Affinity Bancshares (AFBI) S-1IPO registration

Exhibit 99.3

PRO FORMA VALUATION REPORT

SECOND-STEP CONVERSION

Affinity Bancshares, Inc. | Covington, Georgia

PROPOSED HOLDING COMPANY FOR:

Newton Federal Bank | Covington, Georgia

Dated as of August 10, 2020

1311-A Dolley Madison Boulevard

Suite 2A

McLean, Virginia 22101

703.528.1700

rpfinancial.com

August 10, 2020

Boards of Directors

Community First Bancshares, MHC

Community First Bancshares, Inc.

Affinity Bancshares, Inc.

Newton Federal Bank

3175 Highway 278

Covington, Georgia 30014

Members of the Boards of Directors:

At your request, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of the common stock which is to be issued in connection with the mutual-to-stock conversion transaction described below.

This Appraisal is furnished pursuant to the requirements stipulated in the Code of Federal Regulations and has been prepared in accordance with the “Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization” (the “Valuation Guidelines”) of the Office of Thrift Supervision (“OTS”) and accepted by the Federal Reserve Board (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency (“OCC”), and applicable regulatory interpretations thereof.

Description of Plan of Conversion

On September 8, 2020, the Boards of Directors of Community First Bancshares, MHC (the “MHC”) and Community First Bancshares, Inc. (“CFBI”) adopted a plan of conversion whereby the MHC will convert to stock form. As a result of the conversion, CFBI, which currently owns all of the issued and outstanding common stock of Newton Federal Bank (the “Bank”), will be succeeded by a new Maryland corporation with the name of Affinity Bancshares, Inc. (“Affinity Bancshares” or the “Company”). Following the conversion, the MHC will no longer exist. For purposes of this document, the existing consolidated entity will hereinafter also be referred to as Affinity Bancshares or the Company, unless otherwise identified as CFBI. As of June 30, 2020, the MHC had a majority ownership interest in, and its principal asset consisted of, approximately 53.77% of the common stock (the “MHC Shares”) of CFBI. The remaining 46.23% of CFBI’s common stock is owned by public stockholders.

It is our understanding that Affinity Bancshares will offer its stock, representing the majority ownership interest held by the MHC, in a subscription offering to Eligible Account Holders, Tax-Qualified Employee Benefit Plans including the Bank’s employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and Other Members. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to the public at large in a

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August 10, 2020

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community offering and a syndicated community offering. Upon completing the mutual-to-stock conversion and stock offering (the “second-step conversion”), the Company will be 100% owned by public shareholders, the publicly-held shares of CFBI will be exchanged for shares in the Company at a ratio that retains their ownership interest at the time the conversion is completed and the MHC assets will be consolidated with the Company.

RP^® Financial, LC.

RP^® Financial, LC. (“RP Financial”) is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. We believe that, except for the fee we will receive for the Appraisal, we are independent of the Company, CFBI, the Bank, the MHC and the other parties engaged by the Bank or the Company to assist in the second-step conversion process.

Valuation Methodology

In preparing our Appraisal, we have reviewed the regulatory applications of the Company, the Bank and the MHC, including the prospectus as filed with the FRB and the Securities and Exchange Commission (“SEC”). We have conducted a financial analysis of the Company, the Bank and the MHC that has included a review of audited financial information for the fiscal years ended September 30, 2015 through December 31, 2019, a review of various unaudited information and internal financial reports through June 30, 2020, and due diligence related discussions with the Company’s management; Wipfli LLP, the Company’s independent auditor; Luse Gorman, PC, the Company’s conversion counsel and Performance Capital Partners, LLC, the Company’s marketing advisor in connection with the stock offering. All assumptions and conclusions set forth in the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.

We have investigated the competitive environment within which Affinity Bancshares operates and have assessed Affinity Bancshares’ relative strengths and weaknesses. We have kept abreast of the changing regulatory and legislative environment for financial institutions and analyzed the potential impact on Affinity Bancshares and the industry as a whole. We have analyzed the potential effects of the stock conversion on Affinity Bancshares’ operating characteristics and financial performance as they relate to the pro forma market value of Affinity Bancshares. We have analyzed the assets held by the MHC, which will be consolidated with Affinity Bancshares’ assets and equity pursuant to the completion of the second-step conversion. We have reviewed the economic and demographic characteristics of the Company’s primary market area. We have compared Affinity Bancshares’ financial performance and condition with selected publicly-traded thrifts in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed the current conditions in the securities markets in general and the market for thrift stocks in particular, including the market for existing thrift issues, initial public offerings by thrifts and thrift holding companies and second-step conversion offerings. We have excluded from such analyses thrifts subject to announced or rumored acquisition, and/or institutions that exhibit other unusual characteristics.

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August 10, 2020

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The Appraisal is based on Affinity Bancshares’ representation that the information contained in the regulatory applications and additional information furnished to us by Affinity Bancshares and its independent auditor, legal counsel and other authorized agents are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by Affinity Bancshares, or its independent auditor, legal counsel and other authorized agents nor did we independently value the assets or liabilities of Affinity Bancshares. The valuation considers Affinity Bancshares only as a going concern and should not be considered as an indication of Affinity Bancshares’ liquidation value.

Our appraised value is predicated on a continuation of the current operating environment for Affinity Bancshares and for all thrifts and their holding companies. Changes in the local, state and national economy, the legislative and regulatory environment for financial institutions and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the value of Affinity Bancshares’ stock alone. It is our understanding that there are no current plans for selling control of Affinity Bancshares following completion of the second-step conversion. To the extent that such factors can be foreseen, they have been factored into our analysis.

The estimated pro forma market value is defined as the price at which Affinity Bancshares’ common stock, immediately upon completion of the second-step stock offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

In preparing the pro forma pricing analysis we have taken into account the pro forma impact of the MHC’s net assets (i.e., unconsolidated equity) that will be consolidated with the Company and thus will slightly increase equity. After accounting for the impact of the MHC’s net assets, the public shareholders’ ownership interest was reduced by approximately 0.09%. Accordingly, for purposes of the Company’s pro forma valuation, the public shareholders’ pro forma ownership interest was reduced from 46.23% to 46.14% and the MHC’s ownership interest was increased from 53.77% to 53.86%.

Valuation Conclusion

It is our opinion that, as of August 10, 2020, the estimated aggregate pro forma valuation of the shares of the Company to be issued and outstanding at the end of the conversion offering – including (1) newly-issued shares representing the MHC’s current ownership interest in the Company and (2) exchange shares issued to existing public shareholders of CFBI – was $51,989,740 at the midpoint, equal to 5,198,974 shares at $10.00 per share. The resulting range of value and pro forma shares, all based on $10.00 per share, are as follows: $44,191,280 or 4,419,128 shares at the minimum, $59,788,200 or 5,978,820 shares at the maximum and $68,756,430 or 6,875,643 shares at the super maximum.

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August 10, 2020

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Based on this valuation and taking into account the ownership interest represented by the shares owned by the MHC, the midpoint of the offering range is $28,000,000 equal to 2,800,000 shares at $10.00 per share. The resulting offering range and offering shares, all based on $10.00 per share, are as follows: $23,800,000 or 2,380,000 shares at the minimum, $32,200,000 or 3,220,000 shares at the maximum and $37,030,000 or 3,703,000 shares at the super maximum,

Establishment of the Exchange Ratio

The conversion regulations provide that in a conversion of a mutual holding company, the minority stockholders are entitled to exchange the public shares for newly issued shares in the fully converted company. The Boards of Directors of the MHC and CFBI have independently determined the exchange ratio, which has been designed to preserve the current aggregate percentage ownership in the Company (adjusted for the dilution resulting from the consolidation of the MHC’s unconsolidated equity into the Company). The exchange ratio to be received by the existing minority shareholders of the Company will be determined at the end of the offering, based on the total number of shares sold in the offering and the final appraisal. Based on the valuation conclusion herein, the resulting offering value and the $10.00 per share offering price, the indicated exchange ratio at the midpoint is 0.6854 shares of the Company’s stock for every one share held by public shareholders. Furthermore, based on the offering range of value, the indicated exchange ratio is 0.5826 at the minimum, 0.7882 at the maximum and 0.9064 at the super maximum. RP Financial expresses no opinion on the proposed exchange of newly issued Company shares for the shares held by the public stockholders or on the proposed exchange ratio.

