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As filed with the Securities and Exchange Commission on September 11, 2015
Registration No. 333-      ​
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
registration statement
Under
the Securities Act of 1933
Central Federal Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Missouri
6035
47-4884908
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
210 West 10 th Street
Rolla, Missouri 65401
(573) 364-1024
(Address, including ZIP Code, and telephone number, including area code, of registrant’s principal executive offices)
William A. Stoltz
President and Chief Executive Officer
Central Federal Bancshares, Inc.
210 West 10 th Street
Rolla, Missouri 65401
Telephone: (573) 364-1024
(Name, address, including ZIP Code, and telephone number, including area code, of agent for service)
Copies to:
Leonard J. Essig
Lewis Rice LLC
600 Washington Avenue, Suite 2500
St. Louis, Missouri 63101
Telephone: (314) 444-7651
Fax: (314) 612-7651
John F. Breyer, Jr.
Breyer & Associates PC
8180 Greensboro Drive, Suite 785
McLean, Virginia 22102
Telephone: (703) 883-1100
Fax: (703) 883-2511
Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:   ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:   
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:   
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of  “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   
Accelerated filer   
Non-accelerated filer   
(Do not check if a smaller​
reporting company)
Smaller reporting company   ☒
Calculation of Registration Fee
Title of Each Class of Securities
to be Registered
Amount to be
Registered (1)
Proposed Maximum
Offering Price Per Share (3)
Proposed Maximum
Aggregate Offering
Price (1)
Amount of
Registration Fee
Central Federal Bancshares, Inc. common stock, par value $0.01 per share
1,788,020
$
10.00
$
17,880,200
$
2,077.68
(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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PROSPECTUS
Central Federal Bancshares, Inc.
(Proposed Holding Company for Central Federal Savings and Loan Association of Rolla)
Minimum of 1,105,000 and up to 1,495,000 Shares of Common Stock
Central Federal Bancshares, Inc., a Missouri corporation, is offering shares of its common stock for sale in connection with the conversion of Central Federal Savings and Loan Association of Rolla (“Central Federal”) from the mutual to the stock form of ownership. After the offering, Central Federal Bancshares will be the holding company for Central Federal through its ownership of 100% of Central Federal’s outstanding common stock. We have not previously issued common stock and there is currently no established market for the common stock. We intend to have our common stock quoted on the OTC Pink marketplace upon conclusion of the offering. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
If you are or were an eligible depositor of Central Federal:

You may have priority rights to purchase shares of common stock.
If you do not qualify under the category above, but are interested in purchasing shares of our common stock:

You may have an opportunity to purchase shares of common stock after priority orders are filled.
We are offering up to 1,495,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 1,105,000 shares to complete the offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, the independent appraiser determines that our pro forma market value has increased, we may sell up to 1,719,250 shares without giving you further notice or the opportunity to change or cancel your order. If our pro forma market value at the end of the stock offering period, including the cash and shares to be contributed to our charitable foundation as discussed below, is either below $11.1 million or above $17.2 million, then, after consulting with the Office of the Comptroller of the Currency, or OCC, we may: (i) terminate the stock offering and promptly return all funds, with interest and without deduction; (ii) set a new offering range, while retaining the $10.00 per share offering price, and giving all subscribers the opportunity to confirm, modify or rescind their stock purchase orders within a specified period of time; or (iii) take such other actions as may be permitted by the OCC, the Securities and Exchange Commission and any applicable state securities commissions.
The offering is expected to expire at __________ p.m., Central time, on [ Expiration Date] . We may extend this expiration date without notice to you until [ Date 1] , unless the OCC approves a later date, which will not be beyond [ Date 2] .
Keefe, Bruyette & Woods will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the shares of common stock we are offering for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares offered for sale are offered at a price of  $10.00 per share. In addition to the shares that we will sell in the offering, we intend to establish a charitable foundation in connection with the conversion and fund it with $100,000 in cash and the remainder in shares of common stock equal to 4% of the shares sold by Central Federal Bancshares in the offering.
The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond [ Date 1] . If the offering is extended beyond [ Date 1] , subscribers will have the right to modify or rescind their purchase orders. Funds received before the completion of the offering will be maintained in a segregated account at Central Federal. All funds received will bear interest at Central Federal’s statement savings rate, which is subject to change at any time and is currently _____% per annum. If we terminate the offering for any reason, or if we extend the offering beyond [ Date 1] , we will notify you and will promptly return your funds with interest if you do not respond to the notice.
The OCC conditionally approved our plan of conversion on __________. However, such approval does not constitute a recommendation or endorsement of this offering.
This investment involves a degree of risk, including the possible loss of principal.
Please read “Risk Factors” beginning on page 12 .
OFFERING SUMMARY
Price per share: $10.00
Minimum
Maximum
Maximum, as
Adjusted
Number of shares
1,105,000 1,495,000 1,719,250
Gross offering proceeds
$ 11,050,000 $ 14,950,000 $ 17,192,500
Estimated offering expenses, excluding selling agent fees and expenses
$ 856,000 $ 856,000 $ 856,000
Estimated selling agent fees and expenses (1)
$ 355,000 $ 355,000 $ 355,000
Estimated net proceeds
$ 9,839,000 $ 13,739,000 $ 15,981,500
Estimated net proceeds per share
$ 8.90 $ 9.19 $ 9.30
(1)
Estimated selling agent fees and expenses shown assume that all shares are sold in the subscription and community offerings with a success fee of 1% of the aggregate purchase price of our stock sold in the subscription offering and 2% of the aggregate purchase price of our stock sold in the community offering (excluding shares purchased by our officers, directors or employees (or members of their immediate families) and shares issued to our employee stock ownership plan and charitable foundation for which no selling agent fee will be paid) will be $225,000 and certain other expenses of the offering payable to Keefe, Bruyette & Woods in the subscription offering and community offering of up to $130,000. See “ The Conversion and Stock Offering – Marketing Arrangements ” for information regarding compensation to be received by Keefe, Bruyette & Woods and the other broker-dealers that may participate in a syndicated offering. If all shares of common stock were sold in a syndicated offering, the maximum selling agent commissions, including fees and expenses, would be approximately $954,738, $1,062,004, $1,167,270 and $1,292,625 at the minimum, midpoint, maximum, and adjusted maximum levels of the offering, respectively, assuming no employees other than officers and directors participate in the offering.
These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the OCC nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
For assistance, please contact the stock information center at (___) ___-_____.
[MISSING IMAGE: LG_KEEFE-BRUYETTE.JPG]
The date of this prospectus is __________.

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Summary
This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully, including the financial statements and the section entitled “Risk Factors.” In certain instances where appropriate, the terms “we,” “us” and “our” refer to Central Federal Bancshares, Inc. and/or Central Federal Savings and Loan Association of Rolla, as indicated by context.
The Companies
Central Federal Bancshares, Inc.
Central Federal Savings and Loan Association of Rolla
210 West 10 th Street
Rolla, Missouri 65401
(573) 364-1024
Central Federal Bancshares, Inc.    This offering is made by Central Federal Bancshares, Inc., a Missouri corporation incorporated in August 2015 at the direction of Central Federal Savings and Loan Association of Rolla, or Central Federal, to be its holding company following the conversion. Currently, Central Federal Bancshares has no assets. Following the conversion, Central Federal Bancshares will own all of Central Federal’s capital stock and will direct, plan and coordinate Central Federal’s business activities. In the future, Central Federal Bancshares might also acquire or organize other operating subsidiaries, including other financial institutions or financial services companies, although it currently has no specific plans or agreements to do so.
Central Federal.    Central Federal is a community-oriented financial institution founded in 1952, dedicated to serving the financial needs of customers within its market area, which generally consists of Phelps County, Missouri, although it also services customers in the contiguous Missouri counties of Dent, Texas, Crawford, Pulaski and Maries. We offer a variety of loan and deposit products to meet the borrowing needs of our customers. Our real estate loans consist primarily of residential real estate loans, which include owner-occupied and non-owner occupied one- to four-family family residential real estate loans, as well as multi-family residential real estate loans. We also offer commercial loans, primarily secured by commercial real estate, and consumer loans, including automobile and recreational vehicle loans. We currently operate out of our office in Rolla, Missouri. We are subject to extensive regulation, examination and supervision by the Office of the Comptroller of the Currency, or OCC, our primary federal regulator, and the Federal Deposit Insurance Corporation, or FDIC, our deposit insurer. At June 30, 2015, we had total assets of  $62.4 million, total deposits of  $48.6 million and total equity of  $13.7 million.
Recent Operating Results and Operating Strategy (page ___)
We had net income of  $81,000 for the six months ended June 30, 2015 and net income of  $119,000 and $229,000 for the years ended December 31, 2014 and 2013, respectively. We have identified the following strategic initiatives we will pursue in our efforts to achieve our goal to operate and grow a profitable community-oriented financial institution:

building on our strengths as a community-oriented financial institution;

increasing loan production while maintaining our asset quality; and

strengthening our capital to protect against rising interest rates.
The Central Federal Community Foundation (page ___)
To continue our long-standing commitment to our local community, we intend to establish a charitable foundation, the Central Federal Community Foundation, as a non-profit Missouri corporation in connection with the conversion. We intend to fund the charitable foundation with $100,000 in cash and the remainder in shares of common stock equal to 4% of the shares sold by Central Federal Bancshares in the offering, which will result in the foundation holding 3.8% of our outstanding shares upon completion of the conversion. Based on the purchase price of  $10.00 per share, we will fund the charitable foundation with
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52,000 shares of our common stock at the midpoint of the offering range. Assuming this amount, our contribution to the charitable foundation will reduce net earnings by $429,000, after tax, in the quarter in which the charitable foundation is funded. The charitable foundation will make grants and donations to qualified charitable organizations and/or public entities in the communities we serve. Central Federal may make future contributions to the charitable foundation as deemed appropriate by Central Federal’s Board of Directors, subject to any capital needs and requirements or other regulatory limitations that may be applicable. It is anticipated that the charitable foundation will distribute at least 5% of its net investment assets each year as necessary to comply with the private foundation rules of the Internal Revenue Code.
The Conversion
Description of the Conversion (page ___)
Currently, we are a federally chartered mutual savings association with no shareholders. Our depositors and borrowers currently have the right to vote on certain matters such as the election of directors, this conversion transaction and the proposed contribution of cash and shares of our common stock to the charitable foundation. The conversion transaction that we are undertaking involves a change from our mutual form to a federal stock savings association charter that will result in all of Central Federal’s capital stock being owned by Central Federal Bancshares. Voting rights in Central Federal Bancshares will belong to its shareholders, including our employee stock ownership plan. For more information on the employee stock ownership plan, see “ Our Management —  Employee Stock Ownership Plan .”
We are conducting the conversion under the terms of our plan of conversion. The OCC has conditionally approved the plan of conversion, including a condition that it be approved by our members, and the members must also approve our proposed contribution to our charitable foundation. We have called a special meeting of members for [ Meeting Date ] to vote on the plan of conversion and the contribution to the charitable foundation.
The following diagram depicts our corporate structure after the conversion and offering, including the number and percentage of shares of common stock that will be owned by public shareholders at the minimum, maximum, and maximum, as adjusted, of the offering range upon completion of the conversion and the offering:
[MISSING IMAGE: T1502046_STRUCTURE.JPG]
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The Offering
Purchase Price
The purchase price is $10.00 per share. You will not pay a commission to buy any shares in the offering.
Number of Shares to be Sold
We are offering for sale between 1,105,000 and 1,495,000 shares of Central Federal Bancshares common stock in a subscription offering, community offering and possibly a syndicated offering. With regulatory approval, we may increase the number of shares to be sold to 1,719,250 shares without giving you further notice or the opportunity to change or cancel your order. In considering whether to permit an increase in the offering size, the OCC will consider such factors as the level of subscriptions, the views of our independent appraiser, our financial condition and results of operations and changes in market conditions.
The following tables show how many shares of common stock may be issued in the offering and contributed to our charitable foundation, exclusive of any shares to be issued if our proposed stock-based equity incentive plan is adopted.
Shares to be sold to the
public in this offering
Shares to be sold to
the employee stock
ownership plan (2)
Shares to be issued
to the charitable
foundation (3)
Total shares of
common stock to be
outstanding after
the offering
Amount
% (1)
Amount
% (1)
Amount
%
Amount
%
Minimum
1,013,064 88.2 % 91,936 8.0 % 44,200 3.8 % 1,149,200 100 %
Midpoint
1,191,840 88.2 108,160 8.0 52,000 3.8 1,352,000 100
Maximum
1,370,616 88.2 124,384 8.0 59,800 3.8 1,554,800 100
Maximum, as adjusted
1,576,208 88.2 143,042 8.0 68,770 3.8 1,788,020 100
(1)
As a percentage of total shares sold in the offering (including shares issued to our charitable foundation).
(2)
Assumes 8% of the shares sold in the offering (including shares issued to our charitable foundation) are sold to the employee stock ownership plan.
(3)
Assumes $100,000 in cash and shares equal to 4% of the total amount sold in the offering are contributed to the charitable foundation.
How We Determined the Offering Range (page ___)
We are offering between 1,105,000 and 1,495,000 shares, which is our offering range, based on an independent appraisal of our pro forma market value prepared by Feldman Financial Advisors, Inc., or Feldman Financial, an independent appraisal firm experienced in appraisals of financial institutions. Feldman Financial estimated that as of August 31, 2015 our pro forma market value (including the cash and shares to be contributed to our charitable foundation) was between $11.5 million and $15.5 million, with a midpoint of  $13.5 million.
In preparing its appraisal, Feldman Financial considered the information in this prospectus, including our financial statements. Feldman Financial also considered the following factors, among others:

our present and projected operating results and financial condition;

the economic and demographic conditions of our primary market area;

pertinent historical financial and other information relating to Central Federal;

a comparative evaluation of our operating and financial statistics with those of other thrift institutions;
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the proposed price per share;

the aggregate size of the offering of common stock;

the impact of the conversion on our capital position and earnings potential;

our intent to establish a charitable foundation in connection with the conversion and fund it with $100,000 in cash and shares of common stock equal to 4% of the shares sold by Central Federal Bancshares in the offering; and

the trading market for securities of comparable publicly traded thrift institutions and general conditions in the market for such securities.
Two measures that some investors use to analyze whether a stock might be a good investment are the ratio of the offering price to the issuer’s “tangible book value” and the ratio of the offering price per share to the issuer’s income per share for the past twelve months. Feldman Financial considered these ratios, among other factors, in preparing its appraisal. Tangible book value is the same as total equity less intangible assets and represents the difference between the issuer’s tangible assets and liabilities. Feldman Financial’s appraisal also incorporates an analysis of a peer group of publicly traded companies that Feldman Financial considered to be comparable to us. In choosing the peer group, Feldman Financial selected companies with operating characteristics comparable to those of Central Federal based on geographic location, asset size, capitalization, and asset quality.
The purpose of utilizing the peer group is to develop valuation measures based on prices at which common stocks of comparable companies are trading in a public market. The comparable public companies valuation method is based on analyzing the trading market valuation ratios of the peer group and making any necessary adjustments to reflect any other differences or factors specific to the company being valued. The selection criteria were designed to identify companies with sufficient comparability to Central Federal so as to enhance the reliability of the method used to determine the appraised value. Feldman Financial concluded that the overall peer group provided reasonable comparability to justify relying upon the comparable peer group method in arriving at the appraised value. Conversion regulations require that Feldman Financial use a peer group of comparable institutions, and Feldman Financial believes that its methodology provides an objective assessment of the valuation ratios that should be utilized in determining the pro forma market value of Central Federal Bancshares. Feldman Financial applied a valuation discount to reflect the fact that, among other reasons, the earning of Central Federal were below the average level of the selected peer group. We reported a return on average assets of 0.25% for the twelve months ended June 30, 2015, and the average return on average assets for the peer group was 0.77% for the corresponding period.
The following table presents a summary of selected pricing ratios for the peer group companies and for Central Federal Bancshares utilized by Feldman Financial in its appraisal. These ratios are based on book value and tangible book value as of June 30, 2015, the latest date for which complete financial data was publicly available for the peer group.
Price to Book
Value Ratio
Price to
Tangible Book
Value Ratio
Central Federal Bancshares (pro forma)
Minimum
51.7 % 51.7 %
Midpoint
56.4 56.4
Maximum
60.5 60.5
Maximum, as adjusted
64.6 64.6
Peer group companies as of August 31, 2015:
Average
88.2 91.1
Median
91.8 92.4
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Compared to the average pricing ratios of the peer group at the maximum of the offering range, our stock would be priced at a discount of 31.4% to the peer group on a price-to-book basis and a discount of 33.6% on a price-to-tangible book basis. This means that, at the maximum of the offering rate, a share of our common stock would be less expensive than the peer group based on a book value per share basis. Because of the very low or negative earnings exhibited by Central Federal on a pro forma basis at different levels of the offering range, our pro forma price to earnings ratio was either extremely high or negative and considered by Feldman Financial to be not meaningful for comparative valuation purposes.
Feldman Financial also considered that we intend to issue shares of Central Federal Bancshares common stock to the Central Federal Community Foundation, a charitable foundation that will be established in connection with the conversion. The intended contribution of shares of common stock to the charitable foundation has the effect of reducing the number of shares that may be offered in the offering. The charitable foundation will be funded with $100,000 in cash and the remainder in shares of common stock equal to 4% of shares sold by Central Federal Bancshares in the offering, which will result in the charitable foundation holding 3.8% of our outstanding shares after the conversion. We will not receive any conversion proceeds in connection with the issuance of these shares, and thus, our pro forma book value and earnings will be lower, resulting in a lower pro forma value for Central Federal Bancshares. See “ The Central Federal Community Foundation ” and “ Comparison of Valuation and Pro Forma Information With and Without the Charitable Foundation. ” Feldman Financial’s independent valuation will be updated before we complete our offering.
The independent appraisal does not establish the market price at which our common stock will trade. You should not assume or expect that the valuation described above means that our common stock will trade at or above the $10.00 purchase price after the offering. Furthermore, the pricing ratios presented in the appraisal were utilized by Feldman Financial to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.
For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “ The Conversion and Stock Offering — How We Determined The Offering Range and the $10.00 Per Share Purchase Price .”
Possible Change in Offering Range (page ___)
Feldman Financial will update its appraisal before we complete the stock offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, Feldman Financial determines that our pro forma market value has increased, with regulatory approval we may sell up to 1,719,250 shares without further notice to you. If our pro forma market value, including the cash and shares to be contributed to our charitable foundation, at the end of the stock offering period is either below $11.5 million or above $17.9 million, then, after consulting with the OCC, we may: (i) terminate the stock offering and promptly return all funds, with interest and without deduction; (ii) set a new offering range, while retaining the $10.00 per share offering price, and give all subscribers the opportunity to confirm, modify or rescind their purchase orders for shares of Central Federal Bancshares’ common stock within a specified time period; or (iii) take such other actions as may be permitted by the OCC, the Securities and Exchange Commission, or SEC, or any applicable state securities commissions.
Possible Termination of the Offering
We must sell a minimum of 1,105,000 shares, including shares acquired by our employee stock ownership plan, to complete the offering. If we do not sell the minimum number of shares, or if we terminate the offering for any other reason, we will promptly return all funds, with interest and without deduction.
Conditions to Completing the Conversion and Offering
We are conducting the conversion and offering under the terms of our plan of conversion. We cannot complete the conversion and offering unless:

we sell at least the minimum number of shares offered;
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we receive the final approval of the OCC to complete the conversion and the offering and the approval from the Board of Governors of the Federal Reserve System, or Federal Reserve Board, of the holding company application; and

our members approve the plan of conversion and our contribution to the charitable foundation.
Any approval by the OCC or the Federal Reserve Board does not constitute a recommendation or endorsement of the plan of conversion.
Reasons for the Conversion and Offering (page ___)
Our primary reasons for the conversion and offering are to:

strengthen the capital base of Central Federal to support the implementation of our business plan and, from a safety and soundness perspective in light of the current regulatory and economic environment, to enhance our ability to manage risk;

enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through Central Federal’s traditional lending and investing activities;

enhance our overall competitive position through expanded capacity for organic growth, branch expansion or acquisitions of other financial institutions; and

implement equity compensation plans to retain and attract qualified directors, officers and staff.
Also, the formation and funding of the Central Federal Community Foundation in connection with the conversion will help us maintain and further expand our philanthropic endeavors to the communities we serve.
Benefits to Management and Potential Dilution to Shareholders Following Conversion (page ___)
We intend to adopt or have adopted the following benefit plans and agreements in connection with the conversion.
We expect our tax-qualified employee stock ownership plan to purchase 8% of the total number of shares of common stock that we issue in the conversion, including shares issued to our charitable foundation, or 124,384 shares of common stock, assuming we sell the maximum of the shares proposed to be sold and issue 59,800 shares of common stock to our charitable foundation.
We also intend to implement an equity incentive plan following the conversion. Shareholder approval of this plan will be required, and the plan cannot be implemented until at least six months after the completion of the conversion pursuant to applicable regulations. We have not yet determined whether we will present the equity incentive plan for shareholder approval within 12 months following the completion of the conversion or more than 12 months after the completion of the conversion. If presented more than 12 months after the completion of the conversion, these plans would require the approval of our shareholders by a majority of votes cast; otherwise, they would require the approval of our shareholders by a majority of votes eligible to be cast. Further, there are a number of restrictions that would apply to these plans if adopted within one year of the conversion, including limits on awards to non-employee directors and officers and vesting. See “ Our Management — Equity Incentive Plans — Future Equity Incentive Plan .” For example, if adopted within 12 months following the completion of the conversion, the equity incentive plan will reserve a number of shares of common stock equal to not more than 4% of the shares issued in the conversion, including shares issued to our charitable foundation, for restricted stock awards to employees and directors, at no cost to the recipients, and will also reserve a number of stock options equal to not more than 10% of the shares of common stock issued in the conversion (for employees and directors).
If 4% of the shares of common stock issued in the conversion are awarded under an equity incentive plan from authorized but unissued shares of common stock, shareholders would experience dilution of up to 3.85% in their ownership interest in Central Federal Bancshares. If 10% of the shares of common stock
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issued in the conversion, including shares issued to our charitable foundation, are issued upon the exercise of options granted under an equity incentive plan and come from authorized but unissued shares of common stock, shareholders would experience dilution of 9.09% in their ownership interest in Central Federal Bancshares.
In addition to the stock-based plans, we expect Central Federal and Central Federal Bancshares to enter into a three-year employment agreement with our president and chief executive officer, William A. Stoltz. In addition, Central Federal intends to enter into one-year change in control agreement with our vice president – operations, Barbara E. Hamilton. See “ Our Management — Employment Agreement and Change in Control Agreement ” and Risk Factors — Risks Related to This Offering — We intend to enter an employment agreement or a change in control agreement with certain of our officers, which may increase our compensation costs upon the occurrence of certain events or increase the cost of acquiring us ” for a further discussion of these plans and agreements, including their terms and potential costs, as well as a description of other benefits arrangements.
The Offering Is Not Expected to Be Taxable to Persons Receiving or Exercising Subscription Rights (pages ___ to ___)
As a general matter, the offering is not expected to be a taxable transaction for purposes of federal income taxes to persons who receive or exercise subscription rights. We have received an opinion from our special counsel, Lewis Rice LLC, that, for federal income tax purposes:

it is more likely than not that the members of Central Federal will not realize any income upon the issuance or exercise of subscription rights;

it is more likely than not that the tax basis to the purchasers in the offering will be the amount paid for our common stock, and that the holding period for shares of common stock will begin on the date of completion of the subscription offering; and

the holding period for shares of common stock purchased in the community offering or syndicated offering will begin on the day after the date of completion of the purchase.
Central Federal also has received an opinion from Lewis Rice that, assuming the conversion does not result in any federal income tax liability to Central Federal, its account holders, or Central Federal Bancshares, implementation of the plan of conversion will not result in any Missouri income tax liability to those entities or persons.
Persons Who May Order Stock in the Offering (pages ___ to ___)
Note: Subscription rights are not transferable, and persons with subscription rights may not subscribe for shares for the benefit of any other person. If you violate this prohibition, you may lose your rights to purchase shares and may face criminal prosecution and/or other sanctions.
We have granted rights to subscribe for shares of Central Federal Bancshares common stock in a “subscription offering” to the following persons in the following order of priority:
1.
Depositors with $50 or more on deposit at Central Federal as of the close of business on June 30, 2014.
2.
Our employee stock ownership plan, which will provide retirement benefits to our employees.
3.
Depositors (other than our directors and officers) with $50 or more on deposit at Central Federal as of the close of business on [ Supplemental Eligibility Record Date] .
4.
Central Federal’s depositors who were not able to subscribe for shares under categories 1 or 3 and borrowers as of August 25, 2015 who remained borrowers as of the close of business on [ Record Date] .
If we receive subscriptions for more shares than are to be sold in this offering, we may be unable to fill or may only partially fill your order. Shares will be allocated in order of the priorities described above under a formula outlined in the plan of conversion. Generally, shares first will be allocated so as to permit each
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eligible subscriber, if possible, to purchase a number of shares sufficient to make the subscriber’s total allocation equal to 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining eligible subscribers whose subscriptions remain unfilled in proportion to the amounts that their respective eligible deposits bear to the total eligible deposits of all remaining eligible subscribers whose subscriptions remain unfilled. If we increase the number of shares to be sold above 1,495,000, the employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See “ The Conversion and Stock Offering — Subscription Offering and Subscription Rights ” for a description of the allocation procedure.
We may offer shares not sold in the subscription offering, if any, to the general public in a community offering. People, and trusts for the benefit of people, who are residents of Phelps County, Missouri will be given a first preference to purchase shares in the community offering. We may, in our sole discretion, reject orders received in the community offering either in whole or in part. For example, we would reject an order submitted by a person whom we believe is making false representations or whom we believe is attempting to violate, evade or circumvent the terms and conditions of the plan of conversion. If your order is rejected in part, you cannot cancel the remainder of your order. The community offering may commence concurrently with the subscription offering or at any time thereafter and may terminate at any time without notice until [ Date 1 ], unless the OCC approves a later date, which will not be beyond [ Date 2 ].
Shares of our common stock not purchased in the subscription offering or the community offering may be offered for sale to the general public in a syndicated offering through a syndicate of selected dealers. We may begin the syndicated offering at any time following the commencement of the subscription offering. Keefe, Bruyette & Woods will act as sole manager for any syndicated offering, which will also be conducted on a best efforts basis. Neither Keefe, Bruyette & Woods nor any other member of the syndicate will be required to purchase any shares in the syndicated offering.
Deadline for Ordering Stock (page ___)
The subscription offering will expire at _____ p.m., Central time, [ Expiration Date] . We expect that the community offering will expire at the same time, although it may continue for up to 45 days after the end of the subscription offering, or longer if the OCC approves a later date. No single extension may be for more than 90 days. If we extend the offering beyond [ Date 1 ], or if we intend to sell fewer than 1,105,000 shares or more than 1,719,250 shares, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will return your funds promptly with interest at our statement savings rate and without deduction.
Purchase Limitations (page ___)
Our plan of conversion establishes limitations on the purchase of stock in the offering. These limitations include the following:

The minimum purchase is 25 shares.

No individual (or individuals on a single qualifying account held jointly) may purchase more than $300,000 of common stock (which equals 30,000 shares) in the subscription offering.

No individual may purchase more than $300,000 of common stock (which equals 30,000 shares) in the community offering.

No individual, no individual together with any associates, and no group of persons acting in concert may purchase more than $300,000 of common stock (which equals 30,000 shares) in all offering categories.
Subject to the approval of the OCC, we may increase or decrease the purchase limitations at any time.
How to Purchase Common Stock (page ___)
If you want to place an order for shares in the subscription or community offerings, you must complete an original stock order form and send it to us together with full payment by mail using the stock order reply
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envelope provided, by overnight delivery to the stock information center at the address noted on the stock order form, or deliver it in person to Central Federal’s office, 210 West 10 th Street, Rolla, Missouri. We must receive your stock order form before the end of the subscription offering or the end of the community offering, as appropriate, regardless of the postmark date. Once we receive your order, you cannot cancel or change it without our consent.
To ensure that we properly identify your subscription rights, you must list all of your eligible accounts as of the applicable eligibility date on the stock order form. If you fail to do so, your subscription may be reduced or rejected if the offering is oversubscribed. To preserve your purchase priority, only the name(s) of person(s) listed on your eligible account at the applicable date of eligibility may be listed on your order form. You may not add the names of others who were not eligible to purchase common stock in the offering on the applicable date of eligibility.
You may pay for shares in the subscription offering or the community offering in either of the following ways:

By check or money order made payable to Central Federal Bancshares, Inc.; or    

By authorizing withdrawal from the types of deposit account at Central Federal identified on the stock order form.    
Please do not submit cash or wire transfers. Central Federal is not permitted to lend funds to anyone for the purpose of purchasing shares of common stock in the offering. Additionally, you may not use a Central Federal line of credit check or any type of third-party check to pay for shares of common stock. On the stock order form, you may not designate withdrawal from Central Federal accounts with check-writing privileges; instead, please submit a check. If you request that we directly withdraw the funds from an account with check writing privileges, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and we will immediately withdraw the amount from your checking account.
You may not authorize direct withdrawal from a Central Federal retirement account. Depositors interested in using funds in a retirement account with us to purchase common stock should contact the stock information center as soon as possible before the subscription offering ends. To use funds in a retirement account at Central Federal, you must transfer your account to an unaffiliated institutional trustee or custodian or brokerage firm. Retirement accounts at Central Federal are not self-directed and common stock may only be purchased using a self-directed individual retirement account. Please contact your broker or financial institution as quickly as possible to determine if you may transfer your retirement account from Central Federal because the transfer may take several days. You may use funds currently in an independent, self-directed retirement account to purchase stock by having your trustee complete and return the subscription form together with a check payable to Central Federal Bancshares before the expiration of the subscription offering.
Funds received in the subscription and community offerings will be immediately cashed and held in a segregated account at Central Federal and will earn interest at the rate we pay on statement savings accounts, which is subject to change at any time and is currently ___% per annum, from the date payment is processed until the offering is completed or terminated. All funds authorized for withdrawal from deposit accounts with us will earn interest at the applicable account rate until the offering is completed or terminated. If, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will earn interest at our statement savings rate. There will be no early withdrawal penalty for withdrawals from certificates of deposit used to pay for stock.
You May Not Sell or Transfer Your Subscription Rights
Our plan of conversion and federal regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action against anyone who we believe has sold or transferred his or her subscription rights. In addition, we intend to advise the appropriate federal agencies of any person who we believe has sold or transferred his or her subscription rights. We will not accept your
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order if we have reason to believe that you have sold or transferred your subscription rights. On the stock order form, you may not add the names of others for joint stock registration who do not have subscription rights or who qualify only in a lower subscription offering priority than you do. You may add only those who were eligible to purchase shares of common stock in the subscription offering at your date of eligibility. In addition, the stock order form requires that you list all qualifying accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation if there is an oversubscription.
How We Will Use the Proceeds of This Offering (page ___)
The following table summarizes how we will use the proceeds of this offering, based on the sale of shares at the minimum and maximum of the offering range. We expect to contribute 50% of the net proceeds of the offering to Central Federal.
(In thousands)
Minimum
1,105,000 Shares
at $10.00 per Share
Maximum
1,495,000 Shares
at $10.00 per Share
Offering proceeds
$ 11,050 $ 14,950
Less estimated offering expenses
(1,211 ) (1,211 )
Net offering proceeds
$ 9,839 $ 13,739
Less:
Proceeds contributed to Central Federal
$ (4,920 ) $ (6,870 )
Proceeds used for loan to employee stock ownership plan
(919 ) (1,244 )
Proceeds contributed to charitable foundation
(100 ) (100 )
Proceeds remaining for Central Federal Bancshares
$ 3,900 $ 5,525
Central Federal Bancshares may use the portion of the proceeds that it retains to, among other things, increase its investment portfolio, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Central Federal may use the portion of the proceeds that it receives to fund new loans, increase its investment portfolio and enhance its business activities. Except as described above, neither Central Federal Bancshares nor Central Federal has any specific plans for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. For a discussion of our business reasons for undertaking this offering, see “ The Conversion and Stock Offering — Reasons for the Conversion .”
Purchases by Directors and Executive Officers (page ___)
We expect that our directors and executive officers, together with their associates, will subscribe for 13,500 shares, which equals approximately 1% of the shares that would be sold at the midpoint of the offering range, including shares issued to our charitable foundation. Our directors and executive officers, together with their associates, will pay the same $10.00 price per share as everyone else who purchases shares in the offering. Like all of our eligible depositors and borrowers our directors and executive officers and their associates have subscription rights based on their eligible accounts and, if there is an oversubscription, their orders will be subject to the allocation provisions set forth in our plan of conversion, unless waived by the OCC. Purchases by our directors and executive officers and their associates will count towards the minimum number of shares we must sell to close the offering.
Market for Central Federal Bancshares’ Common Stock (page ___)
We have not previously issued common stock and there is currently no established market for the common stock. We intend to list our common stock for trading on the OTC Pink marketplace upon completion of the offering. Keefe, Bruyette & Woods intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. We cannot assure you that an active and liquid trading market for the common stock will develop or, if developed, will be maintained. See “ Market for the Common Stock .”
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Central Federal Bancshares’ Dividend Policy (page ___)
Following completion of the offering, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements. However, no decision has been made at this time with respect to the payment of dividends. In determining whether to declare or pay any dividends, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards and economic conditions. We will also consider the regulatory restrictions that affect the payment of dividends by Central Federal to us.
Delivery of Prospectus
To ensure that each person receives a prospectus at least 48 hours before the offering deadline, we may not mail prospectuses any later than five days before such date or hand-deliver prospectuses later than two days before that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or order form by means other than U.S. mail.
We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at _____ p.m., Central time, on [ Expiration Date ], whether or not we have been able to locate each person entitled to subscription rights.
Delivery of Shares of Common Stock
All shares of common stock of Central Federal Bancshares sold in the subscription offering and community offering will be issued in book entry form and held electronically on the books of our transfer agent. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock sold in the offering will be mailed by our transfer agent to the persons entitled thereto at the address noted by them on their stock order form as soon as practicable following consummation of the conversion. Shares of common stock sold in the syndicated community offering may be delivered electronically through the services of The Depository Trust Company. We expect trading in the stock to begin on the business day of or on the business day immediately following the completion of the conversion and stock offering. It is possible that until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they ordered, even though the common stock will have begun trading. Your ability to sell the shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Stock Information Center
Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the offering, please call the stock information center at (___) ____-_____. The stock information center will be open Monday through Friday, ___ a.m. to ___ p.m., Central time. The stock information center will be closed on bank holidays.
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Risk Factors
You should consider carefully the following risk factors before purchasing
Central Federal Bancshares common stock.
Risks Related to Our Business
Our business depends on our ability to successfully manage credit risk.
The operation of our business requires us to manage credit risk. As a lender, Central Federal is exposed to the risk that borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment. In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. In order to successfully manage credit risk, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our loan officers follow those standards. The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income. As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition or results of operations.
Our business may be adversely affected by credit risk associated with residential property.
At June 30, 2015, $19.4 million, or 38.9% of our total loan portfolio, consisted of one- to four-family owner-occupied mortgage loans and home equity loans secured by residential properties. Lending on residential property is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Declines in residential real estate values securing these types of loans may increase the level of borrower defaults and losses above the recent charge-off experience on these loans. Further, a significant amount of our home equity lines of credit consist of second mortgage loans. For those home equity lines secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan balances in the event of default unless we are prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property. For these reasons, we may experience higher rates of delinquencies, default and losses on loans secured by junior liens.
At June 30, 2015, $10.2 million, or 20.4% of our total loan portfolio, was secured by non-owner-occupied residential properties consisting of one- to four-family loans. In addition, at June 30, 2015, we had $9.6 million, or 19.2%, of our total loan portfolio secured by multi-family properties, most of which were non-owner occupied. Consequently, at June 30, 2015, we had a total of  $19.8 million, or 39.6% of our portfolio, in loans secured by non-owner occupied properties, virtually all of which were rental properties. Loans secured by non-owner-occupied properties generally expose a lender to greater risk of nonpayment and loss than loans secured by owner-occupied properties because repayment of such loans depends primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner-occupied properties is often below that of owner-occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties. Furthermore, some of our non-owner-occupied residential loan borrowers have more than one loan outstanding with us, which may expose us to a greater risk of loss compared to an adverse development with respect to an owner-occupied residential mortgage loan.
A significant portion of our loans are commercial and multi-family real estate that carry greater credit risk than loans secured by owner occupied one- to four-family residential real estate. We intend to continue to emphasize the origination of commercial and multi-family real estate loans.
At June 30, 2015, commercial and multi-family real estate loans totaled $15.8 million, or 31.7% of our loan portfolio. Given their larger balances and the complexity of the underlying collateral, commercial and
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multi-family real estate loans generally expose a lender to greater credit risk than loans secured by owner-occupied one- to four-family residential real estate. These loans also have greater credit risk than one- to four-family residential real estate loans because repayment is dependent on income being generated in amounts sufficient to cover operating expenses, property maintenance and debt service. All of our commercial and multi-family loans are not fully amortizing and contain large balloon payments upon maturity. Balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment.
If loans that are collateralized by real estate or other business assets become troubled and the value of the collateral has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.
A significant portion of our commercial and multi-family real estate loans are secured by non-owner-occupied properties. These loans expose us to greater risk of non-payment and loss than loans secured by owner-occupied properties because repayment of such loans depend primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner-occupied properties is often below that of owner-occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties. Furthermore, some of our non-owner-occupied borrowers have more than one loan outstanding with us, which may expose us to a greater risk of loss compared to residential and commercial borrowers with only one loan.
Furthermore, a key component of our strategy is to continue to increase our origination of commercial real estate to diversify our loan portfolio and increase our yields. The proposed increase in these types of loans significantly increases our exposure to the risks inherent in these types of loans.
Our small size makes it more difficult for us to compete.
Our small asset size makes it more difficult to compete with other financial institutions which are generally larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Because our principal source of income is the net interest income we earn on our loans and investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Our lower earnings also make it more difficult to offer competitive salaries and benefits. In addition, our smaller customer base makes it difficult to generate meaningful non-interest income from such activities as securities and insurance brokerage. Finally, as a smaller institution, we are disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.
Interest rate changes may reduce the profitability of Central Federal Bancshares and of Central Federal.
The primary source of earnings for Central Federal is net interest income. To be profitable, Central Federal has to earn more money in interest and fees on loans and other interest-earning assets than it pays as interest on deposits and other interest-bearing liabilities and as other expenses. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect:

Central Federal’s ability to originate loans,

the value of Central Federal’s loan and investment portfolios,

Central Federal’s ability to realize gains from the sale of loans and securities,
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the average life of Central Federal’s deposits, and

Central Federal’s ability to obtain deposits.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. As a result of the relatively low interest rate environment, an increasing percentage of our deposits have been comprised of short-term time deposits and other deposits yielding no or a relatively low rate of interest. At June 30, 2015, we had $12.6 million in certificates of deposit that mature within one year and $25.3 million in non-interest bearing DDA, savings, NOW and money market accounts. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. In addition, a substantial amount of our loans have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment.
Fluctuations in interest rates will ultimately affect both the level of income and expense recorded on a large portion of Central Federal’s assets and liabilities, and the fair value of all interest-earning assets, other than interest-earning assets that mature in the short term. Central Federal’s interest rate management strategy is designed to stabilize net interest income and preserve capital over a broad range of interest rate movements by matching the interest rate sensitivity of assets and liabilities. Although Central Federal Bancshares believes that Central Federal’s current mix of loans, investments and deposits is reasonable, significant fluctuations in interest rates may have a negative effect on the profitability of Central Federal.
Historically low interest rates may adversely affect our net interest income and profitability.
In recent years it has been the policy of the Federal Reserve Board to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, market rates on the loans we have originated and the yields on securities we have purchased have been at historically low levels. Our ability to lower our interest expense at current interest rate levels is limited while our average asset yield may continue to decrease. Accordingly, our net interest income (the difference between interest income earned on assets and interest expense paid on liabilities) may remain low or decrease, which would have an adverse effect on our profitability.
We need to add additional executive officers and integrate these executive officers into our current operations.
Historically, as a result of operating a traditional thrift institution from one office, we had very few officers and employees. As a result of our anticipated growth and more complex operations, we now need to add a chief financial officer and, particularly since Larry D. Thomas, our executive vice president and senior lending officer, has expressed the intent to retire after completion of our conversion and this offering, additional lending and credit administrative officers. These employees will be important to our operations, and our inability to fill these positions could make continued growth difficult. Furthermore, these employees must be successfully integrated with our other personnel, which involves combining individuals with different business backgrounds, corporate cultures, management styles, while retaining other key employees. The process of hiring these executive officers and integrating them into our organization could cause an interruption of, or loss of momentum in, our operations, including the loss of customers and key personnel.
The loss of our current President and Chief Executive Officer may hurt the operations of Central Federal Bancshares and Central Federal because it may be difficult to hire qualified replacements.
The loss of our President and Chief Executive Officer, William A. Stoltz, who is also serving as our principal financial and accounting officer, could have a material adverse impact on the operations of Central Federal since he has been instrumental in managing the business affairs of Central Federal. Other officers within Central Federal do not have the experience and expertise to readily replace Mr. Stoltz. If Central Federal were to lose Mr. Stoltz, the board of directors would most likely have to search outside of Central Federal for a qualified, permanent replacement. This search may be prolonged and we cannot assure you that Central Federal would be able to locate and hire a qualified replacement without interruption of, or loss of momentum in, our operations.
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Mr. Stoltz has a significant amount of responsibility for the operations of Central Federal and performs a number of different roles, including those of principal financial and accounting officer. As a result we face unique operational and internal control challenges as a result of our reliance on him. Because of our reliance on Mr. Stoltz, risk management and general supervisory oversight is more difficult. We believe we have adequate risk management procedures and internal control systems in place; however, there can be no assurance that errors will not occur or that we will be able to maintain effective internal controls in the future. Any future failure to maintain effective internal controls could impair the reliability of our financial statements which in turn could harm our business, impair investor confidence and subject us to regulatory penalties. For a discussion of Central Federal’s management, see “ Our Management .”
Because we primarily serve Phelps County, Missouri and contiguous areas, a decline in the local economic conditions could lower our profitability.
The profitability of Central Federal Bancshares is dependent on the profitability of Central Federal, which primarily serves Phelps County, Missouri and contiguous areas. According to U.S. Census Bureau estimates, the population of Phelps County declined by approximately 0.5% during the same period (which is the most recent period for which U.S. Census Bureau data is available for both areas), although Rolla experienced population growth of 1.4% between 2010 and 2013. During the same period, the population growth rate for the State of Missouri was estimated at 1.2% and the national growth rate was estimated at 2.5%. The financial condition of Central Federal is affected by fluctuations in the economic conditions prevailing in the areas of Missouri in which its operations are located. Accordingly, the financial conditions of both Central Federal Bancshares and Central Federal would be adversely affected by deterioration in the general economic and real estate climate in Missouri.
An increase in unemployment, a decrease in profitability of regional businesses or real estate values or an increase in interest rates are among the factors that could weaken the local economy. With a weaker local economy:

customers may not want or need the products and services of Central Federal,

borrowers may be unable to repay their loans,

the value of the collateral security of Central Federal’s loans to borrowers may decline,

the number of loan delinquencies and foreclosures may increase, and

the overall quality of Central Federal’s loan portfolio may decline.
Originating mortgage loans and consumer loans is a significant source of profits for Central Federal. If individual customers in the local area do not want or need these loans, profits may decrease. Although Central Federal could make other investments, Central Federal may earn less revenue on these investments than on loans. Also, Central Federal’s losses on loans may increase if borrowers are unable to make payments on their loans.
If our nonperforming assets increase, our earnings will be adversely affected.
At June 30, 2015, our nonperforming assets, which consist of nonaccruing loans and real estate owned, were $974,000, or 1.6% of total assets. Our nonperforming assets adversely affect our net income in various ways:

we record interest income on a cash basis only for nonaccrual loans and any nonperforming investment securities and we do not record interest income for foreclosed assets;

we must provide for probable loan losses through a current period charge to the provisions for loan losses;

noninterest income decreases when we write down the value of properties in our foreclosed assets portfolio to reflect changing market values or recognize other-than-temporary impairment on nonperforming investment securities:

there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees related to our foreclosed assets; and
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the resolution of nonperforming assets requires the active involvement of management, which can distract them from more profitable activity.
If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.
If our foreclosed real estate is not properly valued or if our reserves are insufficient, our earnings could be reduced.
We obtain appraisals when a loan has been foreclosed and the property taken in as foreclosed real estate. We also obtain appraisals at certain other times during the holding period of the asset. Our net book value in the loan at the time of foreclosure and thereafter is compared to the updated fair value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s net book value over its fair value less estimated selling costs. If our valuation process is incorrect, or if property values decline, the fair value of our foreclosed real estate may not be sufficient to recover our carrying value in such assets, resulting in the need for additional charge-offs. Significant charge-offs to our foreclosed real estate could have a material adverse effect on our financial condition and results of operations. In addition, bank regulators periodically review our foreclosed real estate and may require us to recognize further charge-offs, and some of the properties serving as collateral for our loans, such as a church, golf course or restaurant, may be difficult to sell if we take possession. Any increase in our charge-offs may have a material adverse effect on our financial condition and results of operations.
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, and recent rulemaking, we are subject to more stringent capital requirements.
On July 9, 2013, the OCC, the Federal Reserve Board and the FDIC issued a final rule that revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions and top-tier bank and savings and loan holding companies with total consolidated assets of  $1.0 billion or more. Although the Federal Reserve Board has recently adopted revisions to its “Small Bank Holding Company Policy Statement” to exempt bank holding companies and savings and loan holding companies having less than $1 billion of consolidated assets from its holding company capital requirements, the exemption is conditioned upon, among other matters, a bank holding company or savings and loan holding company not having a material amount of equity registered with the SEC. Although our asset size would qualify for the exemption provided by the Federal Reserve Board’s policy statement, we believe that we will be subject to consolidated regulatory capital requirements because our equity securities will be registered with the SEC. Among other things, the rule establishes consolidated capital requirements for many savings and loan holding companies, including Central Federal Bancshares, a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective for Central Federal on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.
Under the new capital standards, to be well-capitalized, Central Federal Bancshares and Central Federal would be required to have a common equity to Tier 1 capital ratio of 6.5% and a Tier 1 capital ratio of 8.0%. Central Federal met all of the new requirements, including the full capital conservation buffer, as of June 30, 2015. Further, we have conducted a pro forma analysis of the application of these new capital
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requirements as of June 30, 2015 and have determined that each of Central Federal Bancshares and Central Federal on a pro forma basis would meet all of these new requirements, including the full 2.5% capital conservation buffer, as if these new requirements had been in effect on that date.
The application of stringent capital requirements for Central Federal Bancshares and Central Federal could, among other things, result in lower returns on invested capital, require the raising of additional capital and result in regulatory actions if we were to be unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit our ability to make distributions, including paying out dividends or buying back shares. Specifically, beginning in 2016, Central Federal’s ability to pay dividends will be limited if Central Federal does not have the capital conservation buffer required by the new capital rules, which may limit our ability to pay dividends to shareholders.
We are subject to certain risks in connection with our use of technology.
Our security measures may not be sufficient to mitigate the risk of a cyber attack.    Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber attacks that could have a security impact. If one or more of these events occur, this could jeopardize our, or our customers’, confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.
Security breaches in our Internet banking activities could further expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our Internet banking services that involve the transmission of confidential information. We rely on standard Internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures, which could result in significant legal liability and significant damage to our reputation and our business.
Our security measures may not protect us from systems failures or interruptions .   While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.
The occurrence of any failures or interruptions may require us to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.
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Additional expenses following the offering will adversely affect our profitability.
Following the offering, our non-interest expenses will increase as a result of the financial accounting, legal and various other expenses usually associated with operating as a public company and complying with public company disclosure obligations, particularly those obligations imposed by the Sarbanes-Oxley Act of 2002, as well as expenses associated with our anticipated addition of a chief financial officer and additional lending and credit administrative officers. Compliance with the Sarbanes-Oxley Act of 2002 will require us to upgrade our accounting systems, which will increase our operating expenses and adversely affect our profitability.
Strong competition within our primary market area could negatively impact our profits and slow growth.
We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and attract deposits. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits. Most of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our primary market area. We have an aging customer base, and our success depends on our ability to compete effectively for younger new customers, who may prefer to obtain banking services in ways different from what we have traditionally offered. See “ Our Business — Market Area” and “Our Business — Competition ” for more information about our primary market area and the competition we face.
We may face increased compliance costs and uncertainty in residential real estate lending as a result of the adoption of consumer protection regulations by the Consumer Financial Protection Bureau.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. In January 2013, the Consumer Financial Protection Bureau issued several final regulations and changes to certain consumer protections under existing laws. These final rules, most of the provisions of which (including the qualified mortgage rule) became effective January 10, 2014, generally prohibit creditors from extending mortgage loans without regard for the consumer’s ability-to-repay and add restrictions and requirements to mortgage origination and servicing practices. In addition, these rules limit prepayment penalties and require the creditor to retain evidence of compliance with the ability-to-repay requirement for three years. Compliance with these rules will likely increase our overall regulatory compliance costs and may require changes to our underwriting practices with respect to mortgage loans. Moreover, these rules may adversely affect the volume of mortgage loans that we underwrite and may subject us to increased potential liabilities related to such residential loan origination activities.
We are subject to environmental liability risk associated with our lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations of enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our future business, results of operations, financial condition and the value of our common stock.
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We are an emerging growth company within the meaning of the Securities Act of 1933, as amended, or Securities Act, and if we decide to take advantage of certain exemptions from reporting requirements that are available to emerging growth companies, our common stock could be less attractive to investors.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, reduced disclosure about our executive compensation and omission of compensation discussion and analysis disclosure, and an exemption from the requirement of holding a non-binding advisory vote on executive compensation. As an emerging growth company, we may present only two years of audited financial statements and only two years of the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus, and we also will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act of 2002, including the requirement that an independent registered public accounting firm attest to our internal control over financial reporting. Further, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, which would thus permit an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period. As a result of our emerging growth company status, our shareholders may not have access to certain information they may deem important. If we take advantage of any of these exemptions, some investors may find our common stock less attractive, which could hurt our stock price.
We may remain an emerging growth company until the earlier of: (1) the last day of the fiscal year in which we have total annual gross revenues of  $1.0 billion or more; (2) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities in the stock offering; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (4) the date on which we are deemed to be a “large accelerated filer” under SEC regulations (which would generally require us to have at least $700 million of voting and non-voting equity held by non-affiliates).
Risks Related to This Offering
Our stock price may decline when trading commences.
If you purchase shares in the offering, you may not be able to sell them at or above the $10.00 purchase price. The purchase price in the offering is based upon an independent third-party appraisal of the pro forma market value of Central Federal, pursuant to federal banking regulations and subject to review and approval by the OCC. The appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of our common stock. Our aggregate pro forma market value as reflected in the final independent appraisal may exceed the market price of our shares of common stock after the completion of the offering, which may result in our stock trading below the initial offering price of  $10.00 per share. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded. Additionally, the stock prices of some recently converted thrift institutions have declined below, and remain below, their initial offering prices.
You may not receive dividends on our common stock.
Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments, and we do not expect to pay dividends until our operations are sufficiently profitable to support the payment of dividends. See “ — Risks Related to Our Business — The capital we raise in the stock offering will reduce our return on equity. This could negatively affect the trading price of our shares of common stock ” and “ Our Dividend Policy .” The declaration and
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payment of cash dividends will be subject to, among other things, our then current and projected consolidated operating results, financial condition, tax considerations, future growth plans, general economic conditions, and other factors our board of directors deems relevant.
We may sell up to 1,719,250 shares of stock in the offering without providing you with an opportunity to change or cancel your order.
Pursuant to the OCC conversion regulations, we are permitted to close the offering if we obtain orders for shares within the range of a minimum of 1,105,000 shares to a maximum, as adjusted, of 1,719,250 shares, without giving you further notice or the opportunity to change or cancel your order. Should we receive orders for the maximum, as adjusted, of 1,179,250 shares, this will result in higher pro forma pricing ratios in terms of the price to book value ratio and the price to tangible book value ratio (see “ Pro Forma Data ”). This may negatively affect our post-conversion trading price.
There likely will be a limited market for our common stock, which may adversely affect our stock price.
We have never issued capital stock and there is no established market for our common stock. Although we intend to list our shares of common stock for trading on the OTC Pink marketplace, our shares of common stock are not likely to be actively traded. The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. In addition, our public “float,” which is the total number of our outstanding shares less the shares held by our employee stock ownership plan and our directors and executive officers, is likely to be limited. As a result, it is unlikely that an active trading market for the common stock will develop or that, if it develops, it will continue. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock and the sale of a large number of shares at one time could temporarily depress the market price. There also may be a wide spread between the bid and ask price for our common stock. When there is a wide spread between the bid and ask price, the price at which you may be able to sell our common stock may be significantly lower than the price at which you could buy it at that time. This may make it difficult to sell the common stock after the stock offering and may have an adverse impact on the price at which the common stock can be sold.
You may not be able to sell your shares of common stock until you have received a stock ownership statement, which will affect your ability to take advantage of changes in the stock price immediately following the offering.
Stock ownership statements representing shares of common stock purchased in the offering may not be delivered for several days after the completion of the offering and the commencement of trading in the common stock. Your ability to sell the shares of common stock before receiving your stock ownership statement will depend on arrangements you may make with a brokerage firm, and you may not be able to sell your shares of common stock until you have received a stock ownership statement. As a result, you may not be able to take advantage of fluctuations in the price of the common stock immediately following the offering.
The capital we raise in the stock offering will reduce our return on equity. This could negatively affect the trading price of our shares of common stock.
Net income divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of a financial institution to its peers. For the six months ended June 30, 2015, we had an annualized return on average equity of 1.18%, compared to a median return on average equity of 5.54% based on trailing twelve-month earnings for all publicly traded, fully converted savings institutions as of the most recent date for which information is available. Following the stock offering, we expect our total shareholders’ equity to increase from $13.7 million at June 30, 2015 to between $22.2 million at the minimum of the offering range and $27.7 million at the adjusted maximum of the offering range. We expect our return on equity to remain relatively low until we are able to leverage the additional capital we receive from the stock offering. Although we anticipate increasing net interest income using proceeds of the stock
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offering, our return on equity will be reduced by the capital raised in the stock offering and the contribution of shares of our stock to the charitable foundation, higher expenses from the costs of being a public company, and added expenses associated with our employee stock ownership plan and the stock-based benefit plans we intend to adopt. Until we can increase our net interest income and non-interest income, our return on equity may reduce the value of our shares of common stock. See “ Pro Forma Data ” for an illustration of the financial impact of the offering.
Additional expenses following the offering from the implementation of new equity benefit plans will adversely affect our profitability.
We will recognize additional annual employee compensation and benefit expenses stemming from options and shares of common stock granted to employees, directors and executives under new benefit plans. These additional expenses will adversely affect our profitability. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be material. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and stock options generally over the vesting period of awards made to recipients. These benefit expenses in the first year following the offering have been estimated to be approximately $278,000 on a pre-tax basis at the maximum of the offering range assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. See “ Pro Forma Data ” and “ Our Management — Equity Incentive Plan .”
We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.
We intend to contribute 50% of the net proceeds of the offering to Central Federal. Central Federal Bancshares expects to use a portion of the net proceeds it retains to fund a loan for the purchase of shares of common stock in the offering by the employee stock ownership plan and may use the remaining portion of the proceeds that it retains to, among other things, increase our investment portfolio, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Central Federal may use the portion of the proceeds that it receives to fund new loans consistent with our business plan, increase our investment portfolio and enhance its business activities. With the exception of the loan to the employee stock ownership plan, we have not allocated specific amounts of proceeds for any of these purposes, and we will have significant flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively would reduce our profitability.
A significant percentage of our common stock will be held by our directors and executive officers and benefit plans.
We expect that our directors and executive officers, together with their associates, will subscribe for 13,500 shares in the offering. In addition, we intend to establish an employee stock ownership plan that will purchase an amount of shares equal to 8% of the shares sold in the offering, including shares issued to our charitable foundation. As a result, upon consummation of the offering, a total of up to 105,436 shares, or 9.2%, and 137,884 shares, or 8.9%, of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively. Further, shares will be held by management following the implementation of an equity incentive plan, which we intend to implement no earlier than six months following the completion of the offering. Assuming the equity incentive plan is implemented, under the plan options are granted to and exercised by directors and executive officers for 10% of the shares sold in the conversion and contributed to our charitable foundation and restricted stock awards are made to directors and executive officers for 4% of the shares issued in the conversion and the plan is funded with shares purchased in the open market, a total of up to 266,300 shares, or 21.1%, and 355,600 shares, or 20.8%, of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively.
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The articles of incorporation of Central Federal Bancshares contain supermajority voting provisions that, that require that the holders of at least 80% of Central Federal Bancshares’ outstanding shares of voting stock approve certain actions including, but not limited to, the amendment of certain provisions of Central Federal Bancshares’ articles of incorporation and bylaws. If our directors and executive officers and benefit plans were to hold more than 20% of our outstanding common stock following the completion of the offering, the shares held by these individuals and benefit plans could be voted in a manner that would ensure that the 80% supermajority needed to approve such actions could not be attained. If this were to happen, our directors and executive officers would be able to prevent amendments to our articles of incorporation that could make it easier to accomplish an acquisition of Central Federal Bancshares by means of a tender offer, proxy contest or otherwise or that would render the removal of the incumbent board of directors or management of Central Federal Bancshares easier for shareholders to accomplish. Thus, should their ownership exceed 20% of the voting control of Central Federal Bancshares, the directors and executive officers could act to deter a future takeover attempt that is not approved by the board of directors but which Central Federal Bancshares shareholders may deem to be in their best interests or in which shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders who might desire to participate in such a transaction may not have the opportunity to do so. For more information on the restrictions included in the articles of incorporation and bylaws of Central Federal Bancshares, see “ Restrictions on the Acquisition of Central Federal Bancshares and Central Federal .”
Issuance of shares for benefit programs may dilute your ownership interest.
We intend to adopt an equity incentive plan following the offering. If shareholders approve the new equity incentive plan, we intend to issue shares to our officers, employees and directors through this plan. If the restricted stock awards under the equity incentive plan are funded from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 3.85%, assuming awards of common stock equal to 4% of the shares issued in the offering (including shares issued to our foundation) are awarded under the plan. If we adopt the equity incentive plan more than one year after completion of the offering, we may elect to increase the awards of restricted stock we may grant. In such event, your ownership interest in the shares could be further diluted. If the shares issued upon the exercise of stock options under the equity incentive plan are issued from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 9.09%, assuming stock option grants equal to 10% of the shares issued in the offering, including shares contributed to our charitable foundation, are granted under the plan. See “ Pro Forma Data ” and “ Our Management — Equity Incentive Plan .”
We intend to enter into an employment agreement and a change in control agreement with certain of our officers, which may increase our compensation costs upon the occurrence of certain events or increase the cost of acquiring us.
Following the conversion and subject to the receipt of necessary regulatory approvals, we intend to enter into an employment agreement with William A. Stoltz, our president and chief executive officer, and a change in control agreement with Barbara E. Hamilton, our vice president – operations. In the event of a change in control of Central Federal Bancshares or Central Federal, and assuming the agreements were in effect, cash severance benefits due would be approximately $555,000 in the aggregate based on information as of June 30, 2015. These amounts may be reduced, if necessary, to an amount that would not qualify the payments to be deemed an “excess parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended. For additional information see “ Our Management — Employment Agreement and Change in Control Agreement .”
The articles of incorporation and bylaws of Central Federal Bancshares and certain laws and regulations may prevent or make more difficult certain transactions, including a sale or merger of Central Federal Bancshares.
Provisions of the articles of incorporation and bylaws of Central Federal Bancshares, state corporate law and federal banking regulations may make it more difficult for companies or persons to acquire control of Central Federal Bancshares. As a result, our shareholders may not have the opportunity to participate in such a transaction and the trading price of our common stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. The factors that may discourage takeover attempts or make them more difficult include:
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Articles of incorporation and bylaws.    Provisions of the articles of incorporation and bylaws of Central Federal Bancshares may make it more difficult and expensive to pursue a takeover attempt that the board of directors opposes. These provisions also make more difficult the removal of current directors or management, or the election of new directors. These provisions include:

limitation on the right to vote shares held in excess of 10% of the outstanding common stock;

the election of directors to staggered terms of three years;

provisions regarding the timing and content of shareholder proposals and nominations;

provisions restricting the calling of special meetings of shareholders;

the absence of cumulative voting by shareholders in the election of directors;

the removal of directors only for cause; and

supermajority voting requirements for changes to some provisions of the articles of incorporation and bylaws.

OCC regulations.    OCC regulations prohibit, for three years following the completion of a mutual to stock conversion, the offer to acquire or the acquisition of more than 10% of any class of equity security of a converted institution without the prior approval of the OCC. See “ Restrictions on Acquisition of Central Federal Bancshares, Inc. and Central Federal .”
Risks Related to Our Contribution to the Charitable Foundation
The contribution to the Central Federal Community Foundation will decrease our profits for 2016.
Central Federal Bancshares intends to fund the charitable foundation with $100,000 in cash and the remainder in shares of common stock so that the amount contributed is equal to 4% of shares sold by Central Federal Bancshares in the offering, which will result in the charitable foundation holding 3.8% of our outstanding shares upon completion of the conversion. Based on the purchase price of  $10.00 per share, we would fund the charitable foundation with 59,800 shares of our common stock at the maximum of the offering range. This contribution will be an additional operating expense and will reduce net income during the fiscal year in which the charitable foundation is funded. Assuming the offering is completed at the maximum of the offering range during 2016, the contribution to the charitable foundation would reduce net earnings by approximately $429,000, after tax, in 2016. See “ Pro Forma Data .”
The contribution to the Central Federal Community Foundation will decrease the ownership interest and voting interest in the shares sold to the public after the contribution.
Purchasers of shares will have their ownership and voting interests diluted by 3.8% at the close of the conversion when Central Federal Bancshares makes the proposed contribution to the charitable foundation, regardless of whether we issue shares at the minimum or at the maximum or the offering range, as adjusted. For a further discussion regarding the effect of the contribution to the charitable foundation, see “ Pro Forma Data ” and “ Comparison of Valuation and Pro Forma Information With and Without the Charitable Foundation .”
Our contribution to the Central Federal Community Foundation may not be tax deductible, which could decrease our profits.
We believe that our contribution to the charitable foundation, valued at $698,000 at the maximum of the offering range, pre-tax, will be deductible for federal income tax purposes. However, we may not have sufficient taxable income to be able to fully deduct the contribution in the year in which it is made or during the five-year carryover period permitted under the Internal Revenue Code. If it is more likely than not that we will be unable to fully deduct the contribution, we will be required to establish a valuation allowance related to that portion of the deferred tax asset that is not deemed to be realizable.
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Selected Financial And Other Data
The summary financial information presented below is derived in part from our financial statements. The following is only a summary and you should read it in conjunction with the financial statements and notes beginning on page F-1. The information at December 31, 2014 and 2013 and for the years then ended is derived in part from the audited financial statements of Central Federal that appear elsewhere in this prospectus. The selected data at June 30, 2015 and for the six months ended June 30, 2015 and June 30, 2014 was not audited, but in the opinion of management, represents all adjustments necessary for a fair presentation. All of these adjustments are normal and recurring. The results of operations for the six months ended June 30, 2015 are not necessarily indicative of the results of operations that may be expected for the entire year.
June 30,
December 31,
2015
2014
2013
(In thousands)
Selected Financial Condition Data
Total assets
$ 62,424 $ 63,977 $ 64,763
Cash and cash equivalents
8,636 7,902 7,258
Certificates of deposit in other financial institutions
2,480 2,480 2,480
Securities available-for-sale at fair value
33 31 44
Loans, net
49,624 52,184 53,559
Premises and equipment, net
709 739 735
Foreclosed assets
508 243 243
Deposits
48,642 50,282 51,175
Other liabilities
118 113 117
Total equity
13,664 13,582 13,471
For the Six Months Ended
June 30,
For the Year Ended
December 31,
2015
2014
2014
2013
(In thousands)
Selected Operating Data:
Total interest income
$ 1,222 $ 1,230 $ 2,466 $ 2,723
Total interest expense
236 250 494 548
Net interest income
986 980 1,972 2,175
Provision for loan losses
60 60
Net interest income after provision for loan losses
986 920 1,912 2,175
Total noninterest income
32 37 72 (23 )
Total noninterest expense
893 895 1,805 1,786
Income before income taxes
125 62 179 366
Income tax expense
44 24 60 137
Net income
$ 81 $ 38 $ 119 $ 229
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At or For the
Six Months Ended
June 30,
At or For the
Year Ended
December 31,
2015
2014
2014
2013
Performance Ratios: (1)
Return on average assets
0.26 % 0.12 % 0.18 % 0.36 %
Return on average equity
1.18 0.56 0.88 1.71
Net interest rate spread (2)
2.99 2.89 2.90 3.22
Net interest margin (3)
3.22 3.12 3.15 3.46
Noninterest expense to average assets
2.8 2.8 2.8 2.7
Efficiency ratio (4)
87.7 88.0 88.3 83.0
Average interest-earning assets to average interest-bearing liabilities
130.1 129.8 131.4 127.9
Average equity to average assets
21.5 20.9 21.0 20.5
At or For the
Six Months Ended
June 30,
At or For the
Year Ended
December 31,
2015
2014
2014
2013
Asset Quality Ratios:
Non-performing assets to total assets
1.6 % 2.0 % 1.9 % 1.7 %
Non-performing loans to total loans
0.9 2.1 1.8 1.6
Allowance for loan losses to non-performing loans
59.7 37.9 29.2 39.6
Allowance for loan losses to total loans
0.6 0.8 0.5 0.7
Regulatory Capital Ratios:
Tier 1 capital (to adjusted total assets)
21.4 20.6 21.2 20.8
Tier 1 capital (to risk-weighted assets)
38.4 32.3 33.9 33.0
Total risk-based capital (to risk-weighted assets)
39.2 33.3 34.7 33.9
Common equity Tier 1 (to risk-weighted assets) (5)
38.4 N/A N/A N/A
Other Data:
Number of full service offices
1 1 1 1
(1)
Annualized for the six month periods ended June 30, 2015 and 2014.
(2)
Represents the difference between the weighted-average yield on interest-earning assets and weighted-average rate of interest-bearing liabilities for the period.
(3)
The net interest margin represents net interest income as a percent of average interest-earning assets for the period.
(4)
The efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.
(5)
Common equity Tier 1 (to risk-weighted assets) was not in effect for periods prior to the six months ended June 30, 2015.
The Basel III Capital Rules, which became effective January 1, 2015, revised the prompt corrective action requirements by: (i) introducing a Common Equity Tier 1 risk-based ratio requirement at each level (other than critically undercapitalized), with the required Common Equity Tier 1 risk-based ratio being 6.5% for “well-capitalized” status; (ii) increasing the minimum Tier 1 risk-based capital ratio requirement for each category (other than critically undercapitalized), with the minimum Tier 1 risk-based capital ratio for “well-capitalized” status being 8% (compared to the prior ratio of 6%) and (iii) eliminating the former
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provision that provided that a bank with a composite supervisory rating of 1 may have a 3% Leverage Ratio and still be adequately capitalized. The Basel III Capital Rules did not change the total risk based capital requirement for any prompt corrective action category.
The Common Equity Tier 1 risk-based ratio requirement was not in effect prior to January 1, 2015, therefore the ratios for the periods prior to January 1, 2015 are not applicable.
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A Warning About Forward-Looking Statements
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. These forward-looking statements are sometimes identified by the use of terms and phrases such as “believe,” “should,” “expect,” “project,” “estimate,” “anticipate,” “aim,” “intend,” “plan,” “will,” “can,” “may,” or similar expressions elsewhere in this prospectus. Forward-looking statements include:

statements of our goals, intentions and expectations;

statements regarding our business plans, prospects, growth and operating strategies;

statements regarding the quality of our loan and investment portfolios; and

estimates of our risks and future costs and benefits.
Our results of operations and financial condition may differ materially from those in the forward-looking statements. Such statements are based on management’s current views and assumptions, and involve risks and uncertainties that could affect expected results. Those risks and uncertainties include but are not limited to the following:

general economic conditions, either nationally or in our primary market area, that are worse than expected;

changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;

credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;

our ability to implement our strategic plans;

changes in our organization, compensation and benefit plans, and our ability to attract and retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;

the use of estimates in determining fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuations;

fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by any declines in the value of real estate in our market area;

our ability to attract and maintain deposits and our success in introducing new financial products;

significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;

declines in the yield on our assets resulting from the current low interest rate environment;

risks related to a high concentration of loans secured by real estate located in our market area;

the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

changes in the level of government support of housing finance;

our ability to enter new markets successfully and capitalize on growth opportunities;

changes in our compensation and benefit plans;

loan delinquencies and changes in the underlying cash flows of our borrowers;
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our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

the failure or security breaches of computer systems on which we depend;

the ability of key third-party service providers to perform their obligations to us;

changes in the financial condition or future prospects of issuers of securities that we own;

increased competitive pressures among financial services companies;

changes in consumer spending, borrowing and savings habits;

adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance costs and the resources we have available to address such changes;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the SEC, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board;

other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this prospectus; and

other risks and uncertainties included under “ Risk Factors ” in this prospectus.
Any of the forward-looking statements that we make in this prospectus and in other public statements we make may later prove incorrect because of inaccurate assumptions, the factors illustrated above or other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.
You should not rely upon forward-looking statements that we make in this prospectus and in other public statements we make as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
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Use Of Proceeds
The following table shows how we intend to use the net proceeds of the offering. The actual net proceeds will depend on the number of shares of common stock sold in the offering and the actual expenses incurred in connection with the offering. Payments for shares made through withdrawals from deposit accounts at Central Federal will reduce deposits and will not result in the receipt of new funds for investment. See “ Pro Forma Data ” for the assumptions used to arrive at these amounts.
Minimum of
Offering Range
Midpoint of
Offering Range
Maximum of
Offering Range
15% Above Maximum,
of Offering Range
(Dollars in thousands)
1,105,000
Shares at
$10.00
Per Share
Percent
of Net
Proceeds
1,300,000
Shares at
$10.00
Per Share
Percent
of Net
Proceeds
1,495,000
Shares at
$10.00
Per Share
Percent
of Net
Proceeds
1,719,250
Shares at
$10.00
Per Share
Percent
of Net
Proceeds
Offering proceeds
$ 11,050 $ 13,000 $ 14,950 $ 17,193
Less: estimated offering expenses
(1,211 ) (1,211 ) (1,211 ) (1,211 )
Net offering proceeds
$ 9,839 100.0 % $ 11,789 100.0 % $ 13,739 100.0 % $ 15,982 100.0 %
Less:
Proceeds contributed to Central Federal
(4,920 ) (50.0 ) (5,895 ) (50.0 ) (6,870 ) (50.0 ) (7,991 ) (50.0 )
Proceeds used for loan to
employee stock
ownership plan
(919 ) (9.3 ) (1,082 ) (9.2 ) (1,244 ) (9.1 ) (1,430 ) (8.9 )
Proceeds contributed to foundation
(100 ) (1.0 ) (100 ) (0.8 ) (100 ) (0.7 ) (100 ) (0.6 )
Proceeds remaining for Central Federal Bancshares (1)
$ 3,900 39.7 % $ 4,712 40.0 % $ 5,525 40.2 % $ 6,461 40.5 %
(1)
Following the completion of the stock offering and in accordance with applicable regulations, Central Federal Bancshares may purchase shares of its common stock in the open market in order to grant awards of restricted stock under its proposed equity incentive plan. Assuming a market price of  $10.00 per share at the time of purchase, the cost of acquiring the shares would be approximately $460,000 (46,000 shares) at the minimum of the offering range, $541,000 (54,100 shares) at the midpoint of the offering range, $622,000 (62,200 shares) at the maximum of the offering range and $715,000 (71,500 shares) at the maximum, as adjusted, of the offering range and assuming we grant a number of restricted stock awards equal to 4% of the shares issued in the offering, including shares issued to our charitable foundation. See “ Pro Forma Data ” and “ Our Management — Equity Incentive Plan — Future Equity Incentive Plans .”
Central Federal Bancshares intends to fund a loan to the employee stock ownership to purchase shares of common stock in the stock offering. Central Federal Bancshares intends to invest the remaining proceeds it retains from the offering initially in short-term, liquid investments. Over time, Central Federal Bancshares may use the proceeds it retains from the offering:

to increase our investment portfolio and implement our business plan;

to pay dividends to shareholders (although we make no assurances as to if or when our board of directors may decide to pay dividends); and

to repurchase shares of our common stock, subject to regulatory restrictions.
The specific amounts of net proceeds to be allocated in the future to each of the uses described above have not been determined, is subject to change and will depend on capital requirements, regulatory limitations, future expansion opportunities and our operating results and financial condition.
Under current OCC regulations, Central Federal Bancshares may not repurchase shares of its common stock during the first year following the offering, except to fund shareholder-approved equity benefit plans or, with prior regulatory approval, when extraordinary circumstances exist.
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We expect to contribute 50% of the net proceeds of the offering to Central Federal. Central Federal may use the proceeds that it receives from the offering, which is shown in the table above as the amount contributed to Central Federal:

to fund new loans consistent with our business plan;

to increase our investment portfolio; and

for general corporate purposes.
Except as described above, neither Central Federal Bancshares nor Central Federal has any specific plans, arrangements or understandings for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. The specific amounts of net proceeds to be allocated in the future to each of the uses described above have not been determined, is subject to change and will depend on capital requirements, regulatory limitations, future expansion opportunities and our operating results and financial condition. For a discussion of our business reasons for undertaking the offering, see “ The Conversion and Stock Offering — Reasons for the Conversion .”
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Our Dividend Policy
Following completion of the offering, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements. However, no decision has been made at this time with respect to the payment of dividends. In determining whether to declare or pay any dividends, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards and economic conditions. We will also consider the regulatory restrictions that affect the payment of dividends by Central Federal to us.
Central Federal Bancshares will be subject to the Federal Reserve Board’s policy that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the company appears consistent with its capital needs, asset quality and overall financial condition. In addition, Central Federal Bancshares is subject to Missouri law, which generally permits a corporation to pay dividends on its common stock unless the net assets of the corporation are less than its stated capital or when the payment of dividends would reduce the net assets of the corporation below its stated capital or the dividend payment would be contrary to any restrictions contained in the corporation’s articles of incorporation.
Central Federal Bancshares’ ability to pay dividends may depend, in part, on its receipt of dividends from Central Federal. The OCC and Federal Reserve Board regulations limit dividends and other distributions from Central Federal to Central Federal Bancshares. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized or if the proposed distribution raises safety and soundness concerns. In addition, any payment of dividends by Central Federal to Central Federal Bancshares that would be deemed to be drawn out of Central Federal’s bad debt reserves would require the payment of federal income taxes by Central Federal at the then current income tax rate on the amount deemed distributed. See “ Federal and State Taxation — Federal Income Taxation .” Central Federal Bancshares does not contemplate any distribution by Central Federal that would result in this type of tax liability.
Pursuant to Federal Reserve Board regulations, Central Federal Bancshares may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with the conversion and the offering.
Market For The Common Stock
We have not previously issued common stock and there is currently no established market for the common stock. We intend to list our common stock for trading on the OTC Pink marketplace upon completion of the offering. Keefe, Bruyette & Woods intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. We cannot assure you that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.
The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold. Under such circumstances, you could have difficulty selling your shares of common stock on short notice. In addition, our public “float,” which is the total number of our outstanding shares less the shares held by our employee stock ownership plan and our directors and executive officers, is likely to be limited. As a result, it is unlikely that an active trading market for the common stock will develop or that, if it develops, it will continue. There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering. Purchasers of our common stock should recognize that there likely will be a limited trading market in the common stock and, therefore, should have the financial ability to withstand a longer-term investment horizon.
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Capitalization
The following table presents the historical capitalization of Central Federal at June 30, 2015 and the capitalization of Central Federal Bancshares reflecting the offering (referred to as “pro forma” information). The pro forma capitalization gives effect to the assumptions listed under “ Pro Forma Data ,” based on the sale of the number of shares of common stock indicated in the table. This table does not reflect the issuance of additional shares as a result of the exercise of options granted under the proposed equity incentive plan. A change in the number of shares to be issued in the offering may materially affect pro forma capitalization. We are offering our common stock on a best efforts basis. We must sell a minimum of 1,105,000 shares to complete the offering.
Pro Forma Capitalization
Based Upon the Sale of
(Dollars in thousands)
Capitalization
as of
June 30, 2015
1,105,000
Shares at
$10.00
Per Share
1,300,000
Shares at
$10.00
Per Share
1,495,000
Shares at
$10.00
Per Share
1,719,250
Shares at
$10.00
Per Share
Deposits (1) $ 48,642 $ 48,642 $ 48,642 $ 48,642 $ 48,642
Borrowings
Total deposits and borrowed funds
$ 48,642 $ 48,642 $ 48,642 $ 48,642 $ 48,642
Shareholders’ equity:
Preferred stock, 1,000,000 shares, $0.01 par value per share,
authorized; none issued or outstanding
$ $ $ $ $
Common stock, 10,000,000 shares, $0.01 par value per
share, authorized; specific number of shares to be issued
and outstanding (2)
$ $ 11 $ 14 $ 16 $ 18
Additional paid-in capital
10,270 12,295 14,321 16,651
Retained earnings (3)
13,652 13,652 13,652 13,652 13,652
Accumulated other comprehensive income
12 12 12 12 12
Less:
Common stock acquired by employee stock ownership plan (4)
(919 ) (1,082 ) (1,244 ) (1,430 )
Common stock to be acquired by equity incentive plan (5)
(460 ) (541 ) (622 ) (715 )
Expense of stock contribution to charitable foundation
(442 ) (520 ) (598 ) (688 )
Expense of cash contribution to charitable foundation
(100 ) (100 ) (100 ) (100 )
Plus:
Tax benefit of contribution to charitable foundation
209 239 269 304
Total shareholders’ equity
$ 13,664 $ 22,233 $ 23,969 $ 25,706 $ 27,705
Shareholders’ equity to total assets (1)
21.89 % 31.32 % 32.96 % 34.52 % 36.23 %
(1)
Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits and assets by the amounts of the withdrawals.
(2)
Reflects total issued and outstanding shares of 1,149,200, 1,352,000, 1,554,800, and 1,788,020 at the minimum, midpoint, maximum and maximum as adjusted, of the offering range, respectively, including shares issued to our charitable foundation.
(3)
Retained earnings are restricted by applicable regulatory capital requirements.
(4)
Assumes that 8% of the common stock sold in the offering, including shares issued to our charitable foundation, will be acquired by the employee stock ownership plan in the offering with funds borrowed from Central Federal Bancshares. Under generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership plan represents unearned compensation and is, accordingly, reflected as a reduction of capital and a liability to the employee stock ownership plan. As shares are released to plan participants’ accounts, a compensation expense will be charged, along with related tax benefit, and a reduction in the charge against capital will occur in the amount of the compensation expense recognized. Since the funds are borrowed from Central
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Federal Bancshares, the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the consolidated financial statements of Central Federal Bancshares. The loan will be repaid principally through Central Federal’s contributions to the employee stock ownership plan and dividends payable on the unallocated shares of common stock, if any, held by the plan over the anticipated 25-year term of the loan. See “ Our Management — Employee Stock Ownership Plan .”
(5)
Assumes the purchase in the open market at $10.00 per share, for restricted stock awards under the proposed equity incentive plan, of a number of shares equal to 4% of the shares of common stock issued in the offering, including shares issued to our charitable foundation. The shares are reflected as a reduction of shareholders’ equity. The equity incentive plan will be submitted to shareholders for approval at a meeting following the offering. See “ Risk Factors — Risks Related to This Offering — Issuance of shares for benefit programs may dilute your ownership interest ,” “ Pro Forma Data ” and “ Our Management — Equity Incentive Plans — Future Equity Incentive Plan .”
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Regulatory Capital Compliance
At June 30, 2015, Central Federal exceeded all regulatory capital requirements. The following table presents Central Federal’s capital position relative to its regulatory capital requirements at June 30, 2015, on a historical and a pro forma basis. The table reflects receipt by Central Federal of 50% of the net proceeds of the offering. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan is deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see “ Use of Proceeds ,” “ Capitalization ” and “ Pro Forma Data .” The definitions of the terms used in the table are those provided in the capital regulations issued by the OCC. Central Federal Bancshares has reviewed the regulatory capital requirements of Central Federal and has determined that Central Federal’s pro forma regulatory capital at June 30, 2015, under the assumptions set forth in the table below, will exceed the new minimum regulatory capital requirements. For a discussion of the capital standards currently applicable to Central Federal, see “ Regulation and Supervision — Federal Banking Regulation — Capital Requirements .”
Pro Forma at June 30, 2015 (3)
MINIMUM
MIDPOINT
MAXIMUM
ADJ. MAXIMUM
Historical at
June 30, 2015
1,105,000 Shares
at $10.00 Per Share
1,300,000 Shares
at $10.00 Per Share
1,495,000 Shares
at $10.00 Per Share
1,719,250 Shares
at $10.00 Per Share
(Dollars in thousands)
Amount
% of
Assets (1)
Amount
% of
Assets
Amount
% of
Assets
Amount
% of
Assets
Amount
% of
Assets
Total capital under GAAP
$ 13,664 21.89 % $ 17,205 25.72 % $ 17,936 26.46 % $ 18,668 27.18 % $ 19,510 27.99 %
Tier 1 leverage capital (2)
13,563 21.35 17,104 25.16 17,835 25.89 18,567 26.61 19,409 27.41
Requirement
2,541 4.00 2,719 4.00 2,755 4.00 2,791 4.00 2,832 4.00
Excess
$ 11,022 17.35 % $ 14,385 21.16 % $ 15,080 21.89 % $ 15,776 22.61 % $ 16,577 23.41 %
Common equity tier 1 risk-based capital (2)(3)
$ 13,563 38.39 % $ 17,104 47.22 % 17,835 49.00 % 18,567 50.76 % 19,409 52.76 %
Requirement
1,590 4.50 1,630 4.50 1,638 4.50 1,646 4.50 1,655 4.50
Excess
$ 11,973 33.89 % $ 15,474 42.72 % 16,197 44.50 % 16.921 46.26 % 17,754 48.26 %
Tier 1 risk-based capital (2)(3)
$ 13,563 38.39 % $ 17,104 47.22 % $ 17,835 49.00 % $ 18,567 50.76 % $ 19,409 52.76 %
Requirement
2,120 6.00 2,173 6.00 2,184 6.00 2,195 6.00 2,207 6.00
Excess
$ 11,443 32.39 % $ 14,931 41.22 % $ 15,651 43.00 % $ 16,372 44.76 % $ 17,202 46.76 %
Total risk-based capital (2)(3)
$ 13,841 39.18 % $ 17,382 47.99 % $ 18,113 49.76 % $ 18,845 51.52 % $ 19,687 53.52 %
Requirement
2,826 8.00 2,898 8.00 2,912 8.00 2,926 8.00 2,943 8.00
Excess
$ 11,015 31.18 % $ 14,484 39.99 % $ 15,201 41.76 % $ 15,919 43.52 % $ 16,744 45.52 %
Reconciliation of capital infusion to Central Federal
Net proceeds of offering
$ 9,839 $ 11,789 $ 13,739 $ 15,982
Proceeds to Central Federal
4,920 5,895 6,870 7,991
Less: stock acquired by ESOP
(919 ) (1,082 ) (1,244 ) (1,430 )
Less: stock acquired by equity incentive plan
(460 ) (541 ) (622 ) (715 )
Pro forma increase in GAAP and regulatory
capital
$ 3,541 $ 4,272 $ 5,004 $ 5,846
(1)
Tier 1 leverage capital levels are shown as a percentage of adjusted total assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(2)
See note 14 of the notes to financial statements included in this prospectus for further information regarding regulatory capital ratios.
(3)
Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk-weighting.
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Pro Forma Data
The following tables show information about our net income and shareholders’ equity reflecting the sale of common stock in the offering. The information provided illustrates our pro forma net income and shareholders’ equity based on the sale of common stock at the minimum of the offering range, the midpoint of the offering range, the maximum of the offering range and the maximum, as adjusted, of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions:

All shares of stock will be sold in the subscription and community offerings;

Our employee stock ownership plan will purchase a number of shares equal to 8% of the shares issued in the offering, including shares issued to our charitable foundation, with a loan from Central Federal Bancshares that will be repaid in equal installments of principal and interest over 25 years;

We will purchase in the open market a number of shares of our common stock equal to 4% of the shares issued in the conversion, including shares issued to our charitable foundation, that will be reissued as restricted stock awards under an equity incentive plan to be adopted following the conversion;

Keefe, Bruyette & Woods will receive a success fee equal to $225,000 and reimbursement of fees and expenses of  $130,000; and

Total expenses of the offering, excluding fees paid to Keefe, Bruyette & Woods, will be approximately $856,000.
Actual expenses may vary from this estimate.
Pro forma net income for the six months ended June 30, 2015 and the year ended December 31, 2014 has been calculated as if the offering were completed at the beginning of the period, and the net proceeds had been invested at 0.64% for the six months ended June 30, 2015 and for the year ended December 31, 2014, which represents the two-year treasury rate at June 30, 2015. We believe that the two-year treasury rate at 0.64% represents a more realistic yield on the investment of the offering proceeds than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate required to be assumed by OCC regulations.
A pro forma after-tax return of 0.39% is used for the six months ended June 30, 2015 and the year ended December 31, 2014, after giving effect to a combined federal and state income tax rate of 38.6% for the period. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the number of shares of common stock indicated in the tables.
When reviewing the following tables you should consider the following:

The final column gives effect to a 15% increase in the offering range, which may occur without any further notice if Feldman Financial increases its appraisal to reflect the results of this offering, changes in our financial condition or results of operations or changes in market conditions after the offering begins. See “ The Conversion and Stock Offering — How We Determined the Offering Range and the $10.00 Per Share Purchase Price .”

Since funds on deposit at Central Federal may be withdrawn to purchase shares of common stock, the amount of funds available for investment will be reduced by the amount of withdrawals for stock purchases. The pro forma tables do not reflect withdrawals from deposit accounts.

Historical per share amounts have been computed as if the shares of common stock expected to be issued in the offering had been outstanding at the beginning of the period covered by the table. However, neither historical nor pro forma shareholders’ equity has been adjusted to reflect the investment of the estimated net proceeds from the sale of the shares in the offering, the additional employee stock ownership plan expense or the proposed equity incentive plan.

Pro forma shareholders’ equity (“book value”) represents the difference between the stated amounts of our assets and liabilities in accordance with generally accepted accounting principles.
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Book value amounts do not represent fair market values or amounts available for distribution to shareholders in the unlikely event of liquidation. The amounts shown do not reflect the federal income tax consequences of the restoration to income of Central Federal’s special bad debt reserves for income tax purposes or give effect to the liquidation account in the unlikely event of liquidation. See “ Federal and State Taxation and The Conversion and Stock Offering — Effects of Conversion to Stock Form of Ownership — Liquidation Account .”

