller reporting company.” ITEM 1B. Unresolv ed Staff Comments None.
We have policies, procedures and systems designed to comply with this Act and its implementing regulations, and we review and document such policies, procedures and systems to ensure continued compliance with this Act and its implementing regulations. ITEM 1A. Ri sk Factors Not applicable, as Affinity Bancshares, Inc. is a “smaller reporting company.” ITEM 1B. Unresolv ed Staff Comments None.
The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agencies and the Department of Justice.
The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agencies and the Department of Justice. Transactions with Affiliates and Loans to Insiders.
Formal enforcement action by the Office of the Comptroller of the Currency may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator.
Formal enforcement action by the Office of the Comptroller of the Currency may range from the assessment of civil money penalties and the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator.
At December 31, 2022, we had $108.5 million in indirect automobile loans, and our internal policies limit such loans to 200% of capital and 25% of our loan portfolio. ABDS purchases retail installment sales contracts from dealerships in the states of Alabama, Georgia, Florida, Tennessee, North Carolina, South Carolina, Kentucky and Virginia.
At December 31, 2023, we had $113.3 million in indirect automobile loans, and our internal policies limit such loans to 200% of capital and 25% of our loan portfolio. ABDS purchases retail installment sales contracts from dealerships in the states of Alabama, Georgia, Florida, Tennessee, North Carolina, South Carolina, Kentucky and Virginia.
Change in Control Regulations Under the Change in Bank Control Act, no person may acquire control of a savings and loan holding company, such as Affinity Bancshares, unless the FRB has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.
Change in Control Regulations Under the Change in Bank Control Act, no person may acquire control of a bank holding company, such as Affinity Bancshares, Inc. , unless the Federal Reserve Board has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.
Newton Federal Bank was originally chartered in 1928 as a Georgia-chartered mutual building and loan association under the name Newton County Building and Loan Association, and we continue to operate under the name “Newton Federal Bank, a Division of Affinity Bank” in Newton Federal Bank’s legacy market area.
Newton Federal Bank was originally chartered in 1928 as a Georgia-chartered mutual building and loan association under the name Newton County Building and Loan Association, and we continue to operate under the name “Newton Federal Bank, a Division of Affinity Bank” in Newton Federal Bank’s legacy market area. We converted to a national bank charter in September 2023.
At December 31, 2022, based on the 15% limitation, Affinity Bank’s loans-to-one-borrower limit was approximately $14.5 million . On the same date, Affinity Bank had no borrowers with outstanding balances in excess of this amount.
At December 31, 2023, based on the 15% limitation, Affinity Bank’s loans-to-one-borrower limit was approximately $15.7 million . On the same date, Affinity Bank had no borrowers with outstanding balances in excess of this amount.
All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The Office of the Comptroller of the Currency is required to assess the federal savings bank’s record of compliance with the Community Reinvestment Act.
All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The Office of the Comptroller of the Currency is required to assess the national bank’s records of 18 compliance with the Community Reinvestment Act.
An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2022 and 2021 , Affinity Bank was in compliance with the loans-to-one borrower limitations. 19 Capital Distributions.
An additional amount may be loaned, equal to 10% of the bank's capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2023 and 2022 , Affinity Bank was in compliance with the loans-to-one borrower limitations. Dividends.
At December 31, 2022, our largest commercial real estate loan totaled $7.5 million and is secured by a well-established, anchored, retail shopping center. At December 31, 2022, this loan was performing in accordance with its terms. We consider several factors in originating commercial real estate loans.
At December 31, 2023, our largest commercial real estate loan totaled $8.6 million and is secured by a well-established, anchored, retail shopping center. At December 31, 2023, this loan was performing in accordance with its terms. We consider several factors in originating commercial real estate loans.
As a member of Federal Home Loan Bank of Atlanta, we are required to purchase stock in the Federal Home Loan Bank of Atlanta, which stock is carried at cost and classified as restricted equity securities. In addition, at December 31, 2022, we owned $250,000 of First National Bankers Bank stock.
As a member of Federal Home Loan Bank of Atlanta, we are required to purchase stock in the Federal Home Loan Bank of Atlanta, which stock is carried at cost and classified as restricted equity securities. In addition, at December 31, 2023, we owned $250,000 of First National Bankers Bank stock and $2.7 million in Federal Reserve Bank stock.
The following table sets forth the maturity of these certificates as of December 31, 2022.
The following table sets forth the maturity of these certificates as of December 31, 2023.
“Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
“Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after they obtain such status.
We sometimes purchase whole loans from third parties to supplement our loan production. These loans generally consist of loans to health care professionals and loans secured by manufactured housing. At December 31, 2022, we had $3.0 million of whole loans that we purchased.
We sometimes purchase whole loans from third parties to supplement our loan production. These loans generally consist of loans to health care professionals and loans secured by manufactured housing. At December 31, 2023, we had $9.4 million of whole loans that we purchased.
Depending on the collateral used to secure the loans, commercial and industrial loans are made in amounts of up to 80% of the value of the collateral securing the loan. Our commercial business loans to dental professionals totaled $185.1 million at December 31, 2022 .
Depending on the collateral used to secure the loans, commercial and industrial loans are made in amounts of up to 80% of the value of the collateral securing the loan. Our commercial business loans to dental professionals totaled $109.8 million at December 31, 2023 .
At December 31, 2022, we had $51.3 million of loans secured by one- to four-family real estate, representing 7.9% of our total loan portfolio. We currently originate adjustable-rate and fixed-rate one- to four-family residential real estate loans, although our ability to originate adjustable-rate residential mortgage loans is significantly limited in the current interest rate environment.
At December 31, 2023, we had $53.7 million of loans secured by one- to four-family real estate, representing 8.1% of our total loan portfolio. We currently originate adjustable-rate and fixed-rate one- to four-family residential real estate loans, although our ability to originate adjustable-rate residential mortgage loans is significantly limited in the current interest rate environment.