Limiting Factors and Considerations

The valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such valuation is determined in accordance with applicable regulatory guidelines and is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion offering, or prior to that time, will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof. The appraisal reflects only a valuation range as of this date for the pro forma market value of Affinity Bancshares immediately upon issuance of the stock and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such securities or at anytime thereafter following the completion of the second-step conversion.

RP Financial’s valuation was based on the financial condition, operations and shares outstanding of CFBI as of June 30, 2020, the date of the financial data included in the prospectus. The proposed exchange ratio to be received by the current public stockholders of CFBI and the exchange of the public shares for newly issued shares of Affinity Bancshares’ common stock as a full public company was determined independently by the Boards of Directors of the MHC and CFBI. RP Financial expresses no opinion on the proposed exchange ratio to public stockholders or the exchange of public shares for newly issued shares.

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RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its client institutions.

This valuation may be updated as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the financial performance and condition of Affinity Bancshares, management policies, and current conditions in the equity markets for thrift shares, both existing issues and new issues. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the legislative and regulatory environment for financial institutions, the stock market and the market for thrift stocks, and interest rates. Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in the update at the date of the release of the update. The valuation will also be updated at the completion of Affinity Bancshares’ stock offering.

TABLE OF CONTENTS

AFFINITY BANCSHARES, INC.

NEWTON FEDERAL BANK

Covington, Georgia

TABLE OF CONTENTS

AFFINITY BANCSHARES, INC.

NEWTON FEDERAL BANK

Covington, Georgia

(continued)

LIST OF TABLES

AFFINITY BANCSHARES, INC.

NEWTON FEDERAL BANK

Covington, Georgia

I. OVERVIEW AND FINANCIAL ANALYSIS

Introduction

Newton Federal Bank (the “Bank”), founded in 1928, is a federally chartered stock savings association. The Bank currently conducts operations from the main office in Covington, Georgia and two branch offices, which are located in Covington, Georgia and Atlanta, Georgia. Covington, which is 35 miles east of Atlanta and 47 miles south of Athens, Georgia, is located in Newton County and the Atlanta branch is located in, Cobb County. The Bank also maintains an operations center in Covington and commercial loan production offices in Alpharetta, Georgia, which is in Fulton County, and Braselton, Georgia, which is in Jackson County. On October 1, 2018, the Bank opened its indirect auto lending division, Community First Auto, which operates out of the operations center. The Bank is subject to regulation and oversight by the Office of the Comptroller of the Currency (“OCC”) and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) system, and its deposits are insured up to the regulatory maximums by the Federal Deposit Insurance Corporation (the “FDIC”). A map of the Bank’s main and branch office locations is included as Exhibit I-1.

Community First Bancshares, Inc. (“CFBI”) is a federal is the federally chartered mid-tier holding company of the Bank and owns 100% of the outstanding common stock of the Bank. CFBI was organized in 2017 and has since been engaged primarily in the business of holding the common stock of the Bank. CFBI completed its initial public offering in April 2017, pursuant to which it sold 3,467,595 shares or 46.0% of its outstanding common stock to the public and issued 4,070,655 shares or 54.0% of its common stock outstanding to Community First Bancshares, MHC (the “MHC”). The MHC and CFBI are subject to supervision and regulation by the Federal Reserve Federal Reserve Board. At June 30, 2020, CFBI had total consolidated assets of $906.4 million, deposits of $625.8 million and equity of $77.2 million or 8.52% of total assets. Excluding goodwill and core deposit intangibles of $19.0 million, CFBI’s tangible equity equaled $58.2 million or 6.42% of total assets at June 30, 2020. CFBI’s audited financial statements for the most recent period are included by reference as Exhibit I-2.

Plan of Conversion

On September 8, 2020, the respective Board of Directors of the MHC and CFBI adopted a Plan of Conversion, whereby the MHC will convert to stock form. As a result of the conversion, CFBI, which currently owns all of the issued and outstanding common stock of the Bank, will be succeeded by Affinity Bancshares, Inc. (“Affinity Bancshares” or the “Company”), a newly formed Maryland corporation. Following the conversion, the MHC will no longer exist. For purposes of this document, the existing consolidated entity will also hereinafter be also referred to as Affinity Bancshares or the Company, unless otherwise identified as CFBI. As of June 30, 2020, the MHC had a majority ownership interest of approximately 53.77% in and its principal asset consisted of 4,070,655 common stock shares of CFBI (the “MHC Shares”). The remaining 3,500,142 shares or approximately 46.23% of CFBI’s common stock was owned by public shareholders.

It is our understanding that Affinity Bancshares will offer its stock, representing the majority ownership interest held by the MHC, in a subscription offering to Eligible Account Holders, Tax-Qualified Plans including the Bank’s employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and Other Members. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to the public at large in a community offering and a syndicated community offering. Upon completing the mutual-to-stock conversion and stock offering (the “second-step conversion”), the Company will be 100% owned by public shareholders, the publicly-held shares of CFBI will be exchanged for shares in the Company at a ratio that retains their ownership interest at the time the conversion is completed and the MHC assets will be consolidated with the Company.

Strategic Overview

Affinity Bancshares maintains a local community banking emphasis, with a primary strategic objective of meeting the borrowing and savings needs of its local customer base. The Bank is pursuing a strategy of strengthening its community bank franchise dedicated to meeting the banking needs of business and retail customers in the communities that are served by the Bank. Growth strategies are emphasizing increased lending diversification that is primarily targeting growth of commercial real estate and commercial business loans. The Bank’s objective is to fund asset growth primarily through deposit growth, emphasizing growth of lower

cost core deposits. Core deposit growth is expected to be in part facilitated by growth of commercial lending relationships, pursuant to which the Bank is seeking to establish a full service banking relationship with its commercial loan customers through offering a full range of commercial loan products that can be packaged with lower cost commercial deposit products.

As a means to accelerate the building of a full-service community banking franchise, Affinity Bancshares acquired a similarly sized institution based in Atlanta, Georgia. On January 10, 2020, Affinity Bancshares and the Bank completed their acquisition of ABB Financial Group, Inc. (“ABB Financial”) and its wholly owned subsidiary, Affinity Bank. The acquisition was an all-cash transaction, with total consideration paid in the transaction approximating $40.3 million. In addition, pursuant to the terms of the acquisition, $5.9 million of preferred stock that had been issued by ABB Financial was redeemed and $1.4 million of trust preferred securities issued by a subsidiary of ABB Financial were acquired by Affinity Bancshares and canceled. Through the acquisition of ABB Financial, the Company expanded its market presence in the Atlanta metropolitan area and significantly increased it commercial lending platform. As of December 31, 2019, ABB Financial had total assets of $327.6 million, net loans receivable of $258.0 million and deposits of $253.1 million.

The acquisition of ABB Financial was done for strategic reasons in support of its plan to drive growth and efficiency through increase scale, leverage the strengths of each institutions across the combine customer base, improve profitability and enhance liquidity and shareholder value.