The amounts shown as pro forma shareholders’ equity per share do not represent possible future price appreciation of our common stock.
The following pro forma data may not represent the actual financial effects of the offering or our operating results after the offering and you should not use the table as an indication of future results of operations. The pro forma data relies exclusively on the assumptions outlined above and in the notes to the pro forma tables. The pro forma data does not represent the fair market value of our common stock, the current fair market value of our assets or liabilities, or the amount of money that would be available for distribution to shareholders if we are liquidated after the offering.
We are offering our common stock on a best efforts basis. We must sell a minimum of 1,105,000 shares to complete the offering.
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At or For the Six Months Ended June 30, 2015
(Dollars in thousands, except per share amounts)
Minimum of
Offering
Range
1,105,000
Shares
at $10.00
Per Share
Midpoint of
Offering
Range
1,300,000
Shares
at $10.00
Per Share
Maximum of
Offering
Range
1,495,000
Shares
at $10.00
Per Share
Maximum,
as Adjusted,
of Offering
Range
1,719,250
Shares
at $10.00
Per Share
Gross Proceeds
$ 11,050 $ 13,000 $ 14,950 $ 17,193
Plus: Value of shares issued to foundation
442 520 598 688
Pro forma market capitalization
$ 11,492 $ 13,520 $ 15,548 $ 17,881
Gross Proceeds
$ 11,050 $ 13,000 $ 14,950 $ 17,193
Less: estimated offering expenses
(1,211 ) (1,211 ) (1,211 ) (1,211 )
Estimated net conversion proceeds
9,839 11,789 13,739 15,982
Less: cash contribution to foundation
(100 ) (100 ) (100 ) (100 )
Less: common stock acquired by employee stock ownership plan (1)
(919 ) (1,082 ) (1,244 ) (1,430 )
Less: common stock acquired by restricted stock award expense (2)
(460 ) (541 ) (622 ) (715 )
Net investable proceeds
$ 8,360 $ 10,066 $ 11,773 $ 13,737
Pro Forma Net Income:
Historical
$ 81 $ 81 $ 81 $ 81
Pro forma income on net investable proceeds
16 20 23 27
Pro forma employee stock ownership plan adjustments (1)
(11 ) (13 ) (15 ) (18 )
Pro forma restricted stock award expense (2)
(28 ) (33 ) (38 ) (44 )
Pro forma stock option expense (3)
(35 ) (41 ) (47 ) (54 )
Pro forma net income (loss)
$ 23 $ 14 $ 4 ($ 8 )
Pro Forma Net Income Per Share:
Historical
$ 0.08 $ 0.07 $ 0.06 $ 0.05
Pro forma income on net investable proceeds
0.02 0.02 0.02 0.02
Pro forma employee stock ownership plan adjustments (1)
(0.01 ) (0.01 ) (0.01 ) (0.01 )
Pro forma restricted stock award expense (2)
(0.03 ) (0.03 ) (0.03 ) (0.03 )
Pro forma stock option expense (3)
(0.04 ) (0.04 ) (0.04 ) (0.03 )
Pro forma net income (loss) per share
$ 0.02 $ 0.01 $ 0.00 $ 0.00
Offering price to annualized pro forma net income (loss) per share
250.00 500.00 NM NM
Number of shares for pro forma net income (loss) per share (4)
1,059,103 1,246,003 1,432,904 1,647,839
Pro Forma Shareholders’ Equity:
Historical
$ 13,664 $ 13,664 $ 13,664 $ 13,664
Estimated net proceeds
9,839 11,789 13,739 15,982
Plus: common stock issued to the foundation
442 520 598 688
Plus: tax benefit of contribution to foundation
209 239 269 304
Less: common stock acquired by employee stock ownership plan (1)
(919 ) (1,082 ) (1,244 ) (1,430 )
Less: common stock to be acquired by equity incentive plan (2)
(460 ) (541 ) (622 ) (715 )
Less: foundation contribution expense
(542 ) (620 ) (698 ) (788 )
Pro forma shareholders’ equity
$ 22,233 $ 23,969 $ 25,706 $ 27,705
Pro Forma Shareholders’ Equity Per Share: (4)
Historical
$ 11.89 $ 10.11 $ 8.79 $ 7.64
Estimated net proceeds
8.56 8.72 8.84 8.94
Plus: common stock issued to the foundation
0.39 0.38 0.38 0.38
Plus: tax benefit of contribution to foundation
0.18 0.18 0.17 0.17
Less: common stock acquired by employee stock ownership plan (1)
(0.80 ) (0.80 ) (0.80 ) (0.80 )
Less: common stock to be acquired by equity incentive plan (2)
(0.40 ) (0.40 ) (0.40 ) (0.40 )
Less: foundation contribution expense
(0.47 ) (0.46 ) (0.45 ) (0.44 )
Pro forma book value
$ 19.35 $ 17.73 $ 16.53 $ 15.49
Offering price to pro forma book value
51.7 % 56.4 % 60.5 % 64.6 %
Number of shares for pro forma book value (4)
1,149,200 1,352,000 1,554,800 1,788,020
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At or For the Year Ended December 31, 2014
(Dollars in thousands, except per share amounts)
Minimum of
Offering
Range
1,105,000
Shares
at $10.00
Per Share
Midpoint of
Offering
Range
1,300,000
Shares
at $10.00
Per Share
Maximum of
Offering
Range
1,495,000
Shares
at $10.00
Per Share
Maximum,
as Adjusted,
of Offering
Range
1,719,250
Shares
at $10.00
Per Share
Gross Proceeds
$ 11,050 $ 13,000 $ 14,950 $ 17,193
Plus: Value of shares issued to foundation
442 520 598 688
Pro forma market capitalization
$ 11,492 $ 13,520 $ 15,548 $ 17,881
Gross Proceeds
$ 11,050 $ 13,000 $ 14,950 $ 17,193
Less: estimated offering expenses
(1,211 ) (1,211 ) (1,211 ) (1,211 )
Estimated net conversion proceeds
9,839 11,789 13,739 15,982
Less: cash contribution to foundation
(100 ) (100 ) (100 ) (100 )
Less: common stock acquired by employee stock ownership plan (1)
(919 ) (1,082 ) (1,244 ) (1,430 )
Less: common stock acquired by restricted stock award expense (2)
(460 ) (541 ) (622 ) (715 )
Net investable proceeds
$ 8,360 $ 10,066 $ 11,773 $ 13,737
Pro Forma Net Income:
Historical
$ 119 $ 119 $ 119 $ 119
Pro forma income on net investable proceeds
33 39 46 54
Pro forma employee stock ownership plan adjustments (1)
(23 ) (27 ) (31 ) (35 )
Pro forma restricted stock award expense (2)
(56 ) (66 ) (76 ) (88 )
Pro forma stock option expense (3)
(70 ) (82 ) (94 ) (108 )
Pro forma net income (loss)
$ 3 ($ 17 ) ($ 36 ) ($ 58 )
Pro Forma Net Income Per Share:
Historical
$ 0.10 $ 0.10 $ 0.08 $ 0.07
Pro forma income on net investable proceeds
0.03 0.03 0.03 0.03
Pro forma employee stock ownership plan adjustments (1)
(0.02 ) (0.02 ) (0.02 ) (0.02 )
Pro forma restricted stock award expense (2)
(0.05 ) (0.05 ) (0.05 ) (0.05 )
Pro forma stock option expense (3)
(0.06 ) (0.07 ) (0.07 ) (0.07 )
Pro forma net income (loss) per share
$ 0.00 ($ 0.01 ) ($ 0.03 ) ($ 0.04 )
Offering price to pro forma net income (loss) per share
NM NM NM NM
Number of shares for pro forma net income (loss) per share (4)
1,060,941 1,248,166 1,435,391 1,650,700
Pro Forma Shareholders’ Equity:
Historical
$ 13,582 $ 13,582 $ 13,582 $ 13,582
Estimated net proceeds
9,839 11,789 13,739 15,982
Plus: common stock issued to the foundation
442 520 598 688
Plus: tax benefit of contribution to foundation
209 239 269 304
Less: common stock acquired by employee stock ownership plan (1)
(919 ) (1,082 ) (1,244 ) (1,430 )
Less: common stock to be acquired by equity incentive plan (2)
(460 ) (541 ) (622 ) (715 )
Less: foundation contribution expense
(542 ) (620 ) (698 ) (788 )
Pro forma shareholders’ equity
$ 22,151 $ 23,887 $ 25,624 $ 27,623
Pro Forma Shareholders’ Equity Per Share: (4)
Historical
$ 11.82 $ 10.05 $ 8.75 $ 7.60
Estimated net proceeds
8.56 8.72 8.84 8.94
Plus: common stock issued to the foundation
0.38 0.38 0.38 0.38
Plus: tax benefit of contribution to foundation
0.18 0.18 0.17 0.17
Less: common stock acquired by employee stock ownership plan (1)
(0.80 ) (0.80 ) (0.80 ) (0.80 )
Less: common stock to be acquired by equity incentive plan (2)
(0.40 ) (0.40 ) (0.40 ) (0.40 )
Less: foundation contribution expense
(0.47 ) (0.46 ) (0.45 ) (0.44 )
Pro forma book value
$ 19.27 $ 17.67 $ 16.49 $ 15.45
Offering price to pro forma book value
51.9 % 56.6 % 60.7 % 64.7 %
Number of shares for pro forma book value (4)
1,149,200 1,352,000 1,554,800 1,788,020
(footnotes on following page)​
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(1)
Assumes that the employee stock ownership plan will acquire a number of shares of stock equal to 8% of the shares sold in the offering, including shares issued to the charitable foundation, (91,936, 108,160, 124,384 and 143,042 shares at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively). The employee stock ownership plan will borrow the funds to acquire these shares from the net offering proceeds retained by Central Federal Bancshares. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. This borrowing will have an interest rate equal to the prime rate as published in The Wall Street Journal, which is currently 3.25%, and a term of 25 years. Central Federal intends to make contributions to the employee stock ownership plan in amounts at least equal to the principal and interest requirement of the debt. Interest income that Central Federal Bancshares will earn on the loan will offset the interest expense paid on the loan by Central Federal. As the debt is paid down, shares will be released for allocation to participants’ accounts and shareholders’ equity will be increased. The adjustment to pro forma net income for the employee stock ownership plan reflects the after-tax compensation expense associated with the plan. Applicable accounting principles require that compensation expense for the employee stock ownership plan be based upon the market value of shares committed to be released and that unallocated shares be excluded from earnings per share computations. An equal number of shares (1/25 of the total, based on a 25-year loan) will be released each year over the term of the loan. The valuation of shares committed to be released would be based upon the average market value of the shares during the year, which, for purposes of this calculation, was assumed to be equal to the $10.00 per share purchase price. If the average market value per share is greater than $10.00 per share, total employee stock ownership plan expense would be greater. See “ Our Management — Employee Stock Ownership Plan .”
(2)
Assumes that Central Federal Bancshares will purchase in the open market a number of shares of stock equal to 4% of the shares issued in the conversion, including shares issued to the charitable foundation (45,968, 54,080, 62,192 and 71,521 shares at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively), that will be reissued as restricted stock awards under an equity incentive plan to be adopted following the offering. Purchases will be funded with cash on hand at Central Federal Bancshares or with dividends paid to Central Federal Bancshares by Central Federal. The cost of these shares has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. In calculating the pro forma effect of the restricted stock awards, it is assumed that the required shareholder approval has been received, that the shares used to fund the awards were acquired at the beginning of the respective period and that the shares were acquired at the $10.00 per share purchase price. The issuance of authorized but unissued shares of the common stock instead of shares repurchased in the open market would dilute the ownership interests of existing shareholders by approximately 3.8%. The adjustment to pro forma net income for the restricted stock awards reflects the after-tax compensation expense associated with the awards. It is assumed that the fair market value of a share of Central Federal Bancshares common stock was $10.00 at the time the awards were made, that shares of restricted stock issued under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the shares awarded was an amortized expense during each year, and that the combined federal and state income tax rate was 38.6%. If the fair market value per share is greater than $10.00 per share on the date shares are awarded under the equity incentive plan, total equity incentive plan expense would be greater.
(3)
The adjustment to pro forma net income for stock options reflects the after-tax compensation expense associated with the stock options that may be granted under the equity incentive plan expected to be adopted following the offering. If the equity incentive plan is approved by shareholders, a number of shares equal to 10% of the number of shares sold in the offering, including shares issued to the charitable foundation (114,920, 135,200, 155,480 and 178,802 shares at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively), will be reserved for future issuance upon the exercise of stock options that may be granted under the plan. Using the Black-Scholes option-pricing formula, the options are assumed to have a value of  $3.35 for each option, based on the following assumptions: assumptions: exercise price, $10.00; trading price on date of grant, $10.00; dividend yield, 0%; expected life, 10 years; expected volatility, 19.3% based on an
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index of publicly traded thrift institutions; and risk-free interest rate, 2.35%. Because there currently is no market for Central Federal Bancshares common stock, the assumed expected volatility is based on the SNL Index for all publicly-traded thrifts. The dividend yield is assumed to be 0% because there is no history of dividend payments and the board of directors has not expressed an intention to commence dividend payments upon completion of the offering. It is assumed that stock options granted under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the options awarded is an amortized expense during each year, that 25% of the options awarded are non-qualified options and that the combined federal and state income tax rate is 38.6%. If the fair market value per share is different than $10.00 per share on the date options are awarded under the equity incentive plan, or if the assumptions used in the option-pricing formula are different from those used in preparing this pro forma data, the value of the stock options and the related expense would be different. Applicable accounting standards do not prescribe a specific valuation technique to be used to estimate the fair value of employee stock options. Central Federal Bancshares may use a valuation technique other than the Black-Scholes option-pricing formula and that technique may produce a different value. The issuance of authorized but unissued shares of common stock to satisfy option exercises instead of shares repurchased in the open market would dilute the ownership interests of existing shareholders by approximately 9.1%.
(4)
The number of shares used to calculate pro forma net income per share is equal to the total number of shares to be outstanding upon completion of the offering, less the number of shares purchased by the employee stock ownership plan not committed to be released within six months or one year following the offering. The number of shares used to calculate pro forma shareholders’ equity per share equals the total number of shares to be outstanding upon completion of the offering.
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Comparison of Valuation and Pro Forma Information
With and Without the Charitable Foundation
If Central Federal does not establish or fund the charitable foundation as part of the conversion, Feldman Financial has estimated that the pro forma aggregate market value of Central Federal Bancshares would be approximately $14.0 million at the midpoint of the estimated valuation range. This is approximately $480,000 million greater than the pro forma aggregate market capitalization of Central Federal Bancshares, including the charitable foundation, and would result in a 100,000 share increase in the amount of common stock offered for sale at the midpoint in the conversion. The pro forma book value ratio would be similar, assuming the maximum, under both the current appraisal and the estimate of the value of Central Federal Bancshares without the charitable foundation. The pro forma shareholders’ equity per share would also be similar with or without the charitable foundation. Central Federal Bancshares cannot assure you that, in the event the charitable foundation is not formed, the appraisal prepared at that time would have concluded that the pro forma market value of Central Federal Bancshares would be the same as was estimated.
At or For the Six Months Ended June 30, 2015
At the Minimum
of Estimated
Price Range
At the Midpoint
of Estimated
Price Range
At the Maximum
of Estimated
Price Range
At the Maximum,
As Adjusted,
of Estimated
Price Range
(Dollars in thousands, except per
share amounts)
With
Foundation
No
Foundation
With
Foundation
No
Foundation
With
Foundation
No
Foundation
With
Foundation
No
Foundation
Estimated offering amount
$ 11,050 $ 11,900 $ 13,000 $ 14,000 $ 14,950 $ 16,100 $ 17,193 $ 18,515
Pro forma market capitalization
11,492 11,900 13,520 14,000 15,548 16,100 17,880 18,515
Pro forma total assets
70,993 71,685 72,729 73,533 74,466 75,381 76,465 77,506
Pro forma total liabilities
48,760 48,760 48,760 48,760 48,760 48,760 48,760 48,760
Pro forma shareholders’ equity
22,233 22,925 23,969 24,773 25,706 26,621 27,705 28,746
Pro forma net income
23 22 14 13 4 2 (8 ) (9 )
Pro forma shareholders’ equity
per share
$ 19.35 $ 19.26 $ 17.73 $ 17.70 $ 16.53 $ 16.53 15.49 $ 15.53
Pro forma net income per share
$ 0.02 $ 0.02 $ 0.01 $ 0.01 $ 0.00 $ 0.00 $ 0.00 ($ 0.01 )
Pro Forma Pricing Ratios:
Offering price as a percentage pro forma shareholders’ equity per share
51.7 % 51.9 % 56.4 % 56.5 % 60.5 % 60.5 % 64.6 % 64.4 %
Offering price to annualized pro
forma net income per
share (1)
250.0x 250.0x 500.0x 500.0x NM NM NM NM
Pro Forma Financial Ratios:
Return on assets (annualized)
0.06 % 0.06 % 0.04 % 0.04 % 0.01 % 0.01 % (0.02 %) (0.02 %)
Return on shareholders’ equity
(annualized)
0.21 % 0.19 % 0.12 % 0.10 % 0.03 % 0.02 % (0.06 %) (0.06 %)
Shareholders’ equity to total assets
31.32 % 31.98 % 32.96 % 33.69 % 34.52 % 35.32 % 36.23 % 37.09 %
Total shares issued
1,149,200 1,190,000 1,352,000 1,400,000 1,554,800 1,610,000 1,788,020 1,851,500
(1)
NM indicates that the resulting ratio is not meaningful.
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Our Business
General
Central Federal Bancshares, a Missouri corporation, was incorporated in 2015 to become the holding company for Central Federal upon completion of the conversion. Before the completion of the conversion, Central Federal Bancshares has not engaged in any significant activities other than organizational activities. Following completion of the conversion, Central Federal Bancshares’ business activity will be the ownership of the outstanding capital stock of Central Federal. Central Federal Bancshares will not own or lease any property but will instead use the premises, equipment and other property of Central Federal with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement that Central Federal Bancshares and Central Federal will enter into upon completion of the conversion. The expense allocation agreement generally provides that Central Federal Bancshares will pay to Central Federal, on a quarterly basis, fees for its use of Central Federal’s premises, furniture, equipment and employees in an amount to be determined by the board of directors of Central Federal Bancshares and Central Federal. Such fees shall not be less than the fair market value received for such goods or services. In addition, Central Federal Bancshares and Central Federal will also enter into a tax allocation agreement upon completion of the conversion as a result of their status as members of an affiliated group under the Internal Revenue Code. The tax allocation agreement generally provides that Central Federal Bancshares will file consolidated federal tax income returns with Central Federal and its subsidiaries. The tax allocation agreement also formalizes procedures for allocating the consolidated tax liability of the group among its members and establishes procedures for the future payments by Central Federal to Central Federal Bancshares for tax liabilities attributable to Central Federal and its subsidiaries. In the future, Central Federal Bancshares may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.
Central Federal is a community-oriented financial institution, dedicated to serving the financial service needs of customers within its market area, which generally consists of Phelps County, Missouri, although it also services customers in the contiguous Missouri counties of Dent, Texas, Crawford, Pulaski and Maries. We offer a variety of loan and deposit products to meet the borrowing needs of our customers. Our real estate loans consist primarily of residential loans, including owner-occupied and non-owner occupied one- to four-family residential loans. We also offer commercial and multi-family real estate loans, commercial business loans and consumer loans, including automobile and recreational vehicle loans. We currently operate out of our office in Rolla, Missouri. We are subject to extensive regulation, examination and supervision by the Office of the Comptroller of the Currency, our primary federal regulator, and the Federal Deposit Insurance Corporation, our deposit insurer. At June 30, 2015, we had total assets of  $62.4 million, total deposits of  $48.6 million and total equity of  $13.7 million.
Our website address is www.centralfederal.com. Information on our website should not be considered a part of this prospectus.
Market Area
We are headquartered, and maintain our sole office, in Rolla, Missouri, and we consider our primary deposit and lending market to be Phelps County, Missouri. Rolla is located along Interstate 44 in south-central Missouri, less than 100 miles from major Missouri population centers of St. Louis, Jefferson City, Columbia and Springfield. With a population of approximately 19,500, according to U.S. Census Bureau estimates, Rolla is the largest city, and center of government, of Phelps County, which has a population of approximately 45,000, also according to U.S. Census Bureau estimates. Rolla is home to Missouri University of Science and Technology, a public, leading technological research university within Missouri that has an enrollment as of Fall 2014 of approximately 8,700 students and faculty and staff  (both full- and part time) of approximately 1,400. Other major employers in Rolla and Phelps County include Phelps County Regional Medical Center and other health care service providers, as well as Walmart Stores, Inc. (including a regional distribution center in St. James, Missouri) and various agencies of the federal and state governments.
Demographic and economic growth data provide additional information regarding our market area. According to U.S. Census Bureau estimates, Rolla experienced population growth of 1.4% between 2010 and 2013, while the population of Phelps County declined by approximately 0.5% during the same period
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(which is the most recent period for which U.S. Census Bureau data is available for both areas). For comparison, during the same period, the population growth rate for the State of Missouri was estimated at 1.2% and the national growth rate was estimated at 2.5%.
Compared to the State of Missouri and national levels, Phelps County and Rolla generally report lower income levels. Median household income for 2013 (in 2013 dollars) was $41,964 for Phelps County and $32,149 for Rolla, compared to $47,380 for Missouri and $53,046 for the United States as a whole. Per capita incomes for 2013 (also in 2013 dollars) for Phelps County and Rolla were $21,173 and $17,295, respectively, compared to $25,649 and $28,155 for Missouri and the United States, respectively. The unemployment rates for Missouri and Phelps County were 5.8% and 6.0%, respectively, in May 2015 (compared to 5.6% and 6.2%, respectively, as of March 2015), above the national unemployment rate of 5.5% at each of May and March 2015, according to the U.S. Bureau of Labor Statistics. Over the past several years, the unemployment rate for Phelps County has been declining as the state and national unemployment rates have declined, with the highest level of unemployment in Phelps County (9.2%) occurring in February 2010, approximately the same time that national unemployment rates were peaking.
Competition
We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the many financial institutions operating in our primary market area and from other financial service companies such as securities brokerage firms, credit unions and insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities. In addition, banks owned by large national and regional holding companies and other community-based banks also operate in our primary market area. Most of these institutions are larger than us and, therefore, may have greater resources.
Our competition for loans comes primarily from financial institutions, including credit unions, in our primary market area and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from non-depository financial services companies entering the mortgage market, such as insurance companies, securities companies and specialty finance companies.
We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet, and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law now permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit our growth in the future.
Lending Activities
General.    Lending is our principal business activity, and our loan portfolio constitutes the largest portion of our assets and is the predominant source of our interest income. Management believes that Central Federal has a history of loans to credit-worthy individuals secured by their personal residences. The largest segment of our loan portfolio is real estate loans, consisting primarily of residential real estate loans (including one- to four-family and home equity loans), and, to a lesser extent, commercial and multi-family real estate loans, commercial business loans, and consumer loans. We are a portfolio lender and retain in our portfolio substantially all loans we originate.
The following is a description of the loans we offer and our lending policies. Virtually all of our secured loans, including in particular our one- to four-family residential real estate loans, are secured by properties located in our primary lending area, which we define as Phelps County, Missouri. Any exception to our loan policies must be approved by the individuals or committee having authority to approve a comparable loan that conformed fully with our lending policies.
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Residential Real Estate Loans.    At June 30, 2015, we had $31.8 million in residential real estate loans, which represented 63.7% of our total loan portfolio, comprised of owner-occupied one- to four-family loans, one- to four-family construction loans, home equity lines of credit and other junior lien loans, land loans and non-owner occupied one- to four-family loans. The following table provides more information about our residential real estate loan portfolio at June 30, 2015 and December 31, 2014:
June 30, 2015
December 31, 2014
Category
Amount
Percent of
Gross Loans
Amount
Percent of
Gross Loans
(Dollars in thousands)
Owner-occupied one- to four-family
$ 17,730 35.5 % $ 18,786 35.8 %
Non-owner occupied one- to four-family
10,161 20.4 11,759 22.4
Construction, one- to four-family
1,200 2.4 718 1.3
Home equity line of credit and junior liens
1,709 3.4 1,771 3.4
Land
995 2.0 1,145 2.2
$ 31,795 63.7 % $ 34,179 65.1 %
Our origination of residential real estate loans enables borrowers to purchase or refinance existing one- to four-family residences, virtually all of which are located in our primary market area.
We offer adjustable-rate and fixed-rate residential real estate loans with terms of up to 30 years. Because we have not historically sold any of the one- to four-family residential real estate loans that we have originated, we have not originated these loans in conformance with either Fannie Mae or Freddie Mac underwriting guidelines, although we believe our underwriting guidelines are substantially similar. We generally do not originate or fund fixed-rate mortgage loans to hold in our loan portfolio at the present time; however, we have previously made long-term fixed-rate loans as part of our lending program. Approximately $15.8 million of such loans remain in our portfolio as of June 30, 2015. To the extent we currently participate in the origination of long-term fixed-rate residential real estate loans, we do so under the terms of arrangements we have entered into with another financial institution. Under this arrangement, we assist in the completion of a loan application and obtain certain financial information about the applicant on behalf of the originating institution, which then underwrites the loan pursuant to its own lending policies, and, if it approves the loan, funds the loan directly. We receive a fee for our services. We may, given our asset-liability and portfolio needs and other considerations, such as interest rate levels, consider originating fixed rate loans for our loan portfolio. Currently we do not offer loans insured by the Federal Housing Administration or guaranteed by the U.S. Department of Veterans Affairs, although these types of loans may be obtained by our customers through the loan arrangements described above. We determine the loan fees, interest rates and other provisions of the mortgage loans we originate, fund and hold in our portfolio based on our own pricing criteria and competitive market conditions.
While residential real estate loans are generally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans on a regular basis. We do not offer residential real estate loans with negative amortization, and we do not make interest only residential real estate loans.
Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. As a result, the effectiveness of adjustable-rate mortgage loans in compensating for changes in general interest rates may be limited during periods of rapidly rising interest rates.
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We require an escrow for funds to pay property insurance and real estate taxes for the owner-occupied home mortgage loans we make, and loans with loan-to-value ratios in excess of 90% require private mortgage insurance. We have observed a significant demand for residential real property used for investment or income purposes, which demand arises primarily from a high demand for off-campus housing for students attending the Missouri University of Science and Technology. We underwrite and price one- to four-family residential real estate loans that are nonowner-occupied as commercial loans; such loans are subject to a maximum loan-to-value ratio of 80% and are offered at fixed rates and with a term of one, three or five years and with payments based on a 25-year amortization.
Under our loan policy, which has been approved by our board, we require all properties securing mortgage loans to be appraised by a licensed, independent appraiser. We also require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for all loans located in flood hazard areas. We do not offer, and have not offered, sub-prime or no-documentation mortgage loans.
We also originate loans for the construction of one- to four-family homes. At June 30, 2015, one- to four-family construction loans were $1.2 million. Our construction loans generally provide for the payment of only interest during the construction phase, which is usually up to 12 months. At the end of the construction phase, the loan generally converts to a permanent mortgage loan. Loans generally can be made with a maximum loan to value ratio of 85% on residential construction, based on the appraised value as if complete. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent, licensed appraiser. We also will generally require an inspection of the property before disbursement of funds during the term of the construction loan. Finally, we also originate loans to individuals for the purpose of purchasing land for future construction of one- to four-family residences, and we offer land loans under the same general terms as non-owner occupied one- to four-family homes described above (fixed interest rates and one, three or five year maturities, with payments amortized based on a 25-year schedule). We limit the loan-to-value ratio to a maximum of 65%.
We make home equity lines of credit and, on occasion, other junior lien loans. Home equity lines of credit are made for terms of up to 20 years at adjustable rates, with the amount of the home equity line, when combined with the amount outstanding under any first mortgage, limited to an 80% loan to value ratio. All of our home equity lines of credit currently offered are adjustable-rate loans with rates tied to the prime rate as reported in The Wall Street Journal. Our home equity lines of credit are not necessarily secured by residential real estate on which we also maintain the first mortgage. As of June 30, 2015, we had $1.7 million of home equity and other junior lien loans.
Commercial and Multi-Family Real Estate Loans.    At June 30, 2015, we had $15.8 million in commercial and multi-family real estate loans, which represented 31.7% of our total loan portfolio, comprised of loans and lines of credit secured by commercial real estate, including multi-family residential real estate and owner-occupied commercial property. The following table provides more information about our commercial and multi-family real estate loan portfolio at June 30, 2015 and December 31, 2014:
June 30, 2015
December 31, 2014
Category
Amount
Percent of
Gross Loans
Amount
Percent of
Gross Loans
(Dollars in thousands)
Multi-Family
$ 9,552 19.2 % $ 9,634 18.4 %
Multi-Family Line of Credit
0.0 35 0.1
Multi-Family Construction
55 0.1 0.0
Commercial Real Estate
5,456 10.9 5,587 10.6
Commercial Real Estate Lines of Credit
652 1.3 629 1.2
Commercial Real Estate Construction
92 0.2 108 0.2
$ 15,807 31.7 % $ 15,993 30.5 %
We offer loans secured by multi-family residential real property, including loans to finance the construction of multi-family residences, and also commercial real estate loans and lines of credit, including commercial real estate construction loans.
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Multi-family residential real property loans are offered at fixed rates, with a one, three or five year maturity, with payments on a 25-year amortization schedule, and are subject to a loan-to-value ratio of 80% of the lesser of appraised value or the purchase price. We also offer multi-family residential construction loans and commercial construction loans with a maximum loan-to-value ratio of 80%. Finally, we offer commercial (non-residential) real estate loans with a maximum loan-to-value ratio of 80% of the lower of the appraised value or the purchase price of the property, with one, three or five year terms and payments on a 25-year amortization schedule. Commercial real estate lines of credit are available with a one year maturity.
We require all properties securing commercial mortgage loans to be appraised by a licensed, independent appraiser. We also require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for all loans located in flood hazard areas. Almost all of our commercial real estate loans are collateralized by office buildings, mixed-use properties and owner-occupied, commercial real estate located in Phelps County, Missouri.
Commercial Business Loans.    We make a relatively limited amount of commercial business loans that are either secured by assets other than real property or that are not secured. As of June 30, 2015 and December 31, 2014, we had commercial business loans of  $1.9 million, or 3.8% of our total loan portfolio at June 30, 2015, and 3.6% of our total loan portfolio, at December 31, 2014. For secured commercial loans and lines of credit, the interest rate and other terms are determined based upon the financial condition, including net worth, of the borrower as well as the type of collateral to secure the loan. Collateral for secured commercial business loans generally consists of the borrower’s accounts receivable, inventory and furniture, fixtures and equipment, although deposit accounts at Central Federal may also be pledged. We make unsecured commercial extensions of credit if the financial condition of the borrower is sufficient to support the loan; most of our unsecured commercial credits consist of lines of credit. We are currently evaluating supplementing our commercial business loan originations with some limited purchases of the guaranteed portion of Small Business Administration (SBA) loans, which are short term loans with fixed rates. We anticipate that commercial business loans may become a slightly larger component of our loan portfolio composition through originations supplemented with purchases of SBA loans.
Consumer and Other Loans.    Our consumer lending consists primarily of loans secured by used automobiles or other personal vehicles and, to a lesser extent, unsecured personal loans and loans secured by deposit accounts (share loans) at Central Federal. As of June 30, 2015 and December 31, 2014, we had consumer and other loans of  $415,000, or 0.8% of our total loan portfolio, and $432,000, or 0.8% of our total loan portfolio, respectively. The following table provides additional information relating to our consumer lending.
June 30, 2015
December 31, 2014
Category
Amount
Percent of
Gross Loans
Amount
Percent of
Gross Loans
(Dollars in thousands)
Personal Auto Loans
$ 250 0.5 % $ 227 0.4 %
Personal Unsecured Loans
57 0.1 56 0.1
Share Loans
47 0.1 81 0.2
Overdraft
21 21
Other Secured Loans
40 0.1 47 0.1
$ 415 0.8 % $ 432 0.8 %
Loan Underwriting and Collections
Loan Approval Procedures and Authority.    Pursuant to applicable law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of Central Federal’s unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain residential development loans). In November 2012, the Office of the Comptroller of the Currency approved Central Federal’s application to participate in the supplemental lending limits program, or SLLP. Under the SLLP, Central Federal may extend credit for an
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additional 10% of their unimpaired capital and surplus for one- to four-family residential real estate and small business loans. This limit will increase upon completion of this offering and the contribution of 50% of the net offering proceeds to Central Federal. At June 30, 2015, our regulatory loans-to-one-borrower limit under the SLLP was $3.4 million. As of June 30, 2015, our three largest commercial real estate lending relationships consisted of multiple extensions of credit, each secured by real property, to a group of related borrowers with an aggregate principal balance of approximately $2.2 million; an extension of credit to one borrower, secured by multiple properties, of with an aggregate principal balance of approximately $1.9 million; and a loan secured by church property with an aggregate principal balance of approximately $1.9 million. At June 30, 2015, all of these loans were performing in accordance with their repayment terms.
Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of written applications submitted by the prospective borrowers and property valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers, as well as internal evaluations where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns.
We have a loan committee comprised of our president, all loan officers (including our executive vice president–lending) and loan administration personnel. Minutes of the meetings of the loan committee are provided to our board on a monthly basis. Our executive vice president–lending and our two lending officers each has the authority to approve extensions of credit in amounts that, when aggregated with all other extensions of credit to the same or related borrowers, do not exceed $500,000. Our loan committee may approve loans in amounts that, when aggregated with all other extensions of credit to the same or related borrowers, do not exceed $750,000; all other loans must be approved by our board of directors.
Commercial and Multi-Family Real Estate, Non-Owner Occupied Residential Real Estate and Commercial Business Loans.    We consider a number of factors in originating commercial real estate loans, including multi-family real estate and non-owner occupied, one- to four-family residential real estate loans, as well as other commercial business loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of property securing the loan. Under our lending policy, positive cash flow is a requirement for all commercial loans, and we generally require a borrower, irrespective of the income and debt service capacity of assets collateralizing the loan, to demonstrate a minimum debt service coverage ratio (the ratio of net operating income to debt service) of 1.2 to 1. We also consider the financial resources of the borrower, for real estate loans, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). All commercial business loans (including multi-family and non-owner occupied real estate) are reviewed at least annually by Central Federal’s management. The review is based on the borrower (that is, all loans to one borrower are reviewed at the same time), and current financial information is obtained from the borrower and its principals at the time of the review. Loans that exceed $250,000 and that require an annual review are presented to and discussed at a meeting of our internal loan committee, loans that exceed $500,000 that require an annual review are presented to and discussed with our board of directors. All commercial and multi-family real estate loans, as well as all owner- and non-owner occupied residential real estate loans, are appraised by outside independent, licensed appraisers. Personal guarantees are generally obtained from the principals of commercial and multi-family real estate loans.
Commercial loans, whether or not secured by real estate, entail greater credit risks compared to owner-occupied one- to four-family residential real estate loans because they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential properties.
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Collection Procedures.    When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. We generally send a written notice of non-payment to the borrower between 15 and 30 days (depending on any payment grace period associated with the loan), and will follow up with a telephone call to the borrower if payment has not been made. If the loan remains unpaid, a further seriously past due notice is generated and mailed to the borrower, and we will make another telephone call, or an in-person visit, to the borrower. If the loan continues to remain unpaid and satisfactory payment arrangements have not been made with us, we send a letter demanding payment within 30 days; if we do not receive a satisfactory response, we may, in our discretion, turn the matter over to our attorney for further action, including the initiation of foreclosure proceedings.
The accrual of interest on real estate and commercial business loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Personal loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Loans returned to accrual status when all the principal and interest amounts contractually are brought current, the borrower has demonstrated a period of sustained performance and future payments are reasonably assured. A sustained period of repayment performance generally would be a minimum of six months. Management reports loan delinquencies to the board of directors on a monthly basis. Additional information with respect to our loans is available under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Analysis of Statements of Financial Condition.
Loan Commitments.    We issue commitments for one- to four-family residential real estate loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Most of our loan commitments expire after 30 days. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financing and Investing Activities — Off-Balance Sheet Arrangements .”
Construction Loans.    Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the building. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a building having a value which is insufficient to assure full repayment if liquidation is required. If we are forced to foreclose on a building before or at completion due to a default, we may be unable to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. For construction loans secured by residential real estate (including loans we consider to be commercial loans), we disburse funds upon request and upon an inspection of the property by Central Federal personnel. For larger commercial loans, we generally advance funds only upon receipt of certification from an engineer or architect.
Home Equity Lines of Credit.    In the case of home equity lines of credit, real estate values may be reduced to a level that is insufficient to cover the outstanding loan balance after accounting for the first mortgage loan balance. Loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Home equity lines of credit have greater risk than one- to four-family residential real estate loans secured by first mortgages, primarily the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs utilizing the policies and procedures described above. The value of the collateral, however, may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Decreases in real estate values could adversely affect the value of property used as collateral for our loans.
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Investment Activities
Our board of directors has the overall responsibility for the investment portfolio, including approval of the investment policy. Our primary investment objectives are: (i) to provide and maintain liquidity; (ii) to fully employ the available funds of Central Federal; (iii) to earn an average rate of return on invested funds competitive with comparable institutions; (iv) to manage interest rate risk; and (v) to limit credit and interest rate risk. Our chief executive officer is responsible for the implementation of our policy and monitoring our investment performance. Our board of directors reviews the status of our investment portfolio on a monthly basis.
We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored agencies and of state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in other permissible securities. As a member of the Federal Home Loan Bank of Des Moines, we also are required to maintain an investment in the stock of that institution.
We have an investment portfolio comprised of  $2.5 million of certificates of deposits in other financial institutions and available for sale securities. At June 30, 2015, our investment portfolio was comprised primarily of certificates of deposit in other financial institutions, each in the amount of  $248,000 and each at a different insured depository institution. We also have an investment, categorized as available-for-sale, in stock of the Federal Home Loan Mortgage Corporation with a fair value of  $33,000 as of June 30, 2015. Our investment strategy is expected to remain consistent with our current philosophy of maintaining excess cash in interest-bearing deposits held in other financial institutions; we may, however, on a limited basis, also invest in U.S. Government agency securities. The table below summarizes the maturities and weighted average interest rate of the investment portfolio as of June 30, 2015.
June 30, 2015
(Dollars in thousands)
Amount
Weighted
Average Rate
Certificates of Deposit in Other Financial Institutions Maturing In:
2015
$ 496 1.20 %
2016
248 1.30
2017
248 1.60
2019
992 1.73
2020
496 2.18
2,480 1.67 %
Securities available-for-sale
33
Total
$ 2,513
In addition to our investment portfolio, at June 30, 2015, we held $77,000 of Federal Home Loan Bank of Des Moines stock, carried at cost.
Deposit Activities and Other Sources of Funds
General.    Deposits have traditionally been our primary source of funds for use in lending and investment activities. We have not historically used borrowings and we had no outstanding borrowings at June 30, 2015 or at December 31, 2014 and 2013. In addition, we receive funds from scheduled loan payments, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.
Deposit Accounts.    Deposits generally are attracted from within our market area through the offering of a broad selection of deposit instruments, including non-interest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts),
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statement savings accounts and certificates of deposit. On occasion, Central Federal will accept deposits, typically in the form of certificate of deposit in denominations in excess of  $100,000, from other financial institutions. We do not have a formal program or policy with respect to such deposits, which are typically initiated by the other institution; rather, we will accept the deposits if, when the opportunity to accept the deposit arises, our management determines that the deposit is appropriate for us. As of June 30, 2015, the amount of deposits from such other financial institutions was $5.5 million. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors.
Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. Our ability to gather deposits is affected by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates.
Borrowings.    As a member of the Federal Home Loan Bank of Des Moines, Central Federal is eligible to obtain advances upon the security of the Federal Home Loan Bank common stock owned and certain residential real estate loans, provided certain standards related to credit-worthiness have been met. Federal Home Loan Bank advances are available pursuant to several credit programs, each of which has its own interest rate and range of maturities. Central Federal also is eligible, upon the satisfaction of collateral security and other requirements, to borrow from the Federal Reserve Bank of St. Louis. While we have obtained Federal Home Loan Bank advances in the past, we had no outstanding borrowings from the Federal Home Loan Bank or Federal Reserve Bank at June 30, 2015 or December 31, 2014 or 2013.
Properties
We operate from our office located at 210 West 10 th Street, Rolla, Missouri 65401. The net book value of our premises at June 30, 2015 was $392,000.
Personnel
As of June 30, 2015, we had 14 full-time equivalent employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.
Legal Proceedings
Periodically, there may be various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.
Subsidiaries
Central Federal has no subsidiaries.
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Management’s Discussion And Analysis Of Financial Condition
And Results Of Operations
The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the financial statements and the notes to financial statements included in this prospectus.
Operating Strategy
Central Federal is a community-oriented financial institution, dedicated to serving the financial needs of customers within its market area. We have identified the following strategic initiatives we intend to pursue in our efforts to achieve our goal to operate and grow a profitable community-oriented financial institution:
Building on our strengths as a community-oriented financial institution.
We have operated continuously as a community-oriented financial institution since we were founded in 1952. We are committed to meeting the financial needs of our local community and are dedicated to providing quality personal service to our customers. In that regard, we are focused on building our customer base in the communities we serve through the enhancement of our products and additional marketing of these products and services. Further, we want to provide our customers the opportunity to become shareholders through this conversion offering.
Increasing loan production while maintaining our asset quality.
Our loan portfolio has slightly declined over the past few years in our very competitive market area. Through additional marketing and perhaps the addition of more lending personnel, we hope to grow our loan portfolio. In growing the loan portfolio, we will seek to maintain strong asset quality by following prudent underwriting guidelines and utilizing our knowledge of our local market area.
Strengthening our capital to protect against rising interest rates.
We currently have a strong capital base which is sufficient for interest rate risk purposes in the current low interest rate environment given our interest rate risk profile. We know if interest rates rise, having a strong capital base will provide us with additional strength to withstand the impact of rising interest rates. Further, the cash generated from the conversion could be used to fund loans or purchase investment securities at higher interest rate levels should interest rates rise, providing additional net interest income.
Overview
The results of our operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on interest-earning assets, primarily loans, and interest we pay on interest-bearing liabilities, consisting of deposits. The interest income we generate is based on the origination of residential real estate, commercial and multi-family real estate, commercial business and consumer loans. Our primary source of funding is deposits. The largest expenses we incur are associated with salaries and related employee benefits.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses and valuation of foreclosed assets.
Allowance for Loan Losses.    The allowance for loan losses is an estimate made by management as necessary to cover probable losses inherent in the loan portfolio at the balance sheet date. The allowance is established through a provision for loan losses which is charged to expense. Additions to the allowance are
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expected to maintain the adequacy of the total allowance after loan losses and loan growth. Loan losses are charged off against the allowance when Central Federal determines the loan balance, or portion therefore, to be uncollectible. Cash received on previously charged off amounts is recorded as a recovery to the allowance. Although management believes the allowance to be adequate, ultimate losses may vary from its estimates. At least quarterly, the board of directors reviews the adequacy of the allowance, including consideration of the relevant risks in the portfolio, current economic conditions and other qualitative factors. If the board of directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, Central Federal’s primary regulator reviews the adequacy of the allowance. The regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.
Foreclosed Assets.    Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated selling cost at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets held for sale are carried at the lower of the new cost basis or fair value less cost to sell. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available. Due to potential changes in conditions, it is possible that changes in fair values will occur in the near term and that such changes could materially affect the amounts reported in Central Federal’s financial statements.
Analysis of Statements of Financial Condition
Assets.    At June 30, 2015, total assets were $62.4 million, a decrease of  $1.6 million, or 2.5%, from total assets of  $64.0 million at December 31, 2014. The decrease in assets for the six months ended June 30, 2015 was due mainly to a $2.6 million, or 4.9%, decrease in net loans partially offset by a $734,000, or 9.3%, increase in cash and cash equivalents and a $265,000, or 109.1%, increase in foreclosed assets.
At December 31, 2014, total assets were $64.0 million, a decrease of  $786,000, or 1.2%, from total assets of  $64.8 million at December 31, 2013. The decrease in total assets was due primarily to a $1.4 million, or 2.6%, decrease in net loans from $53.6 million at December 31, 2013 to $52.2 million at December 31, 2014 as a result of weaker loan demand and increased interest rate competition. This decrease was partially offset by a $644,000, or 8.9%, increase in cash and cash equivalents.
Loans.    The largest portion of our loan portfolio consists of residential real estate loans which totaled $31.8 million, or 63.7%, $34.2 million, or 65.1%, and $34.6 million, or 64.2%, of the total loan portfolio at June 30, 2015, December 31, 2014 and December 31, 2013, respectively. Residential real estate loans decreased by $2.4 million, or 7.0%, and $460,000, or 1.3%, during the six months ended June 30, 2015 and year ended December 31, 2014, respectively, due primarily to weak loan demand and competitive interest rates in our market area.
Commercial and multi-family real estate loans totaled $15.8 million and represented 31.7% of total loans at June 30, 2015. This is a decrease of  $186,000, or 1.2%, from $16.0 million at December 31, 2014. There was a decrease of  $1.5 million, or 8.4% from $17.5 million at December 31, 2013 to December 31, 2014. Commercial and multi-family real estate loans generally consist of loans secured by non-owner occupied multi-family residential real estate, retail stores and other commercial real estate.
Commercial business loans totaled $1.9 million, or 3.8%, $1.9 million, or 3.6%, and $1.3 million, or 2.5%, of the total loan portfolio at June 30, 2015, December 31, 2014, and December 31, 2013, respectively. Commercial business loans increased $25,000, or 1.3%, and $551,000, or 41.5%, during the six months ended June 30, 2015 and year ended December 31, 2014, respectively.
Consumer and other loans decreased by $17,000, or 3.9%, from $432,000 at December 31, 2014 to $415,000 at June 30, 2015. Consumer and other loans also decreased $66,000, or 13.3%, from $498,000 at December 31, 2013 to $432,000 at December 31, 2014.
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The following table sets forth the composition of our loan portfolio at the dates indicated.
Loan Portfolio Composition
June 30,
December 31,
2015
2014
2013
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Commercial Business
$ 1,905 3.8 % $ 1,880 3.6 % $ 1,329 2.5 %
Commercial and Multi-Family Real Estate
15,807 31.7 15,993 30.5 17,469 32.4
Residential Real Estate
31,795 63.7 34,179 65.1 34,639 64.2
Consumer and Other
415 0.8 432 0.8 498 0.9
Total Loans
49,922 100.0 % 52,484 100.0 % 53,935 100.0 %
Allowance for loan losses
(278 ) (279 ) (351 )
Net deferred loan fees
(20 ) (21 ) (25 )
Net Loans
$ 49,624 $ 52,184 $ 53,559
Loan Maturity.    The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2014. Demand loans, loans having no stated repayment schedule or maturity and overdraft loans are reported as being due in one year or less. Actual maturities may differ due to prepayments.
Commercial
Business
Commercial
and Multi-
Family
Real Estate
Residential
Real Estate
Consumer
and Other
Total
Loans
(In thousands)
As of December 31, 2014,
Due in One Year or Less
$ 841 $ 1,808 $ 10,151 $ 272 $ 13,072
Due after One through Five Years
123 4,588 14,361 147 19,219
Due after Five Years
916 9,597 9,667 13 20,193
$ 1,880 $ 15,993 $ 34,179 $ 432 $ 52,484
Fixed vs. Adjustable Rate Loans.    The following table sets forth the dollar amount of all loans at December 31, 2014 that are due after December 31, 2015, and that have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude unearned loan origination fees and deferred loan costs.
Fixed Rates
Floating or
Adjustable Rates
Total
(In thousands)
Secured by real estate:
Commercial and Multi-Family
$ 11,064 $ 3,121 $ 14,185
Residential
11,053 12,975 24,028
Other Loans:
Commercial Business
1,039 1,039
Consumer and Other
160 160
Total loans
$ 23,316 $ 16,096 $ 39,412
Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their contractual terms because of prepayments. In addition, due-on-sale clauses on loans generally give us the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when current mortgage loan market rates are substantially lower than rates on existing mortgage loans.
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Commercial and Multi-Family Real Estate Summary.    The following table shows commercial real estate loans by industry of the borrower and multi-family real estate loans as of June 30, 2015.
Industry Type
Number of Loans
Balance
(Dollars in thousands)
Multi-family
21 $ 9,607
Church
2 1,956
Health and beauty
6 1,535
Retail
7 800
Construction
1 391
Golf course
1 333
Restaurant
1 252
Other
13 933
Total
52 $ 15,807
Loan Activity.    The following table shows loans originated, purchased and sold during the periods indicated.
Six Months Ended June 30,
Year Ended December 31,
2015
2014
2014
2013
(In thousands)
Total loans at beginning of Period
$ 52,484 $ 53,935 $ 53,935 $ 57,574
Loans originated:
Commercial Business
234 734 800 189
Commercial and Multi-Family Real Estate
1,572 1,628 1,736 1,431
Residential Real Estate
2,567 1,400 5,303 4,973
Consumer and Other
147 176 291 325
Total loans originated
4,520 3,938 8,130 6,918
Deduct:
Loan principal repayment (amortization and payoffs)
(7,080 ) (4,964 ) (9,448 ) (10,553 )
Charge-offs
(2 ) (4 ) (133 ) (4 )
Net loan activity
(2,562 ) (1,030 ) (1,451 ) (3,639 )
Total loans at end of period
$ 49,922 $ 52,905 $ 52,484 $ 53,935
Loan originations come from a number of sources. Our primary sources of loan originations are existing customers, walk-in traffic, advertising and referrals from customers.
We did not sell any loans during the six months ended June 30, 2015 or the years ended December 31, 2014 and 2013. From time to time we do buy participation loans. During the six months ended June 30, 2015, we purchased a $700,000 participation interest in a commercial real estate loan from another financial institution. We did not purchase any loans during the years ended December 31, 2014 and 2013.
Investment Portfolio.
We held $2.5 million of certificates of deposit as investments in other financial institutions at June 30, 2015, December 31, 2014 and 2013. The balance has not changed since December 31, 2013 as there have been no additional investments or maturities in certificates of deposit. We plan to hold these investments until maturity.
Our securities available-for-sale consists of Federal Home Loan Mortgage Corporation common stock valued at $33,000, $31,000 and $44,000 at June 30, 2015, December 31, 2014 and December 31, 2013, respectively. The change in the value of the security is due to fluctuations in fair value based on market conditions.
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The following table sets forth the amortized cost and fair value of our available-for sale securities at the dates indicated.
June 30,
2015
December 31,
2014
2013
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In thousands)
Securities available-for-sale:
Federal Home Loan Mortgage Corp. Stock
$ 15 $ 33 $ 15 $ 31 $ 15 $ 44
Deposits.    Deposits have traditionally been our primary source of funds for use in lending and investment activities. Deposits generally are attracted from within our market area through the offering of a broad selection of deposit instruments, including non-interest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), statement savings accounts, and certificates of deposit. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors.
The following table sets forth average balances and average rates of our deposit products for the periods indicated. For purposes of this table, average balances have been calculated using daily balances.
Deposits — Average Balance and Weighted Average Rate
Six Months Ended June 30,
Six Months Ended June 30,
2015
2014
Average
Balance
Percent
Weighted
Average
Rate
Average
Balance
Percent
Weighted
Average
Rate
(Dollars in thousands)
Certificates of deposit
$ 24,342 48.9 % 1.46 % $ 27,645 54.0 % 1.45 %
Savings
3,701 7.4 0.32 3,455 6.7 0.29
Money Market
9,738 19.6 0.51 10,229 20.0 0.53
NOW
9,274 18.6 0.58 7,051 13.8 0.48
Noninterest-bearing DDA
2,704 5.5 2,808 5.5
Total Deposits
$ 49,759 100.0 % $ 51,188 100.0 %
Year Ended December 31,
2014
2013
Average
Balance
Percent
Weighted
Average
Rate
Average
Balance
Percent
Weighted
Average
Rate
(Dollars in thousands)
Certificates of deposit
$ 26,850 52.7 % 1.46 % $ 29,768 57.3 % 1.54 %
Savings
3,555 7.0 0.31 3,388 6.5 0.32
Money Market
9,930 19.5 0.52 10,428 20.1 0.53
NOW
7,257 14.3 0.55 5,613 10.8 0.41
Noninterest-bearing DDA
3,285 6.5 2,722 5.3
Total Deposits
$ 50,877 100.0 % $ 51,919 100.0 %
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The following table sets forth the balances of our deposit accounts at the dates indicated.
Deposit Composition
At December 31,
At June 30, 2015
2014
2013
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Noninterest-bearing DDA
$ 2,186 4.5 % $ 2,640 5.2 % $ 2,116 4.1 %
NOW and Money Market Deposit Accounts
19,292 39.7 18,936 37.7 17,350 33.9
Savings
3,783 7.8 3,625 7.2 3,361 6.6
Certificates of deposit
23,381 48.0 25,081 49.9 28,348 55.4
Total Deposits
$ 48,642 100.0 % $ 50,282 100.0 % $ 51,175 100.0 %
Total deposits were $48.6 million at June 30, 2015, a decrease of  $1.7 million from $50.3 million at December 31, 2014. The decrease in deposits was due to a $1.7 million, or 6.8%, decrease in certificates of deposit from $25.1 million at December 31, 2014.
There was a $893,000, or 1.7%, decrease in total deposits from $51.2 million at December 31, 2013 to $50.3 million at December 31, 2014. This was primarily due to a $3.3 million, or 11.5%, decrease in certificates of deposit from December 31, 2013 to December 31, 2014, which decrease was, in turn, due to adjustments in the rates paid on such deposits. The decrease in certificates of deposit was offset by an increase of  $1.6 million, or 9.1%, in NOW and money market demand deposit accounts, from $17.4 million to $18.9 million from December 31, 2013 to 2014. In addition, noninterest-bearing demand deposit accounts, or DDAs, increased $524,000 from December 31, 2013 to December 31, 2014.
The following table indicates the amount of certificates of deposit with balances of  $100,000 or greater by time remaining until maturity as of June 30, 2015.
Certificates of Deposit Equal to or Greater to $100,000 Maturities
Maturity Period at June 30, 2015
Amount
(In thousands)
Three months or less
$ 476
Over three months through six months
524
Over six months through twelve months
3,386
Over twelve months
4,969
Total
$ 9,355
The following table provides information regarding all of our certificates of deposit by time remaining until maturity as of June 30, 2015.
Certificate of Deposit Maturities
Maturity Period at June 30, 2015
Amount
(In thousands)
Three months or less
$ 3,168
Over three months through six months
2,872
Over six months through one year
6,574
Over one year through three years
9,255
Over three years
1,512
Total
$ 23,381
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The following table sets forth certificates of deposit classified by rates at the dates indicated.
Deposits by Rates
June 30,
2015
December 31,
2014
2013
(In thousands)
Less than 1.00%
$ 10,722 $ 10,547 $ 12,159
1.00 - 1.99
3,085 4,015 4,444
2.00 - 2.99
9,046 9,980 10,862
3.00 - 3.99
2 2 433
4.00 - 4.99
7 7 6
5.00 - 6.00
519 530 444
Total
$ 23,381 $ 25,081 $ 28,348
The following table sets forth the amount of certificates of deposit by rates and maturities at June 30, 2015.
Deposits — Rates and Maturities
Amount Due
One Year
or Less
More Than
One Year to
Two Years
More Than
Two Years
to Three
Years
More Than
Three Years
Total
Percent of
Total Time
Deposits
(Dollars in thousands)
Less than 1.00%
$ 7,598 $ 2,220 $ 904 $ $ 10,722 45.9 %
1.00 - 1.99
251 511 811 1,512 3,085 13.2
2.00 - 2.99
4,244 4,003 799 9,046 38.7
3.00 - 3.99
2 2 0.0
4.00 - 4.99
7 7 0.0
5.00 - 6.00
519 519 2.2
Total
$ 12,614 $ 6,741 $ 2,514 $ 1,512 $ 23,381 100.0 %
The following table sets forth deposit activity for the periods indicated.
Deposit Activity
Six Months Ended June 30,
Year Ended December 31,
2015
2014
2014
2013
(In thousands)
Beginning balance
$ 50,282 $ 51,175 $ 51,175 $ 51,825
Net increase (decrease) in Deposits
(1,640 ) 605 (893 ) (650 )
Ending Balance
$ 48,642 $ 51,780 $ 50,282 $ 51,175
Equity.    Total equity increased by $82,000, or 0.6%, to $13.7 million at June 30, 2015 from $13.6 million at December 31, 2014 primarily as the result of net income of  $81,000 for the six months ended June 30, 2015. Total equity increased by $111,000, or 0.8%, to $13.6 million at December 31, 2014 from $13.5 million at December 31, 2013 primarily as the result of net income of  $119,000 for the year ended December 31, 2014.
Results of Operations for the Six Months Ended June 30, 2015 and 2014
Overview.    We had net income of  $81,000 for the six months ended June 30, 2015 as compared to net income of  $38,000 for the six months ended June 30, 2014. The $43,000, or 113.2%, increase in net income between the periods was primarily a result of a provision for loan losses of  $60,000 in the six months ended June 30, 2014, as compared to no provision for loan losses for the six months ended June 30, 2015.
Net Interest Income.    Net interest income increased by $6,000, or 0.6%, to $986,000 for the six months ended June 30, 2015 from $980,000 the six months ended June 30, 2014. Although interest income on loans decreased by $13,000 from the six months ended June 30, 2014 to the six months ended June 30, 2015,
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interest expense decreased by $14,000 during that same period. In addition, securities and other interest income increased by $5,000. Securities and other interest income consists primarily of interest on bank accounts, certificates of deposits and federal funds sold and, to a lesser extent, dividends on Federal Home Loan Mortgage Corporation stock and Federal Home Loan Bank stock.
Interest income on loans decreased by $13,000, primarily as a result of the average balance of loans receivable decreasing from $53.2 million for the six months ended June 30, 2014 to $50.7 million for the six months ended June 30, 2015, outpacing a 17 basis point increase in the average yield on loans receivable. Interest expense was $236,000 for the six months ended June 30, 2015, which is a $14,000 decrease from interest expense of  $250,000 for the six months ended June 30, 2014. The decrease was primarily a result of average interest-bearing deposits decreasing by $1.3 million from $48.4 million for the six months ended June 30, 2014 to $47.1 million for the six months ended June 30, 2015 along with a decline in the cost of interest bearing deposits from 1.03% for the six months ended June 30, 2014 to 1.00% for the six months ended June 30, 2015.
Average Balances and Yields.    The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances, and non-accrual loans are included in average balances only. Loan fees are included in interest income on loans and are insignificant. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.
Average Balances and Yields
Six Months Ended June 30,
2015
2014
At June 30,
2015
Average
Balance
Interest
and
Dividends
Yield/​
Cost (4)
Average
Balance
Interest
and
Dividends
Yield/​
Cost (4)
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net of fees
4.54 % $ 50,732 $ 1,192 4.70 % $ 53,164 $ 1,205 4.53 %
Securities and other interest bearing assets 
0.58 % 10,475 30 0.57 % 9,644 25 0.52 %
Total interest-earning assets
3.89 % 61,207 1,222 3.99 % 62,808 1,230 3.92 %
Non-interest-earning assets
2,627 2,356
Allowance for loan losses
(313 ) (379 )
Total assets
$ 63,521 $ 64,785
Interest-bearing liabilities:
Certificates of deposit
1.45 % 24,342 178 1.46 % 27,645 201 1.45 %
Savings
0.25 % 3,701 6 0.32 % 3,455 5 0.29 %
Money Market
0.52 % 9,738 25 0.51 % 10,229 27 0.53 %
NOW
0.59 % 9,274 27 0.58 % 7,051 17 0.48 %
Total interest-bearing deposits
0.98 % 47,055 236 1.00 % 48,380 250 1.03 %
Non-interest-bearing deposits
2,704 2,808
Other non-interest-bearing liabilities
77 74
Total liabilities
49,836 51,262
Total equity
13,685 13,523
Total liabilities and equity
$ 63,521 $ 64,785
Net interest income
$ 986 $ 980
Net interest rate spread (1)
2.91 % 2.99 % 2.89 %
Net interest-earning assets (2)
$ 14,152 $ 14,428
Net interest margin (3)
3.22 % 3.12 %
Ratio of average interest-earning assets to average interest-bearing liabilities
130.1 % 129.8 %
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(1)
Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income divided by total interest-earning assets.
(4)
Annualized.
Provision for Loan Losses.    We maintain an allowance for loan losses at a level necessary to absorb management’s best estimate of probable loan losses in the portfolio. Management considers, among other factors, historical loss experience, type and amount of loans, borrower concentrations and current conditions of the economy. In addition, the allowance considers the level of loans which management monitors as a result of inconsistent repayment patterns. Such loans carry a higher degree of credit risk than our historical single-family lending.
Management also reviews individual loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in our provision for loan losses.
There was no provision for loan losses for the six months ended June 30, 2015, compared to a $60,000 provision for loan losses for the six months ended June 30, 2014. Net charge-offs were insignificant for both periods. Management reviews the level of the allowance for loan losses on a quarterly basis based on a variety of factors. This analysis resulted in no provision for loan losses being required for the six months ended June 30, 2015. The reduction in the level of provision for loan losses reflects lower levels of specific allowances related to impaired loans individually evaluated for impairment, a decrease in non-performing loans, and the stabilization of the quantitative and qualitative factors during the six months ended June 30, 2015.
Although management utilizes its best judgment in providing for losses, there can be no assurance that they will not have to change the allowance for loan losses in subsequent periods. The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at June 30, 2015. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions. Further, the increase in future provisions that may be required may adversely impact our financial condition and results of operations. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. Management will continue to monitor the allowance for loan losses and make additional provisions to the allowance as appropriate.
An analysis of the changes in the allowance for loan losses, non-performing loans and classified loans is presented under “ — Risk Management — Analysis of Non-performing and Classified Assets ” and “ — Risk Management — Analysis and Determination of the Allowance for Loan Losses .”
Noninterest Income.    Noninterest income decreased by $5,000 to $32,000 for the six months ended June 30, 2015 from $37,000 for the six months ended June 30, 2014. This was primarily a result of other income decreasing by $3,000, in addition to customer service fees decreasing by $2,000.
Noninterest Expense.    Noninterest expense remained relatively stable when comparing the six months ended June 30, 2015 to the six months ended June 30, 2014, with a decrease of  $2,000.
Income Tax Expense.    We had an income tax expense of  $44,000 and $24,000 for the six months ended June 30, 2015 and 2014, respectively. The increase in income tax expense reflects an increase in pre-tax income for 2015 compared to 2014.
Results of Operations for the Years Ended December 31, 2014 and 2013
Overview.    We had net income of  $119,000 for the year ended December 31, 2014, as compared to net income of  $229,000 for the year ended December 31, 2013. The $110,000, or 48.0%, decrease in net income
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between the years was primarily a result of net interest income decreasing $203,000 during 2014 as compared to the year ended December 31, 2013, and a provision for loan loss of  $60,000 in 2014. This decrease was partially offset by a loss on the sale of foreclosed assets of  $100,000 during the year ended December 31, 2013, but no such loss during the year ended December 31, 2014 and a decrease in income tax expense.
Net Interest Income.    Net interest income decreased by $203,000, or 9.3%, to $2.0 million for the year ended December 31, 2014 from $2.2 million for the year ended December 31, 2013. Interest income on loans decreased by $258,000 from the year ended December 31, 2013 to the year ended December 31, 2014, but was offset by deposit interest expense decreasing by $54,000 during that same period.
The decrease in interest income on loans was primarily as a result of the average balance in loans receivable decreasing from $56.1 million for the year ended December 31, 2013 to $52.9 million for the year ended December 31, 2014 and a 20 basis point decline in the average yield on loans receivable.
Interest expense was $494,000 for the year ended December 31, 2014, which is a $54,000 decrease from interest expense of  $548,000 for the year ended December 31, 2013. The decrease is a result of average interest-bearing deposits decreasing by $1.6 million, from $49.2 million for the year ended December 31, 2013 to $47.6 million for the year ended December 31, 2014 and to a lesser extent, a seven basis point decline in the average cost of deposits.
Average Balances and Yields.    The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances, and non-accrual loans are included in average balances only. Loan fees are included in interest income on loans and are insignificant. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.
Average Balances and Yields
Year Ended December 31,
2014
2013
Average
Balance
Interest and
Dividends
Yield/Cost
Average
Balance
Interest and
Dividends
Yield/Cost
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net of fees
$ 52,915 2,411 4.56 % $ 56,067 2,669 4.76 %
Securities and other interest bearing assets
9,613 55 0.57 % 6,834 54 0.79 %
Total interest-earning assets
62,528 2,466 3.94 % 62,901 2,723 4.33 %
Non-interest-earning assets
2,396 2,873
Allowance for loan losses
(393 ) (353 )
Total assets
$ 64,531 $ 65,421
Interest-bearing liabilities:
Certificates of deposit
26,850 391 1.46 % 29,768 459 1.54 %
Savings
3,555 11 0.31 % 3,388 11 0.32 %
Money Market
9,930 52 0.52 % 10,428 55 0.53 %
NOW
7,257 40 0.55 % 5,613 23 0.41 %
Total interest-bearing deposits
47,592 494 1.04 % 49,197 548 1.11 %
Non-interest-bearing deposits
3,285 2,722
Other non-interest-bearing liabilities
106 80
Total liabilities
50,983 51,999
Total equity
13,548 13,422
Total liabilities and equity
$ 64,531 $ 65,421
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Year Ended December 31,
2014
2013
Average
Balance
Interest and
Dividends
Yield/Cost
Average
Balance
Interest and
Dividends
Yield/Cost
(Dollars in thousands)
Net interest income
$ 1,972 2,175
Net interest rate spread (1)
2.90 % 3.22 %
Net interest-earning assets (2)
$ 14,936 $ 13,704
Net interest margin (3)
3.15 % 3.46 %
Ratio of average interest-earning assets to
average interest-bearing liabilities
131.4 % 127.9 %
(1)
Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income divided by total interest-earning assets.
Rate/Volume Analysis.    The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute dollar amounts of change in each. The following table presents the rate volume analysis for the six months ended June 30, 2015 and 2014, and the years ended December 31, 2014 and 2013.
Rate/Volume Analysis
Six Months Ended June 30, 2015 vs. 2014
Years Ended December 31, 2014 vs. 2013
Increase (Decrease) due to
Total
Increase
(Decrease)
Increase (Decrease) due to
Total
Increase
(Decrease)
Volume
Rate
Volume
Rate
(In thousands)
Interest-earning assets:
Loans
$ (57 ) $ 44 $ (13 ) $ (148 ) $ (110 ) $ (258 )
Securities and Other Interest-earning assets
2 3 5 18 (17 ) 1
Total interest-earning assets
(55 ) 47 (8 ) (130 ) (127 ) (257 )
Interest-bearing liabilities:
Certificates of deposit
(24 ) 1 (23 ) (44 ) (24 ) (68 )
Savings
1 1
Money Market
(1 ) (1 ) (2 ) (2 ) (1 ) (3 )
Interest-bearing DDA
6 4 10 8 9 17
Total interest-bearing liabilities
(19 ) 5 (14 ) (38 ) (16 ) (54 )
Change in net interest income
$ (36 ) $ 42 $ 6 $ (92 ) $ (111 ) $ (203 )
Provision for Loan Losses.    There was a $60,000 provision for loan losses for the year ended December 31, 2014, while no provision for loan losses was taken for the year ended December 31, 2013. Net charge-offs increased from $4,000 to $132,000 from December 31, 2013 to December 31, 2014. The increase in net charge-offs was largely due to one single-family loan with a partial charge-off of  $104,000 during 2014. Central Federal subsequently proceeded with collections on this loan during the six months ended June 30, 2015, during which time this loan was transferred to foreclosed assets. The provision in 2014 was attributable to replenishing the allowance due to charge-offs taken during the year.
An analysis of the changes in the allowance for loan losses, non-performing loans and classified loans is presented under “ — Risk Management — Analysis of Non-performing Assets and Troubled Debt Restructuring ” and “ — Risk Management — Analysis and Determination of the Allowance for Loan Losses .”
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Noninterest Income.    Noninterest income increased by $95,000 to $72,000 for the year ended December 31, 2014 from a deficit of  $23,000 for the year ended December 31, 2013. This was mainly attributable to a $100,000 loss on the sale of foreclosed assets occurring in 2013, while there were no gains or losses on sale of foreclosed assets in 2014.
Noninterest Expense.    Noninterest expense increased by $19,000 due to an increase in compensation and employee benefit expense of  $48,000, which was partially offset by a decrease in other non-interest expenses of  $18,000 and a decrease in foreclosed asset expense of  $16,000 during the year ended December 31, 2014 as compared to 2013.
Income Tax Expense.    We had income tax expense of  $60,000 and $137,000 for the years ended December 31, 2014 and 2013, respectively. The decrease in income tax expense reflects a decrease in pre-tax income from 2013 to 2014. The effective tax rates for these respective periods were 33.5% and 37.4%.
Risk Management
Overview.    Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as a variable rate loans. Other risks that we face are operational risk, liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology, use of third-party vendors and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or potential borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or income.
Analysis of Non-performing Assets and Troubled Debt Restructurings.    We consider foreclosed assets, which are assets repossessed by Central Federal, accruing loans 90 days or more past due and non-accrual loans to be non-performing assets. Assets acquired through, or in lieu of, loan foreclosure are considered foreclosed assets and are held for sale. These assets are initially recorded at fair value less estimated selling cost at the date of foreclosure, which establishes a new cost basis for those assets. Any write-downs based on the asset’s fair value at the date of foreclosure, or subsequent to the date of foreclosure, are charged to the allowance for loan losses. The assets held for sale are carried at the lower of the new cost basis or fair value less cost to sell.
Loans are generally placed on non-accrual status when the collectability is considered to be uncertain or payments have become more than 90 days or more delinquent, unless the credit is well-secured and in process of collection. In some cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Consumer loans are typically charged off no later than 180 days past due.
Under certain circumstances, Central Federal will provide borrowers relief through loan restructuring. A restructuring of debt constitutes a troubled debt restructuring (TDR) if Central Federal, for economic or legal reasons related to the borrower’s financial situation, grants a concession to the borrower that it would not otherwise have considered. Loans that are reported as TDRs are considered impaired and measured for impairment. Depending on the individual facts and circumstances of the borrower, restructuring loans can involve loans remaining in full nonaccrual, moving to nonaccrual or continuing on accrual status.
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The following table provides information with respect to our non-performing assets and troubled debt restructurings at the dates indicated.
June 30,
2015
December 31,
2014
2013
(Dollars in thousands)
Non-accrual loans:
Residential Real Estate
$ 466 $ 590 $ 685
Commercial and Multi-Family Real Estate
51 57
Consumer and Other
3 3
Total
466 644 745
Accruing loans 90 days or more past due:
Residential real estate
312 142
Total non-performing loans
466 956 887
Foreclosed assets
508 243 243
Total non-performing assets
$ 974 $ 1,199 $ 1,130
Troubled debt restructurings (TDR):
Commercial and Multi-Family Real Estate
$ 387 $ 391 $ 402
Total non-performing assets and troubled debt restructurings
$ 1,361 $ 1,590 $ 1,532
Ratios:
Total non-performing loans to total loans
0.9 % 1.8 % 1.6 %
Total non-performing assets to total assets
1.6 1.9 1.7
Total non-performing loans and TDRs to total loans
1.7 2.6 2.4
Total non-performing assets and TDRs to total assets
2.2 2.5 2.4
Foreclosed assets at June 30, 2015 consisted of two properties totaling $508,000. This is an increase from the single foreclosed asset at December 31, 2014, which was one commercial real estate property at $243,000. The increase during 2015 is due to a single family property in Cuba, Missouri being foreclosed on during the six months ended June 30, 2015 and repossessed by Central Federal.
Non-accrual loans at June 30, 2015 consisted of four loans totaling $466,000, which is a decrease of $178,000 from December 31, 2014, at which time non-accrual loans totaled $644,000. Nonaccrual loans as of December 31, 2014 had decreased $101,000 from the December 31, 2013 balance of  $745,000. Interest income that would have been recorded for the six months ended June 30, 2015 and the years ended December 31, 2014 and 2013 had nonaccrual loans been current according to their original terms amounted to $14,000, $39,000 and $39,000, respectively. Interest income recognized on nonaccrual loans during the six months ended June 30, 2015 and the years ended December 31, 2014 and 2013 amounted to $3,000, $2,000 and $11,000, respectively.
As of June 30, 2015, and December 31, 2014 and 2013, we had one loan, a commercial real estate loan located in Rolla, Missouri, that was considered a troubled debt restructuring, with a balance of  $387,000, $391,000 and $402,000, respectively.
At June 30, 2015, we had no loans which were not classified as nonaccrual, 90 days past due or troubled debt restructurings but where known information about possible credit problems of the borrowers caused management to have concerns as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in nonperforming loans.
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The following table provides information with respect to partial charge-offs on non-performing loans and accruing troubled debt restructurings at the dates indicated.
June 30,
2015
December 31,
2014
2013
(Dollars in thousands)
Total non-performing loans
$ 466 $ 956 $ 887
Less partially charged off non-performing loans
(2 ) (257 ) (6 )
Adjusted non-performing loans
$ 464 $ 699 $ 881
Total non-performing loans and accruing troubled debt restructurings
853 1,347 1,289
Adjusted non-performing loans and accruing troubled debt
restructurings
851 1,090 1,283
Adjusted non-performing loans to total assets
0.7 % 1.1 % 1.4 %
Adjusted non-performing loans and accruing troubled debt
restructurings to total assets
1.4 1.7 2.0
Allowance for loan losses to adjusted non-performing
loans and accruing troubled debt restructurings at end of
period
32.7 25.6 27.4
Classified Assets.    Central Federal assigns a risk rating to loans and foreclosed assets to identify credit risks and to assess the overall collectability of the assets. These risk ratings are also subject to examination by Central Federal’s regulators. We categorize the assets based on the financial condition of the borrowers, trends in the industries in which the borrower operates and the fair values of collateral securing the loans and foreclosed assets.
Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of Central Federal’s credit position at some future date. Special mention loans are not adversely classified and do not expose Central Federal to sufficient risk to warrant adverse classification. Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well-defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that Central Federal will sustain some loss if the deficiencies are not corrected.
The following table shows the aggregate amounts of our classified and criticized assets at the dates indicated.
June 30,
2015
December 31,
2014
2013
(In thousands)
Special mention
$ 112 $ 877 $ 482
Substandard
714 759 1,832
Total criticized and classified loans
826 1,636 2,314
Foreclosed assets
508 243 243
Total criticized and classified assets
$ 1,334 $ 1,879 $ 2,557
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Delinquencies.    The following table provides information about delinquencies in our loan portfolio at the dates indicated.
Loans Delinquent For
30 – 89 Days
90 Days or More
Total
Number
Amount
Number
Amount
Number
Amount
(Dollars in thousands)
At June 30, 2015
Residential Real Estate
3 $ 98 2 $ 166 5 $ 264
Consumer and Other
2 12 2 12
Total
5 $ 110 2 $ 166 7 $ 276
At December 31, 2014
Commercial and Multi-Family Real Estate
1 $ 51 $ 1 $ 51
Residential Real Estate
2 145 5 773 7 918
Consumer and Other
2 12 2 3 4 15
Total
5 $ 208 7 $ 776 12 $ 984
At December 31, 2013
Residential Real Estate
5 $ 279 11 $ 683 16 $ 962
Consumer and Other
4 18 3 3 7 21
Total
9 $ 297 14 $ 686 23 $ 983
Analysis and Determination of the Allowance for Loan Losses
The allowance for loan losses (allowance) is an estimate of probable loan losses inherent in Central Federal’s loan portfolio. The allowance is established through a provision for loan losses, which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after loan losses and loan growth, and loan losses are charged off against the allowance when Central Federal determines the loan balance to be uncollectible. Subsequent recoveries, if any, are credited to the allowance.
General Allowances.    The general component of the loan loss allowance covers non-impaired loans and is based on historical losses adjusted for current qualitative factors. The historical loss component is determined by portfolio segment and is based on the actual loss history experienced by Central Federal over the most recent three years. This is adjusted for qualitative factors based on the risks present for each portfolio segment. These qualitative factors include: (i) changes in the value of underlying collateral; (ii) changes in lending policies and underwriting practices; (iii) national and local economic trends and conditions; (iv) volume and terms of loans; (v) experience, ability and depth of lending management; (vi) changes in past due loans, nonaccrual loans, and credit quality; (vii) changes in loan file review; (viii) changes in credit concentrations and (ix) the impact of competition.
Specific Allowances.    The specific component includes allowances for loans that are considered impaired when, based on current information and events, it is probable that Central Federal will be unable to collect the scheduled payments and principal or interest under the contractual terms of the loan agreement. Central Federal measures individual impairment based on the present value of expected future cash flows discounted at the original contractual interest rate, except that as a practical expedient, it may measure impairment based on an observable market price, or the fair value of the collateral, if collateral dependent. A loan is collateral dependent if the repayment is expected to be provided solely by the underlying collateral.
Unallocated Allowances.    Allowances other than general and specific allocations are included in the unallocated portion of the loan loss allowance. The unallocated allowance reflects the imprecision inherent in the underlying assumptions used in the methodologies for estimating the general allowance.
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The following tables set forth the breakdown of the allowance for loan losses by loan category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
June 30, 2015
Amount
Percent of
Allowance to
Total Allowance
Percent of Loans
in Category to
Total Loans
(Dollars in thousands)
Commercial Business
$ 4 1.4 % 3.8 %
Commercial and Multi-Family Real Estate
31 11.2 31.7
Residential Real Estate
143 51.5 63.7
Consumer and Other
4 1.4 0.8
Total allocated allowance
182 65.5 100.0
Unallocated allowance
96 34.5
Total allowance for loan losses
$ 278 100.0 %
December 31,
2014
2013
Amount
Percent of
Allowance to
Total
Allowance
Percent of
Loans in
Category to
Total Loans
Amount
Percent of
Allowance to
Total
Allowance
Percent of
Loans in
Category to
Total Loans
(Dollars in thousands)
Commercial Business
$ 4 1.4 % 3.6 % $ 3 0.8 % 2.5 %
Commercial and Multi-Family Real Estate
46 16.5 30.5 142 40.5 32.4
Residential Real Estate
193 69.2 65.1 149 42.5 64.2
Consumer and Other
4 1.4 0.8 4 1.1 0.9
Total allocated allowance
247 88.5 100.0 % 298 84.9 100.0 %
Unallocated allowance
32 11.5 53 15.1
Total allowance for loan losses
$ 279 100.0 % $ 351 100.0 %
Analysis of Allowance for Loan Losses.    At June 30, 2015, our allowance for loan losses was $278,000, or 0.6% of total loans and 59.7% of non-performing loans. At December 31, 2014, our allowance for loan losses was $279,000, or 0.5% of loans and 29.2% of non-performing loans. At December 31, 2013, our allowance for loan losses was $351,000, or 0.7% of loans and 39.6% of non-performing loans.
Nonaccrual loans at June 30, 2015, and December 31, 2014 and 2013 were $466,000, $644,000 and $745,000, respectively. Nonaccrual loans for those periods represented 0.9%, 1.2% and 1.4% of total loans, respectively.
Analysis of Loan Loss Experience.    The following table sets forth an analysis of the allowance for loan losses for the periods indicated.
Six Months Ended June 30,
Year Ended December 31,
2015
2014
2014
2013
(Dollars in thousands)
Allowance at beginning of period
$ 279 $ 351 $ 351 $ 355
Charge-offs:
Residential real estate
(129 ) (2 )
Consumer and other
(2 ) (4 ) (4 ) (2 )
Total charge-offs
(2 ) (4 ) (133 ) (4 )
Recoveries
1 1 1
Net charge-offs
(1 ) (3 ) (132 ) (4 )
Provision for loan losses
60 60
Allowance at end of period
$ 278 $ 408 $ 279 $ 351
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Six Months Ended June 30,
Year Ended December 31,
2015
2014
2014
2013
(Dollars in thousands)
Ratios:
Net charge-offs to average loans outstanding
0.2 %
Allowance for loan losses to non-performing loans at end of period
59.7 % 37.9 % 29.2 % 39.6 %
Allowance for loan losses to total loans at end of period
0.6 % 0.8 % 0.5 % 0.7 %
Net charge-offs to average loans outstanding increased for the year ended December 31, 2014, when compared to the prior year, due primarily to the write down of one single-family residential loan. This loan was transferred to foreclosed assets during January 2015.
Allowance for loan losses to nonperforming loans as of December 31, 2014 decreased, as compared to the prior year end, as a result of a decline in the adjusted experience loss ratio for commercial and multi-family real estate loans.
Allowance for losses to nonperforming loans as of June 30, 2015 increased, when compared to June 30, 2014, due to a decrease in nonperforming loans. Nonperforming loans decreased due to one property foreclosed as discussed earlier and improvement in the delinquent status of certain residential real estate loans.
A loan is considered past due or delinquent when a contractual payment is not paid on the day it is due. The accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection, although a loan may be placed on nonaccrual at an earlier date if collection of principal or interest is considered doubtful. We consider a loan to be impaired when, based on current information and events, we determine it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis. If the loan is deemed collateral dependent the impairment is measured on the net realizable value of the collateral. If loan repayment is not deemed collateral dependent, impairment is measured on the net present value of the expected discounted future cash flows. Impaired loans totaled $853,000 as of June 30, 2015, including two loans, totaling $165,000, that were 90 days or more delinquent, and the remaining impaired loans were performing. See note 4 of the notes to financial statements included in this prospectus.
Although we believe that we use the best available information to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary, and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. At least quarterly, the board of directors reviews the adequacy of the allowance, including consideration of the relevant risks in the portfolio, current economic conditions and other qualitative factors. If the board of directors and management determine that changes are warranted based on those reviews, the allowance is adjusted.
Furthermore, while we believe we have established our allowance for loan losses in accordance with U.S. generally accepted accounting principles and have taken into account the views of regulators and the current economic environment, there can be no assurance that in the future Central Federal’s regulators or the economic environment will not require further increases in the allowance. Any material increases in the allowance for loan losses may adversely affect our financial condition and results of operation.
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Interest Rate Risk Management.    As a result of our banking activities, we are exposed to interest rate risk. As a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit our exposure to changes in market interest rates. We manage interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment.
A major source of interest rate risk is a difference in the repricing of assets as compared to the repricing of liabilities. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturity of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. We seek to reduce the potential volatility of our earnings by continually improving the matching between our asset and liability maturities and rates.
Central Federal’s goal is to manage asset and liability positions to moderate the effect of interest rate fluctuations on our earnings, while also controlling exposure to interest rate risk within policy limits approved by our board of directors. These limits and guidelines reflect Central Federal’s tolerance for interest rate risk over both short-term and long-term horizons.
Net Portfolio Value.    We currently utilize economic value of equity analysis to review our level of interest rate risk. We measure our interest rate risk through the use of a financial model provided by an outside consulting firm. This model measures interest rate risk by capturing changes in the economic value of assets and liabilities, based on a range of assumed changes in market interest rates. Economic value represents the market value of our assets and liabilities. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement.
The following table presents the change in the economic value of our equity at June 30, 2015 that would occur in the event of an immediate change in interest rates based on assumptions we consider to be reasonable, with no effect given to any steps that we might take to counteract that change.
Change in Net Portfolio Value
NPV as a Percentage of
Present Value of Assets (3)
Estimated Increase
(Decrease) in NPV
NPV
Ratio (4)
Increase
(Decrease)
(basis points)
Change in Interest Rates
(basis points) (1)
Estimated
NPV (2)
Amount
Percent
(Dollars in thousands)
+300
$ 15,103 $ (2,741 ) (15.36 )% 24.90 % (222 )
+200
15,957 (1,887 ) (10.58 25.61 (151 )
+100
16,873 (971 ) (5.44 ) 26.35 (77 )
-------
17,844 27.12
-100
18,690 846 4.74 27.72 60
(1)
Assumes an immediate uniform change in interest rates at all maturities.
(2)
NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)
Present value of assets represents the discounted value of incoming cash flows on interest-earning assets.
(4)
NPV Ratio represents NPV divided by the present value of assets.
We use various assumptions in assessing interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are
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inherent in the methods of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if there is a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future loan repayment activity.
Liquidity Management.    Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds available to meet short-term liquidity needs consist of deposits, funds from scheduled loan payments and loan prepayments. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows, and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition.
Our most liquid assets are cash and cash equivalents, certificates of deposit in other financial institutions, and securities available for sale. At June 30, 2015, cash and cash equivalents totaled $8.6 million. Certificates of deposit in other financial institutions and securities available-for-sale totaled $2.5 million and $33,000, respectively, at June 30, 2015.
Our cash flows are composed of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities were $86,000, $299,000, and $482,000 for the six months ended June 30, 2015 and for the years ended December 31, 2014 and 2013, respectively. Net cash provided by investing activities, which consists primarily of activity in loans, were $2.3 million, $1.2 million and $4.5 million for the six months ended June 30, 2015 and for the years ended December 31, 2014 and 2013, respectively. Net cash used in financing activities, consisting of activity in deposit accounts, were $1.6 million, $893,000, and $650,000 for the six months ended June 30, 2015 and for the years ended December 31, 2014 and 2013.
Certificates of deposit maturing by June 30, 2016 totaled $12.6 million, or 53.9% of certificates of deposit. If these maturing deposits are not reinvested or do not stay with us, we will be required to seek other sources of funding or rely on new certificates of deposit. Deposit flows are affected by the overall level of interest rates, the interest rates and product offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.
Financing and Investing Activities
Capital Management.    We are subject to various regulatory capital requirements administered by the OCC, including risk-based capital measures. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2015, we exceeded all of our regulatory capital requirements and were considered “well capitalized” under regulatory guidelines. See “ Regulation and Supervision — Federal Banking Regulation — Capital Requirements ,” “ Regulatory Capital Compliance ” and note 14 of the notes to financial statements included in this prospectus.
The capital from the offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. Our financial condition and results of operations will be enhanced by the capital from the offering, resulting in increased net interest-earning assets and net interest income. However, the large increase in equity resulting from the capital raised in the offering will, initially, have an adverse impact on our return on equity. Following the offering, we may use
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capital management tools such as cash dividends and common share repurchases. However, under OCC regulations, we will not be allowed to repurchase any shares during the first year following the offering, except to fund the restricted stock awards under the equity benefit plan after its approval by shareholders, unless extraordinary circumstances exist and we receive regulatory approval.
Off-Balance Sheet Arrangements.    In the normal course of business, Central Federal has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. Central Federal’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments is represented by the contractual or notional amount of those instruments. Central Federal had $4.0 million in commitments to extend credit and $15,000 in standby letters of credit as of June 30, 2015. The amount of standby letters of credit was the same as of December 31, 2014 and 2013. Commitments to extend credit were $2.6 million and $1.9 million as of December 31, 2014 and 2013, respectively.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract for such loan. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Central Federal evaluates each customer’s creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by Central Federal upon the extension of credit, is based on management’s credit evaluation. Collateral held by Central Federal varies but may include accounts receivable, inventory, property and equipment, and income producing commercial property.
Standby letters of credit are conditional commitments issued by Central Federal to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Central Federal’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit. Central Federal was not required to perform on any financial guarantees and did not incur any losses on its commitments.
Impact of Recent Accounting Pronouncements
In January 2014, the FASB issued ASU No. 2014-04, “Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The amendment in this guidance clarifies when a repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Under ASU No. 2014-04, physical possession occurs, upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. ASU No. 2014-04 is intended to reduce diversity in practice and is effective for public business entities for annual periods beginning after December 15, 2014. The adoption of this ASU in the first quarter of 2015 did not have a material impact on Central Federal’s financial statements.
Effect of Inflation and Changing Prices
The financial statements and related financial data presented in this prospectus have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial positions and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
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Our Management
Board of Directors
The board of directors of Central Federal Bancshares and Central Federal are each comprised of six persons who are elected for terms of three years, two of whom are elected annually. The same individuals comprise the boards of directors of Central Federal Bancshares and Central Federal. Neither our president and CEO, William A. Stoltz, nor any other officer or employee of Central Federal Bancshares or Central Federal is a member of the board of directors.
Our board of directors has determined that each director is independent under the current listing standards of the NASDAQ Stock Market.
Information regarding the directors is provided below. Unless otherwise stated, each person has held his current occupation for the last five years. Ages presented are as of December 31, 2014. The starting year of service as a director relates to service on the board of directors of Central Federal.
The following directors have terms expiring in 2016:
Michael E. Estey (age 64) is operations manager at Missouri Southern Seed Corporation, a wholesale seed company serving farm and lawn & garden stores throughout the Midwest, where he has been employed since January 1988. Mr. Estey is chairman of our board of directors and of the board of Central Federal and has been a director of Central Federal since January 1996. Mr. Estey brings to our board more than 40 years of business experience, including management and human resources, as well as his knowledge of, and contacts within, the local community.
Jeffrey L. McKune (age 57) has been employed at Phelps County Regional Medical Center since 2006 and is currently the Chief Health Informatics Officer at the center. Previously he had served at Phelps County Regional Medical Center as Administrative Director of Planning and Decision Support and as Director of the Ambulatory Surgery Unit. Mr. McKune is a charter member of the Phelps County Anti-Drug Committee. Mr. McKune has been a member of our board of directors since August 1999 and brings to the board more than 30 years of information technology and business experience as well as his knowledge of and contacts within the local business community. Mr. McKune is the son of Central Federal’s director emeritus Robert McKune.
The following directors have terms expiring in 2017:
Robert R. Thompson (age 72) is an owner or part-owner of a number of agricultural-related businesses, including raising and marketing registered Hereford cattle and row crop farming, in the Rolla, Missouri area and was also president of the Rolla, Missouri market of a super-regional bank for 24 years, retiring in 2001. Mr. Thompson is also active in a number of civic organizations, including the Missouri State Fair Foundation (chairman of the board in 2014), the University of Missouri Agriculture Foundation, the Greater Rolla Area Charitable Enterprise and the American Hereford Association. Mr. Thompson has been a member of Central Federal’s board of directors since July 2008 and brings to the board approximately 40 years of experience in all facets of financial institution management, including risk assessment and financial reporting, experience in feasibility studies, risk assessments and business plans for both existing and new businesses, and his knowledge of and contacts within the local business community.
John D. Wiggins (age 67) has been a senior judge for the State of Missouri, Office of State Court Administration since 2009, and was an adjunct professor with the Rolla campus of Columbia College from 2011 to 2014. Mr. Wiggins also owns Wiggins Abstract Company, which engages in title insurance and real estate closing activities. Mr. Wiggins is also active in a number of civic organizations, including the Rolla Lions and Optimist clubs and Ozark Actors Theatre, and has been a director of Central Federal since January 1991. Mr. Wiggins brings to the board a strong legal background from more than 30 years as a practicing attorney, including service as a judge for more than 20 years, as well as familiarity with the local real estate market.
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The following directors have terms expiring in 2018:
Stephen L. Bowles (age 61) has been an agent for Farmers Insurance, and for its affiliated insurance companies, since November 2013 and a registered representative of Farmers Financial Solutions, a securities brokerage affiliated with Farmers Insurance, since January 2014. Prior to joining Farmers Insurance, Mr. Bowles was district manager for Pepsi Cola Bottling Co. in Rolla between 1980 and 2013. Mr. Bowles is also active in a number of civic organizations, including the Rolla Lions Club and the Rolla Chamber of Commerce. Mr. Bowles has been a director of Central Federal since January 2015. Mr. Bowles’ experience in management, including budgeting, planning and marketing, as well as his knowledge of the market area and local business owners provides the board with general business operations perspective as well as business development.
James R. Sowers (age 69) has been president of JRS Enterprises, Inc., a residential real estate development, construction and investment company since December 1991. Mr. Sowers is active in a number of civic organizations including service as president and treasurer of the Rolla Community Development Corporation, a not-for-profit industrial development entity, and as treasurer of Students Educational and Loan Foundation and Beta Alpha Educational Foundation. Mr. Sowers has been a director of Central Federal since January 2015. Mr. Sowers brings to the board more than 40 years of experience in real estate development as well as experience in managing and directing family-owned businesses in the newspaper and manufacturing industries.
Executive Officers
The executive officers of Central Federal Bancshares and Central Federal are elected annually by the board of directors and serve at the board’s discretion. Information regarding the executive officers is provided below. Unless otherwise stated, each person has held his or her current occupation for the last five years. Ages presented are as of December 31, 2014.
William A. Stoltz (age 70) is our president and chief executive officer and has been an officer of Central Federal since 1986 and president and chief executive officer since 1999. Mr. Stoltz has over 35 years of experience in the financial industry, including extensive experience in all areas of residential, consumer and commercial lending. Mr. Stoltz is also active in a number of civic organizations, including the Rolla Lions Club, the Rolla Chamber of Commerce and the Missouri University of Science and Technology Alumni Association.
Larry D. Thomas (age 64) is our executive vice president and senior lending officer, having served in this position since July 2005. Mr. Thomas is responsible for the overall function of Central Federal’s loan department and its personnel and also oversees commercial lending and general asset quality matters. Mr. Thomas, with his spouse, is co-owner of Re/Max Heart of America, a real estate agency in Rolla. Mr. Thomas has over 37 years of experience in the financial industry and is also active in a number of civic organizations, including the Kiwanis Club and the Rolla Chamber of Commerce. Mr. Thomas has advised our board of directors that he intends to retire from Central Federal in late 2015, after completion of our conversion to stock form and this offering, and the board of directors, also informally, has indicated that it intends to appoint Mr. Thomas to our board of directors upon his retirement.
Barbara E. Hamilton (age 63) is Central Federal’s vice president–operations with responsibility regarding operations, security and information technology. Ms. Hamilton has been an officer of Central Federal since 2000 and has over 45 years of experience in the financial industry. Ms. Hamilton is also active in civic organizations, including service as secretary to the board of the Phelps County Farm Bureau.
Meetings and Committees of the Board of Directors
We conduct business through meetings of our board of directors and its committees. During the year ended December 31, 2014, the board of directors of Central Federal met twelve times. As Central Federal Bancshares was incorporated in 2015, the board of directors of Central Federal Bancshares did not meet in 2014.
In connection with the formation of Central Federal Bancshares, the board of directors established Audit, Compensation and Nominating Committees.
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The Audit Committee currently consists of directors James R. Sowers and Michael E. Estey. The Audit Committee is responsible for providing oversight relating to our financial statements and financial reporting process, systems of internal accounting and financial controls, internal audit function, annual independent audit and the compliance and ethics programs established by management and the board. Each member of the Audit Committee is independent in accordance with the listing standards of the NASDAQ Stock Market. The board of directors has determined that Central Federal Bancshares does not have an Audit Committee “financial expert” serving on the Audit Committee. The board believes that in order to fulfill all the functions of the board and the Audit Committee, each member of the board and the Audit Committee should meet the board’s general criteria for board membership and that it is not in the best interests of Central Federal Bancshares to nominate as a director someone who does not have all the experience, attributes, and qualifications that Central Federal Bancshares seeks. Further, the board believes that the present members of the Audit Committee have sufficient knowledge and experience in financial affairs to effectively perform their duties.
The Compensation Committee currently consists of directors Robert R. Thompson, Stephen L. Bowles and James R. Sowers. The Compensation Committee is responsible for human resources policies, salaries and benefits, incentive compensation, executive development and management succession planning. Each member of the Compensation Committee is independent in accordance with the listing standards of the NASDAQ Stock Market.
The Nominating Committee currently consists of directors John D. Wiggins and Jeffrey L. McKune. The Nominating Committee is responsible for identifying individuals qualified to become board members and recommending a group of nominees for election as directors at each annual meeting of shareholders, ensuring that the board and its committees have the benefit of qualified and experienced independent directors, and developing a set of corporate governance policies and procedures. Each member of the Nominating Committee is independent in accordance with the listing standards of the NASDAQ Stock Market.
Each of the Central Federal Bancshares committees listed above operates under a written charter that governs its composition, responsibilities and operations. The committee charters are available online at [website address] .
Corporate Governance Policies and Procedures
Central Federal Bancshares will adopt policies to govern the activities of both Central Federal Bancshares and Central Federal, including a code of business conduct and ethics.
The code of business conduct and ethics, which is expected to apply to all employees and directors, will address conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics will be designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations. Central Federal has previously adopted and implemented a code of ethics applicable to all employees and directors; we expect that this code will remain in effect as it may be revised or supplemented by the code of ethics adopted by Central Federal Bancshares.
Summary Compensation Table
The following information is furnished for our principal executive officer and the next most highly compensated executive officer whose total compensation for the year ended December 31, 2014 exceeded $100,000. These individuals are referred to in this prospectus as “named executive officers.”
Name and Principal Position
Year
Salary
Bonus (1)
All Other
Compensation (2)
Total
($)
($)
($)
($)
William A. Stoltz
President & Chief Executive Officer

2014
2013

140,225
136,141
10,000
6,000​

14,966
13,859

165,191
156,000
Larry D. Thomas
Executive Vice President

2014
2013

95,009
92,241
8,000
4,200​

10,029
10,029

113,038
106,470
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(1)
Bonuses are awarded at the discretion of the board of directors based on factors that may include, among other factors, the profitability of Central Federal and the responsibility and performance of the officer or employee in question.
(2)
Details of the amounts disclosed in the “All Other Compensation” column for 2014 are provided in the table below:
Mr. Stoltz
Mr. Thomas
Board meeting fees: $ 6,000 $ 6,000
Life insurance premiums paid: $ 2,966 $ 1,029
Annuity: $ 6,000 $ 3,000
The board of directors has decided that, upon completion of the conversion, Messrs. Stoltz and Thomas should no longer receive fees for their attendance at board meetings. In connection with this, we expect to increase their compensation by an amount equal to the fees paid in 2015.
Employment Agreement and Change in Control Agreement
Employment Agreement.    Central Federal does not currently maintain employment agreements with any of its employees. Upon completion of the offering, however, Central Federal and Central Federal Bancshares will enter into an employment agreement with Mr. Stoltz, our president and chief executive officer. Our continued success depends to a significant degree on the skills and competence of Mr. Stoltz, and the employment agreement is intended to ensure that we maintain a stable management base following the offering.
The employment agreement will provide for three-year terms, subject to annual renewal by the board of directors for an additional year beyond the then-current expiration date. We expect that the initial base salary under the employment agreement will be $160,000. The agreement will also provide for participation in employee benefit plans and programs maintained for the benefit of employees and senior management personnel, including incentive compensation, health and welfare benefits, retirement benefits and certain fringe benefits as described in the agreements.
Upon termination of Mr. Stoltz’s employment for “cause,” as defined in the agreement, he will receive no further compensation or benefits under the agreement. If we terminate him for reasons other than cause, or if he resigns after the occurrence of specified circumstances that constitute constructive termination, referred to in the agreement as a termination for “good reason,” Mr. Stoltz will continue to receive his base salary for the remaining unexpired term of the agreement.
Under the employment agreement, if, in connection with or following a change in control (as described in the agreements), we terminate Mr. Stoltz without cause or if he terminates employment voluntarily under certain circumstances specified in the agreement, he will receive a severance payment equal to 2.99 times his average annual taxable compensation for the five preceding taxable years.
Section 280G of the Internal Revenue Code provides that severance payments that equal or exceed three times the individual’s base amount are deemed to be “excess parachute payments” if they are contingent upon a change in control. Individuals receiving excess parachute payments are subject to a 20% excise tax on the amount of the payment in excess of the base amount, and we would not be entitled to deduct such amount. The agreement will provide for the reduction, at the election of Mr. Stoltz, of change in control payments to him to the extent necessary to ensure that he will not receive “excess parachute payments,” which otherwise would result in the imposition of an excise tax.
Upon termination of employment without cause or for good reason (other than termination in connection with a change in control), Mr. Stoltz will be required to adhere to a one-year non-competition restriction.
We will agree to pay all reasonable costs and legal fees of Mr. Stoltz in relation to the enforcement of the employment agreement, provided he succeed on the merits in a legal judgment, arbitration proceeding or settlement. The employment agreements also provide for indemnification of Mr. Stoltz to the fullest extent legally permissible.
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Change in Control Agreement.    Upon completion of the offering, Central Federal will enter into a change in control agreement with Barbara E. Hamilton. The change in control agreement will have a one-year term, subject to renewal by the board of directors for an additional year beyond the then current expiration date. If, following a change in control of Central Federal or Central Federal Bancshares, either party or their successors terminates the employment of Ms. Hamilton for reasons other than for cause, or if she voluntarily resigns upon the occurrence of circumstances specified in the agreement, she will receive a severance payment under the agreement equal to 12 month’s base compensation. The change in control agreements limit payments made to Ms. Hamilton in connection with a change in control to amounts that will not exceed the limits imposed by Section 280G. In the event that Central Federal or Central Federal Bancshares hires additional senior executive officers while the conversion is pending, or subsequent to completion of the conversion, our board of directors may determine to enter into change in control agreements with such persons on terms expected to be substantially similar to those described above for Ms. Hamilton.
Employee Stock Ownership Plan
In connection with the conversion, Central Federal has adopted an employee stock ownership plan for eligible employees. Eligible employees who are employed by Central Federal as of the closing date of the conversion will become participants in the plan as of the plan’s effective date. Employees hired after the closing date of the conversion will participate in the employee stock ownership plan as of the plan entry date following or coincident with their completion of one year of service.
The trustee of the employee stock ownership plan, on behalf of the plan, will subscribe for up to 8% of the number of shares of common stock sold in the conversion including shares issued to our charitable foundation, 91,936, 108,160, 124,384 and 143,042 shares at the minimum, midpoint, maximum and maximum, as adjusted, of the offering range, respectively. The purchase of common stock by the employee stock ownership plan in the offering will comply with all applicable conversion regulations. The trustee will fund the stock purchase for the plan through a loan from Central Federal Bancshares equal to 100% of the aggregate purchase price of the common stock. The plan will repay the loan principally through contributions to the employee stock ownership plan by Central Federal and any dividends paid on unallocated common stock held by the plan over an expected 25-year term of the loan. We anticipate that the interest rate will be fixed at the prime rate, as published in The Wall Street Journal , on the closing date of the offering. See “ Pro Forma Data .”
The trustee will hold the shares purchased by the employee stock ownership plan in a loan suspense account and will release the shares from the suspense account on a pro rata basis as Central Federal repays the loan. The trustee will allocate the shares released among active participants on the basis of each active participant’s proportional share of compensation. Participants will vest in their employee stock ownership plan allocations at the rate of 20% per year over a five-year period and will be credited with past service for vesting purposes under the employee stock ownership plan. Participants will become fully vested upon age 65, death or disability, a change in control, or termination of the plan. Generally, participants will receive distributions from the employee stock ownership plan upon separation from service. The plan reallocates any unvested shares of common stock forfeited upon termination of employment among the remaining participants in the plan.
Participants may direct the plan trustee how to vote the shares of common stock credited to their accounts. The plan trustee will vote all unallocated shares and allocated shares for which participants do not provide instructions on any matter in the same ratio as the trustees vote those shares for which participants provide instructions, subject to fulfillment of their fiduciary responsibilities as trustees.
Under applicable accounting requirements, Central Federal will record a compensation expense for a leveraged employee stock ownership plan at the fair market value of the shares when they are committed to be released from the suspense account to participants’ accounts under the plan.
Equity Incentive Plans
Future Equity Incentive Plan.    Following the conversion, we intend to adopt an equity incentive plan that will provide for grants of stock options and restricted stock. In accordance with applicable regulations, we anticipate that the plan, if adopted within the first year after the offering, will authorize a number of
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stock options equal to 10% of the shares issued in the conversion stock offering, including shares issued to our charitable foundation, and a number of shares of restricted stock equal to 4% of the shares issued in the conversion, also including shares issued to our charitable foundation. Therefore, the number of shares reserved under the plan, if adopted within that one-year period, will range from 160,900, assuming 1,149,200 shares are issued in the offering, including shares contributed to our charitable foundation, at the minimum of the offering range, to 217,700 shares, assuming 1,554,800 shares are issued in the offering, including shares contributed to our charitable foundation, at the maximum of the offering range.
The equity incentive plan will not be established sooner than six months after this offering and, if adopted within one year after this offering, would require the approval by stockholders owning a majority of the outstanding shares of common stock of Central Federal Bancshares. If an equity incentive plan is established after one year after the stock offering, it would require the approval of our stockholders by a majority of votes cast.
The following additional restrictions would apply to an equity incentive plan only if the plan is adopted within one year after the stock offering:

non-employee directors in the aggregate may not receive more than 30% of the options and restricted stock awards authorized under the plan;

any non-employee director may not receive more than 5% of the options and restricted stock awards authorized under the plan;

any officer or employee may not receive more than 25% of the options and restricted stock awards authorized under the plan;

the options and restricted stock awards may not vest more rapidly than 20% per year, beginning on the first anniversary of stockholder approval of the plan; and

accelerated vesting is not permitted except for death, disability or upon a change in control of Central Federal Bancshares or Central Federal.
If we adopt the equity incentive plan more than one year after completion of the offering, we would not be subject to the regulations outlined above limiting the awards we may make under the plan or certain other requirements applicable to the plan implemented within the first year of conversion.
We have not yet determined whether we will present an equity incentive plan for stockholder approval within one year following the completion of the conversion or whether we will present this plan for stockholder approval more than one year after the completion of the conversion. We may fund the plan with shares we purchase in the open market or with authorized, but unissued shares, of common stock. We may also establish a trust to hold shares subject to the terms of the plan. In determining the source of shares transferred to participants of the plan, we will consider our financial condition and results of operations, capital requirements, economic conditions and whether sufficient shares are available for purchase in the open market. The equity incentive plan will comply with all applicable regulations except to the extent waived by the regulators.
Director Compensation
The following table sets forth for the year ended December 31, 2014 certain information as to the total remuneration we paid to our directors.
Directors Compensation Table For the Year Ended December 31, 2014
Name
Fees Earned or
Paid in Cash
($)
All Other
Compensation
($)
Total
($)
Michael E. Estey
6,000 6,000
Jeffrey L. McKune
6,000 6,000
Robert R. Thompson
6,000 6,000
Michael Tucker (1)
5,000 5,000
John D. Wiggins
6,000 6,000
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(1)
Mr. Tucker resigned from the board of directors in October 2014.
Director Fees
For the fiscal year ended December 31, 2014, each director of Central Federal was paid a monthly retainer of  $500; there were no additional fees paid for attendance at board or committee meetings. Each person who serves as a director of Central Federal Bancshares also serves as a director of Central Federal and earns director and committee fees only in his or her capacity as a board or committee member of Central Federal.
Director Emeritus
Robert McKune (age 84), the father of our board member Jeffrey L. McKune, serves as a director emeritus of Central Federal. Mr. McKune has served as a member of the Central Federal board since 1978 and was appointed director emeritus in 2005. For 2014, Central Federal paid Robert McKune fees of  $6,000 and also paid health insurance premiums on behalf of him in the amount of  $7,951.
Transactions with Central Federal
Loans and Extensions of Credit.    The Sarbanes-Oxley Act of 2002 generally prohibits loans by publicly traded companies to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans by insured depository institutions to their executive officers and directors in compliance with federal banking regulations. Federal regulations generally require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk of repayment or present other unfavorable features, although federal regulations allow us to make loans to executive officers and directors at reduced interest rates if the loan is made under a benefit program generally available to all other employees that does not give preference to any executive officer or director over any other employee.
In addition, loans made to a director or executive officer in an amount that, when aggregated with the amount of all other loans to the person and his or her related interests, are in excess of the greater of $25,000, or 5%, of Central Federal’s capital and surplus, up to a maximum of  $500,000, must be approved in advance by a majority of the disinterested members of the board of directors. See “ Regulation and Supervision — Federal Banking Regulation — Transactions with Related Parties .”
Central Federal has followed a policy of granting loans to executive officers and directors and believes that this policy fully complies with all applicable federal regulations. Loans to directors and executive officers are made in the ordinary course of Central Federal’s business and on the same terms and conditions, including interest rates and collateral, as those of comparable transactions with persons not related to Central Federal prevailing at the time, in accordance with our underwriting guidelines and do not involve more than the normal risk of collectability or present other unfavorable features. All loans to directors and executive officers and their related persons at June 30, 2015 were performing in accordance with their terms. As of June 30, 2015 and December 31, 2014, the outstanding balance of loans extended by Central Federal to its executive officers and directors and affiliates (related parties) was $2.4 million and $821,000, respectively. The increase in loans was primarily due to the addition to the board in January 2015 of Mr. Sowers, to whom, and to whose affiliates, Central Federal had extended credit in the amount of approximately $1.5 million as of June 30, 2015.
Other Transactions.    Since January 1, 2014, and during the year ended December 31, 2014, there have been no transactions, and there are no currently proposed transactions, other than loan or extensions of credit discussed above, in which we were or are to be a participant and the amount involved exceeds the lesser of  $120,000 or 1% of the average of Central Federal’s total assets at December 31, 2014 and 2013, and in which any of our executive officers and directors had or will have a direct or indirect material interest.
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Indemnification for Directors and Officers
Central Federal Bancshares’ articles of incorporation provide that Central Federal Bancshares will indemnify its directors and officers, whether serving the Central Federal Bancshares or at its request any other entity, to the fullest extent required or permitted by the general laws of the State of Missouri, including the advance of expenses under the procedures required, and other employees and agents to such extent as shall be authorized by the board of directors or Central Federal Bancshares’ bylaws and as permitted by law. Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers and controlling persons of Central Federal Bancshares pursuant to its articles of incorporation or otherwise, Central Federal Bancshares has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Subscriptions by Executive Officers and Directors
The following table presents certain information as to the proposed purchases of common stock by our directors and executive officers, including their associates, if any, as defined by applicable regulations. No individual has entered into a binding agreement to purchase these shares and, therefore, actual purchases could be more or less than indicated. Directors and executive officers and their associates may not purchase in the aggregate more than 34% of the shares sold in the offering, including the shares issued to our charitable foundation. Like all of our depositors, our directors and officers have subscription rights based on their deposits. For purposes of the following table, sufficient shares are assumed to be available to satisfy subscriptions in all categories. All directors and officers as a group would own 0.9% of our outstanding shares at the maximum of the offering range, including the shares issued to our charitable foundation.
Proposed Purchase of Stock in the Offering
Name
Number of
Shares
Dollar
Amount
Percent of Common
Stock Outstanding at
Minimum of Offering
Range (including Shares
Contributed to
Charitable Foundation)
Directors :
Stephen L. Bowles
1,000 $ 10,000
*
Michael E. Estey
1,000 10,000
*
Jeffrey L. McKune
100 1,000
*
James R. Sowers
5,000 50,000
0.5
Robert R. Thompson
2,000 20,000
0.2
John D. Wiggins
2,000 20,000
0.2
Executive Officers :
William A. Stoltz
2,000 20,000
0.2
Larry D. Thomas
200 2,000
*
Barbara E. Hamilton
200 2,000
*
All directors and executive officers as a group (9 persons)
13,500 $ 135,000
1.2
*
Less than 0.1%
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Regulation And Supervision
General
Central Federal, as a federal savings association, is subject to extensive regulation, examination and supervision by the OCC, as its primary federal regulator, and by the FDIC as the insurer of its deposits. Its deposit accounts are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Central Federal must file reports with the OCC concerning its activities and financial condition in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OCC to evaluate Central Federal’s safety and soundness and compliance with various regulatory requirements. This regulatory structure is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of an adequate allowance for loan losses for regulatory purposes.
As a savings and loan holding company, Central Federal Bancshares will be subject to examination and supervision by, and be required to file certain reports with the Federal Reserve Board.
The Dodd-Frank Act made extensive changes to the regulation of Central Federal. Under the Dodd-Frank Act, the Office of Thrift Supervision was eliminated and responsibility for the supervision and regulation of federal savings associations such as Central Federal was transferred to the OCC on July 21, 2011. The OCC is the agency that is primarily responsible for the regulation and supervision of national banks. Additionally, the Dodd-Frank Act created a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as Central Federal Bancshares, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their prudential regulators.
Certain of the regulatory requirements that are or will be applicable to Central Federal and Central Federal Bancshares are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on Central Federal and Central Federal Bancshares.
Federal Banking Regulation
Business Activities.    The activities of federal savings associations, such as Central Federal, are governed by federal laws and regulations. Those laws and regulations delineate the nature and extent of the business activities in which federal savings associations may engage. In particular, certain lending authority for federal savings associations, e.g. , commercial, nonresidential real property loans and consumer loans, is limited to a specified percentage of the association’s capital or assets.
Capital Requirements.    Central Federal is subject to minimum regulatory capital requirements imposed under OCC regulations, and Central Federal Bancshares upon completion of the conversion will be subject to consolidated regulatory capital requirements imposed under Federal Reserve Board regulations.
Prior to 2014, the applicable capital regulations required savings associations such as Central Federal to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio, a 4% Tier 1 capital to total assets leverage ratio (3% for institutions receiving the highest rating on the CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also established, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The regulations also required that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for a national bank.
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In July 2013, in response to provisions of the Dodd-Frank Act and the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, the federal banking agencies, including the OCC and the Federal Reserve Board adopted new capital rules that took effect on January 1, 2015. These rules included new risk-based capital and leverage ratios and revisions to the definition of what constitutes “capital” for purposes of calculating those ratios. The rules also, for the first time, imposed consolidated regulatory capital requirements on savings and loan holding companies. The minimum capital level requirements applicable to Central Federal Bancshares and Central Federal under the new rules are: (i) a common equity Tier 1 risk-based capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The rules also established a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result, in effect, in the following minimum ratios: (i) a common equity Tier 1 risk-based capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at .625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.
The OCC also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances.
Prompt Corrective Regulatory Action.    Prompt corrective action regulations provide five classifications for insured depository institutions, such as Central Federal, and their holding companies: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The OCC is required to take certain supervisory actions against undercapitalized institutions, with the severity of the action depending upon the institution’s degree of undercapitalization. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OCC could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.
Insurance of Deposit Accounts.    Central Federal’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently $250,000. Under the FDIC’s risk-based assessment system, insured institutions are assigned a risk category based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified by FDIC regulations. Institutions deemed less risky pay lower assessments. The FDIC may adjust the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.
The Dodd-Frank Act required the FDIC to revise its procedures to base its assessments upon each insured institution’s total assets less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that set the assessment range at 2.5 to 45 basis points of total assets less tangible equity.
The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Central Federal. Management cannot predict what insurance assessment rates will be in the future.
Loans to One Borrower.    Federal law provides that savings associations are generally subject to the limits on loans to one borrower applicable to national banks. Generally, subject to certain exceptions, a savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral. At June 30, 2015, our regulatory loans-to-one borrower limitation under the supplemental lending limits program approved by the
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OCC was $3.4 million. All loans to one borrower that aggregate over $500,000 are reviewed by a Central Federal commercial loan officer and are presented to the board of directors annually. Further, our management will review and recommend to the board of directors through our loan committee such lesser limitations on the extension of credit to a single borrower or borrowing entity as it feels prudent and in the best interest of Central Federal based on the current economic, competitive environment and the circumstances of Central Federal.
Qualified Thrift Lender Test.    Federal law requires savings associations to meet a qualified thrift lender test. Under the test, a savings association is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities but also including education, credit card and small business loans) in at least nine months out of each 12-month period.
A savings association that fails the qualified thrift lender test is subject to certain operating restrictions and the Dodd-Frank Act also specifies that failing the qualified thrift lender test is a violation of law that could result in an enforcement action and dividend limitations. As of June 30, 2015, Central Federal maintained 82.4% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.
Limitation on Capital Distributions.    Federal regulations impose limitations upon all capital distributions by a savings association, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the OCC is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under OCC regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the OCC. If an application is not required, the institution must still provide 30 days prior written notice to, and receive the non-objection of, the Federal Reserve Board of the capital distribution if, like Central Federal, it is a subsidiary of a holding company, as well as an informational notice filing to the OCC. If Central Federal’s capital ever fell below its regulatory requirements or the OCC notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition, the OCC could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OCC determines that such distribution would constitute an unsafe or unsound practice.
Community Reinvestment Act.    All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. An institution’s failure to satisfactorily comply with the provisions of the Community Reinvestment Act could result in denials of regulatory applications. Responsibility for administering the Community Reinvestment Act, unlike other fair lending laws, is not being transferred to the Consumer Financial Protection Bureau. Central Federal received an “satisfactory” Community Reinvestment Act rating in its most recently completed examination.
Transactions with Related Parties.    Federal law limits Central Federal’s authority to engage in transactions with “affiliates” ( e.g. , any entity that controls or is under common control with Central Federal, including Central Federal Bancshares and any other subsidiaries). The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings association. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings association’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type specified by federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates must generally be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings associations are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings association may purchase the securities of any affiliate other than a subsidiary.
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The Sarbanes-Oxley Act of 2002 generally prohibits loans by Central Federal Bancshares to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. Under such laws, Central Federal’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The laws limit both the individual and aggregate amount of loans that Central Federal may make to insiders based, in part, on Central Federal’s capital level and requires that certain board approval procedures be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are subject to additional limitations based on the type of loan involved.
Enforcement.    The OCC currently has primary enforcement responsibility over savings associations and has authority to bring actions against the institution and all institution-affiliated parties, including directors, officers, shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1.0 million per day in especially egregious cases. The FDIC has the authority to recommend to the OCC that enforcement action be taken with respect to a particular savings association. If action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.
Federal Home Loan Bank System.    Central Federal is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Central Federal, as a member of the Federal Home Loan Bank of Des Moines, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. Central Federal was in compliance with this requirement with an investment in Federal Home Loan Bank stock with a book value at June 30, 2015 of  $77,000.
Federal Reserve System.    The Federal Reserve Board regulations require savings associations to maintain non-interest-earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal (NOW) and regular checking accounts). The regulations provided that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $103.6 million; and a 10% reserve ratio is applied above $103.6 million. The first $14.5 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements.
Other Regulations
Central Federal’s operations are also subject to federal laws applicable to credit transactions, such as, but not limited to, the:

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and
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Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The operations of Central Federal also are subject to the:

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

Check Clearing for the 21st Century Act (also known as Check 21), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

Title III of The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the USA PATRIOT Act), and the related regulations of the Federal Reserve Board, which require savings associations operating in the United States to develop new anti-money laundering compliance programs (including a customer identification program that must be incorporated into the AML compliance program), due diligence policies and controls to ensure the detection and reporting of money laundering; and

The Bank Secrecy Act of 1970, which requires financial institutions in the United States to keep records of cash purchases of negotiable instruments, file reports of cash purchases of negotiable instruments exceeding a daily amount of  $10,000 or more and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.
Holding Company Regulation
General.    As a savings and loan holding company, Central Federal Bancshares will be subject to Federal Reserve Board regulations, examinations, supervision, reporting requirements and regulations regarding its activities. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to Central Federal.
Pursuant to federal law and regulations and policy, a savings and loan holding company such as Central Federal Bancshares may generally engage in the activities permitted for financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, and certain other activities that have been authorized for savings and loan holding companies by regulation.
Federal law prohibits a savings and loan holding company from, directly or indirectly or through one or more subsidiaries, acquiring more than 5% of the voting stock of another savings association, or savings and loan holding company thereof, without prior written approval of the Federal Reserve Board or from acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary holding company or savings association. A savings and loan holding company is also prohibited from acquiring more than 5% of a company engaged in activities other than those authorized by federal law or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire savings associations, the Federal Reserve Board must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.
The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings associations in more than one state, except: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings association in another state if the laws of the state of the target savings association specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.
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Capital Requirements.    Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. However, in July 2013, the Federal Reserve Board approved a new rule that implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The final rule established consolidated capital requirements for many savings and loan holding companies, including Central Federal Bancshares. See “ Regulation and Supervision — Federal Banking Regulation — Capital Requirements .”
Source of Strength.    The Dodd-Frank Act also extended the Federal Reserve Board’s “source of strength” doctrine to savings and loan holding companies such as Central Federal Bancshares. The Federal Reserve Board has issued regulations implementing the “source of strength” policy requiring that holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.
Dividends and Stock Repurchases.    The Federal Reserve Board has the power to prohibit dividends by savings and loan holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies and savings and loan holding companies and which expresses the Federal Reserve Board’s view that a holding company should pay cash dividends only to the extent that the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve Board also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Under the prompt corrective action regulations, the Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”
Federal Reserve Board policy also provides that a holding company should inform the Federal Reserve Board supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, as of the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred.
Acquisition of Central Federal Bancshares.    Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company or savings association. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the outstanding voting stock of the company or institution, unless the Federal Reserve Board has found that the acquisition will not result in a change of control. A change in control definitively occurs upon the acquisition of 25% or more of the company’s outstanding voting stock. Under the Change in Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that acquires control would then be subject to regulation as a savings and loan holding company.
Federal Securities Laws
Central Federal Bancshares has filed with the SEC a registration statement under the Securities Act, for the registration of the common stock to be issued in the offering. Central Federal Bancshares’ common stock will be registered with the SEC under the Exchange Act. Central Federal Bancshares will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.
The registration, under the Securities Act, of the shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Central Federal Bancshares may be resold without registration. Shares purchased by an affiliate of Central Federal Bancshares will be subject to the resale restrictions of Rule 144 under the Securities Act. If Central Federal Bancshares meets the current public information requirements of Rule 144, each affiliate of Central Federal Bancshares that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public
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market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Central Federal Bancshares or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, Central Federal Bancshares may permit affiliates to have their shares registered for sale under the Securities Act.
Emerging Growth Company Status
The JOBS Act, which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” Central Federal Bancshares qualifies as an emerging growth company under the JOBS Act.
An “emerging growth company” may choose not to hold stockholder votes to approve annual executive compensation (more frequently referred to as “say-on-pay” votes) or executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute” votes). Such a company also may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in a public offering prospectus. An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting, and can provide scaled disclosure regarding executive compensation; however, Central Federal Bancshares will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smaller reporting company” under SEC regulations (generally less than $75 million of voting and non-voting equity held by non-affiliates). The JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period.
A company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it had total annual gross revenues of  $1.0 billion or more; (ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act; (iii) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which such company is deemed to be a “large accelerated filer” under SEC regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).
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Federal And State Taxation
Federal Income Taxation
General.    We report our income on a calendar year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns have not been audited during the last five years. For its 2014 calendar year, Central Federal’s maximum statutory federal income tax rate was 34%.
Central Federal Bancshares and Central Federal will enter into a tax allocation agreement. Because Central Federal Bancshares will own 100% of the issued and outstanding capital stock of Central Federal after the completion of the conversion, Central Federal Bancshares and Central Federal will be members of an affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code, of which group Central Federal Bancshares will be the common parent corporation. As a result of this affiliation, Central Federal may be included in the filing of a consolidated federal income tax return with Central Federal Bancshares and, if a decision to file a consolidated tax return is made, the parties agree to compensate each other for their individual share of the consolidated tax liability and/or any tax benefits provided by them in the filing of the consolidated federal income tax return.
Bad Debt Reserves.    For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and require savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves.
Distributions.    If Central Federal makes “non-dividend distributions” to Central Federal Bancshares, the distributions will be considered to have been made first from Central Federal’s unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend distributions,” and then from Central Federal’s supplemental reserve for losses on loans, to the extent of those reserves. An amount based on the amount distributed, but not more than the amount of those reserves, will be included in Central Federal’s taxable income. Non-dividend distributions include distributions in excess of Central Federal’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Central Federal’s current or accumulated earnings and profits will not be included in Central Federal’s taxable income.
The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Central Federal makes a non-dividend distribution to Central Federal Bancshares, approximately 1.5 times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. Central Federal does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.
State Taxation
The State of Missouri imposes a franchise tax of approximately 7% on net income of savings and loan associations, measured in substantially the same manner as federal taxable income of savings and loan associations.
Purchasers of shares in this offering should consult their own tax advisors with respect to the federal, state and local consequences of an investment in the shares.
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The Conversion And Stock Offering
Our board of directors has adopted the plan of conversion. The OCC also has conditionally approved the plan of conversion, but its approval does not constitute a recommendation or endorsement of the plan of conversion by the agency.
General
On August 4, 2015, the board of directors of Central Federal unanimously adopted the plan of conversion according to which Central Federal will convert from a federally chartered mutual savings association to a federally chartered stock savings association and become a wholly owned subsidiary of Central Federal Bancshares, a newly formed Missouri corporation. On September 8, 2015, the board of directors of Central Federal approved an amendment to the plan of conversion (primarily to provide for the issuance of shares to our charitable foundation), and the board of directors of Central Federal Bancshares unanimously adopted the plan of conversion, as amended. Central Federal Bancshares will offer 100% of its common stock to eligible depositors and borrowers of Central Federal in a subscription offering and, if necessary, to members of the general public through a community offering and/or a syndicate of registered broker-dealers. In addition to the shares that we will sell in the offering, we intend to establish a charitable foundation in connection with the conversion and fund it with $100,000 in cash and the remainder in shares of common stock equal to equal to 4% of shares issued by Central Federal Bancshares in the offering, which will result in the charitable foundation holding 3.8% of our outstanding shares upon completion of the conversion. The completion of the offering depends on market conditions and other factors beyond our control. We can give no assurance as to the length of time that will be required to complete the sale of the common stock. If we experience delays, significant changes may occur in the appraisal of Central Federal, which would require a change in the offering range. A change in the offering range would result in a change in the net proceeds realized by Central Federal Bancshares from the sale of the common stock. If the offering is terminated, Central Federal would be required to charge all offering expenses against current income.
The following is a brief summary of the material aspects of the conversion. A copy of the plan of conversion is available from Central Federal upon request and is available for inspection at the offices of Central Federal and at the OCC. The plan of conversion is also filed as an exhibit to the registration statement that we have filed with the SEC. See “ Where You Can Find More Information .”
Reasons for the Conversion
Our primary reasons for the conversion and offering are to:

strengthen the capital base of Central Federal to support the implementation of our business plan and, from a safety and soundness perspective in light of the current regulatory and economic environment, to enhance our ability to manage risk;

enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through Central Federal’s traditional lending and investing activities;

enhance our overall competitive position through expanded capacity for organic growth, branch expansion or acquisitions of other financial institutions; and

implement equity compensation plans to retain and attract qualified directors, officers and staff.
Also, the formation and funding of the Central Federal Community Foundation in connection with the conversion will help us maintain and further expand our philanthropic endeavors to the communities we serve through.
As a stock holding company, Central Federal Bancshares will have greater flexibility than Central Federal now has in structuring mergers and acquisitions, including the consideration paid in a transaction. Our current mutual savings association structure, by its nature, limits our ability to offer any common stock as consideration in a merger or acquisition. Our new stock holding company structure will enhance our ability to compete with other bidders when acquisition opportunities arise by better enabling us to offer stock or cash consideration, or a combination of the two. We currently do not have any agreement or understanding as to any specific acquisition.
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Effects of Conversion to Stock Form of Ownership
General.    Each depositor in a mutual savings association has both a deposit account in the institution and a pro rata ownership interest in the net worth of the institution based upon the balance in his or her account. However, this ownership interest is tied to the depositor’s account and has no value separate from such deposit account. Furthermore, this ownership interest may only be realized in the unlikely event that the institution is liquidated. In such event, the depositors of record at that time, as owners, would be able to share in any residual surplus and reserves after payment of other claims, including claims of depositors to the amounts of their deposits. Any depositor who opens a deposit account obtains a pro rata ownership interest in the net worth of the institution without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the account but nothing for his or her ownership interest in the net worth of the institution, which is lost to the extent that the balance in the account is reduced.
When a mutual savings association converts to stock form, depositors lose all rights to the net worth of the mutual savings association, except the right to claim a pro rata share of funds representing the liquidation account established in connection with the conversion. Additionally, permanent nonwithdrawable capital stock is created and offered to depositors which represents the ownership of the institution’s net worth. The common stock of Central Federal Bancshares is separate and apart from deposit accounts and cannot be and is not insured by the FDIC or any other governmental agency. Certificates or stock ownership statements are issued to evidence ownership of the permanent stock. Shares are transferable, and therefore the stock may be sold or traded if a purchaser is available with no effect on any deposit account the seller may hold in the institution.
No assets of Central Federal Bancshares will be distributed in connection with the conversion other than the payment of those expenses incurred in connection with the conversion.
Continuity.    While the conversion is being accomplished, the normal business of Central Federal will continue without interruption, including being regulated by the OCC and the FDIC. After the conversion, Central Federal will continue to provide services for depositors and borrowers under current policies by its present management and staff.
The directors of Central Federal at the time of the conversion will serve as directors of Central Federal after the conversion. The initial directors of Central Federal Bancshares are composed of the individuals who serve on the board of directors of Central Federal. All officers of Central Federal at the time of conversion will retain their positions after the conversion.
Deposit Accounts and Loans.    Central Federal’s deposit accounts, account balances and existing FDIC insurance coverage of deposit accounts will not be affected by the conversion. Furthermore, the conversion will not affect the loan accounts, loan balances or obligations of borrowers under their individual contractual arrangements with Central Federal.
Effect on Voting Rights.    Voting rights in Central Federal, as a mutual savings association, belong to its depositor and borrower members. After the conversion, depositors and borrowers will no longer have voting rights in Central Federal and, therefore, will no longer be able to elect directors of Central Federal or control its affairs. Instead, Central Federal Bancshares, as the sole shareholder of Central Federal, will possess all voting rights in Central Federal. The holders of the common stock of Central Federal Bancshares will possess all voting rights in Central Federal Bancshares. Depositors and borrowers of Central Federal will not have voting rights after the conversion except to the extent that they become shareholders of Central Federal Bancshares by purchasing common stock.
Liquidation Account.    In the unlikely event of a complete liquidation of Central Federal before the conversion, each depositor in Central Federal would receive a pro rata share of any assets of Central Federal remaining after payment of claims of all creditors, including the claims of all depositors up to the withdrawal value of their accounts. Each depositor would receive a pro rata share of the remaining assets in the same proportion as the value of his or her deposit account to the total value of all deposit accounts in Central Federal at the time of liquidation.
After the conversion, holders of withdrawable deposits in Central Federal, including certificates of deposit, will not be entitled to share in any residual assets upon liquidation of Central Federal. However,
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under applicable regulations, Central Federal will, at the time of the conversion, establish a liquidation account in an amount equal to its total equity as of the date of the latest statement of financial condition contained in the final prospectus relating to the conversion.
Central Federal will maintain the liquidation account after the conversion for the benefit of eligible account holders and supplemental eligible account holders who retain their savings accounts in Central Federal. Each eligible account holder and supplemental account holder will, with respect to each deposit account held, have a related inchoate interest in a sub-account portion of the liquidation account balance.
The initial sub-account balance for a savings account held by an eligible account holder or a supplemental eligible account holder will be determined by multiplying the opening balance in the liquidation account by a fraction of which the numerator is the amount of the holder’s “eligible deposit” in the deposit account and the denominator is the total amount of the “eligible deposits” of all eligible or supplemental eligible account holders. The initial subaccount balance will not be increased, but it will be decreased as provided below.
If the deposit balance in any deposit account of an eligible account holder or supplemental eligible account holder at the close of business on any annual closing day of Central Federal (which is December 31) after June 30, 2014 or [ Supplemental Eligibility Record Date] , is less than the lesser of the deposit balance in a deposit account at the close of business on any other annual closing date after June 30, 2014 or [ Supplemental Eligibility Record Date] , or the amount of the “eligible deposit” in a savings account on June 30, 2014 or [ Supplemental Eligibility Record Date] , then the sub-account balance for a savings account will be adjusted by reducing the sub-account balance in an amount proportionate to the reduction in the savings balance. Once reduced, the sub-account balance will not be subsequently increased, notwithstanding any increase in the savings balance of the related savings account. If any savings account is closed, the related subaccount balance will be reduced to zero.
Upon a complete liquidation of Central Federal, each eligible account holder and supplemental account holder will be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current adjusted sub-account balance(s) for deposit account(s) held by the holder before any liquidation distribution may be made to shareholders. No merger, consolidation, bulk purchase of assets with assumptions of savings accounts and other liabilities or similar transactions with another federally insured institution in which Central Federal is not the surviving institution will be considered to be a complete liquidation. In any of these transactions, the liquidation account will be assumed by the surviving institution.
In the unlikely event Central Federal is liquidated after the conversion, depositors will be entitled to full payment of their deposit accounts before any payment is made to Central Federal Bancshares as sole shareholder of Central Federal. There are no plans to liquidate either Central Federal or Central Federal Bancshares.
Material Income Tax Consequences
In connection with the conversion, we have received an opinion of counsel with respect to federal tax laws that no gain or loss will be recognized by account holders receiving subscription rights, except to the extent, if any, that subscription rights are deemed to have fair market value on the date such rights are issued. We believe that the tax opinion summarized below addresses all material federal income tax consequences that are generally applicable to persons receiving subscription rights.
Lewis Rice LLC has issued an opinion to us that, for federal income tax purposes:

The Conversion of Central Federal from a federally-chartered mutual savings association to a federally-chartered stock savings association will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code, and no gain or loss will be recognized by account holders or by the Association by reason of such conversion.