As of June 30, 2022 (the most recent date for which data is available), our market share of deposits represented 22.17% of Federal Deposit Insurance Corporation-insured deposits in Newton County and 1.28% in Cobb County, ranking us first and 13th, respectively, in market share of deposits out of eight institutions operating in Newton County and 24 institutions operating in Cobb County.
As of June 30, 2023 (the most recent date for which data is available), our market share of deposits represented 21.09% of Federal Deposit Insurance Corporation-insured deposits in Newton County and 1.62% in Cobb County, ranking us first and 13th, respectively, in market share of deposits out of eight institutions operating in Newton County and 24 institutions operating in Cobb County.
Our consumer loans generally consist of indirect loans on new and used automobiles, loans secured by deposit accounts and unsecured personal loans. At December 31, 2022, consumer and other loans were $111.3 million, or 17.22% of gross loans.
Our consumer loans generally consist of indirect loans on new and used automobiles, loans secured by deposit accounts and unsecured personal loans. At December 31, 2023, consumer and other loans were $115.3 million, or 17.5% of gross loans.
At December 31, 2022, commercial and industrial loans were $147.8 million, or 22.87% of our gross loans. As part of our 5 relationship driven focus, we encourage our commercial borrowers to maintain their primary deposit accounts with us, which enhances our interest rate spread and net interest margin. Commercial lending products include term loans and revolving lines of credit.
At December 31, 2023, commercial and industrial loans were $140.4 million, or 21.3% of our gross loans. As part of our relationship driven focus, we encourage our commercial borrowers to maintain their primary deposit accounts with us, which enhances our interest rate spread and net interest margin. 5 Commercial lending products include term loans and revolving lines of credit.
At December 31, 2022, we had $1.9 million of committed funds for loan participation interests that we purchased, and at that date, we had $13.7 million of loans for which we had sold participation interests. We do not originate significant amounts of loans for sale, but we occasionally sell loans, primarily to generate fee income.
At December 31, 2023, we had $1.4 million of committed funds for loan participation interests that we purchased, and at that date, we had $12.6 million of loans for which we had sold participation interests. We do not originate significant amounts of loans for sale, but we occasionally sell loans, primarily to generate fee income.
Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We have the authority to accept brokered deposits and had $34.9 million in brokered CDs as of December 31, 2022.
Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We have the authority to accept brokered deposits and had $107.3 million in brokered certificate of deposits as of December 31, 2023.
At December 31, 2022, our investment portfolio consisted of U.S. Treasury securities, securities and obligations issued by U.S. government-sponsored enterprises and the Federal Home Loan Bank of Atlanta, municipal securities and corporate securities. At December 31, 2022, we owned $832,000 of Federal Home Loan Bank of Atlanta stock.
At December 31, 2023, our investment portfolio consisted of U.S. Treasury securities, securities and obligations issued by U.S. government-sponsored enterprises and the Federal Home Loan Bank of Atlanta, municipal securities and corporate securities. At December 31, 2023, we owned $2.5 million of Federal Home Loan Bank of Atlanta stock.
In addition, extensions of credit in excess of certain limits must be approved by Affinity Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. Enforcement.
In addition, extensions of credit to insiders and their related interests in excess of certain limits must be approved by a majority of Affinity Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. Enforcement.
A dealership submits credit applications to ABDS for consideration. ABDS fully underwrites each loan for creditworthiness, vehicle valuation, debt ratios and the consumer’s stability. ABDS underwrites each loan to ensure all credit policy guidelines are followed.
A dealership submits credit applications to ABDS for consideration. ABDS fully underwrites each loan for creditworthiness, vehicle valuation, debt ratios and the consumer’s stability. ABDS underwrites each loan to ensure all credit policy guidelines are followed. Applications that are approved and counter-offered are submitted to ABDS for verification and funding.
In addition, we had $6.2 million of commercial construction and development loans as of December 31, 2022, which included $3.9 million of commercial development and land loans.
In addition, we had $4.9 million of commercial construction and development loans as of December 31, 2023, which included $3.4 million of commercial development and land loans.
When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.
When a loan is determined to non-performing, the measurement of the loan in the allowance for credit losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for specific reserve based on the fair value of the collateral.
We do not offer “interest only” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan).
Our adjustable-rate one- to four-family residential real estate loans have a five or seven year initial fixed rate. We do not offer “interest only” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan).
Affiliated corporations that file a consolidated federal income tax return must file separate income tax returns unless they have prior approval or have been requested to file a consolidated return by the Commissioner of the Georgia Department of Revenue. For state income tax purposes, Affinity Bancshares, Inc. and Affinity Bank file a consolidated federal income tax return.
Affiliated corporations that file a consolidated federal income tax return must file separate income tax returns unless they have prior approval or have been requested to file a consolidated return by the Commissioner of the Georgia Department of Revenue.
Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the Office of the Comptroller of the Currency takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
In assessing an institution’s capital adequacy, the Office of the Comptroller of the Currency takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
A federal savings bank derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, Affinity Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits.
A national bank derives its lending and investment powers from the National Bank Act, as amended, and applicable federal regulations. Under these laws and regulations, Affinity Bank may invest in mortgage loans secured by residential and nonresidential real estate, commercial business and consumer loans and leases, certain types of securities and certain other loans and assets.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. Pr operties As of December 31, 2022, the net book value of our office properties was $2.0 million, and the net book value of our furniture, fixtures and equipment was $2.3 million. Our properties include our main office and branch office in Covington and leased offices in Atlanta, Alpharetta, and Monroe.
Biggest changeITEM 2. Pr operties As of December 31, 2023, the net book value of our office properties was $2.0 million, and the net book value of our furniture, fixtures and equipment was $1.2 million. Our properties include our main office and branch office in Covington and leased 24 offices in Atlanta, Alpharetta, and Monroe.
