Acquisition

9 Months Ended

Sep. 30, 2020

(2)	Acquisition

On January 10, 2020, the Company consummated its merger with ABB Financial Group, Inc. (“ABB”) pursuant to the Agreement and Plan of Merger by and between the Company and ABB dated August 19, 2019, (the “Merger Agreement”), whereby ABB was merged with and into the Company, and Affinity Bank, ABB’s wholly owned commercial bank subsidiary serving Cobb County, Georgia and Fulton County, Georgia and surrounding counties, was merged with and into Newton Federal Bank. System integration was completed September 18^th, 2020. Affinity Bank operated one branch office in Cobb County, Georgia and one loan production office in Fulton County, Georgia.

The purpose of the merger was for strategic reasons beneficial to the Company. The acquisition is consistent with its plan to drive growth and efficiency through increased scale, leverage the strengths of each bank across the combined customer base, enhance profitability, and add shareholder value.

Under the terms of the Merger Agreement, each outstanding share of ABB common stock was converted into the right to receive $7.50 in cash, for a total paid of $40.3 million in cash with no stock issued. Pre-existing ABB equity awards (restricted stock units and stock options) immediately vested upon consummation of the merger. The Company paid $2.7 million reflecting the net value for the vested ABB restricted stock outstanding at the consummation of the merger.

The Company accounted for the transaction under the acquisition method of accounting, and thus, the financial position and results of operations of ABB prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of core deposit intangibles, securities, premises and equipment, loans, other real estate owned, bank owned life insurance and other assets, deposits, debt and deferred taxes with the assistance of third-party valuations, appraisals, and third-party advisors. The estimated fair values will be subject to refinement as additional information relative to the closing date fair values becomes available through the measurement period of approximately one year from consummation.

The fair value of the assets acquired and liabilities assumed on January 10, 2020 was as follows:

	As recorded by		Fair Value			As recorded by
	ABB		Adjustments			CFBI
			(in thousands)

Cash, cash equivalents and securities available-for-sale	$	41,561	$	—		$	41,561
Loans		264,176		(2,327	)		261,849
Other real estate owned		790		—			790
Core deposit intangible		—		1,913			1,913
Fixed assets and other assets		11,629		—			11,629
Total assets acquired		318,156		(414	)		317,742

Deposits		249,049		265			249,314
Borrowings and other liabilities		37,764		1,654			39,418
Total liabilities acquired		286,813		1,919			288,732

Excess of assets acquired over liabilities acquired		31,343		(2,333	)		29,010

Purchase price							40,338
Net assets acquired							29,010
Less preferred stock redeemed							(5,891	)
Net assets acquired less preferred stock							23,119
Goodwill						$	17,219

The following unaudited pro forma information presents the results of operations for nine months ended September 30, 2020 and 2019, as if the acquisition had occurred January 1 of each period. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts. These unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.

	Nine Months Ended September 30,
	2020		2019
	(In thousands except per share data)

Total revenues, net of interest expense	$	20,083	$	18,489
Net income		591		2,223
Diluted earnings per share		0.08		0.30

Community First Bancshares, Inc. 10-Q