Equibles

10-Q

Affinity Bancshares, Inc. (AFBI)

10-Q 2024-05-09 For: 2024-03-31
View Original
Added on April 06, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period

Commission File No. 001-39914

Affinity Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland 82-1147778
(State or Other Jurisdiction of<br><br>Incorporation or Organization) (I.R.S. Employer<br><br>Identification No.)
3175 Highway 278<br><br>Covington, Georgia 30014
(Address of Principal Executive Offices) (Zip Code)

(770) 786-7088

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

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

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐

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

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

As of May 7, 2024, 6,416,628 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding.

Affinity Bancshares, Inc.

Form 10-Q

Table of Contents

Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Consolidated Balance Sheets at March 31, 2024 (unaudited) and December 31, 2023 2
Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023 (unaudited) 3
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and 2023 (unaudited) 4
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited) 5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
Item 4. Controls and Procedures 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 1A. Risk Factors 31
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Mine Safety Disclosures 31
Item 5. Other Information 31
Item 6. Exhibits 31
SIGNATURES 32

Item 1. Financial Statements

AFFINITY BANCSHARES, INC.

Consolidated Balance Sheets

December 31, 2023
Assets
Cash and due from banks 6,388 $ 6,030
Interest-earning deposits in other depository institutions 55,007 43,995
Cash and cash equivalents 61,395 50,025
Investment securities available-for-sale 48,239 48,561
Investment securities held-to-maturity (estimated fair value of 33,873, net of allowance for credit losses of 45 at March 31, 2024 and estimated fair value of 33,835, net of allowance for credit losses of 45 at December 31, 2023) 34,230 34,206
Other investments 5,480 5,434
Loans 674,498 659,876
Allowance for credit loss on loans (8,595 ) (8,921 )
Net loans 665,903 650,955
Other real estate owned 2,850 2,850
Premises and equipment, net 3,691 3,797
Bank owned life insurance 16,184 16,086
Intangible assets 18,318 18,366
Other assets 13,257 12,978
Total assets 869,547 $ 843,258
Liabilities and Stockholders' Equity
Liabilities:
Non-interest-bearing checking 164,568 $ 154,689
Interest-bearing checking 86,734 85,362
Money market accounts 144,689 138,673
Savings accounts 74,282 74,768
Certificates of deposit 217,171 220,951
Total deposits 687,444 674,443
Federal Home Loan Bank advances and other borrowings 51,837 40,000
Accrued interest payable and other liabilities 6,966 7,299
Total liabilities 746,247 721,742
Stockholders' equity:
Common stock (par value 0.01 per share, 40,000,000 shares authorized;    6,416,628 issued and outstanding at March 31, 2024 and December 31, 2023) 64 64
Preferred stock (10,000,000 shares authorized, no shares outstanding) — —
Additional paid in capital 61,409 61,026
Unearned ESOP shares (4,535 ) (4,587 )
Retained earnings 72,680 71,345
Accumulated other comprehensive loss (6,318 ) (6,332 )
Total stockholders' equity 123,300 121,516
Total liabilities and stockholders' equity 869,547 $ 843,258

All values are in US Dollars.

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Income

(unaudited)

Three Months Ended March 31,
2024 2023
(Dollars in thousands except per share amounts)
Interest income:
Loans, including fees $ 9,499 $ 8,291
Investment securities 1,075 949
Interest-earning deposits 647 488
Total interest income 11,221 9,728
Interest expense:
Deposits 4,002 2,314
FHLB advances and other borrowings 470 516
Total interest expense 4,472 2,830
Net interest income before provision for credit losses 6,749 6,898
Provision for credit losses — 7
Net interest income after provision for credit losses 6,749 6,891
Noninterest income:
Service charges on deposit accounts 395 391
Other 189 161
Total noninterest income 584 552
Noninterest expenses:
Salaries and employee benefits 3,179 3,004
Occupancy 618 644
Data processing 511 493
Other 1,262 1,053
Total noninterest expenses 5,570 5,194
Income before income taxes 1,763 2,249
Income tax expense 428 527
Net income $ 1,335 $ 1,722
Weighted average common shares outstanding
Basic 6,416,628 6,599,672
Diluted 6,524,332 6,681,680
Basic earnings per share $ 0.21 $ 0.26
Diluted earnings per share $ 0.20 $ 0.26

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Comprehensive Income

(unaudited)
2023
Net income 1,335 $ 1,722
Other comprehensive income:
Net unrealized gain on available-for-sale securities, net of taxes of 5 and 161 14 474
Total other comprehensive income 14 474
Total comprehensive income 1,349 $ 2,196

All values are in US Dollars.

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

Three Months Ended March 31, 2024 and 2023
Accumulated
Additional Other
Common Paid In Unearned Retained Comprehensive
Stock Capital ESOP Shares Earnings Income (Loss) Total
(In thousands)
Beginning balance December 31, 2023 64 $ 61,026 $ (4,587 ) $ 71,345 $ (6,332 ) $ 121,516
ESOP loan payment and release of ESOP shares — 34 52 — — 86
Stock-based compensation expense — 349 — — — 349
Change in unrealized loss on investment securities available-for-sale, net of tax — — — — 14 14
Net income — — — 1,335 — 1,335
Ending balance March 31, 2024 64 61,409 (4,535 ) 72,680 (6,318 ) 123,300
Beginning balance December 31, 2022 66 $ 63,130 $ (4,795 ) $ 65,357 $ (6,655 ) $ 117,103
ESOP loan payment and release of ESOP shares — 26 52 — — 78
Stock-based compensation expense — 260 — — — 260
Change in unrealized loss on investment securities available-for-sale, net of tax — — — — 474 474
Common stock repurchase — (867 ) — — — (867 )
Adoption of new accounting pronouncement (see Note 1) — — — (460 ) (460 )
Net income — — — 1,722 — 1,722
Ending balance March 31, 2023 66 $ 62,549 $ (4,743 ) $ 66,619 $ (6,181 ) $ 118,310

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Consolidated Statements of Cash Flows

(unaudited)