We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion. 25
We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows. ITEM 4. Mine Saf ety Disclosures Not applicable. PART II
Biggest changeWe are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows. ITEM 4. Mine Safety Disclosures Not applicable PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThere were no sales of unregistered securities during the quarter ended December 31, 2022. 26 Shares of the Company’s common stock totaling 372,315 were repurchased during the year ended December 31, 2022 as outlined below: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs (1) January 1, 2022 through January 31, 2022 — $ — — 343,632 February 1, 2022 through February 28, 2022 — — — 343,632 March 1, 2022 through March 31, 2022 253,779 15.53 253,779 89,853 April 1, 2022 through April 30, 2022 30,232 15.54 30,232 59,621 May 1, 2022 through May 31, 2022 14,331 15.01 14,331 45,290 June 1, 2022 through June 30, 2022 10,260 14.75 10,260 35,030 July 1, 2022 through July 31, 2022 — — — 35,030 August 1, 2022 through August 31, 2022 35,030 14.63 35,030 — September 1, 2022 through September 30, 2022 — — — — October 1, 2022 through October 31, 2022 — — — — November 1, 2022 through November 30, 2022 3,872 14.61 3,872 328,125 December 1, 2022 through December 31, 2022 24,811 14.45 24,811 303,314 372,315 $ 15.32 372,315 303,314 ITEM 6. [ R eserved] 27
Biggest changeShares of the Company’s common stock totaling 21,034 were repurchased during the quarter ended December 31, 2023 as outlined below: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares That May Yet Be Purchased Under Plans or Programs (1) October 1, 2023 through October 31, 2023 16,652 $ 14.49 16,652 70,345 November 1, 2023 through November 30, 2023 4,382 14.36 4,382 65,963 December 1, 2023 through December 31, 2023 — — — 65,963 21,034 $ 14.46 21,034 65,963 25 ITEM 6. [ R eserved] 26
Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the Nasdaq Capital Market under the symbol “AFBI.” As of March 20, 2023 we had 327 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 6,596,910 shares of common stock outstanding.
Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the Nasdaq Capital Market under the symbol “AFBI.” As of March 19, 2024 we had 306 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 6,416,628 shares of common stock outstanding.
Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board and the Office of the Comptroller of the Currency, may be paid in addition to, or in lieu of, regular cash dividends.
Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board and the Office of the Comptroller of the Currency, may be paid in addition to, or in lieu of, regular cash dividends. There were no sales of unregistered securities during the quarter ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeInterest on loans includes the following fees: PPP loan fees of $243,000 and $5.0 million for the years ending December 31, 2022 and 2021, respectively; loan origination fees of $1.4 million and $1.0 million for the years ending December 31, 2022 and 2021, respectively; net accretion of purchased loan marks of $587,000 and $437,000 for the years ending December 31, 2022 and 2021, respectively; prepayment penalties of $0 and $79,000 for the years ending December 31, 2022 and 2021, respectively; and indirect auto fees of $279,000 and $228,000 for the years ending December 31, 2022 and 2021, respectively. 30 For the Year Ended December 31, 2022 2021 Average Outstanding Balance Interest Average Yield/Rate Average Outstanding Balance Interest Average Yield/Rate (Dollars in thousands) Interest-earning assets: Loans $ 624,908 $ 30,045 4.81 % $ 588,976 $ 31,484 5.35 % Investment securities held-to-maturity 2,220 130 5.86 % — — — Investment securities available-for-sale 45,594 1,150 2.52 % 35,109 709 2.02 % Interest-earning deposits and federal funds 45,674 771 1.69 % 98,554 180 0.18 % Other investments 1,027 38 3.70 % 2,324 80 3.43 % Total interest-earning assets 719,423 32,134 4.47 % 724,963 32,453 4.48 % Non-interest-earning assets 51,397 63,373 Total assets $ 770,820 $ 788,336 Interest-bearing liabilities: Interest-bearing checking accounts $ 96,892 $ 176 0.18 % $ 88,852 $ 185 0.21 % Money market accounts 154,237 752 0.49 % 133,835 469 0.35 % Savings accounts 89,015 856 0.96 % 93,113 403 0.43 % Certificates of deposit 97,948 1,449 1.48 % 110,742 1,623 1.47 % Total interest-bearing deposits 438,092 3,233 0.74 % 426,542 2,680 0.63 % FHLB advances and other borrowings 9,887 (854 ) (8.64 )% 44,811 497 1.11 % Total interest-bearing liabilities 447,979 2,379 0.53 % 471,353 3,177 0.67 % Non-interest-bearing liabilities 204,842 200,756 Total liabilities 652,821 672,109 Total stockholders' equity 117,999 116,227 Total liabilities and stockholders' equity $ 770,820 $ 788,336 Net interest rate spread 3.94 % 3.81 % Net interest income $ 29,755 $ 29,276 Net interest-earning assets $ 271,444 $ 253,610 Net interest margin 4.14 % 4.04 % Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the years indicated.
Biggest changeLoan fees are included in the interest income computations presented below, but such amounts were not material. 28 For the Year Ended December 31, 2023 2022 Average Outstanding Balance Interest Average Yield/Rate Average Outstanding Balance Interest Average Yield/Rate (Dollars in thousands) Interest-earning assets: Loans $ 660,045 $ 35,422 5.37 % $ 624,908 $ 30,045 4.81 % Investment securities held-to-maturity 33,850 2,078 6.14 % 2,220 130 5.86 % Investment securities available-for-sale 49,024 1,772 3.61 % 45,594 1,150 2.52 % Interest-earning deposits and federal funds 65,333 3,236 4.95 % 45,674 771 1.69 % Other investments 3,014 192 6.37 % 1,027 38 3.70 % Total interest-earning assets 811,266 42,700 5.26 % 719,423 32,134 4.47 % Non-interest-earning assets 51,987 51,397 Total assets $ 863,253 $ 770,820 Interest-bearing liabilities: Interest-bearing checking accounts $ 92,030 $ 271 0.29 % $ 96,892 $ 176 0.18 % Money market accounts 140,630 3,542 2.52 % 154,237 752 0.49 % Savings accounts 85,555 2,238 2.62 % 89,015 856 0.96 % Certificates of deposit 211,285 8,042 3.81 % 97,948 1,449 1.48 % Total interest-bearing deposits 529,500 14,093 2.66 % 438,092 3,233 0.74 % FHLB advances and other borrowings 32,808 1,409 4.29 % 9,887 (854 ) (8.64 )% Total interest-bearing liabilities 562,308 15,502 2.76 % 447,979 2,379 0.53 % Non-interest-bearing liabilities 182,144 204,842 Total liabilities 744,452 652,821 Total stockholders' equity 118,801 117,999 Total liabilities and stockholders' equity $ 863,253 $ 770,820 Net interest rate spread 2.50 % 3.94 % Net interest income $ 27,198 $ 29,755 Net interest margin 3.35 % 4.14 % Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the years indicated.
