Operating Summary

Net Income

The key components of Affinity’s net income included net interest margin, provision for credit losses, other income, operating expenses and provision for income taxes.

Affinity achieved a record net income result in 2022, closing the year at $119.5 million ($51.2 million normalized).

Net Interest Margin

Net interest margin represents the revenue Affinity earns through financial intermediation. Loan and deposit growth combined with the level of interest rates directly influence improvements to the net interest margin. Through 2022 Affinity reported higher interest income from loans and investments due to rising rates but also experienced higher interest expense resulting from rising deposit rates for members. Year over year, the net interest margin grew by $2 million to $152.5 million.

As a percentage of average assets, net interest margin was 2.17% which was 4 basis points lower than 2.26% in 2021. The declining margin as a percentage of average assets is strategically aligned to the credit union’s commitment to return exceptional value to members in the form of competitive rates.

Provision for Credit Losses

The provision for credit losses is an estimate of the credit union’s potential losses, due to credit risk. Affinity’s sound credit underwriting processes coupled with effective loan rehabilitation practices, limited Affinity’s provision for credit losses to $2 million in 2022.

Credit quality improved in 2022 with overall delinquency greater than 90 days finishing the year at 0.37% of total loans compared to 0.53% in the previous year. The commercial portfolio saw the largest improvement between years with delinquency dropping from 0.81% in 2021 to 0.47% in 2022, a 34-basis point decrease. Consumer and agricultural portfolios also fared better in 2022.

Other Income

Other income includes service fee revenues, returns from wealth advisory services, regular dividends, as well as diversification revenues from insurance operations and gains from the credit union’s venture capital investments.

Operating expenses as a percentage of average assets increased by 2 basis points from 1.87% in 2021 to 1.89% in 2022.

Provision for Income Tax

Provision for income tax is the estimated amount of corporate income taxes based on the earnings from each subsidiary and then reported on a consolidated basis by Affinity. This provision includes both a current, as well as a deferred portion. The income before income tax exclusive of the Concentra-related dividend of $68.3 million is lower than that achieved for 2021, resulting in a year over year decrease in income tax provision. At the end of 2022, the provision for income tax was $17.2 million, which was $6.1 million lower than 2021. The Concentra-related dividend was not subject to tax.

Affinity closed 2022 with a strong $119.1 million in other income, which was a $62.5 million betterment over 2021. $68.3 million of this increase was due to the dividend from the sale of Concentra Bank which was partially offset by lower fee income.

Operating Expenses

Affinity’s operating expenses include the broad categories encompassed by personnel, general business, occupancy, organizational and security. Affinity’s operating cost structure experienced inflationary pressures in the second half of 2022. Affinity reported operating expenses of $132.8 million – an $8.6 million or 6.9% increase in operating costs over 2021.