Investments serve as a supplement to the Company’s lending activities and the investment portfolio is considered to be indicative of a low risk investment philosophy. U.S. Government agency mortgage-backed securities constitute the largest portion of the Company’s investment portfolio, with other investments consisting of U.S. Government agency securities and trust preferred securities.

Deposits have consistently served as the primary funding source for the Company, while the Company’s utilization of borrowings was fairly limited prior to the acquisition of ABB Financial. Core deposits, consisting of transaction and savings account deposits constitute the largest portion of the Company’s deposit base. In the first quarter of 2020 borrowings were added in connection with the acquisition of ABB Financial’s borrowings, along with FHLB advances that were added by the Company for purposes of funding a portion of ABB Financial’s merger consideration. During the six months ended June 30, 2020, the Bank added borrowings

from the Federal Reserve Bank of Atlanta to fund Payroll Protection Program (“PPP”) loans under the U.S. CARES Act (the Payroll Protection Program Liquidity Facility). On June 30, 2020, the Company borrowed $5.0 million from another financial institution for purposes of increasing the Bank’s regulatory capital.

Affinity Bancshares’ earnings base is largely dependent upon net interest income and operating expense levels. The Company has consistently maintained a relatively strong net interest margin, which has been largely realized through earning a relatively high yield on interest-earning assets. However, the Company has experienced some net interest margin compression in recent periods, which has been the result of both a decline in yield and an increase in funding costs. Operating expense ratios have also been maintained at relatively high levels as percent of average assets and have trended higher in recent years, although assets added with the acquisition of ABB Financial and asset growth generated from the origination and funding of PPP loans provided for some leveraging of operating expenses for the twelve months ended June 30, 2020. Non-interest operating income has been a fairly stable but somewhat limited contributor to the Company’s earnings, reflecting limiting diversification into fee-based products and services. Loan loss provisions were not a factor in the Company’s earnings over the past several fiscal years, with the exception of fiscal year 2018. However, the Company established additional loan loss provisions during the first two quarters of 2020, which was done largely to address the potential deterioration in loan portfolio credit quality that may result from the economic disruption in the Company’s lending markets caused by the COVID-19 pandemic.

A key component of the Company’s business plan is to complete a second-step conversion offering. The Company’s strengthened capital position will increase operating flexibility and facilitate implementation of planned growth strategies. Additionally, in the near term, the second-step offering will serve to substantially increase regulatory capital and liquidity and, thereby, facilitate building and maintaining loss reserves while also providing the Company with greater flexibility to work with borrowers affected by the COVID-19-induced recession. The Company’s strengthened capital position will also provide more of a cushion against potential credit quality related losses in future periods. Affinity Bancshares’ higher capital position resulting from the infusion of stock proceeds will also serve to reduce interest rate risk, particularly through enhancing the Company’s interest-earning assets/interest-bearing liabilities (“IEA/IBL”) ratio. The additional funds realized from the stock offering will raise the level of interest-earning assets funded with equity and, thereby, reduce the ratio of interest-earning

assets funded with interest-bearing liabilities as the balance of interest-bearing liabilities will initially remain relatively unchanged following the conversion, which may facilitate a reduction in Affinity Bancshares’ funding costs. Notably, as a fully-converted institution, the Company’s stronger capital position and greater capacity to offer stock as consideration for an acquisition may facilitate increased opportunities to grow through acquisitions. At this time, the Company has no specific plans for expanding through additional acquisitions.

The projected uses of proceeds are highlighted below.

Overall, it is the Company’s objective to pursue growth that will serve to increase returns, while, at the same time, growth will not be pursued that could potentially compromise the overall risk associated with Affinity Bancshares’ operations.

Balance Sheet Trends

Table 1.1 shows the Company’s historical balance sheet data for the past six fiscal yearends and as of June 30, 2020. On October 25, 2018, both the Company and the Bank changed their fiscal yearend from September 30 to December 31. Since fiscal yearend 2015, the Company’s assets have trended higher throughout the period covered in Table 1.1 with the most significant growth occurring in the first half of 2020 pursuant to the acquisition of ABB Financial and the origination and funding of PPP loans. Overall, assets increased at an annual rate of 33.92% from fiscal yearend 2015 through June 30, 2020. Asset growth was primarily driven by loan growth and mostly funded by deposit growth, including the acquisition of ABB Financial’s loan portfolio and deposits. Borrowings were a more significant funding source for the Company during the first half of 2020, which includes borrowings that were added by Affinity Bancshares to fund the acquisition as well as borrowings acquired from ABB Financial, the borrowings obtained from the Federal Reserve Bank to fund the PPP loan and the borrowing added by the Company. A summary of Affinity Bancshares’ key operating ratios for the past six fiscal years and the six months ended June 30, 2020 is presented in Exhibit I-3.

Table 1.1

Affinity Bancshares, Inc.

Historical Balance Sheet Data

Sources: Affinity Bancshares' prospectus tables, audited and unaudited financial statements and RP Financial calculations.

Affinity Bancshares’ loans receivable portfolio increased at a 32.03% annual rate from fiscal yearend 2015 through June 30, 2020, with the loan portfolio exhibiting the most significant growth in 2020 as the result of the acquisition of ABB Financial and the origination of $130.2 million of PPP loans during the six months ended June 30, 2020. The Company’s comparatively stronger asset growth relative to loan growth provided for a decrease the loans-to-assets ratio from 75.02% at fiscal yearend 2015 to 70.13% at June 30, 2020.

Commercial real estate loans, including multi-family loans, and commercial business loans have been the most significant areas of loan growth since fiscal yearend 2015, which was largely related to the acquisition of ABB Financial’s loan portfolio and the origination of the PPP loans during the first half of 2020. Consumer loan growth accelerated in 2019 and the first half of 2020, which was primarily due to growth of indirect automobile loans after Community First Auto opened an office in Covington, Georgia in October 2018. Overall, trends in the Company’s loan portfolio composition since fiscal yearend 2015 show that the concentration of commercial business loans increased from 8.16% of total loans to 43.80% of total loans at June 30, 2020. As of June 30, 2020, PPP loans comprised 46.42% of the commercial business loan portfolio and 20.33% of total loans outstanding. Comparatively, from fiscal yearend 2015 through June 30, 2020, commercial real estate loans increased from 13.99% of total loans to 26.82% of total loans and 1-4 family permanent mortgage loans, including home equity loans and lines of credit, decreased from 75.42% to 16.30% of total loans. Over the same time period, the relative concentrations of construction and land loans increased from 1.28% of total loans to 6.86% of total loans and consumer loans increased from 1.15% of total loans to 6.22% of total loans.

The intent of the Company’s investment policy is to provide adequate liquidity and to generate a favorable return within the context of supporting overall credit and interest rate risk objectives. It is anticipated that proceeds retained at the holding company level will primarily be invested into liquid funds held as a deposit at the Bank. Since fiscal yearend 2015, the Company’s level of cash and investment securities (inclusive of FHLB stock) ranged from a low of 14.34% of assets at fiscal yearend 2016 to a high of 23.90% of assets at June 30, 2020. The comparatively higher ratio of cash and investments maintained at June 30, 2020 was primarily due to an increase in cash and cash equivalents, as a large portion of the PPP loan funds

remained in customers’ deposit accounts. As of June 30, 2020, the Company held investment securities totaling $19.4 million or 2.14% of assets. As of June 30, 2020, the investment securities portfolio consisted of U.S. Government agency mortgage-backed securities ($12.3 million), trust preferred securities ($2.6 million) and U.S. Government agency securities ($4.5 million). As of June 30, 2020, all investment securities were maintained as available for sale and had a net unrealized gain of $237,000. Exhibit I-4 provides historical detail of the Company’s investment portfolio. The Company also held $2.8 million of FHLB stock and cash and cash equivalents of $194.4 million at June 30, 2020, equal to 0.31% of assets and 21.45% of assets, respectively.

