EX-99.C.II 3 l10719aexv99wcwii.txt EXHIBIT 99(C)(II) EXHIBIT (c)(ii) NOVEMBER 18, 2004 CONFIDENTIAL CENTRAL FEDERAL CORPORATION Parent of [CFBANK LOGO] VALUATION AS OF NOVEMBER 15, 2004 DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING CONFIDENTIAL [CFBANK LOGO] TABLE OF CONTENTS 1. Valuation Opinion Letter 2. Valuation Summary 3. Discounted Cash Flow Analysis 4. Recent Trading Analysis 5. Analysis of Comparable Companies 6. Analysis of Comparable Acquisitions DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING CONFIDENTIAL [CFBANK LOGO] 1. VALUATION OPINION LETTER DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING November 18, 2004 Board of Directors Central Federal Corporation 2923 Smith Road Fairlawn, Ohio 44333 Dear Board of Directors: PRIVATE & CONFIDENTIAL Central Federal Corporation ("Central Federal" or the "Company") has engaged Donnelly Penman & Partners ("DP&P") to render its opinion (the "Opinion") with respect to the fair market per share value of the Company's common stock as of November 15, 2004 in the event of a recapitalization through a reverse stock split or "squeeze out" merger transaction. DP&P is a regional investment banking firm of recognized standing. As part of our investment banking services, we are regularly engaged in the valuation of corporate entities on a stand-alone basis or in connection with capital raising and merger and acquisition transactions. No limitations were imposed by the Company upon DP&P with respect to the investigations made or procedures followed by DP&P in rendering its Opinion. In arriving at our Opinion, we have: I. Reviewed the Annual Reports of the Company for the years ended December 31, 2002 through 2003 as well as interim financials through October 31, 2004; II. Reviewed the November 18, 2004 Board of Directors Report; III. Reviewed the Company's budget for the year ended December 31, 2004; IV. Compared certain financial characteristics of the Company to certain publicly held companies we deemed relevant; V. Reviewed current banking industry conditions and trends concerning the valuation of recent mergers and acquisitions; VI. Conducted discussions with the senior management of the Company concerning the business and future prospects of the Company; VI. Prepared a discounted dividend analysis of the Company based on projections derived from discussions with and deemed reasonable by management of the Company; and Board of Directors November 18, 2004 Page 2 VII. Reviewed such other data, including financial and industry data, performed such other analyses and taken into account such other matters as we deemed necessary or appropriate. In connection with rendering its Opinion to Central Federal, DP&P performed a variety of financial analyses, which are summarized below. DP&P believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without consideration of all factors and analyses, could create a misleading view of the analyses and the processes underlying DP&P's Opinion. DP&P arrived at its Opinion based on the results of all the analyses it undertook, assessed as a whole, and it did not draw conclusions from or with regard to any one method of analysis. The preparation of a valuation is a complex process involving subjective judgments, and is not necessarily susceptible to partial analysis or summary description. DP&P did not make or obtain any independent evaluation, valuation or appraisal of the assets or liabilities of Central Federal, nor were we furnished with such materials. DP&P has not reviewed any individual credit files of the Company and has assumed, without independent verification, that the reported allowances for credit losses are adequate to cover such losses. With respect to the comparable company analysis and comparable merger transaction analysis summarized below, no public company utilized as a comparison is identical to Central Federal, and such analyses necessarily involves complex considerations and judgments concerning the differences in financial and operating characteristics of the financial institutions and other factors that could affect the acquisition or public trading values of the financial institutions concerned. The forecasted financial information furnished by the Company's management contained in or underlying DP&P's analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than such forecasts and estimates. The forecasts and estimates were based on numerous variables and assumptions that are inherently uncertain (including the future performance of the recently acquired Reserve Mortgage Services); including without limitation factors related to general economic and competitive conditions. In that regard, DP&P assumed, with the Company's consent, that the financial forecasts had been reasonably prepared by management on a basis reflecting the best currently available judgments of management, and that such forecasts will be realized in the amounts and at the times contemplated thereby. Estimates of values of financial institutions or assets do not purport to be appraisals or necessarily reflect the prices at which financial institutions or their securities actually may be sold. Accordingly, actual results could vary significantly from those assumed in the financial forecasts and related analyses. The analyses performed by DP&P were assigned a weighting based on DP&P's opinion of their relative comparability and significance with regard to the specific characteristics of Central Federal. Board of Directors November 18, 2004 Page 3 COMPANY BACKGROUND Central Federal Corporation (the "Company"), formerly known as Grand Central Financial Corp., was organized as a Delaware corporation in September 1998 as the holding company for Central Federal Bank (the "Bank"), formerly known as Central Federal Savings and Loan Association of Wellsville, in connection with the Bank's conversion from a mutual to stock form of