There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the results of operations and reported earnings. The Company files a consolidated federal and a state income tax return.
There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the results of operations and reported earnings. 27 The Company files a consolidated federal and a state income tax return.
However, regulatory agencies are not directly involved in the process of establishing the allowance for loan losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. We adopted a new accounting standard, referred to as Current Expected Credit Loss (“CECL”), effective January 1, 2023.
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. We adopted a new accounting standard, referred to as Current Expected Credit Loss (“CECL”), effective January 1, 2023.
Provisions for loan losses are charged to operations to establish an allowance for loan 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.
Provisions for credit losses 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.
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.
A basis point equals one-hundredth 32 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.
At December 31, 2022, we exceeded all of our regulatory capital requirements, and we were categorized as well capitalized at December 31, 2022 and 2021. Management is not aware of any conditions or events since the most recent notification that would change our category. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Commitments.
At December 31, 2023, we exceeded all of our regulatory capital requirements, and we were categorized as well capitalized at December 31, 2023 and 2022. Management is not aware of any conditions or events since the most recent notification that would change our category. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Commitments.
The decrease in income tax expense was due to decreased income before income taxes in 2022. 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.
The decrease in income tax expense was due to decreased income before income taxes in 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.
For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been 31 allocated proportionately based on the changes due to rate and the changes due to volume. No out-of-period item adjustments have been included in the following table.
For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been 29 allocated proportionately based on the changes due to rate and the changes due to volume. No out-of-period item adjustments have been included in the following table.
In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses.
In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses.
To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at December 31, 2022. 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 loan losses.
To the best of our knowledge, we have recorded all credit losses that are both probable and reasonable to estimate at December 31, 2023. 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.
The table below sets forth, as of December 31, 2022, 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.
The table below sets forth, as of December 31, 2023, 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.
Average Balance Sheets The following tables set forth average balance sheets, average yields and costs, and certain other information for the years 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.
Average Balance Sheets The following table sets forth average balance sheets, average yields and costs, and certain other information for the years 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.
Our average balance of loans increased $35.9 million, or 6.1%, to $624.9 million for the year ended December 31, 2022 from $589.0 million for the year ended December 31, 2021, as we continued to acquire talent to assist with our strategic initiatives to both increase and diversify the loan portfolio.
Our average balance of loans increased $35.1 million, or 5.6%, to $660.0 million for the year ended December 31, 2023 from $624.9 million for the year ended December 31, 2022, as we continued to acquire talent to assist with our strategic initiatives to both increase and diversify the loan portfolio.
Time deposits that are scheduled to mature in less than one year from December 31, 2022 totaled $43.8 million. Management expects that a substantial portion of the maturing time deposits will be renewed.
Time deposits that are scheduled to mature in less than one year from December 31, 2023 totaled $79.8 million. Management expects that a substantial portion of the maturing time deposits will be renewed.
Securities held-to-maturity increased to $26.5 million at December 31, 2022, from $0 at December 31, 2021, as we began to classify new purchases as held-to-maturity and utilized a portion of our excess liquidity to invest in securities in an effort to increase yield.
Securities held-to-maturity increased to $34.2 million at December 31, 2023, from $26.5 million at December 31, 2022, as we began to classify new purchases as held-to-maturity and utilized a portion of our excess liquidity to invest in securities in an effort to increase yield.
Net cash provided by financing activities, which consists primarily of activity in deposit accounts and proceeds from or repayments of borrowings, was $701,000 for the year ended December 31, 2022, compared to net cash used in financing activities of $68.7 million for the year ended December 31, 2021. We are committed to maintaining a strong liquidity position.
Net cash provided by financing activities, which consists primarily of activity in deposit accounts and proceeds from or repayments of borrowings, was $44.0 million for the year ended December 31, 2023, compared to net cash provided by financing activities of $701,000 for the year ended December 31, 2022. 33 We are committed to maintaining a strong liquidity position.
At December 31, 2022, we had a $81.8 million line of credit with the Federal Home Loan Bank of Atlanta with $10.0 million in borrowings and a $12.5 million letter of credit outstanding which is used to collateralize public deposits.
At December 31, 2023, we had a $64.0 million line of credit with the Federal Home Loan Bank of Atlanta with $40.0 million in borrowings and a $12.5 million letter of credit outstanding which is used to collateralize public deposits.
Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2022, we had outstanding commitments to originate loans of $90.3 million. We anticipate that we will have sufficient funds available to meet our current lending commitments.
Such commitments are subject to the same credit policies and approval process according to loans we make. At December 31, 2023, we had outstanding commitments to originate loans of $80.0 million. We anticipate that we will have sufficient funds available to meet our current lending commitments.
In addition, at December 31, 2022, 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. Only $25,000 was outstanding on these lines of credit at December 31, 2022.
In addition, at December 31, 2023, 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. Nothing was outstanding on these lines of credit at December 31, 2023.
Interest expense on borrowings decreased to $(854,000) for the year ended December 31, 2022 compared to $497,000 for the year ended December 31, 2021, as we repaid acquired Federal Home Loan Bank borrowings, recognizing $1.0 million in accretion from the fair value adjustments on acquired advances.
Interest expense on borrowings increased to $1.4 million for the year ended December 31, 2023 compared to $(854,000) for the year ended December 31, 2022. During 2022, we repaid acquired Federal Home Loan Bank borrowings, recognizing $1.0 million in accretion from the fair value adjustments on acquired advances.