The Company also maintains an investment in bank-owned life insurance (“BOLI”) policies, which covers the lives of certain officers and former officers of the Company. The life insurance policies earn tax-exempt income through cash value accumulation and death proceeds. As of June 30, 2020, the cash surrender value of the Company’s BOLI equaled $15.1 million or 1.67% of assets.

Affinity Bancshares’ funding needs have been addressed through a combination of deposits, borrowings and internal cash flows. From fiscal yearend 2015 through June 30, 2020, the Company’s deposits increased at a 30.50% annual rate. Most of the Company’s deposit growth was realized through the acquisition of ABB Financial in the first quarter of 2020. Deposit growth in 2020 was also augmented by funds deposited by customers who received PPP loans. The acquisition of ABB Financial’s deposits and the funds deposited by customers who received PPP loans served to increase the concentration of core deposits that comprised total deposits. Core deposits comprised 73.44% of total deposits at June 30, 2020, versus 56.13% of total deposits at September 30, 2017.

Borrowings serve as an alternative funding source for the Company to address funding needs for growth and to support management of deposit costs and interest rate risk. Prior to the acquisition of ABB Financial, the Company’s utilization of borrowings was limited and at December 31, 2019 the Company did not hold any borrowings. Borrowings obtained in ABB Financial consisted of FHLB advances and repurchase agreements. In 2020, the Company also added $20.0 million of short-term FHLB advances prior to the closing of the acquisition for purposes of funding a portion of the merger consideration, borrowings from the Federal Reserve Bank of Atlanta to fund the PPP loans and a borrowing from another financial institution. Borrowings held by the Company at June 30, 2020 totaled $198.0 million and consisted of $54.3 million of FHLB advances, $129.2 million of PPP Liquidity Facility funds and $14.5 million of repurchase agreements and other borrowings.

The Company’s equity increased at a 12.62% annual rate from fiscal yearend 2015 through June 30, 2020, with most of the growth occurring in fiscal year 2017 in connection with the capital raised in the Company’s first-step public stock offering. Largely as the result of the acquisition of ABB Financial, stronger asset growth relative to capital growth provided for a decrease in the Company’s equity-to-assets ratio from 19.41% at fiscal yearend 2015 to 8.52% at June 30, 2020. Comparatively, as the result of the goodwill and intangibles created from the acquisition of ABB Financial, the Company’s tangible equity-to-assets ratio decreased from 19.41% at fiscal yearend 2015 to 6.42% at June 30, 2020. Goodwill and other intangibles totaled $19.0 million or 2.10% of assets at June 30, 2020. The Bank maintained capital surpluses relative to all of its regulatory capital requirements at June 30, 20120. The addition of stock proceeds will serve to strengthen the Company’s capital position, as well as support growth opportunities. At the same time, the significant increase in Affinity Bancshares’ pro forma capital position will initially depress its ROE.

Income and Expense Trends

Table 1.2 shows the Company’s historical income statements for the fiscal years ended September 30, 2015 through September 30, 2018, for the year ended December 31, 2019 and for the twelve months ended June 30, 2020. During the period covered in Table 1.2, the Company’s reported earnings from a net loss of $99,000 or 0.02% of average assets for the twelve months ended June 30, 2020 to net income of $1.6 million or 0.72% of average assets for fiscal year 2015. Net interest income and operating expenses represent the primary components of the Company’s earnings, while non-interest operating income has been a fairly limited contributor to the Company’s earnings. Loan loss provisions have typically been a relatively minor factor in the Company’s earnings, but were more significant during the most recent twelve month period for purposes of addressing continued economic uncertainty resulting from the COVID-19 pandemic. Except for merger related expenses recorded in connection with the acquisition of ABB Financial, non-operating gains and losses have been a minor factor earnings factor throughout the period covered in Table 1.2

For the period covered in Table 1.2, the Company’s net interest income to average assets ratio ranged from a low of 3.56% during the twelve months ended June 30, 2020 to a

Table 1.2

Affinity Bancshares, Inc.

Historical Income Statements

Sources: Affinity Bancshares' prospectus tables, audited & unaudited financial statements and RP Financial calculations.

high of 4.39% during the fiscal year ended September 30, 2018. The decline in the Company’s net interest income ratio since the fiscal year ended September 30, 2018 has been largely attributable to interest rate spread compression that has resulted from both a decrease in yield on interest-earnings assets and an increase in the cost of interest-bearing liabilities. The decline in yield earned on interest-earning assets has been mostly due to a decline in the weighted average yield earned on loans, which was in part related to the PPP loans added in 2020 that had an average yield of 1.92% during the six months ended June 30, 2020. The increase in cost of interest-bearing liabilities has been mostly due to an increase in the weighted average cost of interest-bearing deposits. Overall, during the period covered in Table 1.2, the Company’s interest rate spread decreased from a peak of 4.49% during the fiscal year ended September 30, 2018 to a low of 3.33% during the six months ended June 30, 2020. The Company’s net interest rate spreads and yields and costs from fiscal year 2015 through the six months ended June 30, 2020 are set forth in Exhibit I-3 and Exhibit I-5.

Non-interest operating income as a percent of average assets has been a fairly stable contributor to the Company’s earnings, ranging from a low of $882,000 or 0.39% of average assets during fiscal year 2015 to a high of $1.9 million or 0.66% of average assets during fiscal year 2018. For the twelve months ended June 30, 2020, non-interest operating income amounted to $1.8 million or 0.38% of average assets. Service charges on deposit accounts is the largest source of the Company’s non-interest operating revenues.

Operating expenses represent the other major component of the Company’s earnings and have trended higher throughout the period covered in Table 1.2, increasing from $7.5 million or 3.35% of average assets during fiscal year 2015 to $15.6 million or 3.20% of average assets during the twelve months ended June 30, 2020. The increase in operating expenses reported for the twelve months ended June 30, 2020 was largely due to the increase in operating expenses resulting from the acquisition of ABB Financial’s operations. At the same time, the acquisition of ABB Financial and the PPP funding served to leverage the Company’s operating expense ratio as a percent of average assets.

Overall, the general trends in the Company’s net interest income ratio and operating expense ratio have showed a decline in core earnings, as indicated by the Company’s expense coverage ratios (net interest income divided by operating expenses). Affinity Bancshares’ expense coverage ratio equaled 1.23 times during fiscal year 2015, versus a ratio of 1.11 times during the twelve months ended June 30, 2020. Likewise, Affinity Bancshares’ efficiency ratio (operating expenses as a percent of the sum of net interest income and other operating income) of 74.12% during fiscal year 2015 was more favorable compared to an efficiency ratio of 81.22% during the twelve months ended June 30, 2020.

During the period covered in Table 1.2, loan loss provisions established by the Company ranged from no loan loss provisions during fiscal years 2015 through 2017 and for the year ended December 31, 2019 to a high of $800,000 or 0.16% of average assets during the twelve months ended June 30, 2020. Higher loan loss provisions were established during the first half of 2020 largely to address the potential negative impact that the COVID-19-induced recession may have on the Company’s financial condition and results of operations. As of June 30, 2020, the Company maintained valuation allowances of $5.0 million, equal to 0.78% of total loans and 125.78% of non-performing loans. After taking into account the $3.256 million of the fair value credit adjustment applied to ABB Financial’s loan portfolio, the Company’s reserve coverage ratios equaled 1.29% of total loans and 207.89% of non-performing loans. Exhibit I-6 sets forth the Company’s loan loss allowance activity from the fiscal year ended September 30, 2015 through the six months ended June 30, 2020.