Three Months Ended March 31,
2024 2023
(In thousands)
Cash flows from operating activities:
Net income $ 1,335 $ 1,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, (accretion) and amortization 162 183
Stock-based compensation expense 349 260
Deferred income tax expense 241 —
Provision for credit losses — 7
ESOP expense 86 78
Increase in cash surrender value of bank owned life insurance (98 ) (87 )
Change in:
Accrued interest receivable and other assets (525 ) (779 )
Accrued interest payable and other liabilities (333 ) 615
Net cash provided by operating activities 1,217 1,999
Cash flows from investing activities:
Purchases of investment securities held-to-maturity — (7,609 )
Purchases of investment securities available-for-sale — (5,710 )
Purchases of premises and equipment (132 ) (148 )
Proceeds from paydowns of investment securities available-for-sale 375 1,379
Proceeds from paydowns of investment securities held-to-maturity 24 15
Purchases of other investments (46 ) (2,339 )
Proceeds from sales of other investments — 425
Net change in loans (14,906 ) (15,226 )
Net cash used in investing activities (14,685 ) (29,213 )
Cash flows from financing activities:
Net change in deposits 13,001 93,668
Stock repurchase — (867 )
Proceeds from FHLB advances — 65,000
Repayment of FHLB advances — (20,000 )
Repayment of federal funds purchased — (25 )
Proceeds from other borrowings 11,837 —
Net cash provided by financing activities 24,838 137,776
Net change in cash and cash equivalents 11,370 110,562
Cash and cash equivalents at beginning of period 50,025 26,324
Cash and cash equivalents at end of period $ 61,395 $ 136,886
Supplemental disclosures of cash flow information:
Cash paid for interest 4,791 2,372
Change in unrealized loss on investment securities available-for-sale, net of tax 14 474

See accompanying notes to unaudited consolidated financial statements.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(1) Nature of Operations

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

Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company as of March 31, 2024 and the results of its operations and its cash flows for the periods presented. The interim consolidated financial information should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for a full year or for any other period. Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for credit losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income. Summary of Significant Accounting Policies – The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in the Company’s financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K.

Earnings per Share

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

Three Months Ended March 31,
2024 2023
(Dollars in thousands except per share data)
Net income $ 1,335 $ 1,722
Weighted average common shares outstanding 6,416,628 6,599,672
Effect of dilutive common stock awards 107,704 82,008
Diluted weighted average common shares outstanding 6,524,332 6,681,680
Basic earnings per common share $ 0.21 $ 0.26
Diluted earnings per common share 0.20 0.26

There were 379,500 anti-dilutive options for the three months ended March 31, 2024 and 292,454 anti-dilutive options for the three months ended March 31, 2023.7

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(2) Investment Securities

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

March 31, 2024 Amortized Cost Gross <br>Unrealized Gains Gross <br>Unrealized Losses Estimated Fair Value
U.S. Treasury securities $ 5,157 $ — $ (698 ) $ 4,459
Municipal securities - tax exempt 525 — (89 ) 436
Municipal securities - taxable 2,530 — (401 ) 2,129
U. S. Government sponsored enterprises 11,837 — (3,192 ) 8,645
Government agency mortgage-backed securities 18,248 — (2,906 ) 15,342
Corporate securities 18,401 40 (1,213 ) 17,228
Total $ 56,698 $ 40 $ (8,499 ) $ 48,239
December 31, 2023
U.S. Treasury securities $ 5,147 $ — $ (649 ) $ 4,498
Municipal securities - tax exempt 527 — (85 ) 442
Municipal securities - taxable 2,530 — (395 ) 2,135
U. S. Government sponsored enterprises 11,837 — (3,207 ) 8,630
Government agency mortgage-backed securities 18,643 — (2,695 ) 15,948
Corporate securities 18,355 30 (1,477 ) 16,908
Total $ 57,039 $ 30 $ (8,508 ) $ 48,561

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

March 31, 2024 Amortized Cost Gross <br>Unrealized Gains Gross <br>Unrealized Losses Fair Value Estimated Allowance for Credit Losses
U.S. Treasury securities $ 999 $ — $ (4 ) $ 995 $ —
Government agency mortgage-backed securities 776 — (55 ) 721 —
Corporate securities 32,500 55 (398 ) 32,157 (45 )
Total $ 34,275 $ 55 $ (457 ) $ 33,873 $ (45 )
December 31, 2023
U.S. Treasury securities $ 999 $ — $ (4 ) $ 995 $ —
Government agency mortgage-backed securities 795 — (76 ) 719 —
Corporate securities 32,457 58 (394 ) 32,121 (45 )
Total $ 34,251 $ 58 $ (474 ) $ 33,835 $ (45 )

Corporate securities account for the majority of the held-to-maturity portfolio as of March 31, 2024. As stated above, these corporate securities are accounted for as securities, but are underwritten as loans with features that are typically found in commercial loans. Accordingly, the Bank monitors the credit quality of these corporate bonds through quarterly credit reviews to determine impairment, if any. At March 31, 2024, these securities are all rated as investment grade and the $45,000 of allowance for credit losses associated with these securities was calculated using a Moody's report on the cumulative default rates of corporate issuers.

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

8

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Less Than 12 Months 12 Months or More Total
March 31, 2024 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
U.S. Treasury securities $ — $ — $ 4,459 $ (698 ) $ 4,459 $ (698 )
Municipal securities - tax exempt — — 436 (89 ) 436 (89 )
Municipal securities - taxable — — 2,129 (401 ) 2,129 (401 )
U. S. Government sponsored enterprises — — 8,645 (3,192 ) 8,645 (3,192 )
Government agency mortgage-backed securities — — 15,342 (2,906 ) 15,342 (2,906 )
Corporate securities 961 (19 ) 13,724 (1,194 ) 14,685 (1,213 )
Total $ 961 $ (19 ) $ 44,735 $ (8,480 ) $ 45,696 $ (8,499 )
December 31, 2023
U.S. Treasury securities $ — $ — $ 4,498 $ (649 ) $ 4,498 $ (649 )
Municipal securities - tax exempt — — 442 (85 ) 442 (85 )
Municipal securities - taxable — — 2,135 (395 ) 2,135 (395 )
U. S. Government sponsored enterprises — — 8,630 (3,207 ) 8,630 (3,207 )
Government agency mortgage-backed securities — — 15,948 (2,695 ) 15,948 (2,695 )
Corporate securities 5,557 (214 ) 8,774 (1,263 ) 14,331 (1,477 )
Total $ 5,557 $ (214 ) $ 40,427 $ (8,294 ) $ 45,984 $ (8,508 )