No gain or loss will be recognized by Central Federal Bancshares upon the receipt of money from the sale of its common stock in the offerings.
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It is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of Central Federal Bancshares (the “Subscription Rights”) to be issued to eligible account holders, supplemental eligible account holders and other members is zero, and, accordingly, that no income will be realized by eligible account holders, supplemental eligible account holders and other members upon the issuance to them of subscription rights or upon the exercise of the subscription rights.

It is more likely than not that the tax basis to the holders of shares of common stock purchased in the subscription offering pursuant to the exercise of subscription rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of the completion of the offerings.
The reasoning in support of the statements of Lewis Rice LLC set forth in the third and fourth bullet points above is set forth below. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. According to our counsel, the Internal Revenue Service will not issue rulings on whether subscription rights have a market value. Counsel has also advised us that they are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights have a market value. Counsel also noted that the subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration and will afford the recipients the right only to purchase our common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock.
Unlike a private letter ruling issued by the Internal Revenue Service, an opinion of counsel is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached in the opinion. If there is a disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.
Central Federal also has received an opinion from Lewis Rice LLC that, assuming the conversion does not result in any federal income tax liability to Central Federal, its account holders, or Central Federal Bancshares, implementation of the plan of conversion will not result in any Missouri income tax liability to those entities or persons.
The opinions of Lewis Rice are filed as exhibits to the registration statement that we have filed with the SEC. See “ Where You Can Find More Information .”
Subscription Offering and Subscription Rights
Under the plan of conversion, we have granted rights to subscribe for Central Federal Bancshares common stock to the following persons in the following order of priority:

Depositors with deposits in Central Federal with balances aggregating $50.00 or more (“eligible deposits”) as of the close of business on June 30, 2015 (“eligible account holders”). For this purpose, deposit accounts include all savings, time and demand accounts.

Our employee stock ownership plan.

Depositors with eligible deposits in Central Federal as of the close of business on [Supplemental Eligibility Record Date] (“supplemental eligible account holders”) other than our officers and directors and their associates.

Depositors who are neither eligible nor supplemental eligible account holders and borrowers of Central Federal as of August 25, 2015 who remained borrowers as of the close of business on [ Record Date ] (collectively, “other members”).
The amount of common stock that any person may purchase will depend on the availability of the common stock after satisfaction of all subscriptions having priority rights in the subscription offering and to the maximum and minimum purchase limitations set forth in the plan of conversion. See “ — Limitations on Purchases of Shares .” All persons on a joint account will be counted as a single depositor for purposes of determining the maximum amount that may be subscribed for by owners of a single joint account.
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We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.
Category 1: Eligible Account Holders.    Subject to the purchase limitations as described below under “ — Limitations on Purchases of Shares ,” each eligible account holder has the right to subscribe for up to the greater of:

$300,000 of common stock (which equals 30,000 shares);

One-tenth of 1% of the total offering of common stock; or

15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of eligible deposits of the eligible account holder and the denominator is the total amount of eligible deposits of all eligible account holders.
If there are insufficient shares to satisfy all subscriptions by eligible account holders, shares first will be allocated so as to permit each subscribing eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective eligible deposits bear to the total eligible deposits of all remaining eligible account holders whose subscriptions remain unfilled. Unless waived by the OCC, subscription rights of eligible account holders who are also executive officers or directors of Central Federal or their associates will be subordinated to the subscription rights of other eligible account holders to the extent attributable to increased deposits in Central Federal in the one-year period preceding June 30, 2014.
To ensure a proper allocation of stock, each eligible account holder must list on his or her stock order form all deposit accounts and loans in which such eligible account holder had an ownership interest at June 30, 2014. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.
Category 2: Tax-Qualified Employee Benefit Plans.    Our tax-qualified employee benefit plans have the right to purchase up to 10% of the shares of common stock sold in the offering, including any shares issued to our charitable foundation. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase a number of shares equal to 8% of the shares sold in the offering, including shares issued to our charitable foundation. Subscriptions by the employee stock ownership plan will not be aggregated with shares of common stock purchased by any other participants in the offering, including subscriptions by our officers and directors, for the purpose of applying the purchase limitations in the plan of conversion. If eligible account holders subscribe for all of the shares being sold, no shares will be available for our tax-qualified employee benefit plans. However, if we increase the number of shares offered above the maximum of the offering range, the employee stock ownership plan will have a first priority right to purchase any shares exceeding that amount up to 10% of the common stock issued in the offering, including shares issued to our charitable foundation. If the plan’s subscription is not filled in its entirety, the employee stock ownership plan may purchase shares in the open market or may purchase shares directly from us with the approval of the OCC.
Category 3: Supplemental Eligible Account Holders.    Subject to the purchase limitations as described below under “ — Limitations on Purchases of Shares ,” each supplemental eligible account holder has the right to subscribe for up to the greater of:

$300,000 of common stock (which equals 30,000 shares);

One-tenth of 1% of the total offering of common stock; or

15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of eligible deposits of the supplemental eligible account holder and the denominator is the total amount of eligible deposits of all supplemental eligible account holders.
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If eligible account holders and the employee stock ownership plan subscribe for all of the shares being sold, no shares will be available for supplemental eligible account holders. If shares are available for supplemental eligible account holders but there are insufficient shares to satisfy all subscriptions by supplemental eligible account holders, shares first will be allocated so as to permit each subscribing supplemental eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing supplemental eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective eligible deposits bear to the total eligible deposits of all remaining supplemental eligible account holders whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each supplemental eligible account holder must list on his or her stock order form all deposit accounts in which such supplemental eligible account holder had an ownership interest at [ Supplemental Eligibility Record Date] . Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.
Category 4: Other Members.    Subject to the purchase limitations as described below under “ — Limitations on Purchases of Shares ,” each other member has the right to purchase up to the greater of $300,000 of common stock (which equals 30,000 shares) or one-tenth of 1% of the total offering of common stock, including shares issued to our charitable foundation. If eligible account holders, the employee stock ownership plan and supplemental eligible account holders subscribe for all of the shares being sold, no shares will be available for other members. If shares are available for other members but there are not sufficient shares to satisfy all subscriptions by other members, shares first will be allocated so as to permit each subscribing other member, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing other members in the proportion that each other member’s subscription bears to the total subscriptions of all such subscribing other members whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each other member must list on his or her stock order form all deposit accounts in which such other member had an ownership interest at [ Record Date] . Failure to list an account or providing incorrect information could result in the loss of all or part of a subscriber’s stock allocation.
Expiration Date for the Subscription Offering.    The subscription offering, and all subscription rights under the plan of conversion, will expire at _____ p.m., Central time, on [ Expiration Date] . We will not accept orders for common stock in the subscription offering received after that time. We will make reasonable attempts to provide a prospectus and related offering materials to holders of subscription rights; however, all subscription rights will expire on the expiration date whether or not we have been able to locate each person entitled to subscription rights.
OCC regulations require that we complete the sale of common stock within 45 days after the close of the subscription offering. If the sale of the common stock is not completed within that period, all funds received will be returned promptly with interest at our statement savings rate and without deduction, and all withdrawal authorizations will be canceled unless we receive approval of the OCC to extend the time for completing the offering. If regulatory approval of an extension of the time period has been granted, we will notify all subscribers of the extension and of the duration of any extension that has been granted, and subscribers will have the right to modify or rescind their purchase orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be returned promptly with interest and without deduction, or withdrawal authorizations will be canceled. No single extension can exceed 90 days.
Persons in Non-Qualified States.    We will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock under the plan of conversion reside. However, we are not required to offer stock in the subscription offering to any person who resides in a foreign country or who resides in a state of the United States in which (1) only a small number of persons otherwise eligible to subscribe for shares of common stock reside; (2) the granting of subscription rights or the offer or sale of shares to such person would require that we or our officers or directors register as a
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broker, dealer, salesman or selling agent under the securities laws of the state, or register or otherwise qualify the subscription rights or common stock for sale or qualify as a foreign corporation or file a consent to service of process; or (3) we determine that compliance with that state’s securities laws would be impracticable for reasons of cost or otherwise.
Restrictions on Transfer of Subscription Rights and Shares.    Subscription rights are nontransferable. You may not transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of your subscription rights issued under the plan of conversion or the shares of common stock to be issued upon exercise of your subscription rights. Your subscription rights may be exercised only by you and only for your own account. If you exercise your subscription rights, you will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding regarding the sale or transfer of such shares. Federal regulations also prohibit any person from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or shares of common stock before the completion of the offering.
If you sell or otherwise transfer your rights to subscribe for common stock in the subscription offering or subscribe for common stock on behalf of another person, you may forfeit those rights and face possible further sanctions and penalties imposed by the OCC or another agency of the U.S. Government. We will pursue any and all legal and equitable remedies if we become aware of the transfer of subscription rights and will not honor orders known by us to involve the transfer of such rights.
Community Offering
To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, we may offer shares in a community offering to the following persons in the following order of priority:

First priority, to natural persons and trusts of natural persons who are residents of Phelps County, Missouri; and

Second priority, to other persons to whom we deliver a prospectus.
We will consider persons to be residents of Phelps County, Missouri if they occupy a dwelling in the county and have established an ongoing physical presence in the county that is not merely transitory in nature. We may utilize depositor or loan records or other evidence provided to us to make a determination as to whether a person is a resident of such counties. In all cases, the determination of residence status will be made by us in our sole discretion.
Purchasers in the community offering are eligible to purchase up to $300,000 of common stock (which equals 30,000 shares). If shares are available for preferred purchasers in the community offering but there are insufficient shares to satisfy all orders, the available shares will be allocated first to each preferred purchaser whose order we accept in an amount equal to the lesser of 100 shares or the number of shares ordered by each such subscriber, if possible. After that, unallocated shares will be allocated among the remaining preferred purchasers whose orders remain unsatisfied in the same proportion that the unfilled order of each such purchaser bears to the total unfilled orders of all such subscribers. If, after filling the orders of preferred purchasers in the community offering, shares are available for other purchasers in the community offering but there are insufficient shares to satisfy all orders, shares will be allocated in the same manner as for preferred purchasers.
The community offering, if held, may commence concurrently with, during or after the subscription offering and will terminate no later than 45 days after the close of the subscription offering unless extended by us, with approval of the OCC. If we receive regulatory approval for an extension, all purchasers will be notified of the extension and of the duration of any extension that has been granted, and will have the right to confirm, increase, decrease or rescind their orders. If we do not receive an affirmative response from a purchaser to any resolicitation, the purchaser’s order will be rescinded and all funds received will be promptly returned with interest and without deduction.
The opportunity to purchase shares of common stock in the community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.
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Syndicated Offering
If feasible, our Board of Directors may decide to offer for sale shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated offering, subject to such terms, conditions and procedures as we may determine, in a manner that will achieve a wide distribution of our shares of common stock. In the syndicated community offering, any person may purchase up to $300,000 of common stock (which equals 30,000 shares), subject to the overall purchase limitations. See “ — Limitations on Purchases of Shares .” We retain the right to accept or reject in whole or in part any orders in the syndicated offering. Unless the OCC permits otherwise, accepted orders for Central Federal Bancshares common stock in the syndicated offering will first be filled up to a maximum of 2% of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all shares have been allocated. Unless the syndicated offering begins during the community offering, the syndicated offering will begin as soon as possible after the completion of the subscription and community offerings. The syndicated community offering must terminate no more than 45 days following the expiration of the subscription offering.
If a syndicated offering is held, Keefe, Bruyette & Woods will serve as sole manager, and will assist us in selling our common stock on a best efforts basis. In such capacity, Keefe, Bruyette & Woods may form a syndicate of other broker-dealers who are Financial Industry Regulatory Authority member firms. Neither Keefe, Bruyette & Woods nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated offering. Order forms will be used to purchase shares of common stock in the syndicated community offering. Investors in the syndicated community offering will follow the same general procedures applicable to purchasing shares in the community offering. Payments in the syndicated community offering, however, must be made in immediately available funds (bank check, money order, Central Federal deposit account withdrawal authorization or wire transfer) for deposit to the Central Federal Bancshares stock purchase escrow account. Personal checks will not be accepted in the syndicated community offering.
If for any reason we cannot affect a syndicated offering of shares of common stock not purchased in the subscription and community offerings, or in the event that there are a significant number of shares remaining unsold after such offerings, we will try to make other arrangements for the sale of unsubscribed shares, if possible. The OCC, the SEC and Financial Industry Regulatory Authority must approve any such arrangements.
Limitations on Purchases of Shares
In addition to the purchase limitations described above under “ — Subscription Offering and Subscription Rights ,” “ — Community Offering ,” the plan of conversion provides for the following purchase limitations:

Except for our employee stock ownership plan, no person may purchase in the aggregate more than $300,000 of common stock or 30,000 shares sold in the offering.

No person, either alone or together with associates of or persons acting in concert with such person, may purchase more than $300,000 of common stock or 30,000 shares sold in the offering.

Our tax-qualified employee benefit plans are entitled to purchase up to 10% of the shares sold in the conversion, including shares issued to our charitable foundation. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase 8% of the shares sold in the offering, including shares issued to our charitable foundation.

Each subscriber must subscribe for a minimum of 25 shares.

Our directors and executive officers, together with their associates, may purchase in the aggregate up to 34% of the common stock sold in the offering.
We may, in our sole discretion, increase the individual or aggregate purchase limitation to up to 5% of the shares of common stock sold in the offering. If we decide to increase the purchase limitations, persons who subscribed for the maximum number of shares of common stock will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority subscription rights.
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If we increase the maximum purchase limitation to 5% of the shares of common stock sold in the offering, we may further increase the maximum purchase limitation to 9.99%, provided that orders for common stock exceeding 5% of the shares of common stock sold in the offering may not exceed in the aggregate 10% of the total shares of common stock sold in the offering, including shares issued to our charitable foundation.
The plan of conversion defines “acting in concert” to mean knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not by an express agreement; or a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon, among other things, joint account relationships or the fact that persons share a common address (whether or not related by blood or marriage) or may have filed joint Schedules 13D or 13G with the SEC with respect to other companies. For purposes of the plan of conversion, our directors are not deemed to be acting in concert solely by reason of their board membership.
The plan of conversion defines “associate,” with respect to a particular person, to mean:

a corporation or organization other than Central Federal Bancshares or Central Federal or a majority-owned subsidiary of Central Federal Bancshares or Central Federal of which a person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities of such corporation or organization;

a trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as a trustee or a fiduciary; and

any person who is related by blood or marriage to such person and who lives in the same home as such person or who is a director or senior officer of Central Federal Bancshares or Central Federal or any of their subsidiaries.
For example, a corporation of which a person serves as an officer would be an associate of that person and, therefore, all shares purchased by the corporation would be included with the number of shares that the person could purchase individually under the aggregate purchase limitation described above. We have the right in our sole discretion to reject any order submitted by a person whose representations we believe to be false or who we otherwise believe, either alone or acting in concert with others, is violating or circumventing, or intends to violate or circumvent, the terms and conditions of the plan of conversion. Directors and officers are not treated as associates of each other solely by virtue of holding such positions. We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.”
Marketing Arrangements
We have engaged Keefe, Bruyette & Woods, a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, as a financial advisor in connection with the offering of our common stock. In its role as financial advisor, Keefe, Bruyette & Woods, will:

provide advice on the financial and securities market implications of the plan of conversion and related corporate documents, including our plan of conversion;

assist in structuring our offering, including developing and assisting in implementing a market strategy for the offering;

serve as sole bookrunning manager in connection with the offering;

review all offering documents, including this prospectus, stock order forms and related offering materials (we are responsible for the preparation and filing of such documents);

assist us in preparing for and scheduling meetings with potential investors and broker-dealers, as necessary;
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assist us in analyzing proposals from outside vendors retained in connection with the offering, including printers, transfer agents and appraisal firms;

assist us in the drafting and distribution of press releases as required or appropriate in connection with the offering;

meet with the board of directors and management to discuss any of these services; and

provide such other financial advisory and investment banking services in connection with the offering as may be agreed upon by Keefe, Bruyette & Woods and us.
For these services, Keefe, Bruyette & Woods received a management fee of  $35,000, which we have paid in full, and a success fee of 1% of the aggregate purchase price of our stock sold in the subscription offering and 2% of the aggregate purchase price of our stock sold in the community offering, excluding shares purchased by our officers, directors or employees (or members of their immediate families) and shares issued to our employee stock ownership plan and charitable foundation subject to a minimum success fee of  $225,000. The management fee will be credited against the success fee. In addition, if Keefe, Bruyette & Woods provides additional significant services as a result of a resolicitation in the subscription offering, Keefe, Bruyette & Woods will entitled to additional compensation for these services in an amount not to exceed $25,000. We also will reimburse Keefe, Bruyette & Woods for its reasonable out-of-pocket expenses, including the fees and expenses of its legal counsel, in a total amount not to exceed $130,000. In the event unusual circumstances arise or a delay or resolicitation occurs, the expense caps may be increased $35,000. In no event, however, will out-of-pocket expenses, including fees and expenses of counsel, exceed $165,000.
The plan of conversion provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by Keefe, Bruyette & Woods. In such capacity, Keefe, Bruyette & Woods may form a syndicate of other broker-dealers. Neither Keefe, Bruyette & Woods nor any registered broker-dealer will have any obligation to take or purchase any shares of common stock in the syndicated community offering; however, Keefe, Bruyette & Woods has agreed to use its best efforts in the sale of shares in any syndicated community offering. If there is a syndicated community offering, Keefe, Bruyette & Woods will receive a transaction fee equal to 6% of the aggregate purchase price of the shares of our stock sold in the syndicated community offering. If all shares of common stock were sold in a syndicated community offering (except for shares purchased by our directors, officers, employees and their family members and our employee stock ownership plan), the maximum selling agent commissions, including fees and expenses, would be approximately $954,738, $1,062,004, $1,169,270 and $1,292,625 at the minimum, midpoint, maximum, and maximum, as adjusted, levels of the offering, respectively. If all shares of common stock were sold in a syndicated community offering (and our directors, officers, employees and their family members and our employee stock ownership plan did not purchase their indicated shares), the maximum selling agent commissions would be approximately $1,018,000, $1,135,000, $1,252,000 and $1,386,550 at the minimum, midpoint, maximum, and maximum, as adjusted, levels of the offering, respectively. Of this amount, Keefe, Bruyette & Woods will pass on to selected broker-dealers, who assist in the syndicated community offering, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment.
We will indemnify Keefe, Bruyette & Woods against certain claims of liabilities and expenses (including legal fees) including certain liabilities under the Securities Act of 1933, as amended, and will contribute to payments to Keefe, Bruyette & Woods as may be required to be made in connection with any such claims and liabilities.
We have also engaged Keefe, Bruyette & Woods to act as our conversion agent in connection with the offering. In its role as conversion agent, Keefe, Bruyette & Woods will, among other things:

consolidate and develop a central file of account holders;

prepare proxy forms, proxy solicitation and special meeting services, including assisting with the labeling of notice and meeting materials, providing support for any follow-up mailings and tabulating votes;
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assist with the subscription offering, including assisting in establishing a stock information center and educating our personnel, supervising the stock information center, providing order form processing; assisting our transfer agent with the generation and mailing of stock ownership statements and advising on interest and refund calculations.
For these services, Keefe, Bruyette & Woods will received a fee of  $40,000 (the “Services Fee”), and we have made a payment of  $5,000 with respect to the fee. The remaining $35,000 will be payable upon completion of the offering. We also will reimburse Keefe, Bruyette & Woods for its reasonable out-of-pocket expenses associated with its acting as conversion agent up to a maximum of  $5,000. We will indemnify Keefe, Bruyette & Woods against liabilities and expenses (including legal fees) related to or arising out of Keefe, Bruyette & Woods’ engagement as our conversion agent and performance of services as our conversion agent.
Description of Sales Activities
Central Federal Bancshares will offer the common stock in the subscription offering and community offering by the distribution of this prospectus and through activities conducted at the stock information center. The stock information center is expected to operate during normal business hours throughout the subscription offering and any community offering. It is expected that at any particular time one or more Keefe, Bruyette & Woods employees will be working at the stock information center. Employees of Keefe, Bruyette & Woods will be responsible for responding to questions regarding the conversion and the offering and processing stock orders.
Offering materials have been initially distributed to certain persons by mail, with additional copies made available through our stock information center. Sales of common stock will be made by registered representatives affiliated with Keefe, Bruyette & Woods or by the selected broker-dealers managed by Keefe, Bruyette & Woods. Central Federal’s officers and employees may participate in the offering in clerical capacities, providing administrative support in effecting sales transactions or, when permitted by state securities laws, answering questions of a mechanical nature relating to the proper execution of the order form. Central Federal’s officers may answer questions regarding our business when permitted by state securities laws. Other questions of prospective purchasers, including questions as to the advisability or nature of the investment, will be directed to registered representatives. Central Federal’s officers and employees have been instructed not to solicit offers to purchase common stock or provide advice regarding the purchase of common stock.
No officer, director or employee of Central Federal will be compensated, directly or indirectly, for any activities in connection with the offer or sale of common stock in the offering.
None of Central Federal’s personnel participating in the offering is registered or licensed as a broker or dealer or an agent of a broker or dealer. Central Federal’s personnel will assist in the above-described sales activities under an exemption from registration as a broker or dealer provided by Rule 3a4-l promulgated under the Exchange Act. Rule 3a4-l generally provides that an “associated person of an issuer” of securities will not be deemed a broker solely by reason of participation in the sale of securities of the issuer if the associated person meets certain conditions. These conditions include, but are not limited to, that the associated person participating in the sale of an issuer’s securities not be compensated in connection with the offering at the time of participation, that the person not be associated with a broker or dealer and that the person observe certain limitations on his or her participation in the sale of securities. For purposes of this exemption, “associated person of an issuer” is defined to include any person who is a director, officer or employee of the issuer or a company that controls, is controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Community Offerings
Use of Order Forms.    To purchase shares in the subscription offering, a properly completed and executed order form must be received (not postmarked) by us at the address printed at the top of the stock order form or delivered in person to Central Federal’s main office, 210 West 10th Street, Rolla, Missouri 65401, by _____, Central time, on [ Expiration Date] . Your order form must be accompanied by full payment for all of the shares subscribed for or include appropriate authorization in the space provided on the order
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form for withdrawal from the types of deposit accounts with Central Federal identified on the stock order form. To purchase shares in the community offering, you must deliver a properly completed and executed order form to us, accompanied by the required payment for each share subscribed for, before the community offering terminates, which may be on, or at any time after, the end of the subscription offering. Our interpretation of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final.
To ensure that your stock purchase eligibility and priority are properly identified, you must list all accounts on the order form, giving all names in each account and the account number. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest. Failure to list all of your accounts may result in fewer shares being allocated to you than if all of your accounts were listed.
We need not accept order forms that are received after the expiration of the subscription offering or community offering, as the case may be, or that are executed defectively or that are received without full payment or without appropriate withdrawal instructions. In addition, we are not obligated to accept orders submitted on photocopied or facsimilied stock order forms. We have the right to waive or permit the correction of incomplete or improperly executed order forms, but do not represent that we will do so. Under the plan of conversion, our interpretation of the terms and conditions of the plan of conversion and of the order form will be final. Once received, an executed order form may not be modified, amended or rescinded without our consent unless the offering has not been completed within 45 days after the end of the subscription offering.
To ensure that each purchaser in the subscription and community offering receives a prospectus at least 48 hours before the end of the subscription and community offering, as required by Rule 15c2-8 under the Exchange Act, no prospectus will be mailed any later than five days before that date or hand delivered any later than two days before that date. Execution of the order form will confirm receipt or delivery under Rule 15c2-8. Order forms will be distributed only when preceded or accompanied by a prospectus.
Payment for Shares.    Payment for subscriptions may be made by check, bank draft or money order, or by authorization of withdrawal from deposit accounts maintained with Central Federal, 210 West 10th Street, Rolla, Missouri 65401. All checks, bank drafts and money orders must be made payable to the Central Federal Bancshares segregated account in compliance with SEC Rule 15c2-4. We will not, however, maintain more than one account. Funds received before the completion of the offering will be maintained in a segregated account at Central Federal. All subscriptions received will bear interest at Central Federal’s statement savings rate, which is subject to change at any time and is currently ___% per annum. Subscribers’ funds will be invested in investments that are permissible under SEC Rule 15c2-4. Appropriate means by which withdrawals may be authorized are provided on the order form. Cash, wire transfers or third party checks will not be accepted. Interest will be paid on payments made by check, bank draft or money order at our statement savings rate from the date payment is processed until the completion or termination of the offering. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the offering, but a hold will be placed on the funds, making them unavailable to the depositor until completion or termination of the offering. When the offering is completed, the designated withdrawal will be made. The shares of common stock issued in the offering cannot and will not be insured by the FDIC or any other government agency. If the offering is not consummated for any reason, all funds submitted will be promptly refunded with interest and without deduction as described above.
If a subscriber authorizes us to withdraw the amount of the purchase price from his or her deposit account, we will do so as of the completion of the offering, though the account must contain the full amount necessary for payment at the time the subscription order is received. We will waive any applicable penalties for early withdrawal from certificate of deposit accounts. If the remaining balance in a certificate of deposit account is reduced below the applicable minimum balance requirement at the time funds are actually transferred under the authorization, the certificate of deposit will be canceled at the time of the withdrawal, without penalty, and the remaining balance will earn interest at our statement savings rate.
The employee stock ownership plan will not be required to pay for the shares subscribed for at the time it subscribes, but will pay for shares of common stock subscribed for upon the completion of the offering;
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provided that there is in force from the time of its subscription until the completion of the offering a loan commitment from an unrelated financial institution or from us to lend to the employee stock ownership plan, at that time, the aggregate purchase price of the shares for which it subscribed.
We may, in our sole discretion, permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for such shares of common stock for which they subscribe in the community offering at any time before the 48 hours before the completion of the offering. This payment may be made by wire transfer.
Using Retirement Account Funds.    If you are interested in using your retirement account funds to purchase shares of common stock, you must do so through a self-directed retirement account such as a brokerage firm retirement account. By regulation, Central Federal’s retirement accounts are not self-directed, so they cannot be invested in shares of our common stock. Therefore, if you wish to use your funds that are currently in a Central Federal retirement account, you may not designate on the order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will have to be transferred to a brokerage account. It may take several weeks to transfer your Central Federal retirement account to an independent trustee, so please allow yourself sufficient time to take this action. There will be no early withdrawal or Internal Revenue Service interest penalties for these transfers. Depositors interested in using funds in a retirement account to purchase shares of common stock should contact our stock information center as soon as possible, preferably at least two weeks prior to the [Expiration Date] end of the offering period, because processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.
How We Determined the Offering Range and the $10.00 Per Share Purchase Price
Federal regulations require that the aggregate purchase price of the securities sold in connection with the offering be based upon our estimated pro forma value, as determined by an independent appraisal. We have retained Feldman Financial Advisors, Inc., which is experienced in the evaluation and appraisal of business entities, to prepare the independent appraisal. Feldman Financial will receive fees totaling $30,000 for its appraisal services, plus $5,000 for each appraisal valuation update other than the required final valuation update at closing, and a maximum of  $2,500 for reimbursement of out-of-pocket expenses. We have agreed to indemnify Feldman Financial and its employees and affiliates for certain costs and expenses, including reasonable legal fees arising out of, related to, or based upon the offering and due to any misstatement or untrue statement or intentional omission by Central Federal. We have not paid any fees to Feldman Financial during the past three fiscal years.
Feldman Financial estimated that as of August 31, 2015 our pro forma market value (including the cash and shares to be contributed to our charitable foundation) was between $11.5 million and $15.5 million, with a midpoint of  $13.5 million.
Feldman Financial prepared the appraisal taking into account the pro forma impact of the offering. For its analysis, Feldman Financial undertook substantial investigations to learn about our business and operations. We supplied financial information, including annual financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, Feldman Financial reviewed our conversion applications and our registration statement as filed with the SEC. Furthermore, they visited our facilities and had discussions with our management. Feldman Financial did not perform a detailed individual analysis of the separate components of our assets and liabilities. We did not impose any limitations on Feldman Financial in connection with its appraisal.
In connection with its appraisal, Feldman Financial reviewed the following factors, among others:

our present and projected operating results and financial condition;

the economic and demographic conditions of our primary market area;

pertinent historical financial and other information relating to Central Federal;

a comparative evaluation of our operating and financial statistics with those of other publicly traded thrift institutions;
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the proposed price per share;

the aggregate size of the offering of common stock;

the impact of the conversion on our capital position and earnings potential;

our intent to establish a charitable foundation in connection with the conversion and fund it with $100,000 in cash and shares of common stock equal to 4% of the gross offering proceeds received by Central Federal Bancshares in the offering; and

the trading market for securities of comparable institutions and general conditions in the market for such securities.
Consistent with OCC appraisal guidelines, Feldman Financial’s analysis utilized three selected valuation procedures, the price-to-book method as applied to pro forma book value and tangible book value, the price-to-core earnings method, and the price-to-assets method, all of which are described in its report. Feldman Financial appraisal report is filed as an exhibit to the registration statement that we have filed with the SEC. See “ Where You Can Find More Information .” Feldman Financial placed the greatest emphasis on the price-to-book method in estimating pro forma market value, as Central Federal recorded a low level of core earnings for the most recent twelve-month period that resulted in non-meaningful price to core earnings ratios. Feldman Financial compared the pro forma price-to-book and price-to-tangible book ratios for Central Federal Bancshares to the same ratios for a peer group of comparable publicly traded companies. In choosing the peer group, Feldman Financial selected companies with operating characteristics comparable to those of Central Federal based on geography, asset size, capitalization, and asset quality. The peer group included publicly traded companies listed on a major exchange (and not organized in a mutual holding company structure or subject to an announced or rumored transaction) with:

headquarters location in the Midwest;

total assets of less than $600 million;

tangible equity to assets greater than 8.5%; and

non-performing assets to total assets less than 3.0%.
The following table lists the companies comprising the peer group selected by Feldman Financial.
Company
Ticker
Symbol
Headquarters
Total
Assets
($mil.)
Central Federal Corporation CFBK Worthington, OH $ 339
First Federal of Northern Michigan Bancorp, Inc. FFNM Alpena, MI 326
HMN Financial, Inc. HMNF Rochester, MN 564
IF Bancorp, Inc. IROQ Watseka, IL 564
Jacksonville Bancorp, Inc. JXSB Jacksonville, IL 306
LaPorte Bancorp, Inc. LPSB La Porte, IN 521
Madison County Financial, Inc. MCBK Madison, NE 318
Poage Bankshares, Inc. PBSK Ashland, KY 432
United Community Bancorp UCBA Lawrenceburg, IN 521
Wayne Savings Bancshares, Inc. WAYN Wooster, OH 421
Wolverine Bancorp, Inc. WBKC Midland, MI 358
The following are various averages for the peer group companies:

average assets of  $424.7 million;

average non-performing assets of 1.6% of total assets;

average loans of 67.0% of total assets;
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average equity of 13.9% of total assets; and

average net income of 0.77% of average assets.
The purpose of utilizing the peer group is to develop valuation measures based on prices at which common stocks of comparable companies are trading in a public market. The comparable public companies valuation method is based on analyzing the trading market valuation ratios of the peer group and making any necessary adjustments to reflect any other differences or factors specific to the company being valued. The selection criteria were designed to identify companies with sufficient comparability to Central Federal so as to enhance the reliability of the method used to determine the appraised value. Feldman Financial concluded that the overall peer group provided reasonable comparability to justify relying upon the comparable peer group method in arriving at the appraised value. Feldman Financial applied a valuation discount to reflect the fact that, among other reasons, the earnings of Central Federal were below the average level of the selected peer group. OCC regulations require that Feldman Financial use a peer group of comparable institutions, and Feldman Financial believes that its methodology provided a more objective assessment of the valuation ratios that should be utilized in determining the pro forma market value of Central Federal Bancshares.
As indicated in its appraisal, Feldman Financial compared the operating characteristics of Central Federal to those of the peer group to determine Central Federal’s relative strengths and weaknesses as compared to the peer group companies. Feldman Financial then derived benchmark pricing ratios for the price-to-book value, price-to-tangible book value, and price-to-assets ratios based on the comparative group averages and medians. Investors tend to make decisions to purchase thrift conversion stocks and more seasoned thrift issues based upon consideration of core earnings profitability and price-to-tangible book value comparisons. Generally, the price-to-earnings ratio is an important valuation ratio in the current thrift stock environment for companies reporting core profitability. However, the pro forma price-to-earnings ratios for Central Federal were very high or negative due to the low level of profitability reported on an historical basis. Therefore, Feldman Financial considered the price-to-earnings ratios as not meaningful for comparative valuation purposes.
Central Federal Bancshares expects that its common stock will be quoted on the OTC Pink marketplace following completion of the conversion. The peer group selected by Feldman Financial is comprised solely of companies traded on the NASDAQ Stock Market. Central Federal Bancshares’ smaller stock issue and OTC Pink marketplace listing do not offer the relative depth of liquidity afforded by the peer group’s larger market values and NASDAQ trading history. Thus, Feldman Financial also concluded that a valuation discount to the peer group is appropriate for the relative stock illiquidity.
Feldman Financial also considered that we intend to issue shares of Central Federal Bancshares common stock to the Central Federal Community Foundation, a charitable foundation that will be established in connection with the conversion. The intended contribution of shares of common stock to the charitable foundation has the effect of reducing the number of shares that may be offered in the offering. The charitable foundation will be funded with $100,000 in cash and shares of common stock equal to 4% of the shares sold by Central Federal Bancshares in the offering. We will not receive any conversion proceeds in connection with the issuance of these shares, and thus, our pro forma book value and earnings will be lower, resulting in a lower pro forma value for Central Federal Bancshares. See “ Comparison of Valuation and Pro Forma Information With and Without the Charitable Foundation ” and “ The Central Federal Community Foundation .” Feldman Financial’s independent valuation will be updated before we complete our offering.
On the basis of the analysis in its report, Feldman Financial has advised us that, in its opinion, as of August 31, 2015, our estimated pro forma market value, was within the valuation range of  $11.5 million and $15.5 million with a midpoint of  $13.5 million, assuming the establishment and funding of our new charitable foundation with a total contribution consisting of  $100,000 in cash and shares of our common stock equal to 4% of the shares sold in the offering. Based on this valuation and a $10.00 per share price, the number of shares of common stock being offered for sale by us will range from 1,105,500 shares to 1,495,000 shares. The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions.
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The following table presents a summary of selected pricing ratios for Central Federal Bancshares, Inc. and the peer group companies identified by Feldman Financial. Ratios are based on financial data for the twelve months ended June 30, 2015 for Central Federal and the peer group and stock price information as of August 31, 2015. Compared to the average pricing of the peer group, our pro forma pricing ratios at the maximum of the offering range indicated a discount of 31.4% on a price-to-book value basis and a discount of 33.6% on a price-to-tangible book value basis. The price-to-book value and price-to-tangible book value ratios also took into account Central Federal’s earnings history in relation to the peer group and its pro forma capitalization level. The valuation also considered the after-market pricing characteristics of recently converted savings institutions, both regionally and nationally. Central Federal Bancshares’ pro forma pricing ratios also reflected recent volatile market conditions, particularly for the stock of financial institution holding companies, and the effect of such conditions on the trading market for recent mutual-to-stock conversions. Our board of directors, in reviewing and approving the valuation, considered the range of price-to-book value ratios and price-to-tangible book value ratios at the different amounts of shares to be sold in the offering.
Price to
Book
Value Ratio
Price to
Tangible Book
Value Ratio
Central Federal Bancshares (pro forma)
Minimum
51.7 % 51.7 %
Midpoint
56.4 56.4
Maximum
60.5 60.5
Maximum, as adjusted
64.6 64.6
Peer group companies as of August 31, 2015:
Average
88.2 91.1
Median
91.8 92.4
Our board of directors reviewed Feldman Financial’s appraisal report, including the methodology and the assumptions used by Feldman Financial, and determined that the valuation range was reasonable and adequate. Assuming that the shares are sold at $10.00 per share in the conversion, the estimated number of shares would be between 1,105,000 at the minimum of the valuation range and 1,495,000 at the maximum of the valuation range, with a midpoint of 1,300,000. The purchase price of  $10.00 per share was determined by us, taking into account, among other factors, the requirement under OCC regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock and desired liquidity in the common stock after the offering.
Since the outcome of the offering relates in large measure to market conditions at the time of sale, it is not possible for us to determine the exact number of shares that we will issue at this time. The offering range may be amended, with the approval of the OCC, if necessitated by developments following the date of the appraisal in, among other things, market conditions, our financial condition or operating results, regulatory guidelines or national or local economic conditions.
If, upon completion of the subscription offering, at least the minimum number of shares are subscribed for, 1,105,000, after taking into account factors similar to those involved in its prior appraisal, will determine its estimate of our pro forma market value as of the close of the subscription offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, Feldman Financial determines that our pro forma market value has increased, we may sell up to 1,719,250 shares without any further notice to you.
No shares will be sold unless Feldman Financial confirms that, to the best of its knowledge and judgment, nothing of a material nature has occurred that would cause it to conclude that the actual total purchase price of the shares on an aggregate basis was materially incompatible with its appraisal. If, however, the facts do not justify that statement, we may either: terminate the stock offering and promptly return all funds without deduction; set a new offering range, notify all subscribers and give them the opportunity to place a new order for shares of Central Federal Bancshares common stock; or take such
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other actions as may be permitted by the OCC. If the offering is terminated, all subscriptions will be cancelled and subscription funds will be returned promptly with interest and without deduction, and holds on funds authorized for withdrawal from deposit accounts will be released or reduced. If Feldman Financial establishes a new valuation range, it must be approved by the OCC.
In formulating its appraisal, Feldman Financial relied upon the truthfulness, accuracy and completeness of all documents we furnished to it. Feldman Financial also considered financial and other information from regulatory agencies, other financial institutions, and other public sources, as appropriate. While Feldman Financial believes this information to be reliable, Feldman Financial does not guarantee the accuracy or completeness of the information and did not independently verify the financial statements and other data provided by us nor independently value our assets or liabilities. The appraisal is not intended to be, and must not be interpreted as, a recommendation of any kind as to the advisability of purchasing shares of common stock. Moreover, because the appraisal must be based on many factors that change periodically, there is no assurance that purchasers of shares in the offering will be able to sell shares after the offering at prices at or above the purchase price.
Copies of the appraisal report of Feldman Financial, including any amendments to the report, and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at our main office and the other locations specified under “ Where You Can Find More Information .”
Delivery of Shares of Common Stock Purchased in the Offering
All shares of Central Federal Bancshares common stock sold will be issued in book entry form and held electronically on the books of our transfer agent. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the offering will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order form as soon as practicable following consummation of the conversion. Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers may not be able to sell the shares of common stock which they ordered, even though the common stock will have begun trading. Your ability to sell the shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Restrictions on Repurchase of Stock
Under OCC regulations, we may not for a period of one year from the date of the completion of the offering repurchase any of our common stock from any person, except (1) in an offer made to all shareholders to repurchase the common stock on a pro rata basis, approved by the OCC; (2) the repurchase of eligible shares of a director; or (3) repurchases to fund restricted stock plans or tax-qualified employee stock benefit plans. Where extraordinary circumstances exist, the OCC may approve the open market repurchase of up to 5% of our common stock during the first year following the offering. To receive such approval, we must establish compelling and valid business purposes for the repurchase to the satisfaction of the OCC. Furthermore, repurchases of any common stock are prohibited if they would cause Central Federal’s regulatory capital to be reduced below the amount required under the regulatory capital requirements imposed by the OCC.
Restrictions on Transfer of Shares after the Conversion Applicable to Officers and Directors
Common stock purchased in the offering will be freely transferable, except for shares purchased by our directors and executive officers.
Shares of common stock purchased by our directors and executive officers may not be sold for a period of one year following the offering, except upon the death of the shareholder or unless approved by the OCC. Shares purchased by these persons in the open market after the offering will be free of this restriction. Shares of common stock issued to directors and executive officers will bear a legend giving appropriate notice of the restriction and, in addition, we will give appropriate instructions to our transfer agent with respect to the restriction on transfers. Any shares issued to directors and executive officers as a stock dividend, stock split or otherwise with respect to restricted common stock will be similarly restricted.
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Persons affiliated with us, including our directors and executive officers, received subscription rights based only on their deposits with Central Federal as account holders. Any purchases made by persons affiliated with us for the explicit purpose of meeting the minimum of the offering must be made for investment purposes only, and not with a view towards redistribution. Furthermore, as set forth above, OCC regulations restrict sales of common stock purchased in the offering by directors and executive officers for a period of one year following the offering.
Purchases of outstanding shares of our common stock by directors, officers, or any person who becomes an executive officer or director after adoption of the plan of conversion, and their associates, during the three-year period following the offering may be made only through a broker or dealer registered with the SEC, except with the prior written approval of the OCC. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to the purchase of stock under stock benefit plans.
We have filed with the SEC a registration statement under the Securities Act, for the registration of the common stock to be issued in the offering. This registration does not cover the resale of the shares. Shares of common stock purchased by persons who are not affiliates of us may be resold without registration. Shares purchased by an affiliate of us will have resale restrictions under Rule 144 of the Securities Act. If we meet the current public information requirements of Rule 144, each affiliate of ours who complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares or the average weekly volume of trading in the shares during the preceding four calendar weeks. We may make future provision to permit affiliates to have their shares registered for sale under the Securities Act, under certain circumstances.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations by us of the plan of conversion will be final; however, such interpretations have no binding effect on the OCC. The plan of conversion provides that, if deemed necessary or desirable, we may substantively amend the plan of conversion as a result of comments from regulatory authorities or otherwise.
Completion of the offering requires the sale of all shares of the common stock within 90 days following approval of the plan of conversion by the OCC, unless an extension is granted by the OCC. If this condition is not satisfied, the plan of conversion will be terminated and we will continue our business as a federal mutual savings association. We may terminate the plan of conversion at any time.
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The Central Federal Community Foundation
General
In furtherance of our commitment to the communities we serve, we have voluntarily established a foundation in connection with our conversion from the mutual to stock form of organization. The plan of conversion provides that the charitable foundation will be established as a non-stock corporation and will be funded with $100,000 in cash and the remainder in shares of common stock equal to 4% of shares sold by Central Federal Bancshares in the conversion, which will result in the charitable foundation holding 3.8% of the shares of our common stock outstanding after the conversion. The contribution of common stock to the charitable foundation will be dilutive to the interests of shareholders. Central Federal Bancshares has no plans to provide additional funding beyond this initial contribution over the next three years. Central Federal may make future contributions as deemed appropriate by Central Federal’s board of directors, subject to any capital needs and requirements or other regulatory limitations that may be applicable. The contribution of common stock to the charitable foundation will not be included in determining whether the minimum number of shares of common stock (1,105,000 shares) has been sold in order to complete the offering.
Purpose of the Charitable Foundation
The purpose of the charitable foundation is to provide financial support to charitable organizations in the communities in which we operate and to enable our communities to share in our long-term growth. The Central Federal Community Foundation will be dedicated completely to community activities and the promotion of charitable causes and may be able to support such activities in ways that are not presently available to us. The charitable foundation will also support our ongoing obligations to the community under the Community Reinvestment Act. Central Federal received a “satisfactory” rating in its most recent Community Reinvestment Act examination by the OCC.
Our board of directors further believes that the funding of the charitable foundation with common stock of Central Federal Bancshares is a means of enabling the communities served by us to share in the growth and success of Central Federal Bancshares long after completion of the conversion. The charitable foundation will accomplish that goal by providing for continued ties between the charitable foundation and Central Federal, thereby forming a partnership with our community. The establishment of the charitable foundation will also enable Central Federal Bancshares and Central Federal to develop a unified charitable donation strategy and will centralize the responsibility for administration and allocation of corporate charitable funds.
Structure of the Central Federal Community Foundation
The charitable foundation will be incorporated under Missouri law as a nonprofit corporation. Its initial board of directors will consist of persons who are directors or employees of Central Federal, as well as at least one independent director. Directors of the charitable foundation who are affiliated with Central Federal are not expected to be paid additional compensation for their service on the charitable foundation’s board. The articles of incorporation of the charitable foundation will provide that the corporation is organized exclusively for charitable purposes, including development in the local community, as set forth in Section 501(c)(3) of the Internal Revenue Code. The charitable foundation’s articles of incorporation or bylaws also provide that no part of its earnings will inure to the benefit of, or be distributable to, its directors, officers or members.
The authority for the affairs of the charitable foundation will be vested in its board of directors. The directors of the charitable foundation are responsible for establishing the charitable foundation’s policies with respect to grants or donations by the charitable foundation, consistent with the purpose for which the charitable foundation was established. Although no formal policy governing the charitable foundation grants exists at this time, the charitable foundation’s board of directors will adopt such a policy prior to receiving the contribution. As directors of a nonprofit corporation, directors of the charitable foundation are at all times bound by their fiduciary duty to advance the charitable foundation’s charitable goals, to protect the assets of the charitable foundation and to act in a manner consistent with the charitable purpose for which the charitable foundation was established. The directors of the charitable foundation are also
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responsible for directing the charitable foundation’s activities, including the management of the common stock of Central Federal Bancshares. The board of directors of the charitable foundation will appoint such officers as may be necessary to manage its operation. The charitable foundation may use employees of Central Federal as its volunteer support staff.
The charitable foundation will commit to the Federal Reserve that all shares of common stock held by the charitable foundation will be voted in the same ratio as all other shares of Central Federal Bancshares’s common stock on all proposals considered by shareholders of Central Federal Bancshares. As a private foundation under Section 501(c)(3) of the Internal Revenue Code, the charitable foundation is required to distribute annually in grants or donations, a minimum of 5% of the average fair market value of its net investment assets. We anticipate that additional capital for the charitable foundation will come from any dividends that may be paid on our shares of common stock in the future, loans collateralized by the shares of common stock (within the limits of applicable federal and state laws) or the proceeds of the sale of any of the shares of common stock in the open market from time to time.
Upon completion of the conversion and the contribution of shares to the charitable foundation, Central Federal Bancshares would have 1,149,200, 1,352,000, 1,554,800 and 1,788,020 shares issued and outstanding at the minimum, midpoint, maximum and maximum, as adjusted of the estimated valuation range. Because Central Federal Bancshares will have an increased number of shares outstanding, the voting and ownership interests of purchasers of common stock in the offering will be diluted by 3.8% at the close of the conversion, regardless of whether we issue shares at the minimum or at the maximum of the offering range, as adjusted, as compared to their interests in Central Federal Bancshares if the charitable foundation was not established. For additional discussion of the dilutive effect, see “ Pro Forma Data .” If the charitable foundation was not established and funded as part of the conversion, Feldman Financial estimates that the pro forma valuation of Central Federal Bancshares would be greater; and as a result, a greater number of shares of common stock would be issued in the offering. At the minimum, midpoint and maximum of the valuation range, the pro forma valuation of Central Federal Bancshares is $11.0 million, $13.0 million, and $15.0 million with the charitable foundation, as compared with $11.9 million, $14.0 million, and $16.1 million, respectively, without the charitable foundation. See “ Comparison of Valuation and Pro Forma Information With and Without the Charitable Foundation .”
Regulatory Conditions Imposed on the Central Federal Community Foundation
The OCC, and other federal bank regulatory agencies with authority over us, impose numerous requirements on the establishment and operation of a charitable foundation. As a result, the charitable foundation is subject to these requirements, including but not limited to the following:

examination by the appropriate federal banking agency, at the charitable foundation’s expense, and compliance with supervisory directives imposed by such agency;

the charitable foundation must provide the appropriate federal banking agency with a copy of the annual report it submits to the Internal Revenue Service;

as long as the charitable foundation controls shares of Central Federal Bancshares, those shares must be voted in the same ratio as all other shares are voted on each proposal considered by the shareholders, subject to certain exceptions;

the charitable foundation must operate according to written policies adopted by its board of directors, including a conflict of interest policy; and

the charitable foundation must not engage in self-dealing, and must comply with all laws necessary to maintain the charitable foundation’s tax-exempt status.
Tax Considerations
We believe that an organization created for the above purposes should qualify as a Section 501(c)(3) exempt organization under the Internal Revenue Code and should be classified as a private foundation. The Central Federal Community Foundation will submit a timely request to the Internal Revenue Service to be recognized as an exempt organization. As long as the charitable foundation files its application for tax-exempt status within 27 months of the last day of the month in which it was organized, and provided
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the Internal Revenue Service approves the application, its effective date as a Section 501(c)(3) organization will be the date of its organization. We have not received a tax opinion as to whether the charitable foundation’s tax exempt status will be affected by the regulatory requirement that all shares of our common stock held by the charitable foundation must be voted in the same ratio as all other outstanding shares of our common stock on all proposals considered by our stockholders.
Central Federal Bancshares and Central Federal are authorized by federal law to make charitable contributions. We believe that the offering of our stock in connection with the conversion presents a unique opportunity to establish and fund a charitable foundation given the substantial amount of additional capital being raised. In making such a determination, we considered the dilutive impact to our stockholders of the contribution of shares of common stock to the charitable foundation.
We believe that our contribution of shares of our common stock to the charitable foundation should not constitute an act of self-dealing and that we should be entitled to a federal tax deduction in the amount of the fair market value of the stock at the time of the contribution. We are permitted to deduct for charitable purposes only an amount equal to 10% of our annual taxable income in any one year. We are permitted under the Internal Revenue Code to carry the excess contribution over the five-year period following the contribution to the charitable foundation. We estimate that at all levels of the offering range, the contribution should be deductible for federal tax purposes over the six-year period (i.e., the year in which the contribution is made and the succeeding five-year period). However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the charitable foundation. In such event, our contribution to the charitable foundation would be expensed without a tax benefit, resulting in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination. Furthermore, even if the contribution is deductible, we may not have sufficient earnings to be able to use the deduction in full. Any such decision to continue to make additional contributions to the charitable foundation in the future would be based on an assessment of, among other factors, our financial condition at that time, the interests of our stockholders and depositors, and the financial condition and operations of the charitable foundation. We have not received a tax opinion regarding these issues.
As a private foundation, earnings and gains, if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income, such as interest, dividends and capital gains, is generally taxed at a rate of 2%. The charitable foundation will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close of its fiscal year, and it will be required to make its annual return available for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the charitable foundation’s managers and a concise statement of the purpose of each grant.
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Restrictions On The Acquisition Of Central Federal Bancshares And Central Federal
General
Central Federal’s plan of conversion provides for the conversion of Central Federal from the mutual to the stock form of organization and, as part of the conversion, the adoption of a new federal stock charter and bylaws by Central Federal’s members. The plan of conversion also provides for the concurrent formation of a holding company. As described below and elsewhere in this document, certain provisions in Central Federal Bancshares’ articles of incorporation and bylaws may have anti-takeover effects. In addition, provisions in Central Federal’s federal stock charter and bylaws may also have anti-takeover effects. Finally, Missouri corporate law and regulatory restrictions may make it difficult for persons or companies to acquire control of either Central Federal Bancshares or Central Federal.
Anti-Takeover Provisions in Central Federal Bancshares’ Articles of Incorporation and Bylaws
Central Federal Bancshares’ articles of incorporation and bylaws contain provisions that could make more difficult an acquisition of Central Federal Bancshares by means of a tender offer, proxy contest or otherwise. Some provisions will also render the removal of the incumbent board of directors or management of Central Federal Bancshares more difficult. These provisions may have the effect of deterring a future takeover attempt that is not approved by the directors of Central Federal Bancshares, but which Central Federal Bancshares shareholders may deem to be in their best interests or in which shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders who might desire to participate in such a transaction may not have the opportunity to do so. The following description of these provisions is only a summary and does not provide all of the information contained in Central Federal Bancshares’ articles of incorporation and bylaws. See “ Where You Can Find More Information ” for information on where to obtain a copy of these documents.
Amendment of Articles of Incorporation.    The General Business Corporation Law of Missouri, or GBCL, provides that a corporation may amend its articles of incorporation upon a resolution of the board of directors, proposing the amendment and its submission to the shareholders for their approval by the holders of a majority of the shares of common stock entitled to vote. Our articles of incorporation provide that the articles of incorporation may be amended in accordance with and upon the vote prescribed by the laws of the State of Missouri, except that:

any amendment, alteration, change or repeal of the provisions of Central Federal Bancshares’ articles of incorporation relating to the board of directors requires the affirmative vote of the least 80% of the shares entitled to vote unless such amendment, alteration, change or repeal has previously been expressly approved by at least two-thirds of the Central Federal Bancshares’ board of directors, and

in addition to any affirmative vote of the holders of any particular class or series required by law, the articles of incorporation or the terms of any preferred stock, any amendment, alteration, change or repeal of the provisions of Central Federal Bancshares’ article of incorporation relating to limitations on certain voting rights and to certain business combinations (each discussed in more detail below) requires the affirmative vote of  (a) at least 80% of the voting power of all of the then-outstanding shares of voting stock, voting together as a single class and (b) at least a majority of the voting power of all of the then-outstanding shares of the voting stock not beneficially owned by any “interested shareholder” (or any affiliate or associate thereof).
Limitation on Voting Rights.    Our articles of incorporation provide that in no event will any record owner of any outstanding common stock that is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of common stock, be entitled, or permitted to any vote in respect of the shares held in excess of the 10% limit. This limitation will not apply if a majority of our whole board of directors (meaning a majority of the total number of directors if there were no vacancies on the board) has approved in advance such entitlement or permission. This limitation does not apply to any director or officer acting solely in their capacities as directors and officers or any employee benefit plans of Central Federal Bancshares or any subsidiary or a trustee of a plan.
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Classified Board.    Our articles of incorporation and bylaws provide that our board of directors is divided into three classes of directors serving staggered three-year terms. Each class, to the extent possible, will be equal in number. Each class holds office until the third annual shareholders’ meeting for election of directors following the most recent election of such class. The classified board makes it more difficult and time consuming for a shareholder group to fully use its voting power to gain control of the board of directors without the consent of the incumbent board of directors of Central Federal Bancshares.
Directors, and Not Shareholders, Fix the Size of the Board of Directors.    Our articles of incorporation and bylaws provide that the number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by a majority of our board of directors, but in no event will it consist of less than five nor more than fifteen directors. Our board of directors currently contains six members.
Directors are Removed for Cause Only.    Missouri law provides that, unless a corporation’s articles of incorporation provide otherwise, the holders of a majority of the corporation’s voting stock may remove any director from office. Our articles of incorporation provide that shareholders may remove a director only “for cause” and with the approval of the holders of two-thirds of our outstanding voting stock.
Board Vacancies to Be Filled by Remaining Directors and Not Shareholders.    Any vacancy created by any reason prior to the expiration of the term in which the vacancy occurs will be filled only by a majority of the remaining directors, even if less than a quorum. A director elected to fill a vacancy will be elected for the unexpired term of his predecessor. This provision makes it more difficult for shareholders to remove directors and replace them with their own nominees.
Qualification.    Our bylaws provide that to be eligible to serve on the board of directors a person must not: (1) be under indictment for, or ever have been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, (2) be a person against whom a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (3) have been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit, or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency. These provisions contained in our bylaws may prevent shareholders from nominating themselves or persons of their choosing for election to the board of directors.
Elimination of Cumulative Voting.    Our articles of incorporation provide that no shares will be entitled to cumulative voting. The elimination of cumulative voting makes it more difficult for a shareholder group to elect a director nominee.
No Special Meetings Called by Shareholders.    Our shareholders must act only through an annual or special meeting. Special meetings of shareholders may only be called by the Chairman, the President or by two-thirds of the total number of directors. The limitations on the calling of special meetings of shareholders may have the effect of delaying consideration of a shareholder proposal until the next annual meeting.
Shareholders May Only Act by Written Consent Upon Unanimous Written Consent.    Under our bylaws and Missouri law, shareholder action by written consent must be unanimous.
Advance Notice Provisions for Shareholder Nominations and Proposals.    Our bylaws establish an advance notice procedure for shareholders to nominate directors or bring other business before an annual meeting of shareholders. A person may not be nominated for election as a director unless that person is nominated by or at the direction of our board of directors or by a shareholder who has given appropriate notice to us before the meeting. Similarly, a shareholder may not bring business before an annual meeting unless the shareholder has given us appropriate notice of the shareholder’s intention to bring that business before the meeting. Our Corporate Secretary must receive notice of the nomination or proposal not less than 90 days before the date of the annual meeting; provided, however, that if less than 100 days’ notice of prior public disclosure of the date of the meeting is given or made to the shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made.
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A shareholder who desires to raise new business must provide us with certain information concerning the nature of the new business, the shareholder, the shareholder’s ownership of Central Federal Bancshares and the shareholder’s interest in the business matter. Similarly, a shareholder wishing to nominate any person for election as a director must provide us with certain information concerning the nominee and the proposing shareholder.
Advance notice of nominations or proposed business by shareholders gives our board of directors time to consider the qualifications of the proposed nominees, the merits of the proposals and, to the extent deemed necessary or desirable by our board of directors, to inform shareholders and make recommendations about those matters.
Authorized but Unissued Shares of Capital Stock.    Following the offering, we will have authorized but unissued shares of common and preferred stock. Our articles of incorporation authorize the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, dividend rights, conversion and redemption rates, and liquidation preferences. Such shares of common and preferred stock could be issued by the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.
Business Combinations with Interested Shareholders.    Our articles of incorporation contain a restriction on transactions defined as “business combinations” (as defined below). A business combination with an “interested shareholder” (as defined below) requires the approval of the holders of at least 80% of the voting power of all of the then-outstanding shares of our capital stock, voting together as a single class, and the holders of at least a majority of the voting power of all of the then-outstanding shares of our capital stock, voting together as a single class, that are not beneficially owned by such interested shareholder or any of its affiliates or associates. This approval requirement does not apply to a business combination that has been approved by a majority of our whole board prior to the time the interested shareholder, or any affiliate or associate of the interested shareholder, became an interested shareholder. The term “business combination” generally includes a merger or consolidation, sale or other disposition of a substantial amount of our assets, a plan of liquidation or dissolution of us, or other transactions involving the transfer, issuance, reclassification or recapitalization of our securities, in each case benefiting an individual or entity that, together with its affiliates and associates, is the beneficial owner of more than 10% of the outstanding shares entitled to vote in the election of directors. In certain circumstances, our board of directors may approve any of the foregoing in lieu of the super-majority shareholder approval provision. “Interested shareholder” generally includes a person who, together with its affiliates and associates, is the beneficial owners of 20% or more of our then outstanding voting stock.
Restrictions in Central Federal’s Federal Stock Charter and Bylaws
Although the board of directors of Central Federal is not aware of any effort that might be made to obtain control of Central Federal after its conversion to the stock form of ownership, the board of directors believes it is appropriate to adopt certain provisions permitted by federal regulations that may have the effect of deterring a future takeover attempt that is not approved by Central Federal’s board of directors. The following description of these provisions is only a summary and does not provide all of the information contained in Central Federal’s proposed federal stock charter and bylaws.
Beneficial Ownership Limitation.    Central Federal’s charter provides that, for a period of five years from the date of the conversion, no person, other than Central Federal Bancshares, may acquire directly or indirectly the beneficial ownership of more than 10% of any class of any equity security of Central Federal. If a person acquires shares in violation of this provision, all shares beneficially owned by such person in excess of 10% will be considered “excess shares” and will not be counted as shares entitled to vote or counted as voting shares in connection with any matters submitted to the shareholders for a vote.
Board of Directors
Classified Board.    Central Federal’s board of directors is divided into three classes as nearly as equal in number as possible. The shareholders elect one class of directors each year for a term of three years. The classified board makes it more difficult and time consuming for a shareholder group to fully use its voting power to gain control of the board of directors without the consent of the incumbent board of directors of Central Federal.
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Filling of Vacancies; Removal.    The bylaws provide that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, may be filled by a vote of a majority of the remaining directors although less than a quorum of the board of directors then in office. A person elected to fill a vacancy on the board of directors will serve until the next election of directors by the shareholders. Central Federal’s bylaws provide that a director may be removed from the board of directors before the expiration of his or her term only for cause and only upon the vote of the holders of at least a majority of the outstanding shares of voting stock. These provisions make it more difficult for shareholders to remove directors and replace them with their own nominees.
Elimination of Cumulative Voting.    The charter of Central Federal does not provide for cumulative voting with respect to the election of directors. The elimination of cumulative voting makes it more difficult for a shareholder group to elect a director nominee.
Authorized but Unissued Shares of Capital Stock.    Following the conversion, Central Federal will have authorized but unissued shares of common and preferred stock. Central Federal’s charter authorizes the board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates, and liquidation preferences. Such shares of common and preferred stock could be issued by the board of directors to render more difficult or to discourage an attempt to obtain control of Central Federal by means of a merger, tender offer, proxy contest or otherwise.
Regulatory Restrictions
Missouri Corporate Law and Business Combinations with Interested Stockholders.    Missouri law also contains certain provisions that may have an anti-takeover effect and otherwise discourage third parties from effecting transactions with us, including a business combination statute that is similar to the provision in our articles of incorporation and that restricts certain “business combinations” (as defined below) between us and an “interested shareholder” (as defined below) or affiliates of the interested shareholder, for a period of five years after the date of the transaction in which the person becomes an interested shareholder, unless either such transaction or the interested shareholder’s acquisition of stock is approved by our board of directors on or before the date the interested shareholder obtains such status.
The statute also provides that, after the expiration of such five-year period, business combinations are prohibited unless:

the holders of a majority of the outstanding voting stock, other than the stock owned by the interested shareholder, or any affiliate or associate of such interested shareholder, approve the business combination; or

the business combination satisfies certain detailed fairness and procedural requirements.
A “business combination” for this purpose includes a merger or consolidation, some sales, leases, exchanges, pledges and similar dispositions of corporate assets or stock and any reclassifications or recapitalizations that generally increase the proportionate voting power of the interested shareholder. An “interested shareholder” for this purpose generally means any person who, together with his or her affiliates and associates, owns or controls 20% or more of the outstanding shares of the corporation’s voting stock.
A Missouri corporation may opt out of coverage by the business combination statute by including a provision to that effect in its governing corporate documents. We have not done so. The business combination statute may make it more difficult for a 20% beneficial owner to effect other transactions with us and may encourage persons that seek to acquire us to negotiate with our board prior to acquiring a 20% interest. It is possible that such a provision could make it more difficult to accomplish a transaction which shareholders may otherwise deem to be in their best interest.
Conversion Regulations.    Regulations of the OCC prohibit any person from making an offer, announcing an intent to make an offer or participating in any other arrangement to purchase stock or acquiring stock or subscription rights in a converting institution or its holding company from another person prior to completion of its conversion. Further, without the prior written approval of the OCC, no person may make an offer or announcement of an offer to purchase shares or actually acquire shares of a converted institution or its holding company for a period of three years from the date of the completion of
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the conversion if, upon the completion of such offer, announcement or acquisition, the person would become the beneficial owner of more than 10% of the outstanding stock of the institution or its holding company. The OCC has defined “person” to include any individual, group acting in concert, corporation, partnership, association, joint stock company, trust, unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities of an insured institution. However, offers made exclusively to a savings association or its holding company, or an underwriter or member of a selling group acting on the converting institution’s or its holding company’s behalf for resale to the general public are excepted. The regulation also provides civil penalties for willful violation or assistance in any such violation of the regulation by any person connected with the management of the converting institution or its holding company or who controls more than 10% of the outstanding shares or voting rights of a converted institution or its holding company.
Savings and Loan Holding Company and Change in Bank Control Acts.    The acquisition of 10% or more of the common stock outstanding may trigger the provisions of the Savings and Loan Holding Company Act, the Change in Bank Control Act of 1978, the Federal Reserve Board’s regulations and OCC regulations. The Federal Reserve Board and the OCC also require persons who at any time intend to acquire control of a federally chartered savings association, including a converted savings association such as Central Federal, to provide 60 days prior written notice and certain financial and other information to the Federal Reserve Board and the OCC.
The 60-day notice period does not commence until the information is deemed to be substantially complete. Control for the purpose of the Bank Holding Company Act exists in situations in which the acquiring party has voting control of at least 25% of any class of Central Federal Bancshares’ voting stock or the power to direct the management or policies of Central Federal Bancshares. However, under Federal Reserve Board and OCC regulations, “control” is presumed to exist where the acquiring party has voting control of at least 10% of any class of Central Federal Bancshares’ voting securities if specified “control factors” are present. The statute and underlying regulations authorize the OCC to disapprove a proposed acquisition on certain specified grounds.
Description Of Central Federal Bancshares Capital Stock
The common stock of Central Federal Bancshares will represent nonwithdrawable capital, will not be an account of any type, and will not be insured by the FDIC or any other government agency.
General
Central Federal Bancshares is authorized to issue 10,000,000 shares of common stock having a par value of  $0.01 per share and 1,000,000 shares of preferred stock having a par value of  $0.01 per share. Each share of Central Federal Bancshares’ common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. Upon payment of the purchase price for the common stock, as required by the plan of conversion, all stock will be duly authorized, fully paid and nonassessable. Central Federal Bancshares will not issue any shares of preferred stock in the conversion.
Common Stock
Dividends.     Subject to any preferential rights of any outstanding series of preferred stock that the board of directors of Central Federal Bancshares may decide to create from time to time, the holders of Central Federal Bancshares common stock on the applicable record date will be entitled to such dividends as may be declared from time to time by the Central Federal Bancshares board of directors from funds available therefor. Missouri law generally permits a corporation to pay dividends on its common stock unless the net assets of the corporation are less than its stated capital or when the payment of dividends would reduce the net assets of the corporation below its stated capital or the dividend payment would be contrary to any restrictions contained in the corporation’s articles of incorporation. See “ Our Dividend Policy ” and “ Regulation and Supervision .”
Voting Rights.    Except as discussed under “ Restrictions on the Acquisition of Central Federal Bancshares, Inc. and Central Federal — Anti-Takeover Provisions in Central Federal Bancshares’ Articles of Incorporation and Bylaws — Limitation on Voting Rights ,” the holders of Central Federal Bancshares
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common stock are entitled to one vote for each share held of record on the applicable record date on all matters voted on by shareholders, including elections of directors, and, except as otherwise required by law or provided in any resolution adopted by the board of directors with respect to any shares of our preferred stock, the holders of such shares will exclusively possess all voting power. The articles of incorporation of Central Federal Bancshares do not provide for cumulative voting in the election of directors.
Liquidation.    If there is any liquidation, dissolution or winding up of Central Federal, Central Federal Bancshares, as the sole holder of Central Federal’s capital stock, would be entitled to receive all of Central Federal’s assets available for distribution after payment or provision for payment of all debts and liabilities of Central Federal, including all deposit accounts and accrued interest. Upon liquidation, dissolution or winding up of Central Federal Bancshares, the holders of its common stock would be entitled to receive all of the assets of Central Federal Bancshares available for distribution after payment or provision for payment of all its debts and liabilities. If Central Federal Bancshares issues preferred stock, the preferred stock holders may have a priority over the holders of the common stock upon liquidation or dissolution.
Preemptive Rights; Redemption.    Holders of the common stock of Central Federal Bancshares will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock cannot be redeemed.
Preferred Stock
Central Federal Bancshares will not issue any preferred stock in the conversion and it has no current plans to issue any preferred stock after the conversion.
The board of directors of Central Federal Bancshares has the authority to issue shares of preferred stock in one or more series and to fix, by resolution, the voting powers, which may be full or limited or no voting powers, designations, preferences and relative, participating, optional or other special rights and the qualifications and limitations or restrictions thereof of the shares constituting any series, without any further vote or action by the shareholders. Any shares of preferred stock so authorized and issued could have priority over the common stock with respect to dividend and/or liquidation rights. The board of directors of Central Federal Bancshares is expressly authorized to determine, for each class or series of preferred stock, the following information:

the number of shares constituting such series of preferred stock and the designation thereof;

the rate and times at which, and the conditions, if any, under which dividends will be payable on shares of that series, the status of those dividends as cumulative or non-cumulative and the priority of payments;

the voting rights pertaining to shares of the series;

whether or not the shares of the series are convertible into or exchangeable for other securities, including common stock, and the price and other terms and conditions of conversion or exchange;

the price or prices, times, terms and conditions upon which the shares of the series may be redeemed;

the terms of a sinking fund, if any, to be provided for such shares;

the rights which the holders of shares of the series have in the event of our voluntary or involuntary liquidation, dissolution, or winding up;

whether to include, from time to time, any additional shares of preferred stock in the series; and

any other relative powers, preferences and rights, and any qualifications, limitations or restrictions thereof.
Authorizing the board of directors to establish preferred stock eliminates delays associated with seeking shareholder approval of the creation of a particular class or series of preferred stock. The rights of the holders of common stock will be subject to the rights of holders of any preferred stock issued at any time, including in the future. The issuance of preferred stock, while providing desirable flexibility in
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connection with possible acquisitions and other corporate purposes, could have the effect of discouraging, delaying or preventing an acquisition of us at a price which many shareholders find attractive. These provisions could also make it more difficult for Central Federal Bancshares shareholders to effect certain corporate actions, including the election of directors.
Transfer Agent And Registrar
The transfer agent and registrar for our common stock will be ____________________.
Legal And Tax Opinions
The legality of our common stock has been passed upon for us by Lewis Rice LLC, which has also opined upon the federal and state tax consequences of the conversion. Lewis Rice LLC consented to the references to their opinions in this prospectus. Certain legal matters will be passed upon for Keefe, Bruyette & Woods by Breyer & Associates PC.
Experts
The financial statements of Central Federal as of December 31, 2014 and 2013, and for each of the years in the two-year period ended December 31, 2014 included in this prospectus and in the registration statement have been audited by Michael Trokey & Company, P.C., an independent registered public accounting firm, as stated in its report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion), and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
Feldman Financial Advisors, Inc. has consented to the summary in this prospectus of its report to us setting forth its opinion as to our estimated pro forma market value and to the use of its name and statements with respect to it appearing in this prospectus.
Where You Can Find More Information
We have filed with the SEC a registration statement under the Securities Act, that registers the common stock offered in the stock offering. This prospectus forms a part of the registration statement. The registration statement, including the exhibits, contains additional relevant information about us and our common stock. The rules and regulations of the SEC allow us to omit certain information included in the registration statement from this prospectus. You may read and copy the registration statement at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the SEC’s public reference rooms. The registration statement also is available to the public from commercial document retrieval services and at the Internet website maintained by the SEC at http://www.sec.gov.
Central Federal has filed an application for approval of the plan of conversion with the OCC. This prospectus omits certain information contained in the application. The application may be inspected, without charge, at the Central District Office of the OCC, One Financial Place, Suite 2700, 440 South LaSalle Street, Chicago, Illinois 60605.
A copy of the plan of conversion and Central Federal Bancshares’ articles of incorporation and bylaws are available without charge from Central Federal. The appraisal report of Feldman Financial Advisors, Inc. has been filed as an exhibit to our registration statement and to our regulatory applications. The appraisal report was filed electronically with the SEC and is available on its website as described above. The appraisal report also is available at the public reference room of the SEC and the offices of the OCC as described above.
In connection with the offering, Central Federal Bancshares will register its common stock under Section 12(g) of the Exchange Act and, upon such registration, Central Federal Bancshares and the holders of its common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on common stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Exchange Act. Under the plan of conversion, Central Federal Bancshares has undertaken that it will not terminate such registration for a period of at least three years following the offering.
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INDEX TO FINANCIAL STATEMENTS OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
Page
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F-3
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F-7
F-8
****
All schedules are omitted as the required information either is not applicable or is included in the financial statements or related notes. Separate financial statements for Central Federal Bancshares have not been included in this prospectus because Central Federal Bancshares, which has engaged only in the organizational activities to date, has no significant assets, contingent or other liabilities, revenues or expenses.
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MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MISSOURI 63131
Report of Independent Registered Public Accounting Firm
The Board of Directors
Central Federal Savings and Loan Association of Rolla
Rolla, Missouri
We have audited the accompanying statements of financial condition of Central Federal Savings and Loan Association of Rolla (“Association”) as of December 31, 2014 and 2013 and the related statements of income, comprehensive income, changes in equity and cash flows for the years then ended. These financial statements are the responsibility of the Association’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Association is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Federal Savings and Loan Association of Rolla as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/S/ MICHAEL TROKEY & COMPANY. P.C.
St. Louis, Missouri
September 10, 2015
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
STATEMENTS OF FINANCIAL CONDITION
June 30,
2015
December 31,
2014
December 31,
2013
(Unaudited)
ASSETS
Cash and Due from Financial Institutions
$ 8,536,000 $ 7,802,000 $ 7,158,000
Federal Funds Sold
100,000 100,000 100,000
Cash and Cash Equivalents
8,636,000 7,902,000 7,258,000
Certificates of Deposit in Other Financial Institutions
2,480,000 2,480,000 2,480,000
Securities Available-for-Sale at Fair Value (Amortized cost is $15,000 at June 30, 2015, December 31, 2014, and December 31, 2013)
33,000 31,000 44,000
Federal Home Loan Bank (FHLB) Stock, at Cost
77,000 78,000 78,000
Loans, Net of Allowance for Loan Losses of  $278,000 in 2015,
$279,000 in 2014 and $351,000 in 2013
49,624,000 52,184,000 53,559,000
Foreclosed Assets
508,000 243,000 243,000
Premises and Equipment, Net
709,000 739,000 735,000
Accrued Interest Receivable
126,000 122,000 140,000
Deferred Tax Asset, Net
93,000 144,000 118,000
Income Taxes Receivable
27,000 35,000
Other Assets
111,000 54,000 73,000
Total Assets
$ 62,424,000 $ 63,977,000 $ 64,763,000
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing
$ 2,186,000 $ 2,640,000 $ 2,116,000
Interest-Bearing
46,456,000 47,642,000 49,059,000
Total Deposits
48,642,000 50,282,000 51,175,000
Other Liabilities
118,000 113,000 117,000
Total Liabilities
48,760,000 50,395,000 51,292,000
EQUITY
Retained Earnings − Substantially Restricted
13,652,000 13,571,000 13,452,000
Accumulated Other Comprehensive Income
12,000 11,000 19,000
Total Equity
13,664,000 13,582,000 13,471,000
Total Liabilities and Equity
$ 62,424,000 $ 63,977,000 $ 64,763,000
See Accompanying Notes to Financial Statements.
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
STATEMENTS OF INCOME
Six Months Ended
June 30,
Year Ended
December 31,
2015
2014
2014
2013
(Unaudited)
INTEREST INCOME
Loans, Including Fees
$ 1,192,000 $ 1,205,000 $ 2,411,000 $ 2,669,000
Securities and Other
30,000 25,000 55,000 54,000
Total Interest Income
1,222,000 1,230,000 2,466,000 2,723,000
INTEREST EXPENSE
Deposits
236,000 250,000 494,000 548,000
Total Interest Expense
236,000 250,000 494,000 548,000
NET INTEREST INCOME
986,000 980,000 1,972,000 2,175,000
PROVISION FOR LOAN LOSSES
60,000 60,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
986,000 920,000 1,912,000 2,175,000
NONINTEREST INCOME
Customer Service Fees
22,000 24,000 49,000 48,000
Loss on Sale of Foreclosed Assets
(100,000 )
Other Income
10,000 13,000 23,000 29,000
Total Noninterest Income
32,000 37,000 72,000 (23,000 )
NONINTEREST EXPENSE
Compensation and Employee Benefits
525,000 525,000 1,054,000 1,006,000
Data Processing and Other Outside Services
122,000 124,000 256,000 247,000
FDIC Insurance and Regulatory Assessment
40,000 41,000 83,000 87,000
Occupancy and Equipment
108,000 108,000 215,000 220,000
Legal and Professional Services
26,000 29,000 54,000 55,000
Supplies, Telephone, and Postage
22,000 22,000 46,000 40,000
Foreclosed Assets
9,000 5,000 11,000 27,000
Other
41,000 41,000 86,000 104,000
Total Noninterest Expense
893,000 895,000 1,805,000 1,786,000
INCOME BEFORE INCOME TAXES
125,000 62,000 179,000 366,000
INCOME TAX EXPENSE
44,000 24,000 60,000 137,000
NET INCOME
$ 81,000 $ 38,000 $ 119,000 $ 229,000
See Accompanying Notes to Financial Statements.
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
STATEMENTS OF COMPREHENSIVE INCOME
Six Months Ended
June 30,
Year Ended
December 31,
2015
2014
2014
2013
(Unaudited)
NET INCOME
$ 81,000 $ 38,000 $ 119,000 $ 229,000
Other Comprehensive Income (Loss):
Unrealized Gains/(Losses) on Securities Available-for-Sale
2,000 15,000 (13,000 ) 40,000
Income Tax (Expense)/Benefit
(1,000 ) (5,000 ) 5,000 (15,000 )
Total Other Comprehensive Income (Loss), net of tax
1,000 10,000 (8,000 ) 25,000
TOTAL COMPREHENSIVE INCOME
$ 82,000 $ 48,000 $ 111,000 $ 254,000
See Accompanying Notes to Financial Statements.
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 (UNAUDITED)
AND THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
BALANCE, JANUARY 1, 2013
$ 13,223,000 $ (6,000 ) $ 13,217,000
Net Income
229,000 229,000
Other Comprehensive Income
25,000 25,000
BALANCE, DECEMBER 31, 2013
13,452,000 19,000 13,471,000
Net Income
119,000 119,000
Other Comprehensive Loss
(8,000 ) (8,000 )
BALANCE, DECEMBER 31, 2014
13,571,000 11,000 13,582,000
Net Income
81,000 81,000
Other Comprehensive Income
1,000 1,000
BALANCE, JUNE 30, 2015
$ 13,652,000 $ 12,000 $ 13,664,000
See Accompanying Notes to Financial Statements.
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
Year Ended
December 31,
2015
2014
2014
2013
(Unaudited)
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
$ 81,000 $ 38,000 $ 119,000 $ 229,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses
60,000 60,000
Depreciation
38,000 35,000 73,000 70,000
Deferred Income Tax
50,000 (26,000 ) (21,000 ) 28,000
Loss on Sale of Foreclosed Assets
100,000
Net Changes in:
Accrued Interest Receivable
(4,000 ) 6,000 18,000 4,000
Income Taxes Receivable
(27,000 ) 51,000 35,000 (60,000 )
Other Assets
(57,000 ) (1,000 ) 19,000 101,000
Other Liabilities
5,000 (13,000 ) (4,000 ) 10,000
Net Cash Provided by Operating Activities
86,000 150,000 299,000 482,000
CASH FLOWS FROM INVESTING ACTIVITIES
Net Change in Certificates of Deposit in Other Financial Institutions
(1,488,000 ) 388,000
Net Change in FHLB Stock
1,000 (1,000 )
Net Decrease in Loans
2,295,000 1,026,000 1,315,000 3,353,000
Purchases of Premises and Equipment
(8,000 ) (68,000 ) (77,000 ) (72,000 )
Proceeds from Sale of Foreclosed Assets
812,000
Net Cash Provided by (Used in) Investing
Activities
2,288,000 (530,000 ) 1,238,000 4,480,000
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits
(1,640,000 ) 605,000 (893,000 ) (650,000 )
Net Cash Provided by (Used in) Financing Activities
(1,640,000 ) 605,000 (893,000 ) (650,000 )
NET CHANGE IN CASH AND CASH EQUIVALENTS
734,000 225,000 644,000 4,312,000
Cash and Cash Equivalents at Beginning of Period
7,902,000 7,258,000 7,258,000 2,946,000
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
$ 8,636,000 $ 7,483,000 $ 7,902,000 $ 7,258,000
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest Paid on Deposits
$ 231,000 $ 245,000 $ 494,000 $ 548,000
Income Taxes Paid, Net of Refunds Received
$ 21,000 $ 37,000 $ 46,000 $ 170,000
Noncash Investing Activities:
Transfer of Loans to Foreclosed Assets
$ 265,000 $ $ $
See Accompanying Notes to Financial Statements.
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Central Federal Savings and Loan Association of Rolla (the “Association”) is a community-oriented financial institution, dedicated to serving the financial service needs of customers within its market area, which generally consists of Phelps County, Missouri, although it also services customers in the contiguous Missouri counties of Dent, Texas, Crawford, Pulaski and Maries. The Association offers a variety of loan and deposit products to meet the borrowing needs of its customers. The Association operates out of its office in Rolla, Missouri. The Association is subject to regulation, examination, and supervision by the Office of the Comptroller of the Currency, or OCC, its primary federal regulator, and the Federal Deposit Insurance Corporation, or FDIC, its deposit insurer.
Unaudited Interim Financial Statements
The interim financial statements prepared by management as of June 30, 2015 and for the six months ended June 30, 2015 and June 30, 2014 are not covered by the Report of Independent Registered Public Accounting Firm. In the opinion of management, the accompanying financial statements as of June 30, 2015 and for the six months ended June 30, 2015 and 2014 contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2015, and the results of operations and cash flows for the six months ended June 30, 2015 and 2014 and are not necessarily indicative of the results to be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, valuation of foreclosed assets, valuation of deferred tax assets, and fair values of financial instruments.
Concentrations of Credit Risk
Most of the Association’s activities are with customers located within Phelps County, Missouri and surrounding areas. Note 3 discusses the types of securities that the Association invests in. Note 4 discusses the types of lending that the Association engages in.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include cash and balances due from financial institutions and federal funds sold, all of which have an original maturity within 90 days. Cash flows from loans and deposits are reported net.
The Association maintains cash in correspondent bank accounts which exceed the federally insured limits. The Association’s management monitors the balances in these accounts and periodically assesses the financial condition of the correspondent banks. Interest bearing funds in cash and cash equivalents were $7,647,000, $6,494,000, and $6,168,000 as of June 30, 2015, December 31, 2014, and December 31, 2013, respectively.
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Certificates of Deposit in Other Financial Institutions
Certificates of deposit in other financial institutions are carried at cost and generally mature in five years or less.
Securities
Securities are classified as available-for-sale and are carried at fair value with unrealized gains and losses reported in other comprehensive income. Realized gains and losses on securities available-for-sale are included in other income or expense and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on sales of securities are determined using the specific identification method on the trade date. The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the period to maturity.
Declines in the fair value of individual available-for-sale securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value. The Association monitors the investment security portfolio for impairment on an individual security basis and has a process in place to identify securities that could potentially have a credit impairment that is other than temporary. This process involves analyzing the length of time and the extent to which the fair value has been less than the amortized cost basis, the market liquidity for the security, the financial condition and near-term prospects of the issuer, expected cash flows, and the Association’s intent and ability to hold the investment for a period of time sufficient to recover the temporary loss. The ability to hold is determined whether it is more likely than not that the Association will be required to sell the security before its anticipated recovery. A decline in value due to a credit event that is considered other than temporary is recorded as a loss in noninterest income.
FHLB Stock, at Cost
The Association is a member of the Federal Home Loan Bank of Des Moines (FHLB) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost and periodically evaluated for impairment. Because this stock is viewed as long term investment, impairment is based on ultimate recovery at par value. Both cash and stock dividends are reported as income. Management believes no impairment charge was necessary related to the FHLB stock during the six months ended June 30, 2015 or 2014, and for the years ended December 31, 2014 or 2013.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans, and premiums or discounts on purchased loans.
Interest income is accrued on the unpaid principal balance. The Association has determined the application of guidance in the nonrefundable fees and other costs standard regarding the deferral of loan origination fees and direct loan origination costs, does not have a material effect on its financial statements. As such, these fees and costs have been primarily recognized during the period they are collected and incurred, respectively. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Credit card loans
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CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
and other personal loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income and amortization of related deferred loan fees or costs is suspended. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. The cash-basis is used when a determination has been made that the principal and interest of the loan is collectible. If collectability of the principal and interest is in doubt, payments are applied to loan principal. The determination of ultimate collectability is supported by a current, well documented credit evaluation of the borrower’s financial condition and prospects for repayment, including consideration of the borrower’s sustained historical repayment performance and other relevant factors. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the borrower has demonstrated a period of sustained performance, and future payments are reasonably assured. A sustained period of repayment performance generally would be a minimum of six months.
Allowance for Loan Losses
The allowance for loan losses (allowance) is an estimate of loan losses inherent in the Association’s loan portfolio. The allowance is established through a provision for loan losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after loan losses and loan growth. Loan losses are charged off against the allowance when the Association determines the loan balance to be uncollectible. Cash received on previously charged off amounts is recorded as a recovery to the allowance.
The allowance consists of three primary components, general allowances, specific allowances related to impaired loans, and unallocated allowances. The general component covers non-impaired loans and is based on historical losses adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Association over the most recent three years. This actual loss experience is adjusted for qualitative factors based on the risks present for each portfolio segment. These qualitative factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. These factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment.
A loan is considered impaired when, based on current information and events, it is probable that the Association will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans for which impairment is measured generally include loans classified as substandard, doubtful, non-accrual, or are considered a troubled debt restructured loan. When a loan is impaired, the Association measures impairment based on the present value of expected future cash flows discounted at the original contractual interest rate, except that as a practical expedient, it may measure impairment based on an observable market price, or the fair value of the collateral if collateral dependent. A loan is collateral dependent if the repayment is expected to be provided solely by the underlying collateral.
Allowance allocations other than general and specific are included in the unallocated portion. The unallocated allowance reflect the imprecision inherent in the underlying assumptions used in the methodologies for estimating the general allowance.
F-10

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Under certain circumstances, the Association will provide borrowers relief through loan restructurings. A restructuring of debt constitutes a troubled debt restructuring (TDR) if the Association for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. Loans that are reported as TDRs are considered impaired and measured for impairment as described above in the calendar year of the restructuring. In subsequent years, a restructured loan may cease being classified as impaired if the loan was modified at a market rate and is performing according to the modified terms. TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal or interest due, or acceptance of other assets in full or partial satisfaction of the debt. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Nonaccrual restructured loans are included and treated with other nonaccrual loans.
The Association assigns a risk rating to all loans to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by the Association’s regulators. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the fair values of collateral securing the loans. These credit quality indicators are used to assign a risk rating to each individual loan. The risk ratings can be grouped into five major categories, defined as follows:
Unclassified :    An unclassified loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.
Special Mention :    Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of the Association’s credit position at some future date. Special Mention loans are not adversely classified and do not expose the Association to sufficient risk to warrant adverse classification.
Substandard :    Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as Substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well-defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that the Association will sustain some loss if the deficiencies are not corrected.
Doubtful :    Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss :    Loans classified as loss are considered uncollectible and charged off immediately.
The Association maintains a separate general valuation allowance for each portfolio segment. These portfolio segments include commercial business, commercial and multi-family real estate, residential real estate, and consumer and other with risk characteristics described as follows:
Commercial Business :    Commercial business loans generally possess a lower inherent risk of loss than real estate portfolio segments because these loans are generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.
F-11

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Commercial and Multi-Family Real Estate :    Commercial and multi-family real estate loans generally possess a higher inherent risk of loss than other real estate portfolio segments. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for the properties to produce sufficient cash flow to service debt obligations.
Residential Real Estate :    The degree of risk in residential mortgage lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of loss than other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.
Consumer and Other :    The consumer and other loan portfolio are usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most loans are made directly for consumer purchases. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.
Although management believes the allowance to be adequate, ultimate losses may vary from its estimates. At least quarterly, the board of directors reviews the adequacy of the allowance, including consideration of the relevant risks in the portfolio, current economic conditions, and other factors. If the board of directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Association’s primary regulator reviews the adequacy of the allowance. The regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Association has entered into commitments to extend credit, including commitments under credit arrangements, and standby letters of credit. Such financial instruments are recorded when they are funded.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated selling cost at the date of foreclosure, establishing a new cost basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets held for sale are carried at the lower of the new cost basis or fair value less cost to sell. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available. Due to potential changes in conditions, it is at least reasonably possible that changes in fair values will occur in the near term and that such changes could materially affect the amounts reported in the Association’s financial statements.
Impairment losses on assets to be held and used are measured at the amount by which the carrying amount of a property exceeds its fair value. Costs of significant asset improvements are capitalized, whereas costs relating to holding assets are expensed. Revenues and expenses from operations and changes in the valuation allowance are included in foreclosed assets expense.
F-12

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
Premises and Equipment
Land is carried at cost. Other premises and equipment are carried at costs net of accumulated depreciation. Depreciation is computed on the straight-line method based principally on the estimated useful lives of the assets. Useful lives range from 15 to 40 years for building and improvements; 2 to 15 years for furniture, fixtures and equipment; and 5 years for automobiles. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.
Impairment of Long-Lived Assets
The Association tests long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less estimated costs to sell.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax liabilities.
Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current and future economic and business conditions.
The Association adopted the provision of accounting for uncertainty in income taxes. These rules establish a higher standard for tax benefits to meet before they can be recognized in an Association’s financial statements. The Association can recognize in financial statements the impact of a tax position taken, or expected to be taken, if it is more likely than not that the position will be sustained on audit based on the technical merit of the position. The Association had no uncertain tax positions during the six months ended June 30, 2015 and 2014, or the years ended December 31, 2014 or 2013.
F-13

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
The Association files federal and state income tax returns and it is not subject to federal or state income tax examinations for taxable years prior to 2011.
Comprehensive Income
Recognized revenue, expenses, gains, and losses are included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available-for-sale, are reported as a separate component of the equity section of the statements of financial condition, such items, along with net income, are components of comprehensive income.
New Accounting Standards
In January 2014, the FASB issued ASU 2014-04, Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this ASU clarify when a repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Under the amendment, physical possession occurs, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The ASU is intended to reduce diversity in practice and is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of this ASU in the first quarter of 2015 did not have a material impact on the Association’s financial statements.
Subsequent Events
In preparing these financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were available to be issued.
note 2    Certificates of DEPOSIT IN OTHER FINANCIAL INSTITUTIONS
Certificates of deposit in other financial institutions are as follows:
June 30,
2015
December 31,
2014
2013
(Unaudited)
Certificates of Deposit at Cost Maturing In:
One Year or Less
$ 496,000 $ 496,000 $ 1,488,000
One Year to Five Years
1,984,000 1,488,000 992,000
Over Five Years
496,000
$ 2,480,000 $ 2,480,000 $ 2,480,000
F-14

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 3    sECURITIES
The carrying amount and estimated fair market value of investment securities classified as available-for-sale are summarized as follows:
June 30, 2015
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Unaudited)
Federal Home Loan Mortgage Corp. Stock
$ 15,000 $ 18,000 $  — $ 33,000
December 31, 2014
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Federal Home Loan Mortgage Corp. Stock
$ 15,000 $ 16,000 $  — $ 31,000
December 31, 2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Federal Home Loan Mortgage Corp. Stock
$ 15,000 $ 29,000 $  — $ 44,000
During the six month periods ended June 30, 2015 and 2014, or the years ended December 31, 2014 and 2013, the Association did not sell any securities.
note 4    LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows:
June 30,
2015
December 31,
2014
2013
(Unaudited)
Commercial Business
$ 1,905,000 $ 1,880,000 $ 1,329,000
Commercial and Multi-Family Real Estate
15,807,000 15,993,000 17,469,000
Residential Real Estate
31,795,000 34,179,000 34,639,000
Consumer and Other
415,000 432,000 498,000
49,922,000 52,484,000 53,935,000
Allowance for Loan Losses
(278,000 ) (279,000 ) (351,000 )
Net Deferred Loan Fees
(20,000 ) (21,000 ) (25,000 )
Loans, Net
$ 49,624,000 $ 52,184,000 $ 53,559,000
Residential real estate loans at June 30, 2015, December 31, 2014, and December 31, 2013 include loans secured by one- to four-family, non-owner occupied properties of  $10,161,000, $11,759,000, and $11,474,000, respectively.
At June 30, 2015, December 31, 2014, and December 31, 2013, construction loans were $1,347,000, $826,000, and $144,000, respectively. Loans in process at June 30, 2015, December 31, 2014, and December 31, 2013 were $1,555,000, $282,000, and $216,000, respectively.
F-15

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 4    LOANS AND ALLOWANCE FOR LOAN LOSSES  continued
The allowance for loan losses and recorded investment in loans are as follows:
June 30, 2015 (Unaudited)
Commercial
Business
Commercial
and Multi-Family
Real Estate
Residential
Real Estate
Consumer
and Other
Unallocated
Total
Allowance for Loan Losses:
Balance at Beginning of Period
$ 4,000 $ 46,000 $ 193,000 $ 4,000 $ 32,000 $ 279,000
Provision for Loan Losses
(15,000 ) (51,000 ) 2,000 64,000 $
Loans Charged-Off
(2,000 ) $ (2,000 )
Recoveries of Loans
Previously Charged-Off
1,000 $ 1,000
Balance at End of Period
$ 4,000 $ 31,000 $ 143,000 $ 4,000 $ 96,000 $ 278,000
Ending Balance: Individually
Evaluated for Impairment
$ $ $ 15,000 $ $ $ 15,000
Ending Balance: Collectively
Evaluated for Impairment
$ 4,000 $ 31,000 $ 128,000 $ 4,000 $ 96,000 $ 263,000
Loans:
Ending Balance: Individually
Evaluated for Impairment
$ $ 387,000 $ 466,000 $ $ 853,000
Ending Balance: Collectively
Evaluated for Impairment
$ 1,905,000 $ 15,420,000 $ 31,329,000 $ 415,000 $ 49,069,000
June 30, 2014 (Unaudited)
Commercial
Business
Commercial
and Multi-Family
Real Estate
Residential
Real Estate
Consumer
and Other
Unallocated
Total
Allowance for Loan Losses:
Balance at Beginning of Period
$ 3,000 $ 142,000 $ 149,000 $ 4,000 $ 53,000 $ 351,000
Provision for Loan Losses
1,000 94,000 15,000 2,000 (52,000 ) $ 60,000
Loans Charged-Off
(4,000 ) $ (4,000 )
Recoveries of Loans
Previously Charged-Off
1,000 $ 1,000
Balance at End of Period
$ 4,000 $ 236,000 $ 164,000 $ 3,000 $ 1,000 $ 408,000
Ending Balance: Individually
Evaluated for Impairment
$ $ $ 20,000 $ $ $ 20,000
Ending Balance: Collectively
Evaluated for Impairment
$ 4,000 $ 236,000 $ 144,000 $ 3,000 $ 1,000 $ 388,000
F-16

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 4    LOANS AND ALLOWANCE FOR LOAN LOSSES  continued
December 31, 2014
Commercial
Business
Commercial
and Multi-Family
Real Estate
Residential
Real Estate
Consumer
and Other
Unallocated
Total
Allowance for Loan Losses:
Balance at Beginning of Year
$ 3,000 $ 142,000 $ 149,000 $ 4,000 $ 53,000 $ 351,000
Provision for Loan Losses
1,000 (96,000 ) 173,000 3,000 (21,000 ) 60,000
Loans Charged-Off
(129,000 ) (4,000 ) (133,000 )
Recoveries of Loans
Previously Charged-Off
1,000 1,000
Balance at End of Year
$ 4,000 $ 46,000 $ 193,000 $ 4,000 $ 32,000 $ 279,000
Ending Balance: Individually
Evaluated for Impairment
$ $ $ $ $ $
Ending Balance: Collectively
Evaluated for Impairment
$ 4,000 $ 46,000 $ 193,000 $ 4,000 $ 32,000 $ 279,000
Loans:
Ending Balance: Individually
Evaluated for Impairment
$ $ 442,000 $ 590,000 $ 3,000 $ 1,035,000
Ending Balance: Collectively
Evaluated for Impairment
$ 1,880,000 $ 15,551,000 33,589,000 $ 429,000 $ 51,449,000
December 31, 2013
Commercial
Business
Commercial
and Multi-Family
Real Estate
Residential
Real Estate
Consumer
and Other
Unallocated
Total
Allowance for Loan Losses:
Balance at Beginning of Year
$ 2,000 $ 171,000 $ 153,000 $ 1,000 $ 28,000 $ 355,000
Provision for Loan Losses
1,000 (29,000 ) (2,000 ) 5,000 25,000
Loans Charged-Off
(2,000 ) (2,000 ) (4,000 )
Recoveries of Loans
Previously Charged-Off
Balance at End of Year
$ 3,000 $ 142,000 $ 149,000 $ 4,000 $ 53,000 $ 351,000
Ending Balance: Individually
Evaluated for Impairment
$ $ $ $ $ $
Ending Balance: Collectively
Evaluated for Impairment
$ 3,000 $ 142,000 $ 149,000 $ 4,000 $ 53,000 $ 351,000
Loans:
Ending Balance: Individually
Evaluated for Impairment
$ $ 459,000 $ 685,000 $ 3,000 $ 1,147,000
Ending Balance: Collectively
Evaluated for Impairment
$ 1,329,000 $ 17,010,000 $ 33,954,000 $ 495,000 $ 52,788,000
F-17

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 4    LOANS AND ALLOWANCE FOR LOAN LOSSES  continued
There were no impaired loans with an allowance recorded at December 31, 2014 or 2013.
The following tables show the loans allocated by management’s internal risk ratings:
Credit Risk Profile by Risk Rating
June 30, 2015 (Unaudited)
Commercial
Business
Commercial
and Multi-Family
Real Estate
Residential
Real Estate
Consumer
and Other
Total
Risk Rating:
Unclassified
$ 1,905,000 $ 15,807,000 $ 30,969,000 $ 415,000 $ 49,096,000
Special Mention
112,000 112,000
Substandard
714,000 714,000
Total
$ 1,905,000 $ 15,807,000 $ 31,795,000 $ 415,000 $ 49,922,000
Credit Risk Profile by Risk Rating
December 31, 2014
Commercial
Business
Commercial
and Multi-Family
Real Estate
Residential
Real Estate
Consumer
and Other
Total
Risk Rating:
Unclassified
$ 1,631,000 $ 15,993,000 $ 32,795,000 $ 429,000 $ 50,848,000
Special Mention
198,000 679,000 877,000
Substandard
51,000 705,000 3,000 759,000
Total
$ 1,880,000 $ 15,993,000 $ 34,179,000 $ 432,000 $ 52,484,000
Credit Risk Profile by Risk Rating
December 31, 2013
Commercial
Business
Commercial
and Multi-Family
Real Estate
Residential
Real Estate
Consumer
and Other
Total
Risk Rating:
Unclassified
$ 1,329,000 $ 16,587,000 $ 33,210,000 $ 495,000 $ 51,621,000
Special Mention
482,000 482,000
Substandard
882,000 947,000 3,000 1,832,000
Total
$ 1,329,000 $ 17,469,000 $ 34,639,000 $ 498,000 $ 53,935,000
The following tables show the aging analysis of the loan portfolio by time past due:
Accruing Interest
June, 30 2015 (Unaudited)
Current
30 – 89 Days
Past Due
90 Days or More
Past Due
Total
Nonaccrual
Total
Loans
Commercial Business
$ 1,905,000 $ $  — $ $ 1,905,000
Commercial and Multi-Family Real Estate
15,807,000 15,807,000
Residential Real Estate
31,231,000 98,000 466,000 31,795,000
Consumer and Other
403,000 12,000 415,000
$ 49,346,000 $ 110,000 $ $ 466,000 $ 49,922,000
F-18

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 4    LOANS AND ALLOWANCE FOR LOAN LOSSES  continued
Accruing Interest
December 31, 2014
Current
30 – 89 Days
Past Due
90 Days or More
Past Due
Total
Nonaccrual
Total
Loans
Commercial Business
$ 1,880,000 $ $ $ $ 1,880,000
Commercial and Multi-Family Real Estate
15,942,000 51,000 15,993,000
Residential Real Estate
33,132,000 145,000 312,000 590,000 34,179,000
Consumer and Other
417,000 12,000 3,000 432,000
$ 51,371,000 $ 157,000 $ 312,000 $ 644,000 $ 52,484,000
Accruing Interest
December 31, 2013
Current
30 – 89 Days
Past Due
90 Days or More
Past Due
Total
Nonaccrual
Total
Loans
Commercial Business
$ 1,329,000 $ $ $ $ 1,329,000
Commercial and Multi-Family Real Estate
17,412,000 57,000 17,469,000
Residential Real Estate
33,533,000 279,000 142,000 685,000 34,639,000
Consumer and Other
477,000 18,000 3,000 498,000
$ 52,751,000 $ 297,000 $ 142,000 $ 745,000 $ 53,935,000
Interest income that would have been recorded for the six months ended June 30, 2015 and the years ended December 31, 2014 and December 31, 2013 had nonaccrual loans been current according to their original terms amounted to $14,000, $39,000, and $39,000, respectively. Interest income recognized on nonaccrual loans during the six months ended June 30, 2015 and years ended December 31, 2014 and 2013 amounted to $3,000, $2,000, and $11,000, respectively.
The following tables present information related to impaired loans:
June 30, 2015 (Unaudited)
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Loans With No Related Allowance Recorded:
Commercial and Multi-Family Real Estate
$ 387,000 $ 387,000 $ $ 389,000 $ 12,000
Residential Real Estate
167,000 298,000 170,000 3,000
Total Loans With No Related Allowance
Recorded
$ 554,000 $ 685,000 $ $ 559,000 $ 15,000
Loans With an Allowance Recorded:
Residential Real Estate
$ 299,000 $ 309,000 $ 15,000 $ 306,000 $
Total Impaired Loans:
Commercial and Multi-Family Real Estate
$ 387,000 $ 387,000 $ $ 389,000 $ 12,000
Residential Real Estate
466,000 607,000 15,000 476,000 3,000
Total
$ 853,000 $ 994,000 $ 15,000 $ 865,000 $ 15,000
F-19

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 4    LOANS AND ALLOWANCE FOR LOAN LOSSES  continued
December 31, 2014
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Loans With No Related Allowance Recorded:
Commercial and Multi-Family Real Estate
$ 442,000 $ 471,000 $  — $ 456,000 $ 12,000
Residential Real Estate
590,000 837,000 598,000 2,000
Consumer and Other
3,000 3,000 3,000
Total Impaired Loans
$ 1,035,000 $ 1,311,000 $ $ 1,057,000 $ 14,000
December 31, 2013
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Loans With No Related Allowance Recorded:
Commercial and Multi-Family Real Estate
$ 459,000 $ 485,000 $  — $ 540,000 $ 1,000
Residential Real Estate
685,000 821,000 777,000 11,000
Consumer and Other
3,000 3,000 4,000
Total Impaired Loans:
$ 1,147,000 $ 1,309,000 $ $ 1,321,000 $ 12,000
For the six months ended June 30, 2014, the Association had an average recorded investment of impaired loans of  $1,501,000, which was comprised of  $896,000 of residential real estate loans and $605,000 of commercial and multi-family real estate loans. The Association recognized $6,000 of interest income on impaired loans, all of which was related to commercial and multi-family loans.
The Association does not have material commitments to lend additional funds to borrowers with loans whose terms have been modified in TDRs or whose loans are on nonaccrual.
There were no loans modified in TDRs for the six months ended June 30, 2015 and 2014, or year ended December 31, 2014. A summary of loans that were modified in TDRs and those restructurings for which there was a payment default during the year ended December 31, 2013 are as follows:
Year Ended December 31, 2013
Troubled Debt Restructurings
Troubled Debt Restructurings That
Subsequently Defaulted
Number of
Loans
Post-
Modification
Outstanding
Balance
Number of
Loans
Post-
Modification
Outstanding
Balance
Specific
Allowance
Commercial and Multi-Family
Real Estate
1 $ 402,000 $  — $  —
As of June 30, 2015, the Association had one residential real estate loan with a recorded investment of $117,000 in process of foreclosure.
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TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 5   FORECLOSED ASSETS
Activity in foreclosed assets is as follows:
Six Months Ended
June 30, 2015
Year Ended December 31,
2014
2013
(Unaudited)
Balance at Beginning of Year
$ 243,000 $ 243,000 $ 1,155,000
Additions
265,000
Sales
(812,000 )
Loss on Sale
(100,000 )
Balance at End of Period
$ 508,000 $ 243,000 $ 243,000
note 6   PREMISES AND EQUIPMENT
Components of premises and equipment are as follows:
June 30,
2015
December 31,
2014
2013
(Unaudited)
Land $ 229,000 $ 229,000 $ 229,000
Building and Improvements
1,115,000 1,115,000 1,058,000
Furniture, Fixtures and Equipment
483,000 475,000 500,000
Automobile 13,000 13,000 13,000
1,840,000 1,832,000 1,800,000
Less: Accumulated Depreciation
1,131,000 1,093,000 1,065,000
Premises and Equipment, Net
$ 709,000 $ 739,000 $ 735,000
note 7   DEPOSITS
Deposits consist of the following:
June 30,
2015
December 31,
2015
2014
2013
(Unaudited)
Noninterest-Bearing Demand Deposits
$ 2,186,000 $ 2,640,000 $ 2,116,000
NOW and Money Market Deposit Accounts
19,292,000 18,936,000 17,350,000
Savings
3,783,000 3,625,000 3,361,000
Certificates of Deposit
23,381,000 25,081,000 28,348,000
Total
$ 48,642,000 $ 50,282,000 $ 51,175,000
The aggregate amounts of time deposit accounts of  $250,000 or more, were approximately $4,652,000, $3,535,000, and $3,505,000 at June 30, 2015, December 31, 2014, and December 31, 2013, respectively.
F-21