Except for merger related expenses, non-operating income and losses have had a limited impact on the Company’s earnings during the period covered in Table 1.2 consisting of net gains and losses on the sale and write down of other real estate owned (“OREO”) and gains on the sale of investment securities. Net non-operating income and losses during the period covered in Table 1.2 ranged from a net non-operating loss of $3.2 million or 0.65% of average assets during fiscal year the twelve months ended June 30, 2020 to net non-operating gains of $11,000 or 0.00% of average assets during fiscal year 2018. For the twelve months ended June 30, 2020, the Company’s net non-operating loss consisted of $3.2 million of merger related expenses, a $104,000 loss on the sale of OREO and a $167,000 gain on the sale of investment securities. Overall, the items that comprise the Company’s non-operating income and losses are not viewed to be part of the Company’s core or recurring earnings base.

The Company’s effective tax rate ranged from 72.85% during fiscal year 2018 to a tax benefit of 73.53% during the twelve months ended June 30, 2020. The relatively high effective tax rate recorded for fiscal year 2018 includes a reduction in the value of Affinity Bancshares’ deferred tax assets and a corresponding charge to income tax expense of approximately $1.0 million (subsequently adjusted to $857,000 in June 2018) as a result of the enactment of the Tax Cuts and Jobs Act of 2017, which reduced the maximum federal corporate income tax rate to 21% from 35%. As set forth in the prospectus, the Company’s effective marginal tax rate is 26.0%.

Interest Rate Risk Management

The Company’s balance sheet is liability-sensitive in the short-term (less than one year) and, thus, the net interest margin will typically be adversely affected during periods of rising and higher interest rates. As interest rates have remained at or near historically low levels for an extended period of time, the Company has experienced interest spread compression as the average yield on interest-earning assets has been declining and the average cost of interest-bearing liabilities has been increasing. This trend became more pronounced during the first half of 2020, which was largely related to the acquisition of ABB Financial that reduced the overall yield on interest-earning assets and increased the overall cost of interest-bearing liabilities. The Company’s interest rate risk analysis indicated that as of June 30, 2020, in the event of a 200 basis point instantaneous parallel increase in the U.S. Treasury yield curve, net interest income would decline by 12.27% in year 1 and net economic value would decrease by 4.54% (see Exhibit I-7).

The Company pursues a number of strategies to manage interest rate risk, particularly with respect to seeking to limit the repricing mismatch between interest rate sensitive assets and liabilities. The Company manages interest rate risk from the asset side of the balance sheet through investing in securities with maturities of less than five years, maintaining the investment securities portfolio as available for sale and significant lending diversification into other types of lending beyond 1-4 family permanent mortgage loans which consist primarily of adjustable rate or shorter term fixed rate loans. As of June 30, 2020, ARM loans comprised 6.05% of the dollar amount of all loans due after June 30, 2021 (see Exhibit I-8). On the liability side of the balance sheet, management of interest rate risk has been pursued through emphasizing growth of lower costing and less interest rate sensitive transaction and savings account deposits. Transaction and savings account deposits comprised 73.44% of Affinity Bancshares’ total deposits at June 30, 2020.

The infusion of stock proceeds will serve to further limit the Company’s interest rate risk exposure, as most of the net proceeds will be redeployed into interest-earning assets and the increase in the Company’s capital position will lessen the proportion of interest rate sensitive liabilities funding assets.

Lending Activities and Strategy

Affinity Bancshares’ lending activities have traditionally emphasized 1-4 family residential real estate loans and, historically such loans have comprised the largest component of the Company’s loan portfolio. However, with the acquisition of ABB Financial’s loan portfolio and the origination of the PPP loans, the Company’s diversification into commercial real estate loans and commercial business loans significantly increased such that the Company’s loan portfolio composition has shifted towards higher concentrations of commercial real estate loans and commercial business loans relative to 1-4 family residential real estate loans. Other areas of lending diversification for the Company include construction and land loans and consumer loans. Exhibit I-9 provides historical detail of Affinity Bancshares’ loan portfolio composition for the fiscal years ended September 30, 2015 through December 31, 2019 and as of June 30, 2020. Exhibit I-10 provides the contractual maturity of the Company’s loan portfolio by loan type as of June 30, 2020.

Commercial Business Loans. The commercial business loan portfolio is generated through extending loans to small-to medium-sized businesses operating in the local market area. Additionally, during the first half of 2020, the Company originated $130.2 million of commercial business loans in connection with the PPP loan program. The Company’s commercial lending activities have emphasized loans to dental professionals. The majority of the Company’s dental loans are originated to professionals and practices located in the State of Georgia, with the remainder originated in contiguous states. Commercial business loans offered by the Bank include term loans and revolving lines of credit, which are originated with either adjustable or fixed rates and are indexed to The Wall Street Journal prime rate. Commercial business loans are generally secured by business assets, and the Company may support this collateral with junior liens on real property. The largest commercial business loan outstanding at June 30, 2020 totaled $2.5 million and is secured by accounts receivable. At June 30, 2020, this loan was performing in accordance with its terms. As of June 30, 2020, the Company’s outstanding balance of commercial business loans totaled $280.6 million equal to 43.80% of total loans outstanding. As of June 30, 2020, the commercial business loan portfolio included $130.2 million of PPP loans equal to 46.42% of the commercial business loan portfolio and $120.3 million of loans to dental professionals equal to 42.87% of the commercial business loan portfolio.

Commercial Real Estate Loans Commercial real estate loans consist of loans originated by the Company, which are collateralized by properties in the Company’s regional lending area. Affinity Bancshares’ originates commercial real estate loans up to a loan-to value LTV ratio of 80% and requires a minimum debt-coverage ratio of 1.20 times. Commercial real estate loans are generally originated as balloon loans with a five-year initial term and a 20-yar amortization period. The commercial real estate loan portfolio is primarily secured by dental/medical properties, church campuses and other small businesses. The largest commercial real estate loan in the Company’s loan portfolio at June 30, 2020 totaled a $3.5 million and is secured by a church campus. At June 30, 2020, this loan was preforming in accordance with its terms. As of June 30, 2020, the Company’s outstanding balance of commercial real estate loans totaled $171.8 million equal to 26.82% of total loans outstanding.

1-4 Family Residential Real Estate Loans. Affinity Bancshares offers both fixed rate and adjustable rate 1-4 family residential real estate loans with terms of up to 30 years, which are substantially secured by local properties. Loan originations are generally underwritten to secondary market guidelines, so as to provide the Company with the flexibility to sell the loans into the secondary market for purposes of managing interest rate risk. Fixed rate loans are generally offered as balloon loans with balloon terms of five, seven or ten years amortized over 30 years. As of June 30, 2020, the Company’s outstanding balance of 1-4 family residential real estate loans totaled $104.4 million or 16.30% of total loans outstanding and included $3,3 million of home equity loans and lines of credit.

Construction and Land Loans. Residential construction loans originated by the Company consist of loans to individuals for the construction of their primary residences and to contractors and builders of single- family homes. The Company also originates a limited amount of land loans to complement its construction lending activities, as such loans are generally secured by lots that will be used for residential development. Land loans also include loans secured by land purchased for investment purposes. The Company construction lending activities also include origination of commercial construction loans for commercial development projects. Most of the Company’s construction loans are originated as interest-only loans during the construction phase, which is typically up to 12 months. At the end of the construction phase, the loan may convert to a permanent mortgage loan or the loan may be paid in full. Construction loans are generally originated up to a maximum LTV ratio of 75% of the estimated market value of the property upon completion of the project. The largest construction and land loan in the Company’s loan portfolio at June 30, 2020 was for $3.5 million, of which none was outstanding. This loan, which is an SBA 504 loan, was originated in 2019 to construct a hotel in Georgia and has been funded with borrower cash. As of June 30, 2020, Affinity Bancshares’ outstanding balance of construction and land loans equaled $43.9 million or 6.86% of total loans outstanding.