There was one available-for-sale security in an unrealized loss position totaling $19,000 as of March 31, 2024 for less than 12 months. There were 68 available-for-sale securities in an unrealized loss position for 12 months or greater totaling $8.5 million as of March 31, 2024. The unrealized losses on the debt securities arose due to changing interest rates and market conditions and are considered to be temporary because of acceptable investment grades and are reviewed regularly. Four of the securities are agency bonds and five are U.S. Treasury bonds, so all of these are direct obligations of the U.S. Government. Thirty-nine of the securities are mortgage-backed bonds that have the direct or implied backing of the U.S. Government. Four of the bonds are municipal securities and the remaining 17 securities are corporate securities that are either trust preferred securities or subordinated debentures where the Bank performs a credit review regularly and such review has raised no concerns.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises ("GSEs"), and the U.S. Treasury, including notes and mortgage-backed securities, accounted for the majority of the available-for-sale portfolio as of March 31, 2024, and the Bank expects no credit losses on these securities, given the explicit and implicit guarantees provided by the U.S. federal government. The available-for-sale portfolio also includes corporate securities, but are underwritten as loans with features that are typically found in commercial loans. Accordingly, the Bank monitors the credit quality of these corporate bonds through quarterly credit reviews to determine impairment, if any. The decline in fair value is attributable to changes in interest rates, and not credit quality, and the Bank does not have the intent to sell the U.S. government and agencies debt securities and the corporate securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Bank does not consider impairments on these securities to be credit related as of March 31, 2024.

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at March 31, 2024, by contractual maturity, are shown below. Maturities of mortgage-backed securities may differ from contractual maturities 9

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties. Therefore, these securities are not included in the maturity categories. (in thousands)

Available-for-Sale Held-to-Maturity
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
Within 1 year $ — $ — $ 999 $ 995
Greater than 1 to 5 years 6,950 6,592 16,782 16,716
Greater than 5 to 10 years 21,160 18,810 15,718 15,441
Greater than 10 years 10,340 7,495 — —
38,450 32,897 33,499 33,152
Government agency mortgage-backed securities 18,248 15,342 776 721
Total $ 56,698 $ 48,239 $ 34,275 $ 33,873

There were no sales of investment securities available-for-sale during the three months ended March 31, 2024 or 2023.

Available-for-sale securities with a carrying value of approximately $4.0 million and $4.2 million were pledged to secure public deposits at March 31, 2024 and December 31, 2023, respectively.

(3) Loans and Allowance for Credit Losses

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

March 31, 2024 December 31, 2023
Commercial (secured by real estate - owner occupied) $ 162,638 $ 157,691
Commercial (secured by real estate - non-owner occupied) 145,610 145,100
Commercial and industrial 142,509 140,407
Construction, land and acquisition & development 55,292 47,685
Residential mortgage 1-4 family 53,133 53,650
Consumer installment 115,316 115,343
Total 674,498 659,876
Less allowance for credit losses (8,595 ) (8,921 )
Total loans, net $ 665,903 $ 650,955

The Bank grants loans and extensions of credit to individuals and a variety of firms and corporations located primarily in the Atlanta, Georgia Metropolitan Statistical Area. A substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market. The Bank also conducts lending within professional markets, with a primary focus on the dental industry in Georgia and adjoining states. The majority of these loans are commercial and industrial credits for practice acquisitions and equipment financing with the remainder being owner-occupied real estate. Accrued interest on loans totaled $2.2 million on March 31, 2024 and $2.1 million on December 31, 2023 and is included in other assets on the consolidated balance sheet.

10

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

The following table presents the balance in the allowance for credit losses as of and for the three months ended March 31, 2024 and 2023 (in thousands)

Commercial<br>(Secured by Real<br>Estate - Owner Occupied) Commercial<br>(Secured by Real Estate - Non-Owner Occupied) Commercial <br>and Industrial Construction, <br>Land and<br>Acquisition & Development Residential<br> Mortgage Consumer<br>Installment Unallocated Total
Beginning balance December 31, 2023 $ 1,397 $ 1,298 $ 1,806 $ 927 $ 1,038 $ 1,534 $ 921 $ 8,921
Provision 167 (6 ) (70 ) 152 (31 ) 139 (351 ) —
Charge-offs (160 ) — — — (5 ) (193 ) — (358 )
Recoveries — — — — — 32 — 32
Ending balance, March 31, 2024 $ 1,404 $ 1,292 $ 1,736 $ 1,079 $ 1,002 $ 1,512 $ 570 $ 8,595
Beginning balance, December 31, 2022 $ 2,403 $ 2,079 $ 2,292 $ 487 $ 345 $ 1,675 $ 44 $ 9,325
Provision (898 ) (683 ) (1,084 ) 443 1,169 740 313 —
Charge-offs (4 ) — (3 ) — — (99 ) — (106 )
Recoveries 8 — — — — 7 — 15
Ending balance, March 31, 2023 $ 1,509 $ 1,396 $ 1,205 $ 930 $ 1,514 $ 2,323 $ 357 $ 9,234

No provision for credit losses on loans was recorded for the three months ended March 31, 2024 and 2023. A release on unfunded commitments for the three months ended March 31, 2024 and 2023 of $0 and $3,000 was recorded, and is included in other liabilities on the consolidated balance sheet. The allowance for unfunded commitments as of March 31, 2024 and December 31, 2023 was $531,000. The Bank also recorded a provision of $0 and $10,000 for credit losses for held-to-maturity securities for a net $0 and $7,000 recorded of provision for credit losses for the three months ended March 31, 2024 and 2023.

The Bank individually evaluates loans meeting a certain threshold for impairment that are on nonaccrual status or are rated substandard (as described below). Additionally, all loan modifications to a borrower with financial difficulty are evaluated for impairment.