organization. As a savings and loan holding company, the Company is subject to regulation by the Office of Thrift Supervision (the "OTS"). Central Federal Capital Trust I (the "Trust"), was formed by the Company in 2003 as a wholly owned subsidiary of the Company to raise additional funding for the Company. Currently, the Company does not transact any material business other than through the Bank and Trust. Under new accounting guidance, FASB Interpretation No. 46, as revised in December 2003, the trust is not consolidated with the Company. Accordingly, the Company does not report the securities issued by the trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by the trust. At December 31, 2003, the Company had total assets of $107.0 million and stockholders' equity of $19.9 million. The Bank is a community-oriented savings institution which was originally organized in 1892. The Bank's principal business consists of attracting deposits from the general public in its primary market area and investing those deposits and other funds, generated from operations and from borrowings, primarily in conventional mortgage loans secured by single-family residences. The Bank also invests in consumer loans, primarily indirect automobile loans and loans originated directly or on the Bank's behalf by automobile dealers at the time of sale. To a lesser extent, the Bank invests in home equity, multi-family, construction and land loans. In 2003, the Bank began making more commercial loans than it had in the past as management positioned the Bank for expansion into business financial services. The Bank also invests in securities, primarily those guaranteed or insured by government agencies, and other investment- grade securities. The Bank's revenues are derived principally from the generation of interest and fees on loans originated and, to a lesser extent, interest and dividends on securities. On October 22, 2004, the registrant completed its acquisition of RJO Financial Services, Inc., d/b/a Reserve Mortgage Services, (Reserve), an Akron, Ohio based company licensed as a mortgage banker in Ohio, Florida and Georgia, founded by Richard J. O'Donnell. The acquisition was effected by the Company's purchase of all the shares of the outstanding common stock of RJO Financial Services, Inc. (the "RJO Shares"). The consideration paid by the Company for the RJO Shares was 127,077 shares of the Company's common stock and $340,000 in cash. Central Federal is traded through the OTC Bulletin Board Exchange under the symbol GCFC. Its shares are traded on a limited basis through regional and national brokers and market makers. As of October 4, 2004, there were 603 recorded holders of the Company's common stock. The most recent trade of the stock was 11,634 shares at $11.11 on November 17, 2004. The Bank conducts its business through four banking offices located in Summit, Columbiana, Jefferson and Franklin Counties, Ohio. According to the United States Census Bureau, the median Board of Directors November 18, 2004 Page 4 2004 household income in, Summit, Columbiana, Jefferson and Franklin Counties is $42,734, $34,226, $30,853 and $42,734 respectively. INDUSTRY OVERVIEW Commercial, retail and mortgage banking are highly competitive businesses in which the Company receives competition from both bank and non-bank institutions. As a result of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Gramm-Leach-Bliley Act of 1999, the number and types of depository institution competitors have substantially increased. Central Federal faces increased competition from finance companies, credit unions and bank and non-bank mortgage lenders. These companies may offer higher lending limits and other non-traditional services that Central Federal does not currently offer. Some of the Company's competitors also can leverage greater resources in order to gain a larger business presence within Central Federal's target service areas. While being relatively small can be a disadvantage, there are certain potential benefits as well. Community banks that make customer service a priority may be able to gain an advantage with customers in their local market that feel neglected by the larger banks. Because the larger banks often seek large homogenous markets and products, niche opportunities are created for smaller institutions that seek to fill the needs of the underserved. Also, the relative difference in size can often correspond to a more agile management team that can respond more quickly to the ever changing competitive environment. ECONOMIC OVERVIEW Reports from the Federal Reserve Districts, as outlined in the July 28, 2004 Federal Reserve "Beige Book,"(1) indicate that economic growth continued to expand, although some Districts reported that the rate of growth moderated. Consumer lending activity rose moderately with reports that mortgage originations are strong. Five districts reported increases in their banks' residential real estate lending: Philadelphia, Cleveland, Richmond, Chicago, and St. Louis. Several of these districts indicated that although overall residential real estate lending had risen, the volume of refinancings recently fell further. Both the New York and San Francisco Districts saw borrowing by homebuyers decline, but San Francisco noted that the levels of residential real estate lending in its district remained high. Borrowing by commercial clients rose moderately as reported by most districts, with the New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, Kansas City, Dallas, and San Francisco Districts reporting rising commercial borrowing in recent weeks. New York, Philadelphia, and Atlanta, however, noted that the increases in their districts were modest. In the Chicago District, commercial borrowing was characterized as flat. ---------------------- (1) Summary of Commentary on Current Economic Conditions by Federal Reserve District, July 