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 7   DEPOSITS  continued
As of June 30, 2015 and December 31, 2014, the scheduled maturities of certificates of deposit are as follows:
June 30,
2015
December 31,
2014
(Unaudited)
Certificates of Deposit:
2015
$ $ 12,429,000
2016
12,614,000 5,809,000
2017
6,741,000 5,465,000
2018
2,514,000 758,000
2019
919,000 529,000
2020
502,000
Thereafter
91,000 91,000
Total
$ 23,381,000 $ 25,081,000
Deposit interest expense consisted of the following:
Six Months Ended June 30,
Year Ended December 31,
2015
2014
2014
2013
(Unaudited)
NOW and Money Market Deposit Accounts
$ 52,000 $ 44,000 $ 92,000 $ 78,000
Savings 6,000 5,000 11,000 11,000
Certificates of Deposit
178,000 201,000 391,000 459,000
Total
$ 236,000 $ 250,000 $ 494,000 $ 548,000
NOTE 8   federal home loan bank and federal Reserve Bank advances
The Association has entered into an Advances, Pledges, and Security Agreement with the FHLB whereby mortgage loans of the Association’s with advance equivalents of approximately $19,597,000, $20,499,000, and $21,504,000 at June 30, 2015, December 31, 2014, and December 31, 2013, respectively, were pledged to the FHLB as collateral in the event the Association requests any advances on the line. At June 30, 2015, December 31, 2014, and December 31, 2013, the Association did not have any advances.
The Association has entered into a Borrower in Custody Arrangement with the Federal Reserve Bank of St. Louis (FRB). The Association has pledged commercial and consumer loans of approximately $6,390,000, $6,512,000, and $6,405,000 at June 30, 2015, December 31, 2014, and December 31, 2013, respectively. At June 30, 2015, December 31, 2014, and December 31, 2013, the Association did not have any advances from the FRB.
F-22

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 9   Related party transactions
In the ordinary course of business, the Association has granted loans to officers, directors, and their affiliates (related parties). Activity associated with loans made to related parties are as follows:
June 30,
2015
December 31,
2014
2013
(Unaudited)
Balance at Beginning of Period
$ 821,000 $ 716,000 $ 676,000
Change in Related Parties
1,350,000
New Loans and Advances
213,000 171,000 70,000
Repayments (31,000 ) (66,000 ) (30,000 )
Balance at End of Period
$ 2,353,000 $ 821,000 $ 716,000
Deposits from related parties held by the Association were $1,851,000, $1,454,000, and $1,446,000, at June 30, 2015, December 31, 2014, and December 31, 2013, respectively.
note 10   INCOME TAXES
The components of income tax expense for the six months ended June 30, 2015 and 2014 and years ended December 31, 2014 and 2013 are as follows:
Six Months Ended June 30,
Year Ended December 31,
2015
2014
2014
2013
(Unaudited)
Current:
Federal
$ (5,000 ) $ 41,000 $ 71,000 $ 96,000
State
(1,000 ) 9,000 10,000 13,000
(6,000 ) 50,000 81,000 109,000
Deferred:
Federal
44,000 (23,000 ) (18,000 ) 23,000
State
6,000 (3,000 ) (3,000 ) 5,000
50,000 (26,000 ) (21,000 ) 28,000
$ 44,000 $ 24,000 $ 60,000 $ 137,000
F-23

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 10   INCOME TAXES  continued
The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows:
Six Months Ended June 30,
Year Ended December 31,
2015
2014
2014
2013
(Unaudited)
Expected Tax Provision at a 34% Rate
$ 43,000 $ 21,000 $ 61,000 $ 124,000
Graduated Tax Rate – Benefit
(10,000 ) (3,000 ) (8,000 )
State Tax (Net of Federal Tax Benefit)
7,000 4,000 6,000 18,000
Nondeductible Meals and Entertainment
1,000
Other 4,000 2,000 1,000 (6,000 )
Total
$ 44,000 $ 24,000 $ 60,000 $ 137,000
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2015 and December 31, 2014 and 2013 are as follows:
June 30,
2015
December 31,
2014
2013
(Unaudited)
Deferred Tax Assets:
Allowance for Loan Losses
$ 107,000 $ 148,000 $ 136,000
Deferred Loan Fees
8,000 9,000 9,000
Nonaccrual Loan Interest
4,000 17,000 12,000
Other
21,000 21,000 21,000
Deferred Tax Liabilities:
Accumulated Depreciation
(31,000 ) (36,000 ) (44,000 )
Unrealized Gains on Securities Available-for-Sale
(6,000 ) (5,000 ) (10,000 )
Other
(10,000 ) (10,000 ) (6,000 )
Net Deferred Tax Asset
$ 93,000 $ 144,000 $ 118,000
Retained earnings includes approximately $1,604,000 which represents tax bad debt reserves for which no provision for income taxes has been recorded in the accompanying financial statements. If these tax bad debt reserves are used for other than loan losses, the amount used will be subject to income taxes at the then prevailing corporate rate.
note 11   FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Association has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Association’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Association uses the same credit policies in making such commitments as it does for instruments that are included in the statements of financial condition.
F-24

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 11   FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK  continued
The following financial instruments whose contract amount represents credit risk were approximately as follows:
June 30,
2015
December 31,
2014
2013
(Unaudited)
Commitments to Extend Credit
$ 3,996,000 $ 2,589,000 $ 1,886,000
Standby Letters of Credit
15,000 15,000 15,000
$ 4,011,000 $ 2,604,000 $ 1,901,000
Range of Rates on Fixed Rate Commitments
2.0 – 18.0 % 2.4 – 18.0 % 2.4 – 18.0 %
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Association evaluates each customer’s creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Association upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income producing commercial properties.
Standby letters of credit are conditional commitments issued by the Association to guarantee the performance of a customer to a third party. Standby letters-of-credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Association’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.
The Association was not required to perform on any financial guarantees and did not incur any losses on its commitments.
note 12   Legal Contingencies
The Association may be subject to claims and lawsuits which may arise primarily in the ordinary course of business. It is the opinion of management, if such claims are made, that the disposition or ultimate resolution of the claims and lawsuits will not have a material adverse effect on the financial position of the Association.
NOTE 13   EMPLOYEE BENEFITS
The Association has a Savings Incentive Match Plan (SIMPLE IRA) plan for full-time employees. A participant may elect to make pre-tax contributions up to the maximum amount allowed by the Internal Revenue Service. The Association made matching contributions to participants as defined by the Plan of $7,000 for both the six month periods ended June 30, 2015 and 2014; and $15,000 and $14,000 for the years ended December 31, 2014 and 2013, respectively. There are no vesting requirements.
note 14   REGULATORY MATTERS
The Association is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material
F-25

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 14   REGULATORY MATTERS  continued
effect on the Association’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to savings and loan holding companies.
As of June 30, 2015, the most recent notification from the banking regulators categorized the Association as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Association must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Association’s category.
Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios set forth in the following table. Management believes, as of June 30, 2015 and December 31, 2014 and 2013, that the Association met all its capital adequacy requirements.
The Association’s capital amounts and ratios are presented in the following table.
Actual
Minimum Capital
Requirement
Minimum to be
Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
June 30, 2015 (Unaudited)
Total Capital to Risk Weighted Assets
$ 13,841,000 39.2 % $ 2,826,000 8.0 % $ 3,533,000 10.0 %
Tier 1 Capital to Risk Weighted Assets
13,563,000 38.4 % 2,120,000 6.0 % 2,826,000 8.0 %
Common Equity Tier 1 Capital to Risk Weighted Assets
13,563,000 38.4 % 1,590,000 4.5 % 2,296,000 6.5 %
Tier 1 Capital to Average Assets
13,563,000 21.4 % 2,541,000 4.0 % 3,176,000 5.0 %
December 31, 2014
Total Capital to Risk Weighted Assets
$ 13,863,000 34.7 % $ 3,199,000 8.0 % $ 3,998,000 10.0 %
Tier 1 Capital to Risk Weighted Assets
13,571,000 33.9 % 1,599,000 4.0 % 2,399,000 6.0 %
Tier 1 Capital to Average Assets
13,571,000 21.2 % 2,558,000 4.0 % 3,198,000 5.0 %
December 31, 2013
Total Capital To Risk Weighted Assets
$ 13,817,000 33.9 % $ 3,260,000 8.0 % $ 4,075,000 10.0 %
Tier 1 Capital to Risk Weighted Assets
13,452,000 33.0 % 1,630,000 4.0 % 2,445,000 6.0 %
Tier 1 Capital to Average Assets
13,452,000 20.8 % 2,591,000 4.0 % 3,238,000 5.0 %
The Basel III Capital Rules, which became effective January 1, 2015, revised the prompt corrective action requirements by: (i) introducing a Common Equity Tier 1 risk-based ratio requirement at each level (other than critically undercapitalized), with the required Common Equity Tier 1 risk-based ratio being 6.5% for “well-capitalized” status; (ii) increasing the minimum Tier 1 risk-based capital ratio requirement for each category (other than critically undercapitalized), with the minimum Tier 1 risk-based capital ratio for “well-capitalized” status being 8% (compared to the prior ratio of 6%); and (iii) eliminating the former provision that provided that a bank with a composite supervisory rating of 1 may have a 3% Leverage Ratio and still be adequately capitalized. The Basel III Capital Rules did not change the total risk based capital requirement for any prompt corrective action category.
F-26

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 15   FAIR VALUE MEASUREMENTS
The Association categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. Assets and liabilities valued at fair value are categorized based on the inputs to the valuation techniques as follows:
Level 1  — Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2  — Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.
Level 3  — Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
Subsequent to initial recognition, the Association may remeasure the carrying value of assets and liabilities measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their fair value.
Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Association adopted the policy to value certain financial instruments at fair value. The Association has not elected to measure any existing financial instruments at fair value; however, it may elect to measure newly acquired financial instruments at fair value in the future.
Recurring Basis
The Association uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:
Level 1
Level 2
Level 3
Total
June 30, 2015 (Unaudited)
Securities Available-for-Sale
Federal Home Loan Mortgage Corp. Stock
$ 33,000 $  — $  — $ 33,000
December 31, 2014
Securities Available-for-Sale
Federal Home Loan Mortgage Corp. Stock
$ 31,000 $ $ $ 31,000
December 31, 2013
Securities Available-for-Sale
Federal Home Loan Mortgage Corp. Stock
$ 44,000 $ $ $ 44,000
The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.
F-27

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 15   FAIR VALUE MEASUREMENTS  continued
Securities
When available, the Association uses quoted market prices to determine the fair value of securities; such items are classified in Level 1 of the fair value hierarchy. For the Association’s securities for which quoted prices are not available for identical securities in an active market, the Association determines fair value utilizing vendors who apply matrix pricing for similar bonds for which no price is observable or may compile prices from various sources.
Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as there is evidence of impairment or a change in the amount of previously recognized impairment.
Net impairment losses including charge-offs or allocated losses, related to nonrecurring fair value measurements of certain assets for the six months ended June 30, 2015 and years ended December 31, 2014 and 2013 consisted of the following:
Level 1
Level 2
Level 3
Impairment Losses
June 30, 2015 (Unaudited)
Impaired Loans
$  — $  — $ 284,000 $ 15,000
December 31, 2014
Impaired Loans
265,000 104,000
December 31, 2013
Impaired Loans
The significant inputs used in the fair value measurements for Level 3 assets measured at fair value on the nonrecurring basis are as follows as of June 30, 2015, December 31, 2014, and December 31, 2013:
Valuation Techniques
Unobservable Inputs
Range (Average)
Impaired Loans
Evaluation of Collateral Estimation of Value
NM *
*
Not Meaningful.    Evaluations of the underlying assets are completed for each impaired loan with a specific allowance. The types of collateral vary widely and could include accounts receivables, inventory, a variety of equipment, and real estate. Collateral evaluations are reviewed and discounted as appropriate based on knowledge of the specific type of collateral. In the case of real estate, an independent appraisal may be obtained. Types of discounts considered include aging of receivables, condition of the collateral and potential market for the collateral, and estimated disposal costs. These discounts will vary from loan to loan, thus providing a range would not be meaningful.
Impaired Loans
In accordance with the provisions of the loan impairment guidance, impairment was measured for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, or discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans for which an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 3 inputs based on customized discounting criteria.
F-28

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
note 15   FAIR VALUE MEASUREMENTS  continued
Impairment amounts on impaired loans represent specific valuation allowance and write-downs during the period presented on impaired loans that were individually evaluated for impairment based on the estimated fair value of the collateral less estimated selling costs, excluding impaired loans fully charged-off.
NOTE 16   fair value OF FINANCIAL INSTRUMENTS
Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the statements of financial condition. In cases in which quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Association.
The following disclosures represent financial instruments in which the ending balances at June 30, 2015, December 31, 2014, and December 31, 2013 are not carried at fair value in their entirety on the statements of financial condition.
Cash and Cash Equivalents and Accrued Interest
The carrying amounts reported in the statements of financial condition approximate those assets and liabilities fair values. Accrued interest is primarily accrued interest from loans.
Certificates of Deposit in Other Financial Institutions
Fair values of certificates of deposit in other financial institutions are estimated using discounted cash flow analyses based on current rates for similar types of deposits.
FHLB Stock, at Cost
The carrying amount of FHLB stock approximates its fair value based on the redemption provisions of the FHLB.
Loans
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values of other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
Deposits
The fair values of demand deposits are, by definition, equal to the amount payable on demand at the balance sheet date. The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.
Off-Balance-Sheet Credit-Related Instruments
Off-Balance-Sheet Credit Related Instrument commitments are generally of a short-term nature. The contract amount of such commitments approximates their fair value since the commitments are comprised primarily of unfunded loan commitments which are generally priced at market at the time of funding.
F-29

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 16   fair value OF FINANCIAL INSTRUMENTS  continued
Fair Value of Financial Instruments
The estimated fair values, and related carrying or notional amounts, of the Association’s financial instruments are as follows:
June 30, 2015
December 31, 2014
December 31, 2013
(Unaudited)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Input
Level
Financial Assets:
Cash and Cash Equivalents
$ 8,636,000 $ 8,636,000 $ 7,902,000 $ 7,902,000 $ 7,258,000 $ 7,258,000 1
Certificates of
Deposit in Other
Financial
Institutions
2,480,000 2,526,000 2,480,000 2,519,000 2,480,000 2,497,000 2
FHLB Stock
77,000 77,000 78,000 78,000 78,000 78,000 2
Loans, Net
49,624,000 49,257,000 52,184,000 52,031,000 53,559,000 53,497,000 3
Accrued Interest Receivable
126,000 126,000 122,000 122,000 140,000 140,000 2
Financial Liabilities:
Deposits
48,642,000 48,895,000 50,282,000 50,623,890 51,175,000 51,672,000 3
Accrued Interest Payable
6,000 6,000 1,000 1,000 1,000 1,000 2
NOTE 17   SUBSEQUENT EVENT — PLAN OF CONVERSION
On August 4, 2015, the Board of Directors of the Association adopted a Plan of Conversion, which was amended on September 8, 2015, under which the Association would convert from a federally chartered mutual savings association into a federally chartered stock savings association and will operate as a wholly-owned subsidiary of a newly chartered savings and loan holding company (the “Holding Company”). The Plan of Conversion is subject to the approval of various regulatory agencies. The Plan of Conversion must also be approved by the affirmative vote of at least a majority the total votes eligible to be cast by the members of the Association at a special meeting of such members. The Plan of Conversion also includes the filing of a registration statement with the U.S. Securities and Exchange Commission. If such approvals and non-objections are obtained, the Holding Company will issue and sell shares of its common stock in a subscription offering, giving priority to eligible depositors of the Association, and other eligible subscribers, and, if necessary, in a community offering to the public.
F-30

TABLE OF CONTENTS
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION of rolla
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (unaudited) and
THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 17   SUBSEQUENT EVENT — PLAN OF CONVERSION continued
Pursuant to the Plan, the Holding Company will determine the total offering value and number of shares of common stock based upon a valuation by an independent appraiser. The stock will be priced at $10.00 per share. The Holding Company’s Board of Directors will adopt an employee stock ownership plan which will subscribe for up to 8% of the common stock sold in the offering, and the Holding Company intends to establish a charitable foundation in connection with the conversion and fund it with $100,000 in cash and the remainder in shares of Holding Company common stock equal to 4% of the shares sold by the Holding Company in the offering.
The cost of conversion and issuing the capital stock will be deferred and deducted from the proceeds of the offering. In the event the conversion and offering are not completed, any deferred costs will be charged to operations. At June 30, 2015 (unaudited), there were deferred conversion costs of  $41,000. At December 31, 2014 and 2013, the Association had not incurred any conversion costs.
As part of the Plan of Conversion, the Holding Company intends to establish a charitable foundation (the “Foundation”). The Foundation will be funded with $100,000 in cash and a number of shares of Holding Company common stock equal to 4% of the shares sold in the offering.
In connection with the Plan of Conversion and stock offering, the Association intends to enter into an employment agreement with the President and Chief Executive Officer that contains change in control provisions and intends to enter into a change in control agreement with another executive officer of the Association.
At the completion of the conversion to stock form, the Association will establish a liquidation account in the amount of retained earnings contained in the final prospectus. The liquidation account will be maintained for the benefit of eligible depositors who maintain deposit accounts in the Association subsequent to conversion.
The conversion will be accounted for as a change in corporate form with the historic basis of the Association’s assets, liabilities and equity unchanged as a result.
F-31

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You should rely only on the information contained in this prospectus. Neither Central Federal Bancshares, Inc. nor Central Federal Savings and Loan Association of Rolla has authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered by this prospectus to any person or in any jurisdiction in which an offer or solicitation is not authorized or in which the person making an offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make an offer or solicitation in those jurisdictions. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.
Central Federal Bancshares, Inc.
[logo]
(Proposed Holding Company for
Central Federal Savings and Loan Association of Rolla)
1,495,000 Shares
(Anticipated Maximum, Subject to Increase
to up to 1,719,250 Shares)
COMMON STOCK
Prospectus
               , 2015
[MISSING IMAGE: LG_KEEFE-BRUYETTE.JPG]
Until             , 2016, all dealers effecting transactions in these registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth our anticipated costs and expenses of the offering:
Item
Amount
Securities and Exchange Commission registration fee (1)
$2,100​
FINRA filings fees (1)
$3,200​
Blue Sky Fee and Expenses
$20,000​
EDGAR, printing, postage, and mailing
$74,000​
Legal fees and expenses
$400,000​
Accounting fees and expenses
$225,000​
Appraiser’s fees and expenses
$40,000​
Marketing firm expenses (including legal fees)
$355,000​
Conversion agent fees and expenses
$40,000​
Business plan fees and expenses
$33,500​
Transfer agent and registration fees
$10,000​
Miscellaneous
$8,000​
Total
$1,210,800​
(1)
Based on the registration of  $17,880,200 of common stock.
Item 14. Indemnification of Directors and Officers.
The articles of incorporation of the registrant, a Missouri corporation, limit the liability of the registrant’s directors to the fullest extent permitted by Missouri law. Under Missouri law, a corporation may indemnify any person made or threatened to be made a party to any legal proceeding, including any suit by or in the name of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in any such capacity with respect to another enterprise, against expenses and other amounts reasonably incurred by him or her in connection with such legal proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. Notwithstanding the foregoing, no indemnification may be made in respect to any claim brought by or in the name of the corporation as to which such person is adjudged to be liable to the corporation unless and only to the extent that a proper court determines that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses that the court deems proper. A corporation is required to indemnify its directors, officers, employees or agents to the extent that such persons have been successful in defending an action, suit or proceeding or any claim, issue or matter therein. The indemnification permitted under Missouri law is not exclusive of any other rights to which these persons may be entitled.
Article IX of the Articles of Incorporation of Central Federal Bancshares, Inc. provides as follows:
ARTICLE IX- INDEMNIFICATION
9.1      The Corporation shall and does hereby indemnify any person who is or was a Director or executive officer of the Corporation or any subsidiary against any and all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and reasonably incurred by such person in connection with any threatened, pending or completed civil, criminal, administrative or investigative action, suit, proceeding or claim (including any action by or in the right of the Corporation or a subsidiary) by reason of the fact that such person is or was serving in such capacity; provided, however , that no such person shall be entitled to any indemnification pursuant to this Article IX on account of  (i) conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation.
9.2       The Corporation may, to the extent that the Board of Directors deems appropriate and as set forth in a Bylaw or authorizing resolution, indemnify any person who is or was a non-executive officer, or

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employee or agent of the Corporation or any subsidiary or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including an employee benefit plan) against any and all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and reasonably incurred by such person in connection with any threatened, pending or completed civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a subsidiary) by reason of the fact that such person is or was serving in such capacity; provided, however , that no such person shall be entitled to any indemnification pursuant to this Section 9.2 on account of  (i) conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation.
9.3      The Corporation may, to the extent that the Board of Directors deems appropriate, make advances of expenses, including attorneys’ fees, incurred prior to the final disposition of a civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a subsidiary) to any person to whom indemnification is or may be available under this Article IX; provided, however, that prior to making any advances, the Corporation shall receive a written undertaking by or on behalf of such person to repay such amounts advanced in the event that it shall be ultimately determined that such person is not entitled to such indemnification.
9.4      The indemnification and other rights provided by this Article IX shall not be deemed exclusive of any other rights to which a person to whom indemnification is or otherwise may be available (under these Articles of Incorporation or the Bylaws or any agreement or vote of shareholders or disinterested Directors or otherwise), may be entitled. The Corporation is authorized to purchase and maintain insurance on behalf of the Corporation or any person to whom indemnification is or may be available against any liability asserted against such person in, or arising out of, such person’s status as Director, officer, employee or agent of the Corporation, any of its subsidiaries or another corporation, partnership, joint venture, trust or other enterprise (including an employee benefit plan) which such person is serving at the request of the Corporation.
9.5      Each person to whom indemnification is granted under this Article IX is entitled to rely upon the indemnification and other rights granted hereby as a contract with the Corporation and such person and such person’s heirs, executors, administrators and estate shall be entitled to enforce against the Corporation all indemnification and other rights granted to such person by Sections 9.1 and 9.3. The indemnification and other rights granted by Sections 9.1 and 9.3 and this Section 9.5 shall survive amendment, modification or repeal of this Article IX, and no such amendment, modification or repeal shall act to reduce, terminate or otherwise adversely affect the rights to indemnification granted hereby, with respect to any expenses, judgments, fines and amounts paid in settlement incurred by a person to whom indemnification is granted under this Article IX with respect to an action, suit, proceeding or claim that arises out of acts or omissions of such person that occurred prior to the effective date of such amendment, modification or repeal.
Any indemnification granted by the Board of Directors pursuant this Article IX shall inure to the person to whom the indemnification is granted and such person’s heirs, executors, administrators and estate; provided, however, that such indemnification may be changed, modified or repealed, at any time or from time to time, at the discretion of the Board of Directors, and the survival of such indemnification shall be in accordance with terms determined by the Board of Directors.
9.6      For the purposes of this Article IX, “subsidiary” shall mean any corporation, partnership, joint venture, trust or other enterprise of which a majority of the voting power, equity or ownership interest is directly or indirectly owned by the Corporation.
Item 15. Recent Sales of Unregistered Securities
None.
Item 16. Exhibits and Financial Statement Schedules.
(a)— Exhibits
See Exhibit Index.

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(b)— Financial Statement Schedules
No financial statement schedules are filed because the required information is not applicable or is included in the financial statements or related notes.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1)      To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)      To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)      To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii)      To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2)      That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)      To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)      That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(5)      That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(6)      That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)      Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii)      Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

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(iii)      The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)      Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rolla, State of Missouri, on September 11, 2015.
Central Federal Bancshares, Inc.
By:
/s/ William A. Stoltz
   
William A. Stoltz
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints each of William A. Stoltz, Larry D. Thomas and Barbara E. Hamilton, or any of them, each acting alone, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his name, place and stead, in any and all capacities, to sign this Registration Statement on Form S-1 (including all pre-effective and post-effective amendments and registration statements filed pursuant to Rule 462 under the Securities Act of 1933), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that any such attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ William A. Stoltz
William A. Stoltz
President and Chief Executive Officer (principal executive officer, principal financial officer, & principal accounting officer)
September 11, 2015
/s/ Michael E. Estey
Michael E. Estey
Chairman of the Board of Directors and Director
September 11, 2015
/s/ Stephen L. Bowles
Stephen L. Bowles
Director
September 11, 2015
/s/ Jeffrey L. McKune
Jeffrey L. McKune
Director
September 11, 2015
/s/ James R. Sowers
James R. Sowers
Director
September 11, 2015
/s/ Robert S. Thompson
Robert R. Thompson
Director
September 11, 2015
/s/ John D. Wiggins
John D. Wiggins
Director
September 11, 2015

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EXHIBIT INDEX
Exhibit
No.
Description
Location
 1.1
Engagement Letters with Keefe, Bruyette & Woods, Inc. as financial advisor and conversion agent Filed herewith
 1.2
Agency Agreement with Keefe, Bruyette & Woods, Inc.
To be filed by amendment
 2.0
Plan of Conversion Filed herewith
 3.1
Articles of Incorporation of Central Federal Bancshares, Inc. Filed herewith
 3.2
Bylaws of Central Federal Bancshares, Inc. Filed herewith
 4.0
Specimen Common Stock Certificate of Central Federal Bancshares, Inc. Filed herewith
 5.0
Opinion of Lewis Rice LLC regarding legality of shares Filed herewith
 8.1
Federal Tax Opinion of Lewis Rice LLC Filed herewith
 8.2
State Tax Opinion of Lewis Rice LLC Filed herewith
10.1
Form of Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan and Trust Agreement and Loan Documents Filed herewith
10.2
Form of Central Federal Savings and Loan Association of Rolla and Central Federal Bancshares, Inc. Employment Agreement Filed herewith
10.3
Form of Central Federal Savings and Loan Association of Rolla Change in Control Agreement Filed herewith
23.1
Consent of Lewis Rice LLC
See Exhibits 5.0, 8.1, & 8.2
23.2
Consent of Lewis Rice LLC
See Exhibits 5.0, 8.1, & 8.2
23.3
Consent of Feldman Financial Advisors, Inc. Filed herewith
23.4
Consent of Michael Trokey & Company, P.C. Filed herewith
24.1
Power of Attorney (included on signature pages) Filed herewith
99.1
Appraisal Report Filed herewith
99.2
Letter of Agreement with RP Financial, LC. regarding business plan Filed herewith
99.3
Letter of Agreement with Feldman Financial Advisors, Inc. regarding independent appraisal Filed herewith

 

Exhibit 1.1

 

 

April 30, 2015

 

Central Federal Savings and Loan Association of Rolla

210 West 10 th Street

Rolla, MO 65401

 

Attention: Mr. William A. Stoltz

President & CEO

 

Gentlemen:

 

This letter confirms the engagement of Keefe, Bruyette & Woods, Inc. (“KBW”) to act as the exclusive financial advisor to Central Federal Savings and Loan Association of Rolla Bank’s proposed conversion from the mutual to stock form of organization pursuant to the Bank’s Plan of Conversion (the “Conversion”), including the offer and sale of certain shares of the common stock (the “Common Stock”) of a holding company (the “Holding Company”) to be formed by the Bank to eligible persons in a Subscription Offering, with any remaining shares offered to the general public in a Community Offering (as defined herein) (a Subscription Offering, a Community Offering and any Syndicated Community Offering (as defined herein) are collectively referred to herein as the “Offerings”). In addition, KBW will act as Conversion Agent in connection with the Offerings pursuant to the terms of a separate agreement between the Bank and KBW. The Bank and the Holding Company are collectively referred to herein as the “Company”. This letter sets forth the terms and conditions of our engagement.

 

1.          Advisory/Offering Services

 

As the Company's exclusive financial advisor , KBW will provide financial and logistical advice to the Company and will assist the Company’s management, legal counsel, accountants and other advisors in connection with the Reorganization and the Offerings, and related issues. We anticipate our services will include the following, each as may be necessary and as the Company may reasonably request:

 

1. Providing advice on the financial and securities market implications of the Reorganization and any related corporate documents, including the Plan of Conversion;
2. Assisting in structuring the Offerings, including developing and assisting in implementing a marketing strategy for the Offerings;
3. Serving as sole-bookrunning manager in connection with the Offerings;
4. Reviewing all offering documents related to the Offerings, including the prospectus (the “Prospectus”) and any related offering materials, stock order forms, letters, brochures and other related offering materials (it being understood that preparation and filing of such documents will be the responsibility of the Company and its counsel);

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 2 of 9

 

5. Assisting the Company in preparing for and scheduling meetings with potential investors and broker-dealers, as necessary;
6. Assisting the Company in analyzing proposals from outside vendors retained in connection with the Offerings, including printers, transfer agents and appraisal firms;
7. Assisting the Company in the drafting and distribution of press releases as required or appropriate in connection with the Offerings;
8. Meeting with the board of directors of the Company (the “Board of Directors”) and/or management of the Company to discuss any of the above services; and
9. Performing such other financial advisory and investment banking services in connection with the Reorganization and the Offerings as may be agreed upon by KBW and the Company.

 

2.          Due Diligence Review

 

The Company acknowledges and agrees that KBW’s obligation to perform the services contemplated by this Agreement shall be subject to the satisfactory completion of such investigations and inquiries relating to the Company, and its directors, officers, agents and employees, as KBW and their counsel in their sole discretion my deem appropriate under the circumstances (the “Due Diligence Review”).

 

The Company agrees it will make available to KBW all information, whether or not publicly available, which KBW reasonably requests (the “Information”), and will permit KBW to discuss with the Board of Directors and management the operations and prospects of the Company. KBW will treat all Confidential Information (as defined herein) as confidential in accordance with the provisions of Section 9 hereof. The Company recognizes and confirms that KBW (a) will use and rely on and assume the accuracy and completeness of the Information in performing the services contemplated by this Agreement without having independently verified or analyzed the accuracy or completeness of same, and (b) does not assume responsibility or liability for the accuracy or completeness of the Information or to conduct any independent verification or any appraisal or physical inspection of properties or assets. The Company acknowledges and agrees that KBW will rely upon Company management as to the reasonableness and achievability of any financial and operating forecasts and projections provided to KBW or which KBW is directed to use, and that KBW will assume, at the Company’s direction, that all financial forecasts and projections have been reasonably prepared by Company management on a basis reflecting the best then currently available estimates and judgments of management as to the expected future financial performance of the Company, and that such forecasts and projections will be realized in the amounts and in the time periods currently estimated.

 

3.          Regulatory Filings

 

The Company will cause the registration statement (the “Registration Statement”) and the Prospectus to be filed with the Securities and Exchange Commission (the “SEC”) and will cause all other offering documents in respect of the Reorganization and the Offerings to be filed, as necessary or appropriate, with applicable regulatory agencies including the SEC, the Financial Industry Regulatory Authority ("FINRA”), and the appropriate federal and/or state bank regulatory agencies. In addition, the Company and KBW agree that the Company’s counsel shall serve as counsel with respect to blue sky

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 3 of 9

 

matters in connection with the Offerings, and that the Company shall cause such counsel to prepare a Blue Sky Memorandum related to the Offerings including KBW’s participation therein and shall furnish KBW a copy thereof addressed to KBW or upon which counsel shall state KBW may rely.

 

4.          Fees

 

For the services hereunder, the Company shall pay the following non-refundable cash fees to KBW, in the amounts and at the times set forth below:

 

(a) Management Fee:   A non-refundable cash fee in an amount of $35,000 (the “Management Fee”) shall be payable by the Company to KBW, as follows: (i) $17,500 shall be paid immediately upon the execution of this Agreement and (ii) the remaining $17,500 shall be paid immediately upon the initial filing of the Registration Statement (whether or not such filing is publicly available). Each payment in respect of the Management Fee shall be deemed to have been earned in full when due. Should the Offerings or this Agreement be terminated for any reason, KBW shall be deemed to have earned in full, and be entitled to be paid in full, all fees then due and payable as of such date of termination.

 

(b) Success Fee:    :   A Success Fee shall be paid based on 1.0% of the aggregate purchase price of Common Stock sold in the Subscription Offering and 2.0% of the aggregate purchase price of Common Stock sold in the Community Offering, excluding shares purchased by the Company’s officers, directors, or employees (or members of their immediate family), including any IRAs for the benefit of such persons, any ESOP, tax-qualified or stock based compensation plans or similar plan created by the Company for some or all of its directors or employees, or any charitable foundation established by the Company (or any shares contributed to such a foundation), subject to the payment of a minimum success fee of $225,000. The Management Fee described in 4(a), to the extent then already paid, will be credited against the Success Fee. The obligation to pay to KBW the full Success Fee upon completion of the Subscription Offering and any Community Offering shall survive any termination of this agreement, including any termination occurring prior to the completion of such Offerings.

 

(c) Fees for Syndicated Community Offering :  If any shares of the Common Stock remain unsold after the completion of the Subscription Offering and any Community Offering, at the request of the Company, KBW will seek to form a syndicate of registered broker-dealers to assist in a Syndicated Community Offering, on a best efforts basis, subject to the terms and conditions set forth in a selected dealers agreement to be entered into by and between the Company and KBW. KBW will endeavor to distribute the Common Stock among broker-dealers in a fashion which best meets the distribution objectives of the Company and the Reorganization. In the event of a Syndicated Community Offering, KBW will be paid, in addition to (and not in lieu of) the Success Fee, a transaction fee not to exceed 6.0% of the aggregate purchase price of the shares of Common Stock sold in the Syndicated Community Offering. From this fee, KBW will pass onto selected broker-dealers (if any), who

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 4 of 9

 

assist in the Syndicated Community Offering, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment. Fees with respect to purchases affected with the assistance of a broker/dealer other than KBW shall be transmitted by KBW to such broker/dealer.

 

(d) In connection with the Subscription Offering, if, as a result of any resolicitation of subscribers undertaken by the Company, KBW reasonably determines that it is required or requested to provide significant services, KBW will be entitled to additional compensation for such services, which additional compensation will not exceed $25,000.

 

The terms of any Agency Agreement (as defined herein) to be entered into between the Company and KBW in connection with the Offerings shall contain fee provisions no less favorable to KBW than those set forth above. To the extent required under applicable FINRA rules and regulations, the payment of compensation by the Company to KBW pursuant to this Section 4 is subject to FINRA’s review thereof.

 

5.          Additional Services

 

KBW further agrees to provide general financial advisory assistance to the Company that is not in the context of any contemplated transaction, for a period of three years following completion of the Offerings, including general strategic planning, the creation of a capital management strategy designed to enhance the value of the Company, including the formation of a dividend policy and share repurchase program, assistance with shareholder relations matters, general advice on mergers and acquisitions, and other related financial matters, without the payment by the Company of any fees in addition to those set forth in Section 4 hereof. Nothing in this Agreement shall require the Company to obtain such services from KBW. If KBW acts as a financial advisor to the Company in connection with any specific transactions, the terms of such engagement will be set forth in a separate agreement between the Company and KBW.

 

6.          Expenses

 

The Company will bear all expenses of the proposed Offerings customarily borne by issuers, including, without limitation, regulatory filing fees, SEC, "Blue Sky," and FINRA filing and registration fees; the fees of the Company's accountants, attorneys, appraiser, business plan consultant, transfer agent and registrar, printing, mailing and marketing and syndicate expenses associated with the Offerings; the fees set forth in Section 4; and fees for "Blue Sky" legal work. If KBW incurs any expenses on behalf of Company in connection with the matters contemplated by this Agreement, the Company will reimburse KBW for such expenses.

 

KBW will also be reimbursed for its reasonable out-of-pocket expenses, not to exceed $30,000 (subject to the provisions of this paragraph), related to the Offerings, including, but not limited to, costs of travel, meals and lodging, clerical assistance, photocopying, telephone, facsimile, and couriers. KBW will also be reimbursed for fees and expenses of its counsel not to exceed $100,000 (subject to the

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

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provisions of this paragraph). These expense caps assume no unusual circumstances or delays, and no re-solicitation in connection with the Offerings. The Company acknowledges and agrees that, in the event unusual circumstances arise or a delay or resolicitation occurs (including but not limited to a delay in the Offerings which would require an update of the financial information in tabular form to reflect a period later than that set forth in the original filing of the offering documents), such expense caps may be increased by additional amounts, not to exceed an additional $10,000 in the case of additional out-of-pocket expenses of KBW and an additional $25,000 in the case of additional fees and expenses of KBW’s legal counsel. In no event shall out-of-pocket expenses, including fees and expenses of counsel, exceed $165,000. The provisions of this paragraph shall not apply to or in any way impair or limit the indemnification or contribution provisions contained herein.

 

7.          Limitations

 

The Company acknowledges that all opinions and advice (written or oral) given by KBW to the Company in connection with KBW’s engagement are intended solely for the benefit and use of the Company for the purposes of its evaluation of the proposed Offerings. Unless otherwise expressly stated in an opinion letter issued by KBW or otherwise expressly agreed, no one other than the Company is authorized to rely upon this engagement of KBW or any statements or conduct by KBW. The Company agrees that any such opinion or advice, as well as this Agreement (including any of the terms hereof) shall not be used, reproduced, disseminated, quoted or referred to at any time, in any manner, or for any purpose, nor shall any public references to KBW be made by the Company or any of its representatives, without the prior written consent of KBW.

 

It is expressly understood and agreed that KBW is not undertaking to provide any advice relating to legal, regulatory, accounting or tax matters. In furtherance thereof, the Company acknowledges and agrees that (a) it and its affiliates have relied and will continue to rely on the advice of its own legal, tax and accounting advisors for all matters relating to the Reorganization and the Offerings, and all other matters and (b) neither it, or any of its affiliates, has received, or has relied upon, the advice of KBW or any of its affiliates regarding matters of law, regulation, taxation or accounting.

 

The Company acknowledges and agrees that KBW has been retained to act solely as financial advisor to the Company and not as an advisor to or agent of any other person, and the Company’s engagement of KBW is not intended to confer rights upon any person not a party to this Agreement (including shareholders, employees or creditors of the Company) as against KBW or its affiliates, or their respective directors, officers, employees or agents. In such capacity, KBW shall act as an independent contractor, and any duties arising out of its engagement shall be owed solely to the Company. It is understood that KBW’s responsibility to the Company is solely contractual in nature and KBW does not owe the Company, or any other party, any fiduciary duty as a result of this Agreement.

 

The Company acknowledges that KBW is a securities firm engaged in securities trading and brokerage activities and providing investment banking and financial advisory services. In the ordinary course of business, KBW and its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in the Company's debt or equity securities, or the debt or equity securities of the Company's affiliates

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 6 of 9

 

or other entities that may be involved in the transactions contemplated by this Agreement. In addition, KBW and its affiliates may from time to time perform various investment banking and financial advisory services for other clients and customers who may have conflicting interests with respect to the Company. The Company acknowledges that KBW and its affiliates have no obligation to use in connection with this engagement or to furnish the Company confidential information obtained from other companies.

 

8.          Benefit

 

This Agreement shall inure to the benefit of the parties hereto and their respective successors, and the obligations and liabilities assumed hereunder by the parties hereto shall be binding upon their respective successors; provided, however, that this Agreement shall not be assignable without the mutual consent of KBW and the Bank.

 

9.          Confidentiality

 

KBW acknowledges that a portion of the Information provided to it in connection with its engagement hereunder may contain confidential and proprietary business information concerning the Company (such Information, the “Confidential Information”). KBW agrees that, except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, it will treat as confidential all Confidential Information; provided, however, that KBW may disclose such Confidential Information to its agents and advisors who are assisting or advising KBW in performing its services hereunder and who have been instructed to be bound by the terms and conditions of this paragraph. As used herein, the term “Confidential Information” shall not include information which (a) is or becomes available to the public other than as a result of a disclosure by KBW or its representatives in violation of this Agreement, (b) was available to KBW on a non-confidential basis prior to its disclosure to KBW or its representatives by the Company, or (c) becomes available to KBW on a non-confidential basis from a person other than the Company who is not known to KBW to be bound not to disclose such information pursuant to a contractual obligation of confidentiality to the Company.

 

The Company hereby acknowledges and agrees that all presentation materials and financial models used by KBW in performing its services hereunder have been developed by and are proprietary to KBW. The Company agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior written consent of KBW.

 

10. Advertisements

 

The Company agrees that, following the closing of the Offerings, KBW has the right to place advertisements in financial and other newspapers and journals at its own expense, describing its services to the Company and a general description of such offering. In addition, the Company agrees to include in any press release or public announcement announcing any such offering a reference to KBW’s role as financial advisor and sole book-running manager with respect to such offering, provided that the Company will submit a copy of any such press release or public announcement to KBW for its prior approval, which approval shall not be unreasonably withheld or delayed.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 7 of 9

 

11.          Indemnification

 

As KBW will be acting on behalf of the Company in connection with the Reorganization and the Offerings, the Company agrees to indemnify and hold harmless KBW and its affiliates, the respective partners, directors, officers, employees and agents of KBW and its affiliates and each other person, if any, controlling KBW or any of its affiliates and each of their successors and assigns (KBW and each such person being an “Indemnified Party”) to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise related to or arising out of the Reorganization or the Offerings or the engagement of KBW pursuant to, or the performance by KBW of the services contemplated by, this Agreement, and will reimburse any Indemnified Party for all expenses (including legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation, preparing for or defending any such action or claim whether or not in connection with pending or threatened litigation, or any action or proceeding arising therefrom, whether or not KBW is a party; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (a) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Company by KBW expressly for use therein or (b) to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from KBW’s gross negligence or bad faith of KBW.

 

If the indemnification provided for in the foregoing paragraph is judicially determined to be unavailable (other than in accordance with the terms hereof) to any person otherwise entitled to indemnity in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such person hereunder, the Company shall contribute to the amount paid or payable by such person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and KBW, on the other hand, of the engagement provided for in this Agreement or (ii) if the allocation provided for in clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of the Company and KBW, as well as any other relevant equitable considerations; provided, however , in no event shall KBW's aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by KBW under this Agreement. For the purposes of this Agreement, the relative benefits to the Company and to KBW of the engagement under this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company in the Reorganization and the Offerings that are the subject of the engagement hereunder, whether or not consummated, bears to (b) the fees paid or to be paid to KBW under this Agreement.

 

The Company also agrees that neither KBW, nor any of its affiliates nor any officer, director,

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 8 of 9

 

employee or agent of KBW or any of its affiliates, nor any person controlling KBW or any of its affiliates, shall have any liability to the Company for or in connection with such engagement except for any such liability for losses, claims, damages, liabilities or expenses incurred by the Company which are finally judicially determined to have resulted primarily from KBW’s bad faith or gross negligence. The foregoing agreement shall be in addition to any rights that KBW, the Company or any Indemnified Party may have at common law or otherwise, including, but not limited to, any right to contribution. For the sole purpose of enforcing and otherwise giving effect to the indemnification and contribution provisions of this agreement, the Company hereby consents to personal jurisdiction and service and venue in any court in which any claim which is subject to this agreement is brought against KBW or any other indemnified party.

 

The Company agrees that it will not, without the prior written consent of KBW, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not KBW is an actual or potential party to such claim, action, suit, or proceeding) unless such settlement, compromise or consent includes an unconditional release of KBW from all liability arising out of such claim, action, suit or proceeding.

 

12.          Definitive Agreement

 

This Agreement reflects KBW's present intention of proceeding to work with the Company on the proposed Offerings. No legal and binding obligation is created on the part of the Company or KBW with respect to the subject matter hereof, except as to (i) the agreement to maintain the confidentiality of Confidential Information set forth in Section 9, (ii) the payment of certain fees as set forth in Section 4, (iii) the payment of expenses as set forth in Section 6, (iv) the limitations set forth in Section 7, (v) the limitations of liability, the indemnification and contribution obligations and the other provisions set forth in Section 11 and (iv) those terms as may be set forth in a mutually agreed upon agency agreement between KBW and the Company to be executed prior to commencement of the Offerings (the “Agency Agreement”), all of which, notwithstanding anything to the contrary that may be contained herein, shall constitute the binding obligations of the parties hereto and which shall survive any termination of this Agreement or the completion of the services furnished hereunder and shall remain operative and in full force and effect.

 

The Company acknowledges and agrees that KBW’s provision of services in connection with the Reorganization and the Offerings, as contemplated herein, is expressly subject to (a) satisfactory completion of Due Diligence Review by KBW, (b) the preparation of a Registration Statement and Prospectus and other offering materials that are satisfactory to KBW in form and substance, (c) compliance with all applicable legal and regulatory requirements to the reasonable satisfaction of KBW and its counsel, (d) market conditions (including at the time of any of the proposed Offerings), (e) approval of KBW’s internal committee and (f) any other conditions that KBW may deem appropriate for the transactions contemplated hereby.

 

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement shall be

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   
 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 9 of 9

 

construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. Any right to trial by jury with respect to any claim or action arising out of this Agreement or conduct in connection with the engagement is hereby waived by the parties hereto.

 

If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning an original copy of this Agreement to the undersigned.

 

Very truly yours,

 

KEEFE, BRUYETTE & WOODS, INC.

 

By: /s/ Patricia A. McJoynt   Date: 4-30-15
  Patricia A. McJoynt      
  Managing Director      

 

Central Federal Savings and Loan Association of Rolla

 

By: /s/ William A. Stoltz   Date: 5/13/15
  William A. Stoltz      
  President & CEO      

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

   

 

 

 

April 30, 2015

 

Central Federal Savings and Loan Association of Rolla

210 West 10 th Street

Rolla, MO 65401

 

Attention: Mr. William A. Stoltz

President & CEO

 

Re: Services of Conversion Agent and Data Processing Records Management Agent

 

Dear Mr. Stoltz:

 

This letter agreement (this “Agreement”) confirms the engagement of Keefe, Bruyette & Woods, Inc. (“KBW”) by Central Federal Savings and Loan Association of Rolla, on behalf of both itself and the Company (as defined herein), to act as the conversion agent and the data processing records management agent (KBW in such capacities, the “Agent”) to the Company in connection with the Bank’s proposed reorganization from a mutual bank to the full stock form of organization , including the offer and sale of the common stock (the “Conversion”) pursuant to the Company’s Plan of Conversion (the “Plan of Conversion”). The sale will be to eligible persons in a subscription offering (the “Subscription Offering”), with any remaining unsold shares of Common Stock to then be offered to the general public in a community offering (the “Community Offering”) and if necessary, through a syndicate of broker-dealers organized by KBW (a “Syndicated Community Offering”) (the Subscription Offering, Community Offering, and any Syndicated Community Offering are collectively referred to herein as the “Offerings”).

 

This Agreement sets forth the terms and conditions of KBW’s engagement solely in its capacity as Agent. It is acknowledged that the terms of KBW’s engagement by the Company as exclusive financial advisor in the Conversion and as sole book running manager in the Offerings is set forth in a separate agreement entered into by and between KBW and the Bank (on behalf of both itself and the Company) on or about the date hereof (such separate agreement, the “Advisory Agreement”).

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 2 of 12

 

Description of Services.

 

As Agent, and as the Company may reasonably request, KBW will provide the services further described below (the “Services”):

 

1. Consolidation of Accounts and Development of a Central File, including, but not limited to the following:
· Consolidate accounts having the same ownership and separate the consolidated file information into necessary groupings to satisfy mailing requirements;
· Create the master file of account holders as of key record dates; and
· Provide software for the operation of the Company’s Stock Information Center, including subscription management and proxy solicitation efforts.

 

2. Preparation of Proxy Forms; Proxy Solicitation and Special Meeting Services, including, but not limited to the following:
· Assist the Company’s financial printer with labeling of proxy materials for voting and subscribing for shares of Common Stock;
· Provide support for any follow-up mailings to members, as needed, including proxy grams and additional solicitation materials;
· Proxy and ballot tabulation; and
· Act as Inspector of Election for the Company’s special meeting of members, if requested, assuming the election is not contested.

 

3. Subscription Services, including, but not limited to the following:
· Assist the Company in establishing and managing a Stock Information Center;
· Advise on the physical location of the Stock Information Center including logistical and materials requirements;
· Assist in educating Company personnel;
· Establish recordkeeping and reporting procedures;
· Supervise the Stock Information Center during the Offerings;
· Assist the Company’s financial printer with labeling of offering materials for subscribing for shares of Common Stock;
· Provide support for any follow-up mailings to members, as needed, including additional solicitation materials;
· Common Stock order form processing and production of daily reports and analysis;
· Provide supporting account information to the Company’s legal counsel for “blue sky” research and applicable registration;
· Assist the Company’s transfer agent with the generation and mailing of stock certificates;
· Perform interest and refund calculations and provide a file to enable the Company or its transfer agent to generate interest and refund checks; and

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 3 of 12

 

· Create 1099-INT forms for interest reporting, as well as magnetic media reporting to the IRS, for subscribers paid $10 or more in interest for subscriptions paid by check, if this service is not provided by the Company’s transfer agent.

 

4. Records Processing Services: KBW will provide records processing services (the “Records Processing Services”) contemplated hereby. The parties hereto expressly acknowledge and agree that KBW expects to subcontract certain Records Processing Services, including without limitation certain integral data processing functions, to any one or more of its affiliates or to any other party (including non-affiliate third parties).

 

Duties and Obligations.

 

KBW, as Agent, hereby agrees to perform the Services in a commercially reasonable manner and to comply with all timely, appropriate and lawful instructions received from duly authorized representatives of the Company. KBW makes no warranties regarding the rendering of the Services (including, without limitation, warranties of merchantability, security, accuracy, non-infringement, and fitness for a particular purpose), and no additional warranties may be implied from the terms of this Agreement. The Company will: (i) inform all of its authorized representatives, which may include attorneys, agents and advisors, that KBW shall act as the exclusive Agent and that they are authorized and directed to communicate with KBW and to promptly provide KBW with all information that is reasonably requested; (ii) cause KBW to have adequate notice of, and permit KBW to attend, meetings (whether in person or otherwise) where KBW’s attendance is, in the discretion of KBW, relevant, advisable or necessary; (iii) cause KBW to receive, as they become available, copies of the documents relating to the Plan of Conversion, the Conversion and the Offerings, to the extent KBW believes that such documents are necessary or appropriate for it to perform the Services and (iv) cause KBW to have adequate advance notice of any proposed changes to the Plan of Conversion, the proposed Services or the timetable of the Offerings. Failure by the Company to keep KBW timely and adequately informed or to provide KBW with complete and accurate necessary information on a timely basis shall excuse KBW’s delay in the performance of its Services and may be grounds for KBW to terminate the Services pursuant to this Agreement.

 

The actions to be taken by KBW hereunder are deemed by the parties to be ministerial only and not discretionary. KBW, in its capacity as Agent under this Agreement, shall not be called upon at any time to give any advice regarding implementing the Plan of Conversion. The Company shall have the sole responsibility to make any and all decisions with respect to implementing the Plan of Conversion, including but not limited to decisions regarding which customer bank accounts are to be included in accountholder records provided to KBW.

 

KBW expects to subcontract certain data processing functions integral to the Services with any one or more of its affiliates or with any other party. The fees and expenses of such subcontractor shall not be billed to the Company, unless otherwise agreed to by the parties hereto in writing. Such subcontractor shall agree to comply with the provisions of this Agreement set forth under the heading “Confidentiality and Consumer Privacy.”

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 4 of 12

 

Fees Payable to KBW.

 

For the Services described above, the Company agrees to pay KBW a non-refundable cash fee of $40,000 (the “Services Fee”) . Such fee is based upon the requirements of current banking regulations, the Company’s Plan of Conversion as currently contemplated, and the expectation that member data will be processed as of three key record dates. Any material changes in applicable regulations or the Plan of Conversion, or delays requiring duplicate or replacement processing due to changes to record dates, may result in additional fees payable to KBW. The Services Fee shall be payable as follows: (i) $5,000 shall be payable immediately upon execution of this Agreement, which shall be non-refundable and deemed to be earned in full when paid and (ii) all remaining amounts shall be payable immediately upon the completion of the Offerings.

 

Costs and Expenses; Reimbursement.

 

The Company will bear all of expenses in connection with the Offerings and the matters contemplated by this Agreement. The Company shall also reimburse KBW for its reasonable out-of-pocket expenses incurred in connection with the Services, regardless of whether the Offerings are consummated, provided that such out-of-pocket expenses shall not exceed $5,000 without the Company’s written consent, which shall not be unreasonably withheld, conditioned or delayed. Typical expenses include, but are not limited to, additional programming costs, postage, overnight delivery, telephone and travel. Not later than two days before the closing of the Offerings, KBW will provide the Company with documentation of all reimbursable expenses of KBW, to be paid at closing. The provisions of this paragraph shall not apply to or in any way impair the indemnification, contribution or liability limitation provisions set forth in this Agreement.

 

Reliance on Information Provided.

 

The Company agrees to provide KBW with such information as KBW may reasonably require to carry out the Services under this Agreement (all such information so provided, the “Information). The Company recognizes and confirms that KBW (a) will use and rely on and assume the accuracy and completeness of such Information in performing the Services contemplated by this Agreement without having independently verified or analyzed the accuracy or completeness of the same, and (b) does not assume responsibility or liability for the accuracy or completeness of the Information (including, without limitation, accountholder records provided or processed) or to conduct any independent verification or any appraisal or physical inspection of properties or assets.

 

KBW, as Agent, may further rely upon the instructions and representations (whether oral or in writing) of the Company’s duly authorized representatives, without inquiry or investigation. KBW shall not be responsible for any action taken in reliance upon any signature, endorsement, assignment, certificate, order, request, notice or instruction (whether written or oral), or other instrument or document reasonably believed by it to be valid, genuine and sufficient in carrying

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 5 of 12

 

out its duties hereunder. KBW shall not be liable or responsible, and shall be fully authorized and protected for, acting or failing to act in accordance with any oral instructions or requests.

 

KBW may consult with legal counsel chosen in good faith as to KBW’s obligations or performance under this Agreement, and KBW shall not incur any liability in acting in good faith in accordance with any advice from such counsel with respect to KBW’s obligations or performance under this Agreement.

 

Confidentiality and Consumer Privacy.

 

KBW acknowledges that a portion of the Information provided to it in connection with its engagement hereunder may contain confidential and proprietary business information concerning the Company (such Information, the “Confidential Information”). KBW agrees that, except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, it will treat as confidential all Confidential Information; provided, however, that KBW may disclose such Confidential Information to its agents and advisors who are assisting or advising KBW in performing its services hereunder and who have been instructed to be bound by the terms and conditions of this paragraph. As used herein, the term “Confidential Information” shall not include information which (a) is or becomes available to the public other than as a result of a disclosure by KBW or its representatives in violation of this Agreement, (b) was available to KBW on a non-confidential basis prior to its disclosure to KBW or its representatives by the Company, or (c) becomes available to KBW on a non-confidential basis from a person other than the Company who is not known to KBW to be bound not to disclose such information pursuant to a contractual obligation of confidentiality to the Company. It is understood by the parties hereto that the receiving party shall be deemed to have satisfied its obligation to hold the Confidential Information confidential if it exercises the same care as it takes to preserve the confidentiality of its own similar information.

 

KBW further acknowledges that a portion of the Information provided to it in connection with its engagement hereunder will include nonpublic personal data regarding Company customers and bank account records. KBW agrees that such information shall be deemed to be “Confidential Information” under this Agreement and shall not be used or disclosed except in accordance with the terms of this Agreement.

 

If at any time KBW is served with any judicial or administrative order, judgment, decree, motion, writ, or other form of judicial or administrative process which in any way affects any property of the Company, KBW is authorized to comply therewith in any reasonable manner as it or its legal counsel of its own choosing deems appropriate; provided that the Agent shall, if permissible by law or regulation, endeavor to give notice thereof to the Company. If KBW complies with any such judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process, KBW shall not be liable to any of the parties, or to any other person or entity, even though such order, judgment, decree, writ or process may be subsequently modified or vacated or otherwise determined to have been without legal force or effect.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 6 of 12

 

Limitations of Responsibilities.

 

KBW, as Agent, (a) shall have no duties or obligations other than the contractual obligations specifically set forth herein; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any order form or any stock certificates or the shares of Common Stock represented thereby, and will not be required to and will make no representations as to the validity, value or genuineness of any offer in connection with the Offerings or otherwise; (c) shall not be obliged to take any legal action hereunder which might in its sole judgment involve any expense or liability, unless it shall have been furnished with indemnity satisfactory to it; and (d) may rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telex, telegram, or other document or security delivered to it and in good faith believed by it to be genuine and to have been signed by the proper party or parties.

 

The duties, responsibilities and obligations of KBW, as Agent, shall be limited to those expressly set forth herein, and no duties, responsibilities or obligations shall be inferred or implied. KBW, in its capacity as Agent, shall not be subject to, nor required to comply with, any other agreement between or among any or all of the parties hereto and/or any other person or entity, even though reference thereto may be made herein or therein, or to comply with any direction or instruction (other than those contained herein or delivered in accordance with this Agreement) from any person or entity other than the Company. Except as may otherwise specifically be set forth herein, KBW shall not be required to, and shall not, expend or risk any of its own funds or otherwise incur any financial liability in the performance of its duties hereunder.

 

KBW, as Agent in furnishing services to the Company under this Agreement, is acting only as an independent contractor and is not a fiduciary of, nor will its entering into this Agreement give rise to fiduciary duties to, the Company. KBW does not undertake by this Agreement or otherwise to perform any obligation of the Company, whether regulatory, contractual, or otherwise. KBW has the sole right and obligation to supervise, manage, contract, direct, procure, perform or cause to be performed, all work to be performed by it under this Agreement unless otherwise provided in this Agreement. The Company understands and agrees that KBW may perform services substantially similar to those to be performed hereunder for others, and nothing herein is intended to restrict or prohibit KBW from performing such services for others.

 

No implied duties or obligations shall be read into this Agreement against KBW, and KBW, in its capacity as such, shall not be bound by any provision of any agreement between the Company and any other person or entity other than this Agreement, and KBW shall have no duty to inquire into, or to take into account its knowledge of, the terms and conditions of any agreement made or entered into in connection with this Agreement.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 7 of 12

 

Indemnification; Contribution; Limitations of Liability .

 

The Company agrees to indemnify and hold harmless KBW and its affiliates, the respective partners, directors, officers, employees, and agents of KBW and its affiliates and each other person, if any, controlling KBW or any of its affiliates and each of their successors and assigns (KBW and each such person being an “Indemnified Party”) to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, and reasonably related to or arising out of the engagement of KBW pursuant to, and the performance by KBW of the services contemplated by, this Agreement , and will reimburse any Indemnified Party for all expenses (including legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation, preparing for or defending any such action or claim whether or not in connection with pending or threatened litigation, or any action or proceeding arising therefrom, whether or not KBW is a party. The Company will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from KBW’s bad faith or gross negligence.

 

If the indemnification provided for in the foregoing paragraph is judicially determined to be unavailable (other than in accordance with the terms hereof) to any person otherwise entitled to indemnity in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such person hereunder, the Company shall contribute to the amount paid or payable by such person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and KBW, on the other hand, of the engagement provided for in this Agreement or (ii) if the allocation provided for in clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of the Company and KBW, as well as any other relevant equitable considerations; provided, however , in no event shall KBW's aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by KBW under this Agreement. For the purposes of this Agreement, the relative benefits to the Company and to KBW of the engagement under this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company in the Conversion and the Offerings that are the subject of the engagement hereunder, whether or not consummated, bears to (b) the fees paid or to be paid to KBW under this Agreement.

 

The Company also agrees that neither KBW, nor any of its affiliates nor any officer, director, employee or agent of KBW or any of its affiliates, nor any person controlling KBW or any of its affiliates, shall have any liability to the Company for or in connection with such engagement except for any such liability for losses, claims, damages, liabilities or expenses incurred by the Company which are finally judicially determined to have resulted primarily from KBW’s bad faith or gross negligence. The foregoing agreement shall be in addition to any rights that KBW, the Company or any Indemnified Party may have at common law or otherwise, including, but not limited to, any right to contribution. For the sole purpose of enforcing and

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 8 of 12

 

otherwise giving effect to the provisions of this Agreement, the Company hereby consents to personal jurisdiction and service and venue in any court in which any claim which is subject to this agreement is brought against KBW or any other Indemnified Party.

 

KBW shall not be responsible nor liable for delays, errors or omissions arising from, relating to or made in connection with circumstances beyond its reasonable control, including but not limited to, acts or omissions of the Company or any of its advisors or agents, acts of governmental authorities, acts of civil commotion or riot, insurrection, acts of military authority, war or acts of war or terrorism, national emergencies, labor difficulties, fire, flood, weather-related problems, acts of God or nature, mechanical or electrical breakdown, computer problems, failure or unavailability of communications or power supply or any change in law or regulation materially affecting KBW or the Company.

 

In no event shall KBW be liable for: (i) acting in accordance with or relying upon any instruction, request, notice, demand, certificate, order or document from the Company or any authorized representative acting on its behalf or (ii) for any consequential, indirect, incidental, punitive, exemplary or special damages of any kind whatsoever (including but not limited to lost profits) even if KBW has been advised of the possibility of such damages. Any liability of KBW shall be limited to the amount of fees paid to KBW for the Services performed by KBW as Agent pursuant to this Agreement. A claim by Company for a return of fees paid to KBW by the Company for the Services performed as Agent pursuant to this Agreement shall be the sole and exclusive remedy for any damages. This limitation of liability is intended to apply to the full extent allowed by law, regardless of the grounds or nature of any claim asserted.

 

The Company agrees that it will not, without the prior written consent of KBW, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not KBW is an actual or potential party to such claim, action, suit, or proceeding) unless such settlement, compromise or consent includes an unconditional release of KBW from all liability arising out of such claim, action, suit or proceeding.

 

It is understood that KBW’s engagement referred to above may be embodied in one or more separate written agreements and that, in connection with such engagement, KBW may also be requested to provide additional services or to act for the Company in one or more additional capacities. The indemnification provided hereunder shall apply to said engagement, any such additional services or activities and any modification, and shall remain in full force and effect following the completion or termination of KBW’s engagement or this Agreement.

 

Commencement and Termination.

 

This Agreement shall commence immediately upon execution hereof by all parties and shall continue in force until the consummation or termination of the Conversion or the Offerings or the termination of this Agreement. This Agreement may only be terminated by the Company for cause due to action by KBW constituting a material violation of applicable law or a material breach of this Agreement, which breach remains uncured for ten (10) business days after written

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 9 of 12

 

notice of such breach is delivered by the Company to KBW. This Agreement may only be terminated by KBW in the event of one or more of the following: (i) termination of the Advisor Agreement; (ii) circumstances described in this Agreement in the second paragraph under the heading “Miscellaneous”; (iii) action by the Company constituting a material violation of applicable law or a material breach of this Agreement (including as described in this Agreement in the first paragraph under the heading “Duties and Obligations” or failure to pay the fees and expenses of KBW as set forth herein), which breach remains uncured for ten (10) business days after written notice of breach is delivered by KBW to the Company or (iv) any proceeding in bankruptcy, reorganization, rehabilitation, guaranty fund action, receivership or insolvency is commenced by or against the Company, the Company shall become insolvent, or cease paying its obligations as they become due.

 

Survival of Obligations.

 

The covenants and agreements of the parties hereto, including those set forth under “Indemnification; Contribution; Limitations of Liability” above, will remain in full force and effect and will survive the consummation of the Conversion and the Offerings or the termination of this Agreement, and KBW, its affiliates, the officers, directors, employees and agents of KBW and any of its affiliates, and any person controlling KBW and any of its affiliates, shall be entitled to the benefit of the covenants and agreements thereafter.

 

Miscellaneous.

 

The parties hereto acknowledge that there are no third party beneficiaries to this Agreement, which is for the exclusive benefit of the parties hereto. No other person or entity or their respective heirs, successors and assigns shall be deemed to have any legal or equitable right, remedy or claim hereto.

 

In the event of any ambiguity or uncertainty hereunder or in any notice, instruction or other communication received by KBW hereunder, KBW will provide the Company a reasonable opportunity to resolve such uncertainty or ambiguity and in the event that such uncertainty or ambiguity is unresolved KBW may, in its sole discretion, take any action it deems appropriate or refrain from taking any action unless and until KBW receives written instructions from the Company clarifying the ambiguity or uncertainty, and KBW shall not be liable for acting or the failure to take any action during this period. In the event of any disagreement between the Company and any other person or entity resulting in adverse claims and demands being made herein or affected hereby, KBW shall be entitled to refuse to comply with any such claims or demands as long as such disagreement may continue, and in so refusing, shall make no delivery or other disposition under this Agreement, and in so doing shall be entitled to continue to refrain from acting until: (i) the right of adverse claimants shall have been finally settled by binding arbitration or finally adjudicated in a court of competent jurisdiction or (ii) all differences shall have been settled by agreement among the adverse claimants and the Company or other persons or entities and KBW shall have been notified in writing of such agreement signed by the Company and the adverse person(s) or entity(ies). In the event of such disagreement, KBW may, but need not, tender into the registry or custody of any court of

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 10 of 12

 

competent jurisdiction all property in KBW’s possession pursuant to the terms of this Agreement, together with such legal proceedings as KBW deems appropriate, and thereupon KBW shall be discharged from all further duties under this Agreement. The filing of any such legal proceeding shall not deprive KBW of compensation or expenses paid or payable hereunder for Services, and KBW shall not be liable with respect to any suspension of performance, delay or otherwise as a result of the tendering of such property. KBW shall have no obligation to take any legal action in connection with this Agreement or towards its enforcement, or to appear in, prosecute or defend any action or legal proceeding which would or might involve KBW in any cost, expense, loss or liability unless indemnification, satisfactory to KBW, in its sole discretion, shall be furnished by the Company. KBW shall be indemnified for all reasonable costs (including employee time at the employee’s hourly rate determined by his annual salary) and reasonable attorneys’ fees and expenses in connection with any such action.

 

This Agreement contains the entire agreement of the parties with respect to the subject matter hereof. This Agreement supersedes any other agreements, either oral or written, among the parties hereto with respect to the specific subject matter hereof, but not any engagement, underwriting, agency or other agreements among the parties pursuant to which KBW is acting as the Company’s financial advisor, underwriter, placement agent, investment banker or in any similar capacity, including without limitation the Advisory Agreement. Except as specifically set forth herein, each party hereto acknowledges that no representation, inducement, promise or agreement, written, oral or otherwise, has been made by any party, or anyone acting on behalf of any party, which is not embodied or expressly stated herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding in relation to the Services. The Company hereby acknowledges and agrees that: (i) KBW has made full and complete disclosure to the Company of the possibility or existence of any conflict of interest resulting from KBW serving as both data processing records management agent pursuant to this Agreement and as financial advisor, underwriter, placement agent, investment banker or in any similar capacity pursuant to the Advisory Agreement or any other separate agreement and (ii) having received full disclosure thereof, the Company hereby waives any such conflict of interest and consents to KBW serving in such dual capacity.

 

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. Any right to trial by jury with respect to any claim or action arising out of this Agreement or conduct in connection with the engagement is hereby waived by the parties hereto.

 

This Agreement may be executed in several counterparts, which taken together, shall constitute one and the same document. All section headings used herein are for convenience and ease of reference only and do not constitute part of this Agreement and shall not be referred to for the purpose of defining, interpreting, construing or enforcing any of the provisions of this Agreement. All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties to this Agreement may require.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 11 of 12

 

This Agreement may not be assigned by any party without the prior written consent of the other parties hereto and any purported assignment made in violation of the foregoing shall be void and have no legal effect; except that consent is not required for an assignment to a KBW affiliate or successor in interest. This Agreement may be modified only by a written amendment signed by all of the parties hereto and no waiver of any provision hereof shall be effective unless expressed in a writing signed by the party to be charged. No waiver of the breach of any provision or term of this Agreement shall be deemed or construed to be a waiver of any other or subsequent breach.

 

Should any term or provision, or portion of such provision, of this Agreement be invalid or unenforceable, the scope thereof or the period covered thereby or otherwise, such term, provision, or portion of such provision, shall be deemed to be reduced and limited to enable KBW or the Company, as applicable, to enforce it to the maximum extent permissible under the laws and public policies applied under the jurisdiction in which enforcement is sought. If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement which shall be construed to preserve, to the maximum extent permissible, the intent and purposes of this Agreement. Any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such terms or provisions in any other jurisdiction.

 

All media releases, public announcements and public disclosures by either party or its agents relating to this Agreement or the subject matter of this Agreement, but not including any announcement intended solely for internal distribution at such party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of such party, shall be coordinated with and approved by the other party prior to the release thereof, which approval shall not be unreasonably withheld.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

Central Federal Savings and Loan Association of Rolla

April 30, 2015

Page 12 of 12

 

Notices.

 

Except as otherwise contemplated by this Agreement, all notices, demands, requests or other communications which may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement, other than in the normal course of conducting the Services, can be by certified or registered mail, personal delivery or transmitted by any standard form of telecommunication with proof of delivery addressed as follows:

 

(a) If to the Agent:

Keefe, Bruyette & Woods, Inc.

70 W Madison, Suite 2401

Chicago, IL 60602

Attn: Patricia A. McJoynt

Telephone: (312) 423-8272

Fax: (312) 423-8232

 

If to the Company:

Central Federal Savings and Loan Association of Rolla

210 West 10 th Street

Rolla, MO 65401

Attn: William A. Stoltz

 

Each party may designate by notice in writing a new address/addressee to which any notice, demand, request or communication may thereafter be provided. If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning the original copy of this letter to the undersigned.

 

Very truly yours,

 

KEEFE, BRUYETTE & WOODS, INC.
       
By: /s/ Patricia A. McJoynt   Date: 4-30-15  
  Patricia A. McJoynt    
  Managing Director    
       
Central Federal Savings and Loan Association of Rolla
       
By: /s/ William A. Stoltz   Date: 5-1-15
  William A. Stoltz    
  President & CEO    

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423. 8232 • www.kbw.com

 

 

 

 

 

Exhibit 2.0

 

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA

 

PLAN OF CONVERSION

 

ADOPTED ON AUGUST 4, 2015

(as amended on September 8, 2015)

 

 

 

 

TABLE OF CONTENTS

 

        PAGE
         
1.   Introduction   1
         
2.   Definitions   1
         
3.   General Procedure for the Conversion   5
         
4.   Total Number of Shares and Purchase Price of Common Stock   6
         
5.   Subscription Rights of Eligible Account Holders (First Priority)   7
         
6.   Subscription Rights of Tax-Qualified Employee Stock Benefit Plans (Second Priority)   8
         
7.   Subscription Rights of Supplemental Eligible Account Holders (Third Priority)   8
         
8.   Subscription Rights of Other Members (Fourth Priority)   9
         
9.   Community Offering, Syndicated Community Offering, Public Offering and Other Offerings   9
         
10.   Limitations on Subscriptions and Purchases of Common Stock   11
         
11.   Timing of Subscription Offering; Manner of Exercising Subscription Rights and Order Forms   12
         
12.   Payment for Common Stock   13
         
13.   Account Holders in Nonqualified States or Foreign Countries   14
         
14.   Requirements Following the Conversion for Registration, Market Making and Stock Exchange Listing   15
         
15.   Liquidation Account   15
         
16.   Establishment and Funding of Charitable Foundation.   16
         
17.   Completion of the Conversion   17
         
18.   Requirements for Stock Purchases by Directors and Officers Following the Conversion   17
         
19.   Restrictions on Transfer of Stock   17
         
20.   Stock Compensation Plans   18
         
21.   Dividend and Repurchase Restrictions on Stock   18
         
22.   Amendment or Termination of the Plan   18
         
23.   Interpretation of the Plan   18

 

    i  
 

 

1. Introduction.

 

For purposes of this section, all capitalized terms have the meanings ascribed to them in Section 2.

 

This Plan of Conversion provides for the conversion of Central Federal Savings Association of Rolla (the “Association”) from a federally chartered mutual savings association into a federally chartered stock savings association. The Plan provides that the Association will operate as a wholly owned subsidiary of a savings and loan holding company (the “Holding Company”).

 

The Board of Directors of the Association has considered the alternatives available to the Association with respect to its corporate structure, and has determined that a mutual to stock conversion, as described in this Plan, will be in the best interests of the Association and its customers. The Conversion will raise capital which will enable the Association to: (a) support future lending and operational growth, including branching activities and acquisitions of other financial institutions or financial services companies; (b) increase its ability to render services to the communities it serves; (c) compete more effectively with commercial banks and other financial institutions for new business opportunities; and (d) increase its equity capital base and access the capital markets when needed. The Conversion will also enable the Holding Company and the Association to adopt stock benefit plans that will make the Association more competitive in providing incentive compensation to management and employees.

 

The Plan provides that non-transferable subscription rights to purchase the Common Stock of the Holding Company shall be granted to certain Members of the Association pursuant to the Plan and in accordance with the rules and regulations of the Office of the Comptroller of the Currency. The price of the Common Stock to be sold in the Conversion will be based upon an independent appraisal of the Association and will reflect its estimated pro forma market value, as converted. No change will be made in the Board of Directors or management of the Association as a result of the Conversion.

 

The Plan was adopted by the Association’s Board of Directors on August 4, 2015 and amended on September 8, 2015. The Plan is subject to the approval of the OCC and must be approved by the affirmative vote of at least a majority of the total votes eligible to be cast by the Voting Members at the Special Meeting.

 

After the Conversion, the Association will continue to be regulated by the OCC, as its chartering authority, and by the FDIC, which insures the Association’s deposits. In addition, the Association will continue to be a member of the Federal Home Loan Bank System and all insured savings deposits will continue to be insured by the FDIC up to the maximum limit provided by law.

 

2. Definitions.

 

As used in this Plan, the terms set forth below have the following meaning:

 

Acting in Concert means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A Person or company which acts in concert with another Person or company (“other party”) shall also be deemed to be acting in concert with any Person or company who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar fiduciary capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated and participants or beneficiaries of any such Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert solely as a result of their common interests as participants or beneficiaries.

 

  1  
 

 

When Persons act together for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is Acting in Concert shall be made solely by the Boards of Directors of the Holding Company and the Association or Officers delegated by such Boards and may be based on any evidence upon which the Board or such delegatee chooses to rely, including, without limitation, joint account relationships or the fact that such Persons share a common address (whether or not related by blood or marriage) or have filed joint Schedules 13D or Schedules 13G with the SEC with respect to other companies. Directors of the Holding Company and the Association shall not be deemed to be Acting in Concert solely as a result of their membership on such board or boards.

 

Actual Purchase Price means the price per share at which the Common Stock is ultimately sold by the Holding Company in the Offerings in accordance with the terms hereof.

 

Affiliate means a Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.

 

Associate of a Person means (i) a corporation or organization (other than the Holding Company, the Association or a majority-owned subsidiary of the Holding Company or the Association), if the Person is a senior officer or partner or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization, (ii) a trust or other estate, if the Person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate, provided, however, that such term shall not include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or the Association in which such Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any person who is related by blood or marriage to such Person and who lives in the same home as the Person or who is a director or senior officer of the Holding Company or the Association or any of their subsidiaries.

 

Association means Central Federal Savings and Loan Association of Rolla.

 

Association Benefit Plan includes, but is not limited to, Tax-Qualified Employee Stock Benefit Plans and Non-Tax Qualified Employee Stock Benefit Plans.

 

Code means the Internal Revenue Code of 1986, as amended.

 

Common Stock means the shares of common stock to be issued and sold by the Holding Company in the Offerings, all pursuant to the Plan. The Common Stock will not be insured by the Federal Deposit Insurance Corporation.

 

Community Offering means the offering for sale by the Holding Company of any shares of Common Stock not subscribed for in the Subscription Offering to such Persons as may be selected by the Holding Company and the Association in their sole discretion and to whom a copy of the Prospectus is delivered by or on behalf of the Holding Company.

 

Control (including the terms “controlling,” “controlled by,” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

Conversion means the conversion of the Association to stock form pursuant to this Plan, and all steps incident thereto.

 

Deposit Account means any withdrawable account as defined in Section 161.42 of the Rules and Regulations of the OCC, including a demand account as defined in Section 161.16 of the Rules and Regulations of the OCC.

 

  2  
 

 

Eligible Account Holder means any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining Subscription Rights.

 

Eligibility Record Date means the date for determining Qualifying Deposits of Eligible Account Holders and is the close of business on June 30, 2014.

 

ESOP means a Tax-Qualified Employee Stock Benefit Plan adopted by the Holding Company or the Association in connection with the Conversion, the purpose of which shall be to acquire shares of Common Stock.

 

Estimated Price Range means the range of the estimated aggregate pro forma market value of the total number of shares of Common Stock to be issued in the Offerings, as determined by the Independent Appraiser in accordance with Section 4 hereof.

 

FDIC means the Federal Deposit Insurance Corporation, or any successor thereto.

 

Foundation means any new and/or existing charitable foundation intended to qualify as an exempt organization under Section 501(c)(3) of the Code that will receive Holding Company Common Stock and/or cash in connection with the Offerings.

 

FRB means the Board of Governors of the Federal Reserve System or any successor thereto.

 

Holding Company means the stock corporation that will hold all of the outstanding capital stock of the Association upon completion of the Conversion.

 

Independent Appraiser means the independent financial consulting firm retained by the Holding Company and the Association to prepare an appraisal of the estimated pro forma market value of the Common Stock.

 

Initial Purchase Price means the price per share to be paid initially by Participants for shares of Common Stock subscribed for in the Subscription Offering and by Persons for shares of Common Stock ordered in the Community Offering and/or Syndicated Community Offering.

 

Local Community means Phelps County, Missouri.

 

Management Person means any Officer or director of the Association or the Holding Company or any Affiliate of the Association or the Holding Company and any person Acting in Concert with such Officer or director.

 

Member means any Person qualifying as a member of the Association in accordance with its mutual charter and bylaws and the laws of the United States.

 

OCC means the Office of the Comptroller of the Currency, or any successor thereto.

 

Offerings mean the offering of Common Stock in the Subscription Offering, the Community Offering, the Syndicated Community Offering or the Public Offering.

 

Officer means the chairman of the board, president, chief executive officer, vice-president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer and any other person performing similar functions with respect to any organization whether incorporated or unincorporated.

 

  3  
 

 

Order Form means the form or forms to be provided by the Holding Company, containing all such terms and provisions as set forth in Section 11 hereof, to a Participant or other Person by which Common Stock may be ordered in the Offerings.

 

Other Member means a Voting Member who is not an Eligible Account Holder or a Supplemental Eligible Account Holder.

 

Participant means any Eligible Account Holder, Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder or Other Member.

 

Person means an individual, a corporation, a partnership, an association, a joint-stock company, a limited liability company, a trust, an unincorporated organization or a government or any political subdivision of a government.

 

Plan of Conversion means this Plan of Conversion as adopted by the Board of Directors of the Association and any amendment hereto approved as provided herein.

 

Preferred Subscribers means natural persons and trusts of natural persons residing in the Local Community.

 

Prospectus means the one or more documents to be used in offering the Common Stock in the Offerings.

 

Public Offering means an underwritten firm commitment offering to the public through one or more underwriters.

 

Qualifying Deposit means the aggregate balance of all Deposit Accounts in the Association of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50.00, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.00.

 

SEC means the Securities and Exchange Commission, or any successor thereto.

 

Special Meeting means the special meeting of members of the Association called for the purpose of submitting this Plan to the Members for their approval, including any adjournments or postponements of such meeting.

 

Subscription Offering means the offering of the Common Stock to Participants.

 

Subscription Rights mean nontransferable rights to subscribe for Common Stock granted to Participants pursuant to the terms of this Plan.

 

Supplemental Eligible Account Holder means any Person, except directors and Officers of the Association or the Holding Company and their Associates (unless the OCC grants a waiver to permit a director or Officer or Associate to be included), holding a Qualifying Deposit at the close of business on the Supplemental Eligibility Record Date.

 

Supplemental Eligibility Record Date , if applicable, means the date for determining Supplemental Eligible Account Holders and shall be required if the Eligibility Record Date is more than 15 months before the date of the approval of the Conversion by the OCC. If applicable, the Supplemental Eligibility Record Date shall be the last day of the calendar quarter preceding OCC approval of the Conversion.

 

  4  
 

 

Syndicated Community Offering means the offering for sale by a syndicate of broker-dealers to the general public of shares of Common Stock not purchased in the Subscription Offering and the Community Offering.

 

Tax - Qualified Employee Stock Benefit Plan means any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which is established for the benefit of the employees of the Holding Company and/or the Association and any Affiliate thereof and which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Code as from time to time in effect. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution stock benefit plan that is not so qualified.

 

Voting Member means a Person who, at the close of business on the Voting Record Date, is entitled to vote as a Member of the Association in accordance with its mutual charter and bylaws.

 

Voting Record Date means the date or dates for determining the eligibility of Members to vote at the Special Meeting.

 

3. General Procedure for the Conversion.

 

(a) Organization of the Holding Company and the Association. The Association will apply to the OCC to have the Holding Company retain up to 50% of the net proceeds of the Offerings, or such other amount as may be determined by the Board of Directors. The Association may distribute additional capital to the Holding Company following the Conversion, subject to the FRB regulations governing capital distributions.

 

(b) Effect on Deposit Accounts and Borrowings. Each deposit account in the Association on the effective date of the Conversion, will remain a deposit account in the Association after the Conversion in the same amount and upon the same terms and conditions, and will continue to be federally insured up to the legal maximum by the FDIC in the same manner as each deposit account existed in the Association immediately before the Conversion. Holders of deposit accounts in the Association shall not, as such holders, have any voting rights. Upon consummation of the Conversion, all loans and other borrowings from the Association shall retain the same status with the Association after the Conversion, as they had with the Association immediately before the Conversion.

 

(c) The Association. Upon completion of the Conversion, the Association will be authorized to exercise any and all powers, rights and privileges of, and will be subject to all limitations applicable to, capital stock savings banks under federal law. The Conversion will not result in any reduction of the amount of retained earnings and general loss reserves will be accounted for by the Holding Company and the Association on a consolidated basis in accordance with generally accepted accounting principles. Copies of the proposed federal stock charter and bylaws of the Association are attached hereto and made a part of this Plan. By their approval of this Plan, the Voting Members shall have approved and adopted the federal stock charter and bylaws of the Association.

 

The initial members of the Board of Directors of the Association upon the completion of the Conversion will be the members of the Board of Directors of the Association at the time of the adoption of the Plan of Conversion who continue to be directors of the Association at the time of the closing of the Conversion. Following the Conversion, the Association will be wholly owned by the Holding Company. The Holding Company will be wholly owned by its stockholders who will initially consist of the persons who purchase Common Stock in the Offerings.

 

(d) The Holding Company. The Holding Company will be authorized to exercise any and all powers, rights and privileges, and will be subject to all limitations applicable to savings and loan holding

 

  5  
 

 

companies under federal law and regulations. The initial members of the Board of Directors of the Holding Company will be appointed by the Association. Thereafter, the voting stockholders of the Holding Company will elect approximately one-third of the Holding Company’s directors annually. The total shares of Common Stock authorized under the Holding Company articles of incorporation will exceed the shares of Common Stock to be issued in the Conversion.

 

(e) Applications and Regulatory and Member Approval. The Association will take the necessary steps to prepare and file an Application for Conversion, including the Plan, together with all requisite material, with the OCC for approval. The Association also will cause notice of the adoption of the Plan by the Board of Directors of the Association to be given by publication in a newspaper having general circulation in each community in which an office of the Association is located, and will cause copies of the Plan to be made available at each office of the Association for inspection by Members. The Association will post the notice of the adoption of the Plan in each of its offices. Once the Application for Conversion is filed, the Association will again cause to be published, in accordance with the requirements of applicable regulations of the OCC, notice of the filing of the Application for Conversion with the OCC, and will post notice of the filing of the Application for Conversion in each office of the Association.

 

As soon as practicable after the adoption of the Plan by the Board of Directors of the Association, the proposed Board of Directors of the Holding Company shall adopt the Plan by at least a two-thirds vote. The proposed Board of Directors of the Holding Company shall cause to be filed with the FRB such applications as may be required for approval of the Holding Company’s acquisition of the Association and filed with the SEC a Registration Statement to register the Common Stock under the Securities Act of 1933, as amended. The proposed Board of Directors of the Holding Company shall also register or qualify the Common Stock under any applicable state securities laws, subject to Section 13 hereof.

 

Promptly following receipt of requisite approval of the OCC, the Plan will be submitted to the Voting Members for their consideration and approval at the Special Meeting. The Association may, at its option, mail to all Voting Members, at their last known address appearing on the records of the Association, a proxy statement in either long form, or to the extent permitted by applicable laws and regulations, summary form, describing the Plan, which will be submitted to a vote of the Voting Members at the Special Meeting. If the Plan is approved by the affirmative vote of a majority of the total number of votes eligible to be cast by Voting Members at the Special Meeting, the Association shall take all other necessary organizational steps pursuant to applicable laws and regulations to amend its charter and bylaws to authorize the issuance of its capital stock to the Holding Company at the time the Conversion is consummated.

 

(f) Expenses. The Holding Company and the Association may retain and pay for the services of financial and other advisors and investment bankers to assist in connection with any or all aspects of the Conversion, including in connection with the Offerings, the payment of fees to brokers for assisting Persons in completing and/or submitting Order Forms. The Association shall use its best efforts to ensure that all fees, expenses, retainers and similar items shall be reasonable.

 

4. Total Number of Shares and Purchase Price of Common Stock.

 

(a) The aggregate price at which shares of Common Stock shall be sold in the Offerings shall be based on a pro forma valuation of the aggregate market value of the Common Stock prepared by the Independent Appraiser. The valuation shall be based on financial information relating to the Holding Company and the Association, market, financial and economic conditions, a comparison of the Holding Company and the Association with selected publicly held financial institutions and holding companies and with comparable financial institutions and holding companies and such other factors as the Independent Appraiser may deem to be important, including, but not limited to, the projected operating results and financial condition of the Holding Company and Association. The valuation shall be stated in

 

  6  
 

 

terms of an Estimated Price Range, the maximum of which shall be no more than 15% above the average of the minimum and maximum of such price range and the minimum of which shall be no more than 15% below such average. The valuation shall be updated during the Conversion as market and financial conditions warrant and as may be required by the OCC.

 

(b) Based upon the independent valuation, the Boards of Directors of the Holding Company and the Association shall fix the Initial Purchase Price and the number of shares of Common Stock to be offered in the Offerings. The purchase price per share for the Common Stock shall be a uniform price determined in accordance with applicable OCC rules and regulations. The Actual Purchase Price and the total number of shares of Common Stock to be issued in the Offerings shall be determined by the Boards of Directors of the Holding Company and the Association upon conclusion of the Offerings in consultation with the Independent Appraiser and any financial advisor or investment banker retained by the Holding Company in connection with such offering.

 

(c) Subject to the approval of the OCC, the Estimated Price Range may be increased or decreased to reflect market, financial and economic conditions before completion of the Conversion or to fill the Order of the Tax-Qualified Employee Stock Benefit Plans, and under such circumstances the Holding Company and the Association may increase or decrease the total number of shares of Common Stock to be issued in the Conversion to reflect any such change. Notwithstanding anything to the contrary contained in this Plan, no resolicitation of subscribers shall be required and subscribers shall not be permitted to modify or cancel their subscriptions unless the gross proceeds from the sale of the Common Stock in the Offerings are less than the minimum or more than 15% above the maximum of the Estimated Price Range set forth in the Prospectus. In the event of an increase in the total number of shares offered in the Offerings due to an increase in the Estimated Price Range, the priority of share allocation shall be as set forth in this Plan.

 

5. Subscription Rights of Eligible Account Holders (First Priority).

 

(a) Each Eligible Account Holder shall receive, as first priority and without payment, Subscription Rights to purchase up to the greater of (i) $300,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Eligible Account Holders, in each case subject to Sections 10 and 13 hereof.

 

(b) In the event of an oversubscription for shares of Common Stock pursuant to Section 5(a), available shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any available shares remaining after each subscribing Eligible Account Holder has been allocated the lesser of the number of shares subscribed for or 100 shares shall be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the Qualifying Deposit of each such subscribing Eligible Account Holder bears to the total Qualifying Deposits of all such subscribing Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued.

 

Subscription Rights of Eligible Account Holders who are also directors or Officers of the Holding Company or the Association and their Associates shall be subordinated to those of other Eligible Account Holders to the extent that they are attributable to increased deposits during the one-year period preceding the Eligibility Record Date.

 

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6. Subscription Rights of Tax-Qualified Employee Stock Benefit Plans (Second Priority).

 

Tax-Qualified Employee Stock Benefit Plans shall receive, without payment, Subscription Rights to purchase in the aggregate up to 10% of the Common Stock sold in the Offerings, including any shares of Common Stock to be issued as a result of an increase in the Estimated Price Range after commencement of the Subscription Offering and before completion of the Offerings and including any shares issued to the Foundation. The subscription rights granted to Tax-Qualified Employee Stock Benefit Plans shall be subject to the availability of shares of Common Stock after taking into account the shares of Common Stock purchased by Eligible Account Holders; provided, however, that if the total number of shares of Common Stock is increased to any amount greater than the number of shares representing the maximum of the Estimated Price Range as set forth in the Prospectus (“Maximum Shares”), the ESOP shall have a priority right to purchase any such shares exceeding the Maximum Shares up to an aggregate of 10% of Common Stock sold in the Offerings. Shares of Common Stock purchased by any individual participant (“Plan Participant”) in a Tax-Qualified Employee Stock Benefit Plan using funds therein pursuant to the exercise of subscription rights granted to such Participant in his individual capacity as an Eligible Account Holder and/or Supplemental Eligible Account Holder and/or purchases by such Plan Participant in the Community Offering shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of calculating the maximum amount of Common Stock that Tax-Qualified Employee Stock Benefit Plans may purchase pursuant to the first sentence of this Section 6 if the individual Plan Participant controls or directs the investment authority with respect to such account or subaccount. Consistent with applicable laws and regulations and policies and practices of the OCC, the Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the Holding Company or the Association and/or borrowed from the Holding Company or an independent financial institution to exercise such Subscription Rights, and the Holding Company and the Association may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Association to fail to meet any applicable regulatory capital requirement. The Tax-Qualified Employee Stock Benefit Plans may fill their orders to purchase Common Stock, in whole or in part, through open market purchases after the closing of the Offerings, subject to approval of the OCC.

 

The Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be an Associate or Affiliate of or Person Acting in Concert with any Management Person.

 

7. Subscription Rights of Supplemental Eligible Account Holders (Third Priority).

 

(a) In the event that the Eligibility Record Date is more than 15 months before the date of OCC approval of the Plan, then, and only in that event, a Supplemental Eligibility Record Date shall be set and each Supplemental Eligible Account Holder shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $300,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Common Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Supplemental Eligible Account Holders, in each case subject to Sections 10 and 13 hereof and the availability of shares of Common Stock for purchase after taking into account the shares of Common Stock purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans through the exercise of Subscription Rights under Sections 5 and 6 hereof.

 

(b) In the event of an oversubscription for shares of Common Stock pursuant to Section 7(a), available shares shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation (including the number of shares, if any, allocated in

 

  8  
 

 

accordance with Section 5(a)) equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of their respective Qualifying Deposits bears to the total amount of the Qualifying Deposits of all such subscribing Supplemental Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued.

 

8. Subscription Rights of Other Members (Fourth Priority).

 

(a) Each Other Member shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $300,000 of Common Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering) and (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, subject to Sections 10 and 13 hereof and the availability of shares of Common Stock for purchase after taking into account the shares of Common Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental Eligible Account Holders, if any, through the exercise of Subscription Rights under Sections 5, 6 and 7 hereof.

 

(b) If, pursuant to this Section 8, Other Members subscribe for a number of shares of Common Stock in excess of the total number of shares of Common Stock remaining, available shares shall be allocated among subscribing Other Members so as to permit each such Other Member, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Other Members whose subscriptions remain unsatisfied on a pro rata basis in the same proportion as each such Other Member’s subscription bears to the total subscriptions of all such subscribing Other Members, provided that no fractional shares shall be issued.

 

9. Community Offering, Syndicated Community Offering, Public Offering and Other Offerings.

 

(a) If less than the total number of shares of Common Stock offered by the Holding Company is sold in the Subscription Offering, it is anticipated that all remaining shares of Common Stock shall, if practicable, be sold in a Community Offering. Subject to the requirements set forth herein, the manner in which the Common Stock is sold in the Community Offering shall have as the objective the achievement of the widest possible distribution of such stock.

 

(b) In the event of a Community Offering, all shares of Common Stock that are not subscribed for in the Subscription Offering shall be offered for sale by means of a direct community marketing program, which may provide for the use of brokers, dealers or investment banking firms experienced in the sale of financial institution securities. Any available shares in excess of those not subscribed for in the Subscription Offering will be available for purchase by members of the general public to whom a Prospectus is delivered by the Holding Company or on its behalf, with preference given first to Preferred Subscribers.

 

(c) A Prospectus and Order Form shall be furnished to such Persons as the Holding Company and the Association may select in connection with the Community Offering, and each order for Common Stock in the Community Offering shall be subject to the absolute right of the Holding Company and the Association to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable following completion of the Community Offering. Available shares will be allocated first to each Preferred Subscriber whose order is accepted in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such Preferred Subscriber, if possible. Thereafter, unallocated shares shall be allocated among the Preferred Subscribers whose accepted orders remain unsatisfied in the same proportion that the unfilled order bears to the total unfilled orders of all

 

  9  
 

 

Preferred Subscribers whose accepted orders remain unsatisfied, provided that no fractional shares shall be issued. If there are any shares remaining after all accepted orders by Preferred Subscribers have been satisfied, such remaining shares shall be allocated to other members of the general public who purchase in the Community Offering, applying the same allocation described above for Preferred Subscribers.

 

(d) The amount of Common Stock that any Person may purchase in the Community Offering shall not exceed $300,000 of Common Stock, provided, however, that this amount may be increased to up to 5% of the total offering of shares of Common Stock or decreased to less than $300,000 subject to any required regulatory approval but without the further approval of the Members or the resolicitation of subscribers; and provided further that to the extent applicable, and subject to the preferences set forth in Section 9(b) and (c) of this Plan and the limitations on purchases of Common Stock set forth in this Section 9(d) and Section 10 of this Plan, orders for Common Stock in the Community Offering shall first be filled to a maximum of 2% of the total number of shares of Common Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company and the Association may commence the Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering, and the Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Association with any required regulatory approval.

 

(e) Subject to such terms, conditions and procedures as may be determined by the Holding Company and the Association, all shares of Common Stock not subscribed for in the Subscription Offering or ordered in the Community Offering may be sold by a syndicate of broker-dealers to the general public in a Syndicated Community Offering. Each order for Common Stock in the Syndicated Community Offering shall be subject to the absolute right of the Holding Company and the Association to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering. The amount of Common Stock that any Person may purchase in the Syndicated Community Offering shall not exceed $300,000 of Common Stock, provided, however, that this amount may be increased to up to 5% of the total offering of shares of Common Stock or decreased to less than $300,000, subject to any required regulatory approval but without the further approval of the Members or the resolicitation of subscribers; and provided further that, to the extent applicable, and subject to the limitations on purchases of Common Stock set forth in this Section 9(e) and Section 10 of this Plan, orders for Common Stock in the Syndicated Community Offering shall first be filled to a maximum of 2% of the total number of shares of Common Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company and the Association may commence the Syndicated Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering and/or Community Offering, and the Syndicated Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Association with any required regulatory approval.

 

(f) The Holding Company and the Association may sell any shares of Common Stock remaining following the Subscription Offering, Community Offering and/or the Syndicated Community Offering in a Public Offering. The provisions of Section 10 hereof shall not be applicable to the sales to underwriters for purposes of the Public Offering but shall be applicable to sales by the underwriters to the public. The price to be paid by the underwriters in such an offering shall be equal to the Actual Purchase Price less an underwriting discount to be negotiated among such underwriters and the Holding Company and the Association, subject to any required regulatory approval or consent.

 

(g) If for any reason a Syndicated Community Offering or Public Offering of shares of Common Stock not sold in the Subscription Offering and the Community Offering cannot be effected, or if any

 

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insignificant residue of shares of Common Stock is not sold in the Subscription Offering, Community Offering or Syndicated Community Offering, the Holding Company and the Association shall use their best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the OCC.

 

10. Limitations on Subscriptions and Purchases of Common Stock.

 

The following limitations shall apply to all purchases of Common Stock in the Offerings:

 

(a) The maximum amount of Common Stock that may be subscribed for or purchased in all categories of the Offerings by any Person, together with any Associate or group of Persons Acting in Concert, shall not exceed $300,000 except for Tax-Qualified Employee Stock Benefit Plans.

 

(b) The maximum number of shares of Common Stock which may be purchased in the Conversion by the ESOP shall not exceed 10%, and all Tax-Qualified Employee Stock Benefit Plans shall not exceed 10% of the total number of shares of Holding Company Common Stock issued in the Conversion, in each instance, including any shares which may be issued in the event of an increase in the maximum Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and before completion of the Offerings and including any shares issued to the Foundation; provided, however, that purchases of Common Stock which are made by Plan Participants pursuant to the exercise of Subscription Rights granted to such Plan Participant in his or her individual capacity as a Participant or purchases by a Plan Participant in the Community Offering using the funds thereof held in Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of this Section 10(b).

 

(c) No Person may purchase fewer than 25 shares of Common Stock in the Offerings, to the extent such shares are available; provided, however, that if the Actual Purchase Price is greater than $20.00 per share, such minimum number of shares shall be adjusted so that the aggregate Actual Purchase Price for such minimum shares will not exceed $500.00.

 

(d) The maximum amount of Common Stock that directors and officers of the Holding Company or the Association and their Associates may purchase in the aggregate in the Offerings shall not exceed 34% of the total number of shares of Common Stock sold in the Offerings, including any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and before completion of the Offerings.

 

(e) For purposes of the foregoing limitations and the determination of Subscription Rights, (i) directors, Officers and employees of the Holding Company, the Association or their subsidiaries shall not be deemed to be Associates or a group Acting in Concert solely as a result of their capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in Section 10(b) hereof, and (iii) shares purchased by a Tax-Qualified Employee Stock Benefit Plan pursuant to instructions of an individual in an account in such plan in which the individual has the right to direct the investment, including any plan of the Association qualified under Section 401(k) of the Code, shall be aggregated and included in that individual’s purchases and not attributed to the Tax-Qualified Employee Stock Benefit Plan.

 

(f) Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the Members, the Holding Company and the Association may increase or decrease any of the individual or aggregate purchase limitations set forth herein to a percentage which does not exceed 5% of the total offering of shares of Common Stock in the Offerings

 

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whether before, during or after the Subscription Offering, Community Offering and/or Syndicated Community Offering. If an individual purchase limitation is increased after commencement of the Subscription Offering or any other offering, the Holding Company and the Association shall permit any Person who subscribed for the maximum number of shares of Common Stock to purchase an additional number of shares, so that such Person shall be permitted to subscribe for the then maximum number of shares permitted to be subscribed for by such Person, subject to the rights and preferences of any Person who has priority Subscription Rights. If any of the individual or aggregate purchase limitations are decreased after commencement of the Subscription Offering or any other offering, the orders of any Person who subscribed for more than the new purchase limitation shall be decreased by the minimum amount necessary so that such Person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such Person. In the event that the maximum purchase limitation is increased to 5% of the shares sold in the Offerings, such limitation may be further increased to 9.99%, provided that orders for Common Stock exceeding 5% of the shares of Common Stock sold in the Offerings shall not exceed in the aggregate 10% of the total shares of Common Stock sold in the Offerings.

 

(g) The Holding Company and the Association shall have the right to take all such action as they may, in their sole discretion, deem necessary, appropriate or advisable to monitor and enforce the terms, conditions, limitations and restrictions contained in this Section 10 and elsewhere in this Plan and the terms, conditions and representations contained in the Order Form, including, but not limited to, the absolute right (subject only to any necessary regulatory approvals or concurrences) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Common Stock that they believe might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all persons, and the Holding Company, the Association and their respective Boards shall be free from any liability to any Person on account of any such action.

 

11. Timing of Subscription Offering; Manner of Exercising Subscription Rights and Order Forms.

 

(a) The Offerings shall be conducted in compliance with Part 197 of the Rules and Regulations of the OCC, to the extent applicable, and Form OC.

 

(b) The exact timing of the commencement of the Subscription Offering shall be determined by the Holding Company and the Association in consultation with the Independent Appraiser and any financial or advisory or investment banking firm retained by them in connection with the Conversion. The Holding Company and the Association may consider a number of factors, including, but not limited to, their current and projected future earnings, local and national economic conditions, and the prevailing market for stocks in general and stocks of financial institutions in particular. The Holding Company and the Association shall have the right to withdraw, terminate, suspend, delay, revoke or modify any such Subscription Offering, at any time and from time to time, as they in their sole discretion may determine, without liability to any Person, subject to compliance with applicable securities laws and any necessary regulatory approval or concurrence.

 

(c) Promptly after the SEC has declared the Registration Statement, which includes the Prospectus, effective and all required regulatory approvals have been obtained, the Holding Company shall, distribute or make available the Prospectus, together with Order Forms for the purchase of Common Stock, to all Participants for the purpose of enabling them to exercise their respective Subscription Rights, subject to Section 13 hereof.

 

(d) A single Order Form for all Deposit Accounts maintained with the Association by an Eligible Account Holder and any Supplemental Eligible Account Holder may be furnished, irrespective of the number of Deposit Accounts maintained with the Association on the Eligibility Record Date and

 

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Supplemental Eligibility Record Date, respectively. No person holding a Subscription Right may exceed any otherwise applicable purchase limitation by submitting multiple orders for Common Stock. Multiple orders are subject to adjustment, as appropriate, on a pro rata basis and deposit balances will be divided equally among such orders in allocating shares in the event of an oversubscription.

 

(e) The recipient of an Order Form shall have no less than 20 days and no more than 45 days from the date of mailing of the Order Form (with the exact termination date to be set forth on the Order Form) to properly complete and execute the Order Form and deliver it to the Holding Company. The Holding Company may extend such period by such amount of time as it determines is appropriate. Failure of any Participant to deliver a properly executed Order Form to the Holding Company, along with full payment (or authorization for full payment by withdrawal) for the shares of Common Stock subscribed for, within the time limits prescribed, shall be deemed a waiver and release by such person of any rights to subscribe for shares of Common Stock. Each Participant shall be required to confirm to the Holding Company by executing an Order Form that such Person has fully complied with all of the terms, conditions, limitations and restrictions in the Plan.

 

(f) The Holding Company and the Association shall have the absolute right, in their sole discretion and without liability to any Participant or other Person, to reject any Order Form, including, but not limited to, any Order Form that is (i) improperly completed or executed; (ii) not timely received; (iii) not accompanied by the proper and full payment (or authorization of withdrawal for full payment) or, in the case of institutional investors in the Community Offering, not accompanied by an irrevocable order together with a legally binding commitment to pay the full amount of the purchase price before 48 hours before the completion of the Offerings; or (iv) submitted by a Person whose representations the Holding Company and the Association believe to be false or who they otherwise believe, either alone, or Acting in Concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of the Plan. Furthermore, in the event Order Forms (i) are not delivered and are returned to the Holding Company by the United States Postal Service or the Holding Company is unable to locate the addressee, or (ii) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the Subscription Rights of the Person to which such rights have been granted will lapse as though such Person failed to return the contemplated Order Form within the time period specified thereon. The Holding Company and the Association may, but will not be required to, waive any irregularity on any Order Form or may require the submission of corrected Order Forms or the remittance of full payment for shares of Common Stock by such date as they may specify. The interpretation of the Holding Company and the Association of the terms and conditions of the Order Forms shall be final and conclusive.

 

12. Payment for Common Stock.

 

(a) Payment for shares of Common Stock subscribed for by Participants in the Subscription Offering and payment for shares of Common Stock ordered by Persons in the Community Offering shall be equal to the Initial Purchase Price multiplied by the number of shares that are being subscribed for or ordered, respectively. Such payment may be made in cash, if delivered in person, or by check, bank draft or money order at the time the Order Form is delivered to the Holding Company, provided that checks will only be accepted subject to collection. The Holding Company and the Association, in their sole and absolute discretion, may also elect to receive payment for shares of Common Stock by wire transfer. In addition, the Holding Company may elect to provide Participants and/or other Persons who have a Deposit Account with the Association the opportunity to pay for shares of Common Stock by authorizing the Association to withdraw from such Deposit Account an amount equal to the aggregate Initial Purchase Price of such shares. Payment may also be made by a Participant using funds held for such Participant’s benefit by an Association Benefit Plan to the extent that such plan allows participants or any related trust established for the benefit of such participants to direct that some or all of their individual accounts or sub-accounts be invested in Common Stock. If the Actual Purchase Price is less than the Initial Purchase Price, the Holding Company shall refund the difference to all Participants and other Persons, unless the

 

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Holding Company chooses to provide Participants and other Persons the opportunity on the Order Form to elect to have such difference applied to the purchase of additional whole shares of Common Stock. If the Actual Purchase Price is more than the Initial Purchase Price, the Holding Company shall reduce the number of shares of Common Stock ordered by Participants and other Persons and refund any remaining amount that is attributable to a fractional share interest, unless the Holding Company chooses to provide Participants and other Persons the opportunity to increase the Actual Purchase Price submitted by them.

 

(b) Notwithstanding the above, if the Tax-Qualified Employee Stock Benefit Plans subscribe for shares during the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock subscribed for by such plans at the Actual Purchase Price upon consummation of the Conversion, provided that, in the case of the Employee Stock Ownership Plan, there is in force from the time of its subscription until the consummation of the Offerings, a loan commitment to lend to the Employee Stock Ownership Plan, at such time, the aggregate price of the shares for which it subscribed.

 

(c) If a Participant or other Person authorizes the Association to withdraw the amount of the Initial Purchase Price from his or her Deposit Account, the Association shall have the right to make such withdrawal or to freeze funds equal to the aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding any regulatory provisions regarding penalties for early withdrawals from certificate accounts, the Association may allow payment by means of withdrawal from certificate accounts without the assessment of such penalties. In the case of an early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if any applicable minimum balance requirement ceases to be met. In such case, the remaining balance will earn interest at the regular passbook rate. However, where any applicable minimum balance is maintained in such certificate account, the rate of return on the balance of the certificate account shall remain the same as before such early withdrawal. This waiver of the early withdrawal penalty applies only to withdrawals made in connection with the purchase of Common Stock and is entirely within the discretion of the Holding Company and the Association.