We also have a line of $75 million with the Federal Reserve Bank of Atlanta Discount Window secured by $111.6 million in loans. No amount was outstanding on the Discount Window at December 31, 2022.
We also have a line of $67.4 million with the Federal Reserve Bank of Atlanta Discount Window (the "Discount Window") secured by $96.1 million in loans. No amount was outstanding on the Discount Window line at December 31, 2023.
The allowance for loan losses to total loans was 1.44% at December 31, 2022 compared to 1.46% at December 31, 2021, while the allowance for loan losses to non-performing loans was 138.8% at December 31, 2022 compared to 122.08% at December 31, 2021. We had charge-offs of $149,000 and recoveries of $211,000 during the year ended December 31, 2022.
The allowance for credit losses to total loans was 1.35% at December 31, 2023 compared to 1.44% at December 31, 2022, while the allowance for credit losses to non-performing loans was 120.1% at December 31, 2023 compared to 138.8% at December 31, 2022. We had charge-offs of $514,000 and recoveries of $110,000 during the year ended December 31, 2023.
As a result of such reviews, we may have to adjust our allowance for loan losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for loan losses as the process is the responsibility of Affinity Bank and any increase or decrease in the allowance is the responsibility of management. Income Taxes .
However, regulatory agencies are not directly involved in the process of establishing the allowance for credit losses as the process is the responsibility of Affinity Bank and any increase or decrease in the allowance is the responsibility of management. Income Taxes .
Comparison of Financial Condition at December 31, 2022 and December 31, 2021 Total assets increased $3.2 million, or 0.4%, to $791.3 million at December 31, 2022 from $788.1 million at December 31, 2021.
Comparison of Financial Condition at December 31, 2023 and December 31, 2022 Total assets increased $52.0 million, or 6.6%, to $843.3 million at December 31, 2023 from $791.3 million at December 31, 2022.
Non-owner occupied commercial real estate loans increased $31.7 million, or 30.4%, to $135.7 million at December 31, 2022 from $104.0 million at December 31, 2021, and consumer loans increased $39.7 million, or 55.4%, to $111.3 million at December 31, 2022 from $71.6 million at December 31, 2021.
Non-owner occupied commercial real estate loans increased $9.4 million, or 6.9%, to $145.1 million at December 31, 2023 from $135.7 million at December 31, 2022, and consumer loans increased $4.1 million, or 3.7%, to $115.3 million at December 31, 2023 from $111.3 million at December 31, 2022.
Net cash provided by operating activities was $7.6 million and $11.9 million for the years ended December 31, 2022 and 2021, respectively. Net cash used in investing activities was $93.7 million and $9.6 million for the years ended December 31, 2022 and 2021, respectively.
Net cash used in investing activities was $28.1 million and $93.7 million for the years ended December 31, 2023 and 2022, respectively.
Our net interest margin was 4.14% for the year ended December 31, 2022 compared to 4.04% for the year ended December 31, 2021. Provision for Loan Losses.
Our net interest margin was 3.35% for the year ended December 31, 2023 compared to 4.14% for the year ended December 31, 2022. Provisions for Credit Losses.
Interest income on securities available for sale increased $441,000 to $1.2 million for the year ended December 31, 2022 from $709,000 for the year ended December 31, 2021.
Interest income on securities available for sale and held to maturity increased $2.6 million to $3.9 million for the year ended December 31, 2023 from $1.3 million for the year ended December 31, 2022.
Our average net interest-earning assets increased by $17.8 million, or 7.0%, to $271.4 million for the year ended December 31, 2022 from $253.6 million for the year ended December 31, 2021, while our net interest rate spread increased by 13 basis points to 3.94% for the year ended December 31, 2022 from 3.81% for the year ended December 31, 2021, reflecting a 14 basis point decrease in the average rate paid on interest-bearing liabilities.
Our average net interest-earning assets decreased by $22.5 million, or 8.3%, to $249.0 million for the year ended December 31, 2023 from $271.4 million for the year ended December 31, 2022, while our net interest rate spread decreased by 144 basis points to 2.50% for the year ended December 31, 2023 from 3.94% for the year ended December 31, 2022, reflecting a 223 basis point decrease in the average rate paid on interest-bearing liabilities offset by an increase of 79 basis points increase on interest-earning assets.
CECL requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for loan losses.
CECL requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This has changed our prior method of recording allowances for credit losses that are probable. Noninterest Income.
Interest Income. Interest income decreased $319,000, or 1.0%, to $32.1 million for the year ended December 31, 2022 from $32.5 million for the year ended December 31, 2021. Our average yield on loans decreased 54 basis points to 4.81% for the year ended December 31, 2022 from 5.35% for the year ended December 31, 2021.
Interest income increased $10.6 million, or 32.9%, to $42.7 million for the year ended December 31, 2023 from $32.1 million for the year ended December 31, 2022. Our average yield on loans increased 56 basis points to 5.37% for the year ended December 31, 2023 from 4.81% for the year ended December 31, 2022.
The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. 35 Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.
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 $7.9 million and $7.6 million for the years ended December 31, 2023 and 2022, respectively.
Interest expense decreased $798,000, or 25.1%, to $2.4 million for the year ended December 31, 2022 compared to $3.2 million for the year ended December 31, 2021, due to a decrease in interest expense on Federal Home Loan Bank advances and other borrowings.
Interest expense increased $13.1 million, or 551.6%, to $15.5 million for the year ended December 31, 2023 compared to $2.4 million for the year ended December 31, 2022, due to an increase in interest expense on deposits and Federal Home Loan Bank advances and other borrowings.
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.
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.
Noninterest expenses increased $1.2 million, or 5.5%, to $22.1 million for the year ended December 31, 2022, from $21.0 million for the year ended December 31, 2021.
Noninterest expenses decreased $808,000, or 3.7%, to $21.3 million for the year ended December 31, 2023, from $22.1 million for the year ended December 31, 2022.
Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies.
Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. The following represent our significant accounting policies: Allowance for Credit Losses .