28, 2004. Board of Directors November 18, 2004 Page 5 Most Districts reported little change in loan delinquencies. The Cleveland District noted that delinquency rates remained largely unchanged in recent weeks, and applicant credit quality was characterized as stable or slightly improving. Likewise, the New York District reported lower delinquency rates across all loan categories. In the Chicago District, lenders note that household credit quality continues to improve and there were no changes in loan standards and terms. Moderate increases in credit card lending were reported in the Philadelphia District, while the San Francisco District reports good credit quality on existing loans. The Livingston Study(2), based on survey responses of 26 participants from banking, industry, academia and trade associations, forecasts economic growth and falling unemployment through mid-2005 in its June 2004 report. The results of this most recent release project real Gross Domestic Product ("GDP") will rise at an annual rate of 4.5 percent in the first half of 2004, 4.1 percent in the second half of 2004, and continue at an annual rate of 3.8 percent in the first half of 2005. The unemployment rate is expected to fall from 5.6 percent in June 2004 to 5.4 percent in December 2004 and then continue to decline, to 5.2 percent, by the middle of 2005. Interest rates on the three-month Treasuries are expected to rise from 1.3 percent in June 2004 to 1.8 percent at year-end 2004, then rise throughout 2005, ending the year at 3.4 percent. Long-term interest rates are also expected to rise over the next two years with a projection to climb from 4.8 percent in June 2004 to 5.1 percent by year-end. It is expected to increase further in 2005, finishing the year at 5.6 percent. The participants' views of long-term inflation and output growth have been fairly steady over the last year. The panelists think that real GDP will grow 3.5 percent annually over the next 10 years, the same as in the previous survey. Inflation will average 2.5 percent over the next 10 years, unchanged from the last five surveys dating back to December 2001. For 2004, after-tax corporate profits are expected to rise 15.5 percent, an increase from the December survey's prediction of 14.7 percent. On the other hand, forecasters see corporate profits rising 13.4 percent in 2005, a decrease from the 19.4 percent increase forecast in December. Stock prices (as measured by the S&P 500 index) are forecast to rise in 2004 and 2005. The projection for the S&P 500 at the end of 2005 is about 2.8 percent higher than the previous prediction. --------------------- (2) www.phil.frb.org/econ/liv/index.html Board of Directors November 18, 2004 Page 6 VALUATION METHODOLOGY The following is a brief summary of the analyses performed by DP&P in connection with its Opinion: (a) Discounted Dividend Analysis. DP&P prepared a discounted dividend stream analysis of Central Federal, which estimated the future after tax income that the Company might produce over a period from November 15, 2004 through December 31, 2008. These estimates were derived from discussions with and deemed reasonable by Central Federal's management team. The estimates assumed that Central Federal's net income would grow from ($1,245,609) in the year ended December 31, 2004 to $2,331,065 in the year ended December 31, 2008. This growth in net income is due to the acquisition of Reserve Mortgage Services in October, 2004 and balance sheet growth driven by commercial loan growth (subject to regulatory limitations of 400% of capital) and the deposits typically associated with those commercial customers. DP&P further assumed, with management's guidance, that the Company would make dividend payouts through the projection period equal to the existing rate of $.36 per share, which is equal to the existing rate paid by the Company. The resulting dividends were then discounted to a present value using a discount rate of 10.5%, based on Ibbotson Associates(3) build up method with an industry discount applicable to commercial banks. Based on the most recent Ibbotson's data the risk less rate is 4.8%, market risk premium is 7.0% and industry specific premium was -1.3%, resulting in a discount rate of 10.5%, which DP&P regards as appropriate given the nature of the company, industry risk and general economic conditions. DP&P also estimated the residual value for Central Federal's common stock using an earning multiple of 19.2 times applied to projected 2008 net income of $2,331,065, which is an approximation derived from the analysis of price to earnings multiples in comparable publicly traded companies (see paragraph c - Analysis of Selected Comparable Companies). The discounted dividend analysis implied a value of $14.87 per share for Central Federal's common stock on a marketable basis. This analysis does not purport to be indicative of actual values or actual future results and does not purport to reflect the prices at which any securities may trade at the present or at any time in the future. DP&P included this analysis because it is a widely used valuation methodology, but noted that the results of such methodology are highly dependent upon the numerous assumptions that must be made, including earnings growth rates, dividend payout rates, terminal values and discount rates. (b) Historical Trading Multiples. DP&P analyzed the quoted trades listed on the OTC Bulletin Board for Central Federal Corporation (GCFC) for varying historical periods. DP&P used a weighted average of the closing stock price quoted for a period of 30 and 90 trading days and one calendar year. Only days in which the security actually traded were counted in the weighted average. For the past 30 trading days, as of November 15, 2004, the historical weighted average price was $11.65 with a period volume of 100,533. For the past 90 trading days, as of November 