 

(d) The subscription funds will be held by the Association in a segregated account. The Holding Company shall pay interest, at not less than the Association’s passbook rate, for all amounts paid in cash, by check, bank draft or money order to purchase shares of Common Stock in the Subscription Offering and the Community Offering from the date payment is received until the date the Offerings are completed or terminated.

 

(e) The Holding Company will not offer or sell any of the Common Stock proposed to be issued to any Person whose purchase would be financed by funds loaned, directly or indirectly, to the Person by the Association.

 

(f) Each share of Common Stock shall be non-assessable upon payment in full of the Actual Purchase Price.

 

13. Account Holders in Nonqualified States or Foreign Countries.

 

The Holding Company and the Association shall make reasonable efforts to comply with the securities laws of all jurisdictions in the United States in which Participants reside. However, no Participant will be offered or receive any Common Stock under the Plan if such Participant resides in a foreign country or resides in a jurisdiction of the United States with respect to which any of the following apply: (a) there are few Participants otherwise eligible to subscribe for shares under this Plan who reside in such jurisdiction; (b) the granting of Subscription Rights or the offer or sale of shares of Common Stock to such Participants would require any of the Holding Company or the Association or their respective directors and Officers, under the laws of such jurisdiction, to register as a broker-dealer,

 

  14  
 

 

salesman or selling agent or to register or otherwise qualify the Common Stock for sale in such jurisdiction, or any of the Holding Company or the Association would be required to qualify as a foreign corporation or file a consent to service of process in such jurisdiction; or (c) such registration, qualification or filing in the judgment of the Holding Company and the Association would be impracticable or unduly burdensome for reasons of cost or otherwise.

 

14. Requirements Following the Conversion for Registration, Market Making and Stock Exchange Listing.

 

In connection with the Conversion, the Holding Company shall register the Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such stock for a period of three years thereafter. The Holding Company also shall use its best efforts to (a) encourage and assist a market maker to establish and maintain a market for the Common Stock, and (b) list the Common Stock on a national or regional securities exchange.

 

15. Liquidation Account.

 

(a) At the time of the Conversion, the Association shall establish a liquidation account in an amount equal to the Association’s net worth as reflected in its statement of financial condition contained in the Prospectus used in the Conversion. The function of the liquidation account will be to preserve the rights of certain holders of Deposit Accounts in the Association who maintain such accounts in the Association following the Conversion to a priority to distributions in the unlikely event of a liquidation of the Association subsequent to the Conversion.

 

(b) The liquidation account shall be maintained for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders, if any, who maintain their Deposit Accounts in the Association after the Conversion. Each such account holder will, with respect to each Deposit Account held, have a related inchoate interest in a portion of the liquidation account balance, which interest will be referred to in this Section 15 as the “subaccount balance.” All Deposit Accounts having the same social security number will be aggregated for purposes of determining the initial subaccount balance with respect to such Deposit Accounts, except as provided in Section 15(d) hereof.

 

(c) In the event of a complete liquidation of the Association subsequent to the Conversion (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current subaccount balances for Deposit Accounts then held (adjusted as described below) before any liquidation distribution may be made with respect to the capital stock of the Association. No merger, consolidation, sale of bulk assets or similar combination transaction with another FDIC-insured institution in which the Association is not the surviving entity shall be considered a complete liquidation for this purpose. In any such transaction, the liquidation account shall be assumed by the surviving entity.

 

(d) The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be determined by multiplying the opening balance in the liquidation account by a fraction, of which the numerator is the amount of the Qualifying Deposits of such account holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders, if any. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, if any, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Accounts on each such record date. Initial subaccount balances shall not be increased, and shall be subject to downward adjustment as provided below.

 

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(e) If the aggregate deposit balance in the Deposit Account(s) of any Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the close of business on any annual closing date (which date is the Association’s fiscal year end), commencing on or after the effective date of the Conversion, is less than the lesser of (i) the aggregate deposit balance in such Deposit Account(s) at the close of business on any other annual closing date subsequent to such record dates or (ii) the aggregate deposit balance in such Deposit Account(s) as of the Eligibility Record Date or the Supplemental Eligibility Record Date, if any, the subaccount balance for such Deposit Account(s) shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account(s). The subaccount balance of an Eligible Account Holder or Supplemental Eligible Account Holder, if any, will be reduced to zero if the Account Holder ceases to maintain a Deposit Account at the Association that has the same social security number as appeared on his Deposit Account(s) at the Eligibility Record Date or, if applicable, the Supplemental Eligibility Record Date.

 

(f) After the Conversion, the Association may not pay cash dividends generally on deposit accounts and/or capital stock of the Association, or repurchase any of the capital stock of the Association, if such dividend or repurchase would reduce the Association’s regulatory capital below the aggregate amount of the then current subaccount balances for Deposit Accounts then held; otherwise, the existence of the liquidation account shall not operate to restrict the use or application of any of the net worth accounts of the Association.

 

(g) For purposes of this Section 15, a Deposit Account includes a predecessor or successor account which is held by an Account Holder with the same social security number.

 

16. Establishment and Funding of Charitable Foundation.

 

(a) As part of the Conversion, the Holding Company and the Association intend to establish the Foundation, which will qualify as an exempt organization under Section 501(c)(3) of the Code, and to donate to the Foundation cash and/or shares of Common Stock, in an aggregate amount up to 8% of the value of the shares of Common Stock sold in the Offerings. The Foundation is being formed in connection with the Conversion in order to complement the Association’s existing community reinvestment activities and to share with the Association’s local community a part of the Association’s financial success as a community-based financial institution. The funding of the Foundation with Common Stock accomplishes this goal as it enables the community to share in the growth and profitability of the Holding Company and the Association over the long- term.

 

(b) The Foundation will be dedicated to the promotion of charitable purposes including community development, grants or donations to support housing assistance, not-for-profit community groups and other types of organizations or civic-minded projects. The Foundation will annually distribute total grants to assist charitable organizations or to fund projects within its local community of not less than 5% of the average fair market value of Foundation assets each year, less certain expenses. In order to serve the purposes for which it was formed and maintain its Section 501(c)(3) qualification, the Foundation may sell, on an annual basis, a limited portion of the Common Stock contributed to it by the Holding Company.

 

(c) The board of directors of the Foundation will include persons who are officers or directors of the Holding Company or the Association. For at least five years after the organization of the Holding Company, except for temporary periods resulting from death, resignation, removal or disqualification, at least (i) one director of the Foundation will be an independent director who is unaffiliated with the Association or the Holding Company, who is from the Association’s local community and who has

 

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experience with local community charitable organizations and grant making, and (ii) at least one director will be a person who is also a member of the Board of Directors of the Association.

 

(d) The board of directors of the Foundation will be responsible for establishing the policies of the Foundation with respect to grants or donations, consistent with the stated purposes of the Foundation.

 

(e) The establishment of the Foundation and contribution of stock and cash to the Foundation in connection with the Conversion will require the prior approval of the OCC.

 

17. Completion of the Conversion.

 

The effective date of the Conversion shall be the date of the closing of the sale of all shares of Common Stock. The closing of the sale of all shares of Common Stock sold in the Offerings shall occur simultaneously and shall be conditioned upon the prior receipt of all requisite regulatory and other approvals.

 

18. Requirements for Stock Purchases by Directors and Officers Following the Conversion.

 

For a period of three years following the Conversion, the directors and Officers of the Holding Company and the Association and their Associates may not purchase Common Stock without the prior written approval of the OCC except from a broker-dealer registered with the SEC. This prohibition shall not apply, however, to (a) a negotiated transaction involving more than 1% of the outstanding Common Stock, and (b) purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt of shareholder approval of such plan) even if such Common Stock may be attributable to individual Officers or directors and their Associates. The foregoing restriction on purchases of Common Stock shall be in addition to any restrictions that may be imposed by federal and state securities laws.

 

19. Restrictions on Transfer of Stock.

 

All shares of Common Stock that are purchased by Persons other than directors and Officers of the Holding Company or the Association shall be transferable without restriction. Shares of Common Stock purchased by directors and Officers of the Holding Company or the Association on original issue from the Holding Company (by subscription or otherwise) shall be subject to the restriction that such shares shall not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares following the death of the original purchaser. The shares of Common Stock issued by the Holding Company to such directors and Officers shall bear the following legend giving appropriate notice of such one-year restriction:

 

“The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate. These shares may not be transferred during such one-year period without a legal opinion of counsel for the Company that said transfer is permissible under the provisions of applicable law and regulation. This restrictive legend shall be deemed null and void after one year from the date of this Certificate.”

 

In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares issued at a later date as a stock dividend, stock split or otherwise with respect to any such restricted stock shall be subject to the same holding period restrictions as may then be applicable to such restricted stock. The foregoing restriction on transfer shall be in addition to any restrictions on transfer that may be imposed by federal and state securities laws.

 

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20. Stock Compensation Plans.

 

(a) The Holding Company and the Association are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including without limitation an ESOP.

 

(b) Subsequent to the Conversion, the Holding Company and the Association are authorized to adopt Non-Tax Qualified Employee Stock Benefit Plans, including without limitation, stock option plans and restricted stock plans. In addition, any such plan implemented during the one-year period subsequent to the date of consummation of the Conversion: (i) shall be disclosed in the Prospectus; (ii) in the case of stock option plans and employee recognition or grant plans, shall be submitted for approval by the holders of the Common Stock no earlier than six months following consummation of the Conversion; and (iii) shall comply with all other applicable requirements of the OCC or the FRB as applicable.

 

(c) Existing, as well as any newly created, Tax-Qualified Employee Stock Benefit Plans may purchase shares of Common Stock in the Offerings, to the extent permitted by the terms of such benefit plans and this Plan.

 

(d) The Holding Company and the Association are authorized to enter into employment or severance agreements with their executive officers.

 

21. Dividend and Repurchase Restrictions on Stock.

 

(a) Following consummation of the Conversion, any repurchases of shares of capital stock by the Holding Company will be made in accordance with then applicable laws and regulations.

 

(b) The Association may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause the regulatory capital of the Association to be reduced below the amount required for the liquidation account established in accordance with Section 15 herein. Any dividend declared or paid on, or repurchase of, the Association’s capital stock also shall be in compliance with then applicable laws and regulations.

 

22. Amendment or Termination of The Plan.

 

If deemed necessary or desirable by the Boards of Directors of the Holding Company and the Association, this Plan may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time before the solicitation of proxies from Voting Members to vote on the Plan and at any time thereafter with the concurrence of the OCC.

 

Before the Special Meeting, this Plan may be terminated by the Boards of Directors of the Holding Company and the Association without approval of the OCC. After the Special Meeting, the Boards of Directors of the Holding Company and the Association may terminate this Plan only with the concurrence of the OCC.

 

This Plan shall terminate if the Conversion is not completed within 24 months from the date that the Plan is approved by the Voting Members at the Special Meeting.

 

23. Interpretation of the Plan.

 

All interpretations of this Plan and application of its provisions to particular circumstances by a majority of each of the Board of Directors of the Holding Company and the Board of Directors of the Association shall be final, subject to the authority of the OCC.

 

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Federal Stock Charter

Central Federal Savings and Loan Association of Rolla

 

 

 

 

FEDERAL STOCK CHARTER

OF

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA

 

Section 1.          Corporate Title. The full corporate title of the savings association is Central Federal Savings and Loan Association of Rolla (the “Association”).

 

Section 2.          Office. The Association’s home office shall be located in the City of Rolla, Missouri.

 

Section 3.          Duration. The duration of the Association is perpetual.

 

Section 4.          Purpose and Powers. The purpose of the Association is to pursue any or all of the lawful objectives of a Federal savings association chartered under Section 5 of the Home Owners’ Loan Act and to exercise all of the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of the Comptroller of the Currency (the “OCC”).

 

Section 5.          Capital Stock. The total number of shares of all classes of the capital stock that the Association has the authority to issue is 11,000, of which 10,000 shares shall be common stock, par value $1.00 per share, and of which 1,000 shares shall be serial preferred stock, par value $1.00 per share. The shares may be issued from time to time as authorized by the board of directors without further approval of shareholders, except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the Association. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted to the Association), labor, or services actually performed for the Association, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the Association, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the retained earnings of the Association that is transferred to common stock or paid-in capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance.

 

Except for shares issued in the initial organization of the Association or in connection with the conversion of the Association from the mutual to stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the Association other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting.

 

Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class or series of capital stock to vote as a separate class or series or to more than one vote per share; provided, however, that this restriction on voting separately by class or series shall not apply:

 

(i)          to any provision that would authorize the holders of preferred stock, voting as a class or series, to elect some members of the board of directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock;

 

 

 

 

(ii)         to any provision that would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the Association with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the Association if the preferred stock is exchanged for securities of such other corporation; provided, however, that no provision may require such approval for transactions undertaken with the assistance or pursuant to the direction of the OCC, or the Federal Deposit Insurance Corporation;

 

(iii)        to any amendment that would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment that increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving association in a merger or consolidation for the Association, shall not be considered to be such an adverse change.

 

A description of the different classes and series (if any) of the Association’s capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows:

 

A.           Common Stock. Except as provided in this Section 5 (or in any supplementary sections hereto) the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by each holder and there shall be no right to cumulate votes in an election of directors.

 

Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to payment of dividends, the full amount of dividends and of sinking fund, retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends.

 

In the event of any liquidation, dissolution, or winding up of the Association, the holders of the common stock (and the holders of any class or series of stock entitled to participate with the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the Association available for distribution remaining after: (i) payment or provision for payment of the Association’s debts and liabilities; (ii) distributions or provisions for distributions in settlement of its liquidation account; and (iii) distributions or provisions for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the Association. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock.

 

B.           Preferred Stock. The Association may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series:

 

(i)          The distinctive serial designation and the number of shares constituting such series;

 

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(ii)         The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s), the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends;

 

(iii)        The voting powers, full or limited, if any, of shares of such series;

 

(iv)        Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed;

 

(v)         The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the Association;

 

(vi)        Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund;

 

(vii)       Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the Association and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;

 

(viii)      The price or other consideration for which the shares of such series shall be issued; and

 

(ix)         Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock.

 

Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series.

 

The board of directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established.

 

Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the board of directors, the Association shall file with the Secretary of the OCC a dated copy of that supplementary section of this charter establishing and designating the series and fixing and determining the relative rights and preferences thereof.

 

Section 6.          Preemptive Rights. Holders of the capital stock of the Association shall not be entitled to preemptive rights with respect to any shares of the Association which may be issued.

 

Section 7.          Directors. The Association shall be under the direction of a board of directors. The authorized number of directors, as stated in the Association’s bylaws, shall not be fewer than five nor more than 15, except when a greater or lesser number is approved by the Director of the OCC, or his or her delegate.

 

Section 8.          Certain Provisions Applicable for Five Years. Notwithstanding anything contained in the Association’s charter and or bylaws to the contrary, for a period of five years from the

 

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date of completion of the conversion of the Association from mutual to stock form, the following provisions shall apply:

 

A.           Beneficial Ownership Limitation. No person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10 percent of any class of an equity security of the Association. This limitation shall not apply to a transaction in which the Association forms a holding company without change in the respective beneficial ownership interests of its stockholders other than pursuant to the exercise of any dissenter and appraisal rights, the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under 174.3(c)(2)(i)(E) of the OCC’s regulations.

 

In the event shares are acquired in violation of this Section 8, all shares beneficially owned by any person in excess of 10 percent shall be considered “excess shares” and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the shareholders for a vote.

 

For the purposes of this Section 8, the following definitions apply:

 

(i)          The term “person” includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the Association.

 

(ii)         The term “offer” includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value.

 

(iii)        The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.

 

(iv)        The term “acting in concert” means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangements, whether written or otherwise.

 

B.           Call for Special Meetings. Special meetings of shareholders relating to changes in control of the Association or amendments to its charter shall be called only upon direction of the board of directors.

 

Section 9.          Liquidation Account. Under OCC regulations, the Association must establish and maintain a liquidation account for the benefit of its savings account holders as of June 30, 2014 and [ supplemental eligibility record date ]. If the Association undergoes a complete liquidation, it must comply with OCC regulations with respect to the amount and priorities on liquidation of each of the savings account holders’ interests in the liquidation account. A savings account holder’s interest in the liquidation account does not entitle the savings account holder to any voting rights.

 

Section 10.         Amendment of Charter. Except as provided in Section 5, no amendment, addition, alteration, change, or repeal of this charter shall be made, unless such is proposed by the board of directors of the Association, approved by the shareholders by a majority of the votes eligible to be cast at a legal meeting, unless a higher vote is otherwise required, and approved or preapproved by the OCC.

 

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    CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
     
Attest:      
    Corporate Secretary   By:  
        William A. Stoltz
        President
     
    OFFICE OF THE COMPTROLLER OF THE CURRENCY
     
Attest:     By:  
    Secretary       Director
     
Effective Date:      
           

 

  5  
 

 

Federal Stock Bylaws

Central Federal Savings and Loan Association of Rolla

 

 

 

 

STOCK BYLAWS

OF

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA

 

Article I– Home Office

 

The home office of Central Federal Savings and Loan Association of Rolla (the “Association”) shall be at 210 West 10 th Street, in the City of Rolla, in the State of Missouri.

 

Article II– Shareholders

 

Section 1.          Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the Association or at such other convenient place as the Board of Directors (the “Board”) may determine.

 

Section 2.          Annual Meeting. A meeting of the shareholders of the Association for the election of Directors and for the transaction of any other business of the Association shall be held annually on a date and time within 150 days after the end of the Association’s fiscal year.

 

Section 3.          Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of the Comptroller of the Currency (the “OCC”), may be called at any time by the chairman of the Board, the chief executive officer, or a majority of the Board, and shall be called by the chairman of the Board, the chief executive officer, or the secretary upon the written request of the holders of not less than one-tenth of all the outstanding capital stock of the Association entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered at the home office of the Association addressed to the chairman of the Board, the chief executive officer, or the secretary.

 

Section 4.          Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the most current edition of Robert’s Rules of Order unless otherwise prescribed by regulations of the OCC or these bylaws or the Board adopts another written procedure for the conduct of meetings. The Board shall designate, when present, either the chairman of the Board or chief executive officer to preside at such meetings.

 

Section 5.          Notice of Meetings. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the Board, the chief executive officer, or the secretary, or the Directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the Association as of the record date prescribed in Section 6 of this Article II with postage prepaid. When any shareholders’ meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken.

 

Section 6.          Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board shall fix in advance a date as the record date for any such determination of shareholders. Such date

 

 

 

 

in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment.

 

Section 7.          Voting Lists. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the Association shall make a complete list of the shareholders of record entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the Association and shall be subject to inspection by any shareholder of record or the shareholder’s agent at any time during usual business hours for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder of record or any shareholder’s agent during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the Board may elect to follow the procedures prescribed in § 152.6(d) of the OCC’s regulations as now or hereafter in effect.

 

Section 8.          Quorum. A majority of the outstanding shares of the Association entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number of shareholders voting together or voting by classes is required by law or the charter. Directors, however, are elected by a plurality of the votes cast at an election of Directors.

 

Section 9.          Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. Proxies may be given telephonically or electronically so long as the holder uses a procedure for verifying the identity of the shareholder. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the Board. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest.

 

Section 10.        Voting of Shares in the Name of Two or More Persons. When ownership stands in the name of two or more persons, in the absence of written directions to the Association to the contrary, at any meeting of the shareholders of the Association any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree.

 

Section 11.        Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of such corporation may determine. Shares held by an

 

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administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name.

 

Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name. Shares held in trust in an IRA or Keogh Account, however, may be voted by the Association if no other instructions are received. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

 

A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

 

Neither treasury shares of its own stock held by the Association nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation are held by the Association, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

 

Section 12.        Inspectors of Election. In advance of any meeting of shareholders, the Board may appoint any person other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the Board or the chief executive officer may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board in advance of the meeting or at the meeting by the chairman of the Board or the chief executive officer.

 

Unless otherwise prescribed by regulations of the OCC, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders.

 

Section 13.        Nominating Committee. The Board shall act as a nominating committee for selecting the management nominees for election as Directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Association. No nominations for Directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the Association at least five days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Association. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for Directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon.

 

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Section 14.        New Business. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the Association at least five days before the date of the annual meeting, and all other business so stated, proposed, and filed shall be considered at the annual meeting; but no other proposal shall be acted upon at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless stated in writing and filed with the secretary at least five days before the meeting, such proposal shall be laid over for action at an adjourned, special, or annual meeting of the shareholders taking place 30 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, Directors, and committees; but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided.

 

Section 15.        Informal Action by Shareholders. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter.

 

Article III– Board

 

Section 1.          General Powers. The business and affairs of the Association shall be under the direction of its Board. The Board shall annually elect a chairman of the Board from among its members and shall designate, when present, either the chairman of the Board or the chief executive officer to preside at its meetings.

 

Section 2.          Number and Term. The Board shall consist of six members, and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually.

 

Section 3.          Regular Meetings. A regular meeting of the Board shall be held without other notice than this bylaw following the annual meeting of shareholders. The Board may provide, by resolution, the time and place, for the holding of additional regular meetings without other notice than such resolution. Directors may participate in a meeting by means of conference telephone or similar communications device through which all persons participating can hear each other at the same time. Participation by such means shall constitute presence in person for all purposes.

 

Section 4.          Qualification. Each Director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the Association unless the Association is a wholly owned subsidiary of a holding company.

 

Section 5.          Special Meetings. Special meetings of the Board may be called by or at the request of the chairman of the Board, the chief executive officer, or one-third of the Directors. The persons authorized to call special meetings of the Board may fix any place, within the Association’s normal lending territory, as the place for holding any special meeting of the Board called by such persons. Members of the Board may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person for all purposes.

 

Section 6.          Notice. Written notice of any special meeting shall be given to each Director at least 24 hours prior thereto when delivered personally or by telegram or at least five days prior thereto when delivered by mail to the address at which the Director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid if mailed, when

 

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delivered to the telegraph company if sent by telegram, or when the Association receives notice of delivery if electronically transmitted. Any Director may waive notice of any meeting by a writing filed with the secretary. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board need be specified in the notice of waiver of notice of such meeting.

 

Section 7.          Quorum. A majority of the number of Directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board; but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III.

 

Section 8.          Manner of Acting. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board, unless a greater number is prescribed by regulation of the OCC or by these bylaws.

 

Section 9.          Action Without a Meeting. Any action required or permitted to be taken by the Board at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors.

 

Section 10.        Resignation. Any Director may resign at any time by sending a written notice of such resignation to the home office of the Association addressed to the chairman of the Board or the chief executive officer. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the Board or the chief executive officer. More than three consecutive absences from regular meetings of the Board, unless excused by resolution of the Board, shall automatically constitute a resignation, effective when such resignation is accepted by the Board.

 

Section 11.        Vacancies. Any vacancy occurring on the Board may be filled by the affirmative vote of a majority of the remaining Directors although less than a quorum of the Board. A Director elected to fill a vacancy shall be elected to serve only until the next election of Directors by the shareholders. Any Directorship to be filled by reason of an increase in the number of Directors may be filled by election by the Board for a term of office continuing only until the next election of Directors by the shareholders.

 

Section 12.        Compensation. Directors, as such, may receive a stated salary for their services. By resolution of the Board, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board. Members of either standing or special committees may be allowed such compensation for attendance at committee meetings as the Board may determine.

 

Section 13.        Presumption of Assent. A Director of the Association who is present at a meeting of the Board at which action on any Association matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Association within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a Director who voted in favor of such action.

 

Section 14.        Removal of Directors. At a meeting of shareholders called expressly for that purpose, any Director may be removed only for cause by a vote of the holders of a majority of the shares then

 

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entitled to vote at an election of Directors. Whenever the holders of the shares of any class are entitled to elect one or more Directors by the provisions of the charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a Director or Directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.

 

Section 15.        Integrity of Directors. A person is not qualified to serve as Director if he or she: (a) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, or (b) is a person against who a banking agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (c) has been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency.

 

Section 16.        Advisory Directors. The Board may by resolution appoint advisory Directors to the Board, who may also serve as Directors emeriti, and shall have such authority and receive such compensation and reimbursement as the Board shall provide. Advisory Directors or Directors emeriti shall not have the authority to participate by vote in the transaction of business.

 

Section 17.        Age Limitation. No person shall be eligible for election, reelection, appointment, or reappointment to the Board if such person is then more than 75 years of age. Any Director who attains age 75 during the term shall be allowed to complete the term. This Section 17 of this Article III does not apply to a Director who was serving as a Director of Central Federal Savings and Loan Association of Rolla on [ date of issuance of federal stock charter] . Persons may serve as Advisory Directors without regard to age.

 

Article IV– Executive and Other Committees

 

Section 1.          Appointment. The Board, by resolution adopted by a majority of the full Board, may designate the chief executive officer and two or more of the other Directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the Board, or any Director, of any responsibility imposed by law or regulation.

 

Section 2.          Authority. The executive committee, when the Board is not in session, shall have and may exercise all of the authority of the Board except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the Board with reference to: the declaration of dividends; the amendment of the charter or bylaws of the Association, or recommending to the shareholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all or substantially all of the property and assets of the Association otherwise than in the usual and regular course of its business; a voluntary dissolution of the Association; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest.

 

Section 3.          Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the Board following his or her designation and until a successor is designated as a member of the executive committee.

 

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Section 4.          Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day’s notice stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting.

 

Section 5.          Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.

 

Section 6.          Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee.

 

Section 7.          Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full Board.

 

Section 8.          Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full Board. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the Association. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective.

 

Section 9.          Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the Board for its information at the meeting held next after the proceedings shall have occurred.

 

Section 10.        Other Committees. The Board may by resolution establish an audit, loan, or other committee composed of Directors as they may determine to be necessary or appropriate for the conduct of the business of the Association and may prescribe the duties, constitution, and procedures thereof.

 

Article V– Officers

 

Section 1.          Positions. The officers of the Association shall be a chief executive officer, a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the Board. The Board may also designate the chairman of the Board as an officer. The offices of the secretary and treasurer or comptroller may be held by the same person and a vice president may also be either the secretary or the treasurer or comptroller. The Board may designate one or more vice presidents as executive vice president or senior vice president. The Board may also elect or authorize the appointment of such other officers as the business of the Association may require. The officers shall have such authority and perform such duties as the Board may from time to time authorize or determine. In the absence of action by the Board, the officers shall have such powers and duties as generally pertain to their respective offices.

 

Section 2.          Election and Term of Office. The officers of the Association shall be elected annually at the first meeting of the Board held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each

 

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officer shall hold office until a successor has been duly elected and qualified or until the officer’s death, resignation, or removal in the manner hereinafter provided. Election or appointment of an officer, employee, or agent shall not of itself create contractual rights. The Board may authorize the Association to enter into an employment contract with any officer in accordance with regulations of the OCC; but no such contract shall impair the right of the Board to remove any officer at any time in accordance with Section 3 of this Article V.

 

Section 3.          Removal. Any officer may be removed by the Board whenever in its judgment the best interests of the Association will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed.

 

Section 4.          Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise, may be filled by the Board for the unexpired portion of the term.

 

Section 5.          Remuneration. The remuneration of the officers shall be fixed from time to time by the Board.

 

Article VI– Contracts, Loans, Checks, and Deposits

 

Section 1.          Contracts. To the extent permitted by regulations of the OCC, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the Board may authorize any officer, employee, or agent of the Association to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Association. Such authority may be general or confined to specific instances.

 

Section 2.          Loans. No loans shall be contracted on behalf of the Association and no evidence of indebtedness shall be issued in its name unless authorized by the Board. Such authority may be general or confined to specific instances.

 

Section 3.          Checks; Drafts, etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Association shall be signed by one or more officers, employees, or agents of the Association in such manner as shall from time to time be determined by the Board.

 

Section 4.          Deposits. All funds of the Association not otherwise employed shall be deposited from time to time to the credit of the Association in any duly authorized depositories as the Board may select.

 

Article VII– Certificates for Shares and Their Transfer

 

Section 1.          Certificates for Shares. Certificates representing shares of capital stock of the Association shall be in such form as shall be determined by the Board and approved by the OCC. Such certificates shall be signed by the chief executive officer or by any other officer of the Association authorized by the Board, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the Association itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Association. All certificates surrendered to the Association for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and cancelled, except that in the

 

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case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the Association as the Board may prescribe.

 

Section 2.          Transfer of Shares. Transfer of shares of capital stock of the Association shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish proper evidence of such authority, or by his or her attorney authorized by a duly executed power of attorney and filed with the Association. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name the shares of capital stock stand on the books of the Association shall be deemed by the Association to be the owner for all purposes.

 

Article VIII– Fiscal Year

 

The fiscal year of the Association shall end on the 31st of December of each year. The appointment of accountants shall be subject to annual ratification by the shareholders.

 

Article IX– Dividends

 

Subject to the terms of the Association’s charter and the regulations and orders of the OCC, the Board may, from time to time, declare, and the Association may pay, dividends on its outstanding shares of capital stock.

 

Article X– Corporate Seal

 

The Board shall provide an Association seal, which shall be two concentric circles between which shall be the name of the Association. The year of incorporation or an emblem may appear in the center.

 

Article XI– Amendments

 

These bylaws may be amended in a manner consistent with regulations of the OCC and shall be effective after: (1) approval of the amendment by a majority vote of the authorized Board, or by a majority vote of the votes cast by the shareholders of the Association at any legal meeting, and (2) receipt of any applicable regulatory approval. When the Association fails to meet its quorum requirements, solely due to vacancies on the Board, then the affirmative vote of a majority of the sitting Board will be required to amend the bylaws.

 

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Exhibit 3.1

 

ARTICLES OF INCORPORATION

OF

Central Federal Bancshares, Inc.

 

The undersigned natural person of the age of 18 years or more, for the purpose of forming a corporation under the laws of the State of Missouri, hereby adopts the following Articles of Incorporation pursuant to Section 351.055 of The General and Business Corporation Law of Missouri (the “GBCL”):

 

ARTICLE I - CORPORATE TITLE

 

1.1.         The name of the Corporation is Central Federal Bancshares, Inc.

 

ARTICLE II REGISTERED OFFICE AND AGENT

 

2.1.         The address, including street and number, of the Corporation’s initial registered office in this State is: 210 West 10 th Street, Rolla, Missouri 65401, and the name of its initial registered agent at such address is William A. Stoltz.

 

ARTICLE III CAPITAL STOCK

 

3.1.         The Corporation shall have authority to issue shares as set forth in this Section 3.1:

 

(a)          The Corporation may issue 10,000,000 shares of voting Common Stock with a par value of $0.01 per share (“Common Stock”). Subject to all of the rights of the preferred stock as expressly provided in these Articles of Incorporation, the Corporation’s Bylaws or by the Board of Directors in a resolution(s) pursuant to this Article III, the common stock of the Corporation shall possess all such rights and privileges as are afforded to capital stock by Missouri law in the absence of any express grant of rights or privileges in these Articles of Incorporation, including, without limiting the generality of the foregoing, the following:

 

(i)          holders of the common stock shall be entitled to one vote per share on each matter submitted to a vote at a meeting of shareholders; provided, however, that as provided in Section 3.4, there shall not be any cumulative voting of the common stock;

 

(ii)         dividends may be declared and paid or set aside for payment upon the common stock out of any assets or funds of the Corporation legally available therefor; and

 

(iii)        upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, its net assets shall be distributed ratably to holders of the common stock.

 

(b)          The Corporation may issue 1,000,000 shares of Preferred Stock with a par value of $0.01 per share (“Preferred Stock”). The terms of the shares of each series of preferred stock shall be as stated and expressed in these Articles of Incorporation, or in the resolution or resolutions providing for the issuance of such series of preferred stock adopted by the Board of Directors of the Corporation. Subject to the requirements of the GBCL and the provisions of these Articles of Incorporation, the Board of Directors of the Corporation is expressly authorized to cause any number of authorized and undesignated shares of preferred stock to be issued from time to time in one or more series of preferred stock with such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, if any, as the Board of Directors of the Corporation may fix by resolution or resolutions, prior to the issuance of any shares of such series of preferred stock, each of which series may differ from any and all other series, including, without limiting the generality of the foregoing, the following:

 

   
 

 

(i)          the number of shares constituting such series of preferred stock and the designations thereof;

 

(ii)         the dividend rate, if any, on the shares of such series of preferred stock, whether and the extent to which any such dividends shall be cumulative or non-cumulative, the relative rights of priority, if any, of payments of any dividends, and the time at which, and the terms and conditions on which, any dividends shall be paid;

 

(iii)        the right, if any, of the holders of such series of preferred stock to vote and the manner of voting, except as may otherwise be provided by the GBCL and the provisions of these Articles of Incorporation;

 

(iv)        whether or not the shares of such series shall be made convertible into or exchangeable for other securities of the Corporation, including shares of the common stock or shares of any other series of the preferred stock, now or hereafter authorized, the price or prices or the rate or rates at which conversion or exchange may be made, any provision for future adjustment in the conversion or exchange rate, and the terms and conditions upon which the conversion or exchange right shall be exercised;

 

(v)         the redemption or purchase price or prices of the shares of the series of preferred stock, if any, and the times at which, and the terms and conditions under which, the shares of such series of preferred stock may be redeemed or purchased;

 

(vi)        the terms of the sinking fund, if any, to be provided for such series of preferred stock, and the terms and amount of any such sinking fund;

 

(vii)       the rights of the holders of shares of such series of preferred stock in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation and the relative rights of priority, if any, of such holders with respect thereto; and

 

(viii)      any other relative powers, preferences and rights, and any qualifications, limitations or restrictions thereof, of such series of preferred stock.

 

3.2.          (a)         Notwithstanding any other provision of these Articles of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of shareholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit, unless a majority of the Whole Board (as defined in Article X) shall have by resolution granted in advance such entitlement or permission. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit.

 

(b)          The following definitions shall apply to this Section 3.2.

 

(i)          “Affiliate” shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing of these Articles of Incorporation.

 

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(ii)         “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of these Articles of Incorporation; provided, however, that a person shall, in any event, also be deemed the “beneficial owner” of any Common Stock:

 

(A)         which such person or any of its affiliates beneficially owns, directly or indirectly; or

 

(B)         which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in any one or more of clauses (i) through (v) of Section 10.1 of Article X or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner); or

 

(C)         which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however , that (i) no Director or Officer of this Corporation (or any affiliate of any such Director or Officer) shall, solely by reason of any or all of such Directors of Officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such Director or Officer (or any affiliate thereof), and (ii) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage beneficial ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

 

(iii)        A “person” shall mean any individual, firm, corporation, or other entity.

 

(c)          The Board of Directors shall have the power to construe and apply the provisions of this Section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock beneficially owned by any person, (ii) whether a person is an Affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this Section to the given facts, or (v) any other matter relating to the applicability or effect of this Section.

 

(d)          The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any person in excess of the Limit) supply the Corporation with complete information

 

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as to (i) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such person.

 

(e)          Except as otherwise provided by law or expressly provided in this Section 3.2, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Section 3.2) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the shareholders, and every reference in these Articles of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for shareholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

 

(f)          Any constructions, applications, or determinations made by the Board of Directors pursuant to this Section in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its shareholders. Any alteration, amendment or repeal of this Section 3.2 shall be made in compliance with Section 10.7.

 

(g)          In the event any provision (or portion thereof) of this Section 3.2 shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its shareholders that each such remaining provision (or portion thereof) of this Section 3.2 remain, to the fullest extent permitted by law, applicable and enforceable as to all shareholders, including shareholders owning an amount of stock over the Limit, notwithstanding any such finding.

 

3.3.          Except as otherwise specifically required by the GBCL, or by these Articles of Incorporation, or by the Corporation’s Bylaws, or by any authorizing resolution of the Board of Directors providing for the issuance of a class or series of Preferred Stock, whenever the holders of shares of stock of the Corporation shall be entitled to vote as a class with respect to any matter, the affirmative vote of a majority of the outstanding shares of such class shall be required to constitute the act of such class.

 

3.4.          There shall be no right to cumulative voting.

 

ARTICLE IV – PREEMPTIVE RIGHTS

 

4.1.          No holder of shares of any class of stock of the Corporation, either now or hereafter authorized or issued, shall have any preemptive or preferential right of subscription to any shares of any class of stock of the Corporation, either now or hereafter authorized, or to any securities convertible into stock of any class of the Corporation, issued or sold, nor any right of subscription to any such security, other than such, if any, as the Board of Directors in its discretion may from time to time determine and at such prices as the Board of Directors may from time to time fix, pursuant to the authority conferred by these Articles of Incorporation.

 

ARTICLE V - INCORPORATOR

 

5.1.          The name and address of the incorporator is: Leonard J. Essig, 600 Washington Avenue, St. Louis, Missouri 63101.

 

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ARTICLE VI – DIRECTORS

 

6.1.          The number of directors to constitute the initial Board of Directors shall be six; provided , however, that such number may be fixed, from time to time, at not less than five nor more than 15, by, or in the manner provided in, the Bylaws of the Corporation. The directors shall be divided into three classes: Class I, Class II and Class III. The number of directors in any such class shall not exceed the number of directors in any other class by more than one. The term of office of the initial Class I Directors shall expire at the annual meeting of shareholders of the Corporation in 2016; the term of office of the initial Class II Directors shall expire at the annual meeting of shareholders of the Corporation in 2017; and the term of office of the initial Class III Directors shall expire at the annual meeting of shareholders of the Corporation in 2018; or in each case thereafter until their respective successors are duly elected and qualified. At each annual election held after 2015, the Directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the Directors they succeed and shall be elected for a term of three years expiring at the third succeeding annual shareholder meeting or thereafter until their respective successors are duly elected and qualified. If the number of Directors is changed, any increase or decrease in the number of Directors shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible.

 

6.2.          Any vacancy on the Board (whether such vacancy is caused by death, resignation, or removal for cause or is the result of an increase in the number of directors) shall be filled by a majority of the Directors then in office. Any Director elected to fill a vacancy in any class (whether such vacancy is caused by death, resignation, or removal with cause, or is the result of an increase in the number of directors in such class) shall hold office for a term which shall expire at the next election of Directors by the shareholders of the Corporation except that a Director elected by the Board pursuant to this Article VI to fill a vacancy or to a newly created directorship need not be presented for election by the shareholders until the class to which the Director has been so elected by the Board is presented for election by the shareholders.

 

6.3.          At a meeting called expressly for that purpose, the entire Board of Directors, or any individual Director or Directors, may be removed, but only for cause, and only upon the affirmative vote of the holders of at least 66- 2/3% of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled.

 

6.4.          In addition to any affirmative vote required by law or otherwise, any amendment, alteration, change or repeal of the provisions of this Article VI shall require the affirmative vote of the holders of at least 80% of the total votes to which all of the shares then entitled to vote at a meeting of shareholders called for an election of Directors are entitled, unless such amendment, alteration, change or repeal has previously been expressly approved by the Board of Directors of the Corporation by the affirmative vote or consent of at least 66- 2/3% of the number of Directors then authorized by, or in the manner provided in, the Bylaws, in which case the shareholder vote required by this Section 6.4 shall not apply.

 

6.5.         The persons to constitute the initial Board of Directors of the Corporation are:

 

(a)          Class I Directors (term to expire in 2016):

 

(i)         Michael E. Estey

(ii)        Jeffrey L. McKune

 

(b)          Class II Directors (term to expire in 2017):

 

(i)         Robert R. Thompson

(ii)        John D. Wiggins

 

(c)          Class III Directors (term to expire in 2018):

 

(i)         Steven L. Bowles

(ii)        James R. Sowers

 

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ARTICLE VII – DURATION

 

7.1.         The duration of the Corporation is perpetual.

 

ARTICLE VIII – PURPOSE AND POWERS

 

8.1.         The Corporation is formed for the following purposes:

 

(a)          To conduct business as a thrift holding company and to provide financial services through subsidiary corporations;

 

(b)          To own, hold, rent, lease, operate, manage, hypothecate, sell and convey such real and personal property as may be useful and desirable in the operation of the Corporation’s business; and

 

(c)          To possess and enjoy all rights, powers and privileges as are granted to corporations under the Missouri General and Business Corporation Law.

 

ARTICLE IX - INDEMNIFICATION

 

9.1.         The Corporation shall and does hereby indemnify any person who is or was a Director or executive officer of the Corporation or any subsidiary against any and all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and reasonably incurred by such person in connection with any threatened, pending or completed civil, criminal, administrative or investigative action, suit, proceeding or claim (including any action by or in the right of the Corporation or a subsidiary) by reason of the fact that such person is or was serving in such capacity; provided, however , that no such person shall be entitled to any indemnification pursuant to this Article IX on account of (i) conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation.

 

9.2.         The Corporation may, to the extent that the Board of Directors deems appropriate and as set forth in a Bylaw or authorizing resolution, indemnify any person who is or was a non-executive officer, or employee or agent of the Corporation or any subsidiary or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including an employee benefit plan) against any and all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement and reasonably incurred by such person in connection with any threatened, pending or completed civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a subsidiary) by reason of the fact that such person is or was serving in such capacity; provided, however , that no such person shall be entitled to any indemnification pursuant to this Section 9.2 on account of (i) conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended from time to time, or pursuant to a successor statute or regulation.

 

9.3.         The Corporation may, to the extent that the Board of Directors deems appropriate, make advances of expenses, including attorneys’ fees, incurred prior to the final disposition of a civil, criminal, administrative or investigative action, suit, proceeding or claim (including an action by or in the right of the Corporation or a subsidiary) to any person to whom indemnification is or may be available under this Article IX; provided, however, that prior to making any advances, the Corporation shall receive a written

 

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undertaking by or on behalf of such person to repay such amounts advanced in the event that it shall be ultimately determined that such person is not entitled to such indemnification.

 

9.4.          The indemnification and other rights provided by this Article IX shall not be deemed exclusive of any other rights to which a person to whom indemnification is or otherwise may be available (under these Articles of Incorporation or the Bylaws or any agreement or vote of shareholders or disinterested Directors or otherwise), may be entitled. The Corporation is authorized to purchase and maintain insurance on behalf of the Corporation or any person to whom indemnification is or may be available against any liability asserted against such person in, or arising out of, such person’s status as Director, officer, employee or agent of the Corporation, any of its subsidiaries or another corporation, partnership, joint venture, trust or other enterprise (including an employee benefit plan) which such person is serving at the request of the Corporation.

 

9.5.          Each person to whom indemnification is granted under this Article IX is entitled to rely upon the indemnification and other rights granted hereby as a contract with the Corporation and such person and such person’s heirs, executors, administrators and estate shall be entitled to enforce against the Corporation all indemnification and other rights granted to such person by Sections 9.1 and 9.3. The indemnification and other rights granted by Sections 9.1 and 9.3 and this Section 9.5 shall survive amendment, modification or repeal of this Article IX, and no such amendment, modification or repeal shall act to reduce, terminate or otherwise adversely affect the rights to indemnification granted hereby, with respect to any expenses, judgments, fines and amounts paid in settlement incurred by a person to whom indemnification is granted under this Article IX with respect to an action, suit, proceeding or claim that arises out of acts or omissions of such person that occurred prior to the effective date of such amendment, modification or repeal.

 

Any indemnification granted by the Board of Directors pursuant this Article IX shall inure to the person to whom the indemnification is granted and such person’s heirs, executors, administrators and estate; provided, however, that such indemnification may be changed, modified or repealed, at any time or from time to time, at the discretion of the Board of Directors, and the survival of such indemnification shall be in accordance with terms determined by the Board of Directors.

 

9.6.          For the purposes of this Article IX, “subsidiary” shall mean any corporation, partnership, joint venture, trust or other enterprise of which a majority of the voting power, equity or ownership interest is directly or indirectly owned by the Corporation.

 

ARTICLE X – CERTAIN BUSINESS COMBINATIONS

 

10.1.       (a)          In addition to any affirmative vote required by law, any other provision of these Articles of Incorporation or by any resolution or resolutions of the Board of Directors providing for the issue of any class or series of Preferred Stock (a “Preferred Stock Designation”), and except as otherwise expressly provided in Section 10.2:

 

(i)          any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or

 

(ii)         any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of 25% or more of the assets of the Corporation or any Subsidiary; or

 

(iii)        the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for any assets, cash, securities or

 

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other property (or a combination thereof) which equals or exceeds 25% of the Fair Market Value (as hereinafter defined) of the Common Stock of the Holding Company; or

 

(iv)        the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareholder; or

 

(v)         any reclassification of securities (including any reverse stock split) or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries, or any other transaction (whether or not with or into or otherwise involving any Interested Shareholder), which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities of the Corporation of any Subsidiary which is Beneficially Owned (as hereinafter defined) by any Interested Shareholder or any Affiliate of any Interested Shareholder;

 

shall require the affirmative vote of (x) the holders of at least 80% of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”), voting together as a single class, and (y) the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock not Beneficially Owned by such Interested Shareholder, or any of its Affiliates or Associates (as hereinafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding any provision of law or of any agreement with any national securities exchange or otherwise which might otherwise permit a lesser vote or no vote.

 

(b)          The term “Business Combination” as used in this Article X shall mean any transaction which is referred to in any one or more of subparagraphs (i) through (v) of paragraph (a) of this Section 10.1.

 

10.2.       The provisions of Section 10.1 shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by laws, any other provision of these Articles of Incorporation and any Preferred Stock Designation, if a majority of the Whole Board (as defined below) shall have approved such Business Combination, or a memorandum of understanding or similar document or instrument with the Interested Shareholder with respect to, and on substantially the same terms as, such Business Combination, in each case prior to the time such Interested Shareholder or any Affiliate or Associate of such Interested Shareholder became an Interested Shareholder.

 

10.3.       For the purposes of this Article X:

 

(a)          A “person” means any individual, limited partnership, general partnership, corporation or other firm or entity.

 

(b)          “Interested Shareholder” means any person (other than the Corporation or any Subsidiary) who or which:

 

(i)          is the Beneficial Owner, directly or indirectly, of 10% or more of the voting power (with respect to voting generally in the election of directors) of the outstanding Voting Stock; or

 

(ii)         is an Affiliate or an Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the Beneficial Owner, directly or indirectly, of 5% or more of the voting power (with respect to voting generally in the election of directors) of the then-outstanding Voting Stock; or

 

(iii)        is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question Beneficially Owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a

 

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transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.

 

(c)          A person shall be a “Beneficial Owner” of, and shall “Beneficially Own,” any Voting Stock:

 

(i)          which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly, within the meaning of the Securities Exchange Act of 1934, as in effect on the date of filing these Articles of Incorporation; or

 

(ii)         which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding (but neither such person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, if such person, Affiliate or Associate is not otherwise deemed the Beneficial Owner of such shares); or

 

(iii)        which are beneficially owned, directly or indirectly, within the meaning of the Securities Exchange Act of 1934, as in effect on the date of filing these Articles of Incorporation, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in subparagraph (ii) of this paragraph (c)) or disposing of any shares of Voting Stock; provided, however , that in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to Beneficially Own any shares of Voting Stock held under any such plan; and provided, however , that in case of any individual retirement account or similar plan for which any Subsidiary serves as trustee or custodian and for which the beneficiary thereof possesses the right to vote any shares of Voting Stock held by such account or plan, no such account or plan nor any trustee or custodian with respect thereto (nor any Affiliate of such trustee or custodian) solely by reason of such capacity as trustee or custodian, shall be deemed, for any purposes hereof, to Beneficially Own any shares of Voting Stock held under any such plan or account.

 

(d)          For the purposes of determining whether a person is an Interested Shareholder pursuant to paragraph (b) of this Section 10.3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed to be Beneficially Owned by such person through application of paragraph (c) of this Section 10.3 but shall not include any other unissued shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

 

(e)          “Affiliate” or “Associate” shall have the respective meaning ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing these Articles of Incorporation.

 

(f)          “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph (b) of this Section 10.3, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

 

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(g)          “Whole Board” means the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors;

 

(h)          The “Fair Market Value” of any assets, securities or other property shall mean the fair market value thereof, as determined by a majority of the Whole Board in good faith after reasonable inquiry.

 

10.4.       A majority of the Whole Board shall have the power and duty to determine in good faith, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article X, including, without limitation, (i) whether a person is an Interested Shareholder, (ii) the number of shares of Voting Stock Beneficially Owned by any person, and (iii) whether a person is an Affiliate or Associate of another.

 

10.5.       A majority of the Whole Board shall have the right to demand that any person who is reasonably believed to be an Interested Shareholder (or to hold or record shares of Voting Stock Beneficially Owned by any Interested Shareholder) supply the Corporation with complete information as to (a) the record owner(s) of all shares Beneficially Owned by such person who is reasonably believed to be an Interested Shareholder (or to hold of record any such Shares), (b) the number of, and class or series of, shares Beneficially Owned by such person who is reasonably believed to be an Interested Shareholder (or to hold of record any such Shares) and held or record by each such record owner and the number(s) of the stock certificate(s) evidencing such shares, and (c) any other factual matter relating to the applicability or effect of this Article X, as may be reasonably requested of such person, and such person shall furnish such information within 10 days after receipt of such demand.

 

10.6.       Nothing contained in this Article X shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law.

 

10.7.       Notwithstanding any other provisions of these Articles of Incorporation or any provision of law which might otherwise provide for lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, these Articles of Incorporation or any Preferred Stock Designation, the affirmative vote of (a) the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, and (b) the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock not Beneficially Owned by any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder, voting together as single class, shall be required to alter, amend or repeal this Article X or Section 3.2.

 

ARTICLE XI – AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS

 

11.1.       Except as otherwise specifically set forth in these Articles of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, and amendments to the Articles of Incorporation shall be made in the manner prescribed by the Missouri General and Business Corporation Law.

 

11.2.       The power to make, alter, amend, or repeal the Bylaws of the Corporation shall be vested exclusively in the Board of Directors, unless otherwise provided in such Bylaws.

 

ARTICLE XII – FURTHER POWERS OF BOARD OF DIRECTORS

 

The Board of Directors shall have and exercise such further powers as are provided to it under present or future laws of the State of Missouri.

 

*          *          *

 

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IN WITNESS WHEREOF, these Articles of Incorporation have been signed this 19 th day of August, 2015.

 

  /s/ Leonard J. Essig
  Leonard J. Essig, Incorporator

 

[Signature Page – Central Federal Bancshares, Inc. Articles of Incorporation]

 

   

 

 

Exhibit 3.2

 

BYLAWS

OF

Central Federal Bancshares, Inc.

 

ARTICLE I - OFFICES

 

The principal office of Central Federal Bancshares, Inc. (the “Corporation”) in the State of Missouri shall be located in Phelps County. The Corporation may have such other offices, either within or without the State of Missouri, as the business of the Corporation may require from time to time.

 

The registered office of the Corporation required by the General and Business Corporation Law of Missouri (“GBCL”) to be maintained in the State of Missouri may be, but need not be, identical to the principal office in the State of Missouri, and the address of the registered office may be changed from time to time by the Board of Directors of the Corporation.

 

ARTICLE II - SHAREHOLDERS

 

Section 1. ANNUAL MEETING

 

The annual meeting of the shareholders of the Corporation shall be held annually on a date and time within 150 days after the end of the Corporation’s fiscal year, or at such other date and time as the Board of Directors may deem as appropriate. The business to be transacted at the annual meeting shall include the election of Directors and any other business properly brought before the meeting in accordance with these Bylaws.

 

Section 2 . SPECIAL MEETINGS

 

A special meeting of the shareholders may be called at any time for any purpose(s) only (a) by the Chairman of the Board, (b) by the President or (c) by two-thirds of the total number of Directors which the Corporation would have if there were no vacancies on the Board of Directors. Business transacted at any special meeting shall be confined to the purpose(s) stated in the notice of such meeting.

 

Section 3. PLACE OF MEETING

 

The Board of Directors may designate any place, either within or without the State of Missouri, as the place of meeting for any annual or special meeting of shareholders.

 

Section 4. NOTICE OF MEETING; WAIVER OF NOTICE

 

Not less than 10 days nor more than 70 days before the date of every shareholders meeting, the Secretary shall give to each shareholder entitled to vote at or to notice of such meeting, written notice stating the place, date and time of the meeting and, in the case of a special meeting, the purpose(s) for which the meeting is called, either by mail to his or her address as it appears on the records of the Corporation or by presenting it to him or her personally or by leaving it at his or her residence or usual place of business. Notwithstanding the foregoing provisions, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be equivalent to notice. Attendance of a person entitled to notice at a meeting, in person or by proxy, shall constitute a waiver of notice of such meeting, except when such person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

 

 
 

 

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided however, that if the date of the adjourned meeting is more than 90 days after the record date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith.

 

Section 5. QUORUM

 

At any meeting of shareholders, the presence of a quorum for all purposes shall be determined as provided in the Corporation’s Articles of Incorporation unless or except to the extent that the presence of a larger number may be required by law.

 

If a quorum fails to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are represented in person or by proxy may adjourn the meeting to any place, date and time without further notice to a date not more than 90 days after the original record date. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of shareholders to leave less than a quorum.

 

Section 6. CONDUCT OF BUSINESS

 

(a)          The chairman of any meeting of shareholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion. The date and time of the opening and closing of the polls for each matter upon which the shareholders will vote at the meeting shall be announced at the meeting.

 

(b)          At any annual meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting either by or at the direction of the Board of Directors or by any shareholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Article II, Section 6(b). For business to be properly brought before an annual meeting by a shareholder, the business must relate to a proper subject matter for shareholder action and the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered or mailed to and received at the principal executive office of the Corporation not less than 90 days prior to the date of the annual meeting; provided, however, that in the event that less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder’s notice to the Secretary shall set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business; (iii) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such shareholder; (iv) a statement disclosing (A) whether such shareholder is acting with or on behalf of any other person and (B) if applicable, the identity of such person; and (v) any material interest of such shareholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Article II, Section 6(b). The Chairman of the Board or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the

 

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meeting that business was not properly brought before the meeting in accordance with the provisions of this Article II, Section 6(b) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. Nothing in this Article II, Section 6 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The provisions of this Article II, Section 6 shall also govern what constitutes timely notice for purposes of Rule 14a-4(c) under the Exchange Act.

 

At any special meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting in accordance with Article II, Section 2.

 

(c)          Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders at which Directors are to be elected only (i) by or at the direction of the Board of Directors; or (ii) by any shareholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Article II, Section 6(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice shall be delivered or mailed to and received at the principal executive office of the Corporation not less than 90 days prior to the date of the meeting; provided, however, that in the event that less than 100 days’ notice or prior disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder’s notice shall set forth (i) as to each person whom such shareholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the shareholder giving the notice (A) the name and address, as they appear on the Corporation’s books, of such shareholder, (B) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such shareholder, and (C) a statement disclosing (1) whether such shareholder or any nominee thereof is acting with or on behalf of any other person and (2) if applicable, the identity of such person.

 

Section 7. VOTING; ACTION BY CONSENT

 

On all matters to be voted on by holders of voting stock of the Corporation, each outstanding share of voting stock of the Corporation shall have one vote. If a quorum is present, the affirmative vote of a majority of the shares represented in person or by proxy and entitled to vote at the meeting shall be the act of the shareholders unless the vote of greater number of shares is required by the Corporation’s Articles of Incorporation, by these Bylaws or by law. No person shall be admitted to vote on any shares belonging or hypothecated to the Corporation. A shareholder may vote either in person or by proxy.

 

Unless otherwise prescribed by the Corporation’s Articles of Incorporation, any action required or permitted to be taken by the shareholders of the Corporation may, if otherwise allowed by law, be taken without a meeting of shareholders only if consents in writing, setting forth the action so taken, are signed by all of the shareholders entitled to vote with respect to the subject matter thereof.

 

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Section 8. PROXIES

 

At all meetings of shareholders, a shareholder may vote the shares owned of record by him or her either in person or by proxy executed in writing by the shareholder or by his or her duly authorized attorney-in-fact. Any facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

 

Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy. A proxy is revocable by a shareholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. A proxy may be made irrevocable for as long as it is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities.

 

Section 9. CONTROL SHARE ACQUISITION ACT

 

Notwithstanding any other provision of the Articles of Incorporation or these Bylaws, Section 351.407 of the GBCL (or any successor provision) shall not apply to any acquisition by any person of shares of stock of the Corporation. This Article II, Section 9 may be repealed at any time, in whole or in part, by a majority vote of the Corporation’s Board of Directors, whether before or after an acquisition of Control Shares (as such term is defined in Section 351.015.5 of the GBCL, or any successor provision) and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent Control Share Acquisition (as such term is defined in Section 351.015.4 of the GBCL, or any successor provision).

 

ARTICLE III - DIRECTORS

 

Section 1. GENERAL POWERS

 

The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except those conferred on or reserved to the shareholders by statute or by the Corporation’s Articles of Incorporation or these Bylaws. The Board may adopt such rules and regulations for the conduct of its meetings and the management of the Corporation as it may deem proper, and which are not inconsistent with these Bylaws and with the GBCL.

 

The Board of Directors shall annually elect a Chairman of the Board from among its members. The Chairman of the Board shall serve in a general oversight capacity and shall preside at all meetings of the Corporation’s Board of Directors. The Chairman of the Board shall perform all duties and have all powers which are commonly included in the office of the Chairman of the Board or which are delegated to him by the Board of Directors.

 

Section 2. NUMBER

 

The number of Directors of the Corporation shall, by virtue of the Corporation’s election made hereby to be governed by Section 351.315 of the GBCL, be fixed from time to time exclusively by vote of

 

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the Board of Directors; provided, however, that such number of Directors shall never be less than the minimum number of directors required by the GBCL.

 

Section 3. QUALIFICATIONS

 

No person shall be eligible for election, reelection, appointment or reappointment to the Board of Directors if such person is then more than 75 years of age or older. Any Director who attains age 75 during the term shall be allowed to complete the term. Section 3 of this Article III does not apply to a Director who was serving as a director of Central Federal Savings and Loan Association of Rolla as of the date of issuance of the federal stock charter of Central Federal Savings and Loan Association of Rolla. Persons may serve as Advisory Directors without regard to age.

 

Section 4. VACANCIES AND NEWLY CREATED DIRECTORSHIPS

 

Any vacancies in the Board of Directors resulting from an increase in the size of the Board of Directors or the death, resignation or removal of a Director may be filled only by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, until the next election of directors by the shareholders of the Corporation, except that, if the Board of Directors is divided into classes, a Director elected by the Board pursuant to this Article III, Section 4 to fill a vacancy or to a newly created directorship need not be presented for election by the shareholders until the class to which the Director has been so elected by the Board is presented for election by the shareholders. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

 

Section 5. REGULAR MEETINGS

 

Regular meetings of the Board of Directors shall be held at such dates, such times and such places, either within or without the State of Missouri, as shall have been designated by the Board of Directors and publicized among all Directors.

 

Section 6. SPECIAL MEETINGS

 

Special meetings of the Board of Directors may be called by the Chairman of the Board, by the Chief Executive Officer, or by two-thirds of the members of the Board of Directors in writing. The person(s) authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Missouri, as the place for holding the special meeting of the Board of Directors called by them.

 

Section 7. NOTICE

 

A notice of a regular meeting shall not be required. The Secretary shall give notice to each Director of the date, time and place of each special meeting of the Board of Directors. Notice is given to a Director when it is delivered personally to him or her, left at his or her residence or usual place of business, or sent by telephone, telegraph, or similar means of transmission at least 24 hours before the time of the meeting, or in the alternative, when it is mailed to his or her address as it appears on the records of the Corporation, at least 72 hours before the time of the meeting. Any Director may waive notice of any meeting either before or after the holding thereof by written waiver filed with the records of the meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

 

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Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

 

Section 8. TELEPHONIC MEETINGS

 

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Article III, Section 8 shall constitute presence in person at such meeting.

 

Section 9. QUORUM

 

At any meeting of the Board of Directors, a majority of the total number of Directors shall constitute a quorum for the transaction of business, but if less than such quorum is present at a meeting, a majority of the Directors present may adjourn the meeting without further notice or waiver thereof.

 

Section 10. MANNER OF ACTING

 

The vote of the majority of the Directors present at a meeting at which a quorum is present shall be the action of the Board of Directors unless the concurrence of a greater proportion is required for such action by the Corporation’s Articles of Incorporation. In accordance with Section 351.340 of the GBCL, if all the Directors severally or collectively consent in writing to any action taken or to be taken by the Directors, such consents have the same force and effect as a unanimous vote of the Directors at a meeting duly held, and may be stated as such in any certificate or document filed with the Secretary of State of the State of Missouri or any other state in the United States of America. Consent by any Director by electronic transmission, as defined in Section 351.245 of the GBCL, and including transmission by email, shall satisfy the unanimous consent requirements of this Article III, Section 10. The Secretary of the Corporation is to file such consents with the minutes of the meetings of the Board of Directors. Formal meetings of the Directors need not be held where the action of all the Directors are consented to in writing.

 

Section 11. RESIGNATION

 

A Director may resign at any time by giving written notice to the Board, the President or the Secretary of the Corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Board or such officer, and the acceptance of the resignation shall not be necessary to make it effective.

 

Section 12. COMPENSATION

 

By resolution of the Board of Directors, a fixed sum and expenses, if any, for attendance at each regular or special meeting of the Board of Directors or of committees thereof, and other compensation for their services as such or on such committees, may be paid to Directors, as compensation for such attendance at meetings and other services as a Director may render to the Corporation.

 

Section 13. COMMITTEES

 

The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for these committees and any others provided for herein, elect a Director(s) to serve as the member(s), designating, if it desires, other Directors as alternate

 

6
 

 

members who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that any such committee shall have no power or authority with reference to (a) declaring dividends or distributions on stock; (b) issuing stock other than as authorized by the Board of Directors, (c) recommending to the shareholders any action which requires shareholder approval; (d) amending the Bylaws; and (e) approving a merger or share exchange which does not require shareholder approval. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member(s) of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

 

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to committee members of all meetings. The quorum requirements for each such committee shall be a majority of the members of such committee. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing(s) is filed with the minutes of the proceedings of such committee.

 

Section 14. INTEGRITY OF DIRECTORS

 

A person is not qualified to serve as Director if he or she: (a) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, or (b) is a person against who a banking agency has, within the past 10 years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (c) has been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency.

 

Section 15. ADVISORY DIRECTORS

 

The Board of Directors may by resolution appoint Advisory Directors to the Board, who may also serve as Directors Emeriti, and shall have such authority and receive such compensation and reimbursement as the Board of Directors shall provide. Advisory Directors or Directors Emeriti shall not have the authority to participate by vote in the transaction of business.

 

ARTICLE IV - OFFICERS

 

Section 1. EXECUTIVE AND OTHER OFFICERS

 

The officers of the Corporation shall be at least a President, a Secretary and a Treasurer. The Board of Directors may designate who shall serve as Chief Executive Officer, having general supervision of the business and affairs of the Corporation, and as Chief Operating Officer, having supervision of the operations of the Corporation; in the absence of a designation the President shall serve as Chief Executive Officer and Chief Operating Officer. The Board of Directors may appoint such other officers as it may deem proper. A person may hold more than one office in the Corporation but may not serve concurrently as both President and Vice President of the Corporation.

 

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Section 2. CHIEF EXECUTIVE OFFICER

 

The Chief Executive Officer shall be the principal executive officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of the Chief Executive Officer or which are delegated to him or her by the Board of Directors. He or she shall have the power to sign all contracts, agreements, and other instruments of the Corporation which are authorized and shall have general supervision and direction of all of the other officers (except the Chairman of the Board), employees, and agents of the Corporation.

 

Section 3. VICE PRESIDENT(S)

 

The Vice President(s) shall perform the duties of the President in his or her absence or during his or her inability to act. In addition, the Vice President(s) shall perform the duties and exercise the powers usually incident to his or her or their respective offices and/or such other duties and powers as may be properly assigned to him or her or them by the Board of Directors or the President. A Vice President(s) may be designated as Executive Vice President or Senior Vice President.

 

Section 4. SECRETARY

 

The Secretary shall keep the minutes of the meetings of the shareholders, of the Board of Directors and of any committees, in books provided for that purpose; he or she shall see that all notices are duly given in accordance with the provisions of the Bylaws or as required by law; he or she shall be custodian of the records of the Corporation; he or she shall witness all documents on behalf of the Corporation, the execution of which is duly authorized, see that the corporate seal is affixed where such document is required to be under its seal, and, when so affixed, may attest to the same; and, in general, he or she shall perform all duties incident to the office of a secretary of a corporation, and such other duties as may from time to time be assigned to him or her by the Board of Directors or the President.

 

Section 5. TREASURER

 

The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all monies or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors. In general, he or she shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as may from time to time be assigned to him or her by the Board of Directors or the President.

 

Section 6. SUBORDINATE OFFICERS

 

The Corporation may have such subordinate officers as the Board of Directors may from time to time deem desirable. Each such officer shall hold office for such period and perform such duties as the Board of Directors, the Chief Executive Officer or the committee or officer designated pursuant to these Bylaws may prescribe.

 

Section 7. COMPENSATION

 

The Board of Directors shall have power to fix the salaries and other compensation and remuneration, of whatever kind, of all officers of the Corporation. It may authorize any committee or

 

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officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the salaries, compensation and remuneration of such subordinate officers.

 

Section 8. ELECTION, TENURE AND REMOVAL OF OFFICERS

 

The Board of Directors shall elect the officers. The Board of Directors may from time to time authorize any committee or officer to appoint subordinate officers. An officer serves for one year or until his or her successor is elected and qualified. If the Board of Directors in its judgment finds that the best interests of the Corporation will be served, it may remove any officer or agent of the Corporation. The removal of an officer or agent does not prejudice any of his or her contract rights. The Board of Directors (or any committee or officer authorized by the Board of Directors) may fill a vacancy which occurs in any office for the unexpired portion of the term of that office.

 

ARTICLE V - STOCK

 

Section 1. CERTIFICATES FOR STOCK

 

Each shareholder shall be entitled to certificates which represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the shareholder and the class of stock and number of shares represented by the certificate and be in such form, not inconsistent with law or with the Articles of Incorporation, as shall be approved by the Board of Directors or any officer(s) designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the President or Vice President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures on each certificate may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer of the Corporation when it is issued.

 

Notwithstanding anything to the contrary herein, the Board of Directors may provide by resolution that some or all of the shares of any or all classes or series of the Corporation’s capital stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation.

 

Section 2. TRANSFERS

 

The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issuance, transfer and registration of certificates of stock or uncertificated shares of stock, and may appoint transfer agents and registrars thereof. The duties of transfer agent and registrar may be combined.

 

Section 3. RECORD DATE AND CLOSING OF TRANSFER BOOKS

 

In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 70 nor less than 10 days before the date of such meeting, nor more than 70 days prior to any other action. The transfer books may not be closed for a period longer than 20 days. In the case of a meeting of shareholders, the closing of the transfer books shall be at least 10 days before the date of the meeting.

 

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Section 4. STOCK LEDGER

 

The Corporation shall maintain a stock ledger which contains the name and address of each shareholder and the number of shares of stock of each class registered in the name of each shareholder. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, within or without the State of Missouri, or, if none, at the principal office or the principal executive offices of the Corporation in the State of Missouri.

 

Section 5. CERTIFICATION OF BENEFICIAL OWNERS

 

The Board of Directors may adopt by resolution a procedure by which a shareholder of the Corporation may certify in writing to the Corporation that any shares of stock registered in the name of the shareholder are held for the account of a specified person other than the shareholder.

 

Section 6. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES

 

The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate or uncertificated shares in place of a stock certificate that is purportedly alleged to have been lost, stolen or destroyed, or the Board of Directors may delegate such power to any officer(s) of the Corporation. In its discretion, the Board of Directors or such officer(s) may refuse to issue such new certificate or uncertificated shares except upon the order of a court having jurisdiction in the premises.

 

ARTICLE VI - FINANCE

 

Section 1. CHECKS, DRAFTS, ETC.

 

All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation are to be signed by such officer or officers, agent or agents of the Corporation and in such manner as from time to time may be determined by resolution of the Board of Directors of the Corporation.

 

Section 2. FISCAL YEAR

 

The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December in each year.

 

ARTICLE VII - MISCELLANEOUS PROVISIONS

 

Section 1. CORPORATE SEAL

 

The Board of Directors may provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.

 

Section 2. VOTING UPON SHARES IN OTHER CORPORATIONS

 

Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the Chief Executive Officer, the President, a Vice President or a proxy appointed by any of them. The Board of Directors, however, may by resolution appoint some other person to vote such

 

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shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

 

Section 3. MAIL

 

Any notice or other document which is required by these Bylaws to be mailed shall be deposited in the United States mail, postage prepaid.

 

Section 4. AMENDMENT OF BYLAWS

 

These Bylaws may be amended in the manner set forth in the Corporation’s Articles of Incorporation.

 

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Exhibit 4.0

 

COMMON STOCK COMMON STOCK
CERTIFICATE NO. __ SEE REVERSE FOR CERTAIN DEFINITIONS
  CUSIP

 

CENTRAL FEDERAL BANCSHARES, INC.

INCORPORATED UNDER THE LAWS OF THE STATE OF MISSOURI

 

THIS CERTIFIES THAT             [SPECIMEN]

 

is the owner of:

 

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,

$0.01 PAR VALUE PER SHARE, OF CENTRAL FEDERAL BANCSHARES, INC.

 

The shares represented by this certificate are transferable only on the stock transfer books of Central Federal Bancshares, Inc. (the “Company”) by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Articles of Incorporation of the Company and any amendments thereto (copies of which are on file with the Corporate Secretary of the Company), to all of which provisions the holder by acceptance hereof, assents. This certificate is not valid until countersigned and registered by the Company’s Transfer Agent and Registrar.

 

The shares evidenced by this certificate are not of an insurable type and are not insured by the Federal Deposit Insurance Corporation.

 

IN WITNESS WHEREOF, Central Federal Bancshares, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed.

 

Dated: __________   [SEAL]  
       
       
President     Corporate Secretary

 

   
 

 

 

CENTRAL FEDERAL BANCSHARES, INC.

 

The shares represented by this certificate are subject to a limitation contained in the Articles of Incorporation to the effect that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of common stock (the “Limit”) be entitled or permitted to any vote in respect of shares held in excess of the Limit.

 

The Board of Directors of the Company is authorized by resolution(s), from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the voting powers, designations, preferences and relative, participating, optional, or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The Company will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof.

 

The shares represented by this Certificate may not be cumulatively voted on any matter.

 

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

 

TEN COM - as tenants in common

UNIF GIFTS MIN ACT - __________ custodian __________

(Cust)                          (Minor)

TEN ENT - as tenants by the entireties

Under Uniform Gifts to Minors Act _______________

(State)

JT TEN - as joint tenants with right of survivorship and not as tenants in common  

 

Additional abbreviations may also be used though not in the above list.

 

For value received __________ hereby sell, assign and transfer unto                                                                       

 

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER OF ASSIGNEE

 

                                                                                                                                                                                    

Please print or typewrite name and address including postal zip code of assignee.

 

           shares of the common represented constitute and appoint                                                    , attorney, to transfer the said stock on the books of the within-named corporation with full power of substitution in the premises.

 

DATED       
      NOTICE: The signature to this assignment must
      correspond with the name as written upon the face
      of the certificate in every particular without
      alteration or enlargement or any change whatever.

 

SIGNATURE GUARANTEED:  
 

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE I7Ad-I5

 

   

 

 

Exhibit 5.0

 

314.444.7600 (direct)

314.241.6056 (fax)

www.lewisrice.com

Attorneys at Law

600 Washington Avenue

Suite 2500

St. Louis, Missouri 63101

 

September 11, 2015

 

Board of Directors

Central Federal Bancshares, Inc.
210 West 10 th Street
Rolla, Missouri 65401

 

RE: Registration Statement on Form S-1; Up to 1,788,020 shares of Central Federal Bancshares, Inc. Common Stock, par value $0.01 per share

 

Gentlemen:

 

We have acted as counsel to Central Federal Bancshares, Inc., a Missouri corporation (the “Company”), in connection with the proposed issuance of up to 1,788,020 shares of the Company’s common stock (the “Shares”) pursuant to the Company’s registration statement on Form S-1 (the “Registration Statement”), filed by the Company with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”). This opinion letter is being furnished to the Company in accordance with the requirements of Item 601(b)(5) under Regulation S-K of the Securities Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related prospectus (the “Prospectus”), other than as expressly stated herein with respect to the issue of the Shares.

 

As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter. With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters. We are opining herein as to the General and Business Corporation Law of Missouri and the Securities Act, and we express no opinion with respect to any other laws.

 

In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of: (i) the Articles of Incorporation of the Company, as amended through the date hereof (the “Articles of Incorporation”); (ii) the Bylaws of the Company, as amended through the date hereof (the “Bylaws”); (iii) certain resolutions of the Board of Directors of the Company relating to the issuance, sale and registration of the Shares under the Registration Statement and the Prospectus; and (iv) the Registration Statement and Prospectus.  In addition, we have examined originals or copies, certified or otherwise identified to our satisfaction, of certain other corporate records, documents, instruments and certificates of public officials and of the Company, and we have made such inquiries of officers of the Company and public officials and considered such questions of law as we have deemed necessary for purposes of rendering the opinions set forth herein.  As to the facts upon which this opinion is based, we have relied upon certificates of public officials and certificates and written statements of officers, directors, employees and representatives of the Company.

 

In rendering this opinion, we have assumed the genuineness and authenticity of all signatures on original documents; the authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; the legal capacity of natural persons who are signatories to the documents examined by us; the accuracy, completeness and authenticity of certificates of public officials; the due authorization, execution and delivery of all documents where authorization,

 

Established 1909

 

   
 

 

 

Central Federal Bancshares, Inc.

September 11, 2015

Page 2

 

execution and delivery are prerequisites to the effectiveness of such documents; and the legal power and authority of all persons (other than officers of the Company) signing on behalf of the parties to all documents.

 

Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, the Shares have been duly authorized by all necessary corporate action of the Company, and, when the Shares shall have been duly registered on the books of the transfer agent or registrar therefor in the name of or on behalf of the purchasers, and have been issued by the Company against payment therefor in the circumstances contemplated by the form of underwriting agreement most recently filed as an exhibit to the Registration Statement, the Shares will be validly issued, fully paid and nonassessable.

 

This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Securities Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm contained in the Prospectus under the heading “Legal and Tax Opinions.” We further consent to your filing this opinion as an exhibit to the Form AC filed by Central Federal Savings and Loan Association of Rolla with the Office of the Comptroller of the Currency, and as an exhibit to the Application on Form H-(e)1-S filed by the Company with the Board of Governors of the Federal Reserve System, both in connection with the Registration Statement. By giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.

 

  Very Truly Yours,
   
  LEWIS RICE LLC
   
  /s/ Lewis Rice LLC

 

   

 

 

Exhibit 8.1

 

314.444.7600 (direct)

314.241.6056 (fax)

www.lewisrice.com

Attorneys at Law

600 Washington Avenue

Suite 2500

St. Louis, Missouri 63101

 

September 10, 2015

 

Board of Directors

Central Federal Savings and Loan Association of Rolla

210 West 10th Street

Rolla, Missouri 65401

 

Re: Federal Income Tax Opinion Relating to the Conversion of Central Federal Savings and Loan Association of Rolla from a Federally-Chartered Mutual Savings Association to a Federally-Chartered Stock Savings Association

 

Gentlemen:

 

You have asked for our opinion regarding the material U.S. federal income tax consequences of (i) the conversion of Central Federal Savings and Loan Association of Rolla from a federally chartered mutual savings association (the “Association”) to a federally chartered stock savings association (the “Converted Association”); (ii) the acquisition of the Converted Association’s capital stock by Central Federal Bancshares, Inc., a Missouri corporation (the “Holding Company”); and, (iii) the issuance of common stock by the Holding Company in the Offerings. These transactions are collectively referred to herein as the “Conversion”. The Conversion will be carried out pursuant to a plan of conversion adopted by the Board of Directors of the Association on August 4, 2015 (the “Plan of Conversion”). All capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan of Conversion.

 

For the purposes of our opinion, we have examined and relied upon originals, or copies certified or otherwise identified to our satisfaction, of the Plan of Conversion, as amended through the date hereof, 1 and of such corporate records of the parties to the Conversion as we have deemed necessary or appropriate, including, but not limited to, the Holding Company’s Registration Statement on Form S-1 relating to the proposed issuance of common stock, and the Articles of Incorporation and Bylaws of Holding Company. We have also relied upon, without independent verification, the representations of the Association and Holding Company contained in their letter to us dated August 4, 2015. We have assumed that such representations are true.

 

We have assumed that the Conversion contemplated by the Plan of Conversion will be consummated in accordance therewith and as described in the prospectus included as part of the Registration Statement on Form S-l filed by the Holding Company.

 

Our opinion is limited solely to the U.S. federal income tax consequences of the proposed Conversion and does not analyze or address any other taxes, jurisdictions, transactions, or issues. Our opinion is based the existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the U.S. Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Changes in the tax laws could affect the continued validity of the opinions expressed below. Furthermore, there can be no assurance that the opinions expressed herein would be adopted by the Internal Revenue Service (the “IRS”) or a court of law.

 

 

1 The Board of Directors of the Association adopted an amendment to the Plan of Conversion, on September 8, 2015.

 

Established 1909

 

 
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 2

 

We specifically express no opinion concerning tax matters relating to the Plan of Conversion under state and local tax laws. Our opinions under U.S. federal income tax laws are based on the documents and assumptions described above.

 

The initial purchase price of the common stock of the Converted Association to be issued after the Conversion, and the number of shares of such common stock to be offered for sale, will be decided by the Boards of Directors of the Holding Company and Association, based upon a valuation of the Association by an independent appraiser.

 

Based on and subject to the foregoing, it is our opinion that for U.S. federal income tax purposes, under current law:

 

1. The Conversion of the Association from a federally chartered mutual savings association to a federally chartered stock savings association will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be recognized by account holders or by the Association by reason of such conversion. See Rev. Rul. 80-105, 1980-1 C.B. 78.

 

2. No gain or loss will be recognized by the Converted Association on the receipt of money from the Holding Company in exchange for its shares. Code Section 1032(a).

 

3. No gain or loss will be recognized by the Holding Company upon the receipt of money from the sale of its common stock in the Offerings. Code Section 1032(a).

 

4. The assets of the Association will have the same basis in the hands of the Converted Association as they had in the hands of the Association immediately prior to the Conversion. Code Section 362(b).

 

5. The holding period of the Association’s assets to be received by the Converted Association will include the period during which the assets were held by the Association prior to the Conversion. Code Section 1223(2).

 

6. Account holders of the Association will recognize no gain or loss upon the issuance to them of withdrawable deposit accounts in the Converted Association immediately after the Conversion, in the same dollar amounts and on the same terms and conditions as their deposit accounts in the Association. Code Section 354(a).

 

7. No gain or loss will be recognized by the Eligible Account Holders or the Supplemental Eligible Account Holders upon receipt by them of an interest in the Liquidation Account of the Converted Association in exchange for their ownership interests in the Association. Code Section 354(a).

 

8. The basis of the account holders’ withdrawable deposit accounts in the Converted Association will be the same as the basis of their deposit accounts in the Association surrendered in exchange therefor. The basis of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account of the Converted Association will be zero. Code Section 358(a).

 

 
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 3

 

9. It is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of the Holding Company (the “Subscription Rights”) to be issued to Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members is zero, and, accordingly, that no income will be realized by Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members upon the issuance to them of Subscription Rights or upon the exercise of the Subscription Rights. Code Section 356(a); Rev. Rul. 56-572, 1956-2 C.B. 182.

 

10. It is more likely than not that the tax basis to the holders of shares of common stock purchased in the Subscription Offering pursuant to the exercise of Subscription Rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of the completion of the Offerings. Code Section 1223(5).

 

11. The holding period for shares of common stock purchased in the Community Offering or Syndicated Community Offering will begin on the day after the date of completion of such Offering. Rev. Rul. 70-598, 1970-2 C.B. 168.

 

12. For purposes of Section 381 of the Code, the Converted Association will be treated as if there had been no reorganization. Accordingly, the taxable year of the Association will not end on the effective date of the Conversion, and the Association will not be required to file a federal income tax return for any portion of such taxable year solely by reason of the Conversion. Treas. Reg. Section 1.381(b)-(1)(a)(2); See Rev. Rul. 57-276, 1957-1 C.B. 126.

 

13. The Converted Association will succeed to the tax attributes of the Association enumerated in Code Section 381(c), as if there had been no reorganization. Treas. Reg. Section 1.381(b)-(1)(a)(2).

 

Notwithstanding any reference to Code Section 381 above, no opinion is expressed or intended to be expressed herein as to the effect, if any, of the Conversion or Offerings on the continued existence of, the carryover or carryback of, or the limitation on, any net operating losses of the Association or its successor, Converted Association, under the Code. Additionally, no opinion is expressed as to the effect of the Conversion or Offerings on the use of net operating loss carry-forwards, excess credits, or pre-acquisition losses of the Association, if any, under Sections 382, 383, or 384.

 

The reasoning in support of our opinions set forth in paragraphs 9 and 10 above is as follows:

 

· Whether the Subscription Rights have a market value for federal income tax purposes is a question of fact, and depends upon all of the relevant facts and circumstances. The IRS will not issue rulings on whether the Subscription Rights have a market value. We are unaware of any instance in which the IRS has taken the position that nontransferable subscription rights issued by a converting financial institution have a market value.

 

· In addition, our opinion under paragraph 9 above is predicated on the representation given by the Association and the Holding Company that no person

 

 
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 4

 

shall receive any payment, whether in money or property, in lieu of the issuance of Subscription Rights.

 

· Our opinion under paragraphs 9 and 10 is based on the assumption that the Subscription Rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipients with the right only to purchase shares of common stock at the same price to be paid by members of the general public in the Offerings.

 

· If the Subscription Rights are subsequently found to have value, income may be recognized by various recipients of the Subscription Rights (in certain cases, whether or not the rights are exercised) and the Holding Company and/or Converted Association may be taxable on the distribution of the Subscription Rights.

 

No opinion is expressed or intended to be expressed herein as to whether the charitable foundation to be established by the Holding Company, the Central Federal Community Foundation (the “Foundation”), will qualify for or be granted tax-exempt status under either Federal or Missouri State law. Additionally, no opinion is expressed or intended to be expressed herein as to whether the Holding Company will be entitled to claim a deduction for Federal or Missouri State income tax purposes for its contributions, including contributions of its common stock, to the Foundation.

 

Except as set forth above, we express no opinion to any party as to the tax consequences, whether federal, state, local or foreign, of the Conversion or of any transaction related thereto or contemplated by the Plan of Conversion. This opinion may not be referred to in any document without our prior express written consent. We consent to the filing of this opinion as an exhibit to the Application for Conversion on Form AC filed by the Association with the Office of the Comptroller of the Currency, as an exhibit to the Application on Form H-(e)1-S filed by the Holding Company with the Board of Governors of the Federal Reserve System, and as an exhibit to the Registration Statement on Form S-1 filed by the Holding Company with the Securities and Exchange Commission, each filed in connection with the Conversion. We further consent to the reference to our firm and to this opinion in the prospectus included in the Registration Statement on Form S-1, under the heading “The Conversion and Stock Offering — Material Income Tax Consequences.” In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

 

Our opinion is issued as of the date hereof, and we disclaim any obligation to revise or supplement our opinion should the current U.S. federal income tax laws be changed by any legislation, administrative interpretations or rulings, judicial decisions or otherwise.

 

  Very truly yours,
   
  LEWIS RICE, LLC
   
  /s/ Lewis Rice LLC

 

 

 

Exhibit 8.2

314.444.7600 (direct)

314.241.6056 (fax)

www.lewisrice.com

Attorneys at Law

600 Washington Avenue

Suite 2500

St. Louis, Missouri 63101

 

September 10, 2015

 

Board of Directors

Central Federal Savings and Loan Association of Rolla

210 West 10th Street

Rolla, Missouri 65401

 

Re: State Income Tax Opinion Relating to the Conversion of Central Federal Savings and Loan Association of Rolla from a Federally Chartered Mutual Savings Association to a Federally Chartered Stock Savings Association

 

Gentlemen:

 

You have requested our opinion regarding the Missouri state income tax consequences of (i) the conversion of Central Federal Savings and Loan Association of Rolla from a federally chartered mutual savings association (the “Association”) to a federally chartered stock savings association (the “Converted Association”); (ii) the acquisition of the Converted Association’s capital stock by Central Federal Bancshares, Inc., a Missouri corporation (the “Holding Company”); and, (iii) the issuance of common stock by the Holding Company in the Offerings. These transactions are collectively referred to herein as the “Conversion”. The Conversion will be carried out pursuant to a Plan of Conversion initially adopted by the Board of Directors of the Association on August 4, 2015 (the “Plan of Conversion”). All capitalized terms used but not defined herein shall have the meanings assigned to them in the Plan of Conversion.

 

For the purposes of our opinion, we have examined and relied upon originals, or copies certified or otherwise identified to our satisfaction, of the Plan of Conversion, as amended through the date hereof, 1 and of such corporate records of the parties to the Conversion as we have deemed necessary or appropriate, including, but not limited to, the Holding Company’s Registration Statement on Form S-1 relating to the proposed issuance of common stock, and the Articles of Incorporation and Bylaws of the Holding Company. We have also relied upon, without independent verification, the representations of the Association and Holding Company contained in their letter to us dated August 4, 2015. We have assumed that such representations are true.

 

We have assumed that the Conversion contemplated by the Plan of Conversion will be consummated in accordance therewith and as described in the prospectus included as part of the Registration Statement on Form S-l filed by the Holding Company.

 

Our opinion is limited solely to the Missouri state income tax consequences of the proposed Conversion and does not analyze or address any other taxes, jurisdictions, transactions, or issues. Our opinion is based on the savings and loan association income tax provisions of the Revised Statutes of Missouri, existing regulations and current administrative and judicial interpretations thereof, all in effect as of the date hereof, and all subject to change, possibly with retroactive effect. Changes in the tax laws could affect the continued validity of the opinions expressed below.

 

 

1 The Board of Directors of the Association adopted an amendment to the Plan of Conversion on September 8, 2015.

 

Established 1909

 

   
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 2

 

We specifically express no opinion herein concerning tax matters relating to the Plan of Conversion under U.S. federal income tax laws, including but not limited to the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Our opinions under Missouri state income tax laws are based on the documents and assumptions described above. Our opinion will not bind the Missouri Department of Revenue or any court, and, therefore, the Missouri Department of Revenue and Missouri courts are not precluded from asserting a contrary position.

 

The initial purchase price of the common stock of the Converted Association to be issued after the Conversion, and the number of shares of such common stock to be offered for sale, shall be decided by the Boards of Directors of the Holding Company and Association, based upon a valuation of the Association by an independent appraiser.

 

Federal Tax Opinion of Lewis Rice LLC

 

In addition to this opinion, we have issued an opinion, of even date herewith, that addresses the material U.S. federal income tax consequences of the Conversion (the “Federal Opinion”). The Federal Opinion, which relies upon standard factual representations given by the Association, concludes, as follows:

 

1. The Conversion of the Association from a federally chartered mutual savings association to a federally chartered stock savings association will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be recognized by account holders or by the Association by reason of such conversion. See Rev. Rul. 80-105, 1980-1 C.B. 78.

 

2. No gain or loss will be recognized by the Converted Association on the receipt of money from the Holding Company in exchange for its shares. Code Section 1032(a).

 

3. No gain or loss will be recognized by the Holding Company upon the receipt of money from the sale of shares of its common stock in the Offerings. Code Section 1032(a).

 

4. The assets of the Association will have the same basis in the hands of the Converted Association as they had in the hands of the Association immediately prior to the Conversion. Code Section 362(b).

 

5. The holding period of the Association’s assets to be received by the Converted Association will include the period during which the assets were held by the Association prior to the Conversion. Code Section 1223(2).

 

6. Account holders of the Association will recognize no gain or loss upon the issuance to them of withdrawable deposit accounts in the Converted Association immediately after the Conversion, in the same dollar amounts and on the same terms and conditions as their deposit accounts in the Association. Code Section 354(a).

 

   
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 3

 

7. No gain or loss will be recognized by the Eligible Account Holders or the Supplemental Eligible Account Holders upon receipt by them of an interest in the Liquidation Account of the Converted Association in exchange for their ownership interests in the Association. Code Section 354(a).

 

8. The basis of the account holders’ withdrawable deposit accounts in the Converted Association will be the same as the basis of their deposit accounts in the Association surrendered in exchange therefor. The basis of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account of the Converted Association will be zero. Code Section 358(a).

 

9. It is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of the Holding Company (the “Subscription Rights”) to be issued to Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members is zero, and, accordingly, that no income will be realized by Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members upon the issuance to them of Subscription Rights or upon the exercise of the Subscription Rights. Code Section 356(a); Rev. Rul. 56-572, 1956-2 C.B. 182.

 

10. It is more likely than not that the tax basis to the holders of shares of common stock purchased in the Subscription Offering pursuant to the exercise of Subscription Rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of the completion of the Offerings. Code Section 1223(5).

 

11. The holding period for shares of common stock purchased in the Community Offering or Syndicated Community Offering will begin on the day after the date of completion of such Offering. Rev. Rul. 70-598, 1970-2 C.B. 168.

 

12. For purposes of Section 381 of the Code, the Converted Association will be treated as if there had been no reorganization. Accordingly, the taxable year of the Association will not end on the effective date of the Conversion, and the Association will not be required to file a federal income tax return for any portion of such taxable year solely by reason of the Conversion. Treas. Reg. Section 1.381(b)-(1)(a)(2); See Rev. Rul. 57-276, 1957-1 C.B. 126.

 

13. The Converted Association will succeed to the tax attributes of the Association enumerated in Code Section 381(c), as if there had been no reorganization. Treas. Reg. Section 1.381(b)-(1)(a)(2).

 

Discussion Related to Missouri State Income Tax Consequences

 

Chapters 143 and 148 of the Revised Statutes of Missouri (the “Revised Statutes”) contain the provisions that dictate the income taxation of savings and loan associations in the State of Missouri. Missouri law does not prescribe requirements for a transaction to qualify as a reorganization, nor does

 

   
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 4

 

Missouri law include any exceptions or modifications relating to Code Section 368(a)(1)(F) (an “F reorganization”) or to any of the related Code provisions that determine the income tax consequences of a an F reorganization. See Mo. Rev. Stat. §§ 143.105, 143.111, and 143.091. Thus, Missouri law does not modify the federal law that determines the holding period and basis of assets transferred in an F reorganization. Instead, Missouri law conforms to the provisions of the Code, as in effect for the taxable year, including the provisions relating to recognition of gain or loss on reorganizations under Code Sections 368, 354 and 361.

 

Missouri uses U.S. federal taxable income as the starting point for computing Missouri taxable income. See Mo. Rev. Stat . §§ 143.105, 143.431, 143.011, 143.111, 143.121, and 143.091. The Missouri taxable income of a savings and loan association is its net income for the taxable year, from whatever sources derived, as determined under Section 148.603 of the Revised Statutes and as adjusted under subsections 3 and 5 thereof. Missouri follows the Code and all of its definitions for determining the taxable income of banking institutions in Missouri. Mo. Rev. Stat. § 148.70. The Federal Opinion, which states that no income or loss is recognized for U.S. federal income tax purposes by any of the parties to the Conversion described above, therefore provides the basis upon which we conclude that such conversion will result in no gain or loss under Missouri income tax law.

 

Missouri also follows the Code and all of its definitions for determining the taxable income of individuals. Mo. Rev. Stat. § 143.091. Additionally, individual taxable income is defined as adjusted gross income as defined in the Code, as in effect for the taxable year. Mo. Rev. Stat. § 143.121. As such, the various entities that are party to the Conversion, and the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members of the Association will receive the same treatment for Missouri income tax purposes as for federal income tax purposes.

 

Accordingly, based on the facts and representations stated herein and the existing law, it is our opinion that for Missouri state income tax purposes:

 

1. No gain or loss will be recognized by the Association or by its account holders by reason of the Association’s conversion from a federally chartered mutual association to a federally chartered stock association.

 

2. No gain or loss will be recognized by the Converted Association on the receipt of money from the Holding Company in exchange for its shares.

 

3. No gain or loss will be recognized by the Holding Company upon the receipt of money from the sale of its common stock in the Offerings.

 

4. The assets of the Association will have the same basis in the hands of the Converted Association as they had in the hands of Association immediately prior to the Conversion.

 

5. The holding period of the Association’s assets to be received by the Converted Association will include the period during which the assets were held by the Association prior to the Conversion.

 

6. Account holders of the Association will recognize no gain or loss upon the issuance to them of withdrawable deposit accounts in the Converted Association immediately after

 

   
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 5

 

the Conversion, in the same dollar amounts and on the same terms and conditions as their deposit accounts in the Association.

 

7. No gain or loss will be recognized by the Eligible Account Holders or the Supplemental Eligible Account Holders upon receipt by them of an interest in the Liquidation Account of the Converted Association in exchange for their ownership interests in the Association.

 

8. The basis of the account holders’ withdrawable deposit accounts in the Converted Association will be the same as the basis of their deposit accounts in the Association surrendered in exchange therefor. The basis of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account of the Converted Association will be zero.

 

9. It is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of the Holding Company (the “Subscription Rights”) to be issued to Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members is zero, and, accordingly, that no income will be realized by the Eligible Account Holders, Supplemental Eligible Account Holders, and Other Members upon the issuance to them of Subscription Rights or upon the exercise of the Subscription Rights.

 

10. It is more likely than not that the tax basis to the holders of shares of common stock purchased in the Offering pursuant to the exercise of Subscription Rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of the completion of the Offering.

 

11. The holding period for shares of common stock purchased in the Community Offering or Syndicated Community Offering will begin on the day after the date of completion of such Offering.

 

No opinion is expressed or intended to be expressed herein as to the effect, if any, of the Conversion or Offerings on the continued existence of, the carryover or carryback of, or the limitation on, any net operating losses or other tax attributes of the Association or its successor, Converted Association.

 

The reasoning in support of our opinions set forth in paragraphs 9 and 10 above is as follows:

 

· Whether the Subscription Rights have a market value for federal income tax purposes is a question of fact, and depends upon all of the relevant facts and circumstances. The IRS will not issue rulings on whether the Subscription Rights have a market value. We are unaware of any instance in which the IRS has taken the position that nontransferable subscription rights issued by a converting financial institution have a market value.

 

· In addition, our opinion under paragraph 9 above is predicated on the representations given by the Association and the Holding Company that no person shall receive any payment, whether in money or property, in lieu of the issuance of Subscription Rights.

 

   
 

 

 

Central Federal Savings and Loan Association of Rolla

September 10, 2015

Page 6

 

· Our opinion under paragraphs 9 and 10 is based on the assumption that the Subscription Rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipients with the right only to purchase shares of common stock at the same price to be paid by members of the general public in the Offerings.

 

· If the Subscription Rights are subsequently found to have value, income may be recognized by various recipients of the Subscription Rights (in certain cases, whether or not the rights are exercised) and the Holding Company and/or Converted Association may be taxable on the distribution of the Subscription Rights.

 

No opinion is expressed or intended to be expressed herein as to whether the charitable foundation to be established by the Holding Company, the Central Federal Community Foundation (the “Foundation”), will qualify for or be granted tax-exempt status under either Federal or Missouri State law. Additionally, no opinion is expressed or intended to be expressed herein as to whether the Holding Company will be entitled to claim a deduction for Federal or Missouri State income tax purposes for its contributions, including contributions of its common stock, to the Foundation.

 

This opinion is given solely for the benefit of the Association, the Holding Company, Eligible Account Holders, Supplemental Account Holders and Other Members described in the Plan of Conversion who will receive Subscription Rights and may not be relied upon by any other party or entity. Except as set forth above, we express no opinion to any party as to the tax consequences, whether federal, state, local or foreign, of the Conversion or of any transaction related thereto or contemplated by the Plan of Conversion. This opinion may not be referred to in any document without our prior express written consent. We consent to the filing of this opinion as an exhibit to the Application for Conversion on Form AC filed by the Association with the Office of the Comptroller of the Currency, as an exhibit to the Application on Form H-(e)1-S filed by the Holding Company with the Board of Governors of the Federal Reserve System, and as an exhibit to the Registration Statement on Form S-1 filed by the Holding Company with the Securities and Exchange Commission, each filed in connection with the Conversion. We further consent to the reference to our firm and to this opinion in the prospectus included in the Registration Statement on Form S-1, under the heading “THE CONVERSION AND STOCK OFFERING — Material Income Tax Consequences.” In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

 

Our opinion is issued as of the date hereof, and we disclaim any obligation to revise or supplement our opinion should the current Missouri state income tax laws be changed by any legislation, administrative interpretations or rulings, judicial decisions or otherwise.

 

  Very truly yours,
   
  LEWIS RICE LLC
   
  /s/ Lewis Rice LLC

 

   

 

 

Exhibit 10.1

 

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA

FORM OF
EMPLOYEE STOCK OWNERSHIP PLAN

 

Effective [                ]

 

   
 

 

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA

FORM OF
EMPLOYEE STOCK OWNERSHIP PLAN

 

TABLE OF CONTENTS

 

Section 1 - Introduction 1
   
Section 2 - Definitions 1
   
Section 3 - Eligibility and Participation 8
   
Section 4 - Contributions 10
   
Section 5 - Plan Accounting 12
   
Section 6 - Vesting 18
   
Section 7 - Distributions 20
   
Section 8 - Voting of Company Stock and Tender Offers 27
   
Section 9 - The Committee and Plan Administration 28
   
Section 10 - Rules Governing Benefit Claims 30
   
Section 11 - The Trust 31
   
Section 12 - Adoption, Amendment and Termination 32
   
Section 13 - General Provisions 33
   
Section 14 - Top-Heavy Provisions 34

 

   
 

 

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA

EMPLOYEE STOCK OWNERSHIP PLAN

 

SECTION 1

INTRODUCTION

 

1.01          Nature of the Plan . Effective as of               (the “Effective Date”), Central Federal Savings and Loan Association of Rolla (the “Association”) hereby adopts the Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan (the “Plan”). The Plan enables Eligible Employees (as defined in Section 2.01(q) of the Plan) to acquire stock ownership interests in Central Federal Bancshares, Inc. (the “Company”), the holding company of the Association. The Association intends this Plan to be a tax-qualified stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and an employee stock ownership plan within the meaning of Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Sections 409 and 4975(e)(7) of the Code. The Plan is designed to invest primarily in the common stock of the Company, which stock constitutes “qualifying employer securities” within the meaning of Section 407(d)(5) of ERISA and Sections 409(l) and 4975(e)(8) of the Code. Accordingly, the Plan and Trust Agreement (as defined in Section 2.01(oo) of the Plan) shall be interpreted and applied in a manner consistent with the Association’s intent for it to be a tax-qualified plan designed to invest primarily in qualifying employer securities.

 

1.02          Employers and Affiliates . The Association and each of its Affiliates (as defined in Section 2.01(c) of the Plan) which, with the consent of the Association, adopt the Plan pursuant to the provisions of Section 12.01 of the Plan are collectively referred to as the “Employers” and individually as an “Employer.” The Plan shall be treated as a single plan with respect to all participating Employers. No Employer is a Subchapter-S corporation as of the Effective Date.

 

SECTION 2

DEFINITIONS

 

2.01          Definitions . In this Plan, whenever the context so indicates, the singular or the plural number and the masculine or feminine gender shall be deemed to include the other, the terms “he,” “his,” and “him,” shall refer to a Participant or Beneficiary, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the following bolded and capitalized terms have the meanings set forth below.

 

(a)           Account or Accounts mean a Participant’s or Beneficiary’s Company Stock Account and/or his Other Investments Account, as the context so requires.

 

(b)           Acquisition Loan means a loan (or other extension of credit, including an installment obligation to a “party in interest” (as defined in Section 3(14) of ERISA)) incurred by the Trustee in connection with the purchase of Company Stock.

 

(c)           Affiliate means any corporation, trade or business, which, at the time of reference, is together with the Association, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control, or an affiliated service group, as described in Sections 414(b), 414(c), and 414(m) of the Code, respectively, or any other organization treated as a single employer with the Association under Section 414(o) of the Code; provided, however, that, where the context so requires, the term “Affiliate” shall be construed to give full effect to the provisions of Sections 409(l)(4) and 415(h) of the Code. The Association, Company and any other Affiliate are sometimes collectively referred to as the “Control Group”.

 

(d)           Association means Central Federal Savings and Loan Association of Rolla and any entity which succeeds to the business of the Association and which adopts this Plan in accordance with the provisions of Section 12.02 of the Plan or by written agreement assuming the obligations under the Plan.

 

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(e)           Beneficiary means any person or the persons (natural or otherwise) designated by a Participant to receive benefits under the Plan following a Participant’s death or in the absence of any such designated persons), such other persons as determined to be the beneficiary under Section 7.03 of the Plan.

 

(f)           Break In Service means any Plan Year, in which an Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee shall be considered employed for his normal hours of paid employment during a Recognized Absence (the Employee shall not be credited with more than 501 Hours of Service to avoid a Break in Service), unless he does not resume his Service at the end of the Recognized Absence. Further, if an Employee is absent for any period (i) by reason of the Employee’s pregnancy, (ii) by reason of the birth of the Employee’s child, (iii) by reason of the placement of a child with the Employee in connection with the Employee’s adoption of the child, or (iv) for purposes of caring for such child for a period beginning immediately after such birth or placement, the Employee shall be credited with the Hours of Service which would normally have been credited but for such absence, up to a maximum of 501 Hours of Service. Hours of Service shall be credited only in the year in which the absence from work begins, if a Participant would be prevented from incurring a one-year Break in Service in such year solely because the period of absence is treated as Hours of Service, or in any other case, in the immediately following year.

 

(g)           Change in Control means the occurrence of any one of the events set forth below.

 

(i)           Merger : The Company or the Association merges into or consolidates with another corporation, or merges another corporation into the Company or the Association, and as a result less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company or the Association immediately before the merger or consolidation.

 

(ii)          Acquisition of Significant Share Ownership : The Company files, or is required to file, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Exchange Act, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of twenty-five percent (25%) or more of a class of the Company’s voting securities, but this clause (b) shall not apply to beneficial ownership of Company voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns fifty (50%) or more of its outstanding voting securities.

 

(iii)         Change in Board Composition : During any period of two consecutive years, individuals who constitute the Company’s or the Association’s board of directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Association’s or the Company’s board of directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the board of directors (or first nominated by the board of directors for election by the stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period.

 

(iv)         Sale of Assets : The Company or the Association sells to a third party all or substantially all of its assets.

 

(h)           Code means the Internal Revenue Code of 1986, as amended.

 

(i)           Committee means the individual(s) responsible for the administration of the Plan in accordance with Section 9 of the Plan.

 

(j)           Company means Central Federal Bancshares, Inc., a Missouri corporation, and any entity which succeeds to the business of Central Federal Bancshares, Inc.

 

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(k)            Company Stock means the common stock of Central Federal Bancshares, Inc. and any other common stock issued by another corporation which is a member of the same group of controlled corporations. Company Stock shall also include any securities substituted for such stock by way of recapitalization, reorganization, merger or consolidation. The Plan shall not hold or invest in any Company Stock unless such securities are: (i) common stock which is readily tradable in an established market; or (ii) if there is no such readily tradable common stock, then common stock having a combination of voting power and dividend rights equal to or in excess of that class of common stock having the greatest voting power and that class of common stock having the greatest dividend rights; provided that noncallable preferred stock which is convertible at any time at a reasonable price into common stock having the characteristics described above may be held or purchased as Plan investments.

 

(l)             Company Stock Account means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund invested in Company Stock.

 

(m)           Compensation means a Participant’s compensation paid by the Employer for the Employer’s fiscal year, as reflected on IRS Form W-2, including wages, salary, overtime pay, commissions and bonuses of all kinds. Compensation shall also include amounts not currently includible in gross income by reason of the application of Sections 125 (cafeteria plan), 132(f)(4) (qualified transportation fringe), 402(e)(3) (401(k) plan), 402(h)(1)(B) (simplified employee pension plan), 414(h) (employer pickup contributions under a governmental plan), 403(b) (tax sheltered annuity) or 457(b) (eligible deferred compensation plan) of the Code. Notwithstanding the foregoing, to the extent the definition of Compensation does not satisfy the requirements of Section 414(s) of the Code for any particular Plan Year, then, for that Plan Year, the definition of Compensation shall have the meaning provided in Section 5.05(c) of this Plan.

 

A Participant’s Compensation shall not exceed the limit set forth in Section 401(a)(17) of the Code ($265,000 for the Plan Years beginning January 1, 2015). If the Plan Year for which a Participant’s Compensation is measured is less than twelve (12) calendar months, then the amount of Compensation taken into account for such Plan Year shall be the adjusted amount for such Plan Year, as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code, multiplied by a fraction, the numerator of which is the number of months taken into account for such Plan Year and the denominator of which is twelve (12). In determining the dollar limitation hereunder, Compensation received from an Affiliate shall be recognized as Compensation.

 

(n)           Disability means a physical or mental impairment, certified by one or more physician(s) designated by the Committee, which prevents him from doing any substantial gainful activity for which he is fitted by education, training or experience, and which is expected to last at least 12 months or to result in death.

 

(o)           Effective Date means                   .

 

(p)          Eligibility Computation Period means a twelve (12) consecutive month period. An Employee’s first Eligibility commencement period shall begin on the date he first performs an Hour of Service for the Employer ( i.e., “employment commencement date”). Subsequent Eligibility Computation Periods shall be the Plan Year, commencing with the first Plan Year that includes the first anniversary date of the Employee’s employment commencement date. To determine the first Eligibility Computation Period after a one year Break in Service, the Plan shall use the twelve (12) consecutive month period beginning on the date the Employee again performs an Hour of Service for the Employer.

 

(q)          Eligible Employee means any Employee who is not precluded from participating in the Plan by reason of the provisions of Section 3.02 of the Plan.

 

(r)           Employee means any individual who is or has been employed or self-employed by an Employer. “Employee” also means an individual employed by a leasing organization who, pursuant to an agreement between an Employer and the leasing organization, has performed services for the Employer and any

 

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related persons (within the meaning of Section 414(n)(6) of the Code) on a substantially full-time basis for more than one year, if such services are performed under the primary direction or control of the Employer. However, such a “leased employee” shall not be considered an Employee if (i) he participates in a money purchase pension plan sponsored by the leasing organization which provides for immediate participation, immediate full vesting, and an annual contribution of at least 10 percent of the Employee’s Compensation, and (ii) leased employees do not constitute more than 20 percent of the Employer’s total work force (including leased employees, but excluding Highly Compensated Employees and any other Employees who have not performed services for the Employer on a substantially full-time basis for at least one year).

 

(s)            Employer or Employers means the Association and its Affiliates, which adopt the Plan in accordance with the provisions of Section 12.01 of the Plan, and any entity which succeeds to the business of the Association or its Affiliates and which adopts the Plan in accordance with the provisions of Section 12.02 of the Plan or by written agreement assumes the obligations under the Plan.

 

(t)            Entry Date means January 1st and July 1st.

 

(u)           ERISA means the Employee Retirement Income Security Act of 1974, as amended.

 

(v)           Exchange Act means the Securities Exchange Act of 1934, as amended.

 

(w)          Fiduciaries means the named fiduciaries, who shall be the Company, each Employer, the Plan Administrator, the Committee responsible for plan administration and the Trustee, and other parties designated as fiduciaries by such named fiduciaries in accordance with the powers herein provided, but only with respect to the specific responsibilities of the Plan as set forth herein.

 

(x)          Financed Shares means shares of Company Stock acquired by the Trustee with the proceeds of an Acquisition Loan, which shall constitute “qualifying employer securities” under Section 409(l) of the Code and any shares of Company Stock received upon conversion or exchange of such shares.

