-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VNT/AqtORQIf4nUrn0+SDPRTU5WXJgs5fjkG2VntYZK+m3ByIX64+Mmb7svXUaUL HpZHOqcEE8AndzZrId0wHQ== 0000950152-05-001032.txt : 20050211 0000950152-05-001032.hdr.sgml : 20050211 20050211132752 ACCESSION NUMBER: 0000950152-05-001032 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20050211 DATE AS OF CHANGE: 20050211 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL FEDERAL CORP CENTRAL INDEX KEY: 0001070680 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341877137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-55853 FILM NUMBER: 05596817 BUSINESS ADDRESS: STREET 1: C/O CENTRAL FEDERAL BANK STREET 2: 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 BUSINESS PHONE: 3305321517 MAIL ADDRESS: STREET 1: C/O CENTRAL FEDERAL BANK STREET 2: 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 FORMER COMPANY: FORMER CONFORMED NAME: GRAND CENTRAL FINANCIAL CORP DATE OF NAME CHANGE: 19980918 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL FEDERAL CORP CENTRAL INDEX KEY: 0001070680 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341877137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: C/O CENTRAL FEDERAL BANK STREET 2: 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 BUSINESS PHONE: 3305321517 MAIL ADDRESS: STREET 1: C/O CENTRAL FEDERAL BANK STREET 2: 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 FORMER COMPANY: FORMER CONFORMED NAME: GRAND CENTRAL FINANCIAL CORP DATE OF NAME CHANGE: 19980918 SC 13E3/A 1 l10719csc13e3za.txt CENTRAL FEDERAL CORPORATION SC 13E3/A AMEND #2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13E-3 (RULE 13e-100) (Amendment No. 2) TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 13e-3 THEREUNDER RULE 13E-3 TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934 CENTRAL FEDERAL CORPORATION (Name of the Issuer) Central Federal Corporation (Names of Person Filing Statement) Common Stock, par value $0.0l per share (Title of Class of Securities) 15346Q103 (CUSIP Number of Class of Securities) Eloise L. Mackus Central Federal Corporation 2923 Smith Road Fairlawn, Ohio 44333 330.666.7979 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Persons Filing Statement) Copies to: Stanley E. Everett Brouse McDowell, A Legal Professional Association Suite 500, 388 South Main Street Akron, Ohio 44311-4407 330.535.5711 This statement is filed in connection with (check the appropriate box): [X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934 [ ] The filing of a registration statement under the Securities Act of 1933 [ ] A tender offer [ ] None of the above Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [ ] Check the following box if the filing is a final amendment reporting the results of the transaction: [ ] Calculation of Filing Fee - ------------------------------------------------------------------------------- Transaction Valuation* Amount of Filing Fee** - ------------------------------------------------------------------------------- $1,295,184 $245.91 - ------------------------------------------------------------------------------- * Central Federal Corporation will purchase approximately shares of its common stock for $14.50 per share for a total Transaction Valuation of $1,295,184. This Transaction Valuation is a reduction from the anticipated Transaction Valuation of $1,940,811 when the Schedule 13E-3 was filed on November 24, 2004. These are shares comprised of fractional interests resulting from a one-for-325 reverse stock split of the Company's common stock. The price to be paid per share is the fair market value determined by an appraisal; such price exceeds the highest closing price on any day during the thirty-day (30-day) period prior to November 18, 2004, the date of the appraisal. ** Pursuant to Rule 0-11 of the Securities Exchange Act of 1934, the Amount of Filing Fee has been calculated by multiplying $1,940,811, the Transaction Valuation at the time of filing on November 24, 2004, by 0.00012670 [X] Check the box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form and Schedule and the date of its filing. Amount Previously Paid: $245.91 Filing Party: Central Federal Corporation Form or Registration No.: Schedule 13E-3; Date Filed: November 24, 2004 File No. 5-55853
INTRODUCTION This Amendment No. 2 to Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Statement") is submitted by Central Federal Corporation, a Delaware corporation (the "Company"). This Statement relates to a proposed amendment to the Company's Certificate of Incorporation (the "Certificate of Incorporation") to effect a one-for-325 reverse stock split of the Company's common stock and a proportionate, corresponding reduction in the authorized shares of its capital stock (the "Charter Amendment"). On October 22, 2004, the Company's Board of Directors unanimously approved the Charter Amendment and called for consideration of the Charter Amendment at a special meeting of stockholders (the "Special Meeting"). On November 18, 2004, the Board determined the fair market price for the redemption of fractional shares to be $14.50 per pre-split share, based upon an appraisal received from Donnelly, Penman & Partners, an independent valuation firm, in which the fair market value was determined to be $14.04 per share as of November 15, 2004. The Board added a premium of $0.46 per share to the fair market value to arrive at a redemption price of $14.50 per pre-split share for any fractional share resulting from the split. If approved by the stockholders, the Charter Amendment will be filed with the Secretary of State