Consumer Loans Historically, the Company’s diversification into consumer lending has been limited, consisting of loans offered to existing customers of the Company. In October 2018, Community First Auto opened an office in Covington, Georgia. With the opening of the Community First Auto office, growth of the consumer loan portfolio has accelerated as the result of increased originations of indirect auto loans. Community First Auto purchases retail installment sales contracts from dealerships in the states of Georgia, Tennessee, North Carolina and South Carolina. A dealership submits credit applications to Community First Auto consideration. Community First Auto fully underwrites each loan to ensure all credit policy guidelines are followed. As of June 30, 2020, Affinity Bancshares’ outstanding balance of consumer loans equaled $39.9 million or 6.22% of total loans outstanding. Indirect auto loans held in the consumer loan portfolio at June 30, 2020 totaled $36.4 million.

Asset Quality

From fiscal yearend 2015 through June 30, 2020, Affinity Bancshares’ balance of non-performing assets ranged from a low of $2.3 million or 0.74% of assets at fiscal yearend September 30, 2018 to a high of $5.2 million or 0.57% of assets at June 30, 2020. As shown in Exhibit I-11, non-performing assets at June 30, 2020 consisted of $4.0 million of non-accruing loans and $1.2 million of OREO. Non-accruing loans held by the Company at June 30, 2020 were concentrated in 1-4 family residential real estate loans ($2.8 million) and commercial business loans ($979,000). In addition, as of June 30, 2020, the Company had granted short-term payment deferrals on 842 loans totaling approximately $200.6 million in aggregate principal amount, that were otherwise performing. As of June 30, 2020, 43 of these loan, totaling $15.3 million, have returned to normal payment status.

To track the Company’s asset quality and the adequacy of valuation allowances, the Company has established detailed asset classification policies and procedures which are consistent with regulatory guidelines. Classified assets are reviewed monthly by senior management and the Board. Pursuant to these procedures, when needed, the Company establishes additional valuation allowances to cover anticipated losses in classified or non-

classified assets. As of June 30, 2030, the Company maintained loan loss allowances of $5.0 million, equal to 0.78% of total loans outstanding and 125.78% of non-performing loans. Comparatively, at December 31, 2019, the allowance for loan losses equaled 1.64% of total loans and 152.72% of non-performing loans. The decline in the ratios were largely the result of recording the ABB Financial loan portfolio at fair value with no carryover of its allowance for loan losses at the time of the merger. After taking into account the $3.256 million of the fair value credit adjustment applied to ABB Financial’s loan portfolio, the Company’s reserve coverage ratios equaled 1.29% of total loans and 207.89% of non-performing loans.

Funding Composition and Strategy

Deposits have consistently served as the Company’s primary funding source and at June 30, 2020 deposits accounted for 75.96% of Affinity Bancshares’ combined balance of deposits and borrowings. Exhibit I-12 sets forth the Company’s deposit composition from fiscal yearend 2017 through June 30, 2020. Transaction and savings account deposits constituted 73.44% of total deposits at June 30, 2020, as compared to 56.13% of total deposits at September 30, 2017. The increase in the concentration of core deposits comprising total deposits since fiscal yearend 2017 was largely related to the acquisition of ABB Financial’s deposits and the funds deposited by customers who received PPP loans. As of June 30, 2020, non-interest bearing checking accounts and money market deposit accounts comprised the two largest concentrations of the Company’s core deposits equaling 37.30% and 25.66% of core deposits, respectively.

The balance of the Company’s deposits consists of CDs, which equaled 26.56% of total deposits at June 30, 2020 compared to 43.87% of total deposits at September 30, 2017. Exhibit I-13 sets forth the maturity schedule of the Company’s CDs with balances of $250,000 or more, which shows that, as of June 30, 2020, 84.21% of those CDs were scheduled to mature in one year or less. The Company held $10.0 million of brokered CDs at June 30, 2020.

Historically, the Company’s utilization of borrowings as a funding source has been limited. In 2020, borrowings have been a more significant component of the Company’s funding composition, as the result of the acquisition of ABB Financial’s borrowings as well as borrowings that were added by Affinity Bancshares for purposes of funding the acquisition of ABB Financial, borrowings obtained from the Federal Reserve Bank of Atlanta to fund the PPP loans and a borrowing by the Company from another financial institution. Borrowings held by the Company

at June 30, 2020 totaled $198.0 million and consisted of $54.3 million of FHLB advances, $129.2 million of PPP Liquidity Facility funds and $14.5 million of repurchase agreements and other borrowings. For the six months ended June 30, 2020, the weighted average interest rate on the FHLB advances equaled 1.44%, the weighted average rate on the PPP Liquid Facility funds equaled 0.35% and the weighted average interest rate on the repurchase agreements and other borrowings equaled 0.26%. Exhibit I-14 provides further detail of the Company’s borrowings.

Subsidiaries

Affinity Bancshares has no subsidiaries other than the Bank.

Legal Proceedings

From time to time, the Company is involved as plaintiff or defendant in various legal proceedings arising in the ordinary course of business. At June 30, 2020, the Company was not involved in any legal proceedings, the outcome of which would be material to the Company’s financial condition or results of operations.

II. MARKET AREA

Introduction

Affinity Bancshares serves northern Georgia through the main office in Covington, Georgia and two branch offices, which are located in Covington, Georgia and Atlanta, Georgia. Covington, which is 35 miles east of Atlanta and 47 miles south Athens, Georgia, is located in Newton County and the Atlanta branch is located in, Cobb County. The Bank also maintains an operations center in Covington and commercial loan production offices in Alpharetta, Georgia, which is in Fulton County, and Braselton, Georgia, which is in Jackson County. Community First Auto operates out of the operations center. Exhibit II-1 provides information on the Company’s office properties.

Future growth opportunities for Affinity Bancshares depend on the future growth and stability of the national and regional economy, demographic growth trends and the nature and intensity of the competitive environment. These factors have been examined to help determine the growth potential that exists for the Company, the relative economic health of the Company’s market area and the resultant impact on value.

National Economic Factors

The future success of the Company’s operations is partially dependent upon various national and local economic trends. In assessing national economic trends over the past few quarters, manufacturing activity for January 2020 expanded for the first time since July 2019, with an index reading of 50.9. January service sector activity also accelerated to an index reading of 55.5, which was its highest reading since August 2019. U.S. employers added 225,000 jobs in January and the unemployment rate for January increased to 3.6%. Low mortgage rates and more housing inventory spurred an 11.8% increase in February existing home sales. February new home sales increased 4.9%, which was an 11-month high. Manufacturing activity for February slowed to an index reading of 50.1, while February service sector activity accelerated to a 1-year high index reading of 57.3. February’s employment report showed a pick-up in hiring, as U.S. employers added 275,000 jobs and the February unemployment rate dropped to 3.5%. Retail sales for February showed a decline of 0.5%. February existing home sales showed a healthy increase of 11.8%, while February new home sales declined 4.4%. The impact that the Covid-19 pandemic was starting to have on the U.S. economy was evident in the economic data for March. Manufacturing activity for March fell to

an index reading of 49.1, while service sector activity for March slowed to a more than three and one-half year low index reading of 52.5. The U.S. economy shed 701,000 jobs in March and the March unemployment rate jumped to 4.4%. Retail sales for March plunged 8.7%. Existing and new home sales for March fell 8.5% and 15.4%, respectively. First quarter GDP contracted at a 4.8% annual rate (subsequently revised to a 5.0% annualized rate of contraction).