 

(y)          Highly Compensated Employee means an Employee who, for a particular Plan Year, satisfies one of the following conditions:

 

(i)          was a “5-percent owner” (as defined in Section 414(q)(2) of the Code) during the year or the preceding year; or

 

(ii)         for the preceding year, had “compensation” (as defined in Section 414(q)(4) of the Code) from the Association and its Affiliates exceeding the limit in Section 414(q)(l) of the Code ($120,000 for Plan Years beginning January 1, 2015). The applicable year for which a determination is being made is called a “determination year” and the preceding 12-month period is called “look-back year.”

 

(z)           Hours of Service means hours to be credited to an Employee under the rules set forth below.

 

(i)          Each hour for which an Employee is paid or is entitled to be paid for services to an Employer is an Hour of Service.

 

(ii)         Each hour for which an Employee is directly or indirectly paid or is entitled to be paid for a period of vacation, holidays, illness, disability, lay-off, jury duty, temporary military duty, or leave of absence is an Hour of Service. However, except as otherwise specifically provided, no more than 501 Hours of Service shall be credited for any single continuous period which an Employee performs no duties. No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Further, no Hours of Service shall be credited on account of payments made solely under a plan maintained to comply with worker’s compensation, unemployment compensation, or disability insurance laws, or to reimburse an Employee for medical expenses.

 

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(iii)        Each hour for which back pay (ignoring any mitigation of damages) is either awarded or agreed to by an Employer is an Hour of Service. However, no more than 501 Hours of Service shall be credited for any single continuous period during which an Employee would not have performed any duties. The same Hours of Service will not be credited both under paragraph (i) or (ii) as the case may be, and under this paragraph. These hours will be credited to the employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made.

 

(iv)        Hours of Service shall be credited in any one period only under one of the foregoing paragraphs (i), (ii) and (iii); an Employee may not get double credit for the same period.

 

(v)         If an Employer finds it impractical to count the actual Hours of Service for any class or group of non-hourly Employees, each Employee in that class or group shall be credited with 90 Hours of Service for each bi-weekly pay period in which he has at least one Hour of Service. However, an Employee shall be credited only for his normal working hours during a paid absence.

 

(vi)        Hours of Service to be credited on account of a payment to an Employee (including back pay) shall be recorded in the period of Service for which the payment was made. If the period overlaps two or more Plan Years, the Hours of Service credit shall be allocated in proportion to the respective portions of the period included in the several Plan Years. However, in the case of periods of 31 days or less, the Committee may apply a uniform policy of crediting the Hours of Service to either the first Plan Year or the second.

 

(vii)       In all respects an Employee’s Hours of Service shall be counted as required by Section 2530.200b-2(b) and (c) of the Department of Labor’s regulations under Title I of ERISA.

 

Notwithstanding anything of the Plan to the contrary, Hours of Service credited under the Plan with respect to qualified military service shall be determined in accordance with Section 414(u) of the Code.

 

(aa)          Loan Suspense Account means that portion of the Trust Fund consisting of Company Stock acquired with an Acquisition Loan which has not yet been allocated to the Participants’ Accounts.

 

(bb)         Normal Retirement Age means the date the Employee attains age sixty-five (65).

 

(cc)         Normal Retirement Date means the first day of the month coincident with or next following the Participant’s attainment of Normal Retirement Age.

 

(dd)         Other Investments Account means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund, other than Company Stock.

 

(ee)         Participant means any active Employee who has become a participant in accordance with Section 3.01 of the Plan or any other person with an Account balance under the Plan.

 

(ff)          Plan means this Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan, as amended from time to time.

 

(gg)        Plan Year means the calendar year.

 

(hh)        Postponed Retirement Date means the first day of the month coincident with or next following a Participant’s date of actual retirement which occurs after his Normal Retirement Date.

 

(ii)          Recognized Absence means a period for which:

 

  5  
 

 

(i)          an Employer grants an Employee a leave of absence for a limited period of time, but only if an Employer grants such leaves of absence on a nondiscriminatory basis to all Eligible Employees; or

 

(ii)         an Employee is temporarily laid off by an Employer because of a change in the business conditions of the Employer; or

 

(iii)        an Employee is on active military duty, but only to the extent that his employment rights are protected by the Military Selective Service Act of 1967 (38 U.S.C. sec. 2021).

 

(jj)          Reemployment After a Period of Uniformed Service has the meaning set forth below.

 

(i)          An Eligible Employee has returned to employment with a participating Employer, within the time frame set forth in subparagraph (ii) below, after a Period of Uniformed Service (that is, the period of time in which an Employee serves in the Uniformed Services) and the following rules corresponding to provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”) apply: (1) he gives sufficient notice of leave to the Employer prior to commencing a Period of Uniformed Service, or is excused from providing such notice; (2) his employment with the Employer prior to a Period of Uniformed Service was not of a brief, non-recurrent nature that would preclude a reasonable expectation that the employment would continue indefinitely or for a significant period; (3) the Employer’s circumstances have not changed so that reemployment is unreasonable or an undue hardship to the Employer, and (4) the applicable cumulative Periods of Uniformed Service under USERRA equals five years or less, unless service in the Uniformed Services:

 

(A)         in excess of five years is required to complete an initial Period of Uniformed Service;

 

(B)         prevents the Participant from obtaining orders releasing him or her from such Period of Uniformed Service prior to the expiration of a five-year period (through no fault of the Participant);

 

(C)         is required in the National Guard for drill and instruction, field exercises or active duty training, or to fulfill necessary additional training, or to fulfill necessary additional training requirements certified in writing by the Secretary of the branch of Uniformed Services concerned; or

 

(D)         for a Participant is:

 

1.          required other than for training under any provisions of law during a war or national emergency declared by the President or Congress;

 

2.          required (other than for training) in support of an operational mission for which personnel have been ordered to active duty other than during war or national emergency;

 

3.          required in support of a critical mission or requirement of the Uniformed Services; or

 

4.          the result of being called into service as a member of the National Guard by the President in the case of rebellion or danger of rebellion against the authority of the United States Government or if the President is unable to execute the laws of the United States with the regular forces.

 

(ii)         The applicable statutory time frames within which an Employee must report to an Employer after a Period of Uniformed Service are set forth below.

 

(A)         If the Period of Uniformed Service was less than 31 days,

 

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1.          not later than the beginning of the first full regularly scheduled work period on the first full calendar day following the completion of the Period of Uniformed Service and the expiration of eight hours after a period of time allowing for the safe transportation of the Employee from the place of service in the Uniformed Services to the Employee’s residence; or

 

2.          as soon as possible after the expiration of the eight-hour period of time referred to in clause (ii)(A)1, if reporting within the period referred to in such clause is impossible or unreasonable through no fault of the Employee.

 

(B)         In the case of an Employee whose Period of Uniformed Service was for more than 30 days but less than 181 days, by submitting an application for reemployment with a participating Employer not later than 14 days after the completion of the Period of Uniformed Service or, if submitting such application within such period is impossible or unreasonable through no fault of the Employee, the next first full calendar day when submission of such application becomes reasonable.

 

(C)         In the case of an Employee whose Period of Uniformed Service was for more than 180 days, by submitting an application for reemployment with a participating Employer not later than 90 days after the completion of the Period of Uniformed Service.

 

(D)         In the case of an Employee who is hospitalized for, or convalescing from, an illness or injury related to the Period of Uniformed Service the Employee shall apply for reemployment with an Employer at the end of the period that is necessary for the Employee to recover. Such period of recovery shall not exceed two years, unless circumstances beyond the Employee’s control make reporting as above unreasonable or impossible.

 

(iii)        Notwithstanding subparagraph (i), Reemployment After a Period of Uniformed Service terminates upon the occurrence of any of the following:

 

(A)         a dishonorable or bad conduct discharge from the Uniformed Services;

 

(B)         any other discharge from the Uniformed Services under circumstances other than an honorable condition;

 

(C)         a discharge of a commissioned officer from the Uniformed Services by court martial, by commutation of sentence by court martial, or, in time of war, by the President; or

 

(D)         a demotion of a commissioned officer in the Uniformed Services for absence without authorized leave of at least 3 months confinement under a sentence by court martial, or confinement in a federal or state penitentiary after being found guilty of a crime under a final sentence.

 

(kk)         Retirement Date means a Participant’s Normal Retirement Date or Postponed Retirement Date, whichever is applicable.

 

(ll)          Service means an Employee’s period(s) of employment or self-employment with an Employer, excluding for initial eligibility purposes any period in which the individual was a nonresident alien and did not receive from an Employer any earned income which constituted income from sources within the United States. An Employee’s Service shall include any Service which constitutes Service with a predecessor Employer within the meaning of Section 414(a) of the Code, provided, however, that Service with an acquired entity shall not be considered Service under the Plan unless required by applicable law or agreed to by the parties to such transaction. An Employee’s Service shall also include any Service with an entity which is not an Employer, but only either (i) in which the other entity is a member of a controlled group of corporations or is under common control with other trades and businesses within the meaning of Sections 414(b) or 414(c) of the Code, and a member of the controlled group or one of the trades and businesses is an Employer, (ii) in which the other entity

 

  7  
 

 

is a member of an affiliated service group within the meaning of Section 414(m) of the Code, and a member of the affiliated service group is an Employer, or (iii) all Employers aggregated with the Employer under Section 414(o) of the Code (but not until the Proposed Regulations under Section 414(o) become effective). Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

 

(mm)      Treasury Regulations means the regulations promulgated by the Department of Treasury under the Code.

 

(nn)        Trust means the Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan Trust created in connection with the establishment of the Plan.

 

(oo)        Trust Agreement means the trust agreement entered into by and between the Association and the Trustee in accordance herewith for the purpose of holding and investing the Trust Funds.

 

(pp)        Trust Fund means the assets held in the Trust for the benefit of Participants and their Beneficiaries.

 

(qq)        Trustee means the person or persons serving as trustee of the Trust Fund, or any successor(s) thereto.

 

(rr)         Uniformed Service means the performance of duty on a voluntary or involuntary basis in the uniformed service of the United States, including the U.S. Public Health Services, under competent authority and includes active duty, active duty for training, initial activity duty for training, inactive duty training, full-time National Guard duty, and the period for which a person is absent from a position of employment for purposes of an examination to determine the fitness of the person to perform any such duty.

 

(ss)        Valuation Date means the last day of the Plan Year and each other date as of which the Committee shall determine the investment experience of the Trust Fund and adjust the Participants’ Accounts accordingly.

 

(tt)         Valuation Period means the period following a Valuation Date and ending with the next Valuation Date.

 

(uu)       Year of Service means, unless otherwise stated in the Plan, the applicable 12 consecutive month period in which an Employee performs service for the Employer, regardless of hours worked.

 

SECTION 3

ELIGIBILITY AND PARTICIPATION

 

3.01          Initial Participation .

 

(a)          All Eligible Employees on the closing date of the Association’s conversion from the mutual holding company form of organization who are age 18 or older shall enter the Plan and become Participants as of the later of (i) the Effective Date, or (ii) the Eligible Employee’s date of hire. An Eligible Employee on the closing date of the Association’s conversion from the mutual holding company form of organization who has not attained age 18 shall be a Participant on the Entry Date following his attainment of age 18.

 

(b)          An Eligible Employee who is first employed by an Employer after the closing date of the Association’s mutual to stock conversion shall be a Participant on the Entry Date following their attainment of age 18 and completion of one Year of Service during an Eligibility Computation Period.

 

3.02          Certain Employees Ineligible . The following Employees are ineligible to participate in the Plan:

 

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(a)          Employees covered by a collective bargaining agreement between the Employer and the Employee’s collective bargaining representative if:

 

(i)          retirement benefits have been the subject of good faith bargaining between the Employer and the representative, and

 

(ii)         the collective bargaining agreement does not expressly provide that Employees of such unit be covered under the Plan;

 

(b)          Leased Employees;

 

(c)          Employees who are nonresident aliens and who receive no earned income from an Employer which constitutes income from sources within the United States; and

 

(d)          Employees of an Affiliate that has not adopted the Plan pursuant to Sections 12.01 or 12.02 of the Plan.

 

3.03          Transfer to and from Eligible Employment .

 

(a)          If an Employee ineligible to participate in the Plan by reason of Section 3.02 of the Plan transfers to employment as an Eligible Employee, he shall enter the Plan as of the later of:

 

(i)          the first Entry Date after the date of transfer, or

 

(ii)         the first Entry Date on which he could have become a Participant pursuant to Section 3.01 of the Plan if his prior employment with the Association or Affiliate had been as an Eligible Employee.

 

(b)          If a Participant transfers to a position of employment that is not eligible to participate in the Plan by reason of Section 3.02 of the Plan, he shall cease active participation in the Plan as of the date of such transfer and his transfer shall be treated for all purposes of the Plan as any other termination of Service.

 

3.04          Participation After Reemployment

 

(a)          Any Employee re-entering Service with an Employer after a One Year Break in Service who has never satisfied the eligibility requirements of Section 3.01(a) of the Plan shall not receive credit for prior Service with an Employer and shall be required to meet the eligibility requirements of Section 3.01(a) of the Plan before becoming a Participant.

 

(b)          An Employee who has satisfied the eligibility requirements of Section 3.01(a) of the Plan but who terminates Service prior to entering the Plan and becoming a Participant in accordance with Section 3.01(b) of the Plan will become a Participant on the later of:

 

(i)          the first Entry Date on which he would have entered the Plan had he not terminated Service, or

 

(ii)         the date he re-commences Service.

 

(c)          A Participant whose Service terminates will re-enter the Plan as a Participant on the date he recommences Service.

 

3.05          Participation Not Guarantee of Employment . Participation in the Plan does not constitute a guarantee or contract of employment and will not give any Employee the right to be retained in the employ of

 

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the Association or any of its Affiliates nor any right or claim to any benefit under the terms of the Plan unless such right or claim has specifically accrued under the Plan.

 

3.06          Omission of Eligible Employee . If, in any Plan Year, any Eligible Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Eligible Employee in the amount which the said Employer would have contributed regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.

 

3.07          Inclusion of Ineligible Employee . If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a forfeiture for the fiscal year in which the discovery is made. Any person who, after the close of a Plan Year, is retroactively treated by the Association, an affiliated company or any other party as an Employee for such prior Plan Year shall not, for purposes of the Plan, be considered an Employee for such prior Plan Year unless expressly so treated as such by the Association.

 

SECTION 4

CONTRIBUTIONS

 

4.01          Employer Contributions .

 

(a)           Discretionary Contributions . Each Plan Year, each Employer, in its discretion, may make a contribution to the Trust. Each Employer making a contribution for any Plan Year under this Section 4.01(a) will contribute to the Trustee cash equal to, or Company Stock or other property having an aggregate fair market value equal to, such amount as the Board of Directors of the Employer shall determine by resolution. Notwithstanding the Employer’s discretion with respect to the medium of contribution, an Employer shall not make a contribution in any medium which would make such contribution a prohibited transaction (for which no exemption is provided) under Section 406 of ERISA or Section 4975 of the Code. Upon a Participant’s Reemployment After a Period of Uniformed Service, the Employer shall make an additional contribution on behalf of such Participant that would have been made on his behalf during the Plan Year or Years corresponding to the Participant’s Period of Uniformed Service,

 

(b)           Employer Contributions for Acquisition Loans . Each Plan Year, the Employers shall, subject to the provisions of the Association’s “Plan of Conversion” (as filed with the appropriate governmental agencies in connection with the Association’s conversion from a mutual to stock form of organization) and any related regulatory prohibitions, contribute an amount of cash sufficient to enable the Trustee to discharge any indebtedness incurred with respect to an Acquisition Loan pursuant to the terms of the Acquisition Loan. The Employers’ obligation to make contributions under this Section 4.01(b) shall be reduced to the extent of any investment earnings attributable to such contributions and any cash dividends paid with respect to Company Stock held by the Trustee in the Loan Suspense Account. If there is more than one Acquisition Loan, the Employers shall designate the one to which any contribution pursuant to this Section 4.01(b) is to be applied.

 

4.02         Limitations on Contributions .

 

In no event shall an Employer’s contribution(s) made under Section 4.01 of the Plan for any Plan Year exceed the lesser of:

 

(a)          the maximum amount deductible under Section 404 of the Code by that Employer as an expense for Federal income tax purposes; and

 

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(b)          the maximum amount which can be credited for that Plan Year in accordance with the allocation limitation provisions of Section 5.05 of the Plan.

 

4.03         Acquisition Loans . The Trustee may incur Acquisition Loans from time to time to finance the acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest, and shall not be payable on demand except in the event of default, and shall be primarily for the benefit of Participants and Beneficiaries of the Plan. An Acquisition Loan may be secured by a collateral pledge of the Financed Shares so acquired and any other Plan assets which are permissible security within the provisions of Section 54.4975-7(b) of the Treasury Regulations. No other assets of the Plan or Trust may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against any other Trust assets. Any pledge of Financed Shares must provide for the release of shares so pledged on a basis equal to the principal and interest (or if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), paid by the Trustee on the Acquisition Loan. The released Financed Shares shall be allocated by Participants’ Accounts in accordance with the provisions of Sections 5.04 or 5.08 of the Plan, whichever is applicable. Payment of principal and interest on any Acquisition Loan shall be made by the Trustee only from the Employer contributions paid in cash to enable the Trustee to repay such loan in accordance with Section 4.01(b) of the Plan, from earnings attributable to such contributions, and any cash dividends received by the Trustee on Financed Shares acquired with the proceeds of the Acquisition Loan (including contributions, earnings and dividends received during or prior to the year of repayment less such payments in prior years), whether or not allocated. Financed Shares shall initially be credited to the Loan Suspense Account and shall be transferred for allocation to the Company Stock Account of Participants only as payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Loan Suspense Account for allocation to Participants’ Company Stock Account for each Plan Year shall be based on the ratio that the payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan for that Plan Year bears to the sum of the payments of principal and interest on the Acquisition Loan for that Plan Year plus the total remaining payment of principal and interest projected (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan over the duration of the Acquisition Loan repayment period, subject to the provisions of Section 5.05 of the Plan.

 

4.04         Conditions as to Contributions . In addition to the provisions of Section 12.03 of the Plan for the return of an Employer’s contributions in connection with a failure of the Plan to qualify initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year after the date on which the Employer originally made such contribution, or within one year after its nondeductibility has been finally determined. However, the amount to be returned shall be reduced to take account for any adverse investment experience within the Trust in order that the balance credited to each Participant’s Accounts is not less that it would have been if the contribution had never been made by the Employer.

 

4.05         Employee Contributions . Employee contributions are neither required nor permitted under the Plan.

 

4.06         Rollover Contributions . Rollover contributions of assets from other tax-qualified retirement plans are not permitted under the Plan.

 

4.07         Trustee-to-Trustee Transfers . Trustee-to-trustee transfer of assets from other tax-qualified retirement plans are not permitted under the Plan.

 

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SECTION 5

PLAN ACCOUNTING

 

5.01         Accounting for Allocations . The Committee shall establish the Accounts (and sub-accounts, if deemed necessary) for each Participant, and the accounting procedures for the purpose of making the allocations to the Participants’ Accounts provided for in this Section 5. The Committee shall maintain adequate records of the cost basis of shares of Company Stock allocated to each Participant’s Company Stock Account. The Committee also shall keep separate records of Financed Shares attributable to each Acquisition Loan and of contributions made by the Employers (and any earnings thereon) made for the purpose of enabling the Trustee to repay any Acquisition Loan. From time to time, the Committee may modify its accounting procedures for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants, in accordance with the provisions of this Section 5 and the applicable requirements of the Code and ERISA. In accordance with Section 9 of the Plan, the Committee may delegate the responsibility for maintaining Accounts and records.

 

5.02         Maintenance of Participants’ Company Stock Accounts . As of each Valuation Date, the Trustee shall determine, in such reasonable ways and from such information as it deems appropriate, the fair market value of the Trust Fund. In making this determination, the value of Company Stock shall be its fair market value on the Valuation Date as determined by an independent appraisal by a person selected by the Committee and acceptable to the Trustee who customarily makes such appraisals and meets the requirements of the regulations under Section 170(a)(1) of the Code. After such determination is made of the fair market value of the Trust Fund, the Committee (or its designee) shall adjust the Company Stock Account of each Participant to reflect activity during the Valuation Period as follows:

 

(a)          first, charge to each Participant’s Company Stock Account all distributions and payments made to him that have not been previously charged;

 

(b)          next, credit to each Participant’s Company Stock Account the shares of Company Stock, if any, that have been purchased with amounts from his Other Investments Account, and adjust such Other Investments Account in accordance with the provisions of Section 5.03 of the Plan;

 

(c)          next, credit to each Participant’s Company Stock Account the shares of Company Stock representing contributions made by the Employers in the form of Company Stock and the number of Financed Shares released from the Loan Suspense Account under Section 4.03 of the Plan that are to be allocated and credited as of that date in accordance with the provisions of Section 5.04 of the Plan; and

 

(d)          finally, credit to each Participant’s Company Stock Account the shares of Company Stock released from the Loan Suspense Account that are to be allocated in accordance with the provisions of Section 5.08 of the Plan.

 

5.03         Maintenance of Participants’ Other Investments Accounts . Except as otherwise provided for under Section 5.09 of the Plan, as of each Valuation Date, the Committee shall adjust the Other Investments Account of each Participant to reflect activity during the Valuation Period as follows:

 

(a)          first, charge to each Participant’s Other Investments Account all distributions and payments made to him that have not previously been charged;

 

(b)          next, if Company Stock is purchased with assets from a Participant’s Other Investments Account, the Participant’s Other Investments Account shall be charged accordingly;

 

(c)          next, subject to the dividend provisions of Section 5.08 of the Plan, credit to the Other Investments Account of each Participant any cash dividends paid to the Trustee on shares of Company Stock held in that Participant’s Company Stock Account (as of the record date for such cash dividends) and dividends paid on shares of Company Stock held in the Loan Suspense Account that have not been used to repay any

 

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Acquisition Loan. Cash dividends that have not been used to repay an Acquisition Loan and have been credited to a Participant’s Other Investments Account shall be applied by the Trustee to purchase shares of Company Stock, which shares shall then be credited to the Company Stock Account of such Participant. The Participant’s Other Investments Account shall then be charged by the amount of cash used to purchase such Company Stock or used to repay any Acquisition Loan. In addition, any earnings on:

 

(i)          the Other Investments Accounts, including cash proceeds from the sale or disposition of Company Stock pursuant to Section 5.09 of the Plan, will be allocated to Participants’ Other Investments Account, pro rata, based on such Other Investment Accounts balances as of the first day of the Valuation Period, and

 

(ii)         the Loan Suspense Account, other than dividends used to repay the Acquisition Loan, will be allocated to Participants’ Other Investments Accounts, pro rata, based on their Other Investment Account Balances as of the first day of the Valuation Period; provided, however, that shares of Company Stock allocated pursuant to Section 5.09 of the Plan shall be allocated to the Participants’ Company Stock Account in accordance with the provisions of Section 5.09 of the Plan;

 

(d)          next, allocate and credit the Employer contributions made pursuant to Section 4.01(b) of the Plan for the purpose of repaying any Acquisition Loan in accordance with Section 5.04 of the Plan. Such amount shall then be used to repay any Acquisition Loan and such Participant’s Other Investments Account shall be charged accordingly; and

 

(e)          finally, allocate and credit the Employer contributions (other than amounts contributed to repay an Acquisition Loan) that are made in cash (or property other than Company Stock) for the Plan Year to the Other Investments Account of each Participant in accordance with Section 5.04 of the Plan.

 

5.04          Allocation and Crediting of Employer Contributions .

 

(a)          Except as otherwise provided for in Sections 5.08 and 5.09 of the Plan, as of the Valuation Date for each Plan Year:

 

(i)          the Company Stock released from the Loan Suspense Account for that year and shares of Company Stock contributed directly to the Plan by an Employer shall be allocated and credited to each Active Participant’s (as defined in paragraph (b) of this Section 5.04) Company Stock Account based on the ratio that each Active Participant’s Compensation bears to the aggregate Compensation of all Active Participants for the Plan Year, provided, however, that, for purposes of this Section, an Active Participant’s Compensation shall not be considered for any part of a Plan Year prior to the date the Participant commenced participation in the Plan, and then

 

(ii)         the cash contributions not used to repay an Acquisition Loan and any other property (other than shares of Company Stock) contributed for that year shall be allocated and credited to each Active Participant’s Other Investments Account based on the ratio determined by comparing each Active Participant’s Compensation to the aggregate Compensation of all Active Participants for the Plan Year.

 

(b)          For purposes of this Section 5.04, the term “Active Participant” means those Employees who:

 

(i)          were employed by that Employer, including Employees on a Recognized Absence, on the last day of the Plan Year, or

 

(ii)         who terminated employment during the Plan Year by reason of death, Disability, or attainment of their Normal Retirement Age.

 

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5.05         Limitations on Allocations .

 

(a)           In General . This Section 5.05 is intended as good faith compliance with the final Treasury Regulations issued under Section 415 of the Code (the “Final Regulations”), and it should be construed accordingly. Further, Section 415 of the Code and the Final Regulations are hereby incorporated herein by reference.

 

(b)           Limitations on Annual Additions . The limitations set forth below shall apply to the allocations to each Participant’s Accounts in any Plan Year. If the Annual Additions are exceeded for any Participant, then the Plan may correct such excess in accordance with the Employee Plans Compliance Resolution System (EPCRS) as set forth in Revenue Procedure 2013-12, or any superseding guidance, including, but not limited to, the preamble of the Final Regulations, or by any other method specifically permitted by the Internal Revenue Service.

 

(i)          As used in the Plan, a Participant’s “Annual Additions” shall mean the sum for any Plan Year of the following amounts allocated to a Participant’s Accounts:

 

(A)         the Participant’s share of Employer contributions; plus

 

(B)         the Participant’s share of any forfeitures; plus

 

(C)         the Participant’s allocable share of the Employer’s contributions to any individual medical benefit account (within the meaning of Section 415(l)(2) of the Code) that is part of a pension or annuity plan maintained by the Employer; plus

 

(D)         with respect to any Participant who is a key employee, any amount that is derived from the Employer’s contributions paid or accrued that are attributable to post-retirement medical benefits allocated to such Participant’s account under a welfare benefit fund (within the meaning of Section 419(e) of the Code) maintained by the Employer; and plus

 

(E)         the Participant’s share of any allocations under a simplified employee pension maintained by the Employer.

 

Any excess amount applied under Section 5.05(b)(iii) in a Plan Year to reduce the Employer contributions on behalf of any Participant shall be considered to be an Annual Addition for such Participant for such Plan Year.

 

(ii)          Subject to the adjustments set forth below, and except for catch-up contributions under Section 414(v) of the Code, during any Plan Year the maximum Annual Additions for any Participant shall in no event exceed the lesser of:

 

(A)         $53,000, (for 2015) as adjusted by the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code; or

 

(B)         100% of the Participant’s Compensation for the Plan Year.

 

(iii)        The earnings limitation referred to in Section 5.05(b)(ii)(B) shall not apply to:

 

(A)         any contribution for medical benefits (within the meaning of Sections 401(h) or 419A(f)(2) of the Code) after separation from service that is otherwise treated as an Annual Addition, or

 

(B)         any amount otherwise treated as an Annual Addition under Section 415(l)(1) of the Code.

 

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(iv)        If, for any Plan Year, it is necessary to limit the Annual Additions of any Participant to comply with this Section 5.05, the methods as authorized pursuant to the Final Regulations shall be utilized.

 

(v)         The limitations of this Article with respect to any Participant who, at any time, has been a participant in any other defined contribution plan (whether or not terminated) or in more than one defined benefit plan (whether or not terminated) maintained by the Employer shall apply as if all such defined contribution plans or all such defined benefit plans in which the Participant has been a participant were one plan.

 

(c)           Definition of Compensation . For purposes of this Section 5.05, Compensation shall be adjusted to reflect the general rule of Section 1.415(c)-2 of the Final Regulations. Notwithstanding the preceding sentence, Compensation for a Participant who is permanently and totally disabled (as defined in Section 22(e)(3) of the Code) is the compensation the Participant would have received for the Limitation Year if the Participant had been paid at the rate of compensation paid immediately before becoming permanently and totally disabled if the conditions under the Final Regulations are met. In addition, payments made within the later of (i) 2 ½ months after severance from employment (within the meaning of Final Regulation Section 1.415(a)-1(f)(5)), or (ii) the end of the Limitation Year that contains the date of severance (the “Post Severance Period”) will be Compensation within the meaning of Section 415(c)(3) of the Code if they are payments that, absent a severance from employment, would have been paid to the Participant while the Participant continued in employment with the Employer and are regular compensation for services during the Participant’s regular working hours, compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar compensation.

 

(d)           Definition of Annual Additions . For purposes of this Section 5.05, the Plan’s definition of “Annual Additions” is modified as follows:

 

(i)           Restorative Payments . Annual Additions for purposes of Section 415 of the Code shall not include restorative payments. A restorative payment is a payment made to restore losses to the Plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under ERISA or under other applicable federal or state law, where Participants who are similarly situated are treated similarly with respect to the payments. Generally, payments are restorative payments only if the payments are made in order to restore some or all of the Plan’s losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). This includes payments to the Plan made pursuant to a Department of Labor order, the Department of Labor’s Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). Payments made to the Plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under ERISA are not restorative payments and generally constitute contributions that are considered Annual Additions.

 

(ii)          Other Amounts . Annual Additions for purposes of Section 415 of the Code shall not include: (1) the direct transfer of a benefit or employee contributions from a qualified plan to this Plan; (2) rollover contributions (as described in Sections 401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3) and 457(e)(16) of the Code); (3) repayments of loans made to a Participant from the Plan; and (4) repayments of amounts described in Section 411(a)(7)(B) of the Code (in accordance with Section 411(a)(7)(C)) of the Code and Section 411(a)(3)(D) of the Code or repayment of contributions to a governmental plan (as defined in Section 414(d) of the Code) as described in Section 415(k)(3) of the Code, as well as Employer restorations of benefits that are required pursuant to such repayments.

 

(e)           Limitation Year . The “Limitation Year” (within the meaning of Section 415 of the Code) shall be the calendar year. The Limitation Year may only be changed by a Plan amendment. If the Plan is terminated effective as of a date other than the last day of a Limitation Year, the Plan is deemed to have been amended to

 

  15  
 

 

change its Limitation Year to end on the Plan’s termination date. As a result of such deemed amendment, the Section 415(c)(1)(A) of the Code dollar limit shall be prorated under the short Limitation Year rules under the Final Regulations.

 

(f)           Multiple Defined Contribution Plans . In any case where a Participant also participates in another defined contribution plan of the Association or its Affiliates, the appropriate committee of such other plan shall first reduce the after-tax contributions under any such plan, shall then reduce any elective deferrals under any such plan subject to Section 401(k) of the Code, shall then reduce all other contributions under any other such plan and, if necessary, shall then reduce contributions under this Plan, subject to the provisions of paragraph (h) of this Section 5.05.

 

(g)           Excess Allocations . If, after applying the allocation provisions under Section 5.04 of the Plan, allocations under Section 5.04 of the Plan would otherwise result in a Participant’s account being in violation of Section 415 of the Code, the Committee shall reduce the Employer contributions for the next limitation year (and succeeding limitation years, as necessary) for that Participant if that Participant is covered by the Plan as of the end of the limitation year. However, if that Participant is not covered by the Plan as of the end of the limitation year, then the excess amounts shall be held unallocated in a suspense account for the limitation year and allocated and reallocated in the next limitation year to all the remaining Participants in the Plan; furthermore, the excess amounts shall be used to reduce Employer contributions for the next limitation year (and succeeding limitation years, as necessary) for all the remaining Participants in the Plan.

 

(h)           Allocations Pursuant to Section 5.09 . For purposes of this Section 5.05, no amount credited to any Participant’s Account pursuant to Section 5.09 of the Plan shall be counted as an “annual addition” for purposes of Section 415 of the Code. In the event any amount cannot be allocated to Affected Participants (as defined in Section 5.09 of the Plan) under the Plan pursuant to Section 5.09 of the Plan in the year of a Change in Control, the amount which may not be so allocated in the year of the Change in Control shall be treated in accordance with this paragraph (h) of Section 5.05.

 

5.06         Other Limitations . Aside from the limitations set forth in Sections 5.05 of the Plan, in no event shall more than one-third of the Employer contributions to the Plan be allocated to the Accounts of Highly Compensated Employees. In the event more than one-third of the Employer Contributions to the Plan are allocated to the Accounts of Highly Compensated Employees, the Committee shall determine the allocation of the reduced amount among the Highly Compensated Employees such that the relative share of the Employer Contributions allocable to a Highly Compensated Employee is equal to such Highly Compensated Employee’s share of the contributions allocable to all Highly Compensated Employees if this Section 5.06 were inapplicable.

 

5.07         Limitations as to Certain Section 1042 Transactions . To the extent that a shareholder of Company Stock sells qualifying Company Stock to the Plan and elects (with the consent of the Association) nonrecognition of gain under Section 1042 of the Code, no portion of the Company Stock purchased in such nonrecognition transaction (or dividends or other income attributable thereto) may accrue or be allocated during the nonallocation period (the ten (10) year period beginning on the later of the date of the sale of the qualified Company Stock or the date of the Plan allocation attributable to the final payment of an Acquisition Loan incurred in connection with such sale) for the benefit of:

 

(a)          the selling shareholder;

 

(b)          the spouse, brothers or sisters (whether by the whole or half blood), ancestors or lineal descendants of the selling shareholder or descendant referred to in (a) above; or

 

(c)          any other person who owns, after application of Section 318(a) of the Code, more than twenty- five percent (25%) of:

 

(i)          any class of outstanding stock of the Association or any Affiliate, or

 

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(ii)         the total value of any class of outstanding stock of the Association or any Affiliate.

 

For purposes of this Section 5.07, Section 318(a) of the Code shall be applied without regard to the employee trust exception of Section 318(a)(2)(B)(i) of the Code.

 

5.08          Dividends .

 

(a)           Stock Dividends . Dividends on Company Stock which are received by the Trustee in the form of additional Company Stock shall be retained in the portion of the Trust Fund consisting of Company Stock, and shall be allocated among the Participant’s Accounts and the Loan Suspense Account in accordance with their holdings of the Company Stock on which the dividends have been paid.

 

(b)           Cash Dividends on Allocated Shares . Dividends on Company Stock credited to Participants’ Accounts which are received by the Trustee in the form of cash shall, at the direction of the Association, either:

 

(i)          be credited to Participants’ Accounts in accordance with Section 5.03 of the Plan and invested as part of the Trust Fund;

 

(ii)         be distributed immediately to the Participants;

 

(iii)        be distributed to the Participants within 90 days of the close of the Plan Year in which paid; or

 

(iv)        be used to repay first principal and then, if available, interest on the Acquisition Loan used to acquire Company Stock on which the dividends were paid.

 

In addition to the alternatives specified in the preceding paragraph regarding the treatment of cash dividends paid with respect to shares of Company Stock credited to Participants’ Accounts, if authorized by the Committee for the Plan Year, a Participant may elect that cash dividends paid on Company Stock credited to the Participant’s Account shall either be:

 

(i)          paid to the Plan, reinvested in Company Stock and credited to the Participant’s Account;

 

(ii)         distributed in cash to the Participant; or

 

(iii)        distributed to the Participant within 90 days of the close of the Plan Year in which paid.

 

Dividends subject to an election under this paragraph (and any Company Stock acquired therewith pursuant to a Participant’s election) shall at all times be fully vested. To the extent the Committee authorizes dividend elections pursuant to this paragraph, the Committee shall establish policies and procedures relating to Participant elections and, if applicable, the reinvestment of cash dividends in Company Stock, which are consistent with guidance issued under Section 404(k) of the Code.

 

(c)           Cash Dividends on Unallocated Shares . Dividends on Company Stock held in the Loan Suspense Account which are received by the Trustee in the form of cash shall be applied as soon as practicable to payments of first principal and then, if available, interest under the Acquisition Loan incurred with the purchase of the Company Stock.

 

(d)           Financed Shares . Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to such Company Stock shall be allocated under Sections 5.03 and 5.04 of the Plan as follows:

 

  17  
 

 

(i)          first, Financed Shares with a fair market value at least equal to the dividends paid with respect the Company Stock allocated to Participants’ Accounts shall be allocated among and credited to the Accounts of such Participants, pro rata, according to the number of shares of Company Stock held in such accounts on the date such dividend is declared by the Company; and

 

(ii)         then, any remaining Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to Company Stock held in the Loan Suspense Account shall be allocated among and credited to the Accounts of all Participants, pro rata, according to each Participant’s Compensation.

 

5.09         Allocations Upon Termination Prior to Satisfaction of Acquisition Loan .

 

(a)          Notwithstanding any other provision of the Plan, in the event of a Change in Control, the Plan shall terminate as of the effective date of the Change in Control and, as soon as practicable thereafter, the Trustee shall repay in full any outstanding Acquisition Loan. In connection with such repayment, the Trustee shall: (i) apply cash, if any, received by the Plan in connection with the transaction constituting a Change in Control, with respect to the unallocated shares of Company Stock acquired with the proceeds of the Acquisition Loan, and (ii) to the extent additionally required to effect the repayment of the Acquisition Loan, obtain cash through the sale of any stock or security received by the Plan in connection with such transaction, with respect to such unallocated shares of Company Stock. After repayment of the Acquisition Loan, all remaining shares of Company Stock held in the Loan Suspense Account, all other stock or securities, and any cash proceeds from the sale or other disposition of any shares of Company Stock held in the Loan Suspense Account, shall be allocated among the Accounts of all Participants who were employed by an Employer on the date immediately preceding the effective date of the Change in Control. Such allocations of shares or cash proceeds shall be credited as earnings for purposes of Section 5.05 of the Plan and Section 415 of the Code, as of the effective date of the Change in Control, to the Account of each Participant who is either in active Service with an Employer, or is on a Recognized Absence, on the date immediately preceding the effective date of the Change of Control (each an “Affected Participant”), in proportion to the opening balances in their Company Stock Accounts as of the first day of the current Valuation Period. As of the effective date of a Change in Control, all Participant Accounts shall be fully vested and nonforfeitable.

 

(b)          In the event of a termination of the Plan in connection with a Change in Control, this Section 5.09 shall have no force and effect unless the price paid for the Company Stock in connection with a Change in Control is greater than the average basis of the unallocated Company Stock held in the Loan Suspense Account as of the date of the Change in Control.

 

5.10         Erroneous Allocations . No Participant shall be entitled to any annual additions or other allocations to his Account in excess of those permitted under this Section 5. If it is determined at any time that the administrator and/or Trustee have erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating investment adjustments, or in excluding or including any person as a Participant, then the administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected, after taking into consideration Sections 3.6 and 3.7 and any revenue procedure or other notice published by the Internal Revenue Service regarding permissible correction methods, if applicable, and shall promptly advise the Trustee in writing of such error and of the method for correcting such error. The Accounts of any or all Participants may be revised, if necessary, in order to correct such error.

 

SECTION 6

VESTING

 

6.01         Deferred Vesting in Accounts .

 

(a)          A Participant shall become vested in his Accounts in accordance with the schedule set forth below.

 

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Completed Years of Service   Vested Percentage  
Less than two (2) Years of Service     0 %
Two (2) Years of Service     20 %
Three (3) Years of Service     40 %
Four (4) Years of Service     60 %
Five (5) Years of Service     80 %
Six (6) Years of Service     100 %

 

(b)          For purposes of determining a Participant’s Years of Service under this Section 6.01, employment with the Association or an Affiliate shall be deemed employment with the Employer. With respect to Employees who enter the Plan pursuant to Section 3.01(a) of the Plan, for purposes of determining a Participant’s vested percentage, all Years of Service with the Employer shall be included. Notwithstanding any provision of the Plan to the contrary, calculation of Service for determining a Participant’s Vested Percentage with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

 

6.02         Immediate Vesting in Certain Situations .

 

(a)          Notwithstanding Section 6.01(a) of the Plan, a Participant shall become fully vested in his Accounts upon the earlier of:

 

(i)          termination of the Plan or upon the permanent and complete discontinuance of contributions by his Employer to the Plan; provided, however, that in the event of a partial termination, the interest of each Participant shall fully vest only with respect to that part of the Plan which is terminated;

 

(ii)         the Participant’s Normal Retirement Age;

 

(iii)        a Change in Control; or

 

(iv)        termination of employment by reason of death or Disability.

 

(b)          For purposes of this Section 6.02, benefits payable in the event of a Participant’s death or Disability while performing qualified military service shall fully vest in accordance with Section 414(u)(9) of the Code.

 

6.03         Treatment of Forfeitures .

 

(a)          If a Participant who is not fully vested in his Accounts terminates employment, that portion of his Accounts in which he is not vested shall be forfeited upon the earlier of:

 

(i)          the date the Participant receives a distribution of his entire vested benefits under the Plan, or

 

(ii)         the date at which the Participant incurs five (5) consecutive Breaks in Service.

 

(b)          If a Participant who has terminated employment and has received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer prior to incurring five (5) consecutive Breaks in Service, he shall have the portion of his Accounts which was previously forfeited restored to his Accounts, provided he repays to the Trustee within five (5) years of his subsequent employment date an amount equal to the distribution. The amount restored to the Participant’s Account shall be credited to his Account as of the last day of the Plan Year in which the Participant repays the distributed amount to the Trustee and the restored amount shall come from other Employees’ forfeitures and, if such forfeitures are insufficient, from a special contribution by his Employer for that year. If a Participant’s employment terminates prior to his

 

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Account having become vested, such Participant shall be deemed to have received a distribution of his entire vested interest as of the Valuation Date next following his termination of employment.

 

(c)          If a Participant who has terminated employment but has not received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer subsequent to incurring five (5) consecutive Breaks in Service, any undistributed balance of his Accounts from his prior participation which was not forfeited shall be maintained as a fully vested subaccount with his Account.

 

(d)          If a portion of a Participant’s Account is forfeited, assets other than Company Stock must be forfeited before any Company Stock may be forfeited.

 

(e)          Forfeitures shall be reallocated among the other Participants in the Plan.

 

6.04         Accounting for Forfeitures . A forfeiture shall be charged to the Participant’s Account as of the first day of the first Valuation Period in which the forfeiture becomes certain pursuant to Section 6.03 of the Plan. Except as otherwise provided in Section 6.03 of the Plan, a forfeiture shall be added to the contributions of the terminated Participant’s Employer which are to be credited to other Participants pursuant to Section 4 as of the last day of the Plan Year in which the forfeiture becomes certain.

 

6.05         Vesting Upon Reemployment .

 

(a)          If an Employee is not vested in his Accounts, incurs a Break in Service and again performs an Hour of Service, such Employee shall receive credit for his Years of Service prior to his Break in Service only if the number of consecutive Breaks in Service is less than the greater of: (i) five (5) years or (ii) the aggregate number of his Years of Service credited before his Break in Service.

 

(b)          If a Participant is partially vested in his Accounts, incurs a Break in Service and again performs an Hour of Service, such Participant shall receive credit for his Years of Service prior to his Break in Service; provided, however, that after five (5) consecutive Breaks in Service, a former Participant’s vested interest in his Accounts attributable to Years of Service prior to his Break in Service shall not be increased as a result of his Years of Service following his reemployment date.

 

(c)          If a Participant is fully vested in his Accounts, incurs a Break in Service and again performs an Hour of Service, such Participant shall receive credit for all his Years of Service prior to his Breaks in Service.

 

SECTION 7

DISTRIBUTIONS

 

7.01         Distribution of Benefit Upon a Termination of Employment .

 

(a)          Subject to Section 7.01(b) and the other provisions of this Section 7, a Participant whose employment terminates for any reason (other than death) shall receive the entire vested portion of his Accounts in a single payment within 60 days after the end of the Plan Year in which the Participant’s employment terminates; provided, however, that if payment in full is not feasible within the time limits prescribed by this Section (e.g., the Employer has not received the final valuation report for the applicable Valuation Date), the Committee may direct interim payments from the Accounts of such Participant, and and any remaining amount owed such Participant, if any, shall be paid to such Participant within 60 days after the receipt by the Employer of the final valuation report for the applicable Valuation Period, but in no event later than the last day of the Plan Year in which the initial interim payment was made.

 

The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment. Subject to the provisions of Section 7.05 of the Plan, if the Committee so provides, a Participant may elect that his benefits be distributed to him in the form

 

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of Company Stock, cash, or some combination thereof. In addition, if a Participant did not receive a distribution of his vested Account balance but his non-vested Account balance was forfeited after a one-year Break in Service, such nonvested Account balance shall be restored if the Plan terminates before the Participant has a five-year Break in Service. If the Participant did not receive a distribution of his vested Account balance, any forfeiture restored shall include earnings that would have been credited to the Account but for the forfeiture.

 

(b)          Notwithstanding Section 7.01(a), if the vested balance credited to a Participant’s Accounts exceeds, at the time such benefits are distributable, $1,000, his benefits shall not be paid before the latest of his 65th birthday or the tenth anniversary of the year in which he commenced participation in the Plan, unless he elects an earlier payment date in a written election filed with the Committee. Such an election is not valid unless it is made after the Participant has received the required notice under Section 1.411(a)-11(c) of the Treasury Regulations that provides a general description of the material features of a lump sum distribution and the Participant’s right to defer receipt of his benefits under the Plan. The notice shall be provided no less than 30 days and no more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. Written consent of the Participant to the distribution generally may not be made within 30 days of the date the Participant receives the notice and shall not be made more than 90 days from the date the Participant receives the notice. However, a distribution may be made less than 30 days after the notice provided under Section 1.411(a)-11(c) of the Treasury Regulations is given, if:

 

(i)          the Committee clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and if applicable, a particular distribution option), and

 

(ii)         the Participant, after receiving the notice, affirmatively elects a distribution.

 

A Participant may modify such an election at any time, provided any new benefit payment date is at least 30 days after a modified election is delivered to the Committee.

 

(c)          Notwithstanding any other provision of the Plan, any benefits payable under the Plan to a Participant that are valued at less than $1,000 at the time they are distributable shall be paid in a single lump sum payment to the Participant without the Participant’s consent.

 

7.02         Minimum Distribution Requirements .

 

(a)           General Rules .

 

(i)           Precedence . The requirements of this Section 7.02 will take precedence over any inconsistent provisions of the Plan.

 

(ii)          Requirements of Treasury Regulations Incorporated . All distributions required under this Section will be determined and made in accordance with the Treasury Regulations under Section 401(a)(9) of the Internal Revenue Code.

 

(b)           Time and Manner of Distribution .

 

(i)           Required Beginning Date . The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.

 

(ii)          Death of Participant Before Distributions Begin . If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as set forth below.

 

  21  

 

 

(A)         If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary (as defined below), then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 ½, if later.

 

(B)         If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

 

(C)         If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

 

(D) If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section (b)(ii), other than Section (b)(ii)(A), will apply as if the surviving spouse were the Participant.

 

(iii)         Forms of Distribution . All distributions under this Plan will be made in a single lump sum.

 

(c)           Required Minimum Distributions During Participant’s Lifetime .

 

(i)           Amount of Required Minimum Distribution For Each Distribution Calendar Year . During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year (as defined below) is the lesser of:

 

(A)         the quotient obtained by dividing the Participant’s Account Balance (as defined below) by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or

 

(B)         if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the Distribution Calendar Year.

 

(ii)          Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death . Required minimum distributions will be determined under this Section (c) beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant’s date of death.

 

(d)           Required Minimum Distributions After Participant’s Death .

 

(i)           Death On or After Date Distributions Begin .

 

(A)          Participant Survived by Designated Beneficiary . If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy (as defined below) of the Participant or the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as follows:

 

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1.          the Participant’s remaining Life Expectancy is calculated using the age of the participant in the year of death, reduced by one for each subsequent year;

 

2.          if the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving spouse’s death, the remaining Life Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year; or

 

3.          if the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

 

(B)          No Designated Beneficiary . If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

 

(ii)          Death Before Date Distributions Begin .

 

(A)          Participant Survived by Designated Beneficiary . If the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in this Section.

 

(B)          No Designated Beneficiary . If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

 

(C)          Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin . If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse, this Section will apply as if the surviving spouse were the Participant.

 

(e)           Definitions for Section 7.02 .

 

(i)           Designated Beneficiary . “Designated Beneficiary” means the individual who is designated as the beneficiary under the Plan and is the designated beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.

 

(ii)          Distribution Calendar Year . “Distribution Calendar Year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first “Distribution Calendar Year” is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first “Distribution Calendar Year” is the calendar year in which distributions are required to begin under Section (b)(ii) of this Section 7.02. The required minimum distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s required beginning date. The required minimum distribution

 

  23  

 

 

for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that Distribution Calendar Year.

 

(iii)         Life Expectancy . “Life Expectancy” means the life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations.

 

(iv)         Participant’s Account Balance . “Participant’s Account Balance” means the account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over transferred to the plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

 

7.03         Benefits on a Participant’s Death .

 

(a)          If a Participant dies before his benefits are paid pursuant to Section 7.01 of the Plan, the balance credited to his Accounts shall be paid to his Beneficiary in a single distribution on or before the 60th day after the end of the Plan Year in which the Participant died. If the Participant has not named a Beneficiary or if his named Beneficiary should not survive him, then the balance in his Account shall be paid to his estate. The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment.

 

(b)          If a married Participant dies before his benefit payments begin, then, unless he has specifically elected otherwise, the Committee shall cause the balance in his Accounts to be paid to his spouse, as Beneficiary. A married Participant may name an individual other than his spouse as his Beneficiary, provided that such election is accompanied by the spouse’s written consent, which must:

 

(i)          acknowledge the effect of the election;

 

(ii)         explicitly provide either that the designated Beneficiary may not subsequently be changed by the Participant without the spouse’s further consent or that it may be changed without such consent; and

 

(iii)        must be witnessed by the Committee, its representative, or a notary public.

 

This requirement shall not apply if the Participant establishes to the Committee’s satisfaction that the spouse may not be located.

 

(c)          The Committee shall from time to time take whatever steps it deems appropriate to keep informed of each Participant’s marital status. Each Employer shall provide the Committee with the most reliable information in the Employer’s possession regarding its Participants’ marital status, and the Committee may, in its discretion, require a notarized affidavit from any Participant as to his marital status. The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability to the extent of any benefit payments made as a result of the Committee’s good faith and reasonable reliance upon information obtained from a Participant as to the Participant’s marital status.

 

7.04         Delay in Benefit Determination . If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to this Section 7, the benefits shall in any event be paid within 60 days after they can first be determined, with whatever makeup payments may be appropriate in view of the delay.

 

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7.05         Options to Receive and Sell Stock .

 

(a)          Unless ownership of virtually all Company Stock is restricted to active Employees and qualified retirement plans for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Company Stock, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant’s entire vested interest in his Accounts in the form of Company Stock. In that event, the Committee shall apply the Participant’s vested interest in his Other Investments Account to purchase sufficient Company Stock to make the required distribution.

 

(b)          Any Participant who receives Company Stock pursuant to this Section 7.05, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover distribution described in Section 402(c) of the Code, shall have the right to require the Employer which issued the Company Stock to purchase the Company Stock for its current fair market value (hereinafter referred to as the “put right”). The put right shall be exercisable by written notice to the Committee during the first 60 days after the Company Stock is distributed by the Plan, and, if not exercised in that period, during the first 60 days in the following Plan Year after the Committee has communicated to the Participant its determination as to the Company Stock’s current fair market value. If the put right is exercised, the Trustee may, if so directed by the Committee in its sole discretion, assume the Employer’s rights and obligations with respect to purchasing the Stock. However, the put right shall not apply to the extent that the Company Stock, at the time the put right would otherwise be exercisable, may be sold on an established market in accordance with federal and state securities laws and regulations.

 

(c)          With respect to a put right, the Employer or the Trustee, as the case may be, may elect to pay for the Company Stock in equal periodic installments, not less frequently than annually, over a period not longer than five (5) years from the 30th day after the put right is exercised pursuant to paragraph (b) of this Section 7.05, with adequate security and interest at a reasonable rate on the unpaid balance, all such terms to be set forth in a promissory note delivered to the seller with normal terms as to acceleration upon any uncured default.

 

(d)          Nothing contained in this Section 7.05 shall be deemed to obligate any Employer to register any Company Stock under any federal or state securities law or to create or maintain a public market to facilitate the transfer or disposition of any Company Stock. The put right described in this Section 7.05 may only be exercised by a person described in paragraph (b) of this Section 7.05, and may not be transferred with any Company Stock to any other person. As to all Company Stock purchased by the Plan in exchange for any Acquisition Loan, the put right shall be nonterminable. The put right for Company Stock acquired through an Acquisition Loan shall continue with respect to such Company Stock after the Acquisition Loan is repaid or the Plan ceases to be an employee stock ownership plan. Except as provided above, in accordance with the provisions of Sections 54.4975-7(b)(4) of the Treasury Regulations, no Company Stock acquired with the proceeds of an Acquisition Loan may be subject to any put, call or other option or buy-sell or similar arrangement while held by, and when distributed from, the Plan, whether the Plan is then an employee stock ownership plan.

 

7.06         Restrictions on Disposition of Stock . Except in the case of Company Stock which is traded on an established market, a Participant who receives Company Stock pursuant to this Section 7, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover distribution described in Section 402(c) of the Code, shall, prior to any sale or other transfer of the Company Stock to any other person, first offer the Company Stock to the issuing Employer and to the Plan at its current fair market value. This restriction shall apply to any transfer, whether voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous. Either the Employer or the Trustee may accept the offer within 14 days after it is delivered. Any Company Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 7.06, as applicable, as well as any other restrictions upon the transfer of the Company Stock imposed by federal and state securities laws and regulations.

 

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7.07         Direct Transfer of Eligible Plan Distributions .

 

(a)          Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section, a distributee (as defined below) may elect to have any portion of an eligible rollover distribution (as defined below) paid directly to an eligible retirement plan (as defined below) specified by the distributee in a direct rollover (as defined below). A “distributee” includes a Participant or former Participant. In addition, the Participant’s or former Participant’s surviving spouse and the Participant’s or former Participant’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. For purposes of this Section 7.07, a “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.

 

(b)          To effect such a direct transfer, the distributee must notify the Committee that a direct rollover is desired and provide to the Committee sufficient information regarding the eligible retirement plan to which the payment is to be made. Such notice shall be made in such form and at such time as the Committee may prescribe. Upon receipt of such notice, the Committee shall direct the Trustee to make a trustee-to-trustee transfer of the eligible rollover distribution to the eligible retirement plan so specified.

 

(c)          For purposes of this Section 7.07, an “eligible rollover distribution” shall have the meaning set forth in Section 402(c)(4) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not inconsistent with the above references, an eligible rollover distribution shall mean any distribution of all or any portion of the Participant’s Account, except that such term shall not include any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made (i) for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and a designated Beneficiary, or (ii) for a period of ten (10) years or more. Further, the term “eligible rollover distribution” shall not include any distribution required to be made under Section 401(a)(9) of the Code or, the portion of any distribution that is not includible in gross income (determined without regard to the exclusions for net unrealized appreciation with respect to Company Stock). To the extent applicable under the Plan, “eligible rollover distributions” shall also not include any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code.

 

(d)          For purposes of this Section 7.07, an “eligible retirement plan” shall have the meaning set forth in Section 402(c)(8) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not inconsistent with the above references, an eligible retirement plan shall mean: (i) an individual retirement account described in Section 408(a) of the Code, (ii) an individual retirement annuity described in Section 408(b) of the Code, (iii) an annuity or annuity plan described in Section 403(a) or Section 403(b) of the Code, (iv) a qualified trust described in Section 401(a) of the Code, or (v) a governmental plan under Section 457 of the Code that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan means an individual retirement account or individual retirement annuity.

 

(e)          An eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order as defined in Section 414(p) of the Code.

 

7.08         Waiver of 30-Day Period After Notice of Distribution . If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Treasury Regulations Section 1.411(a)-11(c) is given, provided that:

 

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(i)          the Trustee or Committee, as applicable, clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular option), and

 

(ii)         the Participant, after receiving the notice, affirmatively elects a distribution.

 

7.09         Non-Spouse Beneficiary Direct Rollover . If a non-spouse Beneficiary who is a distributee of any “eligible rollover distribution” (within the meaning of Section 401(a)(31) of the Code) (i) elects to have a distribution paid directly to an individual retirement account described in Sections 408(a) or 408(b) of the Code that is established for the purpose of receiving the distribution on behalf of a designated Beneficiary (as defined in Section 401(a)(9)(E) of the Code) who is a non-spouse beneficiary (a “Non-spouse IRA”) and (ii) specifies the Non-spouse IRA to which such distribution is to be paid (in such form and at such time as the Committee may prescribe), then such distribution shall be made in the form of a direct trustee-to-trustee transfer to such Non-spouse IRA, provided that such Non-spouse IRA accepts such a transfer. The foregoing sentence shall apply only to the extent that such eligible rollover distribution would be includable in gross income if not transferred as provided in such sentence (determined without regard to Section 402(c) of the Code). The direct rollover must be made to a Non-spouse IRA on behalf of the designated beneficiary that will be treated as an inherited IRA pursuant to the provisions of Section 402(c)(11) of the Code. A non-spouse beneficiary may not roll over an amount that is a required minimum distribution, as determined under applicable Treasury regulations and other Internal Revenue Service guidance. If the Participant dies before his required beginning date and the non-spouse beneficiary rolls over to a Non-spouse IRA the maximum amount eligible for rollover, the beneficiary may elect to use either the 5-year rule or the life expectancy rule, pursuant to Treasury Regulations Section 1.401(a)(9)-3, Q&A-4(c), in determining the required minimum distributions from the Non-spouse IRA that receives the non-spouse beneficiary’s distribution.

 

7.10         Roth IRA Rollover . A Participant may elect to roll over directly an eligible rollover distribution to a Roth IRA described in Section 408A(b) of the Code.

 

SECTION 8

VOTING OF COMPANY STOCK AND TENDER OFFERS

 

8.01         Voting of Company Stock .

 

(a)           In General . The Trustee shall generally vote all shares of Company Stock held in the Trust in accordance with the provisions of this Section 8.01.

 

(b)           Allocated Shares . Shares of Company Stock which have been allocated to Participants’ Accounts shall be voted by the Trustee in accordance with the Participants’ written instructions (including abstain if so directed) timely received by the Trustee.

 

(c)           Uninstructed and Unallocated Shares . The Trustee shall vote (i) all Company Stock not allocated to Participants’ Accounts, and (ii) all Company Stock credited to Participants’ Accounts with respect to which the Trustee has not received timely direction, in the same proportion as the Company Stock specified in Section 8.01(b) above (disregarding any shares specified in 8.01(b) above with respect to which the Trustee has received a direction to abstain). Notwithstanding the preceding sentence, all shares of Company Stock which have been allocated to Participants’ Accounts and for which the Trustee has not timely received written instructions regarding voting and all unallocated shares of Company Stock must be voted by the Trustee in a manner determined by the Trustee to be for the exclusive benefit of the Participants and Beneficiaries.

 

(d)           Voting Prior to Allocation . In the event no shares of Company Stock have been allocated to Participants’ Accounts at the time Company Stock is to be voted, each Participant shall be deemed to have one share of Company Stock allocated to his Accounts for the sole purpose of providing the Trustee with voting instructions.

 

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(e)           Procedure and Confidentiality . Whenever such voting rights are to be exercised, the Employers, the Committee, and the Trustee shall see that all Participants and Beneficiaries are provided with the same notices and other materials as are provided to other holders of the Company Stock, and are provided with adequate opportunity to deliver their instructions to the Trustee regarding the voting of Company Stock allocated to their Accounts or deemed allocated to their Accounts for purposes of voting. The instructions of the Participants with respect to the voting of shares of Company Stock shall be confidential.

 

8.02         Tender Offers . In the event of a tender offer, Company Stock shall be tendered by the Trustee in the same manner set forth in Section 8.01 of the Plan regarding the voting of Company Stock.

 

SECTION 9

THE COMMITTEE AND PLAN ADMINISTRATION

 

9.01         Identity of the Committee . The Committee shall consist of three or more individuals selected by the Association. Any individual, including a director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The Association shall have the power to remove any individual serving on the Committee at any time without cause upon ten (10) days written notice to such individual and any individual may resign from the Committee at any time without reason upon ten (10) days written notice to the Association. The Association shall notify the Trustee of any change in membership of the Committee.

 

9.02         Authority of Committee .

 

(a)          The Committee shall be the “plan administrator” within the meaning of ERISA and shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically:

 

(i)          allocated to the Association, the Employers, or the Trustee under the Plan and Trust Agreement;

 

(ii)         delegated in writing to other persons by the Association, the Employers, the Committee, or the Trustee; or

 

(iii)        allocated to other parties by operation of law.

 

(b)          The Committee shall have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan.

 

(c)          The Committee shall have full investment responsibility with respect to the Investment Fund (as defined below in Section 11.04) except to the extent, if any, specifically provided in the Trust Agreement.

 

(d)          In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay such individuals reasonable compensation and expenses for their services rendered with respect to the operation or administration of the Plan to the extent such payments are not otherwise prohibited by law.

 

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9.03         Duties of Committee .

 

(a)          The Committee shall keep whatever records may be necessary in connection with the maintenance of the Plan and shall furnish to the Employers whatever reports may be required from time to time by the Employers. The Committee shall furnish to the Trustee whatever information may be necessary to properly administer the Trust. The Committee shall see to the filing with the appropriate government agencies of all reports and returns required with respect to the Plan under ERISA and the Code and other applicable laws.

 

(b)          The Committee shall have exclusive responsibility and authority with respect to the Plan’s holdings of Company Stock and shall direct the Trustee in all respects regarding the purchase, retention, sale, exchange, and pledge of Company Stock and the creation and satisfaction of any Acquisition Loan to the extent such responsibilities are not set forth in the Trust Agreement.

 

(c)          The Committee shall at all times act consistently with the Association’s long-term intention that the Plan, as an employee stock ownership plan, be invested primarily in Company Stock. Subject to the direction of the Committee with respect to any Acquisition Loan pursuant to the provisions of Section 4.03 of the Plan, and subject to the provisions of Sections 7.05 and 11.04 of the Plan as to Participants’ rights under certain circumstances to have their Accounts invested in Company Stock or in assets other than Company Stock, the Committee shall determine, in its sole discretion, the extent to which assets of the Trust shall be used to repay any Acquisition Loan, to purchase Company Stock, or to invest in other assets selected by the Committee or an investment manager. No provision of the Plan relating to the allocation or vesting of any interests in the Company Stock or investments other than Company Stock shall restrict the Committee from changing any holdings of the Trust Fund, whether the changes involve an increase or a decrease in the Company Stock or other assets credited to Participants’ Accounts. In determining the proper extent of the Trust Fund’s investment in Company Stock, the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents and to pay their reasonable compensation and expenses to the extent such payments are not prohibited by law.

 

(d)          If the valuation of any Company Stock is not established by reported trading on a generally recognized public market, then the Committee shall have the exclusive authority and responsibility to determine value of the Company Stock for all purposes under the Plan. Such value shall be determined as of each Valuation Date and on any other date as of which the Trustee purchases or sells Company Stock in a manner consistent with Section 4975 of the Code and the Treasury Regulations thereunder. The Committee shall use generally accepted methods of valuing stock of similar corporations for purposes of arm’s length business and investment transactions, and in this connection the Committee shall obtain, and shall be protected in relying upon, the valuation of Company Stock as determined by an independent appraiser experienced in preparing valuations of similar businesses.

 

9.04         Compliance with ERISA and the Code . The Committee shall perform all acts necessary to ensure the Plan’s compliance with ERISA and the Code. Each individual member of the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA and the Code.

 

9.05         Action by Committee . All actions of the Committee shall be governed by the affirmative vote of a number of the members of the Committee which is a majority of the total number of the members of the Committee. The members of the Committee may meet informally and may take any action without meeting as a group.

 

9.06         Execution of Documents . Any instrument executed by the Committee may be signed by any member of the Committee.

 

9.07         Adoption of Rules . The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate for the proper operation, administration and interpretation of the Plan.

 

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9.08         Responsibilities to Participants . The Committee shall determine which Employees qualify to participate in the Plan. The Committee shall furnish to each Eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information may be required under ERISA. The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under the Plan. The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA or the Code (or is otherwise appropriate) to enable the Participant or Beneficiary to make whatever elections may be available pursuant to Section 7, and the Committee shall provide for the payment of benefits in the proper form and amount from the Trust. The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate benefits to the extent consistent with the terms of the Plan, applicable law, and the best interests of the individuals concerned.

 

9.09         Alternative Payees in Event of Incapacity . If the Committee finds at any time that an individual qualifying for benefits under this Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his legal guardian, a custodian for him under the Uniform Transfers to Minors Act, or the person having actual custody of him, or, in the case of an incompetent, to his spouse, his legal guardian, or the person having actual custody of him. The Committee and the Trustee shall not be obligated to inquire as to the actual use of the funds by the person receiving them under this Section 9.09, and any such payment shall completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.

 

9.10         Indemnification by Employers . Except as separately agreed in writing, the Committee, and any member or employee of the Committee, shall be indemnified and held harmless by the Employers, jointly and severally, to the fullest extent permitted by law against any and all costs, damages, expenses, and liabilities reasonably incurred by or imposed upon the Committee or such individual in connection with any claim made against the Committee or such individual or in which the Committee or such individual may be involved by reason of being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts are not paid by insurance.

 

9.11         Abstention by Interested Member . Any member of the Committee who also is a Participant in the Plan shall take no part in any determination specifically relating to his own participation or benefits under the Plan, unless his abstention would render the Committee incapable of acting on the matter.

 

SECTION 10

RULES GOVERNING BENEFIT CLAIMS

 

10.01      Claim for Benefits . Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for his benefits with the Committee on a form provided by the Committee. The claim, including any election of an alternative benefit form, shall be filed at least 30 days before the date on which the benefits are to begin. If a Participant or Beneficiary fails to file a claim by the 30th day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant’s benefits in the standard form prescribed by Section 7 of the Plan.

 

10.02      Notification by Committee . Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied. If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:

 

(a)          each specific reason for the denial;

 

(b)          specific references to the pertinent Plan provisions on which the denial is based;

 

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(c)          a description of any additional material or information which could be submitted by the Participant or Beneficiary to support his claim, with an explanation of the relevance of such information; and

 

(d)          an explanation of the claims review procedures set forth in Section 10.03 of the Plan.

 

10.03      Claims Review Procedure . Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for benefits has been denied in any respect, he may file with the Committee a written notice of appeal setting forth his reasons for disputing the Committee’s determination. In connection with his appeal the Participant or Beneficiary or his representative may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants’ and Beneficiaries’ rights of privacy. Within 60 days after receiving a notice of appeal from a prior determination (or within 120 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary and his representative within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative, if any, a written statement of the Committee’s final decision with respect to his claim, including the reasons for such decision and the particular Plan provisions upon which it is based.

 

SECTION 11

THE TRUST

 

11.01      Creation of Trust Fund . All amounts received under the Plan from an Employer and investments shall be held in a Trust Fund pursuant to the terms of this Plan and the Trust Agreement. The benefits described in this Plan shall be payable only from the assets of the Trust Fund. Neither the Association, any other Employer, its board of directors or trustees, its stockholders, its officers, its employees, the Committee, nor the Trustee shall be liable for payment of any benefit under this Plan except from the Trust Fund.

 

11.02      Company Stock and Other Investments . The Trust Fund held by the Trustee shall be divided into Company Stock and investments other than Company Stock. The Trustee shall have no investment responsibility for the portion of the Trust Fund consisting of Company Stock, but shall accept any Employer contributions made in the form of Company Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with and dispose of Company Stock in accordance with the instructions of the Committee.

 

11.03      Acquisition of Company Stock . From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Company Stock from the issuing Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for such Company Stock no more than its fair market value, which shall be determined conclusively by the Committee pursuant to Section 9.03(d) of the Plan. The Committee may direct the Trustee to finance the acquisition of Company Stock through an Acquisition Loan subject to the provisions of Section 4.03 of the Plan.

 

11.04      Participants’ Option to Diversify . The Committee shall provide for a procedure under which each Participant may, during the qualified election period, elect to “diversify” a portion of the Company Stock allocated to his Account, as provided in Section 401(a)(28)(B) of the Code. An election to diversify must be made on the prescribed form and filed with the Committee within the period specified herein. For each of the first five (5) Plan years in the qualified election period, the Participant may elect to diversify an amount which does not exceed 25% of the number of shares allocated to his Account since the inception of the Plan, less all shares with respect to which an election under this Section has already been made. For the last year of the qualified election period, the Participant may elect to have up to 50% of the value of his Account committed to other investments, less all shares with respect to which an election under this Section has already been made. For purposes hereof, the term “qualified election period” means the six (6) Plan Year period beginning with the first Plan Year in which a Participant has both attained age 55 and completed 10 years of participation in the Plan. A Participant’s election to diversify his Account may be made within each year of the qualified election period and shall continue for the 90 day period immediately following the last day of each year in the qualified election period. Once a Participant makes such election, the Committee shall direct the Trustee to complete

 

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diversification in accordance with such election within 90 days after the end of the period during which the election could be made for the Plan Year. In the discretion of the Committee, the Plan may satisfy the diversification requirement by any of the following methods:

 

(a)          the Plan may distribute all or part of the amount subject to the diversification election;

 

(b)          the Plan may offer the Participant at least three other distinct investment options within an “Investment Fund,” if available under the Plan. The other investment options must satisfy the requirements of Regulations under Section 404(c) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); or

 

(c)          the Plan may transfer the portion of the Participant’s Account subject to the diversification election to another qualified defined contribution plan of the Employer that offers at least three investment options satisfying the requirements of the Regulations under Section 404(c) of ERISA.

 

SECTION 12

ADOPTION, AMENDMENT AND TERMINATION

 

12.01      Adoption of Plan by Other Employers . With the consent of the Association, any entity may become a participating Employer under the Plan by:

 

(a)          taking such action as shall be necessary to adopt the Plan;

 

(b)          becoming a party to the Trust Agreement establishing the Trust Fund; and

 

(c)          executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan into effect with respect to the entity’s Employees.

 

12.02       Adoption of Plan by Successor . In the event that any Employer shall be reorganized by way of merger, consolidation, transfer of assets or otherwise, so that an entity other than an Employer shall succeed to all or substantially all of the Employer’s business, the successor entity may be substituted for the Employer under the Plan by adopting the Plan and becoming a party to the Trust Agreement. Contributions by the Employer shall be automatically suspended from the effective date of any such reorganization until the date upon which the substitution of the successor entity for the Employer under the Plan becomes effective. If, within 90 days following the effective date of any such reorganization, the successor entity shall not have elected to become a party to the Plan, or if the Employer shall adopt a plan of complete liquidation other than in connection with a reorganization, the Plan shall be automatically terminated with respect to Employees of the Employer as of the close of business on the 90th day following the effective date of the reorganization, or as of the close of business on the date of adoption of a plan of complete liquidation, as the case may be.

 

12.03       Plan Adoption Subject to Qualification . Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits. In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) of the Code, the Plan may be amended retroactively to the earliest date permitted by the Code and the applicable Treasury Regulations in order to secure qualification under Section 401(a) of the Code. If this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) of the Code either as originally adopted or as amended, each Employer’s contributions to the Trust under this Plan (including any earnings thereon) shall be returned to it and this Plan shall be terminated. In the event that this Plan is amended after its initial qualification and the Plan as amended is held by the Internal Revenue Service not to qualify under Section 401(a) of the Code, the amendment may be modified retroactively to the earliest

 

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date permitted by the Code and the applicable Treasury Regulations in order to secure approval of the amendment under Section 401(a) of the Code.

 

12.04       Right to Amend or Terminate . The Association intends to continue this Plan as a permanent program. However, each participating Employer separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that Employer’s Employees, and the Association reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at any time and for any reason, as it applies to the Employees of all Employers. No amendment, suspension, supersession, merger, consolidation, or termination of the Plan shall reduce any Participant’s or Beneficiary’s proportionate interest in the Trust Fund, or shall divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan. Except as is required for purposes of compliance with the Code or ERISA, neither the provisions of Section 4.04 relating to the crediting of contributions, forfeitures and shares of Company Stock released from the Loan Suspense Account, nor any other provision of the Plan relating to the allocation of benefits to Participants, may be amended more frequently than once every six months. Moreover, there shall not be any transfer of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation. Following a termination of this Plan by the Association, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan and the Committee’s instructions.

 

SECTION 13

GENERAL PROVISIONS

 

13.01       Nonassignability of Benefits . The interests of Participants and other persons entitled to benefits under the Plan shall not be subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated, pledged, encumbered, sold, or transferred. The prohibitions set forth in this Section 13.01 shall also apply any judgment, decree, or order (including approval of a property or settlement agreement) which relates to the provision of child support, alimony, or property rights to a present or former spouse, child, or other dependent of a Participant pursuant to a domestic relations order, unless such judgment, decree or order is determined to be a “qualified domestic relations order” as defined in Section 414(p) of the Code.

 

13.02       Limit of Employer Liability . The liability of the Employers with respect to Participants and other persons entitled to benefits under the Plan shall be limited to making contributions to the Trust from time to time, in accordance with Section 4 of the Plan.

 

13.03       Plan Expenses . All expenses incurred by the Committee or the Trustee in connection with administering the Plan and Trust shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employers or by the Trustee.

 

13.04       Nondiversion of Assets . Except as provided in Sections 5.05 and 12.03 of the Plan, under no circumstances shall any portion of the Trust Fund be diverted to or used for any purpose other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.

 

13.05       Separability of Provisions . If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

 

13.06       Service of Process . The agent for the service of process upon the Plan shall be the President of the Association and the Trustee, or such other person as may be designated from time to time by the Association.

 

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13.07       Governing Law . The Plan is established under, and its validity, construction and effect shall be governed by the laws of the State of Missouri to the extent those laws are not preempted by federal law, including the provisions of ERISA.

 

13.08       Special Rules for Persons Subject to Section 16(b) Requirements . Notwithstanding anything herein to the contrary, any former Participant who is subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, who becomes eligible to again participate in the Plan, may not become a Participant prior to the date that is six months from the date such former Participant terminated participation in the Plan. In addition, any person subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934 receiving a distribution of Company Stock from the Plan must hold such Company Stock for a period of six months commencing with the date of distribution. However, this restriction will not apply to Company Stock distributions made in connection with death, retirement, disability or termination of employment, or made pursuant to the terms of a qualified domestic relations order.

 

13.09       Military Service .

 

(a)          Notwithstanding any other provision of this Plan to the contrary, contributions, benefits and Service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

 

(b)          If a Participant dies while performing “Qualified Military Service” (as defined below), the survivors of the Participant shall be entitled to any additional benefits (other than benefit accruals relating to the period of Qualified Military Service) provided under the Plan as if the Participant had resumed and then terminated employment on account of death.

 

(c)          Continued benefit accruals under the Plan are not provided pursuant to the HEART Act.

 

(d)          If an individual on Qualified Military Service receives a differential wage payment, (i) he shall be treated as an Employee of the Employer making the payment, (ii) the differential wage payment shall be treated as Compensation except for purposes of determining contributions and benefits under the Plan. For purposes of the foregoing, “differential wage payment” shall have the meaning given such term by Code Section 3401(h)(2).

 

(e)          For purposes of this provision, “Qualified Military Service” shall mean any service in the uniformed services (as defined in USERRA) by any Employee if such Employee is entitled to re-employment rights under USERRA with respect to such service.

 

13.10       Use of Electronic Media to Provide Notices and Make Participant Elections . Pursuant to Treasury Regulations Section 1.401(a)-21, the Plan may elect to use electronic media to provide notices required to be provided to Participants under the Plan and will accept elections from Participants communicated to the Plan using such electronic media.

 

SECTION 14

TOP-HEAVY PROVISIONS

 

14.01       Top-Heavy Provisions . Anything contained in the Plan to the contrary notwithstanding, in the event the Plan becomes a Top Heavy Plan (as defined below) in any Plan Year, then the following provisions of this Section 14 shall apply.

 

(a)           Aggregation Group Defined . “Aggregation Group” means (a) each pension, profit sharing, stock bonus, and employee stock ownership plan of the Control Group in which a key employee is a participant, and (b) each other plan of the Control Group which enables any plan described in subclause (a) to meet the requirements of Section 401(a)(4) or 410 of the Code. In addition, the term “Aggregation Group” shall include

 

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any plan designated by the Association as being part of the group if the group would continue to meet the requirements of Sections 401(a)(4) and 410 of the Code with that plan being taken into account.

 

(b)           Determination Date Defined . “Determination Date” means with respect to any Plan Year the last day of the preceding Plan Year or, in the case of the first Plan Year of the Plan, the last day of such Plan Year.

 

(c)           Key Employee Defined . For purposes of this Section 14, “Key Employee” means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the Determination Date was an officer of the Employer having annual compensation greater than $160,000 (as adjusted under Section 416(i)(l) of the Code), a 5% owner of the Employer or a 1% owner of the Employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

 

(d)           Top Heavy Plan Defined . “Top Heavy Plan” means if, as of the Determination Date, the aggregate of the accounts of Participants who are Key Employees under this Plan and under any plan included in the Aggregation Group exceeds 60% of the aggregate of the accounts of all employees under such plans . For purposes of determining the amounts of account balances of Participants as of the Determination Date, the rules set forth below will apply.

 

(i)            Distributions During Year Ending on the Determination Date . The amounts of account balances of a Participant as of the Determination Date shall be increased by the distributions made with respect to the Participant under the Plan and any Plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death or disability, this provision shall be applied by substituting “5-year period” for “1-year period.”

 

(ii)          Participants Not Performing Services During the Year Ending on the Determination Date . The accrued benefits and accounts of any individual who has not performed services for the Employer during the 1-year period ending on the Determination Date shall not be taken into account.

 

14.02       Plan Modifications Upon Becoming Top-Heavy .

 

(a)           Minimum Accruals . If the Plan is a Top Heavy Plan, Section 5.04 of the Plan will be modified to provide that the aggregate amount of Employer contributions allocated in each Plan Year to the Accounts of each Participant who is a non-Key Employee, and who is employed by an Employer as of the last day of the Plan Year, may not be less than the lesser of:

 

(i)          three percent (3%) of his Compensation for the Plan Year; and

 

(ii)         a percentage of his Compensation equal to the largest percentage obtained by dividing the sum of the amount credited to the Accounts of any Key Employee by that Key Employee’s Compensation.

 

(b)          The preceding provision will remain in effect for the period in which the Plan is a Top Heavy Plan. If, for any particular year thereafter, the Plan is no longer a Top Heavy Plan, the provisions contained in this Section 14.02 shall cease to apply, except that any previously vested portion of any Account balance shall remain nonforfeitable.

 

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IN WITNESS WHEREOF, this Plan is executed as of the date set forth below _____ day of ______________ by an authorized representative of the Association.

 

 

  CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA
     
  By:  

 

  Print Name:  

 

  Title:  
     
  Date:  

 

[Signature Page – ESOP]

 

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FORM OF

LOAN AGREEMENT

 

THIS LOAN AGREEMENT (“Loan Agreement”) is made and entered into as of _________, by and between _____________________ , AS THE TRUSTEES FOR THE CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Borrower”), a trust forming part of the Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan (“ESOP”); and CENTRAL FEDERAL BANCSHARES, INC. (“Lender”), a corporation organized and existing under the laws of Missouri.

 

W I T N E S S E T H

 

WHEREAS, the Borrower is authorized to purchase shares of common stock of Central Federal Bancshares, Inc. (“Common Stock”), either directly from Central Federal Bancshares, Inc. or in open market purchases in an amount not to exceed _________________ (___________) shares of Common Stock.

 

WHEREAS, the Borrower is authorized to borrow funds from the Lender for the purpose of financing authorized purchases of Common Stock; and

 

WHEREAS, the Lender is willing to make a loan to the Borrower for such purpose.

 

NOW, THEREFORE, the parties agree hereto to the provisions set forth below.

 

ARTICLE I

DEFINITIONS

 

The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context:

 

“Business Day” means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal or local law or regulation.

 

“Code” means the Internal Revenue Code of 1986, as amended (including the corresponding provisions of any succeeding law).

 

“Default” means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirements of notice or lapse of time.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law).

 

“Event of Default” means an event or condition described in Article 5 of this Loan Agreement.

 

“Loan ” means the loan described in Section 2.1 of this Loan Agreement.

 

“Loan Documents” means, collectively, the Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents.

 

“Pledge Agreement” means the agreement described in Section 2.8(a) of this Loan Agreement.

 

“Principal Amount” means the face amount of the Promissory Note, determined as set forth in Section 2.1(c) of this Loan Agreement.

 

 

 

 

Promissory Note” means the promissory note described in Section 2.3 of this Loan Agreement.

 

“Register means the register described in Section 2.9 of this Loan Agreement.

 

ARTICLE II

THE LOAN; PRINCIPAL AMOUNT;

INTEREST; SECURITY; INDEMNIFICATION

 

Section 2.1            The Loan; Principal Amount .

 

(a)          The Lender hereby agrees to lend to the Borrower such amount, and at such time, as shall be determined under this Section 2.1; provided, however, that in no event shall the aggregate amount lent under this Loan Agreement from time to time exceed the greater of (i) __________________ ($_________) or (ii) the aggregate amount paid by the Borrower to purchase up to __________________ (_________) shares of Common Stock.

 

(b)          Subject to the limitations of Section 2.1(a), the Borrower shall determine the amounts borrowed under this Agreement, and the time at which such borrowings are effected. Each such determination shall be evidenced in a writing which shall set forth the amount to be borrowed and the date on which the Lender shall disburse such amount, and such writing shall be furnished to the Lender by notice from the Borrower. The Lender shall disburse to the Borrower the amount specified in each such notice on the date specified therein or, if later, as promptly as practicable following the Lender’s receipt of such notice; provided, however, that the Lender shall have no obligation to disburse funds pursuant to this Agreement following the occurrence of a Default or an Event of Default until such time as such Default or Event of Default shall have been cured.

 

(c)          For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of:

 

(i)          the aggregate amount disbursed by the Lender pursuant to Section 2.1(b) on or before such date; over

 

(ii)         the aggregate amount of any repayments of such amounts made before such date.

 

The Lender shall maintain on the Register a record of, and shall record in the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount.

 

Section 2.2            Interest .

 

(a)          The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing with the first disbursement of funds under this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of ___________ percent (___%) per annum. Interest payable under this Agreement shall be computed on the basis of a year of 365 days and actual days elapsed (including the first day but excluding the last) occurring during the period to which the computation relates.

 

(b)          Accrued interest on the Principal Amount shall be payable by the Borrower on the dates set forth in Schedule I to the Promissory Note. All interest on the Principal Amount shall be paid by the Borrower in immediately available funds.

 

(c)          Anything in this Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the

 

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earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

 

Section 2.3            Promissory Note . The Loan shall be evidenced by the Promissory Note of the Borrower attached hereto as an Exhibit, payable to the order of the Lender in the Principal Amount and otherwise duly completed.

 

Section 2.4            Payment of Trust Loan . The Principal Amount of the Loan shall be repaid in accordance with Schedule I to the Promissory Note on the dates specified therein until fully paid.

 

Section 2.5            Prepayment . The Borrower shall be entitled to prepay the Loan in whole or in part, at any time and from time to time; provided, however, that the Borrower shall give notice to the Lender of any such prepayment; and provided, further, that any partial prepayment of the Loan shall be in an amount not less than $1,000. Any such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all accrued interest through the date of such prepayment; (c) made without premium or penalty; and (d) applied on the inverse order of the maturity of the installment thereof unless the Lender and the Borrower agree to apply such prepayments in some other order.

 

Section 2.6            Method of Payments .

 

(a)          All payments of principal and interest payable hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified herein or pursuant to this Loan Agreement for notices to the Lender, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day, and when paid, such payment shall include interest to the day on which payment is in fact made.

 

(b)          Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, the Borrower shall not be obligated to make any payment, repayment or pre-payment on the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code or qualified under Section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under Section 501(a) of the Code or if such act or failure to act would cause the Borrower to engage in any “prohibited transaction” as such term is defined in the Section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by Section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in Section 406 of ERISA and the regulations promulgated thereunder which is not exempted by Section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower, may act or refrain from acting pursuant to this Section 2.6(b) on the basis of an opinion of counsel. The Borrower may consult with counsel, and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such opinion of counsel. Nothing contained in this Section 2.6(b) shall be construed as imposing a duty on the Borrower to consult with counsel. Any obligation of the Borrower to make any payment, repayment or prepayment on the Promissory Note or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this Section 2.6(b) shall be considered a binding obligation of the Borrower, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or under the Promissory Note and nothing in this Section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance).

 

Section 2.7            Use of Proceeds of Loan . The entire proceeds of the Loan shall be used solely for acquiring shares of Common Stock, and for no other purpose whatsoever.

 

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Section 2.8            Security .

 

(a)          In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall:

 

(i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, the Common Stock purchased with the Principal Amount, by the execution and delivery to the lender of the Pledge Agreement attached hereto as an exhibit; and

 

(ii) execute and deliver, or cause to be executed and delivered, such other agreement, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement.

 

(b)          The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or repayment of the Principal Amount is made, a number of shares of Common Stock held as Collateral determined pursuant to the applicable provisions of the ESOP.

 

Section 2.9            Registration of the Promissory Note .

 

(a)          The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation.

 

(b)          Any new Promissory Note issued pursuant to Section 2.9(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or exchanged so that there will not be any loss or gain of interest on the note surrender. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of any Promissory Note as the holder thereof for purposes of payment and other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE BORROWER

 

The Borrower hereby represents and warrants to the Lender as follows:

 

Section 3.1            Power, Authority, Consents . The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and Pledge Agreement, all of which have been duly authorized by all necessary and proper corporate or other action.

 

Section 3.2            Due Execution, Validity, Enforceability . Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, has been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms.

 

Section 3.3            Properties, Priority of Liens . The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien.

 

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Section 3.4            No Defaults, Compliance with Laws . The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected.

 

Section 3.5            Purchase of Common Stock . Upon consummation of any purchase of Common Stock by the Borrower with the proceeds of the Loan, the Borrower shall acquire valid, legal and marketable title to all of the Common Stock so purchased, free and clear of any liens, other than a pledge to the Lender of the Common Stock so purchased pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provisions of law or conflicts with or results in a breach of or creates (with or without the giving of notice of lapse of time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state, or local governmental authority, agency, or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery, or performance of the Loan Documents and the transaction contemplated therein or in connection therewith, including without limitation, with respect to the transfer of the shares of Common Stock purchased with the proceeds of the Loan pursuant thereto.

 

Section 3.6            ESOP; Contributions . The ESOP will qualify as an “employee stock ownership plan” as defined in Section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under Section 401(a) of the Code.

 

Section 3.7            Trustee . The trustee of the ESOP has been duly appointed by the ESOP sponsor.

 

Section 3.8            Compliance with Laws; Actions . Neither the execution and delivery by the Borrower of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality, or an event of default under any agreement, to which the Borrower is a party, to which the Borrower is bound or to which the Borrower is subject, which violation or event of default would have a material adverse effect on the Borrower. There is no action or proceeding pending or threatened against either the ESOP or the Borrower before any court or administrative agency.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE LENDER

 

The Lender hereby represents and warrants to the Borrower as follows:

 

Section 4.1            Power, Authority, Consents . The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement.

 

Section 4.2            Due Execution, Validity, Enforceability . This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender, and each constitutes a valid and legally binding obligation of the Lender, enforceable in accordance with its terms.

 

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ARTICLE V

EVENTS OF DEFAULT

 

Section 5.1            Events of Default under Loan Agreement . Each of the following events shall constitute an “Event of Default” hereunder:

 

(a)          failure to make any payment or mandatory prepayment of principal of the Promissory Note when due, or failure to make any payment of interest on the Promissory Note not later than five (5) Business Days after the date when due;

 

(b)          failure by the Borrower to perform or observe any term, condition or covenant of this Loan Agreement or of any of the other Loan Documents, including, without limitation, the Promissory Note and the Pledge Agreement; or

 

(c)          any representation or warranty made in writing to the Lender in any of the Loan Documents, or any certificate, statement or report made or delivered in compliance with this Loan Agreement, shall have been false or misleading in any material respect when made or delivered.

 

Section 5.2            Lender’s Rights upon Event of Default . If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such contributions and (b) “Eligible Collateral” (as defined in the Pledge Agreement); provided, however, that: (i) the value of the Borrower’s assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default; (ii) the Borrower’s assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan; and (iii) all rights of the Lender to the Common Stock purchased with the proceeds of the Loan covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement.

 

ARTICLE VI

MISCELLANEOUS PROVISIONS

 

Section 6.1            Payments . All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note “Paid” and return it to the Borrower.

 

Section 6.2            Survival . All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note.

 

Section 6.3            Modifications, Consents and Waivers; Entire Agreement . No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof.

 

Section 6.4            Remedies Cumulative . Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the Promissory Note to

 

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exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations.

 

Section 6.5            Further Assurances; Compliance with Covenants . At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan.

 

Section 6.6            Notices . Except as otherwise specifically provided for herein, all notices, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or telecopier addressed as follows:

 

(a) If to the Borrower:

 

Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan Trust

___________________________________

___________________________________

Attn:_______________________________

 

(b) If to the Lender:

 

Central Federal Bancshares, Inc.

210 West 10 th Street

Rolla, Missouri 65401

Attn:_____________

 

Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or telecopier, to such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed.

 

Section 6.7            Counterparts . This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document.

 

Section 6.8            Construction; Governing Law . The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement of an Article or Section shall be to an Article or Section of this Loan Agreement, unless otherwise specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and the other Loan Documents shall be governed by, and construed and interpreted in accordance with, the laws of the State of Missouri.

 

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Section 6.9            Severability . Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provisions in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement are independent, and compliance by a party with any of them shall not excuse non-compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement.

 

Section 6.10          Binding Effect: No Assignment or Delegation . This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void.

 

* * * * *

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IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be executed as of the date first written above.

 

 

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA EMPLOYEE STOCK OWNERSHIP PLAN TRUST

 

  By:  

  Print Name:  

  Title: Trustee

 

  CENTRAL FEDERAL BANCSHARES, INC.

 

  By:  

  Print Name:  

  By:  

 

[Signature Page – ESOP Loan Agreement]

 

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FORM OF

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (“Pledge Agreement”) is made as of _______________, by and between ______________ , AS TRUSTEES FOR THE CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Pledgor”), and CENTRAL FEDERAL BANCSHARES, INC. (“Pledgee”).

 

W I T N E S S E T H

 

WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of a Loan Agreement (“Loan Agreement”), by and between the Pledgor and the Pledgee;

 

NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree to the provisions set forth below.

 

Section 1. Definitions . The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement.

 

Collateral” shall mean the Pledged Shares and, subject to Section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares and rights.

 

ESOP” shall mean the Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan.

 

Event of Default” shall mean an event so defined in the Loan Agreement.

 

Liabilities” shall mean the amounts the Pledgor owes to the Pledgee under the Loan Agreement and the Promissory Note and any amendments thereto.

 

Pledged Shares” shall mean all the Shares of Common Stock of the Pledgee purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement, but excluding any such shares previously released pursuant to Section 4 of this Pledge Agreement.

 

Section 2. Pledge .   To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee, a security interest in, and lien upon, the Collateral.

 

Section 3. Representations and Warranties of the Pledgor .   The Pledgor represents, warrants, and covenants to the Pledgee as follows:

 

(a)          the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under, any agreement binding upon the Pledgor;

 

(b)          the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others;

 

(c)          this Pledge Agreement is the legal, valid, binding and enforceable obligation of the Pledgor in accordance with its terms;

 

 

 

 

(d)          the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and

 

(e)          subject to the first sentence of Section 4(b) of this Pledge Agreement, the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral.

 

Section 4. Eligible Collateral .

 

(a)          As used herein the term “Eligible Collateral” shall mean the amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default or such lesser amount of Collateral as may be required pursuant to Section 13 of this Pledge Agreement.

 

(b)          The Pledged Shares shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulations Section 54.4975-7(b)(8), as the same may be from time to time amended or supplemented, and the applicable provisions of the ESOP. Subject to the Treasury Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral in the name of the Pledgee or its nominee, without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Eligible Collateral to make payment to the Pledgee of any amounts due or due to become due thereunder, (ii) release or exchange all or any part of the Eligible Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Eligible Collateral.

 

Section 5. Delivery .

 

(a)          The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement (i) either (A) certificates for the Pledged Shares, each certificate duly signed in blank by the Pledgor or accompanied by a stock transfer power duly signed in blank by the Pledgor and each such certificate accompanied by all required documentary or stock transfer tax stamps or (B) if the Trustee does not yet have possession of the Pledged Shares, an assignment by the Pledgor of all the Pledgor’s rights to and interest in the Pledged Shares, and (ii) an irrevocable proxy, in form and substance satisfactory to the Pledgee, signed by the Pledgor with respect to the Pledged Shares.

 

(b)          Subject to Section 6 of this Pledge Agreement, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral.

 

Section 6. Events of Default .

 

(a)          If a Default or Event of Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to the Eligible Collateral, from time to time, any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of Missouri or otherwise available to it, and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsement, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liabilities in Section 1 hereof.

 

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(b)          In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction.

 

Section 7. Payment in Full . Upon the payment in full of all outstanding Liabilities, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to the Pledge Agreement.

 

Section 8. No Waiver . No failure or delay on the part of the Pledgee in exercising any right or remedy hereunder or under any other document which confers or grants any rights to the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such rights or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee.

 

Section 9. Binding Effect; No Assignment or Delegation . This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee.

 

Section 10. Governing Law . This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of Missouri applicable to agreements to be performed wholly within the State of Missouri.

 

Section 11. Notices . All notices, requests, instructions or documents hereunder shall be in writing and delivered personally or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid as follows:

 

(a) If to the Pledgor:

 

Central Federal Savings and Loan Association of Rolla Employee Stock Ownership Plan Trust

___________________________________

___________________________________

Attn: _______________________________

 

(b) If to the Pledgee:

 

Central Federal Bancshares, Inc.

210 West 10 th Street

Rolla, Missouri 65401

Attn:_____________

 

or at such other address as either of the parties may designate by written notice to the other party. If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made, and, if delivered by mail, the date on which such notice, request, instruction, or document is

 

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deposited in the mail shall be the date of delivery. Each notice, request, instruction or document shall bear the date on which it is delivered.

 

Section 12. Interpretation .    Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision herein shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.

 

Section 13. Construction .    All provisions hereof shall be construed so as to maintain (a) the ESOP as a tax-qualified leveraged employee stock ownership plan under Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the “Code”), (b) the Trust as exempt from taxation under Section 501(a) of the Code and (c) the loan as an exempt loan under Section 54.4975-7(b) of the Treasury Regulations and as described in Department of Labor Regulation Section 2550.408b-3.

 

IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

  CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA EMPLOYEE STOCK OWNERSHIP PLAN TRUST

 

  By:  

  Print Name:  

  Title: Trustee

 

  CENTRAL FEDERAL BANCSHARES, INC.

 

  By:  

  Print Name:  

  By:  

 

[Signature Page – ESOP Pledge Agreement]

 

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FORM OF

PROMISSORY NOTE

 

FOR VALUE RECEIVED , the undersigned, ________________ AS THE TRUSTEES FOR THE CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the “Borrower”), hereby promises to pay to the order of CENTRAL FEDERAL BANCSHARES, INC. (the “Lender”) up _______________________ dollars ($_______) payable in accordance with the Loan Agreement made and entered into between the Borrower and the Lender of even date herewith (“Loan Agreement”) pursuant to which this Promissory Note is issued.

 

The Principal Amount of this Promissory Note shall be payable in accordance with the schedule attached hereto (“Schedule I”).

 

This Promissory Note shall bear interest at the rate per annum set forth or established under the Loan Agreement, such interest to be payable in accordance with Schedule I.

 

Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payments of interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

 

Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds.

 

Failure to make any payments of principal on this Promissory Note when due, or failure to make any payment of interest on this Promissory Note not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of accrued interest on this Promissory Note shall immediately become due and payable in accordance with the terms of the Loan Agreement.

 

This Promissory Note is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof.

 

  CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA EMPLOYEE STOCK OWNERSHIP PLAN TRUST
     
     
  Trustee  

 

 

 

Exhibit 10.2

 

FORM OF

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into on _________, 20__, by and among CENTRAL FEDERAL BANCSHARES, INC. , a Missouri corporation (“Bancshares”), CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA (the “Association,” and collectively with Bancshares, the “Company”), and William A. Stoltz (the “Executive”).

 

WHEREAS, the Executive serves in positions of substantial responsibility with the Company; and

 

WHEREAS , the Company and the Executive wish to set forth the terms of the Executive’s employment with the Company and enter into this Agreement;

 

NOW THEREFORE, in consideration of these premises, the mutual covenants contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

 

1.             Employment.

 

(a)           Employment . The Company hereby employs the Executive to serve as President and Chief Executive Officer (“CEO”) of Bancshares and the Association according to the terms and conditions of this Agreement and for the period stated in Section 1(c) of this Agreement. The Executive hereby accepts employment according to the terms and conditions of this Agreement and for the period stated in Section 1(c) of this Agreement.

 

(b)           Duties . As President and CEO, the Executive shall report directly to the boards of directors of Bancshares and the Association. The Executive shall serve the Company faithfully, diligently, competently, and to the best of the Executive’s ability. It is contemplated by this Agreement that the Executive’s duties shall be comparable to those presently undertaken by the Executive. The duties of employment shall include such additional executive duties on behalf of the Company and its operations of a character in keeping with the Executive’s position as may, from time to time, be assigned to the Executive by the boards of directors of the Company. The Executive shall exclusively devote full working time, energy, and attention to the business of the Company throughout the term of this Agreement. Without the prior written consent of the boards of directors of the Company during the term of this Agreement, the Executive shall not render services to or for any person, firm, corporation, or other entity or organization in exchange for compensation, regardless of the form in which the compensation is paid and regardless of whether it is paid directly or indirectly to the Executive. Nothing in this Section 1(b) shall prevent the Executive from managing personal investments and affairs, provided that doing so does not interfere with the proper performance of the Executive’s duties and responsibilities under this Agreement.

 

(c)           Term .

 

(i)          The term of this Agreement shall include: (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the third anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 1(c).

 

(ii)         Commencing as of the first anniversary of the Effective Date, and continuing on each anniversary of the Effective Date thereafter, the disinterested members of the boards of directors may extend the Agreement term for an additional year, so that the remaining term of the Agreement again becomes 36 months from the applicable anniversary date, unless the Executive elects not to extend the term of this Agreement by giving proper written notice. The boards of directors will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement term and

 

 

 

 

will include the rationale and results of its review in the minutes of the meetings. The boards of directors will notify the Executive as soon as possible after each annual review whether it has determined to extend the Agreement.

 

(iii)        Nothing in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the term of this Agreement, upon such terms and conditions as the Company and the Executive may mutually agree.

 

2.             Compensation and Benefits.

 

(a)           Base Salary . In consideration of the Executive’s performance of the obligations under this Agreement, the Company shall pay or cause to be paid to the Executive a salary at the annual rate of $ _________ , payable according to the regular payroll practices of the Company. The Executive’s salary shall be subject to annual review. The Executive’s salary, as the same may be modified from time to time, is referred to in this Agreement as the “Base Salary.” All compensation under this Agreement shall be subject to customary income tax withholding and such other employment taxes as are imposed by law.

 

(b)           Benefit Plans and Perquisites . For as long as the Executive is employed by the Company, the Executive shall be eligible: (i) to participate in any and all officer or employee compensation, incentive compensation and benefit plans in effect from time to time, including without limitation plans providing retirement, medical, dental, disability, and group life benefits and including incentive or bonus plans existing on the date of this Agreement or adopted after the date of this Agreement, provided that the Executive satisfies the eligibility requirements for any the plans or benefits, and (ii) to receive any and all other fringe and other benefits provided from time to time, including the following:

 

(i)           Reimbursement of business expenses . The Executive shall be entitled to reimbursement for all reasonable business expenses incurred while performing his obligations under this Agreement, including but not limited to all reasonable business travel and entertainment expenses incurred while acting at the request of or in the service of the Company, and reasonable expenses for attendance at annual and other periodic meetings of trade associations. Expenses will be reimbursed if they are submitted in accordance with the Company’s policies and procedures.

 

(ii)          Facilities . The Company will furnish the Executive with the working facilities and staff customary for executive officers with the comparable titles and duties of the Executive as set forth in Sections 1(a) and 1(b) of this Agreement and as are necessary for the Executive to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Company, or at such other site or sites customary for such offices and as agreed to by the parties.

 

(c)           Vacation; Leave . The Executive shall be entitled to sick leave and ___ weeks’ paid annual vacation in accordance with policies established from time to time by the Company. In addition to paid vacations and other leave, the boards of directors may grant the Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the boards of directors may determine. Vacation time must be taken during the calendar year in which it is accrued and may be carried over into succeeding calendar years or paid out to the Executive in accordance with the policies of the Company. The Executive shall take his vacation at a reasonable time or times taking into consideration the needs of the Company.

 

(d)           Insurance . The Company shall maintain or cause to be maintained liability insurance covering the Executive throughout the term of this Agreement.

 

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3.             Employment Termination.

 

(a)           Termination Because of Death or Disability .

 

(i)           Death . The Executive’s employment and this Agreement shall terminate automatically at the Executive’s death. If the Executive dies in active service to the Company, the Executive’s estate shall receive any sums due to the Executive as Base Salary and reimbursement of expenses through the end of the month in which death occurs.

 

(ii)          Disability . By delivery of written notice 30 days in advance to the Executive, the Company may terminate the Executive’s employment and this Agreement due to the Executive’s Disability (as defined below). In the event that the Executive’s employment hereunder terminates due to his Disability, no termination benefits shall be payable to or in respect of the Executive. For purposes of this Agreement, “Disability” shall mean a physical or mental condition due to which the Executive shall have been absent from her duties on a full-time basis for a 12 consecutive month period. The Executive’s employment shall be deemed to have terminated as a result of Disability on the date provided in the notice of termination provided to the Executive by the Company. The Executive shall not be considered Disabled, however, if the Executive has returned to employment on a full-time basis within 30 days of receiving such notice.

 

(b)           Involuntary Termination with Cause . The boards of directors may, by written notice to the Executive, immediately terminate the Executive’s employment and this Agreement at any time for Cause, in which case the Executive shall be entitled to receive only the unpaid Base Salary that has accrued through the date of termination. The Company shall deliver to the Executive a copy of the resolution duly adopted by the boards of directors of Bancshares and the Association (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the boards of directors, such meeting and the opportunity to be heard to be held prior to, or as soon as reasonably practicable following, termination, but in no event later than 30 days following such termination), finding that the Executive was guilty of conduct constituting Cause. The notice provided to the Executive pursuant hereto shall specify in detail the particulars of the conduct constituting Cause. If the boards of directors thereafter determines that such conduct did not constitute Cause and the Executive’s employment hereunder is reinstated, then the Executive shall be entitled to receive back pay for the period following termination and continuing through reinstatement, which amount will be paid in a single lump sum within 15 business days following reinstatement. If the Executive’s employment is not reinstated as contemplated by the preceding sentence, then the termination of employment shall be deemed to have occurred pursuant to Section 3(d) of this Agreement and the Executive shall be entitled to the compensation and benefits provided therein. For the purposes of this Agreement “Cause” means any of the following:

 

(1)         a material act of personal dishonesty in performing Executive’s duties on behalf of the Company;

 

(2)         a willful misconduct that in the judgment of the boards of directors will likely cause economic damage to the Company or its affiliates or injury to the business reputation of the Company or its affiliates;

 

(3)         a breach of fiduciary duty involving personal profit;

 

(4)         the intentional failure to perform stated duties under this Agreement after written notice thereof from the boards of directors;

 

(5)         a willful violation of any law, rule or regulation (other than minor or routine traffic violations or similar offenses) that reflects adversely on the reputation of the Company or its

 

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affiliates, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order;

 

(6)         a material breach by the Executive of any provision of this Agreement.

 

No act, or failure to act, on the Executive’s part shall be considered “willful” unless he has acted, or failed to act, with an absence of good faith and without reasonable belief that his action or failure to act was in the best interest of the Company.

 

(c)           Voluntary Termination by the Executive Without Good Reason . If the Executive terminates employment without Good Reason, the Executive shall receive the Base Salary and expense reimbursement to which the Executive is entitled through the date on which termination becomes effective.

 

(d)           Involuntary Termination Without Cause and Voluntary Termination with Good Reason . With written notice to the Executive 30 days in advance, the Company may terminate the Executive’s employment and this Agreement without Cause. Termination shall take effect at the end of the 30 day period. With advance written notice to the Company as provided in clause (y), the Executive may terminate employment for Good Reason. If the Executive’s employment terminates involuntarily without Cause or voluntarily but with Good Reason, the Executive shall be entitled to the benefits specified in Section 4 of this Agreement. For purposes of this Agreement a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if the conditions stated in both clauses (x) and (y) of this Section 3(d) are satisfied:

 

(x)          a voluntary termination by the Executive shall be considered a voluntary termination with Good Reason if any of the following occur without the Executive’s written consent, and the term Good Reason shall mean the occurrence of any of the following without the Executive’s written consent:

 

(1)         a material diminution of the Executive’s Base Salary (unless the reduction is part of a Company-wide or executive-level restructuring of compensation),

 

(2)         a material diminution of the Executive’s authority, duties, or responsibilities, or

 

(3)         a change in the geographic location at which the Executive must perform services for the Company by more than 25 miles from such location at the effective date.

 

(y)          the Executive must give notice to the Company of the existence of one or more of the conditions described in clause (x) within 60 days after the initial existence of the condition, and the Company shall have 30 days thereafter to remedy the condition. In addition, the Executive’s voluntary termination because of the existence of one or more of the conditions described in clause (x) must occur within six months after the initial existence of the condition.

 

4.             Severance Compensation.

 

(a)          Subject to the possibility that cash severance after employment termination might be delayed under Section 4(b), if the Executive’s employment terminates involuntarily but without Cause or if the Executive voluntarily terminates employment with Good Reason, the Executive shall for 36 months and in accordance with the Company’s regular pay practices continue to receive the Base Salary in effect at termination of employment. However, the

 

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Company and the Executive acknowledge and agree that the compensation and benefits under this Section 4(a) shall not be payable if compensation and benefits are payable or shall have been paid to the Executive under Section 5 of this Agreement.

 

(b)          If when employment termination occurs the Executive is a “specified employee” within the meaning of Section 409A of the Code, if the cash severance payment under Section 4(a) would be considered deferred compensation under Section 409A of the Code, and finally if an exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i) of the Code is not available, the Executive’s continued Base Salary under Section 4(a) for the first six months after employment termination shall be paid to the Executive in a single lump sum without interest on the first business day of the seventh month after the month in which the Executive’s employment terminates.

 

5.             Change in Control Benefits.

 

(a)           Change in Control Benefits . If a Change in Control occurs during the term of this Agreement and, thereafter during the then remaining term of the Agreement, the Executive’s employment terminates involuntarily but without Cause or if the Executive voluntarily terminates employment with Good Reason, the Company shall make or cause to be made a lump-sum payment to the Executive in an amount in cash equal to three times the Executive’s average annual compensation. For this purpose, average annual compensation means the Executive’s taxable income reported by the Company or its affiliates for the five calendar years immediately preceding the calendar year in which the Change in Control occurs. The payment required under this paragraph is payable no later than five business days after the Executive’s termination of employment. If the Executive receives payment under Section 5(a), the Executive shall not be entitled to any additional severance benefits under Section 4(a) of this Agreement.

 

(b)           Change in Control Defined . For purposes of this Agreement “Change in Control” means a change in control of the Company as defined in Internal Revenue Section 409A of the Code and rules, regulations, and guidance of general application thereunder issued by the Department of the Treasury, including a “change in ownership,” “change in effective control” or “change in ownership of a substantial portion of assets.”