of the State of Delaware at the earliest practicable date after the Special Meeting of Stockholders. The Charter Amendment will be effective on or about March 31, 2005. This Statement is intended to satisfy the reporting requirements of Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's preliminary proxy statement for the Special Meeting (the "Proxy Statement") was filed with the Securities and Exchange Commission (the "Commission") on November 24, 2004, and Amendment No. 1 thereto was filed immediately prior to the filing of this Statement on January 12, 2005. Item 1 Summary Term Sheet The information set forth in the Proxy Statement under the caption "Summary Term Sheet," beginning on page 2 is incorporated herein by reference. Item 2 Subject Company Information (a) Names and Addresses. The information set forth on the cover page of the Proxy Statement is incorporated herein by reference. (b) Securities. The information set forth in the Proxy Statement under the caption "Trading, Market Prices and Dividends" on page 28 is incorporated herein by reference. (c) Trading Market and Price. The information set forth in the Proxy Statement under the caption "Trading, Market Prices and Dividends" on page 28 is incorporated herein by reference. (d) Dividends. The information set forth in the Proxy Statement under the caption "Trading, Market Prices and Dividends" on page 28 is incorporated herein by reference. (e) Prior Public Offerings. Not applicable. (f) Prior Stock Purchases. The information set forth in the Proxy Statement under the caption "Prior Stock Purchases" on page 28 is incorporated herein by reference. Item 3 Identity and Background of Filing Persons (a) Names and Address. Central Federal Corporation, the subject company, is the only filing person. The information set forth on the cover page of the Proxy Statement is incorporated herein by reference. (b) Business and Background of Entities. Not applicable (c) Business and Background of Natural Persons. The information set forth in the Proxy Statement under the caption "Directors and Executive Officers" beginning on page 28 is incorporated herein by reference. Item 4 Terms of the Transaction (a) Material Terms. The information set forth in the Proxy Statement under the captions: "Summary Term Sheet" beginning on page 2, "Special Factors - Purposes of and Reasons for the Transaction" beginning on page 8, "- Effects of the Transaction on the Company" beginning on page 10, "- Effects of the Transaction on Stockholders" beginning on page 11 and "- United States Federal Income Tax Consequences of the Transaction" beginning on page 11 and "Amendment to Certificate of Incorporation" beginning on page 25 is incorporated herein by reference. (c) Different Terms. The information set forth in the Proxy Statement under the caption "Amendment to Certificate of Incorporation - Description of the Transaction" beginning on page 25 is incorporated herein by reference. (d) Appraisal Rights. The information set forth in the Proxy Statement under the captions "Amendment to Certificate of Incorporation - No Appraisal Rights" on page 28, "Special Factors - Fairness of the Transaction to Stockholders - Substantive Fairness - Appraisal Rights" on 15 and "Summary Term Sheet - Do I Have Appraisal Rights in Connection with the Reverse Stock Split?" on page 4 is incorporated herein by reference. (e) Provisions for Unaffiliated Security Holders. The information set forth in the Proxy Statement under the caption "Amendment to Certificate of Incorporation - Description of the Transaction - Unaffiliated Stockholders" on page 26 is incorporated herein by reference. (f) Eligibility for Listing or Trading. Not applicable Item 5 Past Contracts, Transactions, Negotiations and Agreements (a) Transactions. The information set forth in the Proxy Statement under the caption "Directors and Executive Officers - Certain Relationships and Related Transactions" on page 31 is incorporated herein by reference. (b) Significant Corporate Events. Not applicable (c) Negotiations or Contacts. Not applicable. (e) Agreements Involving the Company's Securities. The information set forth in the Proxy Statement under the caption "Stock Ownership - Equity Compensation Plan Information" on page 33 is incorporated herein by reference. Item 6 Purposes of the Transaction and Plans or Proposal (b) Use of Securities Acquired. Use of Securities Acquired. The information set forth in the Proxy Statement under the caption "Amendment to Certificate of Incorporation - Description of the Transaction - Authorized Capital Stock Following the Reverse Stock Split Will Not Change" on page 26 is incorporated herein by reference. (c) Plans (1) The information set forth in the Proxy Statement under the caption "Amendment to Certificate of Incorporation - Description of the Transaction" beginning on page 25 is incorporated herein by reference. (2) The information set forth in the Proxy Statement under the caption "Amendment to Certificate of Incorporation - Description of the Transaction" beginning on page 25 is incorporated herein by reference. (3) Not applicable (4) Not applicable (5) Not applicable (6) The information set forth in the Proxy Statement under the caption "Special Factors - Effects of the Transaction on the Company" beginning on page 9 is incorporated herein by reference. (7) The information set forth in the Proxy Statement under the caption "Special Factors - Effects of the Transaction on the Company" beginning on page 10 is incorporated herein by reference. (8) The information set forth in the Proxy Statement under