April 2020 data showed that the damage the Covid-19 pandemic was having on the U.S. economy was becoming more devastating. Manufacturing activity for April contracted at the sharpest rate since the last recession, with an index reading of 41.5. Similarly, service sector activity for April fell to an index reading of 41.8, its lowest level since March 2009. The U.S. economy shed a record 20.5 million jobs in April and the April unemployment rate jumped to 14.7%, the highest level since the Great Depression. The April consumer price index declined 0.8%, which was the largest monthly decline since December 2008. Retail sales for April plummeted 16.4%. Existing home sales tumbled 17.8% in April, while new home sales for April increased 0.7%. Mortgage delinquencies spiked by 1.6 million in April, which was the largest 1-month increase ever recorded. Durable-goods orders for April fell 17.2%. May manufacturing activity increased to an index reading of 43.1, indicating some modest easing in the Covid-19 pandemic driven slowdown in industrial activity. Similarly, service sector activity for May increased to an index reading of 45.4. The U.S. economy unexpectedly added 2.5 million jobs in May and the May unemployment rate fell to 13.3%. May retail sales rebounded by 17.7%, adding another sign that the economy was recovering from earlier lockdowns to contain the pandemic. Existing home sales for May declined 9.7%, while new home sales for May increased 16.6%. Manufacturing and service sector activity for June continued to pick-up, with respective index readings of 52.6 and 57.1. The June employment report also showed the U.S. economy was making progress towards a recovery, as 4.8 million jobs were added in June and the June unemployment rate fell to 11.1%. Likewise, retail sales for June beat expectations, increasing 7.5% from May. Record low mortgage rates helped to fuel a rebound in June home sales, as June existing and new home sales rose by 20.7% and 13.8%, respectively.

July 2020 manufacturing activity increased to an index reading of 54.2, while July service sector activity accelerated to an index reading of 58.1. U.S. employers added 1.8 million jobs in July and the July unemployment rate fell to 10.2%.    In late-July, economic data suggested that the economic recovery was stalling, as filings for initial unemployment claims rose for two consecutive weeks after nearly four months of declining weekly claims and second quarter GDP contracted at a record annual rate of 32.9%.

In terms of interest rates trends over the past few quarters, long-term Treasury yields edged lower at the start of 2020 and then stabilized through mid-January as investors reacted to a report that December manufacturing activity declined to its lowest reading since the financial crisis. The downward trend in long-term Treasury yields resumed during the second half of January, as the Federal Reserve concluded its late-January policy meeting leaving its benchmark interest rate unchanged and reaffirmed its current policy stance. Some favorable economic reports pushed Treasury yields higher in early-February, which was followed by a rally in Treasury bonds in the final week of February and the first week of March as long-term yields fell to record lows. On March 3^rd the Federal Reserve executed an emergency half-percentage point rate cut, based on increased recession risks as the result of the coronavirus. Long-term Treasury yields fell to new record lows following the rate cut, as investors moved into safe haven investments amid growing worries that the Covid-19 pandemic could seriously disrupt an already sluggish global economy. The yield on the 30-year Treasury fell below 1% for the first time in its history. The Federal Reserve delivered another emergency rate cut of 1% on March 13^th, which slashed its target rate to a range between 0% and 0.25%. Long-term Treasury yields spiked higher going into the second of March, as investors dumped long-term bonds for cash and short-term Treasuries. After spiking up to a yield of 1.26% on March 18^th, the yield on the 10-year Treasury trended lower as the Federal Reserve took further steps to increase market liquidity by extending loans and buying unlimited amounts of U.S. government debt.

The downward trend in long-term Treasury yields continued into early-April 2020, with the 10-year Treasury yield declining to 0.59% following the release of the March employment report. A stock market rally provided for a slight upward trend in long-term Treasury yields going into mid-April, which was followed by long-term Treasury yields edging lower on news that March retail sales plunged 8.7%. With the collapse in oil prices heading into late-April, the 10-year Treasury yield dipped below 0.6% heading into late-April. The Federal Reserve concluded its end of April policy meeting keeping its benchmark interest rate near zero. Following the Federal Reserve meeting, the 10-year Treasury yield stabilized in the range of 0.6% to 0.7% through the first half of May. The 10-year Treasury yield edged back above 0.7% going into the second half of May, as investors retreated from bonds in favor of stocks on promising data for a coronavirus vaccine. With the release of more economic data showing the significant disruption the Covid-19 pandemic was inflicting on the U.S. economy, the 10-year Treasury yield settled in a range of 0.65% to 0.70% through the end of May and into early-June. The 10-year Treasury yield increased to 0.90% with the release of the stronger than expected May employment report and then declined back to a range of 0.65% to 0.70% following the Federal Reserve’s June policy meeting that concluded on June 10^th. At the conclusion of its June policy meeting, the Federal Reserve signaled plans to keep it benchmark interest rate near zero for years.

The stable interest rate environment continued to prevail at the start of the third quarter of 2020, which was followed by long-term Treasury yield edging lower going into the second half of July as a surge in coronavirus cases forced a number of states to reimpose lockdown measures. In mid-July, the average rate on a 30-year fixed rate mortgage fell to 2.98%, its lowest level on record. The 10-year Treasury yield edged below 0.60% going into late-July. At the conclusion of its late-July policy meeting, the Federal Reserve left its benchmark rate near zero and reiterated that it would continue to support the economy. The 10-year Treasury yield remained below 0.60% heading into mid-August. As of August 10, 2020, the bond equivalent yields for U.S. Treasury bonds with terms of one and ten years equaled 0.13% and 0.59%, respectively, versus comparable year ago yields of 1.78% and 1.74%. Exhibit II-2 provides historical interest rate trends.

Based on the consensus outlook of economists surveyed by The Wall Street Journal in August 2020, GDP was projected to contract 5.3% in 2020. The U.S. unemployment rate was forecasted to equal 9.0% in December 2020 and then decline to 7.6% in June 2021. An average of 829,000 jobs were projected to be added per month over the next four quarters. On average, the economists forecasted the federal funds rate to equal 0.13% in December 2020 and 0.15% in June 2021. On average, the economists forecasted that the 10-year Treasury yield would equal 0.76% in December 2020 and then increase to 0.96% in June 2021. The surveyed economists also forecasted home prices would increase by 3.6% in 2020 and 2020 housing starts were forecasted to decrease from 1.29 million in 2019 to 1.24 million in 2020.

The July 2020 mortgage finance forecast from the Mortgage Bankers Association was for 2020 existing home sales to decrease by 3.8% from 2019 sales, while 2020 new home sales were forecasted to increase by 1.9% from 2019 sales. The 2020 median sale prices for existing and new homes were projected to increase by 4.9% and 2.4%, respectively. Total mortgage production was forecasted to increase in 2020 to $2.816 trillion, compared to $2.173 trillion in 2019. The forecasted increase in 2020 originations was based on a 2.2% increase in purchase volume and a 68.3% increase in refinancing volume. Purchase mortgage originations were forecasted to total $1.300 trillion in 2020, versus refinancing volume totaling $1.516 trillion. Housing starts for 2020 were projected to decrease by 8.5% to total 1.185 million.

Market Area Demographics

Demographic and economic growth trends, measured by changes in population, number of households, age distribution and median household income, provide key insight into the health of the market area served by Affinity Bancshares. Demographic data for Newton and Cobb Counties, as well as for Georgia and the U.S., is provided in Table 2.1.