 

(c)           Potential Limitation of Benefits Under Certain Circumstances . Notwithstanding any other provisions of this Agreement, in the event that the aggregate payments or benefits to be made or afforded to the Executive under this Agreement or otherwise, which are deemed to be parachute payments as defined in Section 280G of the Code or any successor thereof (the “Termination Benefits”), would be deemed to include an “excess parachute payment” under Section 280G of the Code, then the Termination Benefits shall be reduced to a value which is $1.00 less than an amount equal to three times the Executive’s “base amount,” as determined in accordance with Section 280G of the Code. The allocation of the reduction required hereby among the Termination Benefits shall first be made from any cash severance benefit due under Section 5(a) of this Agreement. Nothing contained in this Agreement shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment other than pursuant to Sections 4 and 5 hereof, or a reduction in the payments and benefits specified, below zero.

 

6.             Confidentiality and Creative Work.

 

(a)           Non-disclosure . The Executive covenants and agrees not to reveal to any person, firm, or corporation any confidential information of any nature concerning the Company or its business, or anything connected therewith. As used in this Section 6 the term “confidential information” means all of the Company’s or the Association’s and the Company’s affiliates’ confidential and proprietary information and

 

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trade secrets in existence on the date hereof or existing at any time during the term of this Agreement, including but not limited to:

 

(i)          the whole or any portion or phase of any business plans, financial information, purchasing data, supplier data, accounting data, or other financial information,

 

(ii)         the whole or any portion or phase of any research and development information, design procedures, algorithms or processes, or other technical information,

 

(iii)        the whole or any portion or phase of any marketing or sales information, sales records, customer lists, prices, sales projections, or other sales information, and

 

(iv)        trade secrets, as defined from time to time by the laws of Missouri. This Section 6(a) does not prohibit disclosure required by an order of a court having jurisdiction or a subpoena from an appropriate governmental agency or disclosure made by the Executive in the ordinary course of business and within the scope of the Executive’s authority.

 

(b)           Return of Materials . The Executive agrees to immediately deliver or return to the Company upon termination, upon expiration of this Agreement, or as soon thereafter as possible, all written information and any other similar items furnished by the Company or prepared by the Executive in connection with the Executive’s services hereunder and to immediately delete all electronically stored data of the Company maintained on the Executive’s personal computers and to return all Company-provided computers or communication devices. The Executive will retain no copies thereof after termination of this Agreement or termination of the Executive’s employment.

 

(c)           Creative Work . The Executive agrees that all creative work and work product, including but not limited to all technology, business management tools, processes, software, patents, trademarks, and copyrights developed by the Executive during the term of this Agreement, regardless of when or where such work or work product was produced, constitutes work made for hire, all rights of which are owned by the Company. The Executive hereby assigns to the Company all rights, title, and interest, whether by way of copyrights, trade secret, trademark, patent, or otherwise, in all such work or work product, regardless of whether the same is subject to protection by patent, trademark, or copyright laws.

 

(d)           Affiliates’ Confidential Information is Covered; Confidentiality Obligation Survives Termination . For purposes of this Agreement, the term “affiliate” of the Company includes any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Company. The rights and obligations set forth in this 6 shall survive termination of this Agreement.

 

(e)           Injunctive Relief . The Executive acknowledges that it is impossible to measure in money the damages that will accrue to the Company if the Executive fails to observe the obligations imposed by this Section 6. Accordingly, if the Company institutes an action to enforce the provisions hereof, the Executive hereby waives the claim or defense that an adequate remedy at law is available to the Company, and the Executive agrees not to urge in any such action the claim or defense that an adequate remedy at law exists. The confidentiality and remedies provisions of this Section 6 shall be in addition to and shall not be deemed to supersede or restrict, limit, or impair the Company’s rights under applicable state or federal statute or regulation dealing with or providing a remedy for the wrongful disclosure, misuse, or misappropriation of trade secrets or proprietary or confidential information.

 

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7.             Competition After Employment Termination.

 

(a)           Covenant Not to Solicit Employees . The Executive agrees not to, directly or indirectly, solicit or employ the services of any officer or employee of the Company (including an individual who was an officer or employee of the Company during the one year period following the Executive’s termination) for two years after the Executive’s employment termination.

 

(b)           Covenant Not to Compete .

 

(i)          The Executive covenants and agrees not to compete directly or indirectly with the Company for one year after employment termination. For purposes of this Section 7(b):

 

(1)         the term compete means:

 

(i)          providing financial products or services on behalf of any financial institution for any person residing in the territory,

 

(ii)         assisting (other than through the performance of ministerial or clerical duties) any financial institution in providing financial products or services to any person residing in the territory, or

 

(iii)        inducing or attempting to induce any person who was a customer of the Company at the date of the Executive’s employment termination to seek financial products or services from another financial institution.

 

(2)         the words directly or indirectly mean:

 

(i)          acting as a consultant, officer, director, independent contractor, or employee of any financial institution in competition with the Company in the territory, or

 

(ii)         communicating to such financial institution the names or addresses or any financial information concerning any person who was a customer of the Company when the Executive’s employment terminated.

 

(3)         the term customer means any person to whom the Company is providing financial products or services on the date of the Executive’s employment termination or within one year thereafter.

 

(4)         the term financial institution means any bank, savings association, or bank or savings association holding company, or any other institution, the business of which is engaging in activities that are financial in nature or incidental to such financial activities as described in Section 4(k) of the Association Holding Company Act of 1956, other than the Company or any of its affiliated corporations.

 

(5)          financial product or service means any product or service that a financial institution or a financial holding company could offer by engaging in any activity that is financial in nature or incidental to such a financial activity under Section 4(k) of the Association Holding Company Act of 1956 and that is offered by the Company or an affiliate on the date of the Executive’s employment termination, including but not limited to banking activities and activities that are closely related and a proper incident to banking.

 

(6)         the term person means any individual or individuals, corporation, partnership, fiduciary or association.

 

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(7)         the term territory means the area within a 25-mile radius of any office of the Company at the date of the Executive’s employment termination.

 

(ii)         If any provision of this section or any word, phrase, clause, sentence or other portion thereof (including, without limitation, the geographical and temporal restrictions contained therein) is held to be unenforceable or invalid for any reason, the unenforceable or invalid provision or portion shall be modified or deleted so that the provisions hereof, as modified, are legal and enforceable to the fullest extent permitted under applicable law.

 

(iii)        The Executive acknowledges that the Company’s willingness to enter into this Agreement and to make the payments contemplated by Sections 3 and 4 of this Agreement is conditioned on the Executive’s acceptance of the covenants set forth in Sections 6 and 7 of this Agreement and that the Company would not have entered into this Agreement without such covenants in force.

 

(c)           Injunctive and Other Relief . Because of the unique character of the services to be rendered by the Executive hereunder, the Executive understands that the Company would not have an adequate remedy at law for the material breach or threatened breach by the Executive of any one or more of the Executive’s covenants in this Section 7. Accordingly, the Executive agrees that the Company’s remedies for a breach of this Section 7 include, but are not limited to, (x) forfeiture of any money representing accrued salary, contingent payments, or other fringe benefits (including any amount payable pursuant to Section 4) due and payable to the Executive during the period of any breach by Executive, and (y) a suit in equity by the Company to enjoin the Executive from the breach or threatened breach of such covenants. The Executive hereby waives the claim or defense that an adequate remedy at law is available to the Company and the Executive agrees not to urge in any such action the claim or defense that an adequate remedy at law exists. Nothing herein shall be construed to prohibit the Company from pursuing any other or additional remedies for the breach or threatened breach.

 

(d)           Section 7 Survives Termination But Is Void After a Change in Control . The rights and obligations set forth in this Section 7 shall survive termination of this Agreement. However, Section 7 shall become null and void effective immediately upon a Change in Control.

 

8.             Compliance with Internal Revenue Code Section 409A.

 

(a)          The Executive will be deemed to have a termination of employment for purposes of determining the timing of any payments that are classified as deferred compensation only upon a “separation from service” within the meaning of Section 409A.

 

(b)          If at the time of the Executive’s separation from service, (i) the Executive is a “specified employee” (within the meaning of Section 409A and using the methodology selected by the Company) and (ii) the Company makes a good faith determination that an amount payable or the benefits to be provided hereunder constitutes deferred compensation (within the meaning of Section 409A), the payment of which is required to be delayed pursuant to the six-month delay rule of Section 409A in order to avoid taxes or penalties under Section 409A, then the Company will not pay the entire amount on the otherwise scheduled payment date but will instead pay on the scheduled payment date the maximum amount permissible in order to comply with Section 409A (i.e., any amount that satisfies an exception under the Section 409A rules from being categorized as deferred compensation) and will pay the remaining amount (if any) in a lump sum on the first business day of the seventh month after the month in which the Executive’s employment terminates.

 

(c)          To the extent the Executive would be subject to an additional 20% tax imposed on certain deferred compensation arrangements pursuant to Section 409A as a result of any provision of this Agreement, such provision shall be deemed amended to the minimum extent necessary to avoid application

 

  8  
 

 

of such tax and the parties shall promptly execute any amendment reasonably necessary to implement this Section 8. The Executive and the Company agree to cooperate to make such amendment to the terms of this Agreement as may be necessary to avoid the imposition of penalties and taxes under Section 409A; provided, however, that the Executive agrees that any such amendment shall provide the Executive with economically equivalent payments and benefits, and the Executive agrees that any such amendment will not materially increase the cost to, or liability of, the Company with respect to any payment.

 

(d)          To the extent that any right to reimbursement of expenses or payment of any in-kind benefit under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A of the Code), (i) any such expense reimbursement shall be made by the Company no later than the last day of the taxable year following the taxable year in which such expense was incurred by Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect.

 

(e)          For purposes of this Agreement, Section 409A shall refer to Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury regulations and any other authoritative guidance issued thereunder.

 

9.             Miscellaneous.

 

(a)           Successors and Assigns .

 

(i)          This Agreement shall be binding upon the Company and any successor to the Company, including any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company by purchase, merger, consolidation, reorganization, or otherwise. But this Agreement and the Company’s obligations under this Agreement are not otherwise assignable, transferable, or delegable by the Company. By agreement in form and substance satisfactory to the Executive, the Company shall require any successor to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform had no succession occurred.

 

(ii)         This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees.

 

(iii)        Without written consent of the other parties, no party shall assign, transfer, or delegate this Agreement or any rights or obligations under this Agreement, except as expressly provided herein. Without limiting the generality or effect of the foregoing, the Executive’s right to receive payments hereunder is not assignable or transferable, whether by pledge, creation of a security interest, or otherwise, except for a transfer by the Executive’s will or by the laws of descent and distribution. If the Executive attempts an assignment or transfer that is contrary to this Section 9(a), the Company shall have no liability to pay any amount to the assignee or transferee.

 

(b)           Governing Law, Jurisdiction and Forum . This Agreement shall be construed under and governed by the internal laws of the State of Missouri, without giving effect to any conflict of laws provision or rule that would cause the application of the laws of any jurisdiction other than Missouri. By entering into this Agreement, the Executive acknowledges that the Executive is subject to the jurisdiction of both the federal and state courts in Missouri.

 

  9  
 

 

(c)           Entire Agreement . This Agreement sets forth the entire agreement of the parties concerning the employment of the Executive by the Company. Any oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement are hereby rescinded, revoked, and rendered null and void by the parties.

 

(d)           Notices . All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid. Unless otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to the address of the Executive on the books and records of the Company at the time of the delivery of such notice, and properly addressed to the Company if addressed to the boards of directors of Bancshares and the Association.

 

(e)           Severability . If there is a conflict between any provision of this Agreement and any statute, regulation, or judicial precedent, the latter shall prevail, but the affected provisions of this Agreement shall be curtailed and limited solely to the extent necessary to bring them within the requirements of law. If any provisions of this Agreement is held by a court of competent jurisdiction to be indefinite, invalid, void or voidable, or otherwise unenforceable, the remainder of this Agreement shall continue in full force and effect unless that would clearly be contrary to the intentions of the parties or would result in an injustice.

 

(f)           Captions and Counterparts . The captions in this Agreement are solely for convenience. The captions do not define, limit, or describe the scope or intent of this Agreement. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

 

(g)           No Duty to Mitigate . The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment. Moreover, provided the Executive is not in breach of any obligation under Sections 6 and 7 of this Agreement, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned or benefits provided as the result of employment of the Executive or as a result of the Executive being self-employed after employment termination.

 

(h)           Amendment and Waiver . This Agreement may not be amended, released, discharged, abandoned, changed, or modified in any manner, except by an instrument in writing signed by each of the parties hereto. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall not be construed to be a waiver of any such provision, nor affect the validity of this Agreement or any part thereof or the right of any party thereafter to enforce each and every such provision. No waiver or any breach of this Agreement shall be held to be a waiver of any other or subsequent breach.

 

(i)           Required Provisions . Any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to, and conditioned upon, their compliance with 12 U.S.C. Section 1828(k) and FDIC Regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

 

(j)           Source of Payments . Notwithstanding any provision in this Agreement to the contrary, to the extent payments and benefits, as provided for under this Agreement, are paid or received by the Executive under an employment agreement in effect between the Executive and the Association, the payments and benefits paid by the Association will be subtracted from any amount or benefit due simultaneously to the Executive under similar provisions of this Agreement. Payments will be allocated in proportion to the level of activity and the time expended by the Executive on activities related to the Company, respectively, as determined by the Company.

 

  10  
 

 

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first written above.

 

CENTRAL FEDERAL BANCSHARES, INC.  
   
By:    
Name:    
Title:    
         
         

 

CENTRAL FEDERAL SAVINGS AND

LOAN ASSOCIATION OF ROLLA

 
   
By:    
Name:    
Title:      
         

 

  EXECUTIVE
   
   
  [NAME]

 

[Signature Page –Bancshares & Association Employment Agreement]

 

 

 

Exhibit 10.3

 

FORM OF

CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF ROLLA

CHANGE IN CONTROL AGREEMENT

 

THIS AGREEMENT is entered into as of _____________, 20___, by and between Central Federal Savings and Loan Association of Rolla (the “Association”), Barbara E. Hamilton (the “Executive”) and Central Federal Bancshares, Inc. (“Bancshares”), a Missouri corporation and the holding company of the Association, as guarantor (the “Agreement”).

 

WHEREAS , the Association recognizes the importance of Executive to the Association’s operations and wishes to protect her position with the Association in the event of a change in control of the Association or Bancshares for the period provided for in this Agreement.

 

NOW THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

 

1. Term of Agreement.

 

(a) The term of this Agreement shall include: (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the first anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to Section 1(b) of this Agreement.

 

(b) On or before the 90 th day prior to the first anniversary date of this Agreement and on or before the 90 th day prior to each anniversary thereafter, the Board of Directors of the Association or designated committee of the Board (“Board”) shall consult with the Chief Executive Officer of the Association for purposes of determining whether to extend the term of the Agreement beyond the expiration date set forth in Section 1(a) of this Agreement or as extended under this Section 1(b) of this Agreement.

 

(c) Notwithstanding anything in this Section 1 to the contrary, this Agreement shall terminate if Executive or the Association terminates Executive’s employment prior to a Change in Control (as defined in this Agreement).

 

2. Change in Control.

 

(a) Upon the occurrence of a Change in Control of the Association or Bancshares followed at any time during the term of this Agreement by the termination of Executive’s employment and in accordance with the terms of this Agreement, other than for Just Cause, as defined in Section 2(c) of this Agreement, the provisions of Section 3 of this Agreement shall apply. Upon the occurrence of a Change in Control, Executive shall have the right to elect to voluntarily terminate her employment at any time during the term of this Agreement following an event constituting “Good Reason.”

 

“Good Reason” means, unless Executive has consented in writing thereto, the occurrence following a Change in Control, of any of the following:

 

(i) a material diminution of the Executive’s Base Salary (unless the reduction is part of a company-wide or executive-level restructuring of compensation),

 

(ii) a material diminution of the Executive’s authority, duties, or responsibilities, or

 

 

 

 

(iii) a change in the geographic location at which the Executive must perform services for the Association by more than 25 miles from such location at the Effective Date.

 

(b) For purposes of this Agreement, a “Change in Control” means a change in control of the Association or Bancshares as defined in Internal Revenue Section 409A of the Code and rules, regulations, and guidance of general application thereunder issued by the Department of the Treasury, including a “change in ownership,” “change in effective control” or “change in ownership of a substantial portion of assets.”

 

(c) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon termination for Just Cause. The Board may, by written notice to the Executive, immediately terminate the Executive’s employment and this Agreement at any time for Just Cause. The Association shall deliver to the Executive a copy of the resolution duly adopted by the Board (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board, such meeting and the opportunity to be heard to be held prior to, or as soon as reasonably practicable following, termination, but in no event later than 30 days following such termination), finding that the Executive was guilty of conduct constituting Just Cause. The notice provided to the Executive pursuant hereto shall specify in detail the particulars of the conduct constituting Just Cause. Executive shall not have the right to receive compensation or other benefits for any period after termination for Just Cause. During the period beginning on the date of the Notice of Termination for Just Cause pursuant to Section 4 hereof through the Date of Termination, stock options granted to Executive under any stock option plan shall not be exercisable nor shall any unvested stock awards granted to Executive under any stock benefit plan of the Association, the Company or any subsidiary or affiliate thereof, vest. At the Date of Termination, such stock options and any such unvested stock awards shall become null and void and shall not be exercisable by or delivered to Executive at any time subsequent to such termination for Just Cause. If the Board thereafter determines that such conduct did not constitute Cause, the Executive’s employment hereunder is reinstated, and the Executive shall be entitled to receive back pay for the period following termination and continuing through reinstatement, which amount will be paid in a single lump sum within 15 business days following reinstatement. If the Executive’s employment is not reinstated as contemplated by the preceding sentence, then the termination of employment shall be deemed to have occurred pursuant to Section 2(a) of this Agreement and the Executive shall be entitled to the compensation and benefits provided herein. For the purposes of this Agreement “Just Cause” means any of the following:

 

(1)         a material act of personal dishonesty in performing Executive’s duties on behalf of the Association;

 

(2)         a willful misconduct that in the judgment of the Board will likely cause economic damage to the Association or its affiliates or injury to the business reputation of the Association or its affiliates;

 

(3)         a breach of fiduciary duty involving personal profit;

 

(4)         the intentional failure to perform stated duties under this Agreement after written notice thereof from the Board;

 

  2  

 

 

(5)         a willful violation of any law, rule or regulation (other than minor or routine traffic violations or similar offenses) that reflects adversely on the reputation of the Association or its affiliates, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order;

 

(6)         a material breach by the Executive of any provision of this Agreement.

 

No act, or failure to act, on the Executive’s part shall be considered “willful” unless she has acted, or failed to act, with an absence of good faith and without reasonable belief that her action or failure to act was in the best interest of the Association.

 

3. Termination Benefits.

 

(a) If Executive’s employment is voluntarily (in accordance with Section 2(a) of this Agreement) or involuntarily terminated within one year of a Change in Control, Executive shall receive a lump sum cash payment equal to 12 months of Executive’s base salary. Such payment shall be based on Executive’s base salary in effect as of her termination date and made not later than five days following Executive’s termination of employment under this Section 3.

 

(b) Notwithstanding the preceding provisions of this Section 3, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the “Termination Benefits”) constitute an “excess parachute payment” under Section 280G of the Code or any successor thereto, and to avoid such a result, Termination Benefits will be reduced, if necessary, to an amount (the “Non-Triggering Amount”), the value of which is $1.00 less than an amount equal to three times Executive’s “base amount,” as determined in accordance with said Section 280G. Nothing contained in this Agreement shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment other than pursuant to Section 3.

 

4. Notice of Termination.

 

(a) Any purported termination by the Association or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

 

(b) “Date of Termination” shall mean the date specified in the Notice of Termination (which, in the case of a termination for Just Cause, shall not be less than 30 days from the date such Notice of Termination is given).

 

5. Source of Payments.

 

All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Association. Bancshares, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Association are not timely paid or provided by the Association, such amounts and benefits shall be paid or provided by Bancshares.

 

  3  

 

 

6. Effect on Prior Agreements and Existing Benefit Plans.

 

This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Association and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to her without reference to this Agreement. Nothing in this Agreement shall confer upon Executive the right to continue in the employ of the Association or shall impose on the Association any obligation to employ or retain Executive in its employ for any period.

 

7. No Attachment.

 

(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void and of no effect.

 

(b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Association and their respective successors and assigns.

 

8. Modification and Waiver.

 

(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

 

(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.

 

9. Required Provisions.

 

The provisions of this Section 9 shall apply notwithstanding any other provision of this Agreement to the contrary.

 

(a) The Board may terminate the Executive’s employment at any time, but any termination by the Association, other than termination for Just Cause, shall not prejudice the Executive’s right to compensation or other benefits under this Agreement. The Executive shall not have the right to receive compensation or other benefits for any period after termination for Just Cause as defined in this Agreement.

 

(b) If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Association’s affairs by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(3) or (g)(1), the Association’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may, in its discretion: (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

 

(c) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Association under this

 

  4  

 

 

Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

 

(d) If the Association is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

 

(e) All obligations under this Agreement shall terminate, except to the extent determined that continuation of the Agreement is necessary for the continued operation of the Association: (i) by the Comptroller of the Currency, or his or her designee (the “Comptroller”), at the time the Federal Deposit Insurance Corporation (FDIC) enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1823(c), or (ii) by the Comptroller at the time the Comptroller approves a supervisory merger to resolve problems related to the operations of the Association or when the Association is determined by the Comptroller to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

 

(f) Any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to, and conditioned upon, their compliance with 12 U.S.C. Section 1828(k) and FDIC Regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

 

10. Section 409A of the Code.

 

(a) The Executive will be deemed to have a termination of employment for purposes of determining the timing of any payments that are classified as deferred compensation only upon a “separation from service” within the meaning of Section 409A.

 

(b) If at the time of the Executive’s separation from service, (i) the Executive is a “specified employee” (within the meaning of Section 409A and using the methodology selected by the Association) and (ii) the Association makes a good faith determination that an amount payable or the benefits to be provided hereunder constitutes deferred compensation (within the meaning of Section 409A), the payment of which is required to be delayed pursuant to the six-month delay rule of Section 409A in order to avoid taxes or penalties under Section 409A, then the Association will not pay the entire amount on the otherwise scheduled payment date but will instead pay on the scheduled payment date the maximum amount permissible in order to comply with Section 409A (i.e., any amount that satisfies an exception under the Section 409A rules from being categorized as deferred compensation) and will pay the remaining amount (if any) in a lump sum on the first business day of the seventh month after the month in which the Executive’s employment terminates.

 

(c) To the extent the Executive would be subject to an additional 20% tax imposed on certain deferred compensation arrangements pursuant to Section 409A as a result of any provision of this Agreement, such provision shall be deemed amended to the minimum extent necessary to avoid application of such tax and the parties shall promptly execute any amendment reasonably necessary to implement this Section 10(c). The Executive and the Association agree to cooperate to make such amendment to the terms of this Agreement as may be necessary to avoid the imposition of penalties and taxes under Section 409A; provided, however, that the Executive agrees that any such amendment shall provide the Executive with economically equivalent payments and benefits, and the Executive agrees that any such amendment will not materially increase the cost to, or liability of, the Association with respect to any payment.

 

(d) To the extent that any right to reimbursement of expenses or payment of any in-kind benefit under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A

 

  5  

 

 

of the Code), (i) any such expense reimbursement shall be made by the Association no later than the last day of the taxable year following the taxable year in which such expense was incurred by Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect.

 

(e) For purposes of this Agreement, Section 409A shall refer to Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury regulations and any other authoritative guidance issued thereunder.

 

11. Miscellaneous.

 

(a) If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

 

(b) The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. In addition, references herein to the masculine shall apply to both the masculine and the feminine.

 

(c) Except to the extent preempted by federal law, the validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Missouri, without regard to principles of conflicts of law of that State.

 

(d) All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Association, only if Executive is successful pursuant to a legal judgment, arbitration or settlement.

 

(e) The Association and Bancshares shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Association or Bancshares, expressly and unconditionally to assume and agree to perform the Association’s and Bancshares’s obligations under this Agreement, in the same manner and to the same extent that the Association and Bancshares would be required to perform if no such succession or assignment had taken place.

 

  6  

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

CENTRAL FEDERAL SAVINGS AND
LOAN ASSOCIATION OF ROLLA
 
   
By:    
Name:    
Title:    
         
         

 

CENTRAL FEDERAL BANCSHARES, INC.
(as guarantor of Central Federal Savings and Loan Association of Rolla hereunder)  
   
By:    
Name:    
Title:    
         
         

 

  EXECUTIVE
   
   
  [NAME]

 

[Signature Page – Association Change in Control Agreement]

 

 

 

Exhibit 23.3

 

Feldman Financial Advisors, Inc.

1001 Connecticut Avenue, NW · Suite 840

Washington, DC 20036

202-467-6862 · (Fax) 202-467-6963

 

September 11, 2015

 

Board of Directors

Central Federal Savings and Loan

Association of Rolla

210 West 10th Street

Rolla, Missouri 65401

 

Members of the Board:

 

We hereby consent to the use of our firm’s name in the Application for Conversion, and amendments thereto, filed by Central Federal Savings and Loan Association of Rolla with the Office of the Comptroller of the Currency. We also consent to the use of our firm’s name in the Registration Statement on Form S-1, and amendments thereto, filed by Central Federal Bancshares, Inc. with the Securities and Exchange Commission. Additionally, we consent to the inclusion of, summary of, and reference to our Conversion Valuation Appraisal Report in such filings and amendments, including the Prospectus of Central Federal Bancshares, Inc.

 

Sincerely,
 
/s/ Feldman Financial Advisors, Inc.
 
Feldman Financial Advisors, Inc.

 

 

 

 

Exhibit 23.4

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors

Central Federal Bancshares, Inc.

 

We hereby consent to the use in this Registration Statement on Form S-1 of Central Federal Bancshares, Inc. of our report dated September 10, 2015 appearing in the Prospectus, which is part of this Form S-1, and to the references to our Firm under the heading "Experts" in such Prospectus.

 

  /s/ Michael Trokey & Company, P.C.
    Certified Public Accountants

 

September 10, 2015

St. Louis, Missouri

 

 

 

 

Exhibit 99.1

 

Feldman Financial Advisors, Inc.

 

1001 Connecticut Avenue, NW · Suite 840

Washington, DC 20036

202-467-6862 · (Fax) 202-467-6963

 

 

 

 

Central Federal Savings and Loan
Association of Rolla

Rolla, Missouri

 

 

Conversion Valuation Appraisal Report

 

Valued as of August 31, 2015

 

 

Prepared By

 

Feldman Financial Advisors, Inc .

Washington, DC

 

 

 

 

     

 

 

Feldman Financial Advisors, Inc.

 

1001 Connecticut Avenue, NW · Suite 840

Washington, DC 20036

202-467-6862 · (Fax) 202-467-6963

 

August 31, 2015

 

Board of Directors

Central Federal Savings and Loan

  Association of Rolla

210 West 10th Street

Rolla, Missouri 65401

 

Members of the Board:

 

At your request, we have completed and hereby provide an independent appraisal ("Appraisal") of the estimated pro forma market value of Central Federal Savings and Loan Association of Rolla ("Central Federal" or the "Association") in connection with the simultaneous conversion of the Association from the mutual to stock form of ownership, the issuance of the Association's capital stock to Central Federal Bancshares, Inc. (the "Company"), and the offering of shares of common stock of the Company for sale to eligible depositors of the Association, employee benefit plans of the Association, and other members of the general public (collectively referred to herein as the "Conversion"). In connection with the Conversion, Central Federal also plans to establish and fund a charitable foundation with a contribution of cash and shares of common stock issued by the Company in the offering. This Appraisal is furnished pursuant to the Association's filing of the Application for Conversion ("Application") with the Office of the Comptroller of the Currency ("OCC").

 

Feldman Financial Advisors, Inc. ("Feldman Financial") is a financial consulting firm that specializes in financial valuations and analyses of businesses and securities in the thrift, banking, and mortgage industries. The background of Feldman Financial is presented in Exhibit I. In preparing the Appraisal, we conducted an analysis of the Association that included discussions with the Association's management, the Association's legal counsel, Lewis Rice LLC, and the Association's independent auditor, Michael Trokey & Company, P.C. In addition, where appropriate, we considered information based on other available sources that we believe are reliable; however, we cannot guarantee the accuracy and completeness of such information.

 

We also reviewed, among other factors, the economy in the Association's primary market area and compared the Association's financial condition and operating performance with that of selected publicly traded thrift institutions. We reviewed conditions in the securities markets in general and in the market for thrift institution common stocks in particular.

 

     

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

 

Board of Directors

Central Federal Savings and Loan

 Association of Rolla

August 31, 2015

Page Two

 

The Appraisal is based on the Association's representation that the information contained in the Application and additional evidence furnished to us by the Association and its independent auditor are truthful, accurate, and complete. We did not independently verify the financial statements and other information provided by the Association and its independent auditor, nor did we independently value the assets or liabilities of the Association. The Appraisal considers the Association only as a going concern and should not be considered as an indication of the liquidation value of the Association.

 

It is our opinion that, as of August 31, 2015, the estimated aggregate pro forma market value of Central Federal (including the shares of common stock to be issued to the charitable foundation) was within a range (the "Valuation Range") of $11,492,000 to $15,548,000 with a midpoint of $13,520,000. The Valuation Range was based upon a 15% decrease from the midpoint to determine the minimum and a 15% increase from the midpoint to establish the maximum. Based on an offering price of $10.00 per share, this Valuation Range equates to total shares outstanding of 1,149,200 at the minimum to 1,554,800 at the maximum with a midpoint of 1,352,000 shares. Assuming an additional 15% increase above the maximum value would result in an adjusted maximum of $17,880,200 or 1,788,020 shares.

 

The charitable foundation will be funded by a contribution of $100,000 in cash and shares of common stock of the Company equal to 4.0% of the amount of shares sold in the offering. The number of shares issued to the foundation amount to 44,200 at the minimum, 52,000 at the midpoint, 59,800 at the maximum, and 68,770 at the adjusted maximum. Based on the Valuation Range and the contribution of shares to the foundation, the Company will offer for sale a minimum of 1,105,000 shares, a midpoint of 1,300,000 shares, a maximum of 1,495,000 shares, and an adjusted maximum of 1,719,250 shares. The resulting offering range reflects an aggregate amount of $11,050,000 at the minimum, $13,000,000 at the midpoint, $14,950,000 at the maximum, and $17,192,500 at the adjusted maximum.

 

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion. Moreover, because the Appraisal is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of stock in the Conversion will thereafter be able to sell such shares at prices related to the foregoing estimate of the Association's pro forma market value. Feldman Financial is not a seller of securities within the meaning of any federal or state securities laws and any report prepared by Feldman Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.

 

     

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

 

Board of Directors

Central Federal Savings and Loan

 Association of Rolla

August 31, 2015

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The Valuation Range reported herein will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Association's operating performance, financial condition, or management policies, and current conditions in the securities markets for thrift institution common stocks. Should any such new developments or changes be material, in our opinion, to the valuation of the Association, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in detail at that time.

 

  Respectfully submitted,
   
  Feldman Financial Advisors, Inc .
 
 
   
  Trent R. Feldman
  President
 
 
  Peter W. L. Williams
  Principal

 

     

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

 

TABLE OF CONTENTS

 

TAB     PAGE
       
  INTRODUCTION 1
     
I. Chapter One – BUSINESS OF CENTRAL FEDERAL  
  General Overview 4
  Financial Condition   10
  Income and Expense Trends 21
  Interest Rate Risk Management 27
  Asset Quality 31
  Subsidiary Activity 34
  Office Facilities 35
  Legal Proceedings 36
  Market Area 37
  Summary Outlook 43
     
II. Chapter Two – COMPARISONS WITH PUBLICLY TRADED THRIFTS  
  General Overview 44
  Selection Criteria 45
  Recent Financial Comparisons 49
     
III. Chapter Three – MARKET VALUE ADJUSTMENTS  
  General Overview 63
  Earnings Prospects 64
  Financial Condition 65
  Market Area 66
  Management 66
  Dividend Policy 68
  Liquidity of the Issue 68
  Subscription Interest 70
  Recent Acquisition Activity 71
  Effect of Government Regulations and Regulatory Reform 71
  Stock Market Conditions 72
  Adjustments Conclusion 78
  Valuation Approach 79
  Valuation Conclusion 82
     
IV. Appendix – EXHIBITS  
  I Background of Feldman Financial Advisors, Inc. I-1
  II-1 Balance Sheets II-1
  II-2 Income Statements II-2
  II-3 Loan Portfolio Composition II-3
  II-4 Cash and Investments Composition II-4
  II-5 Deposit Account Distribution II-5
  III Financial and Market Data for All Public Thrifts III-1
  IV-1 Pro Forma Assumptions for Conversion Stock Offering IV-1
  IV-2 Pro Forma Conversion Valuation Range IV-2
  IV-3 Pro Forma Conversion Analysis at the Maximum Valuation IV-3
  IV-4 Comparative Valuation Ratio Differential IV-4

 

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LIST OF TABLES

 

TAB     PAGE
       
I. Chapter One – BUSINESS OF CENTRAL FEDERAL  
       
  Table 1 Selected Financial Condition Data 10
  Table 2 Relative Balance Sheet Concentrations 11
  Table 3 Income Statement Summary 22
  Table 4 Income Statement Ratios 23
  Table 5 Yield and Cost Summary 25
  Table 6 Interest Rate Risk Analysis 30
  Table 7 Non-performing Asset Summary 32
  Table 8 Allowance for Loan Losses 33
  Table 9 Selected Demographic Data 39
  Table 10 Deposit Market Share in Phelps County 41
  Table 11 Residential Mortgage Lending Market Share in Phelps County 42
       
II. Chapter Two – COMPARISONS WITH PUBLICLY TRADED THRIFTS  
       
  Table 12 Comparative Group Operating Summary 48
  Table 13 Key Financial Comparisons 50
  Table 14 General Operating Characteristics 57
  Table 15 Summary Financial Performance Ratios 58
  Table 16 Income and Expense Analysis 59
  Table 17 Yield-Cost Structure and Growth Rates 60
  Table 18 Balance Sheet Composition 61
  Table 19 Regulatory Capital, Credit Risk, and Loan Composition 62
       
III. Chapter Three – MARKET VALUE ADJUSTMENTS  
       
  Table 20 Summary of Recent Missouri Acquisition Activity 73
  Table 21 Comparative Stock Index Performance 74
  Table 22 Summary of Recent Standard Conversion Offerings 76
  Table 23 Comparative Pro Forma Market Valuation Analysis 84

 

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INTRODUCTION

 

As requested, we have completed and hereby provide an independent appraisal ("Appraisal") of the estimated pro forma market value of Central Federal Savings and Loan Association ("Central Federal" or the "Association") in connection with the simultaneous conversion of the Association from the mutual to stock form of ownership, the issuance of the Association's capital stock to Central Federal Bancshares, Inc. (the "Company"), and the offering of shares of common stock of the Company for sale to eligible depositors of the Association, employee benefit plans of the Association, and other members of the general public (collectively referred to herein as the "Conversion"). This appraisal report is furnished pursuant to the Association's filing of the Application for Conversion ("Application") with the Office of the Comptroller of the Currency ("OCC"). Our estimate of the pro forma market value of Central Federal is expressed in the form of a range (the "Valuation Range") based on regulatory guidelines.

 

In connection with the Conversion, Central Federal also plans to establish and fund a charitable foundation, the Central Federal Community Foundation, with a contribution of cash and shares of common stock issued by the Company in the offering. The charitable foundation will be funded by a contribution of $100,000 in cash and shares of common stock of the Company equal to 4.0% of the amount of shares sold in the offering

 

In the course of preparing the Appraisal, we reviewed and discussed with the Association's management and the Association's independent accountants, Michael Trokey & Company, P.C., the audited financial statements of the Association's operations as of and for the years ended December 31, 2013 and 2014 and the unaudited financial statements as of and for

 

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the six months ended June 30, 2014 and 2015. We also reviewed and discussed with management other financial matters of the Association. Where appropriate, we considered information based upon other available public sources, which we believe to be reliable; however, we cannot guarantee the accuracy or completeness of such information. We visited the Association's primary market area and examined the prevailing economic conditions. We also examined the competitive environment within which the Association operates and assessed the Association's relative strengths and weaknesses.

 

We examined and compared the Association's financial performance with selected segments of the thrift industry and selected publicly traded thrift institutions. We reviewed conditions in the securities markets in general and the market for thrift institution common stocks in particular. We included in our analysis an examination of the potential effects of the Conversion on the Association's operating characteristics and financial performance as they relate to the estimated pro forma market value of the Association.

 

In preparing the Appraisal, we have relied upon and assumed the accuracy and completeness of financial and statistical information provided by the Association and its independent accountants. We did not independently verify the financial statements and other information provided by the Association and its independent accountants, nor did we independently value the assets or liabilities of the Association. The Appraisal considers the Association only as a going concern and should not be considered as an indication of the liquidation value of the Association.

 

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion.

 

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Moreover, because such the Appraisal is necessarily based on estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the Conversion will thereafter be able to sell such shares at prices related to the foregoing estimate of the Association's pro forma market value. Feldman Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by Feldman Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.

 

The Valuation Range reported in this Appraisal will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Association's financial performance or management policies, and current conditions in the securities market for thrift institution common stocks. Should any such developments or changes be material, in our opinion, to the valuation of the Association, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in detail at that time.

 

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FELDMAN FINANCIAL ADVISORS, INC.

 

 

I. BUSINESS OF CENTRAL FEDERAL

 

General Overview

 

Central Federal is a federal savings association operating out of its single office in Rolla, Missouri. The Association is a community-oriented financial institution, dedicated to serving the financial needs of customers within its market area since it was established in 1952. Central Federal's market area generally consists of Phelps County, Missouri, although it also services customers in the contiguous Missouri counties of Dent, Texas, Crawford, Pulaski, and Maries. The Association offers a variety of loan and deposit products to meet the banking needs of its customers. Central Federal's real estate loans consist primarily of residential mortgage loans, which include owner-occupied and non-owner occupied one- to four-family residential mortgage loans, as well as multi-family residential mortgage loans. The Association also offers commercial loans, primarily secured by commercial real estate, and consumer loans, including automobile and recreational vehicle loans.

 

As of June 30, 2015, Central Federal had total assets of $62.4 million, net loans of $49.6 million, total deposits of $48.6 million, and total equity capital of $13.7 million or 21.89% of total assets. The Association is subject to extensive regulation, examination, and supervision by the OCC, its primary federal regulator, and the Federal Deposit Insurance Corporation ("FDIC"), its deposit insurer. The Association is a member of the Federal Home Loan Bank ("FHLB") of Des Moines.

 

Central Federal has amassed a strong capital foundation by emphasizing its financial strength and leveraging its excellent reputation with customers and communities in its market area. The Association continues to stress high quality, personal customer service through an

 

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honest, straightforward, and upfront marketing approach and has developed a loyal customer base. Central Federal relies on its experienced and committed staff to meet the needs of customers and effectively deliver banking products and services.

 

The Association's business consists primarily of accepting deposits from the general public in its market area and investing those deposits and funds generated from operations, primarily in residential and commercial real estate loans. At June 30, 2015, residential mortgage loans totaled $31.8 million or 63.7% of the Association's loan portfolio and commercial and multi-family real estate loans amounted to $15.8 million or 31.7% of total loans. Commercial business loans amounted to $1.9 million or 3.8% of total loans, while consumer and other loans totaled $415,000 or 0.8% of total loans as of June 30, 2015. The Association's non-performing assets totaled $974,000 or 1.56% of total assets at June 30, 2015.

 

Central Federal strives to operate as a strongly capitalized and profitable community financial institution dedicated to providing quality customer service. The Association's current business objectives emphasize residential and commercial/multi-family mortgage lending and Central Federal will continue to offer these types of loans. Another principal business objective of the Association is to build on Central Federal's historic strength of customer loyalty and expand product and service offerings that allow it to increase net interest income while reducing the overall exposure risk from interest rate fluctuations.

 

The Association believes that its community orientation is attractive to customers and distinguishes it from the larger banks that operate in the local area. Central Federal is presently focused on strengthening and expanding customer relationships to generate additional internal growth from its franchise. Central Federal's business strategy focuses primarily on creating

 

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sustainable profitability that enables asset growth while enhancing capital. Highlights of the Association's business strategy are as follows:

 

Building on its strengths as a community-oriented financial institution. Central Federal has operated continuously as a community-oriented financial institution since it was founded in 1952. The Association is committed to meeting the financial needs of the local community and is dedicated to providing quality personal service to customers. In that regard, Central Federal is focused on building its customer base in the communities it serves through the enhancement of its products and additional marketing of these products and services. Further, the Association wants to provide its customers the opportunity to become shareholders through the offering of shares for sale in the Conversion.

 

Increasing loan production while maintaining asset quality. Central Federal's amount of total loans outstanding has declined slightly over the past few years due to active competition from lenders in the local market area and secondary market loan pricing. Through additional marketing and the potential addition of more lending personnel, the Association aims to grow its loan portfolio. In growing the loan portfolio, Central Federal will seek to maintain strong asset quality by following prudent underwriting guidelines and utilizing its knowledge of the local market area.

 

Strengthening capital to protect against rising interest rates . Central Federal currently has a strong capital base that is sufficient for interest rate risk purposes in the current low interest rate environment given its interest rate risk profile. The Association recognizes that if interest rates rise, having a strong capital base will provide it with additional strength to withstand the impact of rising interest rates. Further, the cash proceeds generated from the Conversion could be used to fund loans or purchase investment securities at higher interest rate levels should interest rates rise, providing additional net interest income.

 

Central Federal believes that opportunities exist to leverage its staff capabilities and creativity by cultivating its existing customer base and developing new products and services. The Association is considering ways to strengthen its full service capability, including implementing an effective and competitive pricing strategy and introducing incentives that reward customer loyalty with discounts and cost incentives. Further, the Association may explore upgrading its information technology infrastructure to expand electronic banking

 

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products and services. The Association recognizes that new product implementation, especially with regard to loans, will require cross training of personnel to assist the loan officers in originating, underwriting, and completing loan transactions. The Association plans to hire a Chief Financial Officer and seek recruitment of an additional loan officer to fulfill identified staffing needs.

 

While the Association's present equity capital level is solid at 21.89% of total assets as of June 30, 2015, Central Federal believes it must raise additional capital in order to facilitate its growth objectives and loan generation, and provide a greater cushion in response to the risk profile associated with uncertain economic conditions and unproven expansion opportunities. Due to a slowdown in profitability, the buildup of retained earnings and capital from net income has been curtailed and asset growth has been stagnant. The Association reported earnings of $229,000 and $119,000 for the years ended December 31, 2013 and 2014, respectively. Central Federal's return on average assets ("ROA") declined from 0.35% in 2013 to $0.18% for 2014. For the six months ended June 30, 2015, the Association reported net income of $81,000 for an annualized ROA of 0.26%.

 

As a stock company upon completion of the Conversion, the Association will be organized in the form used by commercial banks, most major corporations, and a majority of savings institutions. The ability to raise new equity capital through the issuance and sale of capital stock will allow the Association the flexibility to increase its equity capital position more rapidly than by accumulating earnings.

 

The Association also believes that the ability to attract new capital also will help address the needs of the communities it serves and enhance its ability to expand or to make acquisitions.

 

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After the Conversion, the Association will have increased ability to merge with or acquire other financial institutions or business enterprises. Finally, the Association expects to benefit from its employees and directors having stock ownership in its business, since that is viewed as an effective performance incentive and a means of attracting, retaining, and compensating employees and directors.

 

In summary, Central Federal's primary reasons for implementing the Conversion and undertaking the offering are to:

 

increase the capital base of the Association and support the implementation of its business plan;

 

improve profitability and earnings through reinvesting and leveraging the capital proceeds, primarily through the Association's traditional lending and investing activities;

 

strengthen the Association's capital base from a safety and soundness perspective in light of the current regulatory and economic environment, thereby enhancing its ability to manage risk;

  

enhance the competitive position of the Association through expanded capacity for organic growth, branch expansion, or acquisitions of other financial institutions;

 

implement equity compensation plans to retain and attract qualified directors, officers, and staff; and

 

help the Association to maintain and further expand philanthropic endeavors to the communities it serves through the formation and funding of the charitable foundation.

 

The remainder of Chapter I examines in more detail the trends addressed in this section, including the impact of changes in the Association's economic and competitive environment, and recent management initiatives. The discussion is supplemented by the exhibits in the Appendix. Exhibit II-1 summarizes the Association's balance sheets as December 31, 2013 and 2014 and

 

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June 30, 2015. Exhibit II-2 presents the Association's income statements for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2014 and 2015.

 

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Financial Condition

 

Table 1 presents selected data concerning the Association's financial position as of December 31, 2013 and 2014 and June 30, 2015. Table 2 displays relative balance sheet concentrations for the Association as of similar periods.

 

Table 1

Selected Financial Condition Data

As of December 31, 2013 and 2014 and June 30, 2015

(Dollars in Thousands)

 

                 
      June 30,   December 31,  
      2015   2014   2013  
                 
  Total assets   $ 62,424   $ 63,977   $ 64,763  
  Cash and cash equivalents   8,636   7,902   7,258  
  Certificates of deposit   2,480   2,480   2,480  
  Securities available for sale   33   31   44  
  Federal Home Loan Bank stock 77   78   78  
  Total loans, net   49,624   52,184   53,559  
  Premises and equipment, net   709   739   735  
  Foreclosed assets   508   243   243  
  Total deposits   48,642   50,282   51,175  
  Other liabilities   118   113   117  
  Total equity   13,664   13,582   13,471  
                 

 

Source: Central Federal, financial statements.

 

Asset Composition

 

The Association's total assets amounted to $62.4 million at June 30, 2015, reflecting approximately a 2.8% or $1.6 million decrease from total assets of $64.0 million at December 31, 2014. The decline in total assets was primarily attributable to shrinkage of the loan portfolio by $2.6 million from $52.2 million at December 31, 2014 to $49.6 million at June 30, 2015. Central Federal's total assets declined by $786,000 from $64.8 million at December 31, 2013 to

 

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$64.0 million at December 31, 2014 as net total loans declined by $1.4 million over the corresponding period. While the loan portfolio decreased by $2.3 million between December 31, 2013 and June 30, 2015, cash and cash equivalents increased by $1.4 million over the same period. The recent decrease of the Association's loan portfolio was primarily attributable to weak loan demand and competitive interest rates in the local market area.

 

As a result of the decrease in loans outstanding, the ratio of net total loans to total assets declined from 82.7% at December 31, 2013 to 79.5% at June 30, 2015. Conversely, the aggregate balance of cash and investments increased from 15.2% at December 31, 2013 to 18.0% at June 30, 2015. Total deposits have also exhibited a downward trend and the ratio of total deposits to total assets declined from 79.0% at December 31, 2013 to 77.9% at June 30, 2015.

 

Table 2

Relative Balance Sheet Concentrations

As of December 31, 2013 and 2014 and June 30, 2015

(Percent of Total Assets)

 

                 
      June 30,   December 31,  
      2015   2014   2013  
                 
  Cash and investments   17.98 % 16.40 % 15.22 %
  Total loans, net   79.50   81.57   82.70  
  Premises and equipment, net   1.14   1.16   1.13  
  Foreclosed assets   0.81   0.38   0.38  
  Other assets   0.57   0.50   0.57  
  Total assets   100.00 % 100.00 % 100.00 %
                 
  Total deposits   77.92 % 78.59 % 79.02 %
  Other liabilities   0.19   0.18   0.18  
  Total liabilities   78.11   78.77   79.20  
  Total equity   21.89   21.23   20.80  
  Total liabilities and equity   100.00 % 100.00 % 100.00 %
                 

 

Source: Central Federal, financial statement data.

 

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Lending is the principal business activity of Central Federal, and its loan portfolio constitutes the largest portion of its assets and is the predominant source of its income. The largest segment of the Association's loan portfolio is real estate mortgage loans, consisting primarily of residential mortgage loans (including one- to four-family and multi-family and home equity loans), and, to a lesser extent, commercial real estate loans, commercial business loans, construction loans and consumer loans. Central Federal is a portfolio lender and retains in its portfolio substantially all loans that it originates. Virtually all of the Association's secured loans are secured by properties located in Central Federal's primary lending area, which it defines as Phelps County, Missouri.

 

As presented in Exhibit II-3, the Association's current loan portfolio is comprised almost entirely of real estate loans. At June 30, 2015, real estate lending comprised in excess of 98% of the total loan portfolio and included residential mortgage loans and commercial real estate loans (generally consisting of loans secured by non-owned occupied multi-family residential real estate, retail stores, and other commercial real estate). The Association intends to continue to emphasize residential and commercial lending with a focus on full-service relationship banking in its primary market area.

 

For the year ended December 31, 2014, Central Federal originated $8.1 million of total loans. Residential mortgage loans accounted for $5.3 million of total loan originations in 2014, followed by $1.7 million of commercial and multi-family real estate loans and $800,000 of commercial business loans. For the six months ended June 30, 2015, the Association originated $4.5 million of loans, reflecting an increase from $3.9 million in the prior year's period.

 

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Residential loan originations accounted for $2.6 million and commercial and multi-family loan originations totaled $1.6 million during the first half of 2015.

 

At June 30, 2015, Central Federal had $31.8 million in residential mortgage loans, which represented 63.7% of its total loan portfolio and was comprised of one- to four-family residential mortgage loans ($17.7 million), non-owner occupied one- to four-family real estate loans ($10.2 million), one- to four-family construction loans ($1.2 million), home equity lines of credit and other junior lien loans ($1.7 million), and land loans ($995,000). Residential real estate loans have declined from $35.6 million at December 31, 2013 to $34.2 million at December 31, 2013 and $31.8 million at June 30, 2015. At year-end 2014, approximately 46.0% of the Association's residential loans that were due after one year had fixed interest rates and 54.0% had floating or adjustable interest rates.

 

The Association's origination of residential mortgage loans enables borrowers to purchase or refinance existing one- to four-family residences, virtually all of which are located in Central Federal's primary market area. The Association offers adjustable-rate and fixed-rate residential mortgage loans with terms of up to 30 years. Because it has not historically sold any of the one- to four-family residential real estate loans that it originated, the Association has not originated these loans in conformance with either Fannie Mae or Freddie Mac underwriting guidelines (although the Association believes its underwriting guidelines are substantially similar). Central Federal generally does not originate or fund fixed-rate mortgage loans to hold in its loan portfolio at the present time; however, it has previously made long-term, fixed-rate loans as part of its lending program. Approximately $15.8 million of such loans remained in its portfolio as of June 30, 2015.

 

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To the extent that it currently participates in the origination of long-term, fixed-rate residential mortgage loans, the Association does so under the terms of loan brokerage arrangements that it has entered into with another financial institution. Under this arrangement, Central Federal assists in the completion of a loan application and obtains certain financial information about the applicant on behalf of the originating institution, which then underwrites the loan pursuant to its own lending policies, and, if it approves the loan, funds the loan directly. The Association receives a fee for its services as described above. Central Federal does not offer residential mortgages with negative amortization, and it does not make interest-only residential mortgages. Furthermore, the Association does not offer, and has not offered, subprime or no-documentation mortgage loans.

 

Central Federal has observed a significant demand for residential real property used for investment or income purposes in its primary market area. This demand arises primarily from a high demand for off-campus housing for students attending the Missouri University of Science and Technology. The Association underwrites and prices one- to four-family residential real estate loans that are non-owner occupied as commercial real estate loans. Such loans are subject to a maximum loan-to-value ratio of 80% and are offered at fixed rates with a term of one, three or five years and with payments based on a 25-year amortization schedule. Residential real estate loans secured by one- to four-family, non-owner occupied properties amounted to $10.2 million at June 30, 2015.

 

The Association makes home equity lines of credit and, on occasion, other junior lien loans. Home equity lines of credit are made for terms of up to 20 years at adjustable rates, with the amount of the home equity line, when combined with the amount outstanding under any first

 

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mortgage, limited to an 80% loan to value ratio. All of the Association's home equity lines of credit currently offered are adjustable-rate loans with rates tied to the prime rate as reported in The Wall Street Journal . The Association's home equity lines of credit are not necessarily secured by residential real estate on which it also maintains the first mortgage. As of June 30, 2015, the Association had $1.7 million of home equity and other junior lien loans.

 

At June 30, 2015, Central Federal had $15.8 million in commercial mortgage loans, which represented 31.7% of its total loan portfolio and was comprised of loans and lines of credit secured by commercial real estate, including multi-family residential real estate and owner-occupied commercial property. The Association offers multi-family residential real property loans with fixed rates, with a one, three or five year maturity, with payments on a 25-year amortization schedule, and that are subject to a loan-to-value ratio of 80% of the lesser of appraised value or the purchase price. Central Federal also offers multi-family residential construction loans and commercial construction loans with a maximum loan-to-value ratio of 80%. The Association offers commercial (non-residential) real estate loans with a maximum loan-to-value ratio of 80% of the lower of the appraised value or the purchase price of the property, with one, three or five year terms and payments on a 25-year amortization schedule. Commercial real estate lines of credit are made available with a one year maturity.

 

Almost all of the Association's commercial real estate loans are collateralized by office buildings, mixed-use properties, and non owner-occupied, residential real estate located in Phelps County. Multi-family rental properties, churches, health and beauty businesses and other retail establishments are the predominant forms of real estate collateral in the Association’s commercial real estate loan portfolio. Loans secured by one- to four-family investment

 

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properties generally involve a greater degree of risk than one- to four-family owner occupied mortgage loans. Because payments on loans secured by one- to four-family investment properties are often dependent on successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy. Central Federal requires all properties securing commercial mortgage loans to be appraised by a licensed, independent appraiser.

 

Commercial business loans amounted to $1.9 million or 3.8% of total loans at June 30, 2015. Central Federal makes a relatively limited amount of commercial business loans that are either secured by assets other than real property or that are not secured. For secured commercial loans and lines of credit, the interest rate and other terms are determined based upon the financial condition, including net worth, of the borrower as well as the type of collateral to secure the loan. Collateral for secured commercial business loans generally consists of the borrower’s accounts receivable, inventory, and furniture, fixtures and equipment, although deposit accounts at Central Federal may also be pledged. The Association makes unsecured commercial extensions of credit if the financial condition of the borrower is sufficient to support the loan. Most of the Association's unsecured commercial credits consist of lines of credit. Central Federal is currently evaluating supplementing its commercial business loan originations with some limited purchases of the guaranteed portion of Small Business Administration ("SBA") loans, which are short term loans with fixed rates. The Association anticipates that commercial business loan may become a slightly larger component of its loan portfolio composition through originations supplemented with purchases of SBA loans.

 

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FELDMAN FINANCIAL ADVISORS, INC.

 

 

The Association's consumer lending consists primarily of loans secured by used automobiles or other personal vehicles and, to a lesser extent, unsecured personal loans and loans secured by deposit accounts at Central Federal. As of June 30, 2014, the Association had consumer loans of $415,000 or 0.8% of the total loan portfolio.

 

Exhibit II-4 presents a summary of the Association's portfolio of cash, liquidity, and investments as of December 31, 2013 and 2014 and June 30, 2015. Central Federal's primary investment objectives are: (i) to provide and maintain liquidity; (ii) to fully employ the available funds of the Association; (iii) to earn an average rate of return on invested funds competitive with comparable institutions; (iv) to manage interest rate risk; and (v) to limit credit and interest rate risk. In recent periods, the Association has placed a heavy emphasis on liquid holdings and maintained a limited amount of investment securities. At June 30, 2015, the Association's cash and investments amounted to $11.2 million or 18.0% of total assets. Cash and cash equivalents along with certificates of deposit in other financial institutions amounted to $11.1 million or 99.0% of the Association's total cash and investments as of June 30, 2015. The Association's securities portfolio consisted of $33,000 of stock in the Federal Home Loan Mortgage Corporation ("Freddie Mac"). The Association also owned $77,000 of stock in the FHLB of Des Moines as of June 30, 2015. As the Association's loan portfolio decreased in recent periods, its holdings of cash and investments increased from $9.9 million at December 31, 2013 to $11.2 million at June 30, 2015.

 

Liability Composition

 

Deposits are the Association's primary external source of funds for lending and other investment purposes. The Association has not historically used borrowings actively and had no

 

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outstanding borrowings at June 30, 2015. Exhibit II-5 presents a summary of the Association's deposit composition as of December 31, 2013 and 2014 and June 30, 2015. Total deposits amounted to $48.6 million or 77.9% of total assets and 99.8% of total liabilities at June 30, 2015. Total deposits decreased by $2.6 million from $51.2 million at December 31, 2013 to $48.6 million at June 30, 2015 as the Association did not aggressively price its deposit rates to attract rollovers of maturing certificate of deposits due to declining liquidity needs. Certificate accounts declined from $28.3 million at December 31, 2013 to $23.4 million at June 30, 2015.

 

Central Federal generally attracts deposits from within its market area through the offering of a broad selection of deposit instruments, including non-interest bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), statement savings accounts, and certificates of deposit. On occasion, Central Federal will accept deposits, typically in the form of certificates of deposit in denominations in excess of $100,000, from other financial institutions. The Association does not have a formal program or policy with respect to such deposits, which are typically initiated by the other institution; rather, it will accept the deposits if, when the opportunity to accept the deposit arises, its management determine that the deposit is appropriate for the Association. As of June 30, 2015, the amount of deposits from such other financial institutions was $5.5 million.

 

Central Federal relies on competitive pricing and customer service to attract and retain deposits. The Association offers a variety of deposit accounts with a range of interest rates and terms. The Association periodically reviews and establishes interest rates, maturity terms, service fees, and withdrawal penalties for its deposit accounts. Deposit rates and terms are based primarily on current operating strategies, market interest rates, liquidity requirements, interest

 

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rates paid by competitors, and deposit growth goals. The Association's deposit pricing strategy has typically emphasized competitive rates on all types of deposits accounts with selective rate pricing implemented periodically in order to attract deposits of a specific type or term.

 

Certificates of deposit have traditionally been the largest deposit category at Central Federal and accounted for $23.4 million or 48.1% of total deposits at June 30, 2015, as compared to $28.3 million or 55.4% of total deposits at December 31, 2013. Approximately 53.9% or $12.6 million of certificate accounts at June 30, 2015 had remaining maturities of one year or less. The Association has been successful in increasing its transaction accounts, including non-interest bearing demand, NOW, and money market deposit accounts. Transaction accounts have increased from $19.5 million or 38.0% of total deposits at December 31, 2013 to $21.5 million or 44.2% of total deposits at June 30, 2015. For the six months ended June 30, 2015, the annualized cost of the Association's total deposits was 0.95% and the annualized cost of certificate accounts was 1.46%.

 

As a member of the FHLB of Des Moines, Central Federal is eligible to obtain FHLB borrowings based upon the security of FHLB common stock owned and certain residential real estate loans. The Association also is eligible, upon the satisfaction of collateral security and other requirements, to borrow from the Federal Reserve Bank ("FRB") of St. Louis. While Central Federal has obtained FHLB advances in the past, it had no outstanding borrowings from the FHLB or FRB at June 30, 2015 or December 31, 2014 or 2013.

 

Equity Capital

 

Central Federal has historically maintained solid capital levels. In addition, the Association has pursued moderate growth in an effort to preserve its capital strength. The

 

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Association's total assets have declined from $65.2 million at December 31, 2012 to $62.4 million at June 30, 2015. Over the same period, total equity advanced moderately from $13.2 million at December 31, 2012 to $13.7 million at June 30, 2015. As a result, Central Federal's ratio of total equity to assets increased from 20.32% at December 31, 2012 to 21.89% at June 30, 2015. Because of the Association's consistently low level of profitability, its incremental equity accumulation has been slow. Over the ten-year period from year-end 2004 to year-end 2014, Central Federal's total equity increased at a compound annual growth rate of 0.7%.

 

Central Federal's capital level remains strong in comparison to minimum regulatory requirements. The Association's regulatory capital ratios of tier 1 leverage capital, tier 1 risk-based capital, common equity tier 1 risk-based capital, and total risk-based capital were 21.35%, 38.39%, 38.39%, and 39.18%, respectively, as of June 30, 2015. In comparison, the minimum regulatory requirements under FDIC guidelines were 4.00%, 4.50%, 6.00%, and 8.00%, and the threshold requirements for regulatory "well capitalized" levels were 5.00%, 6.50%, 8.00%, and 10.00%, respectively. Based on these regulatory capital ratios and requirements, the Association was considered well capitalized for regulatory purposes as of June 30, 2015.

 

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Income and Expense Trends

 

Table 3 displays the main components of Central Federal's earnings performance for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2014 and 2015. Table 4 displays the Association's principal income and expense ratios as a percent of average assets for the corresponding periods. Table 5 displays the Association's weighted average yields on interest-earning assets and weighted average costs of interest-bearing liabilities for the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2014 and 2015.

 

General Overview

 

Over the past several years, Central Federal has generated a record of low to moderate profitability. The Association's average ROA for the past five fiscal years ended December 31, 2014 was approximately 0.30%. Central Federal's profitability trends can be characterized by slightly below average net interest spreads and low levels of non-interest income, offset partially by low levels of provision for loan losses and relatively low operating expenses.

 

The Association's earnings amounted to $229,000 in 2103 and $119,000 in 2014, reflecting ROA results of 0.35% and 0.18%, respectively, and return on average equity ("ROE") results of 1.71% and 0.88%, respectively. Central Federal's very low ROE results stem also from its exceptionally high capital levels in addition to the Association's fundamental earnings components. Central Federal reported net income of $81,000 for the six months ended June 30, 2015, as compared to $38,000 for the six months ended June 30. 2014. The Association realized an annualized ROA of 0.26% for the first half of 2015, as compared to an annualized ROA of 0.12% for the first half of 2014. The annualized ROE for the Association was 1.18% for the six months ended June 30, 2015 versus 0.56% for the six months ended June 30, 2014.

 

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Table 3

Income Statement Summary

For the Years Ended December 31, 2013 and 2014

And the Six Months Ended June 30, 2014 and 2015

(Dollars in Thousands)

 

                     
      Six Months Ended   Year Ended  
      June 30,   December 31,  
      2015   2014   2014   2013  
                     
  Interest income   $    1,222   $    1,230   $    2,466   $    2,723  
  Interest expense   236   250   494   548  
  Net interest income   986   980   1,972   2,175  
  Provision for loan losses   -   60   60   -  
  Net interest income after provision 986   920   1,912   2,175  
                     
  Non-interest income   32   37   72   (23 )
  Non-interest expense   893   895   1,805   1,786  
                     
  Income before income taxes   125   62   179   366  
  Income tax expense   44   24   60   137  
  Net income   $         81   $         38   $       119   $       229  
                     

 

Source: Central Federal, financial statements.

 

Six Months Ended June 30, 2014 and 2015

 

Net income increased from approximately $38,000 for the six months ended June 30, 2014 to $81,000 for the six months ended June 30, 2015. The improvement in earnings was attributable mainly to the reduction in the Association's provision for loan losses from $60,000 in the 2014 period to zero for the 2015 period. Pre-tax income increased by $63,000 from $62,000 for the six months ended June 30, 2014 to $125,000 for the six months ended June 30, 2015. The Association's non-accruing loans declined from $979,000 or 1.85% of total loans at June 30, 2014 to $466,000 or 0.93% of total loans at June 30, 2015. Net loan charge-offs were insignificant for both six-month periods in 2014 and 2015.

 

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Table 4

Income Statement Ratios

For the Years Ended December 31, 2013 and 2014

And the Six Months Ended June 30, 2014 and 2015

(Percent of Average Assets)

 

                     
      Six Months Ended Year Ended  
      June 30,   December 31,  
      2015 (1) 2014 (1) 2014   2013  
                     
  Interest income   3.85 % 3.80 % 3.82 % 4.16 %
  Interest expense   0.74   0.77   0.77   0.84  
  Net interest income   3.10   3.03   3.06   3.32  
  Provision for loan losses   0.00   0.19   0.09   0.00  
  Net interest income after provision   3.10   2.84   2.96   3.32  
                     
  Non-interest income   0.10   0.11   0.11   (0.04 )
  Non-interest expense   2.81   2.76   2.80   2.73  
                     
  Income before income taxes   0.39   0.19   0.28   0.56  
  Income tax expense   0.14   0.07   0.09   0.21  
  Net income   0.26   0.12   0.18   0.35  
                     

 

(1) Annualized for the six month periods ended June 30, 2014 and 2015.

 

Source: Central Federal, financial statement data; Feldman Financial calculations.

  

Non-interest income, consisting largely of customer service fees, declined from $37,000 in the six months ended June 30, 2014 to $32,000 for the six months ended June 30, 2015. The level of annualized non-interest income in relation to average assets declined from 0.11% for the first half of 2014 to 0.10% for the first half of 2015. Non-interest expense was almost unchanged, totaling $895,000 in the 2014 period versus $893,000 in the 2015 period. However, on an annualized basis in relation to average assets, non-interest expense increased from 2.76% to 2.81%. Compensation and employee benefits is the main operating expense category and equaled $525,000 in both 2014 and 2015 periods.

 

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Year Ended December 31, 2013 and 2014

 

Central Federal reported net income of $119,000 for the year ended December 31, 2014, as compared to net income of $229,000 for the year ended December 31, 2013. The $110,000, or 48.0%, decrease in net income between the periods was primarily a result of net interest income decreasing $203,000 from the year ended December 31, 2013 to the same period in 2014, and a provision for loan loss of $60,000 in 2014. This decrease was partially offset by a loss on the sale of foreclosed assets of $100,000 during the year ended December 31, 2013, but no such loss occurring in the year ended December 31, 2014.

 

Net interest income decreased by $203,000 or 9.3% to $2.0 million in 2014 from $2.2 million for 2013. Interest income on loans decreased by $258,000 from 2013 to 2014, while deposit interest expense decreased by $54,000 during that same period. The decrease in loan interest income was primarily a result of the average balance in loans receivable decreasing from $56.1 million for the year ended December 31, 2013 to $52.9 million for the year ended December 31, 2014. Interest expense was $494,000 for the year ended December 31, 2014, which was a $54,000 decrease from interest expense of $548,000 for the year ended December 31, 2013. The decrease in interest expense was a result of average interest-bearing deposits decreasing by $1.6 million from $49.2 million for 2013 to $47.6 million for 2014.

 

The Association's net interest spread declined by 32 basis points from 3.22% in 2013 to 2.90% in 2014. The reduction in the net interest spread resulted from a decrease of 39 basis points in the yield on interest-earning assets from 4.33% to 3.94%, while the cost of interest-bearing liabilities declined by only 7 basis points from 1.11% to 1.04%. The continued decline of average balances of loans outstanding contributed to the decline in the net interest spread.

 

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Table 5

Yield and Cost Summary

For the Years Ended December 31, 2013 and 2014

And the Six Months Ended June 30, 2014 and 2015

 

                     
      Six Months Ended   Year Ended  
      June 30,   December 31,  
      2015   2014   2014   2013  
  Weighted Average Yields (1)                  
  Loan receivable   4.70 % 4.53 % 4.56 % 4.76 %
  Securities and other interest-earning assets   0.57   0.52   0.57   0.79  
  Total interest-earning assets   3.99   3.92   3.94   4.33  
                     
  Weighted Average Costs (1)                  
  Certificate of deposit accounts   1.46   1.45   1.46   1.54  
  Savings accounts   0.32   0.29   0.31   0.32  
  Money market accounts   0.51   0.53   0.52   0.53  
  NOW accounts   0.58   0.48   0.55   0.41  
  Total interest-bearing deposits   1.00   1.03   1.04   1.11  
                     
  Net interest rate spread (2)   2.99   2.89   2.90   3.22  
  Net interest margin (3)   3.22   3.12   3.15   3.46  
                     

 

(1) Annualized for the six months ended June 30, 2014 and 2015.

(2) Yield on interest-earning assets less cost of interest-bearing liabilities.

(3) Net interest income divided by average total interest-earning assets.

 

Source: Central Federal Bancshares, Inc., preliminary prospectus.

 

Central Federal recorded a $60,000 provision for loan losses for the year ended December 31, 2014, while no provision for loan losses was taken for the year ended December 31, 2013. Net charge-offs increased from $4,000 in 2013 to $132,000 in 2014. The increase in net charge-offs was largely due to one single-family residential loan with a partial charge-off of $104,000 during 2014. Central Federal subsequently proceeded with collections during the six months ended June 30, 2015, during which time this loan was transferred to foreclosed assets.

 

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Non-interest income increased by $95,000 to $72,000 for the year ended December 31, 2014 from a deficit of -$23,000 for the year ended December 31, 2013. This was mainly attributable to a $100,000 loss on the sale of foreclosed assets occurring in 2013, while there were no gains or losses on sale of foreclosed assets in 2014. Non-interest income amounted to 0.11% of average assets in 2014, compared to -0.04% of average assets in 2013.

 

Non-interest expense increased by $19,000 in 2014 compared to 2013 due to an increase in compensation and benefits expense of $48,000, which was offset by a decrease in other non-interest expenses of $18,000 and a decrease in foreclosed asset expense of $16,000 from the year ended December 31, 2013 to the same period in 2014. In relation to average assets, non-interest expense increased from 2.73% in 2013 to 2.80% in 2014.

 

Primarily due to the decrease in net interest income during the year, pre-tax income declined by 51.0% from $366,000 in 2013 to $179,000 in 2014. The Association incurred income tax expense of $137,000 and $60,000 for the years ended December 31, 2013 and 2014, respectively. The decrease in income tax expense reflected a decrease in pre-tax income from 2013 to 2014. The effective tax rate declined slightly from 37.4% for the year ended December 31, 2013 to 37.4% for the year ended December 31, 2014.

 

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Interest Rate Risk Management

 

The Association seeks to reduce its earnings vulnerability and capital risk to changes in market interest rates by managing the mismatch between asset and liability maturities and interest rates. Management actively monitors and manages the Association's interest rate risk exposure. The principal objective of the Association's interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given the Association's business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with guidelines approved by the Board of Directors. The Association strives to maintain an acceptable balance between maximizing net interest spread potential and limiting its exposure to changes in interest rates. Central Federal manages the interest rate sensitivity of its interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment.

 

A major source of interest rate risk is a difference in the repricing of assets as compared to the repricing of liabilities. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturity of deposits. As a result, sharp increases in interest rates may adversely affect the Association's earnings while decreases in interest rates may beneficially affect its earnings. The Association seeks to reduce the potential volatility of our earnings by continually improving the matching between our asset and liability maturities and rates.

 

Central Federal’s goal is to manage asset and liability positions to moderate the effect of interest rate fluctuations on its earnings, while also controlling exposure to interest rate risk

 

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within policy limits approved by its Board of Directors. These limits and guidelines reflect the Association's tolerance for interest rate risk over both short-term and long-term horizons. The Association also relies on balance sheet management tools such as emphasizing increased liquidity and maintaining very strong capital levels in attempting to mitigate its interest rate risk exposure.

 

Central Federal currently utilizes economic value of equity ("EVE") analysis to review its level of interest rate risk. The Association measure its interest rate risk through the use of a financial model provided by an outside consulting firm. This model measures interest rate risk by capturing changes in the economic value of assets and liabilities, based on a range of assumed changes in market interest rates. Economic value represents the market value of assets and liabilities. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or 100 basis point decrease in market interest rates, with no effect given to any steps that the Association might take to counter the effect of such interest rate movement.

 

Table 6 presents the change in the economic value of the Association's equity at June 30, 2015 that would occur in the event of an immediate change in interest rates based on assumptions that it considers to be reasonable. As mentioned previously, these results do not reflect any action that the Association might implement to counteract the change in interest rates. Because of the current level of interest rates, scenarios of down 200-plus basis points have not been considered. As shown in Table 6, the Association's EVE would be negatively impacted by an increase in interest rates and positively impacted from a decrease in interest rates from current

 

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levels. As interest rates rise, the market value of fixed-rate loans tends to decline due to both the rate increases and slowing prepayments.

 

Table 6 indicates that the Association's EVE was $17.8 million or 27.12% of the present value of portfolio assets as of December 31, 2013. Based upon the assumptions utilized, an immediate 200 basis point increase in market interest rates would result in a $1.9 million decrease in the Association's EVE and would result in a decrease of 151 basis points in the EVE ratio to 26.35%. An immediate 100 basis point increase in market interest rates would result in a $971,000 decrease in the Association's EVE and a 77 basis point increase in the EVE ratio to 26.35%. Conversely, an immediate 100 basis point decrease in market interest rates would result in an $846,000 increase in the Association's EVE and a 60 basis point increase in the EVE ratio to 27.72%.

 

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Table 6

Interest Rate Risk Analysis

Economic Value of Equity

As of June 30, 2015

(Dollars in Thousands)

 

Change in
Interest Rates (1)
(basis points)

Estimated

EVE (2)

Change
from Base
(000s)
Change
from Base
(%)
EVE
Ratio (3)
Basis Point
Change in
EVE Ratio
+ 300 b.p. $15,103 $(2,741) (15.36)% 24.90% (222) b.p.
+ 200 b.p. 15,957 (1,887) (10.58)% 25.61% (151) b.p.
+ 100 b.p. 16,873 (971) (5.44)% 26.35% (77) b.p.
0 b.p. 17,844        — 27.12%   
- 100 b.p.  18,690 846   4.74%  27.72% 60 b.p.

 

(1) Assumes instantaneous and sustained parallel shifts in interest rates.

(2) EVE is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet items.

(3) EVE divided by the portfolio value of assets.

 

Source: Central Federal Bancshares, Inc., preliminary prospectus.

 

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Asset Quality

 

Table 7 summarizes the Association's total non-performing assets ("NPAs") as of December 31, 2013 and 2014 and June 30, 2015. Central Federal has a sustained record of reporting satisfactory asset quality. Total NPAs increased marginally from $1.1 million at year-end 2013 to $1.2 million at year-end 2014, before declining to $974,000 at June 30, 2015. In relation to total assets, NPAs measured 1.7% and 1.9% at December 31, 2013 and 2014, respectively, and declined to 1.6% at June 30, 2015. Including troubled debt restructurings ("TDRs") of $387,000 at June 30, 2015, total NPAs and TDRs amounted to $1.4 million at June 30, 2015 or 2.2% of total assets.

 

Non-accruing loans at June 30, 2015 consisted of four residential real estate loans totaling $466,000. Non-accruing loans have declined in recent periods from $745,000 at year-end 2013 and $644,000 at year-end 2014. Foreclosed assets at June 30, 2015 consisted of two properties totaling $508,000. The increase in foreclosed assets from $243,000 at year-end 2013 and 2014 was due to a single-family residential property in Cuba, Missouri being foreclosed on during the first half of 2015. The prior years' amount of foreclosed assets represented one commercial real estate property. At June 30, 2015, the Association had one loan (secured by commercial real estate) that was considered a troubled debt restructuring.

 

Table 8 summarizes the Association's allowance for loan losses as of and for the year ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015. The allowance for loan losses declined from $351,000 at year-end 2013 to $279,000 at year-end 2014 and $278,000 at June 30, 2015. Central Federal recorded a provision for loan losses of $60,000 in 2013, but made no provision in 2014 or for the first half of 2015.

 

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Table 7

Non-performing Asset Summary

As of December 31, 2013 and 2014 and June 30, 2015

(Dollars in Thousands)

 

                 
      June 30,   December 31,  
      2015   2014   2013  
  Non-accruing Loans              
  Residential real estate   $         466   $         590   $         685  
  Commercial and multi-family real estate   -   51   57  
  Consumer and other   -   3   3  
  Total   466   644   745  
                 
  Accruing Loans 90 Days or More Past Due:              
  Residential real estate   -   312   142  
  Total   -   312   142  
                 
  Total non-performing loans (NPLs)   466   956   887  
                 
  Foreclosed assets   508   243   243  
                 
  Total non-performing assets (NPAs)   $         974   $      1,199   $      1,130  
                 
  Troubled debt restructurings (TDRs)   $         387   $         391   $         402  
                 
  Total NPA and TDRs   $      1,361   $      1,590   $      1,532  
                 
                 
  Total NPLs to total loans   0.9%   1.8%   1.6%  
  Total NPAs to total assets   1.6%   1.9%   1.7%  
  Total NPLs and TDRs to total loans   1.7%   2.6%   2.4%  
  Total NPLs and TDRs to total assets   2.2%   2.5%   2.4%  
                 

 

Source: Central Federal Bancshares, Inc., preliminary prospectus.

 

 

Net charge-offs to average loans outstanding increased from $4,000 in 2013 to $132,000 in 2014 due primarily to the write-down of one single-family residential loan. This loan was transferred to foreclosed assets in January 2015. The ratio of allowance for loan losses to NPLs decreased from year-end 2013 to 2014 as a result of the decline in the adjusted experience loss ratio for commercial and multi-family real estate loans. The corresponding ratio increased in the first half of 2015 due to a decrease in the level non-performing loans.

 

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Table 8

Allowance for Loan Losses

As of or For the Years Ended December 31, 2013 and 2014

And the Six Months Ended June 30, 2014 and 2015

(Dollars in Thousands)

 

                     
      Six Months Ended   Year Ended  
      June 30,   December 31,  
      2015   2014   2014   2013  
                     
  Allowance at beginning of period   $       279   $       351   $       351   $       355  
                     
  Charge-offs:                  
  Residential real estate   -   -   (129 ) (2 )
  Consumer and other   (2 ) (4 ) (4 ) (2 )
  Total charge-offs   (2 ) (4 ) (133 ) (4 )
                     
  Recoveries   1   1   1   -  
  Net charge-offs   (1 ) (3 ) (132 ) (4 )
                     
  Provision for loan losses   -   60   60   -  
                     
  Allowance at end of period   $       278   $       408   $       279   $       351  
                     
  Net charge-offs to average loans   0.0%   0.0%   0.0%   0.0%  
  Allowance to NPLs at end of period   59.7%   37.9%   29.2%   39.6%  
  Allowance to total loans at end of period   0.6%   0.6%   0.5%   0.7%  
                     

 

Source: Central Federal Bancshares, Inc., preliminary prospectus.

 

There was no provision for loan losses for the six months ended June 30, 2015, compared to a $60,000 provision for loan losses for the six months ended June 30, 2014. Net charge-offs were insignificant for both periods. Management reviews the level of the allowance for loan losses on a quarterly basis based on a variety of factors. This analysis resulted in no provision for loan losses being required for the six months ended June 30, 2015. The reduction in the level of provision for loan losses reflects lower levels of specific allowances related to impaired loans individually evaluated for impairment, a decrease in non-performing loans, and the stabilization of the quantitative and qualitative factors during the six months ended June 30, 2015.

 

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Subsidiary Activity

 

Central Federal has no subsidiaries.

 

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Office Facilities

 

Central Federal currently conducts business solely from its office in Rolla, Missouri. The Association owns its headquarters office building, which is located at 210 West 10th Street, Rolla, Missouri 65401. The net book value of the premises and equipment at Central Federal was $709,000 as of June 30, 2015.

 

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Legal Proceedings

 

Periodically, there may be various claims and lawsuits against Central Federal, such as claims to enforce liens, condemnation proceedings on properties in which it holds hold security interests, claims involving the making and servicing of real property loans, and other issues incident to its business. The Association is not currently a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, operating results, or cash flows.

 

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Market Area

 

Overview of Market Area

 

Central Federal is headquartered and maintains its sole office in Rolla, Missouri. Rolla is the largest city and county seat of Phelps County, which had an estimated population of approximately 44,500 in 2015. Rolla is located along Interstate 44 in south-central Missouri, less than 100 miles from major Missouri population centers of St. Louis, Jefferson City, Columbia and Springfield. The Association consider its primary market area to be Phelps County, and it also services customers in the contiguous Missouri counties of Dent, Texas, Crawford, Pulaski, and Maries. Other towns in Phelps County include St. James, Newburg, and Doolittle.

 

Rolla has an estimated population of approximately 20,200 and is the home of Missouri University of Science and Technology ("Missouri S&T"), a public institution of higher education. Previously known as University of Missouri-Rolla, Missouri S&T was founded in 1870 as one of the first technological schools west of the Mississippi and today is one of the nation's top technological research universities. Most of the approximately 8,600 students at Missouri S&T major in engineering or computer science. Missouri S&T also offers majors in the humanities, social sciences, arts, sciences, and business. Missouri S&T occupies a 284 acre campus in Rolla and is the second largest employer in the city with over 1,300 employees.

 

The largest employers in the Rolla area include: Phelps County Regional Medical Center (hospital), Missouri S&T (education), Walmart Distribution Center (distribution/warehouse), Rolla Public Schools (education), Walmart Supercenter (retail), Brewer Science (electronics technology), Mercy (healthcare system), Great Circle (youth education and development), U.S. Geological Survey - Rolla Federal Center (government), and the city of Rolla (government).

 

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Table 9 presents comparative demographic data for the United States, the state of Missouri, Phelps County, and the city of Rolla. Missouri had an estimated population in 2015 of 6.1 million. Population growth in the state measured 1.4% in past five years, behind the national growth rate of 3.5%. For the projected 2015-2020 period, Missouri's population is expected to increase by 1.5%, compared to the national growth rate of 3.5%. Phelps County experienced a 1.4% decline in population during the 2010-2015 period, and is projected to decline by 0.8% in the 2015-2020 period. Rolla exhibited a population increase of 3.1% in the 2010-2015 period, but is expected to slow to 0.2% in the 2015-2020 period.

 

Reflecting the concentration of college-age population residing in the city, the median age of Rolla is 28.7 years as compared to the state and national median of 38.5 and 37.9 years, respectively. Approximately 43.5% of Rolla's 2015 population was represented by the 15-to-34 year age group, compared to 26.8% and 27.2% for the state and national population aggregates, respectively. The large concentration of college students also contributed to Rolla's below average income levels.

 

Estimated median household income in 2015 was $36,464 for Rolla and $43,527 for Phelps County. These income levels were below the state median household income of $47,593 and the national median of $53,706. The unemployment rate for June 2015 was 6.5% in Phelps County, compared to the state and national rates of 5.8% and 5.3%, respectively. The unemployment rate for June 2014 was 6.3% in Phelps County. Reflecting the college-age population in the local market, approximately 49.8% of Rolla's total housing units consisted of renter occupied units. In comparison, the state and national aggregates displayed 27.3% and 31.0% levels, respectively, of renter occupied units to total housing units.

 

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Table 9

Selected Demographic Data

 

             
    United   Phelps City of  
    States Missouri County Rolla  
             
  Total Population          
  2015 - Current 319,459,991 6,069,767 44,538 20,156  
  2020 - Projected 330,689,365 6,160,843 44,191 20,196  
  % Change 2010-15 3.47% 1.35% -1.37% 3.05%  
  % Change 2015-20 3.52% 1.50% -0.78% 0.20%  
             
  Age Distribution, 2015          
  0 - 14 Age Group 19.12% 19.03% 17.45% 16.16%  
  15 - 34 Age Group 27.23% 26.80% 33.18% 43.53%  
  35 - 54 Age Group 26.27% 25.47% 22.39% 19.37%  
  55- 69 Age Group 17.60% 18.19% 16.55% 12.26%  
  70+ Age Group 9.77% 10.51% 10.43% 8.68%  
             
  Median Age (years) 37.9 38.5 34.5 28.7  
             
  Total Households          
  2015 - Current 121,099,157 2,418,499 17,269 7,902  
  2020 - Projected 125,616,498 2,461,693 17,148 7,978  
  % Change 2015-20 3.73% 1.79% -0.70% 0.96%  
             
  Household Income, 2015          
  < $25,000 23.51% 25.92% 29.17% 37.61%  
  $25,000 - $49,999 23.85% 26.48% 27.85% 24.21%  
  $50,000 - $99,999 29.79% 30.18% 29.71% 25.93%  
  $100,000 - $199,999 17.87% 14.42% 11.56% 10.59%  
  $200,000+ 4.98% 3.00% 1.71% 1.66%  
             
  Median Household Income          
  2015 - Current $53,706 $47,593 $43,527 $36,464  
  2020 - Projected $57,294 $49,964 $46,163 $38,413  
  % Change 2015-20 6.68% 4.98% 6.06% 5.34%  
             
  Average Household Income          
  2015 - Current $74,165 $63,793 $55,364 $50,857  
  2020 - Projected $79,486 $67,904 $59,688 $54,441  
  % Change 2015-20 7.17% 6.44% 7.81% 7.05%  
             
  Per Capita Income          
  2015 - Current $28,840 $26,171 $23,023 $22,684  
  2020 - Projected $30,954 $27,930 $24,868 $24,481  
  % Change 2015-20 7.33% 6.72% 8.01% 7.92%  
             

 

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Table 9 (continued)

Selected Demographic Data

 

             
    United   Phelps City of  
    States Missouri County Rolla  
             
  Total Housing Units          
  2015 - Current 136,668,489 2,772,166 19,612 8,811  
  2020 - Projected 141,550,772 2,826,663 19,754 8,985  
  % Change 2015-20 3.57% 1.97% 0.72% 1.97%  
             
  Housing Units, 2015          
  Owner Occupied 78,696,952 1,661,864 10,542 3,517  
  Renter Occupied 42,402,205 756,635 6,727 4,385  
  Vacant 15,569,332 353,667 2,343 909  
             
  Owner Occupied 57.58% 59.95% 53.75% 39.92%  
  Renter Occupied 31.03% 27.29% 34.30% 49.77%  
  Vacant 11.39% 12.76% 11.95% 10.32%  
             
  Unemployment Rates          
  June 2014 6.1% 6.6% 6.3% NA  
  June 2015 5.3% 5.8% 6.5% NA  
  % Change -13.1% -12.1% 3.2% NA  
             

 

Source: SNL Financial; Nielsen.

 

Market Share Analysis

 

Table 10 displays branch deposit data for financial institutions in Phelps County as of June 30, 2014 (with deposit data adjusted for pending and completed mergers). Central Federal ranked 6th in Phelps County out of 11 financial institutions with total deposits of $51.8 million as of June 30, 2014 and a market share of 6.1%. The Association also ranked 6th in Phelps County as of June 30, 2013 with deposits of $52.1 million. The financial institutions in Phelps County mostly include small community banks, including deposit market share leaders Phelps County Bank and Citizens Bank of Newburg. Large out-of-state regional banks, such as U.S. Bank (Minnesota) and Regions Bank (Alabama) also compete for deposits in Phelps County.

 

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Table 10

Deposit Market Share in Phelps County (Missouri)

Data as of June 30, 2014

(Adjusted for Pending and Completed Mergers)

 

                 
            Deposit    
            Market Total  
    Financial   Branch Share Deposits  
 Rank   Institution Type Count (%) ($000)  
                 
1   Phelps County Bank (MO) Bank 4   35.11 300,478  
2   Citizens Bank of Newburg (MO) Bank 2   14.91 127,552  
3   U.S. Bank NA (MN) Bank 3   13.13 112,389  
4   Town & Country Bank (MO) Bank 3   12.80 109,578  
5   Mid America Bank & Trust Co. (MO) Bank 1   7.40 63,300  
6   Central Federal S&LA of Rolla (MO) Thrift 1   6.05 51,791  
7   First State Community Bank (MO) Bank 1   3.37 28,864  
8   First Community National Bank (MO) Bank 2   2.88 24,633  
9   Maries County Bank (MO) Bank 1   1.98 16,954  
10   Regions Bank (AL) Bank 1   1.93 16,535  
11   Legends Bank (MO) Bank 1   0.43 3,688  
                 
    Total   20   100.00 855,762  
                 

 

Source: SNL Financial.

 

Table 11 provides residential mortgage market share data for the top 25 lenders in Phelps County in calendar 2013. Not all companies in the market report the sourced data. Out-of-state lenders such as U.S. Bank, Quicken Loans, Regions Bank, Wells Fargo, USAA, Bank of America, and JPMorgan Chase ranked among the top ten residential lenders in the local market area, with U.S. Bank originating $18.2 million and Quicken Loans originating $8.2 million in 2013. In-state lenders among the top ten in 2013 were Town & Country Bank ($8.7 million), First Community National Bank ($7.3 million), and Maries County Bank ($4.8 million). The average residential mortgage loan funded in Phelps County was approximately $125,700 in 2013.

 

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Table 11

Residential Mortgage Lending
Market Share in Phelps County (Missouri)

Data for 2013

(Adjusted for Pending and Completed Mergers)

 

                 
            Total Total  
        No. of Market Funded  
        Funded Share Loans  
Rank   Company Type    Loans (%) ($000)  
                 
1   U.S. Bank NA (MN) Bank 154   17.92 18,178  
2   Town & Country Bank (MO) Bank 77   8.57 8,696  
3   Quicken Loans Inc. (MI) Mortg. Bank 57   8.07 8,185  
4   First Community National Bank (MO) Bank 57   7.16 7,259  
5   Maries County Bank (MO) Bank 41   4.77 4,841  
6   Regions Bank (AL) Bank 39   3.91 3,963  
7   Wells Fargo Bank NA (CA) Bank 34   3.43 3,480  
8   USAA FSB (TX) Thrift 17   2.96 3,003  
9   Bank of America NA (NC) Bank 25   2.74 2,780  
10   JPMorgan Chase Bank NA (NY) Bank 24   2.54 2,579  
11   DAS Acquisition Co. LLC (MO) Mortg. Bank 18   2.47 2,505  
12   Equitable Mortgage Corp. (MO) Mortg. Bank 22   2.27 2,302  
13   Mortgage Research Center LLC (MO) Mortg. Bank 14   2.17 2,201  
14   Crescent Mortgage Co. (GA) Mortg. Bank 19   2.12 2,146  
15   Flat Branch Mortgage Inc. (MO) Mortg. Bank 13   1.85 1,873  
16   Navy FCU (VA) Credit Union 9   1.40 1,422  
17   Freedom Mortgage Corp. (NJ) Mortg. Bank 7   1.29 1,307  
18   Plaza Home Mortgage Inc. (CA) Mortg. Bank 12   1.28 1,295  
19   Mortgage Solutions of CO LLC (CO) Mortg. Bank 9   1.18 1,193  
20   Berkadia Commercial Mrtg LLC (PA) Mortg. Bank 1   1.17 1,185  
21   Citibank NA (SD) Bank 13   1.14 1,156  
22   Heritage Community Bank (MO) Bank 1   1.09 1,108  
23   Fifth Third Mortgage Co. (OH) Mortg. Bank 5   0.88 890  
24   Flagstar Bank FSB (MI) Thrift 6   0.86 873  
25   Central Trust Bank (MO) Bank 3   0.83 840  
                 
    Total   807   100.00 101,425  
                 

 

Source: SNL Financial; prepared from Home Mortgage Disclosure Act data compiled annually by the Federal Financial Institutions Examination Council.

 

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Summary Outlook

 

Central Federal has reported moderate levels of profitability over the past five years with an average ROA of approximately 0.30%. The Association's earnings declined from $229,000 in 2013 (ROA of 0.35%) to $119,000 (ROA of 0.18%) in 2014. For the six months ended June 30, 2015, Central Federal had net income of $81,000 for an annualized ROA of 0.26%. While recent earning results have benefited from little to no provision for loan losses in various periods, the declining balance of loans outstanding place additional pressure on the Association's ability to increase net interest income and drive earnings growth. The trend of a declining net interest margin at Central Federal showed signs of reversing in the first half of 2015, but loan growth will be necessary to sustain any improvements in its net interest margin.

 

The Association's earnings fundamentals reflect a below average net interest spread and very low levels of revenue generated from non-interest income sources. These factors are offset by a relatively low level of operating expenses and no significant impairment of earnings from asset quality problems. As a result of operating as a traditional thrift institution from one office, the Association has not required an extensive complement of officers and employees. As of June 30, 2015, Central Federal had 13 full-time equivalent employees . However, as it begins to operate as a public company and implement plans to reinvigorate growth, the Association now needs to add a Chief Financial Officer and may also soon need to replace an Executive Vice President and Senior Lending Officer who intends to retire after completion of the Conversion. These personnel actions are likely to contribute to additional pressure on operating expenses and integration risks in the near term. Further, the Company will be challenged to manage operating expenses as stock benefit plans in connection with the Conversion are implemented.

 

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II. COMPARISONS WITH PUBLICLY TRADED THRIFTS

 

General Overview

 

The comparative market approach provides a sound basis for determining estimates of going-concern valuations where a regular and active market exists for the stocks of peer institutions. The comparative market approach was utilized in determining the estimated pro forma market value of the Association because: (i) reliable market and financial data are readily available for comparable institutions; (ii) the comparative market method is required by the applicable regulatory guidelines; and (iii) other alternative valuation methods (such as income capitalization, liquidation analysis, or discounted cash flow) are unlikely to produce a valuation relevant to the future trading patterns of the related equity interest. The generally employed valuation method in initial public offerings, where possible, is the comparative market approach, which also can be relied upon to determine pro forma market value in a thrift stock conversion.

 

The comparative market approach derives valuation benchmarks from the trading patterns of selected peer institutions which, due to certain factors such as financial performance and operating strategies, enable the appraiser to estimate the potential value of the subject institution in a stock conversion offering. The pricing and trading history of recent initial public offerings of thrifts are also examined to provide evidence of the "new issue discount" that must be considered. In Chapter II, our valuation analysis focuses on the selection and comparison of the Association with a comparable group of publicly traded thrift institutions (the "Comparative Group"). Chapter III will detail any additional discounts or premiums that we believe are appropriate to the Association's pro forma market value.

 

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Selection Criteria

 

Selected market price and financial performance data for all public thrifts listed on major stock exchanges are shown in Exhibit III. The list excludes companies that are subject to being acquired under a pending transaction and companies that have a majority ownership interest controlled by a mutual holding company ("MHC"). Several criteria, discussed below, were used to select the individual members of the Comparative Group from the overall universe of publicly traded thrifts.

 

· Operating characteristics – An institution's operating characteristics are the most important factors because they affect investors' expected rates of return on a company's stock under various business/economic scenarios, and they influence the market's general perception of the quality and attractiveness of a given company. Operating characteristics, which may vary in importance during the business cycle, include financial variables such as profitability, balance sheet growth, capitalization, asset quality, and other factors such as lines of business and management strategies.

 

· Degree of marketability and liquidity – Marketability of a stock reflects the relative ease and promptness with which a security may be sold when desired, at a representative current price, without material concession in price merely because of the necessity of sale. Marketability also connotes the existence of buying interest as well as selling interest and is usually indicated by trading volumes and the spread between the bid and asked price for a security. Liquidity of the stock issue refers to the organized market exchange process whereby the security can be converted into cash. We attempted to limit our selection to companies that have access to a regular trading market or price quotations, and therefore only considered companies listed on major stock exchanges. We eliminated from the Comparative Group companies with market prices that were materially influenced by announced acquisitions or other unusual circumstances. However, the expectation of continued industry consolidation is currently embedded in thrift equity valuations.

 

· Geographic Location – The region of the country where a company operates is also of importance in selecting the comparative group. The operating environment for thrift institutions varies from region to region with respect to business and economic environments, real estate market conditions, speculative takeover activity, and investment climates. Economic and investor climates can also vary greatly within a region, particularly due to takeover activity.

 

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The operations of the Association fit the general profile of a small traditional thrift institution, concentrating primarily on residential mortgage lending in its local market and relying significantly on certificates of deposit as a funding source. One- to four-family residential loans remain the core product in the Association's loan portfolio, drawing upon Central Federal's roots as a home lender. However, the Association has diversified its loan mix through the origination of non-owner occupied residential loans, commercial and multi-family real estate loans, residential construction loans, and home equity lines of credit.

 

In determining the Comparative Group composition, we focused on Central Federal's geographic location, asset size, capitalization, asset quality, and earnings fundamentals. Attempting to concentrate on the Association's performance characteristics and to develop a meaningful number of comparables for valuation purposes, we expanded the criteria for comparable thrifts to include a statistically significant number of companies. In addition, because of the scarcity of candidates meeting the criteria precisely, we increased the asset size constraint to generate a meaningful number of comparables while maintaining non-size related characteristics. As with any composition of a group of comparable companies, the selection criteria were broadened sufficiently to assemble a meaningful number of members. We performed a screening of publicly traded thrifts headquartered in the Midwest region of the United States with total assets less than $600 million. We then expanded the selection criteria and applied the following overall selection criteria:

 

· Publicly traded thrift – stock-form thrift whose shares are traded on the New York, NYSE Amex, or NASDAQ stock markets.

 

· Non-acquisition target – company is not subject to a pending acquisition.

 

· Excludes mutual holding companies – company's majority ownership interest is not held by an MHC.

 

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· Geographic location – based in the Midwest region of the country.

 

· Seasoned trading issue – company has been publicly traded for at least one year.

 

· Financial reporting history – company has reported at least four quarters of financial data as fully converted stock company.

 

· Asset size – total assets of less than $600 million.

 

· Capitalization – tangible equity to assets ratio greater than or equal to 8.5%.

 

· Asset quality – non-performing assets to total assets ratio less than 3.0%.

 

As a result of applying the stated criteria, the screening process produced a reliable representation of public thrifts. A general operating summary of the eleven companies included in the Comparative Group is presented in Table 12. All of the selected companies are traded on the NASDAQ market. The Comparative Group ranged in asset size from $326.0 million at First Federal of Northern Michigan Bancorp to $564.0 million at HMN Financial. The median asset size of the Comparative Group was $421.4 million, larger than Central Federal's total assets of $62.4 million. There are a seven publicly traded thrifts in the Midwest that have assets below $100 million, but none of them are traded on a major stock exchange. In addition, there are three publicly traded thrifts altogether in Missouri, but none are traded on a major stock exchange.

 

Four of the Comparative Group members are located in Midwest states contiguous to Missouri (IF Bancorp and Jacksonville Bancorp in Illinois, Madison County Financial in Nebraska, and Poage Bankshares in Kentucky). The remainder of the Comparative Group is distributed among the Midwest states of Indiana, Minnesota, and Ohio. While some differences inevitably may exist between Central Federal and the individual companies, we believe that the chosen Comparative Group on the whole provides a meaningful basis of financial comparison for valuation purposes.

 

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Table 12

Comparative Group Operating Summary

As of June 30, 2015

 

                 
              Tang.  
            Total Equity/  
        No. of IPO Assets Assets  
  Company City St. Offices Date ($Mil.) (%)  
                 
  Central Federal S&LA Rolla MO 1 NA $  62.4 21.89  
                 
  Comparative Group              
  Central Federal Corporation Worthington OH 4 12/30/98 339.3 10.30  
  First Federal of Northern Mich. Alpena MI 8 04/04/05 326.0 9.21  
  HMN Financial, Inc. Rochester MN 13 06/30/94 564.0 11.97  
  IF Bancorp, Inc. Watseka IL 6 07/08/11 563.7 14.27  
  Jacksonville Bancorp, Inc. Jacksonville IL 6 07/15/10 305.9 14.14  
  La Porte Bancorp, Inc. La Porte IN 7 10/05/12 521.2 14.58  
  Madison County Financial, Inc. Madison NE 6 10/04/12 318.3 19.45  
  Poage Bankshares, Inc. Ashland KY 9 09/13/11 432.4 15.76  
  United Community Bancorp Lawrenceburg IN 8 01/10/13 521.2 13.22  
  Wayne Savings Bancshares, Inc. Wooster OH 12 01/09/03 421.4 8.99  
  Wolverine Bancorp, Inc. Midland MI 3 01/20/11 357.9 17.30  
                 

 

Source: Central Federal; SNL Financial.

 

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Recent Financial Comparisons

 

Table 13 summarizes certain key financial comparisons between Central Federal and the Comparative Group. Tables 14 through 19 contain the detailed financial comparisons of the Association with the individual Comparative Group companies based on measures of profitability, income and expense components, yield-cost structure, capital levels, balance sheet composition, asset quality, and growth rates. Financial data for Central Federal, the Comparative Group, and All Public Thrift aggregate were utilized for the latest available period as of or for the last twelve months ("LTM") ended June 30, 2015.

 

Central Federal's LTM ROA was 0.25%, reflecting profitability below the Comparative Group median of 0.85% and the All Public Thrift median of 0.71%. The Association's lower ROA was attributable mainly to a lower level of non-interest income and a higher level of operating expenses. The Association's LTM ROE was 1.19% and further lagged the Comparative Group median of 5.49%. Central Federal's net interest spread of 2.96% was below the Comparative Group median of 3.13% due to the Association's higher cost of interest-bearing liabilities. The Association's funding base is heavily dependent on certificate accounts and its cost of interest-bearing liabilities was 1.02% versus the Comparative Group median of 0.72%.

 

Based on core earnings as adjusted to exclude intangibles amortization expense and non-recurring income and expense items, Central Federal's core profitability ratios were equal to its LTM ROA and ROE results. The Association's core ROA of 0.25% was positioned below the Comparative Group median of 0.73% and the All Public Thrift median of 0.72%. The Association's core ROE of 1.19% trailed the Comparative Group median of 5.23% and the All Public Thrift median of 5.33%.

 

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Table 13

Key Financial Comparisons

Central Federal and the Comparative Group

As of or For the Last Twelve Months Ended June 30, 2015

 

             
        Comp. All Public  
      Central Group Thrift  
      Federal Median Median  
                   
  Profitability                
  LTM Return on Average Assets (ROA)   0.25 % 0.85 % 0.71 %  
  LTM Return on Average Equity (ROE)   1.19   5.49   5.54    
  Core Return on Avg. Assets (Core ROA)   0.25   0.73   0.72    
  Core Return on Avg. Equity (Core ROE)   1.19   5.23   5.33    
                   
  Income and Expense   (% of avg. assets)                
  Total Interest Income   3.85   3.58   3.51    
  Total Interest Expense   0.75   0.54   0.58    
  Net Interest Income   3.10   3.12   2.95    
  Provision for Loan Losses   0.00   0.08   0.08    
  Other Operating Income   0.10   0.60   0.56    
  Net Secs. Gains and Non-rec. Income   0.00   0.00   0.02    
  General and Administrative Expense   2.82   2.59   2.79    
  Intangibles Amortization Expense   0.00   0.00   0.00    
  Non-recurring Expense   0.00   0.00   0.00    
  Pre-tax Core Earnings   0.38   0.93   0.91    
                   
  Efficiency Ratio   88.17   72.32   75.00    
                   
  Yield-Cost Data                
  Yield on Interest-earning Assets   3.98   3.90   3.81    
  Cost of Interest-bearing Liabilities   1.02   0.72   0.77    
  Net Interest Spread   2.96   3.13   3.05    
  Net Interest Margin   3.20   3.32   3.15    
                   
  Asset Utilization   (% of total assets)                
  Avg. Interest-earning Assets   96.60   92.89   91.19    
  Avg. Interest-bearing Liabilities   73.44   70.73   71.37    
  Avg. Net Interest-earning Assets   23.16   19.52   19.82    
                   

 

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Table 13 (continued)

Key Financial Comparisons

Central Federal and the Comparative Group

As of or For the Last Twelve Months Ended June 30, 2015

 

             
        Comp. All Public  
      Central Group Thrift  
      Federal Median Median  
                   
  Balance Sheet Composition   ( % of total assets)                
  Cash and Securities   17.98 % 29.38 % 21.10 %  
  Loans Receivable, net   79.50   64.68   71.27    
  Real Estate Owned   0.81   0.10   0.14    
  Intangible Assets   0.00   0.36   0.02    
  Other Assets   1.71   4.77   7.47    
  Total Deposits   77.92   78.72   73.25    
  Borrowed Funds   0.00   5.87   11.58    
  Other Liabilities   0.19   0.92   2.91    
  Total Equity   21.89   14.27   12.15    
                   
  Loan Portfolio   (% of total loans)                
  Residential Mortgage Loans   60.62   32.85   39.86    
  Other Real Estate Mortgage Loans   34.66   44.61   35.42    
  Non-mortgage Loans   4.72   14.16   24.72    
                   
  Growth Rates                
  Total Assets   (4.54 ) 1.44   5.91    
  Total Loans   (5.39 ) 5.88   8.65    
  Total Deposits   (6.08 ) 2.71   3.92    
                   
  Regulatory Capital Ratios                
  Tier 1 Leverage Ratio   21.35   11.47   11.47    
  Tier 1 Risk-based Capital   38.39   18.16   17.13    
  Total Risk-based Capital   39.18   19.33   18.40    
                   
  Credit Risk Ratios                
  Non-performing Loans (1) /Total Loans   1.71   1.98   1.36    
  Non-performing Assets (1) / Total Assets   2.18   1.35   1.22    
  Reserves / Total Loans   0.56   1.55   0.99    
  Reserves / Non-performing Assets (1)   20.41   41.82   59.83    
                   

 

(1) Includes troubled debt restructurings.

Source: Central Federal; SNL Financial; Feldman Financial.

 

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As shown in Table 15, the Association's net interest margin of 3.20% trailed the Comparative Group median of 3.32%. The Association's 3.98% yield on interest-earning assets measured favorably against the Comparative Group median of 3.90% due to its heavy concentration of assets allocated to loans versus investments. As of June 30, 2015, Central Federal had net loans equal to 79.5% of total assets versus the Comparative Group median of 64.7%. However, the Association's higher cost of interest-bearing liabilities offset the yield advantage with respect to the Comparative Group.

 

The Association's non-interest operating income totaled 0.10% of average assets, noticeably lagging behind the Comparative Group and All Public Thrift medians of 0.60% and 0.56%, respectively. Similar to many other small financial institutions, the Association has not developed a broad range of other banking-related services and products that are potential contributors to a larger stream of non-interest revenue. Further, the Association has not sought to increase service charges sharply on banking accounts in order to maintain customer loyalty. The Association's non-interest income ratio at 0.10% of average assets would have ranked below all of the Comparative Group companies. The Association generated no gains on sale of investments or any other non-recurring income for the LTM period.

 

The Association's operating expense ratio at 2.82% of average assets was slightly higher than the Comparative Group median of 2.59% and All Public Thrift median of 2.79%. The Association's operating expense ratio was lower than the corresponding ratios reported by five of eleven Comparative Group companies. The Association operates from only one office with a substantial deposit size, with a large percentage of deposits comprising certificate of deposit accounts that require limited overhead to service. However, the Association's smaller asset size

 

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does not lend itself to profuse operating efficiencies in the form of economies of scale and leveraging the core infrastructure to support an expansive franchise.

 

The Association's operating expenses are expected to increase in the near term as a result of operating as a public company, establishing employee stock benefit plans, and adding new employees. The Association's efficiency ratio (non-interest expense less intangibles amortization expense as a percent of net interest income before provision plus non-interest operating income) was relatively high at 88.2% versus the Comparative Group and All Public Thrift medians of 72.3% and 75.0%, respectively. Central Federal's unfavorable efficiency ratio versus the Comparative Group is related chiefly to its lower level of non-interest income and slightly higher level of non-interest expense.

 

The Association made no provision for loan losses in the LTM period. In contrast, the median level of loan loss provisions was 0.08% of average assets for the Comparative Group and the All Public Thrift aggregate. Several members of the Comparative Group also reported no provision or net recoveries for the recent LTM period as asset quality continues to stabilize across the thrift industry.

 

As reflected in Table 18, the overall balance sheet composition of the Association is skewed toward a higher concentration of loans versus that of the Comparative Group. The Association's net total loans amounted to 79.5% of total assets as of June 30, 2015, higher than the median of 64.7% for the Comparative Group. The Association's ratio of cash and securities to total assets was 18.0% and lower than the median of 29.4% of the Comparative Group. The Association had no goodwill or other intangible assets on its balance sheet as of June 30, 2015. The Association's real estate owned measured 0.8% of total assets and was higher than the 0.1%

 

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level reflected by the Comparative Group median. The Association's ratio of other assets measured 1.7% and was lower than the Comparative Group median of 4.8%.

 

The Association had no borrowings as of June 30, 2015, as compared to the median borrowed funds as a percentage of total assets of the Comparative Group of 5.9%. The Association's deposit level at 77.9% of total assets was similar to the Comparative Group's median deposit level of 78.7% of total assets. The Association's equity level before the Conversion was 21.9% relative to total assets, which exceeded the Comparative Group and All Public Thrift medians of 14.3% and 12.2%, respectively.