the caption "Special Factors - Effects of the Transaction on the Company" beginning on page 10 is incorporated herein by reference. Item 7 Purposes, Alternatives, Reasons and Effects (a) Purposes. The information set forth in the Proxy Statement under the caption "Special Factors - Background of the Transaction" beginning on page 6 and "- Purposes of and Reasons for the Transaction" beginning on page 8 is incorporated herein by reference. (b) Alternatives. The information set forth in the Proxy Statement under the caption "Special Factors - Alternatives Considered" on page 9 is incorporated herein by reference. (c) Reasons. The information set forth in the Proxy Statement under the caption "Special Factors - Purposes of and Reasons for the Transaction" beginning on page 8 is incorporated herein by reference. (d) Effects. The information set forth in the Proxy Statement under the captions "Special Factors - Effects of the Transaction on the Company" beginning on page 9 "- Effects of the Transaction on Stockholders" beginning on page 10 and " - United States Federal Income Tax Consequences of the Transaction" beginning on page 11 is incorporated herein by reference. Item 8 Fairness of the Transaction (a) Fairness. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders" beginning on page 12 and " - Opinion of Financial Advisor" beginning on page 18 is incorporated herein by reference. (b) Factors Considered in Determining Fairness. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders" beginning on page 12 and "- Opinion of Financial Advisor" beginning on page 18 is incorporated herein by reference. (c) Approval of Security Holders. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders - Procedural Fairness - No Separate Vote of Unaffiliated Stockholders" on page 13 and "Summary Term Sheet - What Vote is Required to Approve the Proposal?" on page 2 is incorporated herein by reference. (d) Unaffiliated Representative. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders - Procedural Fairness - No Unaffiliated Representative" on page 13 and "Amendment to Certificate of Incorporation - Description of the Transaction - Unaffiliated Stockholders" on page 25 is incorporated herein by reference. (e) Approval of Directors. The information set forth in the Proxy Statement under the caption "Special Factors - Fairness of the Transaction to Stockholders - Procedural Fairness - Board Approval" on page 13 is incorporated herein by reference. (f) Other Offers. The information set forth in the Proxy Statement under the caption "Special Factors - Fairness of the Transaction to Stockholders - Substantive Fairness - Other Offers" beginning on page 15 is incorporated herein by reference. Item 9 Reports, Opinions, Appraisals and Negotiations (a) Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the caption "Special Factors - Opinion of Financial Advisor" beginning on page 18 is incorporated herein by reference. (b) Preparer and Summary of the Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the caption "Special Factors - Opinion of Financial Advisor" beginning on page 18 is incorporated herein by reference. (c) Availability of Documents. The information set forth in the Proxy Statement under the caption "Special Factors - Opinion of Financial Advisor" beginning on page 18 is incorporated herein by reference. Item 10 Source and Amount of Funds or Other Consideration (a) Source of Funds. The information set forth in the Proxy Statement under the caption "Amendment to Certificate of Incorporation - Description of the Transaction - Source of Funds and Expenses" on page 27 is incorporated herein by reference. (b) Conditions. None (c) Expenses. The information set forth in the Proxy Statement under the caption "Amendment to Certificate of Incorporation - Description of the Transaction - Source of Funds and Expenses" on page 27 is incorporated herein by reference. (d) Borrowed Funds. Not applicable Item 11 Interest in Securities of the Subject Company (a) Securities Ownership. The information set forth in the Proxy Statement under the caption "Stock Ownership - Security Ownership Of Directors And Executive Officers" on page 32 and "- Equity Compensation Plan Information" on page 33 is incorporated herein by reference. (b) Securities Transactions. The information set forth in the Proxy Statement under the caption "Recent Securities Transactions" on page 29 is incorporated herein by reference. Item 12 The Solicitation or Recommendation (d) Intent to Tender or Vote in a Going-Private Transaction. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders - Procedural Fairness - Board and Officer Voting Intentions and Recommendations" on page 13 and "Summary Term Sheet - What is the Voting Recommendation of the Board of Directors?" on page 5 is incorporated herein by reference. (e) Recommendations of Others. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders - Procedural Fairness -- Board and Officer Voting Intentions and Recommendations" on page 13 and "Summary Term Sheet - What is the Voting Recommendation of the Board of Directors?" on page 5 is incorporated herein by reference. Item 13 Financial Statements (a) Financial Information. The information set forth in the Proxy Statement under the caption "Financial Statements" beginning after page 34 is incorporated herein by reference. (b) Pro Forma Information. The information set forth in the Proxy Statement under the caption "Pro Forma Information" beginning after the financial statements, which begin after page 34, is incorporated herein by reference. Item 14 Persons/Assets, Retained, Employed, Compensated or Used (a) Solicitations or Recommendations. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders - Procedural Fairness - Solicitation and Costs" beginning on page 13 and "Summary Term Sheet - Who is Soliciting Proxies and Paying Solicitation Costs?" on page 3 is incorporated herein by reference. (b) Employees and Corporate Assets. The information set forth in the Proxy Statement under the captions "Special Factors - Fairness of the Transaction to Stockholders - Procedural Fairness - Solicitation and Costs" beginning on page 13 and "Summary Term Sheet - Who is Soliciting Proxies and Paying Solicitation Costs?" on page 3 is incorporated herein by reference. Item 15 Additional Information (b) Other Material Information. None Item 16 Exhibits (a) Disclosure Materials. The Company's definitive Proxy Statement, including all appendices thereto, and related Notice of Special Meeting of Stockholders (incorporated by reference to the definitive Proxy Statement filed with the Commission on February 11, 2005) (b) Loan Agreement. None (c) Report, Opinion or Appraisal. (i) Fairness Opinion Letter of Donnelly, Penman & Partners, dated November 18, 2004 (ii) Valuation Report of Donnelly, Penman & Partners, dated November 18, 2004 (d) Contracts, Arrangements or Understandings. None (f) Statement of Appraisal Rights. None (g) Oral Solicitation Material. None SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Central Federal Corporation By: /s/Mark S. Allio ------------------------------ Mark S. Allio President and Chief Executive Officer Date: February 11, 2005 EX-99.C.I 2 l10719cexv99wcwi.txt EX-99(C)(I) OPINION LETTER OF DONNELLEY PENMAN & PARTNERS EXHIBIT (c)(i) OPINION LETTER OF DONNELLY PENMAN & PARTNERS November 22, 2004 Board of Directors Central Federal Corporation 2923 Smith Road Fairlawn, Ohio 44333 Members of the Board of Directors: You have requested our opinion as to the fairness, from a financial point of view, of the cash consideration of $14.50 per share ("Consideration") to be received by the certain common shareholders of Central Federal Corporation ("Central Federal" or the "Company") holding fewer than 325 shares immediately prior to the Effective Time as defined in the Proxy Statement relating to the Amendment to the Certificate of Incorporation (the "Amendment") who will receive cash consideration of $14.50 per fractional share created after the Effective Time of the Amendment. Shareholders who hold fewer than 325 shares immediately prior to the Effective Time will, as a result of the Amendment, no longer be shareholders of the Company and shall cease to have any rights as shareholders and their sole right shall be the right to receive the Consideration as aforesaid, without interest thereon, upon surrender to the Company of their certificates which theretofore represented shares of Central Federal Common Stock. Donnelly Penman & Partners ("Donnelly Penman") is an investment-banking firm of recognized standing. As part of our investment banking services, we are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and valuations for stock plans, corporate and other purposes. We are acting as financial advisor to the Company in connection with the Amendment and will receive a fee from the Company for our services pursuant to the terms of our engagement letter with the Company, dated as of October 28, 2004 (the "Engagement Letter"). 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; VII. Prepared a discounted dividend analysis of the Company based on projections derived from discussions with and deemed reasonable by management of the Company; and VIII. 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 conducting our review and arriving at our opinion, as contemplated under the terms of our engagement by the Company, we, with the consent of the Company, relied, without independent investigation, upon the accuracy and completeness of all financial and other information provided to us by the Company. Donnelly Penman has further relied upon the assurance of management of the Company that they are unaware of any facts that would make the information provided by or available to the Company incomplete or misleading in any respect. With respect to the financial forecast information discussed with us by the Company, we have assumed that they have been reasonably prepared in good faith and reflect the best currently available estimates and judgments of the senior management of the Company as to the expected future financial performance of the Company. The Company's management team has undertaken and agreed to advise us promptly if any information previously provided has become inaccurate or is required to be updated during the period of our review. No limitations were imposed by the Company on Donnelly Penman on the scope of Donnelly Penman's investigation or the procedures to be followed by Donnelly Penman in rendering this opinion. On November 18, 2004, the Board of Directors was provided with Donnelly Penman's valuation of the fully marketable, undiscounted value of a share of Central Federal common stock as of November 15, 2004. Although Donnelly Penman believes the value presented to the board is a reasonable valuation, the actual share valuation for purposes of this Amendment is at the sole discretion of the Board of Directors. In addition, Donnelly Penman was not requested to and did not make any recommendation to the Company's Board of Directors as to the form of the consideration to be paid to the Company's shareholders. Donnelly Penman was not requested to opine as