15, the historical weighted average price was $12.14 with a period volume of 221,623. For the past calendar year, as of November 15, 2004, the historical weighted average price was $13.42 with a ----------------------- (3) Ibbotson Associates, "Stocks, Bonds, Bills, and Inflation," Valuation Edition 2003 Yearbook Board of Directors November 18, 2004 Page 7 period volume of 532,811. It should be noted that volume may reflect "double counting" due to both the buy and sell side of a transaction being counted. In addition, the prices and volumes displayed are per the trading information provided on the www.nasdaq.com website and may not reflect all transactions that occurred over the aforementioned time period. (c) Analysis of Selected Comparable Companies. DP&P compared selected operating results of Central Federal to a select group of publicly traded thrifts headquartered in Michigan, Indiana, Kentucky and Ohio. The comparable set had total assets of between $150 and $250 million. Some companies meeting these criteria may have been eliminated based on lack of data as generated by SNL Financial - the source for the comparable transactions data. The selected group had approximately the following median values: $160.4 million in total assets, $17.4 million in total equity, a Tier One risk-based capital ratio of 6.4%, last twelve months return on average assets of .71%, last twelve months return on average equity of 6.34% and a last twelve months efficiency ratio of 65.4%. This analysis provided valuation benchmarks including the median price multiples of 1.237 times book value, 1.241 times tangible book value and 19.2 times last twelve months earnings per share. Applying the median price to book value multiple to Central Federal's book value per share of $8.92 as of September 30, 2004 resulted in an implied per share value of $11.03 on a marketable basis. Using the same methodology, the implied value provided by application of the relevant multiple to Central Federal's September 30, 2004 tangible book value of $8.92 was found to be $11.07. The implied value based on last twelve months earnings per share was not applicable because Central Federal's last twelve months earnings per share were negative. No bank or thrift used in the above analyses as a comparison is identical to Central Federal. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values of the Company and the banks to which it is being compared. (d) Analysis of Comparable Acquisition Transactions. DP&P analyzed bank and thrift acquisition transactions announced and/or completed since January 1, 2002. Each selling bank or thrift had total assets between $100 and $500 million and was headquartered in Michigan, Indiana, Kentucky or Ohio. This analysis provided an approximate median multiple of 2.09 times price to book value, 2.111 times price to tangible book value, 24.8 times last twelve months earnings per share and a premium to core deposit metric of 17.3%. Applying the median multiple for price to book value of 2.09 times to Central Federal's September 30, 2004 book value per share of $8.92 results in an implied value per share of $18.64 on a control, marketable basis. Using the same methodology, the value implied by applying the relevant multiple to Central Federal's tangible book value per share at September 30, 2004 of $8.92 was found to be $18.83 per share. Applying the median premium to core deposits of 17.3% to Central Federal's $79.6 million in core deposits as of September 30, 2004 resulted in a calculated value of $13.8 million. When added to Central Federal's book value of $18.4 million as of September 30, 2004 and divided by the 2,062,138 shares outstanding at the same date, the result is an implied value per share of $15.60. Core deposits are defined as all deposits less CDs over $100,000 and brokered or network deposits. Board of Directors November 18, 2004 Page 8 DP&P notes that no selling bank or thrift reviewed was identical to the Company and that, accordingly, any analysis of comparable transactions necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the parties to the transactions being compared. (e) Net Book Value. The net book value or net equity method implies that a company is worth its accumulated retained earnings, or deficit, plus its original capitalization. Net book value is primarily an amount arrived at over a company's existence which reflects accounting history expressed in unadjusted dollars and not the company's potential. In most going concerns with a viable future it can be demonstrated that these companies would change hands for more than net book value. Book value is only of importance to the extent it provides an adequate base for the continuance of operations. In most instances where a company earns a significant return on its assets (both tangible and intangible); the net book value approach is not representative of the company's intrinsic business value. We have reviewed the book value of the Company's assets in limited detail and have found net book value to be $18.4 million or $8.92 per share as of September 30, 2004. CONCLUSION Our Opinion is directed to the Board of Directors of the Company and does not constitute a recommendation to the Board of Directors of the Company or the Company's existing holders of Common Stock. This Opinion has been prepared for the confidential use of the Board of Directors and senior management of the Company and may not be reproduced, summarized, described or referred to or given to any other person without DP&P's prior written consent. Our Opinion is limited solely to the value of the Company's common stock as of November 15, 2004 given the relevant market and company specific information available at the present time. DP&P will typically utilize either a marketability or minority discount, or combination thereof, to value a minority share of a relatively illiquid company on a comparable basis. No such discounts have been applied to Central Federal's common stock in this valuation. If such a discount were applied, it would result in valuation that would be significantly lower than the value assigned on the following page. On the basis of, and subject to, the foregoing, we are of the opinion that, as of November 15, 2004, the fair market value of the Company's common stock is $14.04 per share. Sincerely, DONNELLY PENMAN & PARTNERS CONFIDENTIAL [CFBANK LOGO] 2. VALUATION SUMMARY DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING PROJECT CYPRESS VALUATION SUMMARY