Net income decreased $439,000, or 5.8%, to $7.1 million for the year ended December 31, 2022, compared to $7.6 million for the year ended December 31, 2021. An increase in non-interest expenses as well as decreases in interest income and non-interest income were partially offset by decreases in interest expense, the provision for loan losses and income tax expense.
Net income decreased $686,000, or 9.6%, to $6.4 million for the year ended December 31, 2023, compared to $7.1 million for the year ended December 31, 2022. An increase in interest expense was offset by an increase in interest income, and decreases in provision for credit loss and noninterest expenses. Interest Income.
The decrease in interest income on loans and associated yield was a result of a decrease of $5.5 million of interest and fee income on PPP loans.
The increase in interest income on loans and associated yield was a result of increases in market rates.
By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates. 34 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.
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.
Securities available-for-sale remained relatively flat, totaling $46.2 million at December 31, 2022 and $48.6 million at December 31, 2021. 29 Total deposits increased $44.4 million, or 7.2%, to $657.2 million at December 31, 2022 from $612.8 million at December 31, 2021.
Securities available-for-sale increased $2.3 million to $48.6 million at December 31, 2023 from $46.2 million at December 31, 2022. Total deposits increased $17.3 million, or 2.6%, to $674.4 million at December 31, 2023 from $657.2 million at December 31, 2022.
The increase in consumer loans resulted from our continued growth in our indirect automobile loans. In addition, construction loans increased $20.8 million to $37.2 million at December 31, 2022 from $16.3 million at December 31, 2021, as we have been successful with our strategic initiative to increase construction lending to continue to diversify our loan portfolio.
In addition, construction loans increased $10.5 million, or 28.3% to $47.7 million at December 31, 2023 from $37.2 million at December 31, 2022, as we have seen continued success with our strategic initiative to increase construction lending to continue to diversify our loan portfolio .
Prepayment penalties in the amount of $647,000 were also recognized with the repayment of these acquired advances for the year ended December 31, 2022. Interest expense on deposits increased $553,000, or 20.6%, to $3.2 million for the year ended December 31, 2022 from $2.7 million for the year ended December 31, 2021.
Prepayment penalties in the amount of $647,000 were also recognized with the repayment of these acquired advances for the year ended December 31, 2022. Net Interest Income.
We recorded increases in interest expense on savings accounts ($453,000, or $112.4%) and money market accounts ($283,000, or 60.3%), as increases in market interest rates increased the rates we paid on these types of deposits by 53 basis points to 0.96%, and 14 basis points to 0.49%, respectively.
We also recognized increases in interest expense on savings accounts ($1.4 million, or 161.4%) and money market accounts ($2.8 million, or 371.0%), as increases in market interest rates increased the rates we paid on these types of deposits by 166 basis points to 2.62%, and 203 basis points to 2.52%, respectively.
Management believes the allowance for loan losses was appropriate at December 31, 2022 and 2021. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for loan losses.
The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for credit losses. As a result of such reviews, we may have to adjust our allowance for credit losses.
The loan-to-deposit ratio at December 31, 2022 was 96.9%, as compared to 94.0% at December 31, 2021. We had $10.0 million of Federal Home Loan Bank advances and $25,000 in Federal Funds Purchased at December 31, 2022, compared to $49.0 million of Federal Home Loan Bank advances at December 31, 2021.
We had $40.0 million of Federal Home Loan Bank advances at December 31, 2023, compared to $10.0 million of Federal Home Loan Bank advances and $25,000 in Federal Funds Purchased at December 31, 2022. Borrowings were increased during the year ended December 31, 2023 as we evaluated our borrowing needs to enhance the liquidity.
Interest expense on certificates of deposit decreased by $174,000, or 10.7%, to $1.4 million for the year ended December 31, 2022 from $1.6 million for the year ended December 31, 2021.
Interest expense on certificate of deposits increased $6.6 million, or 455.0%, to $8.0 million for the year ended December 31, 2023 from $1.4 million for the year ended December 31, 2022.
Change in Interest Rates (basis points) (1) Net Interest Income Year 1 Forecast Year 1 Change from Level (Dollars in thousands) +400 $ 28,910 (5.07 )% +200 29,739 (2.34 )% Level 30,453 — -200 29,496 (3.14 )% -400 26,840 (11.86 )% (1) Assumes an immediate uniform change in interest rates at all maturities.
Change in Interest Rates (basis points) (1) Net Interest Income Year 1 Forecast Year 1 Change from Level (Dollars in thousands) +400 $ 29,307 (2.75 )% +200 29,888 (0.82 )% Level 30,136 — -200 29,291 (2.80 )% -400 27,425 ` (1) Assumes an immediate uniform change in interest rates at all maturities.
The increase in interest income on interest-earning deposits was due to a 151 basis point increase in yield, while the average balance of interest-earning deposits decreased $52.9 million, or 53.7%, to $45.7 million for the year ended December 31, 2022 from $98.6 million for the year ended December 31, 2021, as excess funds have been deployed into securities and loans. 32 Interest Expense.
The increase in interest income on interest-earning deposits was due to a 326 basis point increase in yield, while the average balance of interest-earning deposits increased $19.7 million, or 43.0%, to $65.3 million for the year ended December 31, 2023 from $45.7 million for the year ended December 31, 2022. 30 Interest Expense.
Net income decreased $439,000, or 5.8%, to $7.1 million for the year ended December 31, 2022, compared to $7.6 million for the year ended December 31, 2021. An increase in non-interest expenses as well as decreases in interest income and non-interest income were partially offset by decreases in interest expense, the provision for loan losses and income tax expense.
Net income decreased $686,000, or 9.6%, to $6.4 million for the year ended December 31, 2023, compared to $7.1 million for the year ended December 31, 2022. The decrease was due to increases in deposit costs offset by an increase in interest income and decreases in noninterest expenses and provision for credit loss.
See “—Summary of Significant Accounting Policies” for additional information. After an evaluation of these factors, we recorded a provision for loan losses of $704,000 for the year ended December 31, 2022, compared to $1.1 million for the year ended December 31, 2021.