Collateral-Dependent Loans We classify a loan as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of collateral. Our commercial loans have collateral that is comprised of real estate and business assets. Our consumer loans have collateral that is substantially comprised of residential real estate. There were no significant changes in the extent to which collateral secures our collateral-dependent loans during the three months ended March 31, 2024 and 2023, and we had $4.1 million and $4.3 million of collateral-dependent loans without an allowance and no collateral-dependent loans with an allowance at March 31, 2024 and December 31, 2023, respectively.

11

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

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

March 31, 2024 30 -59 <br>Days<br> Past Due 60- 89 <br>Days<br> Past Due 90 Days<br>or Greater<br>Past Due Total Accruing Loans<br>Past Due Nonaccrual with Allowance Nonaccrual without Allowance Current Total
Commercial (secured by real estate - owner occupied) $ — $ — $ — $ — $ — $ — $ 162,638 $ 162,638
Commercial (secured by real estate - non-owner occupied) — — — — — 4,280 141,330 145,610
Commercial and industrial — — — — — — 142,509 142,509
Construction, land and acquisition &<br>   development 13 — — 13 — 19 55,260 55,292
Residential mortgage 1,507 — — 1,507 — 2,528 49,098 53,133
Consumer installment 332 — — 332 — 337 114,647 115,316
Total $ 1,852 $ — $ — $ 1,852 $ — $ 7,164 $ 665,482 $ 674,498
December 31, 2023 30 -59 <br>Days<br> Past Due 60- 89 <br>Days<br> Past Due 90 Days<br>or Greater<br>Past Due Total Accruing Loans<br>Past Due Nonaccrual with Allowance Nonaccrual without Allowance Current Total
Commercial (secured by real estate - owner occupied) $ — $ — $ — $ — $ — $ — $ 157,691 $ 157,691
Commercial (secured by real estate - non-owner occupied) — — — — — 4,505 140,595 145,100
Commercial and industrial — — — — — — 140,407 140,407
Construction, land and acquisition &<br>   development — — — — — — 47,685 47,685
Residential mortgage 2,534 — — 2,534 — 2,504 48,612 53,650
Consumer installment 246 — — 246 — 417 114,680 115,343
Total $ 2,780 $ — $ — $ 2,780 $ — $ 7,426 $ 649,670 $ 659,876

There were no loan modifications to a borrower with financial difficulty during the three months ended March 31, 2024 or 2023. No loan modifications made to a borrower with financial difficulty subsequently defaulted during the three months ended March 31, 2024 and 2023.

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

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

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

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

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

Loss. Loans considered uncollectible and of such little value that the continuance as a Bank asset is not warranted. This does not mean that the loan has no recovery or salvage value, but rather the asset should be charged off even though partial recovery may be possible in the future. 13

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

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

March 31, 2024 2024 2023 2022 2021 2020 Prior Revolvers Total
Pass
Commercial (secured by real estate - owner occupied) $ 4,773 $ 13,138 $ 24,750 $ 28,527 $ 22,559 $ 62,986 $ 5,581 $ 162,314
Commercial (secured by real estate - non-owner occupied) 4,383 31,925 36,744 28,451 4,377 25,566 5,797 137,243
Commercial and industrial 8,127 21,279 21,425 27,458 15,263 41,577 7,380 142,509
Construction, land and acquisition & development 7,502 25,403 14,628 4,688 106 476 2,470 55,273
Residential mortgage 335 4,985 5,670 2,399 1,876 29,255 5,575 50,095
Consumer installment 12,150 38,689 42,245 15,393 3,996 1,649 551 114,673
Total pass 37,270 135,419 145,462 106,916 48,177 161,509 27,354 662,107
Special Mention
Commercial (secured by real estate - owner occupied) — — — — — 324 — 324
Commercial (secured by real estate - non-owner occupied) — — - 3,517 — 541 — 4,058
Commercial and industrial — — — — — — — —
Construction, land and acquisition & development — — — — — — — —
Residential mortgage — — — — — 220 — 220
Consumer installment — 53 226 14 11 2 — 306
Total special mention — 53 226 3,531 11 1,087 — 4,908
Substandard
Commercial (secured by real estate - owner occupied) — — — — — — — —
Commercial (secured by real estate - non-owner occupied) — — — — — 4,309 - 4,309
Commercial and industrial — — — — — — — —
Construction, land and acquisition & development — — — - 19 — — 19
Residential mortgage — - 197 104 104 2,368 45 2,818
Consumer installment — 80 96 147 5 9 — 337
Total substandard — 80 293 251 128 6,686 45 7,483
Total $ 37,270 $ 135,552 $ 145,981 $ 110,698 $ 48,316 $ 169,282 $ 27,399 $ 674,498
Current year to date period gross write-offs
Commercial (secured by real estate - owner occupied) $ — $ — $ — $ — $ — $ — $ — $ —
Commercial (secured by real estate - non-owner occupied) — — — — — 160 — 160
Commercial and industrial — — — — — — — —
Construction, land and acquisition & development — — — — — — — —
Residential mortgage — — 5 — — — — 5
Consumer installment — 7 144 37 — 5 — 193
Total current period gross write-offs $ — $ 7 $ 149 $ 37 $ — $ 165 $ — $ 358