VALUATION TECHNIQUE: ---------------------------------------------------------------------- MGT. PROJECTIONS RECENT TRADING COMPARABLE COMPANY ----------------- --------------------------- -------------------- 30 DAY 90 DAY 1 YEAR VALUE DISCOUNTED TRADING TRADING TRADING CONCLUSION DIVIDEND ANALYSIS AVG. AVG. AVG. BV TBV EPS ---------- ----------------- ------- ------- ------- ------ ------- --- VALUE INDICATION PER SHARE: $ 14.04 $ 14.87 $ 11.65 $ 12.14 $ 13.42 $11.03 $ 11.07 N.M. Weight 100.0% 28.0% 8.0% 8.0% 8.0% 12.0% 12.0% 0.0% PREMIUM TO CURRENT TRADING PRICE ($11.14) 26.0% ------- ---------------------------- --------------------- Close as of November 15, 2004 28.0% 24% 24.0% Multiple of LTM EPS 9/30/2004 ($-1.14) N.M. N.M. N.M. N.M. N.M. N.M. N.M. N.M. Percentage of Book Value ($8.92) 157.4% 166.7% 130.6% 136.1% 150.4% 123.7% 124.1% N.M. Percentage of Tangible Book Value ($8.92) 157.4% 166.7% 130.6% 136.1% 150.4% 123.7% 124.1% N.M. VALUATION TECHNIQUE: ------------------------------- COMPARABLE ACQUISITION ------------------------------- PREMIUM TO CORE BV TBV EPS DEPOSITS ------ ------ --- -------- VALUE INDICATION PER SHARE: $18.64 $18.83 N.M. $ 15.60 Weight 8.0% 8.0% 0.0% 8.0% PREMIUM TO CURRENT TRADING PRICE ($11.14) ------------------------------- Close as of November 15, 2004 24.0% Multiple of LTM EPS 9/30/2004 ($-1.14) N.M. N.M. N.M. N.M. Percentage of Book Value ($8.92) 209.0% 211.1% N.M. 174.9% Percentage of Tangible Book Value ($8.92) 209.0% 211.1% N.M. 174.9%
DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING CONFIDENTIAL [CFBANK LOGO] 3. DISCOUNTED CASH FLOW ANALYSIS DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING PROJECT CYPRESS DISCOUNTED DIVIDEND ANALYSIS VALUATION DATE: NOVEMBER 15, 2004 ($ in thousands - except per share data)
PROJECTED For the years ended December 31 ------------------------------------------------------------------------------------------ 2008 2004 2005 2006 2007 2008 Takeout ------------------------------------------------------------------------------------------ Net Interest Income After Provision $ 3,681,153 $ 5,482,495 $ 7,091,751 $ 8,193,377 $ 9,468,873 Non-interest Income 705,665 3,060,355 3,305,184 3,569,599 3,855,166 --------------------------------------------------------------------------------- 4,386,818 8,542,850 10,396,935 11,762,975 13,324,039 Depreciation (125,200) (141,867) (158,533) (175,200) (191,867) General & Administrative Expenses (6,224,663) (7,620,993) (8,230,672) (8,889,126) (9,600,256) --------------------------------------------------------------------------------- Total Other Expenses (6,349,863) (7,762,860) (8,389,206) (9,064,326) (9,792,123) --------------------------------------------------------------------------------- Income Before Taxes (1,963,045) 779,990 2,007,729 2,698,649 3,531,916 Taxes @ 34% - Assumes NOL Carry Forward 667,435 - - (54,850) (1,200,852) --------------------------------------------------------------------------------- Net Income (1,295,609) 779,990 2,007,729 2,643,799 2,331,065 Dividend Payout $ 788,117 $ 788,117 $ 788,117 $ 788,117 $ 788,117 (% Dividend Payout) -61% 101% 39% 30% 34% Present Value Factor @ 10.5% (1) 0.9938 0.9395 0.8502 0.7694 0.6963 --------------------------------------------------------------------------------- Mid-year Discount (591,088) --------------------------------------------------------------------------------- Present Value of Free Cash Flows $ 195,808 $ 740,436 $ 670,057 $ 606,378 $ 548,766 --------------------------------------------------------------------------------- Total Present Value of Dividends (Years 1 to 5) $ 2,761,445 Plus: Present Value of Residual Value $30,398,576 2008 Net Income $ 2,331,065 ----------- ------------ Indicated Equity Value $33,160,021 2008 Price to LTM Net Income Ratio (2) 19.2x ----------- ------------ Fully Diluted Shares Outstanding 2,230,427 Residual Value $ 44,756,443 ----------- Equity Value Per Share (Marketable) $ 14.87 Present Value Factor 0.6792 =========== ------------ Present Value of Residual Value $ 30,398,576 ------------
Footnotes: (1) Based on the Ibbotson Associates weighted average cost of capital build up method (riskless rate + market risk premium) utilizing a 1.3% industry discount for commercial banks (data from Ibbotson Associates 2003 Yearbook - Valuation Edition) (2) Based on an average of publicly traded thrifts in MI, IN, KY, and OH with between $150 and $250 million in assets DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING CONFIDENTIAL [CFBANK LOGO] 4. RECENT TRADING ANALYSIS DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING PROJECT CYPRESS RECENT TRADING ANALYSIS Central Federal Corporation (GCFC) [LINE GRAPH] 30 DAY TRADING AVERAGE(2) = $11.65, AVG. DAILY VOLUME = 3,351(1) 90 DAY TRADING AVERAGE(2) = $12.14, AVG. DAILY VOLUME = 2,462(1) 1 YEAR TRADING AVERAGE(2) = $13.42, AVG. DAILY VOLUME = 2,123(1) (1) May include double counting (volume from both the bid and ask side of a trade) (2) Volume weighted average DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING CONFIDENTIAL [CFBANK LOGO] 5. ANALYSIS OF COMPARABLE COMPANIES DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING COMPARABLE COMPANY ANALYSIS PUBLICLY TRADED THRIFTS IN MI, IN, KY AND OH WITH TOTAL ASSETS BETWEEN $150 AND $250 MILLION.