The data indicates that Newton County is suburban and rural in nature, with a population of 112,000. Comparatively, Cobb County, which is a suburban county of Atlanta, is the third most populous county in the state of Georgia with a population of 767,000. From 2015 to 2020, Newton County and Cobb County recorded annual population growth rates of 1.5% and 1.0%, respectively. Comparatively, Georgia and the U.S. recorded annual population growth rates of 1.1% and 0.7%, respectively, over the past five years.

Household growth rates paralleled population growth trends in both market area counties, as Newton County recorded a slightly stronger rate of household growth compared to Cobb County. Population and household growth trends for Newton County are projected to slow slightly over the next five years and be more consistent with Cobb County’s projected population and household growth trends which are forecasted to be similar to the growth rates recorded during the past five years.

Income measures show that Cobb County is a relatively affluent market, with median household and per capita income measures exceeding the comparable Georgia and U.S. measures. Comparatively, Newton County’s median household income was lower than the U.S. measure and approximated Georgia’s median household income, while Newton County’s per capita income was lower than both the U.S. and Georgia per capita income measures. Projected income growth rates for both counties were slightly higher than the comparable projected growth rates for Georgia and the U.S. Household income distribution measures provide another indication of the relative affluence of Cobb County, as Cobb County maintained a relatively high percentage of households with incomes above $100,000 and a relatively low percentage of households with incomes below $25,000. Household income distribution measures for Newton County were similar to the comparable U.S. and Georgia measures.

Age distribution measures reflect that Newton County and Cobb County, as well as the state of Georgia, have comparatively younger populations relative to the U.S. age distribution measures.

Table 2.1

Affinity Bancshares, Inc.

Summary Demographic Data

Source: S&P Global Market Intelligence

Regional Economy

Comparative employment data shown in Table 2.2 shows that employment in services followed by education/healthcare/social services were the largest and second largest employment sectors in both primary market area counties, as well as Georgia. Wholesale/retail trade jobs were the third largest employment sector for Cobb County and Georgia and the fourth largest employment sector for Newton County, while manufacturing jobs constituted the third largest employment sector for Newton County. Other noteworthy employment sectors for the primary market area counties included construction jobs in Newton County and finance/insurance/real estate jobs in Cobb County. Overall, the distribution of employment exhibited in the primary market area is indicative of a fairly diversified economy.

Table 2.2

Affinity Bancshares, Inc.

Primary Market Area Employment Sectors

(Percent of Labor Force)

Source: S&P Global Market Intelligence

Table 2.3 lists the largest employers in the counties of Newton and Cobb. Public school education is the largest source of employment for both of the primary market area counties. Other major employers include healthcare, technology and government jobs, while manufacturing jobs accounted for four out of the ten largest employers in Newton County.

Table 2.3

Affinity Bancshares, Inc.

Market Area Largest Employers

Sources: Newton County Industrial Development Authority & City-Data

Unemployment Trends

Comparative unemployment rates for Newton and Cobb Counties, as well as for Georgia and the U.S., are shown in Table 2.4. The May 2020 unemployment rates for Newton and Cobb Counties equaled 10.3% and 8.9% respectively, which were slightly above and below the comparable unemployment rate of 9.5% for Georgia. Comparatively, the May 2020 unemployment rate for the U.S. equaled 13.0%. Pursuant to the coronavirus-induced recession, the May 2020 unemployment rates for the primary market area counties, Georgia and the U.S. were significantly higher compared to a year ago.

Table 2.4

Affinity Bancshares, Inc.

Unemployment Trends

Source: S&P Global Market Intelligence

Market Area Deposit Characteristics and Competition

The Company’s deposit base is closely tied to the economic fortunes of Newton and Cobb Counties and, in particular, the areas that are nearby to the Company’s branch locations. Table 2.5 displays deposit market trends from June 30, 2014 through June 30, 2019 for Affinity Bancshares, as well as for all commercial bank and savings institution branches located in the primary market area counties and the state of Georgia. Consistent with Georgia, commercial banks maintained a larger market share of deposits than savings institutions in both of the primary market area counties. Total bank and thrift deposits in Georgia increased at a 5.4% annual rate during the five year period covered in Table 2.5, versus comparable annual deposit growth rates of 5.2% for Newton County and 7.4% for Cobb County.

As of June 30, 2019, Affinity Bancshares maintained a relatively high deposit market share of 22.6% in Newton County with two branches. Annual deposit growth of 5.6% for the Newton County branches provided for a slight increase in the Company’s deposit market share from 22.2% at June 30, 2014 to 22.6% at June 30, 2019. Deposits held by ABB Financial at June 30, 2019 accounted for the Company’s 1.5% deposit market share in Cobb County.

Table 2.5

Affinity Bancshares, Inc.

Deposit Summary

Sources: FDIC, S&P Global Market Intelligence and RP Financial calculations.

Competition among financial institutions in the Company’s market area is significant. Among the Company’s competitors are much larger and more diversified institutions, which have greater resources than maintained by Affinity Bancshares. Financial institution competitors in the Company’s primary market area include other locally based banks, as well as regional, super regional and money center banks. From a competitive standpoint, Affinity Bancshares has sought to emphasize its community orientation in the markets served by its branches.

There are a total of nine banking institutions operating in Newton County, with Affinity Bancshares holding the second largest market share of deposits. In Cobb County, there are a total of 23 banking institutions, with Affinity Bancshares holding the 15^th largest market share of deposits. Table 2.6 lists the Company’s largest competitors in the market area counties, based on deposit market share.

Table 2.6

Affinity Bancshares, Inc.

Market Area Deposit Competitors—As of June 30, 2019

Source: FDIC

III. PEER GROUP ANALYSIS

This chapter presents an analysis of Affinity Bancshares’ operations versus a group of comparable savings institutions (the “Peer Group”) selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines. The basis of the pro forma market valuation of Affinity Bancshares is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable to Affinity Bancshares, key areas examined for differences are: financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform.

Peer Group Selection

The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on the NYSE or NASDAQ, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions. Institutions that are not listed on the NYSE or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held stocks are typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition, mutual holding companies and recent conversions, since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1.

Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of locally- or regionally-based institutions with comparable resources, strategies and financial characteristics. There are approximately 45 fully-converted, publicly-traded institutions nationally and, thus, it is typically the case that the Peer Group will be comprised of institutions with relatively comparable characteristics. To the extent that differences exist between the converting institution and the Peer Group, valuation adjustments will be applied to account for the differences. Since Affinity Bancshares will be a full public company upon completion of the offering, we considered only full public companies to

be viable candidates for inclusion in the Peer Group. From the universe of publicly-traded thrifts, we selected ten institutions with characteristics similar to those of Affinity Bancshares. In the selection process, we applied two “screens” to the universe of all public companies that were eligible for consideration:

Table 3.1 shows the general characteristics of each of the ten Peer Group companies and Exhibit III-4 provides summary demographic and deposit market share data for the primary market areas served by each of the Peer Group companies. While there are expectedly some differences between the Peer Group companies and Affinity Bancshares, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments. The following sections present a comparison of Affinity Bancshares’ financial condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most recent publicly available date. Comparative data for all publicly-traded thrifts has been included in the Chapter III tables as well.

In addition to the selection criteria used to identify the Peer Group companies, a summary description of the key comparable characteristics of each of the Peer Group companies relative to Affinity Bancshares’ characteristics is detailed below.

Table 3.1

Peer Group of Publicly-Traded Thrifts

As of June 30, 2020 or the Most Recent Date Available