Overview of Affinity Bank’s Financial Performance

Affinity Bank, a regional financial institution, has released its annual financial report for the year ended December 31, 2024. The report highlights the bank’s financial condition and operating results, providing insights into its performance over the past year.

Total assets for Affinity Bank increased by $23.6 million, or 2.8%, to $866.8 million at the end of 2024. This growth was primarily driven by an $54.7 million, or 8.4%, increase in net loans, which offset decreases in cash, cash equivalents, and investments.

However, the bank’s net income declined by $1.0 million, or 15.6%, to $5.4 million for the year. This decrease was due to higher deposit costs, non-interest expenses, and provisions for credit losses, as well as a drop in non-interest income, which were only partially offset by an increase in interest income.

Revenue and Profit Trends

Affinity Bank’s interest income grew by $5.3 million, or 12.3%, to $48.0 million in 2024. This was primarily driven by a $5.9 million increase in interest income on loans, as the bank’s average loan balance increased by $27.4 million, or 4.2%, and the average yield on loans rose by 64 basis points to 6.01%.

In contrast, interest expense increased by $3.3 million, or 21.3%, to $18.8 million. This was due to higher costs across all deposit products, particularly certificates of deposit and money market accounts, as well as increased borrowing costs. The bank’s net interest margin improved from 3.35% in 2023 to 3.54% in 2024, reflecting the higher yields on interest-earning assets.

Non-interest income decreased by $451,000, or 18.3%, to $2.0 million, mainly due to a $385,000 increase in losses on the sale of securities. Non-interest expenses, on the other hand, rose by $2.4 million, or 11.5%, to $23.8 million, primarily due to higher salaries, employee benefits, and professional fees related to a recently terminated merger transaction.

The bank’s provision for credit losses increased from a recovery of $42,000 in 2023 to a provision of $438,000 in 2024, reflecting a more conservative approach to managing credit risk. Income tax expense decreased by $399,000, or 20.6%, to $1.5 million, in line with the decline in pre-tax income.

Strengths and Weaknesses

One of Affinity Bank’s key strengths is its diversified loan portfolio, which has seen growth across various segments, including non-owner-occupied commercial real estate, consumer loans, and construction loans. This diversification helps to mitigate concentration risk and supports the bank’s overall profitability.

However, the bank’s reliance on higher-cost deposit products, such as certificates of deposit and money market accounts, has put pressure on its net interest margin. Additionally, the increase in non-interest expenses, particularly related to the terminated merger, has weighed on the bank’s bottom line.

Another potential weakness is the bank’s exposure to interest rate risk. While Affinity Bank has implemented strategies to manage this risk, such as limiting its reliance on non-core funding sources and growing its transaction deposit accounts, it remains vulnerable to changes in market interest rates, which could further impact its net interest income and margin.

Outlook and Future Considerations

Looking ahead, Affinity Bank’s management will need to focus on improving its profitability by carefully managing its funding costs, optimizing its loan portfolio, and controlling non-interest expenses. The bank’s adoption of the Current Expected Credit Loss (CECL) accounting standard in 2023 may also impact its future provision for credit losses and the adequacy of its allowance for credit losses.

Additionally, the bank’s liquidity position and capital levels will be crucial in supporting its growth and weathering any potential economic challenges. Affinity Bank’s strong liquidity ratio and well-capitalized status provide a solid foundation, but the management team will need to continue monitoring these metrics closely.

Overall, Affinity Bank’s financial performance in 2024 was mixed, with growth in assets and interest income offset by declines in net income and non-interest income. The bank’s management will need to address its funding and expense challenges while leveraging its diversified loan portfolio and prudent risk management practices to improve profitability and shareholder value in the years ahead.