to, and this opinion does not address, The Company's underlying business decision to proceed with or effect the Amendment or the relative merits of the Amendment compared to any alternative transaction that might be available to the Company. Donnelly Penman did not make or obtain any independent evaluation, valuation or appraisal of the assets or liabilities of the Company, nor were we furnished with such materials. Donnelly Penman has not reviewed any individual credit files of the Company and has assumed, without independent verification that the aggregate allowances for credit losses for the Company are adequate and appropriate to cover such losses. Our opinion is necessarily based upon economic and market conditions and other circumstances as they exist and have been evaluated by us on the date of our opinion. We do not have any obligation to update our opinion beyond the November 15, 2004 valuation, unless requested by the Company in writing to do so, and we expressly disclaim any responsibility to do so in the absence of any such request. Our services to the Company in connection with the Amendment have been comprised solely of financial advisory services, as described in the Engagement Letter. In our analyses, we have made numerous assumptions with respect to industry performance, business and economic conditions, and other matters, many of which are beyond the control of the Company. These assumptions include: - - general economic conditions are not expected to improve or deteriorate significantly from their current state; - - no significant industry regulations or events are expected to occur that would impair the Company's ability to earn income at the projected levels; and - - industry trading and transaction multiples are not projected to change significantly from the current values. Any estimates contained in our analyses are not necessarily indicative of future results or value, which may be significantly more or less favorable than such estimates. Estimates of values of companies do not purport to be appraisals or to necessarily reflect the prices at which companies or their securities actually may be sold. No company or merger utilized in our analyses was identical to the Company. Accordingly, such analyses are not based solely on arithmetic calculations; rather, they involve complex considerations and judgments concerning differences in financial and operating characteristics of the relevant companies, the timing of the relevant mergers and prospective buyer interests, as well as other factors that could affect the public trading markets of companies to which the Company is being compared. The analyses performed by Donnelly Penman were assigned a weighting based on Donnelly Penman's opinion of their relative comparability and significance with regard to the specific characteristics of the Company. The complete valuation provided to the Company on November 18, 2004, including a comprehensive explanation of methodologies utilized has been delivered to the Board of Directors of the Company. Additional copies are available to members of the Board of Directors of the Company and the Company's management upon request. A summary of this valuation is also presented in the Proxy Statement under the heading of Opinion of Financial Advisor. Our opinion is furnished to the Board of Directors of the Company in connection with its consideration of the proposed Amendment and does not constitute a recommendation to or any advice to the Board of Directors of the Company or to any shareholder to take any other action in connection with the Amendment. Furthermore, this letter should not be construed as creating any fiduciary duty on the part of Donnelly Penman to any such party. We hereby consent to the reference to our opinion in the proxy statement relating to the shares of common stock of the Company to be repurchased as a result of the Amendment and to the inclusion of the foregoing opinion in the materials relating to the Amendment. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission thereunder. Based upon and subject to the foregoing, including the various assumptions and limitations set forth herein, it is our opinion that, as of November 18, 2004, the Consideration of $14.50 per share, is fair, from a financial point of view, to the common shareholders of the Company. Very truly yours, John C. Donnelly Managing Director Donnelly Penman & Partners EX-99.C.II 3 l10719cexv99wcwii.txt EX-99(C)(II) VALUATION AS OF NOVEMBER 15, 2004 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 [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 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 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. 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 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. 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 - ---------- (1) Summary of Commentary on Current Economic Conditions by Federal Reserve District, July 28, 2004. 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 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 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, - ---------- (3) Ibbotson Associates, "Stocks, Bonds, Bills, and Inflation," Valuation Edition 2003 Yearbook 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. 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) MEDIAN 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 MEDIAN 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 MEDIAN 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 -----END PRIVACY-ENHANCED MESSAGE-----