14

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

December 31, 2023 2023 2022 2021 2020 2019 Prior Revolvers Total
Pass
Commercial (secured by real estate - owner occupied) $ 11,210 $ 23,441 $ 29,832 $ 22,982 $ 11,287 $ 49,744 $ 8,863 $ 157,359
Commercial (secured by real estate - non-owner occupied) 32,830 37,395 25,702 4,436 10,015 15,546 10,562 136,486
Commercial and industrial 22,473 21,590 27,252 14,764 16,697 25,317 12,314 140,407
Construction, land and acquisition & development 21,557 17,392 5,034 721 216 210 2,534 47,664
Residential mortgage 5,354 5,672 2,447 1,289 1,424 28,710 5,736 50,632
Consumer installment 42,601 46,869 17,488 4,866 1,919 247 543 114,533
Total pass 136,025 152,359 107,755 49,058 41,558 119,774 40,552 647,081
Special Mention
Commercial (secured by real estate - owner occupied) — — — — — 332 — 332
Commercial (secured by real estate - non-owner occupied) — — 3,539 — — 540 — 4,079
Commercial and industrial — — — — — — — —
Construction, land and acquisition & development — — — — — — — —
Residential mortgage — — — — — 222 — 222
Consumer installment 73 190 99 21 31 — — 414
Total special mention 73 190 3,638 21 31 1,094 — 5,047
Substandard
Commercial (secured by real estate - owner occupied) — — — — — — — —
Commercial (secured by real estate - non-owner occupied) — — — — — 4,535 - 4,535
Commercial and industrial — — — — — — — —
Construction, land and acquisition & development — — — 21 — — — 21
Residential mortgage — 202 108 107 113 2,266 — 2,796
Consumer installment 50 205 118 11 12 — — 396
Total substandard 50 407 226 139 125 6,801 - 7,748
Total $ 136,148 $ 152,956 $ 111,619 $ 49,218 $ 41,714 $ 127,669 $ 40,552 $ 659,876
Current year to date period gross write-offs
Commercial (secured by real estate - owner occupied) $ — $ — $ — $ — $ — $ — $ — $ —
Commercial (secured by real estate - non-owner occupied) — — — — — 204 — 204
Commercial and industrial — — — — — 3 — 3
Construction, land and acquisition & development — — — — — — — —
Residential mortgage — — — — — — — —
Consumer installment 9 159 125 14 — — — 307
Total current period gross write-offs $ 9 $ 159 $ 125 $ 14 $ — $ 207 $ — $ 514

(4) Intangible Assets

The core deposit premium intangible asset had a gross carrying amount of $1.9 million and accumulated amortization of $813,000 at March 31, 2024. The core deposit premium intangible asset had a gross carrying amount of $1.9 million and accumulated amortization of $765,000 at December 31, 2023. Aggregate amortization expense was $48,000 for the three months ended March 31, 2024 and 2023.

Goodwill acquired through acquisition was $17.2 million at March 31, 2024 and 2023. No impairment loss was recognized during the three months ended March 31, 2024 and 2023.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(5) Deposits

The aggregate amount of certificates of deposit ("CDs") of $250,000 or more, the standard FDIC deposit insurance coverage limit per depositor, was approximately $30.4 million at March 31, 2024, and $31.2 million at December 31, 2023. Due to the FDIC insurance coverage rules and limits for a depositor's specific group of deposit accounts, it is important to note that not all deposits in excess of $250,000 are uninsured.

Brokered CDs totaled $107.4 million and had a weighted average rate of 4.65% and a weighted average maturity of 28 months at March 31, 2024 and $107.3 million and had a weighted average rate of 4.87% and a weighted average maturity of 28 months at December 31, 2023.

(6) Borrowings

The following Federal Home Loan Bank ("FHLB") advances, which required monthly or quarterly interest payments, were outstanding at March 31, 2024 and December 31, 2023:

Advance Date Advance Interest Rate Maturity Rate Call Feature
1/6/2023 $ 10,000,000 4.22 % 1/6/2026 Fixed N/A
1/6/2023 10,000,000 3.94 % 1/6/2028 Fixed N/A
10/25/2023 10,000,000 3.99 % 10/25/2028 Convertible 4/25/2024
12/14/2023 10,000,000 3.28 % 12/14/2028 Convertible 6/14/2024
$ 40,000,000

At March 31, 2024 and December 31, 2023, the FHLB advances were collateralized by certain loans which totaled approximately $406.1 million and $392.6 million, and by the Company’s investment in FHLB stock which totaled approximately $2.5 million at March 31, 2024 and December 31, 2023.

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

The Company has Federal Funds unsecured lines of credit totaling $32.5 million. No amount was borrowed under these lines as of March 31, 2024.

We also have a line of $76.8 million and $67.4 million with the Federal Reserve Bank secured by $101.9 million and $96.1 million in loans and investment securities as of March 31, 2024 and December 31, 2023. There was $11.8 million and $0 outstanding under the Bank Term Funding Program at March 31, 2024 and December 31, 2023.

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

(7) Employee Stock Ownership Plan

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

In 2017, the ESOP borrowed $3.0 million payable to the Company for the purpose of purchasing shares of the Company’s common stock. A total of 295,499 shares were purchased with the loan proceeds as part of the Company’s initial stock offering. In 2021, the ESOP borrowed $3.0 million payable to the Company for the purpose of purchasing additional shares of the Company’s common stock. A total of 225,721 shares were purchased with the loan proceeds as part of the Company’s second stock offering. Total ESOP expense for the three months ended March 31, 2024 and 2023 was approximately $86,000 and $78,000, respectively. The balance of the note payable of the ESOP was approximately $5.1 million at March 31, 2024 and December 31, 2023. Because the source of the loan payments is contributions received by the ESOP from the Company, the related note receivable is shown as a reduction of stockholders’ equity. As of March 31, 2024 and December 31, 2023, 101,000 shares had been released.

(8) Stock-Based Compensation

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

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

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

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

Stock Options Option Shares Outstanding Weighted Average Exercise Price Weighted Average Remaining Life (Years) Aggregate Intrinsic Value (in thousands)
Outstanding - December 31, 2023 640,766 12.58 7.75 1,419
Outstanding - March 31, 2024 640,766 12.58 7.51 2,476
Exercisable - March 31, 2024 236,905 10.98 6.28 1,294

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

Restricted Stock Restricted Shares Outstanding Weighted Average Grant Date Fair Value
Outstanding - December 31, 2023 166,591 13.46
Vested (3,467 )
Outstanding - March 31, 2024 163,124 13.44

17

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

The Company recognized approximately $349,000 and $260,000, of stock-based compensation expense during the three months ended March 31, 2024 and 2023 respectively, associated with its common stock awards granted to directors and officers.

As of March 31, 2024, there was approximately $3.4 million of unrecognized compensation cost related to equity award grants. The cost is expected to be recognized over the weighted average remaining vesting period of approximately

2.24

years.