Closing Price (11/16/2004) to: Fiscal Closing Dividend ------------------------------ Period Price Yield Book Tang. LTM Company State Ticker Ended (11/16/2004) (%) (%) Book (%) EPS (x) -------------------------------------- ----- ------ ---------- ---------- -------- ------- -------- ------- 1st Independence Financial Group, Inc. KY FIFG 06/30/2004 19.06 1.70 113.7 116.9 476.5 AMB Financial Corp. IN AMFC 09/30/2004 14.02 1.71 104.5 104.5 13.7 ASB Financial Corp. OH ASBP 06/30/2004 22.00 2.61 209.7 209.7 18.0 Blue River Bancshares, Inc. IN BRBI 06/30/2004 5.25 0.00 111.5 143.4 43.8 City Savings Financial Corp. IN CSFC 06/30/2004 23.70 1.08 112.7 112.7 10.3 CKF Bancorp, Inc. KY CKFB 09/30/2004 16.60 3.43 144.9 155.6 12.9 Community Investors Bancorp, Inc. OH CIBI 06/30/2004 13.95 2.57 113.9 113.9 17.2 FFW Corporation IN FFWC 09/30/2004 23.27 3.04 125.9 131.2 12.2 Fidelity Federal Bancorp IN FFED 09/30/2004 1.60 0.00 108.8 108.8 53.3 Frankfort First Bancorp, Inc. KY FKKY 09/30/2004 24.21 4.57 176.2 176.2 33.2 HFS Bank, FSB IN HFSK 06/30/2004 12.50 3.36 118.7 118.7 14.4 Home Loan Financial Corporation OH HLFC 09/30/2004 19.58 3.90 146.1 146.1 18.3 Lawrence Financial Holdings, Inc. OH LWFH 06/30/2004 23.37 1.19 110.7 110.7 36.0 Mid-Southern Savings Bank, FSB (MHC) IN MSVB 06/30/2004 23.50 2.13 236.9 236.9 52.2 Northeast Indiana Bancorp, Inc. IN NEIB 09/30/2004 22.62 2.74 124.1 124.1 19.2 Peoples Ohio Financial Corp. OH POHF 09/30/2004 4.25 3.04 128.8 128.8 20.2 Peoples-Sidney Financial Corporation OH PSFC 06/30/2004 15.00 3.79 123.3 123.3 21.1 ----- ------ ---------- ---------- -------- ------- -------- ------- HIGH 24.21 4.57 236.9 236.9 476.5 LOW 1.60 0.00 104.47 104.47 10.30 MEAN 16.73 2.40 135.90 138.92 51.33 MEDIAN 19.06 2.61 123.70 124.15 19.17 CENTRAL FEDERAL CORPORATION OH GCFC 09/30/2004 11.45 3.23 124.90 N.A. N.A. CENTRAL FEDERAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) $ 8.92 $ 8.92 ($ 1.14) MEDIAN MULTIPLE 123.7% 124.1% 19.2X ------- ------- ------ EQUITY VALUE PER SHARE $ 11.03 $ 11.07 N.M. Tier 1 Risk LTM Total Total Total Total NPAs/ Based LTM LTM LTM Efficiency Assets Net Loans Deposits Equity Assets Capital ROAA ROAE NIM Ratio Company ($000) ($000) ($000) ($000) (%) Ratio (%) (%) (%) (%) (%) -------------------------------------- ------- --------- -------- ------- ------ ----------- ----- ------ ---- --------- 1st Independence Financial Group, Inc. 180,442 122,686 141,912 20,510 1.10 5.90 0.04 0.32 2.70 103.43 AMB Financial Corp. 154,368 126,281 113,229 13,160 1.37 9.07 0.64 7.47 3.21 72.80 ASB Financial Corp. 166,371 129,821 136,761 17,424 0.46 12.58 1.26 12.99 3.82 57.50 Blue River Bancshares, Inc. 204,480 149,616 159,062 16,036 1.17 -0.39 0.21 2.33 3.25 91.60 City Savings Financial Corp. 146,122 119,270 104,474 11,683 3.11 9.25 0.77 9.84 3.50 61.56 CKF Bancorp, Inc. 153,041 133,868 118,788 16,052 NA 10.35 1.19 11.67 3.51 47.89 Community Investors Bancorp, Inc. 121,854 95,862 87,203 13,232 0.79 6.40 0.71 6.51 3.25 67.23 FFW Corporation 245,915 141,987 163,428 23,765 0.84 10.22 1.01 10.52 2.94 62.93 Fidelity Federal Bancorp 201,842 117,102 131,615 16,171 0.46 -0.12 0.17 2.25 2.54 93.24 Frankfort First Bancorp, Inc. 137,119 123,743 74,339 17,409 NA 5.32 0.66 5.14 NA 59.35 HFS Bank, FSB 234,711 179,956 140,518 19,653 0.46 8.68 0.71 8.38 2.51 62.94 Home Loan Financial Corporation 160,374 132,458 88,755 22,636 NA 7.64 1.09 7.54 3.98 55.98 Lawrence Financial Holdings, Inc. 125,024 83,362 110,691 13,716 0.36 2.59 0.30 2.79 3.99 77.85 Mid-Southern Savings Bank, FSB (MHC) 152,145 99,864 136,730 14,497 0.06 5.92 0.45 4.63 2.44 55.76 Northeast Indiana Bancorp, Inc. 228,689 172,543 128,438 25,974 0.72 7.18 0.74 6.27 2.94 70.19 Peoples Ohio Financial Corp. 195,413 156,094 109,160 24,080 NA 6.39 0.79 6.34 3.73 72.27 Peoples-Sidney Financial Corporation 135,771 115,652 86,764 17,431 0.53 5.65 0.70 5.65 3.34 65.40 ------- --------- -------- ------- ------ ----------- ----- ------ ---- --------- HIGH 245,915 179,956 163,428 25,974 3.11 12.58 1.26 12.99 3.99 103.43 LOW 121,854 83,362 74,339 11,683 0.06 -0.39 0.04 0.32 2.44 47.89 MEAN 173,158 129,421 119,522 17,849 0.88 6.63 0.67 6.51 3.23 69.29 MEDIAN 160,374 126,281 118,788 17,409 0.72 6.40 0.71 6.34 3.25 65.40 CENTRAL FEDERAL CORPORATION 148,459 96,904 90,355 18,395 0.56 -7.66 -2.07 -12.77 2.03 210.67 CENTRAL FEDERAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) MEDIAN MULTIPLE EQUITY VALUE PER SHARE