After an evaluation of these factors, we recorded a recovery for credit losses of $42,000 for the year ended December 31, 2023, compared to a provision for credit losses of $704,000 for the year ended December 31, 2022. Our allowance for credit losses was $8.9 million at December 31, 2023 compared to $9.3 million at December 31, 2022.
We experienced a decrease in commercial and industrial loans of $22.9 million, or 13.4%, to $147.8 million at December 31, 2022 from $170.7 million at December 31, 2021, as a result of forgiveness of PPP loans by SBA.
We experienced a decrease in commercial and industrial loans of $7.4 million, or 5.0%, to $140.4 million at December 31, 2023 from $147.8 million at December 31, 2022 and decrease in owner occupied commercial real estate loans of $5.3 million, or 3.3% to $157.7 million at December 31, 2023 from $163.0 million at December 31, 2022.
The average rate earned on securities available for sale and held to maturity increased 66 basis points during 2022, to 2.68% from 2.02%. Interest income on interest-earning deposits and federal funds increased $591,000 to $771,000 for the year ended December 31, 2022 from $180,000 for the year ended December 31, 2021.
Interest income on interest-earning deposits and federal funds increased $2.5 million to $3.2 million for the year ended December 31, 2023 from $771,000 for the year ended December 31, 2022.
Year Ended December 31, Change 2022 2021 Amount Percent (Dollars in thousands) Salaries and employee benefits $ 12,221 $ 10,663 $ 1,558 14.6 % Occupancy 2,523 2,935 (412 ) (14.1 )% Advertising 476 339 137 40.3 % Data processing 1,947 1,975 (28 ) (1.4 )% Write-down of premises and equipment — 1,176 (1,176 ) (100.0 )% FHLB prepayment penalties 647 — 647 100.0 % Other 4,312 3,880 432 11.1 % Total noninterest expenses $ 22,126 $ 20,968 $ 1,158 5.5 % Noninterest expenses increased $1.2 million, or 5.5%, to $22.1 million for the year ended December 31, 2022, from $21.0 million for the year ended December 31, 2021.
Noninterest expenses information is as follows. 31 Year Ended December 31, Change 2023 2022 Amount Percent (Dollars in thousands) Salaries and employee benefits $ 12,252 $ 12,221 $ 31 0.3 % Occupancy 2,503 2,523 (20 ) (0.8 )% Data processing 2,025 1,947 78 4.0 % FHLB prepayment penalties — 647 (647 ) (100.0 )% Other 4,538 4,788 (250 ) (5.2 )% Total non-interest expenses $ 21,318 $ 22,126 $ (808 ) (3.7 )% Noninterest expenses decreased $808,000, or 3.7%, to $21.3 million for the year ended December 31, 2023, from $22.1 million for the year ended December 31, 2022.
Noninterest income decreased $276,000, or 10.3%, to $2.4 million for the year ended December 31, 2022 from $2.7 million for the year ended December 31, 2021.
Interest income increased $10.6 million, or 32.9%, to $42.7 million for the year ended December 31, 2023 from $32.1 million for the year ended December 31, 2022.
The average rate we paid on certificates of deposit remained relatively flat between the years. Net Interest Income. Net interest income before provision for loan losses increased by $479,000, or 1.6%, to $29.8 million for the year ended December 31, 2022 from $29.3 million for the year ended December 31, 2021.
Net interest income before provision for credit losses decreased by $2.6 million, or 8.6%, to $27.2 million for the year ended December 31, 2023 from $29.8 million for the year ended December 31, 2022.
We also experienced a decrease in additional paid in capital from the repurchase of 372,315 shares of our common stock totaling $5.7 million with an average price per share of $15.32. These decreases were offset by net income of $7.1 million for the year ended December 31, 2022 .
Stockholders’ equity increased $4.4 million or 3.8%, to $121.5 million at December 31, 2023 from $117.1 million at December 31, 2022. We recognized net income of $6.4 million for the year ended December 31, 2023, partially offset by the repurchase of 235,934 shares of our common stock totaling $3.3 million with an average price per share of $13.92.
The decrease resulted primarily from a decrease in other noninterest income of $381,000, or 32.5%, to $791,000 for the year ended December 31, 2022 from $1.2 million for the year ended December 31, 2021, as 2021 included a gain on the sale of other real estate and BOLI income from a death benefit.
Noninterest income increased $64,000, or 2.6%, to $2.5 million for the year ended December 31, 2023 from $2.4 million for the year ended December 31, 2022. The increase resulted primarily from an increase in other noninterest income of $55,000, or 7.0%, to $846,000 for the year ended December 31, 2023 from $791,000 for the year ended December 31, 2022.
Year Ended December 31, 2022 vs. 2021 Increase (Decrease) Due to Total Increase Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $ 4,829 $ (6,268 ) $ (1,439 ) Investment securities held-to-maturity 123 7 130 Investment securities available-for-sale 432 9 441 Interest-earning deposits and federal funds (774 ) 1,365 591 Other investments (48 ) 6 (42 ) Total interest-earning assets 4,562 (4,881 ) (319 ) Interest-bearing liabilities: Interest-bearing checking accounts 42 (51 ) (9 ) Market rate checking accounts 280 3 283 Savings accounts (438 ) 891 453 Certificates of deposit (201 ) 28 (174 ) Total interest-bearing deposits (317 ) 871 553 FHLB advances (1,314 ) (36 ) (1,351 ) Total interest-bearing liabilities (1,631 ) 835 (798 ) Change in net interest income $ 6,193 $ (5,716 ) $ 479 Comparison of Operating Results for the Years Ended December 31, 2022 and 2021 General.