(9) Fair Value Measurements and Disclosures

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

Fair Value Hierarchy

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

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

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

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

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

Cash and Cash Equivalents

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

Investment Securities Available-for-Sale

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

Other Investments

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

Loans

The Company does not record loans at fair value on a recurring basis, unless a loan is considered collateral dependent and a specific reserve may be required to be established within the allowance for credit losses. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered individually evaluated. Once a loan is identified as collateral dependent, management measures impairment in accordance with GAAP. The fair value of collateral dependent loans is estimated using one of three methods, including 18

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

collateral value, market value of similar debt, and discounted cash flows. Those collateral dependent loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. In accordance with GAAP, collateral dependent loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price, the Company records the collateral dependent loan as nonrecurring Level 2. When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the collateral dependent loan as nonrecurring Level 3. For disclosure purposes, the fair value of fixed rate loans which are not considered collateral dependent is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For non collateral dependent variable rate loans, the carrying amount is a reasonable estimate of fair value for disclosure purposes.

Other Real Estate Owned

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

Deposits

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

FHLB Advances and Other Borrowings

FHLB advances are carried at cost and the fair value is obtained from the Federal Home Loan Bank of Atlanta. Federal Funds

Purchased are carried at cost and because they are overnight funds, the carrying value is a reasonable estimate of fair value.

Commitments to Extend Credit

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

Assets Recorded at Fair Value on a Recurring Basis

The Company’s only assets recorded at fair value on a recurring basis are available-for-sale securities that had fair values of approximately $48.2 million and $48.6 million at March 31, 2024 and December 31, 2023. They are classified as Level 2.

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost 19

AFFINITY BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

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

March 31, 2024 Level 1 Level 2 Level 3 Total
Other real estate owned $ — $ — $ 2,850 $ 2,850
Collateral dependent loans — — 1,281 1,281
Total assets at fair value $ — $ — $ 4,131 $ 4,131
December 31, 2023 Level 1 Level 2 Level 3 Total
Other real estate owned $ — $ — $ 2,850 $ 2,850
Collateral dependent loans — — 1,440 1,440
Total assets at fair value $ — $ — $ 4,290 $ 4,290

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

March 31, 2024 December 31, 2023
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Financial assets:
Cash and cash equivalents Level 1 $ 61,395 $ 61,395 $ 50,025 $ 50,025
Investment securities available-for-sale Level 2 48,239 48,239 48,561 48,561
Investment securities held-to-maturity Level 2 34,230 33,873 34,206 33,835
Other investments Level 3 5,480 5,480 5,434 5,434
Loans, net Level 3 665,903 646,136 650,955 635,957
Financial liabilities:
Deposits Level 2 687,444 685,322 674,443 673,854
FHLB advances and other borrowings Level 3 51,837 51,515 40,000 39,830

Limitations

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

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

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

General

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

Cautionary Note Regarding Forward-Looking Statements

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

• statements of our goals, intentions and expectations;

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

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

• estimates of our risks and future costs and benefits.

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

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

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

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

• our ability to access cost-effective funding;

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

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

• demand for loans and deposits in our market area;

• our ability to implement and change our business strategies;

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

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

• adverse changes in the securities or secondary mortgage markets;

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

• changes in tax laws;

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

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

• failure or breaches of our IT security systems;

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

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

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

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

• changes in consumer spending, borrowing and savings habits;

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

• our ability to retain key employees;

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

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

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

• the effects of any Federal government shutdown;

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

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

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

Summary of Significant Accounting Policies

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

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

Total assets increased $26.3 million, or 3.1%, to $869.5 million at March 31, 2024 from $843.3 million at December 31, 2023, due primarily to an increase in cash and cash equivalents as well as an increase in loans.

Cash and cash equivalents increased $11.4 million, or 22.7%, to $61.4 million at March 31, 2024 from $50.0 million at December 31, 2023 primarily due to cash received from an increase in deposits as well as an increase in Federal Reserve borrowings to enhance our levels of liquidity.

Gross loans increased $14.6 million, or 2.2%, to $674.5 million at March 31, 2024 from $659.9 million at December 31, 2023. Construction loans increased $7.6 million, or 16.0%, to $55.3 million at March 31, 2024 from $47.7 million at December 31, 2023. Owner-occupied commercial real estate loans increased $4.9 million, or 3.1%, while commercial and industrial loans increased $2.1 million, or 1.5% and non-owner-occupied commercial real estate loans increased $510,000 or 0.4%. We experienced decreases in residential mortgages of $517,000 and in consumer installment loans of $27,000.

Total deposits increased $13.0 million, or 1.9%, to $687.4 million at March 31, 2024 from $674.4 million at December 31, 2023, reflecting an increase in demand deposits and money market accounts. Non-interest bearing deposits increased $9.9 million, or 6.4%, as a result of our business customers' cyclical demands at year-end. Our certificates of deposits include brokered deposits at March 31, 2024, totaling $107.4 million,which had an average life of 28 months and an average interest rate of 4.65%. The loan-to-deposit ratio at March 31, 2024 was 98.1%, as compared to 97.8% at December 31, 2023.

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

Stockholders’ equity increased by $1.8 million, or 1.5% to $123.3 million at March 31, 2024 compared to $121.5 million at December 31, 2023, primarily due to net income of $1.3 million during the first quarter of 2024, and stock compensation expense of $349,000.

Average Balance Sheets

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

For the Three Months Ended March 31,
2024 2023
Average<br>Outstanding<br>Balance Interest Average<br>Yield/Rate Average<br>Outstanding<br>Balance Interest Average<br>Yield/Rate
(Dollars in thousands)
Interest-earning assets:
Loans $ 664,660 $ 9,499 5.75 % $ 651,750 $ 8,291 5.16 %
Investment securities held-to-maturity 34,213 528 6.21 % 32,898 503 6.20 %
Investment securities available-for-sale 48,169 463 3.87 % 48,844 411 3.41 %
Interest-earning deposits and federal funds 50,083 647 5.20 % 45,758 488 4.32 %
Other investments 5,447 84 6.20 % 2,643 35 5.39 %
Total interest-earning assets 802,572 11,221 5.62 % 781,893 9,728 5.05 %
Non-interest-earning assets 52,145 51,044
Total assets $ 854,717 $ 832,937
Interest-bearing liabilities:
Interest-bearing checking accounts $ 88,057 $ 103 0.47 % $ 91,856 $ 45 0.20 %
Money market accounts 140,600 1,086 3.11 % 139,495 661 1.92 %
Savings accounts 74,412 528 2.85 % 95,897 552 2.34 %
Certificates of deposit 219,806 2,285 4.18 % 149,058 1,056 2.87 %
Total interest-bearing deposits 522,875 4,002 3.08 % 476,306 2,314 1.97 %
FHLB advances and other borrowings 52,615 470 3.59 % 46,723 516 4.48 %
Total interest-bearing liabilities 575,490 4,472 3.13 % 523,029 2,830 2.19 %
Non-interest-bearing liabilities 156,697 191,659
Total liabilities 732,187 714,688
Total stockholders' equity 122,530 118,249
Total liabilities and stockholders' equity $ 854,717 $ 832,937
Net interest rate spread 2.49 % 2.86 %
Net interest income $ 6,749 $ 6,898
Net interest margin 3.38 % 3.58 %