Source: SNL Financial DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING CONFIDENTIAL [CFBANK LOGO] 6. ANALYSIS OF COMPARABLE TRANSACTIONS DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING COMPARABLE ACQUISITION ANALYSIS COMPARABLE ACQUISITIONS IN MI, IN, KY AND OH ANNOUNCED SINCE 1/1/02 - TARGET ASSETS BETWEEN $100 AND $500 MILLION
Seller Announce Completion Deal Value Buyer Seller State Date Date ($M) ---- ----- ------ ---- ---- ---- Park National Corporation First Clermont Bank OH 09/24/2004 NA 52.50 Sky Financial Group, Inc. Prospect Bancshares, Inc. OH 09/15/2004 NA 46.90 First Defiance Financial Corp. Combanc Inc. OH 08/04/2004 NA 38.00 Park National Corporation First Federal Bancorp, Inc. OH 08/02/2004 NA 45.90 First Federal, MHC Frankfort First Bancorp, Inc. KY 07/16/2004 NA 31.20 WesBanco, Inc. Western Ohio Financial Corporation OH 04/01/2004 08/31/2004 67.50 Lincoln Bancorp First Shares Bancorp, Inc. IN 03/10/2004 08/02/2004 37.30 First Citizens Banc Corp. FNB Financial Corporation OH 03/03/2004 10/08/2004 35.60 Independent Bank Corporation Midwest Guaranty Bancorp, Incorporated MI 02/04/2004 05/31/2004 43.00 Harrodsburg First Financial Bancorp, Inc. Independence Bancorp IN 01/22/2004 07/09/2004 17.10 Fentura Financial, Inc. West Michigan Financial Corporation MI 10/14/2003 03/15/2004 12.90 Chemical Financial Corporation Caledonia Financial Corporation MI 09/25/2003 12/01/2003 51.10 Monarch Community Bancorp, Inc. MSB Financial, Inc. MI 09/02/2003 04/15/2004 24.90 Sky Financial Group Inc. GLB Bancorp, Inc. OH 07/16/2003 10/19/2003 39.80 Citizens First Bancorp, Inc. Metro Bancorp, Inc. MI 05/22/2003 01/09/2004 30.00 Standard Bancshares Inc. Security Financial Bancorp Inc. IN 02/07/2003 06/19/2003 46.00 First Southern Bancorp, Inc. South Central Bancshares, Inc. KY 12/16/2002 02/20/2003 55.00 Wayne Bancorp Inc. Banc Services Corporation OH 12/10/2002 05/31/2003 46.20 Peoples Bancorp Inc. Kentucky Bancshares Inc. KY 12/02/2002 05/09/2003 30.50 MainSource Financial Group First Community Bancshares, Inc. IN 11/20/2002 06/12/2003 23.20 First Indiana Corporation MetroBanCorp IN 09/04/2002 01/13/2003 39.20 First Merchants Corp. CNBC Bancorp OH 08/28/2002 03/01/2003 58.00 Charter One Financial, Inc. Charter National Bancorp, Inc. MI 01/11/2002 05/24/2002 90.40 HIGH 90.40 Low 12.90 Mean 41.83 Median 39.80 CENTRAL FEDERAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) MEDIUN MULTIPLE EQUITY VALUE PER SHARE Price at Announcement to: Target ---------------- Seller Target Equity/ Book TBV Buyer Seller State Assets ($M) Assets (%) (%) (%) ---- ----- ------ ----------- ---------- --- --- Park National Corporation First Clermont Bank OH 202,427 12.39 209.37 212.71 Sky Financial Group, Inc. Prospect Bancshares, Inc. OH 202,644 7.21 302.78 302.78 First Defiance Financial Corp. Combanc Inc. OH 208,813 10.87 167.64 167.64 Park National Corporation First Federal Bancorp, Inc. OH 258,197 8.87 194.85 194.85 First Federal, MHC Frankfort First Bancorp, Inc. KY 137,970 12.81 168.34 168.34 WesBanco, Inc. Western Ohio Financial Corporation OH 399,540 11.10 142.24 142.24 Lincoln Bancorp First Shares Bancorp, Inc. IN 175,788 5.14 255.01 255.43 First Citizens Banc Corp. FNB Financial Corporation OH 218,580 12.33 132.06 142.82 Independent Bank Corporation Midwest Guaranty Bancorp, Incorporated