Year Ended December 31, 2023 vs. 2022 Increase (Decrease) Due to Total Increase Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $ 4,866 $ 511 $ 5,377 Investment securities held-to-maturity 1,942 6 1,948 Investment securities available-for-sale 537 85 622 Interest-earning deposits and federal funds 2,224 241 2,465 Other investments 148 6 154 Total interest-earning assets 9,717 849 10,566 Interest-bearing liabilities: Interest-bearing checking accounts (110 ) 205 95 Market rate checking accounts (2,416 ) 5,206 2,790 Savings accounts (1,028 ) 2,410 1,382 Certificates of deposit 6,319 274 6,593 Total interest-bearing deposits 2,765 8,095 10,860 FHLB advances 1,910 353 2,263 Total interest-bearing liabilities 4,675 8,448 13,123 Change in net interest income $ 5,042 $ (7,599 ) $ (2,557 ) Comparison of Operating Results for the Years Ended December 31, 2023 and 2022 General.
Certificates of deposit increased $29.2 million, or 30.2%, to $126.0 million at December 31, 2022 from $96.8 million at December 31, 2021. We believe that customers have shifted deposits to longer-term instruments as market interest rates have increased.
Certificates of deposit increased $95.0 million, or 75.4%, to $221.0 million at December 31, 2023 from $126.0 million at December 31, 2022. The growth in certificate of deposits is attributed to our enhancing liquidity through obtaining brokered deposits and the customer shift towards to longer-term instruments as market interest rates have increased.
The increase was due primarily to increases in net loans ($61.1 million, or 10.6%) and investment securities held to maturity ($26.5 million, or 100%), partially offset by a decrease in cash and cash equivalents of $85.5 million, or 76.5%.
The increase was due primarily to increases in net loans ($14.0 million, or 2.2%), cash and cash equivalents of ($23.7 million, or 90.0%) and investments (available-for-sale, held-to-maturity, and other) ($14.4 million or 19.5%).
Interest expense decreased $798,000, or 25.1%, to $2.4 million for the year ended December 31, 2022 compared to $3.2 million for the year ended December 31, 2021, due to a decrease in interest expense on Federal Home Loan Bank advances and other borrowings.
Interest expense increased $13.1 million, or 551.6%, to $15.5 million for the year ended December 31, 2023 compared to $2.4 million for the year ended December 31, 2022, due to increases in all interest expense categories.
One- to four-family residential real estate loans decreased $11.7 million, or 18.6%, to $51.3 million at December 31, 2022 from $63.1 million at December 31, 2021, as mortgage loans were refinanced at lower rates than we offered during the early part of the year.
One- to four-family residential real estate loans increased $2.3 million, or 4.5%, to $53.7 million at December 31, 2023 from $51.3 million at December 31, 2022.
Our average balance of securities increased $12.7 million, or 36.2%, to $47.8 million for the year ended December 31, 2022 from $35.1 million for the year ended December 31, 2021, due to our using excess cash from PPP loan repayments and cash previously held in interest-bearing deposit accounts to invest in securities to increase the yield of our interest-earning assets.
Our average balance of securities increased $35.1 million, or 73.3%, to $82.9 million for the year ended December 31, 2023 from $47.8 million for the year ended December 31, 2022. The average rate earned on securities available for sale and held to maturity increased 197 basis points during 2023, to 4.65% from 2.68%.
Borrowings were decreased during the year ended December 31, 2022 as we repaid acquired Federal Home Loan Bank borrowings, recognizing $1.0 million in accretion from the fair value adjustments on acquired advances. Prepayment penalties in the amount of $647,000 were also recognized with the repayment of these acquired advances for the year ended December 31, 2022 .
We recognized prepayment penalties on Federal Home Loan Bank advances during 2022 of $647,000. The decrease in other expenses, included decreases in advertising expenses and legal and accounting expenses offset by an increase in FDIC insurance expense. Income Tax Expense. We recorded income tax expense of $1.9 million and $2.2 million for the years ended December 31, 2023 and 2022.
Removed
Overview Total assets increased $3.2 million, or 0.4%, to $791.3 million at December 31, 2022 from $788.1 million at December 31, 2021.
Added
Overview Total assets increased $52.0 million, or 6.6%, to $843.3 million at December 31, 2023 from $791.3 million at December 31, 2022. The increase was due primarily to increases in net loans ($14.0 million, or 2.2%), cash and cash equivalents of ($23.7 million, or 90.0%) and investments (available-for-sale, held-to-maturity, and other) ($14.4 million or 19.5%).
Removed
Interest income decreased $319,000, or 1.0%, to $32.1 million for the year ended December 31, 2022 from $32.5 million for the year ended December 31, 2021. The decrease was due to a $1.4 million, or 4.6%, decrease in interest income on loans, which included a decrease of $5.5 million of interest and fee income on PPP loans.
Added
The increase was due to a $5.3 million increase in interest income on loans, a $2.7 million increase in income on investment securities, and a $2.5 million increase in interest income on interest-earning deposits.
Removed
As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We determined to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
Added
The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed. Accrued interest receivable is excluded from the estimate of credit losses.
Removed
The following represent our significant accounting policies: Allowance for Loan Losses . The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses.
Added
Management determines the ACL balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit behaviors along with model judgments provide the basis for the estimation of expected credit losses.
Removed
Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for loan losses.
Added
Adjustments to modeled loss estimates may be made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in economic conditions, property values, or other relevant factors.
Removed
A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio.
Added
For the majority of loans and leases, the ACL is calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a two-year straight-line reversion period. Management believes the allowance for credit losses was appropriate at December 31, 2023 and 2022.
Removed
Management’s evaluation process used to determine the appropriateness of the allowance for loan losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect probable credit losses.
Added
Cash and cash equivalents increased $23.7 million, or 90.0% to $50.0 million at December 31, 2023 from $26.3 million at December 31, 2022, due to increases in deposits. Loans increased $13.6 million, or 2.1%, to $659.9 million at December 31, 2023 from $646.2 million at December 31, 2022.
Removed
Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated loan losses and therefore the appropriateness of the allowance for loan losses could change significantly.
Added
These increases were offset by decreases in non-interest-bearing checking, interest-bearing checking, money market and savings accounts. The loan-to-deposit ratio at December 31, 2023 was 97.8%, as compared to 98.3% at December 31, 2022.

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