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

Three Months Ended March 31,<br>2024 vs. 2023
Increase (Decrease) Due to Total
Increase
Volume Rate (Decrease)
(In thousands)
Interest-earning assets:
Loans $ 927 $ 281 $ 1,208
Investment securities held-to-maturity 25 — 25
Investment securities available-for-sale (292 ) 344 52
Interest-earning deposits and federal funds 144 15 159
Other investments 48 1 49
Total interest-earning assets 852 641 1,493
Interest-bearing liabilities:
Interest-bearing checking accounts (396 ) 454 58
Market rate checking accounts 169 256 425
Savings accounts (769 ) 745 (24 )
Certificates of deposit 1,181 48 1,229
Total interest-bearing deposits 185 1,503 1,688
FHLB advances and other borrowings 821 (867 ) (46 )
Total interest-bearing liabilities 1,006 636 1,642
Change in net interest income $ (154 ) $ 5 $ (149 )

Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023

General. Net income was $1.3 million for the three months ended March 31, 2024, compared to $1.7 million for the three months ended March 31, 2023. The decrease was caused by an increase in interest expense, offset partially by an increase in interest income.

Interest Income. Interest income increased $1.5 million, or 15.3%, to $11.2 million for the three months ended March 31, 2024 from $9.7 million for the three months ended March 31, 2023. The increase was due to increases in all categories of interest-earning assets. Interest income on loans increased $1.2 million, or 14.6%, to $9.5 million for the three months ended March 31, 2024 from $8.3 million for the three months ended March 31, 2023. The average yield on loans increased 59 basis points to 5.75% for the current quarter, as compared to 5.16% for the prior year period, due to the continued changes in the interest rate environment. In addition, our average balance of loans increased by $12.9 million, or 2.0%, to $664.7 million for the three months ended March 31, 2024 from $651.8 million for the three months ended March 31, 2023. The average balance of loans increased due to steady loan demand.

Interest income on interest-earning deposits and federal funds increased $159,000 to $647,000 for the three months ended March 31, 2024 from $488,000 for the three months ended March 31, 2023. The average balance of interest-earning deposits and federal funds increased $4.3 million to $50.1 million for the three months ended March 31, 2024 compared to $45.8 million for the three months ended March 31, 2023, as we held excess cash to increase liquidity, as described above. In addition, the yields we received on these funds increased to 5.20% from 4.32% due to the continued changes in the interest rate environment.

Interest income on available-for-sale and held-to-maturity securities increased $77,000 to $991,000 for the three months ended March 31, 2024 from $914,000 for the three months ended March 31, 2023.

Interest Expense. Interest expense increased $1.6 million to $4.5 million for the three months ended March 31, 2024, compared to $2.8 million for the three months ended March 31, 2023, due to increases in the average balances of interest-bearing liabilities as well as the rates paid on such liabilities.

We recognized increases in all categories of interest-bearing liabilities. Interest expense on deposits increased $1.7 million to $4.0 million for the three months ended March 31, 2024 from $2.3 million for the three months ended March 31, 2023. The largest increase was in interest expense on certificates of deposit, which increased $1.2 million to $2.3 million for the three months ended March 31, 2024. The average rate we paid on certificates of deposit increased 131 basis points to 4.18% for the three months ended March 31, 2024 from 2.87% for the three months ended March 31, 2023, due to the continued changes in the interest rate environment and the average balance increase of $70.7 million to $219.8 million for the three months ended March 31, 2024 from $149.1 million for the three months ended March 31, 2023. We also experienced increases of $425,000 in interest expense on money market accounts, due to increases in the rates we paid on these accounts of 119 basis points.

Interest expense on borrowings decreased to $470,000 for the three months ended March 31, 2024 from $516,000 for the three months ended March 31, 2023, due to short term funding needs for the three months ended March 31, 2023.

Net Interest Income. Net interest income decreased $149,000, or 2.2%, to $6.7 million for the three months ended March 31, 2024 compared to $6.9 million for the three months ended March 31, 2023. Our net interest rate spread decreased to 2.49% for the three months ended March 31, 2024 from 2.86% for the three months ended March 31, 2023, and our net interest margin decreased to 3.38% for the three months ended March 31, 2024 from 3.58% for the three months ended March 31, 2023 as the rates we paid on interest-bearing liabilities increased faster than the yields we earned on our interest-earning assets. Our average net interest-earning assets decreased to $227.1 million for the three months ended March 31, 2024 compared to $258.9 million for the three months ended March 31, 2023.

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

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

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

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

After an evaluation of these factors, we recorded no provision for credit losses for the three months ended March 31, 2024, compared to a provision of $7,000 for the three months ended March 31, 2023. Our allowance for credit losses was $8.6 million at March 31, 2024, and $8.9 million at December 31, 2023 . The allowance for credit losses to total loans was 1.27% at March 31, 2024 compared to 1.35% at December 31, 2023. The allowance for credit losses to non-performing loans was 120.0% at March 31, 2024 compared to 120.1% at December 31, 2023. Net charge-offs were $326,000 for the three months ended March 31, 2024, compared to net loan chargeoffs of $91,000 for the three months ended March 31, 2023.

To the best of our knowledge, we have recorded all credit losses that are both probable and reasonable to estimate at March 31, 2024. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for credit losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process

of establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

Non-interest Income. Non-interest income increased $32,000, or 5.8%, to $584,000 for the three months ended March 31, 2024 from $552,000. There were no material changes in any categories of non-interest income.