MI 233,580 7.47 246.55 246.55 Harrodsburg First Financial Bancorp, Inc. Independence Bancorp IN 102,749 11.35 260.73 294.66 Fentura Financial, Inc. West Michigan Financial Corporation MI 123,758 7.82 239.89 239.89 Chemical Financial Corporation Caledonia Financial Corporation MI 206,158 10.04 247.15 247.15 Monarch Community Bancorp, Inc. MSB Financial, Inc. MI 103,213 14.76 160.55 181.82 Sky Financial Group Inc. GLB Bancorp, Inc. OH 207,407 14.32 132.56 133.19 Citizens First Bancorp, Inc. Metro Bancorp, Inc. MI 146,842 10.90 181.40 181.40 Standard Bancshares Inc. Security Financial Bancorp Inc. IN 198,903 18.67 120.48 120.48 First Southern Bancorp, Inc. South Central Bancshares, Inc. KY 322,992 12.41 137.25 145.56 Wayne Bancorp Inc. Banc Services Corporation OH 206,341 8.41 266.51 266.51 Peoples Bancorp Inc. Kentucky Bancshares Inc. KY 127,002 13.29 180.43 180.43 MainSource Financial Group First Community Bancshares, Inc. IN 149,258 7.04 208.96 211.06 First Indiana Corporation MetroBanCorp IN 173,753 8.83 228.49 228.49 First Merchants Corp. CNBC Bancorp OH 317,329 7.52 229.10 229.29 Charter One Financial, Inc. Charter National Bancorp, Inc. MI 266,915 10.04 337.39 337.39 HIGH 399,540 18.67 337.39 337.39 Low 102,749 5.14 120.48 120.48 Mean 203,920 10.59 206.51 210.03 Median 202,644 10.87 08.96 211.06 CENTRAL FEDERAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) $ 8.92 $ 8.92 MEDIUN MULTIPLE 209.0% 211.1% ------- ------ EQUITY VALUE PER SHARE $ 18.64 $18.83 Price at Announcement to: ------------------------- Premium to Seller LTM EPS Assets Deposits Core Deposits Buyer Seller State (x) (%) (%) (%) ---- ----- ------ --- --- --- --- Park National Corporation First Clermont Bank OH 17.96 25.94 37.86 26.81 Sky Financial Group, Inc. Prospect Bancshares, Inc. OH 29.98 23.15 25.33 19.30 First Defiance Financial Corp. Combanc Inc. OH NM 18.21 21.71 9.77 Park National Corporation First Federal Bancorp, Inc. OH 24.54 17.79 25.70 17.33 First Federal, MHC Frankfort First Bancorp, Inc. KY 30.52 22.60 42.26 22.91 WesBanco, Inc. Western Ohio Financial Corporation OH 24.96 16.89 27.14 14.14 Lincoln Bancorp First Shares Bancorp, Inc. IN 35.52 21.24 26.15 23.49 First Citizens Banc Corp. FNB Financial Corporation OH NM 16.29 19.40 6.84 Independent Bank Corporation Midwest Guaranty Bancorp, Incorporated MI 19.66 18.41 22.24 16.15 Harrodsburg First Financial Bancorp, Inc. Independence Bancorp IN 27.12 21.22 26.48 22.15 Fentura Financial, Inc. West Michigan Financial Corporation MI NM 10.44 12.99 8.05 Chemical Financial Corporation Caledonia Financial Corporation MI 15.83 24.80 29.41 23.30 Monarch Community Bancorp, Inc. MSB Financial, Inc. MI 13.24 24.12 34.19 17.81 Sky Financial Group Inc. GLB Bancorp, Inc. OH 33.54 19.21 23.27 6.47 Citizens First Bancorp, Inc. Metro Bancorp, Inc. MI 20.15 20.43 23.09 11.40 Standard Bancshares Inc. Security Financial Bancorp Inc. IN 48.00 23.11 31.51 7.14 First Southern Bancorp, Inc. South Central Bancshares, Inc. KY 17.20 17.03 19.92 8.21 Wayne Bancorp Inc. Banc Services Corporation OH 16.98 22.41 28.10 20.41 Peoples Bancorp Inc. Kentucky Bancshares Inc. KY 25.23 24.02 30.91 16.77 MainSource Financial Group First Community Bancshares, Inc. IN 33.33 15.57 19.14 12.72 First Indiana Corporation MetroBanCorp IN 24.29 22.56 28.91 19.57 First Merchants Corp. CNBC Bancorp OH 17.06 18.28 23.42 18.82 Charter One Financial, Inc. Charter National Bancorp, Inc. MI 26.38 33.87 41.83 33.89 HIGH 48.00 33.87 42.26 33.89 Low 13.24 10.44 12.99 6.47 Mean 25.07 20.76 27.00 16.67 Median 24.75 21.22 26.15 17.33 CENTRAL FEDERAL CORPORATION (FOR THE LTM ENDED SEPTEMBER 30, 2004) ($ 1.14) $71.99 $43.82 $38.62 MEDIUN MULTIPLE 24.8X 21.2% 26.2% 17.3% ------- ------ ------ ------ EQUITY VALUE PER SHARE N.M. $15.26 $11.48 $15.60
Source: SNL Financial LP DONNELLY PENMAN & PARTNERS -------------------------- INVESTMENT BANKING