 

As indicated earlier, Central Federal has historically been a residential mortgage lender, as evidenced in its portfolio mix and its loan mix is not as varied as that of the Comparative Group. The Association's level of residential mortgage loans measured 60.6% of total loans based on regulatory financial data as of June 30, 2015, above the Comparative Group and All Public Thrift medians of 32.9% and 39.9%, respectively. Three members of the Comparative Group, Poage Bankshares, United Community Bancorp, and Wayne Savings Bancshares, also exhibited residential mortgage loan concentrations in excess of 60% of total loans. Conversely, the Association's concentration ratios of non-residential real estate and non-mortgage loans were lower. The Association's ratio of other non-residential mortgage loans was 34.7% of total loans versus the Comparative Group median of 44.6%, and its ratio of non-mortgage loans was 4.7% versus the Comparative Group median of 14.2%.

 

The Association's recent emphasis on restrained balance sheet growth is reflected in the comparative growth rates. The Association's asset growth rate measured negative 4.5% over the recent LTM period, opposite that of the Comparative Group median growth rate of 1.4% (four

 

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Comparative Group members recorded asset shrinkage). The Association also exhibited negative growth rates of loans and deposits, while the Comparative Group reported positive median growth rates that measured 5.9% for loans and 2.7% for deposits.

 

The Association's 2.18% ratio of non-performing assets (including troubled debt restructurings) was positioned above the Comparative Group median of 1.35% and the All Public Thrift median of 1.22%. While Central Federal's asset quality ratios have been maintained at satisfactory levels historically, the delinquency or foreclosure of a single loan can cause its non-performing asset ratios to spurt upward due to its small asset size. The Association's ratio of reserves to total loans was 0.56% versus the Comparative Group and All Public Thrift medians of 1.55% and 0.99%, respectively. Central Federal's 20.4% ratio of reserves to non-performing assets was below the Comparative Group and All Public Thrift medians of 41.8% and 59.8%, respectively.

 

In summary, the Association's recent earnings performance was below the results exhibited by the Comparative Group, while its asset quality was comparable and its capital position was superior. The Association's profitability is characterized by a slightly below average net interest spread and low levels of non-interest income. The Association's net interest margin is bolstered by the strong capital level which allows for a large concentration of interest-earning assets to be supported by equity as opposed to interest-bearing liabilities. However, Central Federal's net interest spread is still restrained by the yield potential of its residential mortgage loan portfolio along with the higher costs associated with certificate of deposit funding versus transaction accounts. Central Federal's earnings growth outlook will depend largely on the Association's ability to sustain satisfactory loan quality as its grows the portfolio, improve the

 

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net interest margin across movements in the interest rate environment, and control non-interest expense as it seeks to expand its operations, add new personnel, and transition to a public company.

 

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Table 14
General Operating Characteristics
As of June 30, 2015

 

                  Tang.
            Total Total Total Common
        No. of IPO Assets Deposits Equity Equity
  City/State Ticker Exchange Offices Date ($000s) ($000s) ($000s) ($000s)
                   
Central Federal S&LA Rolla, MO NA NA 1 NA 62,424 48,642 13,664 13,664
                   
Comparative Group                  
Central Federal Corporation Worthington, OH CFBK NASDAQ 4 12/30/98 339,313 282,049 34,946 23,577
First Federal of No. Michigan Bancorp Alpena, MI FFNM NASDAQ 8 04/04/05 325,976 269,979 31,069 29,904
HMN Financial, Inc. Rochester, MN HMNF NASDAQ 13 06/30/94 564,001 481,476 67,494 67,494
IF Bancorp, Inc. Watseka, IL IROQ NASDAQ 6 07/08/11 563,668 415,544 80,436 80,436
Jacksonville Bancorp, Inc. Jacksonville, IL JXSB NASDAQ 6 07/15/10 305,926 238,524 45,602 42,875
La Porte Bancorp, Inc. La Porte, IN LPSB NASDAQ 7 10/05/12 521,183 351,598 83,344 74,736
Madison County Financial, Inc. Madison, NE MCBK NASDAQ 6 10/04/12 318,266 221,612 62,676 61,735
Poage Bankshares, Inc. Ashland, KY PBSK NASDAQ 9 09/13/11 432,445 340,416 70,518 67,705
United Community Bancorp Lawrenceburg, IN UCBA NASDAQ 8 01/10/13 521,185 432,537 71,437 68,488
Wayne Savings Bancshares, Inc. Wooster, OH WAYN NASDAQ 12 01/09/03 421,362 353,289 39,433 37,714
Wolverine Bancorp, Inc. Midland, MI WBKC NASDAQ 3 01/20/11 357,882 235,537 61,902 61,902

 

Source: Central Federal; SNL Financial; Feldman Financial.

 

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Table 15
General Financial Performance Ratios
As of or For the Last Twelve Months Ended June 30, 2015

 

      Total Tang. Net          
  Total Total Equity/ Equity/ Interest Effcy. LTM LTM Core Core
  Assets Deposits Assets Assets Margin Ratio ROA ROE ROA ROE
  ($000s) ($000s) (%) (%) (%) (%) (%) (%) (%) (%)
                     
Central Federal S&LA 62,424 48,642 21.89 21.89 3.20 88.17 0.25 1.19 0.25 1.19
                     
Comparative Group Average 424,655 329,324 13.94 13.56 3.35 73.80 0.77 5.47 0.72 5.00
Comparative Group Median 421,362 340,416 14.27 14.14 3.32 72.32 0.85 5.49 0.73 5.23
                     
All Public Thrift Average 3,056,235 2,033,827 13.62 12.79 3.17 73.52 0.79 6.53 0.75 6.10
All Public Thrift Median 987,230 704,084 12.26 11.84 3.15 75.00 0.71 5.54 0.72 5.33
                     
Comparative Group                    
Central Federal Corporation 339,313 282,049 10.30 10.30 3.31 83.12 0.42 3.85 0.42 3.87
First Federal of No. Michigan Bancorp 325,976 269,979 9.53 9.21 3.05 88.77 0.85 8.88 0.50 5.23
HMN Financial, Inc. 564,001 481,476 11.97 11.97 3.37 86.61 0.73 5.81 0.73 5.81
IF Bancorp, Inc. 563,668 415,544 14.27 14.27 2.98 70.67 0.60 3.92 0.60 3.94
Jacksonville Bancorp, Inc. 305,926 238,524 14.91 14.14 3.62 71.47 1.02 6.92 0.92 6.26
La Porte Bancorp, Inc. 521,183 351,598 15.99 14.58 3.32 69.39 0.90 5.59 0.90 5.57
Madison County Financial, Inc. 318,266 221,612 19.69 19.45 3.80 56.12 1.06 5.20 1.09 5.33
Poage Bankshares, Inc. 432,445 340,416 16.31 15.76 4.20 72.32 0.97 6.01 0.85 5.25
United Community Bancorp 521,185 432,537 13.71 13.22 2.68 80.81 0.49 3.55 0.56 4.06
Wayne Savings Bancshares, Inc. 421,362 353,289 9.36 8.99 3.11 75.07 0.47 4.94 0.47 4.94
Wolverine Bancorp, Inc. 357,882 235,537 17.30 17.30 3.41 57.42 0.98 5.49 0.84 4.70

 

Source: Central Federal; SNL Financial; Feldman Financial.

 

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Table 16
Income and Expense Analysis
For the Last Twelve Months Ended June 30, 2015

 

  As a Percent of Average Assets
      Net Other Gains &   Loan   Gen. & Amort.   Pre-tax
  Interest Interest Interest Oper. Non-rec.   Loss   Admin. of Non-rec. Core
  Income Expense Income Income Income   Prov.   Expense Intang. Expense Earnings
                         
Central Federal S&LA 3.85 0.75 3.10 0.10 0.00   0.00   2.82 0.00 0.00 0.38
                         
Comparative Group Average 3.71 0.54 3.18 0.68 0.12   0.08   2.86 0.02 0.02 0.90
Comparative Group Median 3.58 0.54 3.12 0.60 0.00   0.08   2.59 0.00 0.00 0.93
                         
All Public Thrift Average 3.56 0.60 2.97 0.88 0.06   0.05   2.88 0.01 0.07 0.92
All Public Thrift Median 3.51 0.58 2.95 0.56 0.02   0.08   2.79 0.00 0.00 0.91
                         
Comparative Group                        
Central Federal Corporation 3.83 0.72 3.12 0.55 (0.00 ) 0.10   3.15 0.00 0.00 0.42
First Federal of No. Michigan Bancorp 3.30 0.38 2.92 0.57 0.66   0.08   3.10 0.07 0.05 0.24
HMN Financial, Inc. 3.45 0.22 3.23 1.26 0.00   (0.58 ) 3.85 0.00 0.00 1.21
IF Bancorp, Inc. 3.44 0.59 2.85 0.60 (0.00 ) 0.08   2.44 0.00 0.00 0.93
Jacksonville Bancorp, Inc. 3.78 0.42 3.36 1.18 0.15   0.08   3.24 0.00 0.00 1.21
La Porte Bancorp, Inc. 3.58 0.54 3.04 0.49 0.02   0.00   2.47 0.01 0.00 1.06
Madison County Financial, Inc. 4.27 0.59 3.68 0.66 0.00   0.45   2.44 0.04 0.00 1.41
Poage Bankshares, Inc. 4.50 0.54 3.96 0.68 0.42   0.24   3.40 0.08 0.15 0.91
United Community Bancorp 2.93 0.46 2.47 0.71 (0.08 ) (0.07 ) 2.57 0.02 0.00 0.65
Wayne Savings Bancshares, Inc. 3.44 0.47 2.96 0.45 0.00   0.23   2.59 0.00 0.00 0.59
Wolverine Bancorp, Inc. 4.34 0.97 3.37 0.33 0.22   0.30   2.16 0.00 0.00 1.24

 

Source: Central Federal; SNL Financial; Feldman Financial.

 

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Table 17
Yield-Cost Structure and Growth Rates
For the Last Twelve Months Ended June 30, 2015

 

  Avg. Avg. Avg. Net                    
  Int. Earn. Int.-Bear. Earning Avg. Yield on Cost of Net Asset   Loan   Deposit  
  Assets/ Liabs./ Assets/ Equity/ Int.-Earn. Int-Bear. Interest Growth   Growth   Growth  
  Assets Assets Assets Assets Assets Liabs. Spread Rate   Rate   Rate  
                           
Central Federal S&LA 96.60 73.44 23.16 21.33 3.98 1.02 2.96 (4.54 ) (5.39 ) (6.08 )
                           
Comparative Group Average 92.74 73.16 19.58 13.91 3.91 0.71 3.20 6.40   7.82   7.11  
Comparative Group Median 92.89 70.73 19.52 14.78 3.90 0.72 3.13 1.44   5.88   2.71  
                           
All Public Thrift Average 89.92 72.15 17.76 13.10 3.81 0.79 3.07 8.95   14.46   8.45  
All Public Thrift Median 91.19 71.37 19.82 12.26 3.81 0.77 3.05 5.91   8.65   3.92  
                           
Comparative Group                          
Central Federal Corporation 87.32 70.30 17.03 10.05 4.07 0.94 3.13 15.23   14.03   16.20  
First Federal of No. Michigan Bancorp 91.62 68.86 22.76 9.22 3.45 0.53 2.92 48.31   22.36   59.75  
HMN Financial, Inc. 98.96 66.81 32.16 13.00 3.60 0.34 3.26 (7.52 ) 0.69   (7.91 )
IF Bancorp, Inc. 93.28 79.37 13.91 14.81 3.59 0.72 2.87 2.24   7.96   2.71  
Jacksonville Bancorp, Inc. 93.38 76.04 17.34 14.78 4.07 0.56 3.51 (0.94 ) 6.14   (5.38 )
La Porte Bancorp, Inc. 90.25 70.73 19.52 15.87 3.90 0.74 3.16 (2.61 ) 5.88   (1.47 )
Madison County Financial, Inc. 92.89 69.84 23.05 19.53 4.41 0.81 3.60 9.34   10.59   3.63  
Poage Bankshares, Inc. 91.06 69.72 21.33 15.64 4.78 0.75 4.03 0.68   5.40   4.72  
United Community Bancorp 92.05 80.31 11.74 13.69 3.18 0.57 2.61 (1.75 ) 3.86   (1.61 )
Wayne Savings Bancshares, Inc. 94.41 81.09 13.32 9.34 3.61 0.58 3.03 1.44   4.80   1.10  
Wolverine Bancorp, Inc. 94.89 71.67 23.22 17.13 4.40 1.31 3.09 5.96   4.32   6.46  

 

Source: Central Federal; SNL Financial; Feldman Financial.

 

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Table 18
Balance Sheet Composition
As of June 30, 2015

 

  As a Percent of Total Assets
  Cash & Net Real Intang. Other Total Borrowed Other Total Total
  Securities Loans Estate Assets Assets Deposits Funds Liabs. Liabs. Equity
                     
Central Federal S&LA 17.98 79.50 0.81 0.00 1.71 77.92 0.00 0.19 78.11 21.89
                     
Comparative Group Average 25.32 67.03 0.22 0.44 4.46 77.41 7.59 1.07 86.06 13.94
Comparative Group Median 29.38 64.68 0.10 0.36 4.77 78.72 5.87 0.92 85.73 14.27
                     
All Public Thrift Average 22.75 69.97 0.24 0.64 6.40 72.36 12.51 1.51 86.38 13.62
All Public Thrift Median 21.10 71.27 0.14 0.02 7.47 73.25 11.58 2.91 87.74 12.26
                     
Comparative Group                    
Central Federal Corporation 11.75 84.33 0.48 0.00 3.44 83.12 5.79 0.78 89.70 10.30
First Federal of No. Michigan Bancorp 43.50 50.84 0.64 0.36 4.66 82.82 7.12 0.52 90.47 9.53
HMN Financial, Inc. 29.38 66.33 0.48 0.00 3.81 85.37 1.77 0.89 88.03 11.97
IF Bancorp, Inc. NA 63.19 0.01 0.00 NA 73.72 11.00 1.00 85.73 14.27
Jacksonville Bancorp, Inc. 32.94 60.50 0.10 0.89 5.57 77.97 4.76 2.37 85.09 14.91
La Porte Bancorp, Inc. 29.63 63.22 0.11 1.65 5.40 67.46 15.38 1.17 84.01 15.99
Madison County Financial, Inc. 16.77 77.88 0.00 0.30 5.06 69.63 9.27 1.41 80.31 19.69
Poage Bankshares, Inc. 20.11 73.42 0.34 0.65 5.49 78.72 4.09 0.89 83.69 16.31
United Community Bancorp NA 48.70 0.05 0.57 NA 82.99 2.49 0.81 86.29 13.71
Wayne Savings Bancshares, Inc. 30.07 64.68 0.07 0.41 4.77 83.84 5.87 0.92 90.64 9.36
Wolverine Bancorp, Inc. 13.78 84.19 0.09 0.00 1.93 65.81 15.93 0.96 82.70 17.30

 

Source: Central Federal; SNL Financial; Feldman Financial.

 

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Table 19
Regulatory Capital, Credit Risk, and Loan Composition
As of or For the Last Twelve Months Ended June 30, 2015

 

  Tier 1 Tier 1 Total         Resid. Other  
  Leverage Risk- Risk-         1-4 Real Est. Non-mtg.
  Capital based based NPLs(1)/ NPAs(1)/ Resrvs./ Resrvs./ Mtgs./ Mtgs./ Loans/
  Ratio Capital Capital Loans Assets NPAs Loans Loans Loans Loans
                     
Central Federal S&LA 21.35 38.39 39.18 1.71 2.18 20.41 0.56 60.62 34.66 4.72
                     
Comparative Group Average 11.84 19.06 20.20 2.10 1.59 53.58 1.71 38.78 43.62 17.60
Comparative Group Median 11.47 18.16 19.33 1.98 1.35 41.82 1.55 32.85 44.61 14.16
                     
All Public Thrift Average 12.05 20.04 21.22 2.02 1.74 77.45 1.15 42.15 35.32 22.53
All Public Thrift Median 11.47 17.13 18.40 1.36 1.22 59.83 0.99 39.86 35.42 24.72
                     
Comparative Group                    
Central Federal Corporation 10.85 11.88 13.14 2.23 2.41 79.28 2.21 20.72 48.29 30.99
First Federal of No. Michigan Bancorp 9.06 17.05 17.90 2.00 1.25 41.82 0.89 48.36 37.48 14.16
HMN Financial, Inc. 12.88 16.84 18.11 1.39 2.67 75.92 2.20 32.85 53.13 14.02
IF Bancorp, Inc. 11.93 18.16 19.33 1.49 0.99 75.18 1.17 42.32 45.07 12.61
Jacksonville Bancorp, Inc. 13.12 18.42 19.68 1.80 1.20 79.43 1.55 28.69 44.61 26.70
La Porte Bancorp, Inc. 16.16 30.87 32.12 1.71 1.20 59.77 1.12 18.99 36.30 44.71
Madison County Financial, Inc. 17.56 16.44 17.70 2.09 0.06 30.06 3.17 16.40 63.95 19.65
Poage Bankshares, Inc. 8.31 22.22 22.96 1.29 1.35 35.88 0.65 62.85 22.81 14.34
United Community Bancorp 11.47 22.54 23.80 4.89 2.48 39.21 1.97 66.65 28.63 4.72
Wayne Savings Bancshares, Inc. 8.81 13.82 14.82 2.26 1.49 37.71 0.97 62.08 31.76 6.16
Wolverine Bancorp, Inc. 10.13 21.38 22.66 1.98 2.40 35.14 2.96 26.62 67.83 5.55

 

(1) Includes troubled debt restructurings.

 

Source: Central Federal; SNL Financial; Feldman Financial.

 

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III. MARKET VALUE ADJUSTMENTS

 

General Overview

 

This concluding chapter of the Appraisal identifies certain additional adjustments to the Association's estimated pro forma market value relative to the Comparative Group selected in Chapter II. The adjustments discussed in this chapter are made from the viewpoints of potential investors, which would include depositors holding subscription rights and unrelated parties who may purchase stock in a community offering. It is assumed that these potential investors are aware of all relevant and necessary facts as they would pertain to the value of the Association relative to other publicly traded thrift institutions and relative to alternative investments.

 

Our appraised value is predicated on a continuation of the current operating environment for the Association and thrift institutions in general. Changes in the Association's operating performance along with changes in the local and national economy, the stock market, interest rates, the regulatory environment, and other external factors may occur from time to time, often with great unpredictability, which could impact materially the pro forma market value of the Association or thrift stocks in general. Therefore, the Valuation Range provided herein is subject to a more current re-evaluation prior to the actual completion of the Conversion.

 

In addition to the comparative operating fundamentals discussed in Chapter II, it is important to address additional market value adjustments based on certain financial and other criteria, which include, among other factors:

 

(1) Earnings Prospects
(2) Financial Condition
(3) Market Area
(4) Management
(5) Dividend Policy

 

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(6) Liquidity of the Issue
(7) Subscription Interest
(8) Recent Acquisition Activity
(9) Effect of Government Regulations and Regulatory Reform
(10) Stock Market Conditions

 

Earnings Prospects

 

Earnings prospects are dependent upon the sensitivity of asset yields and liability costs to changes in market rates, the credit quality of assets, the stability of non-interest components of income and expense, and the ability to leverage the balance sheet. Each of the foregoing is an important factor for investors in assessing earnings prospects. The Association's profitability in recent years has varied from low to moderate due to a combination of earnings fundamentals reflecting a declining net interest spread and low levels of non-interest income, offset partially by limited loan loss provisions and controlled operating expenses.

 

Central Federal's earnings compared unfavorably to the Comparative Group for the recent LTM period. The Association's core earnings amounted to 0.25% of average assets versus the Comparative Group median of 0.73%. The Association's lower net interest spread and lower level of non-interest income were the chief factors contributing to the Association's disadvantage in earnings generation. As discussed earlier, the Association's historical operating strategy has focused on emphasizing residential mortgage lending, maintaining strong capital levels, and operating efficiently.

 

As its net interest margin is likely to encounter added pressure due to increased competition and possible adverse changes in interest rates, the Association has not yet developed significant sources of non-interest revenue to sustain earnings growth from other business channels. The Association's increased capital position following the Conversion will help to improve its net interest margin across changing interest rate and business cycles, provide added

 

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interest rate risk protection, and additional leverage capacity to grow the balance sheet. Based on the Association's current earnings fundamentals and recent operating results, we believe that a downward adjustment is warranted to the Association's pro forma market value for earnings prospects relative to the Comparative Group.

 

Financial Condition

 

As discussed and summarized in Chapter I, the Association's balance sheet composition reflects a large concentration of real estate loans, a limited amount of investment securities, and a liquidity portfolio comprising cash and cash equivalents along with certificates of deposit in other financial institutions. While Central Federal's loan portfolio has gradually become more varied to include a broader mix in addition to one- to four-family, owner occupied residential loans, the Comparative Group displayed a more diversified loan portfolio mix.

 

The Association relies on its deposit base as a funding source and has not utilized any borrowed debt in recent years. Certificates of deposit have declined as a percentage of total deposits, but still compose almost half of the Association's deposit base. Based on the financial comparisons reviewed in the prior chapter, we note that the Association has a stronger capital level than the Comparative Group overall but also exhibited a higher level of non-performing assets and smaller level of loan loss reserves. Before the infusion of net capital proceeds, the Association's equity ratio at 21.89% of assets exceeded the 14.27% median of the Comparative Group. The selection criteria for the Comparative Group ensured a collection of companies with solid capital positions and satisfactory asset quality, similar to the Association's financial profile. Therefore, on the whole, we believe that no adjustment is warranted for the Association's financial condition relative to the Comparative Group.

 

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Market Area

 

The members of the Comparative Group were drawn from the Midwest region of the country. With only a few exceptions, the overwhelming majority of the Comparative Group companies are not based in a major metropolitan area, similar to Central Federal's geographic location. The Association is located in Rolla, Missouri, which is the county seat of Phelps County. The Rolla-Phelps County area is considered a micropolitan statistical area. Micropolitan areas do not have the economic or political importance of large cities, but are nevertheless significant centers of population and economic production, drawing employees and consumer from a wide local area.

 

The Comparative Group companies are characterized by a cross-section of market areas that encompass smaller to mid-sized metropolitan areas in the Midwest with relatively stable economies, steady housing values, and moderate population growth prospects, similar to that experienced by the Association's market area. In recognition of these factors, we believe that no adjustment is warranted for market area.

 

Management

 

Management's principal challenges are to generate profitable results, monitor credit risks, and control operating costs while the Association competes in an increasingly challenging financial services environment. The normal challenges facing the Association in attempting to deliver earnings growth and enhance its competitiveness remain paramount as it attempts to leverage the stock offering proceeds. Central Federal is led by its President and Chief Executive Officer ("CEO"), Mr. William A. Stoltz, who has a long tenure at Central Federal and extensive experience in the local banking marketplace.

 

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Historically, as a result of operating a traditional and small thrift institution from one office, the Association has relied on very few officers and employees. Mr. Stoltz has a significant amount of responsibility for the operations of Central Federal and performs a number of different roles, including those of principal financial and accounting officer. The loss of Mr. Stoltz could have a material adverse impact on the operations of Central Federal since he has been instrumental in managing the business affairs of Central Federal.

 

As a result of its growth plans and transition to a public company, the Association's now needs to add a Chief Financial Officer and additional lending and credit administrative officers, particularly since Mr. Larry D. Thomas, its Executive Vice President and Senior Lending Officer, has expressed the intent to retire after completion of the Conversion. These new employees will be important to Central Federal's operations, but the timing of additional hires is unclear at the present time. The process of hiring these executive officers and integrating them into the Association's organization will impact going-forward operations and must be successfully integrated to have a positive effect on future operating results.

 

As reflected by its historical financial performance, we believe that investors will view that that the Association is professionally and capably managed currently by an experienced management team. Investors will likely rely upon actual earnings results as the means of evaluating the future performance of Central Federal's management as the Association pursues its growth objectives following the Conversion. Therefore, we have taken the overall set of facts and circumstances regarding the management uncertainties into consideration.

 

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Dividend Policy

 

Following completion of the Conversion, the Board of Directors of the Company will have the authority to declare cash dividends the shares of common stock, subject to statutory and regulatory requirements. However, no decision has been made by the Board at this time with respect to the payment of dividends. In determining whether to declare or pay any dividends, the Company will take into account its financial condition and results of operations, tax considerations, capital requirements, industry standards, and economic conditions. In the future, the Board may declare and pay regular cash dividends or periodic special cash dividends. No assurances are given by Central Federal that any dividends will be paid or that, if paid, will not be reduced or eliminated in future periods.

 

Payment of cash dividends has become commonplace among publicly traded thrifts with relatively high capital levels. Of the eleven members of the Comparative Group, nine currently pay regular cash dividends. The average dividend yield of the Comparative Group was 1.33% and the median was 1.36% as of August 31, 2015. The average and median dividend yield of the All Public Thrift aggregate was 1.47% and 1.29%, respectively, as of August 31, 2015. Although Central Federal has yet to establish a policy of paying regular cash dividends, we believe that investors will take note of its solid dividend-paying capacity as evidenced by strong pro forma capital ratios. Therefore, we have concluded that no adjustment is warranted for purposes of dividend policy.

 

Liquidity of the Issue

 

With the increased number of market makers and institutional investors following thrift stocks, the majority of thrift stock conversions are able to develop a public market for their new

 

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stock issues. Most publicly traded thrift stocks continue to be traded on the NASDAQ market. All eleven members of the Comparative Group are listed on the NASDAQ market. In conjunction with the Conversion, Central Federal will not apply to have its common stock listed for trading on the NASDAQ market. Instead, the Company intends to lists its common stock for quotation on the OTC Pink marketplace, which functions as electronic quotation system that displays real-time quotes, last sale prices, and volume information for many over-the-counter ("OTC") securities that are not listed on the NASDAQ or a national stock exchange.

 

The development and maintenance of a public market, having the desirable characteristics of depth, liquidity and orderliness, depend on the existence of willing buyers and sellers. The number of active buyers and sellers of shares of common stock at any particular time may be more limited on the OTC Pink marketplace versus a national market such as NASDAQ, which may have an adverse effect on the price at which shares of common stock can be sold. Therefore, purchasers of the Company's shares are likely to encounter a limited trading market for this common stock issue. Because of the Association's comparatively smaller capital amount and asset size, its resulting market capitalization will also be smaller than the average $51.2 million and median $57.2 million market value of the Comparative Group. Of the eleven companies in the Comparative Group, all are traded on NASDAQ and indicated a median overall average daily trading volume of approximately 4,000 shares during the past year with each company exceeding a minimum average of approximately 1,100 shares per day. The Association's smaller stock issue and OTC Pink listing do not offer the relative depth of liquidity afforded by the Comparative Group's larger market values and NASDAQ trading history. Therefore, we have concluded that a downward adjustment to the Association's pro forma market value is warranted to address the anticipated illiquidity of its common stock issue.

 

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Subscription Interest

 

Central Federal has retained the services of Keefe, Bruyette & Woods to assist in the marketing and sale of the stock offering. The Association's employee stock ownership plan ("ESOP") plans to purchase 8.0% of the total amount of shares to be issued in the stock offering (including shares issued to the foundation). Central Federal expects its directors, executive officers and their associates, to purchase 13,500 shares of common stock in the offering for an aggregate amount of $135,000 based on a $10.00 offering price per share. Except for the ESOP, no person (either alone or together with associates of or persons acting in concert with such person) may purchase in the aggregate more than $300,000 of common stock or 30,000 shares sold in the offering. The minimum purchase in the offering will be 25 shares or an aggregate amount of $250.

 

Recent subscription interest in thrift stock conversion offerings has been varied. Of the six standard conversion transactions that were completed in the past twelve months, four were fully subscribed by eligible record holders in the subscribed phase and closed at the adjusted maximum of the offering range and two were closed at levels between the midpoint and maximum with the assist of a community offering. As shown in Table 22, the after-market performance of recently converted thrifts has also been mixed with most of the OTC Pink issues notably experiencing no material price change in the near term after-market following the initial public offering ("IPO"). We are not currently aware of any meaningful market evidence or characteristics that may help predict the likely level of interest in Central Federal's subscription offering. Accordingly, absent actual results of the subscription offering, we believe that subscription interest is currently a neutral factor and at present requires no further adjustment.

 

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Recent Acquisition Activity

 

Table 20 summarizes recent acquisition activity involving banks and thrifts based in Missouri. Thus far in 2015, there have been eight announced acquisition transactions involving Missouri banks and thrift as selling institutions. Notably, six of the eight acquisition targets had total assets of less than $100 million. Many industry observers believe that the recent banking reform legislation has heightened the regulatory compliance burden in particular on small community banks and thrifts and accelerated the consolidation of smaller institutions into larger banking organizations. Most of the recent Missouri acquisition activity has involved in-state acquirers. However, the two largest selling banks in Missouri during recent years were purchased by two highly acquisitive out-of-state companies: Simmons First National Corporation (Arkansas) and Midland States Bancorp (Illinois). The acquisition valuation ratios paid in the Missouri transactions generally have been similar to nationwide valuation trends for bank and thrift acquisitions. Given that there are significant regulatory restrictions on the ability to acquire control of the Company for a period of three years following the Conversion, we do not believe that acquisition premiums are a significant factor to consider in determining the Company's pro forma market value.

 

Effect of Government Regulations and Regulatory Reform

 

In response to the financial crisis of 2008 and early 2009, Congress took actions that were intended to strengthen confidence and encourage liquidity in financial institutions. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") was enacted on July 21, 2010, and provided for new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies. The legislation also created the Consumer Financial Protection Bureau that has broad authority to issue regulations governing the services

 

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and products provided by financial institutions. Community bankers unanimously believe that the implemented legislation will increase compliance costs, raise regulatory capital requirements, alter loan loss provisioning practices, and otherwise adversely impact operations of banks and thrifts. The potential also exists for additional federal or state laws and regulations, or changes in policy, affecting lending and funding practices and liquidity standards.

 

As a fully converted stock thrift insured by the FDIC and supervised by its primary regulators, Central Federal will continue to operate in the same regulatory environment that is substantially similar to that faced by the Comparative Group companies. As of June 30, 2015, the Association was considered well capitalized, similar to all the members of the Comparative Group. Therefore, given these factors, we believe that no specific adjustment is necessary for the effect of government regulations and regulatory reform.

 

Stock Market Conditions

 

Table 21 displays the performance of the SNL All Public Thrift, SNL All Midwest Thrift, SNL <$250 Million-Asset Thrift indexes, as compared to the Standard & Poor's 500-Stock Index ("S&P 500") and the Dow Jones Industrials Average ("DJIA") over various periods. Table 21 also includes the comparative performance the SNL Thrift Pink index of over-the-counter companies. The various public thrift indexes generally tracked directionally the cyclical trends of the broader stock index from 2012 through 2014. The All Public Thrift Index increased by 24.9% in 2013, trailing the 29.6% improvement in the S&P 500, while the SNL Mid-Atlantic Thrift Index advanced 21.3% during this period. The All Public Thrift Index advanced 4.6% in 2014, while the S&P 500 rose 11.4% in 2014. The SNL Thrift Pink Index lagged the All Public Thrift Index in 2013 but eclipsed the larger aggregate in 2014.

 

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Table 20

Summary of Recent Missouri Acquisition Activity

Transactions Announced Since January 1, 2013

 

                                   
          Seller's Prior Financial Data         Offer Value to  
          Total Equity/ LTM LTM     Offer   Book Tang. LTM Total  
        B/T Assets Assets ROA ROE Date Status Value   Value Book EPS Assets  
  Buyer State Seller (1) ($mil.) (%) (%) (%) Anncd. (2) ($mil.)   (%) (%) (x) (%)  
                                   
  Average       209.3 10.81 0.42 3.42 NA NA 35.0   131.1 139.4 14.8 13.61  
  Median       66.8 9.57 0.62 6.49 NA NA 7.2   119.5 135.0 13.2 12.47  
                                   
                                   
  Citizens Bank MO Bank of Macks Creek B 20.6 5.37 (0.74) (12.52) 07/28/15 P NA   NA NA NA NA  
  Bank of Missouri MO Bank Star of the BootHeel B 93.7 9.31 0.99 11.28 07/23/15 P NA   NA NA NA NA  
  First State Bancshares, Inc. MO Central Bank B 264.3 11.29 1.49 13.16 07/09/15 P NA   NA NA NA NA  
  Bear State Financial, Inc. AR Metropolitan National Bank B 442.4 13.31 0.25 1.94 06/22/15 P 70.0   118.9 133.2 NM 15.82  
  Wells Bank of Platte City MO Bedison Bancshares, Inc. B 61.1 9.02 0.99 12.20 04/30/15 P 5.0   108.4 108.7 9.1 10.24  
  Connections Bancshares, Inc. MO Calvert Financial Corporation B 47.5 12.54 (1.25) (10.29) 04/28/15 P 3.4   99.2 126.4 NM 12.59  
  Systematic Savings Bank MO Home Savings Bank T 24.9 8.55 (1.24) (14.11) 04/08/15 P NA   NA NA NA NA  
  Farmers Bank MO Flowers National Bank B 41.3 13.23 0.33 2.55 01/29/15 P NA   NA NA NA NA  
  Midwest BankCentre MO Southern Bancshares Corp. B 510.3 11.80 0.62 6.49 12/22/14 C 74.5   148.7 148.7 19.7 14.60  
  Alliance Bank MO Tammcorp, Inc. B 201.3 9.26 0.72 7.54 11/18/14 P NA   NA NA NA NA  
  Sterling Bancshares, Inc. MO Bootheel Bancorp, Inc. B 283.1 8.39 0.67 8.52 10/10/14 C NA   NA NA NA NA  
  Northern Missouri Bancshares MO Concordia Banc-Management B 59.7 9.59 1.48 14.83 07/02/14 C 5.1   120.1 120.1 11.2 10.69  
  Metcalf Bank MO Bank of Belton B 43.2 4.58 (1.79) (34.48) 06/24/14 C 2.7   136.8 136.8 NM 6.26  
  Simmons First National Corp. AR Liberty Bancshares, Inc. B 1,062.3 9.55 1.48 16.67 05/28/14 C 206.9   203.9 212.1 13.2 21.42  
  JamesMark Bankshares, Inc. MO Bank of Ash Grove B 70.9 17.20 1.13 6.97 03/24/14 C 8.4   147.9 147.9 10.0 13.04  
  Southern Missouri Bancorp MO Peoples Service Company B 272.7 10.66 0.53 4.99 02/25/14 C 23.2   116.6 116.6 18.5 11.96  
  Farmers State Bank MO St. Joseph Bancorp, Inc. T 34.7 19.75 NA NA 10/04/13 C 8.1   118.3 118.3 NA 23.44  
  Bank 21 MO First National Bank of Carrollton B 48.8 9.55 0.67 6.53 09/23/13 C NA   NA NA NA NA  
  Midland States Bancorp, Inc. IL Love Savings Holding Company B 845.0 7.74 1.32 19.08 09/12/13 C NA   NA NA NA NA  
  Southern Bank MO Ozarks Legacy Community Fin'l B 79.8 9.64 0.48 5.02 06/21/13 C 6.2   110.5 161.0 22.3 12.34  
  Wildcat Bancshares, Inc. MO CBR Bancshares Corp. B 62.6 7.87 0.28 3.51 05/03/13 C 6.4   143.6 143.6 NM 10.93  
  Preferred Bank MO Napoleon Bank B 33.8 19.65 0.40 1.93 04/16/13 C NA   NA NA NA NA  
                                   

 

(1)  B=bank; T=thrift.

(2)  P=pending; C=completed.

 

Source: SNL Financial.

 

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Table 21

Comparative Stock Index Performance

 

                     
      12/31/12-   12/31/13-   12/31/14-   12/31/12-  
  Index   12/31/13   12/31/14   08/31/15   08/31/15  
                     
  SNL All Public Thrift   24.9%   4.6%   7.0%   39.6%  
  SNL Midwest Thrift   21.3%   11.9%   10.2%   49.6%  
  SNL Thrift <$250 Million   16.1%   -1.9%   9.4%   24.5%  
  SNL Thrift Pink   18.7%   14.5%   6.1%   44.2%  
  S&P 500   29.6%   11.4%   -4.2%   38.3%  
  Dow Jones Industrials   26.5%   7.5%   -7.3%   26.1%  
                     

 

Source: SNL Financial.

 

More recently, the overall market has turned decidedly weaker and volatile. The broad market sell-off in August 2015 was spawned by concerns over the economic slowdown in China, declining prices for oil and other commodities, and the uncertain timing of any action by the Federal Reserve to raise interest rates. The DJIA Average fell by 500-plus points in each of two consecutive trading days in late August and entered correction territory (greater than 10% decline from recent peak) as it dipped below 16,000. Through year-to-date August 31, 2015, the DJIA and S&P 500 were down 7.3% and 4.2%, respectively. Before the month of August, financial stocks had outperformed the overall market and managed to preserve some of the year-to-date price appreciation despite the recent sell-off. Concerns over the sustainability of earnings in the banking system related to interest rate pressures, increased expenses stemming from Dodd-Frank reform, and capital adequacy scrutiny related to Basel III continue to place pressure on financial stock issues; however, there also appears to be increased market speculation on merger activity.

 

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A "new issue" discount that reflects investor concerns and investment risks inherent in all IPOs is a factor to be considered for purposes of valuing converting thrifts. The magnitude of the new issue discount typically expands during periods of declining thrift stock prices as investors require larger inducements, and narrows during strong market conditions. The thrift conversion market continues to respond to the after-market performance of recent offerings. Table 22 presents a summary of standard full conversion offerings since January 1, 2012.

 

There were seven standard conversion offerings completed in 2012, three in 2013, nine in 2014, and two thus far in 2015. The after-market price performance of standard thrift conversion IPOs has been generally characterized by stock price increases. Of the 21 standard conversion offerings completed since January 1, 2012, the average and median one-month price changes were 16.3% and 20.0%, respectively. The nine recent OTC Pink conversion issues did not experience the same level of price appreciation and exhibited average and median one-month price changes of 6.7% and 6.1%, respectively. As shown in Table 22, the cumulative price changes for OTC Pink listed conversions reflected an average of 30.4% and median of 22.6%, compared to the NASDAQ listed conversions posting cumulative average and median price gains of 62.2% and 58.7%, respectively.

 

Historically, newly converted thrifts had been trading upward to a range approaching existing thrift stock valuation levels, but found resistance approaching book value until a discernible trend in earnings improvement was evident. Pricing a new offering at a relatively high ratio in relation to pro forma book value, because of the mathematics of the calculation, would require very large increases in valuations resulting in non-sustainable price-to-earnings ratios and very marginal returns on equity.

 

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Table 22

Summary of Recent Standard Conversion Offerings

Transactions Completed Since January 1, 2012

 

                           
              Pro Forma Ratios       After-Market Trading    
            Gross Price/ Price/ Price/   8/31/15   Price Change Change  
        Conversion Total Offering Book Tang. LTM IPO Closing   One One One Thru  
      Stock Offering Assets Proceeds Value Book EPS Price Price   Day Week Month 8/31/15  
  Company           State Exchange Date ($mil.) ($mil.) (%) (%) (x) ($) ($)   (%) (%) (%) (%)  
                                     
  Standard — Average       410.2 50.9   62.0 62.5 28.3 NA NA   16.3 17.0 16.3 48.6  
  Standard — Median       225.2 27.2   61.1 61.1 23.3 NA NA   15.0 19.0 20.0 40.9  
                                     
  OTC Listings — Average       117.5 11.1   59.9 60.4 28.5 NA NA   7.2 9.1 6.7 30.4  
  OTC Listings — Median       114.7 8.8   60.6 60.6 25.1 NA NA   7.5 6.0 6.1 22.6  
                                     
  Standard Offerings                                  
  First Northwest Bancorp WA NASDAQ 01/30/15 924.2 121.7   70.2 70.2 62.5 10.00 12.00   21.8 23.5 25.2 20.0  
  MW Bancorp, Inc. OH OTC Pink 01/30/15 90.4 8.8   56.8 56.8 NM 10.00 14.15   15.0 24.9 20.0 41.5  
  MB Bancorp, Inc. MD OTC Pink 12/30/14 136.1 21.2   60.6 60.6 NM 10.00 12.26   4.5 6.0 6.1 22.6  
  Melrose Bancorp, Inc. MA NASDAQ 10/22/14 194.7 27.2   64.9 64.9 54.0 10.00 14.30   30.5 31.2 31.5 43.0  
  Pilgrim Bancshares, Inc. MA OTC Pink 10/13/14 166.3 21.8   73.3 73.3 50.0 10.00 12.75   11.5 9.4 8.2 27.5  
  Entegra Financial Corp. NC NASDAQ 10/01/14 820.3 65.5   66.5 66.5 7.6 10.00 17.56   32.8 30.7 34.0 75.6  
  Blue Hills Bancorp, Inc. MA NASDAQ 07/22/14 1,823.1 277.7   72.0 74.8 NM 10.00 14.15   23.8 21.5 29.7 41.5  
  Sunshine Bancorp, Inc. FL NASDAQ 07/15/14 201.4 42.3   67.8 67.8 NM 10.00 14.09   20.3 19.0 19.3 40.9  
  Home Bancorp Wisconsin, Inc. WI OTC Pink 04/24/14 114.7 9.0   64.6 64.6 NM 10.00 7.75   (3.9) (7.4) (17.5) (22.5)  
  Edgewater Bancorp, Inc. MI OTC Pink 01/17/14 119.5 6.7   52.7 55.0 NM 10.00 12.25   0.0 2.5 2.5 22.5  
  Coastway Bancorp, Inc. RI NASDAQ 01/15/14 380.5 48.3   72.2 72.2 NM 10.00 11.08   9.2 8.5 1.9 10.8  
  Quarry City Savings and Loan Assn. MO OTC Pink 07/26/13 40.3 4.1   54.2 56.4 13.9 10.00 12.00   7.5 2.0 0.5 20.0  
  Sunnyside Bancorp, Inc. NY OTC Pink 07/16/13 90.6 7.9   63.0 63.0 NM 10.00 9.99   5.0 4.5 0.1 (0.1)  
  Westbury Bancorp, Inc. WI NASDAQ 04/10/13 523.8 50.9   57.7 57.7 NM 10.00 17.43   35.2 35.1 33.3 74.3  
  Meetinghouse Bancorp, Inc. MA OTC Pink 11/20/12 74.1 6.6   64.7 64.7 29.4 10.00 14.04   12.5 27.5 20.0 40.4  
  Hamilton Bancorp, Inc. MD NASDAQ 10/10/12 315.8 37.0   55.7 58.3 NM 10.00 13.67   19.0 17.0 12.5 36.7  
  Madison County Financial, Inc. NE NASDAQ 10/04/12 233.4 31.9   55.2 56.6 6.9 10.00 19.40   48.9 46.1 45.1 94.0  
  HomeTrust Bancshares, Inc. NC NASDAQ 07/11/12 1,564.4 211.6   59.7 59.7 NM 10.00 18.19   17.0 20.0 24.5 81.9  
  FS Bancorp, Inc. WA NASDAQ 07/10/12 300.8 32.4   61.1 61.1 25.6 10.00 23.25   0.1 0.7 2.1 132.5  
  Wellesley Bancorp, Inc. MA NASDAQ 01/26/12 274.4 22.5   59.7 59.7 12.6 10.00 19.50   20.0 20.9 22.9 95.0  
  West End Indiana Bancshares, Inc. IN OTC Pink 01/11/12 225.2 13.6   49.1 49.1 20.9 10.00 22.15   12.6 12.5 20.0 121.5  
                                     

 

Source: SNL Financial.

 

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Accordingly, thrift conversions continue to be priced at discounts to publicly traded companies. This is due to the relatively high pro forma equity ratios, expected low returns on equity, and the uncertainty regarding the prospects of an institution to leverage the balance sheet prudently and effectively in the current low interest rate environment and against the backdrop of unsteady real estate and economic conditions.

 

The FDIC recently reported that for the quarter ended March 31, 2015, the banking industry reported net income of $39.8 billion, an increase of 6.9% over profits earned in the first quarter of 2014. The average annualized ROA rose slightly to 1.02% from 1.01% in the first quarter of 2014. Almost two out of every three financial institutions reported higher profits than the year before, while only 5.6% were unprofitable. This is lowest percentage of unprofitable institutions since the second quarter of 2005. The average net interest margin fell to 3.02% from 3.16% a year earlier, as higher yielding assets matured and were replaced by lower yielding assets in a low interest rate environment. The average non-current loan rate declined to 1.83% of total loans, marking a seven-year low. Loan loss reserves continue to decline and the average ratio of reserves to total loans fell to 1.45%, the lowest level since the fourth quarter of 2007.

 

The number of FDIC- insured commercial banks and savings institutions declined from 6,509 to 6,419 in the first quarter. Mergers absorbed 86 institutions, while four insured institutions failed. For a fifth consecutive quarter, no new charters were added. The number of institutions on the FDIC's "Problem List" declined for the 16th consecutive quarter, falling from 291 to 253. Total assets of problem institutions fell from $86.7 billion to $60.3 billion. The average equity to assets ratio for all FDIC-insured institutions increased to 11.18% in the recent quarter, compared to 11.15% n the prior year's quarter.

 

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Bank and thrift industry earnings results have recently been sustained by stabilizing net interest margins and have been bolstered by significant reductions in provisions for loan losses. Industry operating expenses generally continue to rise in the face of a stabilizing net interest margin and little growth has occurred in non-interest operating income or securities gains. Generally, over the past year, financial institutions have experienced relied on reductions in loan loss provisions to a more normalized level as asset quality has improved to increase net income. While bank and thrift industry capital levels remain strong and asset quality has improved, there continue to be volatile swings in the market for bank and thrift stocks. However, we believe that some of the economic uncertainty has dissipated and believe no adjustment is necessary for stock market conditions.

 

Adjustments Conclusion

 

It is our opinion that the Association's pro forma valuation should be discounted relative to the Comparative Group because of factors associated with earnings prospects, management uncertainties, and liquidity of the issue. Individual discounts and premiums are not necessarily additive and may, to some extent, offset or overlay each other. Currently, converting thrifts are often valued at meaningful discounts to peer institutions relative to price-to-book and price-to-tangible book ratios. Due to initially low post-conversion earnings from the reinvestment of net offering proceeds at historically low rates, price-to-earnings ratios may be priced at a premium to established traded companies. It is the judgment of the appraiser to balance the relative dynamics of price-to-book and price-to-earnings discounts or premiums.

 

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Valuation Approach

 

In determining the estimated pro forma market value of Central Federal, we have employed the comparative company approach and considered the following pricing ratios: price-to-earnings per share ("P/E"), price-to-book value per share ("P/B"), price-to-tangible book value per share ("P/TB"), and price-to-assets ("P/A"). Table 23 presents the trading market valuation ratios of the Comparative Group and All Public Thrift averages and medians as of August 31, 2015. As shown in Table 23, the average and median P/B ratios for the Comparative Group were 88.2% and 91.8%, respectively. The average and median P/TB ratios for the Comparative Group were 91.1% and 92.4%, respectively. The average and median P/E ratios were 17.9x and 16.1x, respectively. On a core earnings basis, the average and median core P/E ratios of the Comparative Group were 18.7x and 16.3x, respectively. Some companies within the All Public Thrift aggregate reported P/E ratios that were either distortedly high due to low levels of profitability or negative due to losses. Such ratios are represented as not meaningful ("NM") and are not utilized for comparative analysis.

 

Investors continue to make decisions to purchase thrift conversion stocks and more seasoned thrift issues based upon consideration of core earnings profitability and P/B comparisons. The P/E ratio remains an important valuation ratio in the current thrift stock. However, as noted above, the P/E ratio is not useful for companies reporting negative or low earnings. The Association's LTM earnings and core earnings for the period ended June 30, 2015 December 31, 2013 amounted to $162,000. On a pro forma basis, after making adjustments for re-investment of net offering proceeds and expensing charges related to the implementation various stock benefit plans including the employee stock ownership plan ("ESOP"), a restricted stock plan ("RSP") and stock option plan, Central Federal's earnings are reduced to even lower

 

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levels close to breakeven or negative profitability depending on the offering assumptions. In the absence of meaningful P/E ratios to compare and apply, more reliance is on placed on the P/B and P/TB ratios to determine trading valuation benchmarks.

 

Based on our comparative financial and valuation analyses, we concluded that the Association should be discounted relative to the trading valuation ratios of the overall Comparative Group. In consideration of the foregoing factors along with the additional adjustments discussed in this chapter, we have determined a pro forma P/B and P/TB ratio of 56.4% for the Association, which reflects an aggregate midpoint of approximately $13.5 million for the Valuation Range (including shares to be issued to the charitable foundation) based on the assumptions summarized in Exhibit IV. Employing a range of 15% above and below the midpoint, the resulting minimum value of $11.5 million reflects a 51.7% P/B ratio and the resulting maximum value of $15.5 million reflects a 60.5% P/B ratio. The adjusted maximum, computed as an additional 15.0% above the maximum, is positioned at approximately $17.9 million and a P/B ratio of 64.6%. Central Federal's pro forma P/B and P/TB ratios are equivalent since the Association had no intangible assets as of June 30, 2015.

 

The Association's pro forma midpoint P/B and P/TB ratios of 56.4% reflect a discount of 36.0% to the Comparative Group average P/B ratio of 88.8% and a 38.1% discount to the Comparative Group median P/TB ratio of 91.1%. The Association's pro forma maximum P/B and P/TB of 60.5% reflect a discount of 31.4% to the Comparative Group average P/B and a discount of 33.6% to the Comparative Group average P/TB ratio. At the adjusted maximum, the Association's pro forma P/B and P/TB ratio of 64.6% is positioned at a 26.8% discount to the Comparative Group average P/B and a discount of 29.2% to the Comparative Group median

 

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P/TB ratio. Based on the Valuation Range as indicated above, the Association's pro forma P/E ratios reflected NM results since the resulting P/E ratios would, if computed, measure 250.0x, 500.0x, 0.0x, and -1,000.0x at the minimum, midpoint, maximum, and adjusted maximum, respectively, of the Valuation Range.

 

Based on the price-to-assets valuation metric, the Association's pro forma midpoint of the Valuation Range at $13.5 million reflects a corresponding P/A ratio of 18.59%, ranging from 16.19% at the minimum valuation to 20.88% and 23.38% at the maximum and adjusted maximum, respectively. The Association's strong capitalization level resulted in P/A ratios above those of the Comparative Group. At the midpoint of the Valuation Range, Central Federal's pro forma P/A ratio was 18.59% as compared to the Comparative Group average and median P/As ratio of 12.11% and 12.40%, respectively. While the Association's pro forma P/B and P/TB ratios reflect discounts to the Comparative Group, the pro forma P/A ratios represent sizeable premiums to the average Comparative Group P/A ratio of 12.11%, with the premiums measuring 33.6% at the valuation minimum, 53.5% at the midpoint, 72.4% at the maximum, and 93.0% at the adjusted maximum.

 

On a pro forma basis, the Company's ratio of total equity to assets ranges from 31.32% at the valuation minimum and 32.96% at the midpoint to 34.52% and 36.23% at the maximum and adjusted maximum, respectively, providing a further challenge to produce meaningful returns on equity. In contrast, the Comparative Group's average and median ratios of total equity to assets were 13.94% and 14.27%, respectively.

 

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Valuation Conclusion

 

It is our opinion that, as of August 31, 2015, the estimated aggregate pro forma market value of Central Federal (including the shares of common stock to be issued to the charitable foundation) was within a Valuation Range of $11,492,000 to $15,548,000 with a midpoint of $13,520,000. The Valuation Range was based upon a 15% decrease from the midpoint to determine the minimum and a 15% increase from the midpoint to establish the maximum. Based on an offering price of $10.00 per share, this Valuation Range equates to total shares outstanding of 1,149,200 at the minimum to 1,554,800 at the maximum with a midpoint of 1,352,000 shares. Assuming an additional 15% increase above the maximum value would result in an adjusted maximum of $17,880,200 or 1,788,020 shares.

 

In connection with the Conversion, a charitable foundation will be established by Central Federal and funded by a contribution of $100,000 in cash and shares of common stock of the Company equal to 4.0% of the amount of shares sold in the offering. The number of shares issued to the foundation amount to 44,200 at the minimum, 52,000 at the midpoint, 59,800 at the maximum, and 68,770 at the adjusted maximum. Based on the Valuation Range and the contribution of shares to the foundation, the Company will offer for sale a minimum of 1,105,000 shares, a midpoint of 1,300,000 shares, a maximum of 1,495,000 shares, and an adjusted maximum of 1,719,250 shares. The resulting offering range reflects an aggregate amount of $11,050,000 at the minimum, $13,000,000 at the midpoint, $14,950,000 at the maximum, and $17,192,500 at the adjusted maximum.

 

Exhibit IV-1 displays the assumptions utilized in calculating the pro forma financial consequences of the stock offering. Exhibit IV-2 displays the pro forma financial data at each

 

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level of the Valuation Range. Exhibit IV-3 provides more detailed data at the maximum valuation. Exhibit IV-4 compares the Association's pro forma valuation ratios with the averages and medians reported by the Comparative Group and All Public Thrifts.

 

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FELDMAN FINANCIAL ADVISORS, INC.

 

Table 23

Comparative Pro Forma Market Valuation Analysis

Computed from Market Price Data as of August 31, 2015

 

                       
    Current Total Price/ Price/ Price/ Price/ Price/ Total Tang. Current
    Stock Market LTM Core Book Tang. Total   Equity/ Equity/ Dividend
    Price   Value EPS   EPS Value Book Assets Assets Assets Yield
  Company ($) ($mil.) (x) (x) (%) (%) (%) (%) (%) (%)
                     
                         
  Central Federal S&LA (1)                      
  Pro Forma Minimum 10.00 11.5  NM  NM 51.7 51.7 16.19 31.32 31.32 0.00  
  Pro Forma Midpoint 10.00 13.5  NM  NM 56.4 56.4 18.59 32.96 32.96 0.00  
  Pro Forma Maximum 10.00 15.5  NM  NM 60.5 60.5 20.88 34.52 34.52 0.00  
  Pro Forma Adj. Maximum 10.00 17.9  NM  NM 64.6 64.6 23.38 36.23 36.23 0.00  
                         
  Comparative Group Average NA   51.2 17.9 18.7 88.2 91.1 12.11 13.94 13.56 1.33  
  Comparative Group Median NA   57.2 16.1 16.3 91.8 92.4 12.40 14.27 14.14 1.36  
                         
  All Public Thrift Average (2) NA   457.1 21.6 26.7 110.9 120.8 14.19 13.62 12.79 1.47  
  All Public Thrift Median (2) NA   125.0 17.3 18.3 101.5 107.0 13.61 12.26 11.84 1.29  
                         
  Comparative Group                      
  Central Federal Corporation 1.37 21.7  34.3 34.3 91.9 91.9 6.61 10.30 10.30 0.00  
  First Federal of No. Michigan 6.39 23.8 8.1 13.9 76.7 79.6 7.31 9.53 9.21 1.88  
  HMN Financial, Inc. 11.50 51.6 15.1 15.1 76.4 76.4 9.14 11.97 11.97 0.00  
  IF Bancorp, Inc. 16.85 68.7 20.3 20.1 85.5 85.5 12.19 14.27 14.27 0.59  
  Jacksonville Bancorp, Inc. 23.56 42.2 13.5 15.0 92.5 98.3 13.78 14.91 14.14 1.36  
  La Porte Bancorp, Inc. 14.05 78.2 16.1 16.2 94.2 105.1 15.07 15.99 14.58 1.14  
  Madison County Financial, Inc. 19.40 57.6 16.7 16.3 91.8 93.2 18.09 19.69 19.45 1.29  
  Poage Bankshares, Inc. 15.43 60.9 13.8 15.9 86.5 90.1 14.10 16.31 15.76 1.56  
  United Community Bancorp 13.95 64.6 24.5 21.4 90.0 93.9 12.40 13.71 13.22 1.72  
  Wayne Savings Bancshares, Inc. 13.02 36.2 18.3 18.3 91.9 96.0 8.60 9.36 8.99 2.76  
  Wolverine Bancorp, Inc. 25.90 57.2 16.1 18.8 92.4 92.4 15.98 17.30 17.30 2.32  
                         

 

(1) Pro forma ratios assume an offering range reflecting gross proceeds of $11.05 million at the minimum, $13.5 million at the midpoint, $14.95 million at the maximum, and $17.1925 million at the adjusted maximum and the issuance of shares to the foundation equal to 4.0% of the amount sold in the offering.

(2) Companies traded on a major exchange; excludes mutual holding companies and companies being acquired in announced merger transactions.

 

Source: Central Federal; SNL Financial; Feldman Financial.

 

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FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit I

Background of Feldman Financial Advisors, Inc.

 

Overview of Firm

 

Feldman Financial Advisors provides consulting and advisory services to financial institutions and mortgage companies in the areas of corporate valuations, mergers and acquisitions, strategic planning, branch sales and purchases, developing and implementing regulatory business and capital plans, and expert witness testimony and analysis. Our senior staff members have been involved in the stock conversion process since 1982 and have valued more than 350 converting institutions.

 

Feldman Financial Advisors was incorporated in February 1996 by a group of consultants who were previously associated with Credit Suisse First Boston and Kaplan Associates. Each of the principals at Feldman Financial Advisors has more than 10 years experience in consulting and all were officers of their prior firm. Our senior staff collectively has worked with more than 1,000 banks, thrifts and mortgage companies nationwide. The firm's office is located in Washington, D.C.

 

Background of Senior Professional Staff

 

Trent Feldman - President. Trent is a nationally recognized expert in providing strategic advice to and valuing service companies, and advising on mergers and acquisitions. Trent was with Kaplan Associates for 14 years and was one of three founding principals at that firm. Trent also has worked at the Federal Home Loan Bank Board and with the California legislature. Trent holds Bachelors and Masters Degrees from the University of California, Los Angeles.

 

Peter Williams - Principal. Peter specializes in merger and acquisition analysis, mutual-to-stock conversion valuations, corporate valuations, strategic business plans and retail delivery analysis. Peter previously was with Kaplan Associates for 13 years. Peter also served as a Corporate Planning Analyst with the Wilmington Trust Company in Delaware. Peter holds a BA in Economics from Yale University and an MBA in Finance and Investments from George Washington University.

 

  I- 1    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit II-1

Balance Sheets

Central Federal Savings and Loan Association of Rolla

As of December 31, 2013 and 2014 and June 30, 2015

(Dollars in Thousands)

 

           
    June 30,   December 31,  
    2015   2014   2013  
       
  Assets            
  Cash and due from financial institutions $           8,536   $           7,802   $            7,158  
  Federal funds sold 100   100   100  
  Cash and cash equivalents 8,636   7,902   7,258  
               
  Certificates of deposit in financial institutions 2,480   2,480   2,480  
  Investment securities available for sale 33   31   44  
  Federal Home Loan Bank stock 77   78   78  
  Loans receivable, net 49,624   52,184   53,559  
  Foreclosed assets 508   243   243  
  Premises and equipment, net 709   739   735  
  Accrued interest receivable 126   122   140  
  Deferred tax asset, net 93   104   118  
  Income taxes receivable 27   40   35  
  Other assets 111   54   73  
  Total Assets $         62,424   $         63,977   $          64,763  
               
  Liabilities and Equity            
  Deposits:            
  Non-interest bearing deposits $           2,186   $           2,640   $            2,116  
  Interest-bearing deposits 46,456   47,642   49,059  
  Total Deposits 48,642   50,282   51,175  
  Other liabilities 118   113   117  
  Total Liabilities 48,760   50,395   51,292  
               
  Retained earnings 13,652   13,571   13,452  
  Accumulated other comprehensive income 12   11   19  
  Total Equity 13,664   13,582   13,471  
               
  Total Liabilities and Equity $         62,424   $         63,977   $          64,763  
               

 

Source: Central Federal, financial statements.

 

  II- 1    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit II-2

Income Statements

Central Federal Savings and Loan Association of Rolla

For the Years Ended December 31, 2013 and 2014

And the Six Months Ended June 30, 2014 and 2015

(Dollars in Thousands)

 

           
    Six Months Ended   Year Ended  
    June 30,   December 31,  
    2015   2014   2014   2013  
       
  Total interest income $       1,222   $      1,230   $       2,466   $      2,723  
  Total interest expense 236   250   494   548  
  Net interest income 986   980   1,972   2,175  
                   
  Provision for loan losses -   60   60   -  
  Net interest income after provision 986   920   1,912   2,175  
                   
  Non-interest income                
  Customer service fees 22   24   49   48  
  Loss on sale of foreclosed assets -   -   -   (100 )
  Other income 10   13   23   29  
  Total non-interest income 32   37   72   (23 )
                   
  Non-interest expense                
  Compensation and employee benefits 525   525   1,054   1,006  
  Data processing and other outside services 122   124   256   247  
  Occupancy and equipment 108   108   215   220  
  FDIC insurance and regulatory assessment 40   41   83   87  
  Legal and professional services 26   29   54   55  
  Supplies, telephone, and postage 22   22   46   40  
  Foreclosed assets 9   5   11   27  
  Other expenses 41   41   86   104  
  Total non-interest expense 893   895   1,805   1,786  
                   
  Income before income taxes 125   62   179   366  
  Income tax expense 44   24   60   137  
                   
  Net Income $            81   $           38   $          119   $         229  
                   

 

Source: Central Federal, financial statements.

 

  II- 2    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit II-3

Loan Portfolio Composition

Central Federal Savings and Loan Association of Rolla

As of December 31, 2013 and 2014 and June 30, 2015

(Dollars in Thousands)

 

                 
              December 31,  
      June 30, 2015   2014   2015  
      Amount   Percent   Amount   Percent   Amount   Percent  
      (000s)   (%)   (000s)   (%)   (000s)   (%)  
                             
  Residential real estate   $       31,795   63.69   $      34,179   65.12   $      34,639   64.22  
  Commercial and multi-family real estate   15,807   31.66   15,993   30.47   17,469   32.39  
  Commercial business   1,905   3.82   1,880   3.58   1,329   2.46  
  Consumer and other   415   0.83   432   0.82   498   0.92  
  Total Loans   49,922   100.00   52,484   100.00   53,935   100.00  
                             
  Allowance for loan losses   (278 )     (279 )     (351 )    
  Net deferred loan fees   (20 )     (21 )     (25 )    
                             
  Total Loans, Net   $       49,624       $      52,184       $      53,559      
                             

  

Source: Central Federal, financial statements.

 

  II- 3    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit II-4

Cash and Investments Composition

Central Federal Savings and Loan Association of Rolla

As of December 31, 2013 and 2014 and June 30, 2015

(Dollars in Thousands)

 

               
            December 31,  
    June 30, 2015   2014   2013  
    Amount   Percent   Amount   Percent   Amount   Percent  
    (000s)   (%)   (000s)   (%)   (000s)   (%)  
                           
  Cash and due from fin'l institutions $         8,536   76.04   $        7,802   74.37   $        7,158   72.60  
  Federal funds sold 100   0.89   100   0.95   100   1.01  
  Certificates of deposit 2,480   22.09   2,480   23.64   2,480   25.15  
  Securities available for sale 33   0.29   31   0.30   44   0.45  
  Federal Home Loan Bank stock 77   0.69   78   0.74   78   0.79  
                           
  Total cash and investments $       11,226   100.00   $      10,491   100.00   $        9,860   100.00  
                           

 

Source: Central Federal, financial statements.

 

  II- 4    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit II-5

Deposit Account Distribution

Central Federal Savings and Loan Association of Rolla

As of December 31, 2013 and 2014 and June 30, 2015

(Dollars in Thousands)

 

               
            December 31,  
    June 30, 2015   2014   2013  
    Amount   Percent   Amount   Percent   Amount   Percent  
    (000s)   (%)   (000s)   (%)   (000s)   (%)  
                           
  Non-interest bearing demand $         2,186   4.49   $         2,640   5.25   $         2,116   4.13  
  NOW and money market 19,293   39.66   18,936   37.66   17,350   33.90  
  Savings accounts 3,783   7.78   3,625   7.21   3,361   6.57  
  Certificates of deposit 23,381   48.07   25,081   49.88   28,348   55.39  
  Total Deposits $       48,642   100.00   $       50,282   100.00   $       51,175   100.00  
                           

 

Source: Central Federal, financial statements.

 

  II- 5    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit III

Financial and Market Data for All Public Thrifts

 

                               
        Total Tang.     Closing Total Price/ Price/ Price/ Price/ Price/  
      Total Equity/ Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
      Assets Assets Assets ROA ROE 8/31/15 Value EPS EPS Value Book Assets Yield
Company State Ticker ($mil.) (%) (%) (%) (%) ($) ($mil.) (x) (x) (%) (%) (%) (%)
                               
All Public Thrifts (1)                              
Anchor Bancorp WA ANCB 379 16.80 16.80 2.58 16.50 21.98 56.0 5.5 5.4 88.0 88.0 14.78 0.00
Anchor BanCorp Wisconsin Inc. WI ABCW 2,206 15.53 15.53 5.87 54.64 40.91 392.8 3.1 NA 114.6 114.6 17.81 0.00
ASB Bancorp, Inc. NC ASBB 783 12.28 12.28 0.35 2.74 24.35 106.8 36.9 38.9 110.9 110.9 13.61 0.00
Astoria Financial Corporation NY AF 15,295 10.65 9.55 0.60 5.82 16.17 1,629.8 19.3 19.3 108.7 124.1 10.75 0.99
Athens Bancshares Corporation TN AFCB 308 14.23 14.21 0.89 6.37 27.00 48.8 17.6 17.3 111.4 111.6 15.85 0.74
Atlantic Coast Financial Corp. FL ACFC 810 9.63 9.63 0.95 9.47 5.30 82.2 11.8 8.1 105.3 105.3 10.14 0.00
Bank Mutual Corporation WI BKMU 2,420 11.53 11.53 0.65 5.41 7.23 332.1 21.9 NA 119.3 119.3 13.76 2.77
BankFinancial Corporation IL BFIN 1,440 14.71 14.61 2.96 21.32 12.30 252.2 5.9 5.8 119.1 120.0 17.52 1.30
Beneficial Bancorp, Inc. PA BNCL 4,736 23.26 21.14 0.51 2.86 12.44 1,030.3 42.0 38.7 93.5 105.7 21.75 0.00
Blue Hills Bancorp, Inc. MA BHBK 1,845 22.43 21.90 0.16 0.70 14.15 402.6 NA NA 97.4 100.4 21.84 0.57
BofI Holding, Inc. CA BOFI 5,824 9.16 9.16 1.61 18.20 115.84 1,811.8 21.6 21.3 340.2 340.2 30.90 0.00
Broadway Financial Corporation CA BYFC 359 11.04 11.04 1.13 11.38 1.46 31.3 9.7 10.4 107.1 107.1 11.82 0.00
BSB Bancorp, Inc. MA BLMT 1,552 9.09 9.09 0.40 4.06 20.92 190.1 32.7 32.7 134.6 134.6 12.24 0.00
Cape Bancorp, Inc. NJ CBNJ 1,555 11.11 9.75 0.82 6.61 11.10 157.1 14.2 18.0 90.9 105.2 10.10 3.60
Capitol Federal Financial, Inc. KS CFFN 9,131 15.62 15.62 0.72 5.34 12.05 1,668.0 20.8 20.8 117.1 117.1 18.30 2.82
Carver Bancorp, Inc. NY CARV 671 8.09 8.09 0.01 0.14 6.26 23.1 56.9 32.6 252.3 252.3 3.70 0.00
Central Federal Corporation OH CFBK 339 10.30 10.30 0.42 3.85 1.37 21.7 34.3 34.3 91.9 91.9 6.61 0.00
Charter Financial Corporation GA CHFN 1,005 20.79 20.41 0.61 2.77 12.55 205.0 33.9 32.8 98.5 100.9 20.49 1.59
Cheviot Financial Corp. OH CHEV 581 16.53 14.98 0.40 2.39 14.32 97.3 40.9 43.9 101.3 113.9 16.75 2.79
Chicopee Bancorp, Inc. MA CBNK 672 13.20 13.20 0.30 2.11 16.30 85.9 44.1 44.1 96.8 96.8 12.78 1.96
Clifton Bancorp Inc. NJ CSBK 1,153 30.17 30.17 0.72 2.38 13.79 356.2 40.6 50.9 102.9 102.9 31.06 1.74
Coastway Bancorp, Inc. RI CWAY 499 14.18 14.18 0.17 1.10 11.08 54.3 61.6 61.6 76.8 76.8 10.89 0.00
Dime Community Bancshares, Inc. NY DCOM 4,645 10.29 9.20 1.06 10.19 17.03 633.3 13.0 14.1 132.5 150.0 13.64 3.29
Elmira Savings Bank NY ESBK 573 9.47 7.46 0.65 6.34 19.67 53.6 20.7 21.9 120.4 167.0 9.51 4.68
Entegra Financial Corp. NC ENFC 970 13.11 13.11 2.56 24.81 17.56 115.0 5.0 4.9 90.4 90.4 11.86 0.00
Equitable Financial Corp. NE EQFN NA NA NA NA NA 8.03 27.9 NA NA 134.1 134.1 13.89 0.00
ESSA Bancorp, Inc. PA ESSA 1,599 10.72 10.03 0.63 5.74 12.93 147.6 13.9 13.7 86.2 92.8 9.24 2.78
EverBank Financial Corp FL EVER 24,120 7.54 7.35 0.64 7.88 19.78 2,465.0 19.6 NA 147.6 152.1 10.28 1.21
First Capital, Inc. IN FCAP 477 12.25 11.25 1.17 9.59 26.77 73.9 13.5 13.4 126.7 139.6 15.49 3.14
First Connecticut Bancorp, Inc. CT FBNK 2,626 9.10 9.10 0.47 4.90 17.00 270.7 21.8 23.8 113.2 113.2 10.31 1.41
First Defiance Financial Corp. OH FDEF 2,197 12.57 9.96 1.22 9.58 37.69 349.7 13.7 13.8 126.6 164.5 15.92 2.12
First Federal of No. Mich. Bancorp MI FFNM 326 9.53 9.21 0.85 8.88 6.39 23.8 8.1 13.9 76.7 79.6 7.31 1.88
First Financial Northwest, Inc. WA FFNW 944 18.80 18.80 1.10 5.67 12.24 176.5 17.0 17.0 100.3 100.3 18.86 1.96

 

   III- 1  

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

 

                               
        Total Tang.     Closing Total Price/ Price/ Price/ Price/ Price/  
      Total Equity/ Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
      Assets Assets Assets ROA ROE 8/31/15 Value EPS EPS Value Book Assets Yield
Company State Ticker ($mil.) (%) (%) (%) (%) ($) ($mil.) (x) (x) (%) (%) (%) (%)
                               
First Northwest Bancorp WA FNWB 937 20.35 NA (0.58) (4.13) 12.00 157.2 NM 119.7 82.4 NA 16.78 0.00
Flagstar Bancorp, Inc. MI FBC 12,139 11.95 11.95 0.57 4.32 20.33 1,147.3 35.7 13.7 96.9 96.9 9.66 0.00
Fox Chase Bancorp, Inc. PA FXCB 1,090 15.95 15.95 0.86 5.30 17.26 199.6 20.8 20.1 114.9 114.9 18.32 3.24
FS Bancorp, Inc. WA FSBW 569 12.46 12.46 1.48 11.50 23.25 75.3 9.2 9.2 106.3 106.3 13.25 1.20
Georgetown Bancorp, Inc. MA GTWN 272 11.37 11.37 0.54 4.81 18.97 34.7 23.1 23.1 112.2 112.2 12.76 1.00
Hamilton Bancorp, Inc. MD HBK 291 20.69 19.92 (0.00) (0.01) 13.67 46.7 NM NM 77.5 81.2 16.03 0.00
Hingham Institution for Savings MA HIFS 1,634 7.94 7.94 1.18 14.83 116.98 249.0 13.7 13.7 191.9 191.9 15.24 0.96
HMN Financial, Inc. MN HMNF 564 11.97 11.97 0.73 5.81 11.50 51.6 15.1 15.1 76.4 76.4 9.14 0.00
Home Federal Bancorp, Inc. LA HFBL 370 11.73 11.73 0.96 7.51 22.00 46.4 13.3 13.4 107.0 107.0 12.55 1.45
HomeStreet, Inc. WA HMST 4,866 9.20 8.81 0.87 9.33 22.26 491.3 12.0 10.7 109.7 115.0 10.09 0.00
IF Bancorp, Inc. IL IROQ 564 14.27 14.27 0.60 3.92 16.85 68.7 20.3 20.1 85.5 85.5 12.19 0.59
Investors Bancorp, Inc. NJ ISBC 20,037 17.01 16.63 0.91 4.81 11.78 4,070.0 24.0 23.7 120.2 123.5 20.44 1.70
Jacksonville Bancorp, Inc. IL JXSB 306 14.91 14.14 1.02 6.92 23.56 42.2 13.5 15.0 92.5 98.3 13.78 1.36
Kearny Financial Corp. NJ KRNY 4,237 27.55 NA 0.15 0.98 11.35 1,061.5 NM 89.2 90.9 273.1 25.05 0.00
La Porte Bancorp, Inc. IN LPSB 521 15.99 14.58 0.90 5.59 14.05 78.2 16.1 16.2 94.2 105.1 15.07 1.14
Lake Sunapee Bank Group NH LSBG 1,512 9.44 6.15 0.69 7.15 14.59 121.9 11.9 11.4 90.3 149.2 8.10 3.84
Madison County Financial, Inc. NE MCBK 318 19.69 19.45 1.06 5.20 19.40 57.6 16.7 16.3 91.8 93.2 18.09 1.29
Malvern Bancorp, Inc. PA MLVF 624 12.79 12.79 0.47 3.59 15.53 101.9 34.5 38.3 127.6 127.6 16.32 0.00
Melrose Bancorp, Inc. MA MELR 218 21.00 21.00 (0.11) (0.64) 14.30 40.5 NA NA 88.4 88.4 18.57 0.00
Meridian Bancorp, Inc. MA EBSB 3,302 17.82 17.48 0.74 4.32 12.74 700.3 28.3 33.4 119.0 121.8 21.21 0.94
Meta Financial Group, Inc. SD CASH 2,310 9.06 8.20 0.76 8.80 43.42 301.7 17.0 14.3 144.1 160.8 13.06 1.20
MSB Financial Corp. NJ MSBF 417 9.90 9.90 0.11 0.98 11.20 66.7 NM 159.6 155.0 155.0 15.34 0.00
New York Community Bancorp, Inc. NY NYCB 48,649 11.95 7.30 1.02 8.53 17.66 7,846.7 15.8 15.8 135.0 232.6 16.13 5.66
Northfield Bancorp, Inc. NJ NFBK 3,147 17.72 17.28 0.64 3.15 14.97 684.4 35.6 35.5 123.3 127.1 21.85 1.87
Northwest Bancshares, Inc. PA NWBI 7,865 13.58 11.58 0.84 6.20 12.84 1,305.4 17.6 17.5 113.9 136.7 15.47 4.36
Ocean Shore Holding Co. NJ OSHC 1,019 10.49 10.04 0.64 6.23 15.78 101.0 14.6 14.5 92.4 97.0 9.69 1.52
OceanFirst Financial Corp. NJ OCFC 2,395 9.25 9.25 0.87 9.36 18.42 320.2 14.9 15.2 139.0 139.0 12.86 2.82
Oritani Financial Corp. NJ ORIT 3,353 15.44 15.44 1.44 9.10 15.08 663.7 13.7 16.5 128.2 128.2 19.79 4.64
Pathfinder Bancorp, Inc. NY PBHC 600 11.67 10.97 0.50 4.52 10.92 47.5 17.0 19.0 83.9 91.5 8.10 1.10
Poage Bankshares, Inc. KY PBSK 432 16.31 15.76 0.97 6.01 15.43 60.9 13.8 15.9 86.5 90.1 14.10 1.56
Polonia Bancorp, Inc. PA PBCP 291 13.39 13.39 0.03 0.25 12.29 41.0 NM NM 105.0 105.0 14.06 0.00
Provident Financial Holdings, Inc. CA PROV 1,175 12.02 12.02 0.87 6.81 16.39 141.5 15.3 15.3 100.3 100.3 12.05 2.93
Provident Financial Services, Inc. NJ PFS 8,751 13.34 8.84 0.96 7.12 18.94 1,236.8 14.5 13.7 105.9 168.2 14.13 3.38
Prudential Bancorp, Inc. PA PBIP 504 24.22 24.22 0.50 2.02 14.51 125.0 53.7 134.8 105.3 105.3 25.49 0.83

 

   III- 2  

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit III (continued)

Financial and Market Data for All Public Thrifts

 

                               
        Total Tang.     Closing Total Price/ Price/ Price/ Price/ Price/  
      Total Equity/ Equity/ LTM LTM Price Market LTM Core Book Tang. Total Div.
      Assets Assets Assets ROA ROE 8/31/15 Value EPS EPS Value Book Assets Yield
Company State Ticker ($mil.) (%) (%) (%) (%) ($) ($mil.) (x) (x) (%) (%) (%) (%)
                               
Riverview Bancorp, Inc. WA RVSB 860 12.21 9.52 0.64 5.24 4.42 99.5 18.4 18.7 95.3 126.1 11.57 1.13
Severn Bancorp, Inc. MD SVBI 782 10.89 10.85 0.62 5.84 4.85 48.9 19.4 19.4 83.6 84.1 6.48 0.00
SI Financial Group, Inc. CT SIFI 1,409 10.83 9.65 0.33 2.88 11.34 138.7 31.5 29.5 90.9 103.3 9.84 1.41
Sunshine Bancorp, Inc. FL SBCP 477 14.01 12.31 (1.15) (4.53) 14.09 59.6 NA NA 97.5 114.9 12.65 0.00
Territorial Bancorp Inc. HI TBNK 1,743 12.53 12.53 0.84 6.58 25.96 252.3 17.0 17.8 115.6 115.6 14.48 2.62
Timberland Bancorp, Inc. WA TSBK 790 11.05 10.41 0.92 8.32 10.35 73.0 10.5 10.8 83.6 89.4 9.24 2.71
TrustCo Bank Corp NY NY TRST 4,741 8.49 8.48 0.92 10.81 5.92 563.3 13.1 13.3 139.8 140.0 11.87 4.43
United Community Bancorp IN UCBA 521 13.71 13.22 0.49 3.55 13.95 64.6 24.5 21.4 90.0 93.9 12.40 1.72
United Community Financial Corp. OH UCFC 1,923 12.30 12.30 0.74 5.61 4.99 238.4 18.5 18.8 100.8 100.8 12.40 2.00
United Financial Bancorp, Inc. CT UBNK 5,681 10.77 8.79 0.70 6.04 12.55 621.3 16.7 11.9 101.5 127.2 10.93 3.82
Waterstone Financial, Inc. WI WSBF 1,737 23.11 23.08 0.86 3.48 12.88 386.8 26.8 26.9 98.5 98.7 22.77 1.55
Wayne Savings Bancshares, Inc. OH WAYN 421 9.36 8.99 0.47 4.94 13.02 36.2 18.3 18.3 91.9 96.0 8.60 2.76
Wellesley Bancorp, Inc. MA WEBK 562 8.98 8.98 0.38 4.05 19.50 48.0 22.7 22.7 95.0 95.0 8.53 0.62
Westbury Bancorp, Inc. WI WBB 629 12.23 12.23 0.21 1.50 17.43 76.9 60.1 46.3 99.9 99.9 12.22 0.00
Westfield Financial, Inc. MA WFD 1,362 10.27 10.27 0.44 4.11 7.50 138.7 22.7 27.4 99.2 99.2 10.19 1.60
Wolverine Bancorp, Inc. MI WBKC 358 17.30 17.30 0.98 5.49 25.90 57.2 16.1 18.8 92.4 92.4 15.98 2.32
WSFS Financial Corporation DE WSFS 5,077 9.85 8.84 1.03 10.12 27.53 768.0 15.9 13.9 153.6 173.1 15.13 0.73
WVS Financial Corp. PA WVFC 330 9.72 9.72 0.43 4.22 10.91 22.3 16.5 NA 69.5 69.5 6.75 1.47
                               
Average     3,056 13.62 12.79 0.79 6.53 988.75 457.1 21.6 26.7 110.9 120.8 14.19 1.47
Median     987 12.26 11.84 0.71 5.54 14.51 125.0 17.3 18.3 101.5 107.0 13.61 1.29

 

(1) Public thrifts traded on NYSE, NYSE Amex, and NASDAQ; excludes companies subject to pending acquisitions or mutual holding company ownership.

 

Source: SNL Financial; Feldman Financial.

 

   III- 3  

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit IV-1

Pro Forma Assumptions for Conversion Stock Offering

 

1. The total amount of the net offering proceeds was fully invested at the beginning of the applicable period.

 

2. In connection with the Conversion, it is assumed that a charitable foundation will be established by the Association and funded with a contribution of $100,000 in cash along with the issuance of common stock shares equal to 4.0% of the total shares sold in the stock offering.

 

3. The net offering proceeds are invested to yield a return of 0.64%, which represented the yield on two-year U.S. Treasury securities at June 30, 2015. The effective combined federal and state income tax rate was assumed to be 38.6%, resulting in a net after-tax yield of 0.39%.

 

4. It is assumed that 8.0% of the total shares of common stock to be sold in the offering will be acquired by the Association's employee stock ownership plan ("ESOP"). Pro forma adjustments have been made to earnings and equity to reflect the impact of the ESOP. The annual expense is estimated based on a 25-year loan to the ESOP from the Company. No re-investment is assumed on proceeds used to fund the ESOP.

 

5. It is assumed that that the Association's restricted stock plan ("RSP") will purchase in the open market a number of shares equal to 4.0% of the total shares sold in the offering. Also, it is assumed that these shares are acquired at the initial public offering price of $10.00 per share. Pro forma adjustments have been made to earnings and equity to reflect the impact of the RSP. The annual expense is estimated based on a five-year vesting period. No re-investment is assumed on proceeds used to fund the RSP.

 

6. It is assumed that an additional 10.0% of the total shares sold in the offering will be reserved for issuance by the Association's stock option plan. The pro forma net income has been adjusted to reflect the expense associated with the granting of options at an assumed options value of $3.35 per share. It is further assumed that options for all shares reserved under the plan were granted to plan participants at the beginning of the period and 25% were non-qualified options for income tax purposes, the options would vest at a rate of 20% per year, and compensation expense will be recognized on a straight-line basis over the five-year vesting period

 

7. The fair value of stock options has been estimated at $3.35 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; dividend yield of 0.00%; an expected option life of 10 years; a risk-free interest rate of 2.35%; and a volatility rate of 19.30% based on an index of publicly traded thrift institutions.

 

8. Total offering expenses are estimated at $1,211,000.

 

9. No effect has been given to withdrawals from deposit accounts for the purpose of purchasing common stock in the offering.

 

10. No effect has been given in the pro forma equity calculation for the assumed earnings on the net proceeds.

 

  IV- 1    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit IV-2

Central Federal Savings and Loan Association of Rolla

Pro Forma Conversion Valuation Range

Historical Financial Data as of June 30, 2015

(Dollars in Thousands, Except Per Share Data)

 

  Minimum   Midpoint   Maximum   Adj. Max.  
Total shares outstanding 1,149,200   1,352,000   1,554,800   1,788,020  
Shares sold in the offering 1,105,000   1,300,000   1,495,000   1,719,250  
Shares issued to foundation 44,200   52,000   59,800   68,770  
Offering price $10.00   $10.00   $10.00   $10.00  
Pro forma market value $11,492   $13,520   $15,548   $17,880  
                 
Gross proceeds $11,050   $13,000   $14,950   $17,193  
Less:  estimated offering expenses (1,211 ) (1,211 ) (1,211 ) (1,211 )
Net conversion proceeds 9,839   11,789   13,739   15,982  
Less:  cash contribution to foundation (100 ) (100 ) (100 ) (100 )
Less:  ESOP purchase (919 ) (1,082 ) (1,244 ) (1,430 )
Less:  RSP purchase (460 ) (541 ) (622 ) (715 )
Net investable proceeds $8,360   $10,066   $11,773   $13,737  
Net Income:                
Historical LTM ended 6/30/15 $162   $162   $162   $162  
Pro forma income on net proceeds 33   39   46   54  
Pro forma ESOP adjustment (23 ) (27 ) (31 ) (35 )
Pro forma RSP adjustment (56 ) (66 ) (76 ) (88 )
Pro forma option adjustment (70 ) (82 ) (94 ) (108 )
Pro forma net income [excl. contribution] $46   $26   $7   ($15 )
Pro forma earnings per share $0.04   $0.02   $0.00   ($0.01 )
Core Earnings:                
Historical LTM ended 6/30/15 $162   $162   $162   $162  
Pro forma income on net proceeds 33   39   46   54  
Pro forma ESOP adjustment (23 ) (27 ) (31 ) (35 )
Pro forma RSP adjustment (56 ) (66 ) (76 ) (88 )
Pro forma option adjustment (70 ) (82 ) (94 ) (108 )
Pro forma core earnings [excl. contribution] $46   $26   $7   ($15 )
Pro forma core earnings per share $0.04   $0.02   $0.00   ($0.01 )
Total Equity $13,664   $13,664   $13,664   $13,664  
Net conversion proceeds 9,839   11,789   13,739   15,982  
Plus:  common stock issued to foundation 442   520   598   688  
Less:  charitable contribution expense, net (333 ) (381 ) (429 ) (484 )
Less:  ESOP purchase (919 ) (1,082 ) (1,244 ) (1,430 )
Less:  RSP purchase (460 ) (541 ) (622 ) (715 )
Pro forma total equity $22,233   $23,969   $25,706   $27,705  
Pro forma book value $19.35   $17.73   $16.53   $15.49  
Tangible Equity $13,664   $13,664   $13,664   $13,664  
Net conversion proceeds 9,839   11,789   13,739   15,982  
Plus:  common stock issued to foundation 442   520   598   688  
Less:  charitable contribution expense, net (333 ) (381 ) (429 ) (484 )
Less:  ESOP purchase (919 ) (1,082 ) (1,244 ) (1,430 )
Less:  RSP purchase (460 ) (541 ) (622 ) (715 )
Pro forma tangible equity $22,233   $23,969   $25,706   $27,705  
Pro forma tangible book value $19.35   $17.73   $16.53   $15.49  
Total Assets $62,424   $62,424   $62,424   $62,424  
Net conversion proceeds 9,839   11,789   13,739   15,982  
Plus:  common stock issued to foundation 442   520   598   688  
Less:  charitable contribution expense, net (333 ) (381 ) (429 ) (484 )
Less:  ESOP purchase (919 ) (1,082 ) (1,244 ) (1,430 )
Less:  RSP purchase (460 ) (541 ) (622 ) (715 )
Pro forma total assets $70,993   $72,729   $74,466   $76,465  

 

  IV- 2    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit IV-3

Pro Forma Conversion Analysis at the Maximum Valuation

Central Federal Savings and Loan Association of Rolla

Historical Financial Data as of June 30, 2015

 

               
   Valuation Parameters   Symbol     Data  
  Net income — LTM   Y   $ 162,000  
  Core earnings — LTM   Y     162,000  
  Net worth   B     13,664,000  
  Tangible net worth   B     13,664,000  
  Total assets   A     62,424,000  
  Expenses in conversion   X     1,211,000  
  Other proceeds not reinvested   O     1,866,100  
  ESOP purchase   E     1,244,000  
  ESOP expense (pre-tax)   F     50,489  
  RSP purchase   M     622,000  
  RSP expense (pre-tax)   N     123,779  
  Stock option expense (pre-tax)   Q     104,172  
  Charitable expense tax deduction   K     428,572  
  Option expense tax-deductible   D     25.00%  
  Re-investment rate (after-tax)   R     0.39%  
  Tax rate   T     38.60%  
  Shares for EPS   S     92.32%  
             
   Pro Forma Valuation Ratios at Maximum Value      
  Price / LTM EPS   P/E     NM  
  Price / Core EPS   P/E     NM  
  Price / Book Value   P/B     60.50%  
  Price / Tangible Book   P/TB     60.50%  
  Price / Assets     P/A     20.88%  
                 
   Pro Forma Calculation at Maximum Value         Based on
                 
V    =   ( P/E / S)*((Y-R*(O+X)-(F+N)*(1-T)-(Q-Q*D*T))) = $15,548,000 [LTM earnings]
  1 - ( P/E * R)      
                 
V    =   ( P/E / S)*((Y-R*(O+X)-(F+N)*(1-T)-(Q-Q*D*T)) = $15,548,000 [Core earnings]
  1 - ( P/E * R)      
                 
V    =   P/B * (B - X - E - M - K) = $15,548,000 [Book value]
  1 - P/B      
                 
V    =   P/TB * (B - X - E - M - K) = $15,548,000 [Tangible book]
  1 - P/TB      
                 
V    =   P/A * (B - X - E - M - K) = $15,548,000 [Total assets]
  1 - P/A      
                 
   Pro Forma Valuation Range            
  Minimum = $13,520,000 x 0.85 = $11,492,000    
  Midpoint  = $13,520,000 x 1.00 = $13,520,000    
  Maximum = $13,520,000 x 1.15 = $15,548,000    
  Adj. Max. = $15,548,000 x 1.15 = $17,880,200    
                 

 

  IV- 3    

 

 

FELDMAN FINANCIAL ADVISORS, INC.

 

Exhibit IV-4

Comparative Valuation Ratio Differential

Pro Forma Conversion Valuation

Computed from Market Price Data as of August 31, 2015

 

                           
            Comparative   All Public  
Valuation     Central     Group   Thrifts (1)  
Ratio Symbol   Federal     Average   Median   Average   Median  
                           
Price / LTM EPS P/E         17.9   16.1   21.6   17.3  
Minimum (x)   NM     NA   NA   NA   NA  
Midpoint     NM     NA   NA   NA   NA  
Maximum     NM     NA   NA   NA   NA  
Adj. Maximum     NM     NA   NA   NA   NA  
                           
Price / Core EPS P/E         18.7   16.3   26.7   18.3  
Minimum (x)   NM     NA   NA   NA   NA  
Midpoint     NM     NA   NA   NA   NA  
Maximum     NM     NA   NA   NA   NA  
Adj. Maximum     NM     NA   NA   NA   NA  
                           
Price / Book Value P/B         88.2    91.8     110.9     101.5    
Minimum (%)   51.7     -41.4%   -43.7%   -53.4%   -49.1%  
Midpoint     56.4     -36.0%   -38.6%   -49.1%   -44.4%  
Maximum     60.5     -31.4%   -34.1%   -45.4%   -40.4%  
Adj. Maximum     64.6     -26.8%   -29.7%   -41.8%   -36.4%  
                           
Price / Tangible Book P/TB         91.1     92.4     120.8   107.0    
Minimum (%)   51.7     -43.3%   -44.0%   -57.2%   -51.7%  
Midpoint     56.4     -38.1%   -38.9%   -53.3%   -47.3%  
Maximum     60.5     -33.6%   -34.5%   -49.9%   -43.5%  
Adj. Maximum     64.6     -29.2%   -30.1%   -46.6%   -39.7%  
                           
Price / Total Assets P/A         12.1    12.4     14.2      13.6    
Minimum (%)   16.2     33.6%   30.6%   14.0%   18.9%  
Midpoint     18.6     53.5%   50.0%   31.0%   36.6%  
Maximum     20.9     72.4%   68.4%   47.1%   53.4%  
Adj. Maximum     23.4     93.0%   88.6%   64.7%   71.8%  
                           

 

(1) Excludes companies subject to MHC ownership or pending acquisition.

 

  IV- 4    

 

 

Exhibit 99.2

 

RP ® FINANCIAL, LC.  
Advisory | Planning | Valuation  

 

April 28, 2015

 

Mr. William A. Stoltz

President and Chief Executive Officer

Central Federal Savings & Loan Association of Rolla

210 West 10 th Street

Rolla, MO 65401

 

Dear Mr. Stoltz:

 

This letter sets forth the agreement between Central Federal Savings & Loan Association of Rolla, Missouri (the “Association”), and RP ® Financial, LC. (“RP Financial”), whereby the Association has engaged RP Financial to provide certain strategic planning services as well as the preparation of the written business plan and financial projections to be adopted by the Board of Directors in conjunction with the filing of the regulatory application for the proposed mutual-to-stock conversion. In addition, RP Financial will prepare the related presentation materials for any pre-filing meetings with the regulators that may be required in advance of the conversion application filing, as well as summary materials for review by the Board.

 

These business plan services, timetable, deliverables and fee schedule are described in greater detail below. The undersigned will direct this engagement, and will be assisted by other members of our staff, including a Director, supported by a Consulting Associate or an Associate.

 

Description of Proposed Services

 

RP Financial’s business planning services will include: preliminary strategic planning with the Board and/or management; the preparation of pro forma financial projections reflecting post-conversion strategies; the preparation of presentation materials for any pre-filling meetings that may be required by the regulators in advance of filing the application, as well as for review by the Board; and the preparation of the written business plan consistent with the interagency business planning requirements for application purposes. Finally, if necessary, RP Financial will prepare amendments to the business plan reflecting required changes by the regulators, or updates or amendments to the plan required by the Association, to reflect changes in strategies, external factors and structural changes to the conversion transaction that may have a significant on the business plan and projected financial results.

 

Specifically, RP Financial’s business planning services will include the following:

 

(1) Evaluating the Association’s current financial and operating condition, business strategies and anticipated strategies in the future, taking into account the pro forma impact of the conversion offering proceeds on earnings, capital, ability to grow, etc.;

 

(2) Analyzing and quantifying the impact of business strategies, incorporating the net offering proceeds in the short and long term at both the Association and holding company levels;

 

Washington Headquarters  
Three Ballston Plaza Direct:  (703) 647-6543
1100 North Glebe Road, Suite 600 Telephone:  (703) 528-1700
Arlington, VA  22201 Fax No.:  (703) 528-1788
E-Mail:  rriggins@rpfinancial.com Toll-Free No.:  (866) 723-0594

 

   
 

 

Mr. William A. Stoltz

April 28, 2015
Page 2

 

(3) Preparing detailed financial projections on a quarterly basis for at least three years following the anticipated close of the offering to reflect the impact of Board approved business strategies and use of proceeds;

 

(4) Preparing the written business plan document which conforms with the applicable interagency regulatory guidelines, including the description of the use of proceeds and the manner in which the convenience and needs of the community will be addressed on a post-conversion basis; and

 

(5) Preparing the detailed schedules of the capitalization of the Association and holding company and related cash flows, including anticipated dividends and stock repurchases, deposits of holding company cash into the Association, and, intercompany transactions.

 

Consistent with the interagency regulatory business plan guidelines, specific contents of the business plan will include: Executive Summary; Description of Business; Marketing Plan; Management Plan; Records, Systems and Controls; Financial Management Plan; Monitoring and Revising the Plan; and Alternative Business Strategy.

 

RP Financial agrees to prepare the business plan and accompanying financial projections in writing such that the business plan conforming to regulatory guidelines can be filed with the appropriate federal and state regulatory agencies in conjunction with the filing of the regulatory applications. It is anticipated that the Board of Directors will approve the business plan and financial projections prior to the regulatory filing.

 

RP Financial will be responsible for preparing the business plan document and financial projections in a format consistent with the regulatory guidelines and which incorporates the Association’s post-offering balance sheet, use of proceeds, organization, operations and strategic initiatives. The Association’s responsibilities will be to provide RP Financial with requested information, meet with RP Financial to discuss the Association’s financial condition, strategies and proposed conversion and review the documents and financial projections on a timely basis to support RP Financial’s ability to respond to the timetables to be developed (this will include any review the Board of Directors may require).

 

Fee Structure and Payment Schedule

 

The Association agrees to compensate RP Financial for preparation and delivery of the business plan as shown below, plus reimbursable expenses. Payment of these fees shall be made accordingly to the following schedule:

 

· $7,500 upon execution of this letter of agreement engaging RP Financial’s business plan services;

 

· $7,500 for the preparation of the presentation materials reflecting the strategic plan and financial projections for approval by the Board and submission to the regulators in conjunction with the application pre-filing requirements; and,

 

   
 

 

Mr. William A. Stoltz

April 28, 2015
Page 3

 

· $15,000 upon delivery of the completed business plan and financial projections to accompany the conversion application.

 

The Association will reimburse RP Financial for reasonable out-of-pocket expenses incurred in preparation of the business plan. Such out-of-pocket expenses will likely include travel, printing, telephone, facsimile, shipping, reasonable counsel fees, computer and data services, and will not exceed $3,500 in the aggregate, without the Association’s authorization to exceed this level.

 

If an update to the business plan is required by either the Association or the regulators for changes in the Association’s financial characteristics, anticipated strategies, structure of the conversion, external factors, or for other reasons, the Association will compensate RP Financial with a fixed fee of $5,000 payable upon delivery of each required update plus reimbursable expenses. In the event that the processing of the conversion application is suspended or delayed by the Association or the regulators, then the Association and RP Financial will negotiate the subsequent update fee based on the length of the delay and the nature of the changes occurring in the interim period.

 

If during the course of the planning engagement, unforeseen events occur so as to materially change the nature or the work content of the business planning services described in this contract, the terms of said contract shall be subject to renegotiation by the Association and RP Financial. Such unforeseen events may include changes in regulatory requirements as it specifically relates to the Association or potential transactions that significantly impact the Association such as an acquisition or restructuring transaction.

 

In the event the Association shall, for any reason, discontinue this planning engagement prior to delivery of the completed business plan and payment of the progress payment fees, the Association agrees to compensate RP Financial according to RP Financial’s standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the fixed fee described above, plus reimbursable expenses incurred. RP Financial’s standard billing rates range from $75 per hour for associates to $450 per hour for managing directors.

 

Representations and Warranties

 

The Association and RP Financial agree to the following:

 

1.        The Association agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid business planning services. Such information heretofore or hereafter supplied or made available to RP Financial shall include: annual financial statements, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, unrealized gains or losses and corporate books and records. All information provided by the Association to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public other than as a result of a breach of this agreement by RP Financial). RP Financial agrees that (i) it will restrict disclosure of such information to only those representatives of RP Financial who reasonably need to have access to it; and (ii) it will use such information only for providing the services contemplated herein. If the conversion offering is not consummated or the services of

 

   
 

 

Mr. William A. Stoltz

April 28, 2015
Page 4

 

RP Financial are terminated hereunder, RP Financial shall upon request promptly return to the Association the original and any copies of such information and will destroy any analysis or other work derived from such information.

 

2.          (a)        The Association agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective directors, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under this agreement (hereinafter referred to as “RP Financial”), from and against any and all losses, claims, damages and liabilities (including, but not limited to, all losses and expenses in connection with claims under the federal securities laws) actually incurred by RP Financial and attributable to (i) any untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by an authorized officer of the Association to RP Financial, (ii) the omission of a material fact from the financial statements or other information furnished or otherwise made available by an authorized officer of the Association to RP Financial or (iii) any action or omission to act by the Association, or the Association’s respective officers, directors, employees or agents which action or omission is willful. Notwithstanding the foregoing, the Association will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith or willfully with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder.

 

(b)        RP Financial shall give written notice to the Association of such claim or facts within twenty days of the assertion of any claim or discovery of material facts upon which the RP Financial intends to base a claim for indemnification hereunder. In the event the Association elects, within fourteen days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, RP Financial will be entitled to be paid any amounts payable by the Association hereunder, together with interest on such costs from the date incurred at the rate of the prime rate per annum within five days after the final determination of such contest either by written acknowledgement of the Association or a final judgment of a court of competent jurisdiction. If the Association does not so elect, RP Financial shall be paid promptly and in any event within thirty days after receipt by the Association of the notice of the claim.

 

(c)        The Association shall pay for or reimburse the reasonable expenses, including attorneys’ fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Association: (1) a written statement of RP Financial’s good faith belief that it is entitled to indemnification hereunder; and (2) a written undertaking to repay the advance if it ultimately is determined in a final adjudication of such proceeding that it or he is not entitled to such indemnification. RP Financial and any other indemnified person will endeavor in good faith to retain a single counsel unless doing so would present a conflict of interest.

 

(d)        In the event the Association does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation. This agreement constitutes the entire understanding of the Association and RP Financial concerning the subject matter addressed herein. This agreement may not be modified, supplemented or amended except by written agreement executed by both parties.

 

   
 

 

Mr. William A. Stoltz

April 28, 2015
Page 5

 

The Association and RP Financial are not affiliated, and neither the Association nor RP Financial has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other.

 

*  *  *  *  *  *  *  *  *  *  *

 

Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter and the initial retainer of $7,500.

 

Sincerely,

 

/s/ Ronald S. Riggins

 

Ronald S. Riggins
President and Managing Director

 

Agreed To and Accepted By: Mr. William A. Stoltz /s/ William A. Stoltz
  President  

 

With Board of Directors Approval of Central Federal Savings & Loan Association of Rolla, MO

 

Date Executed:    May 4, 2015

 

   

 

 

Exhibit 99.3

Feldman Financial Advisors, Inc.

1001 Connecticut Avenue, NW, Suite 840

Washington, DC 20036

(202) 467-6862 • Fax (202) 467-6963

 

  May 5, 2015

 

Confidential

 

Board of Directors

Central Federal Savings and Loan

Association of Rolla

210 West 10th Street

Rolla, Missouri 65401

 

Members of the Board:

 

This letter sets forth the agreement (“Agreement”) between Central Federal Savings and Loan Association of Rolla (“Central” or the “Association”) and Feldman Financial Advisors, Inc. (“FFA”), whereby Central has engaged FFA to provide an independent appraisal of the estimated aggregate pro forma market value (the “Valuation”) of the shares of common stock that are to be issued and sold by the Association (or, if applicable, its newly formed holding company) in connection with the conversion (“Conversion”) of the Association from the mutual form of organization to the stock form.

 

FFA agrees to deliver the Valuation, in a written report, to Central at the address above on or before a mutually agreed upon date. Further, FFA agrees to perform such other services as are necessary or required of the independent appraiser in connection with comments from Central’s regulatory authorities and subsequent updates of the Valuation as from time to time may be necessary, both after initial approval by Central’s regulatory authorities and prior to the time the Conversion is completed. If requested, FFA will assist Central in responding to all regulatory inquiries regarding the Valuation and will also assist Central at all meetings with the regulatory authorities concerning the Valuation.

 

Central agrees to pay FFA a professional consulting fee for FFA’s appraisal services related to preparation of the initial appraisal report and subsequent appraisal updates. Central also agrees to reimburse FFA for certain out-of-pocket expenses necessary and incident to the completion of the services described above. These expenses shall not exceed $2,500 without the prior consent of Central. Reimbursable expenses for copying, report reproduction, data materials, express mail delivery, and travel shall be paid to FFA as incurred and billed. Payment of the professional consulting fee shall be made according to the following schedule:

 

· $  5,000  upon execution of this Agreement;
· $25,000  upon delivery of the completed appraisal report to Central; and,
· $  5,000  upon completion of each updated appraisal as necessary.

 

 
 

 

Feldman Financial Advisors, Inc.

 

Board of Directors

Central Federal Savings and Loan

Association of Rolla

May 5, 2015

Page 2

 

If, during the course of the Conversion, unforeseen events occur so as to materially change the nature of the work content of the appraisal services described above such that FFA must supply services beyond that contemplated at the time this contract was executed, the terms of this Agreement shall be subject to renegotiation by Central and FFA. Such unforeseen events shall include, but not be limited to, material changes in regulations governing the Conversion, material changes in mutual-to-stock appraisal guidelines or processing procedures as administered by the relevant regulatory authorities, major changes in Central’s management or operating policies, and excessive delays or suspension of processing of the Conversion.

 

In the event Central shall for any reason discontinue the Conversion prior to delivery of the completed appraisal report and payment of the progress payment fee totaling $25,000, Central agrees to compensate FFA according to FFA’s standard billing rates for consulting appraisal services based on accumulated and verifiable time expended, provided that the total of such charges shall not exceed $25,000 plus reimbursable expenses.

 

In order to induce FFA to render the aforesaid services, Central agrees to the following:

 

1. Central agrees to supply FFA such information with respect to Central’s business and financial condition as FFA may reasonably request in order for FFA to perform the appraisal services. Such information shall include, without limitation: annual financial statements, periodic regulatory filings and material agreements, corporate books and records, and such other documents as are material for the performance by FFA of the appraisal services.

 

2. Central hereby represents and warrants to FFA (i) that to its best knowledge any information provided to FFA by or on behalf of Central, will not, at any relevant time, contain any untrue statement of a material fact or fail to state a material fact necessary to make the information or statements therein not false or misleading, (ii) that Central will not use the product of FFA’s services in any manner, including in a proxy or offering circular, in connection with any untrue statement of a material fact or in connection with the failure to state a material fact necessary to make other statements not false or misleading, and (iii) that all documents incorporating or relying upon FFA’s services or the product of FFA’s services will otherwise comply with all applicable federal and state laws and regulations.

 

 
 

 

Feldman Financial Advisors, Inc.

 

Board of Directors

Central Federal Savings and Loan

Association of Rolla

May 5, 2015

Page 3

 

3. Any valuations or opinions issued by FFA may be included in its entirety in any communication by Central in any regulatory application, proxy statement or offering prospectus; provided that, such valuation or opinion may not be disclosed in the prospectus, nor reproduced and distributed, nor may FFA be referred to in the prospectus without FFA’s prior written consent.

 

4. FFA’s Valuation will be based upon Central’s representation that the information contained in the Conversion application and additional information furnished to us by Central and its independent auditors is truthful, accurate, and complete in all material respects. FFA will not independently verify the financial statements and other information provided by Central and its independent auditors, nor will FFA independently value the assets or liabilities of Central. The Valuation will consider Central only as a going concern and will not be considered as an indication of the liquidation value of Central.

 

5. FFA’s Valuation is not intended, and must not be represented to be, a recommendation of any kind as to the advisability of purchasing shares of common stock in the Conversion. Moreover, because the Valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, FFA will give no assurance that persons who purchase shares of common stock in the Conversion will thereafter be able to sell such shares at prices related to FFA’s Valuation.

 

6. Central agrees to indemnify FFA and its affiliates and all persons employed by or associated with FFA or its affiliates against all claims, liabilities and related expenses, as incurred, arising out of this engagement, unless, upon final adjudication, such claims, liabilities and expenses are found to have resulted primarily from FFA’s bad faith, willful misconduct or gross negligence. No termination, completion or modification hereof shall limit or affect such indemnification obligation. In the event FFA becomes aware of a claim or a possible claim arising out of this Agreement, it shall notify Central as soon as possible. Central will attempt to resolve the claim. In the event Central is not able to resolve the claim, it has the option to retain legal counsel on behalf of FFA to defend the claim.  

 

 
 

 

Feldman Financial Advisors, Inc.

 

Board of Directors

Central Federal Savings and Loan

Association of Rolla

May 5, 2015

Page 4

 

7. Central and FFA are not affiliated, and neither Central nor FFA has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other. It is understood that FFA is not a seller of securities within the scope of any federal or state securities law and any report prepared by FFA shall not be used as an offer or solicitation with respect to the purchase or sale of any security, it being understood that the foregoing shall not be construed to prohibit the filing of any such report as part of the Application for Conversion or Securities and Exchange Commission and blue sky filings or customary references thereto in applications, filings, proxy statements and prospectuses.

 

Please acknowledge your concurrence with the foregoing by signing as indicated below and returning to FFA a signed copy of this Agreement and the $5,000 initial payment.

 

  Sincerely,
   
  Feldman Financial Advisors, Inc.
   
  /s/ Trent R. Feldman
   
  Trent R. Feldman
  President

 

AGREED TO AND ACCEPTED FOR  
   
Central Federal Savings and Loan Association of Rolla  
     
By: /s/ William A. Stoltz  
     
Name: William A. Stoltz  
     
Title: President  
     
Date: May 12, 2015