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

Three Months Ended March 31, Change
2024 2023 Amount Percent
(Dollars in thousands)
Salaries and employee benefits $ 3,179 $ 3,004 $ 175 5.8 %
Occupancy 618 644 (26 ) (4.0 )%
Data processing 511 493 18 3.7 %
Other 1,262 1,053 209 19.8 %
Total non-interest expenses $ 5,570 $ 5,194 $ 376 7.2 %

Salaries and employee benefits expense increased related to stock compensation for restricted stock and stock options that were issued in 2023. Other expenses increased $209,000 related to increases in professional fees and FDIC insurance premiums.

Income Tax Expense. We recorded income tax expense of $428,000 for the three months ended March 31, 2024 compared to $527,000 for the three months ended March 31, 2023. The effective tax rate was 24.3% and 23.4% for the respective periods.

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Management Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

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

• growing our volume of transaction deposit accounts;

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

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

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

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

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

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

The table below sets forth, as of March 31, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

Change in Interest Rates <br>(basis points) (1) Net Interest Income<br>Year 1 Forecast Year 1 Change<br>from Level
(Dollars in thousands)
+400 $ 31,385 0.64 %
+200 31,395 0.68 %
Level 31,184 —
-200 29,951 (3.95 )%
-400 27,392 (12.16 )%

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

The table above indicates that at March 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 0.68% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would have experienced a 3.95% decrease in net interest income. At March 31, 2023, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 3.71% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would have experienced a 8.82% decrease in net interest income.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Atlanta. At March 31, 2024, we had a $219.2 million line of credit with the Federal Home Loan Bank of Atlanta, with advances of $40.0 million outstanding and a $12.5 million letter of credit outstanding, and we had a $5.0 million unsecured federal funds line of credit, a $7.5 million unsecured federal funds line of credit, and a $20.0 million unsecured federal funds line of credit. We also have a line of $76.8 million with the Federal Reserve Bank secured by $101.9 million in loans and investment securities. At March 31, 2024, we had $11.8 million outstanding under the Federal Reserve Bank Term Funding Program.

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

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $1.2 million for the three months ended March 31, 2024, compared to $2.0 million for the three months ended March 31, 2023. Net cash used in investing activities was $14.7 million for the three months ended March 31, 2024, compared to $29.2 million for the three months ended March 31, 2023. Net cash used in investing activities typically consists primarily of disbursements for loan originations and purchases of investment securities. Net cash provided by financing activities, which consists primarily of activity in deposit accounts and proceeds/repayments of FHLB advances, and a stock repurchase program, was $24.8 million for the three months ended March 31, 2024 which included borrowing $11.8 million from the Federal Reserve Bank compared to net cash provided by financing activities of $137.8 million for the three months ended March 31, 2023,which included repaying $20.0 million of FHLB borrowings, borrowing $65.0 million in FHLB advances and repurchasing stock of $867,000.

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

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

For Capital To Be Well Capitalized
Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2024:
Common Equity Tier 1 (to Risk Weighted Assets) $ 97,306 12.50 % $ 35,030 4.50 % $ 50,599 6.50 %
Total Capital (to Risk Weighted Assets) 106,500 13.68 % 62,281 8.00 % 77,851 10.00 %
Tier I Capital (to Risk Weighted Assets) 97,306 12.50 % 46,707 6.00 % 62,281 8.00 %
Tier I Capital (to Average Assets) 97,306 11.53 % 33,758 4.00 % 42,197 5.00 %
As of December 31, 2023:
Common Equity Tier 1 (to Risk Weighted Assets) $ 95,335 12.41 % $ 34,570 4.50 % $ 49,934 6.50 %
Total Capital (to Risk Weighted Assets) 104,858 13.65 % 61,455 8.00 % 76,819 10.00 %
Tier I Capital (to Risk Weighted Assets) 95,335 12.41 % 46,093 6.00 % 61,455 8.00 %
Tier I Capital (to Average Assets) 95,335 11.27 % 33,837 4.00 % 42,296 5.00 %

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At March 31, 2024, we had outstanding

commitments to originate loans of $75.5 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in less than one year from March 31, 2024 totaled $81.5 million. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2024, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 1. Legal Proceedings

We are not involved in any pending legal proceedings as a defendant other than routine legal proceedings occurring in the ordinary course of business. At March 31, 2024, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

Item 1A. Risk Factors

Not applicable for smaller reporting companies.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit
Number Description
3.1 Charter of Affinity Bancshares, Inc. (1)
3.2 Bylaws of Affinity Bancshares, Inc. (2)
3.3 Amendment to Bylaws of Affinity Bancshares, Inc. (3)
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0 The following materials for the quarter ended September 30, 2023, formatted in inline XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Comprehensive (Loss) Income, (iv) Statements of Changes in Stockholders’ Equity, (v) Statements of Cash Flows, and (vi) Notes to Financial Statements
104.0 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

(1) Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215041).

(2) Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215041).

(3) Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 31, 2017 (Commission File No. 001-38074).

SIGNATURES

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

AFFINITY BANCSHARES, INC.
Date: May 9, 2024 /s/ Edward J. Cooney
Edward J. Cooney
President and Chief Executive Officer
Date: May 9, 2024 /s/ Brandi Pajot
Brandi Pajot
Senior Vice President and Chief Financial Officer

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Edward J. Cooney, certify that:

  1. I have reviewed this Quarterly Report on Form 10-Q of Affinity Bancshares, Inc.;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  1. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2024 /s/ Edward J. Cooney
Edward J. Cooney
President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Brandi Pajot, certify that:

  1. I have reviewed this Quarterly Report on Form 10-Q of Affinity Bancshares, Inc.;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  1. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2024 /s/ Brandi Pajot
Brandi Pajot
Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Edward J. Cooney, Chief Executive Officer of Affinity Bancshares, Inc. (the “Company”), and Brandi Pajot, Senior Vice President and Chief Financial Officer of the Company, each certify in his or her capacity as an executive officer of the Company that he or she has reviewed the quarterly report on Form 10-Q for the quarter ended March 31, 2024 (the “Report”) and that to the best of his or her knowledge:

  1. the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

  2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2024 /s/ Edward J. Cooney
Edward J. Cooney
President and Chief Executive Officer
Date: May 9, 2024 /s/ Brandi Pajot
Brandi Pajot
Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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