AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 2004
REGISTRATION NO. 333-________
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
OC FINANCIAL, INC.
(Name of Small Business Issuer in Its Charter)
FEDERAL 6712 (TO BE APPLIED FOR)
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
6033 PERIMETER DRIVE
DUBLIN, OHIO 43017
(800) 687-6228
(Address and Telephone Number of Principal Executive Offices)
6033 PERIMETER DRIVE
DUBLIN, OHIO 43017
(Address of Principal Place of Business)
ROBERT W. HUGHES
6033 PERIMETER DRIVE
DUBLIN, OHIO 43017
(800) 687-6228
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
RICHARD S. GARABEDIAN, ESQ.
BENJAMIN M. AZOFF, ESQ.
LUSE GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W., SUITE 400
WASHINGTON, D.C. 20015
(202) 274-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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(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: [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
======================================== =================== ==================== ==================== =====================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------- ------------------- -------------------- -------------------- ---------------------
Common Stock, $0.01 par value per share 793,500 shares $10.00 $ 7,935,000 (1) $ 934
- ---------------------------------------- ------------------- -------------------- -------------------- ---------------------
(1) Estimated solely for the purpose of calculating the registration fee.
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 SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
PROSPECTUS
OC FINANCIAL, INC.
(PROPOSED HOLDING COMPANY FOR OHIO CENTRAL SAVINGS )
UP TO 793,500 SHARES OF COMMON STOCK
OC Financial, Inc., a Maryland corporation, is offering shares of common
stock for sale in connection with the conversion of Ohio Central Savings from
the mutual holding company form of organization to the stock form of
organization. All shares of common stock are being offered for sale at a price
of $10.00 per share. We anticipate that our shares of common stock will trade on
the OTC Bulletin Board.
We are offering up to 690,000 of common stock for sale on a best efforts
basis. We may sell up to 793,500 of common stock because of demand for the
shares or changes in market conditions, without resoliciting subscribers. We
must sell a minimum of 510,000 in order to complete the offering.
We are offering the shares of common stock in a "subscription offering"
in the following descending order of priority:
o First, to depositors of Ohio Central Savings with aggregate account
balances of at least $50 on September 30, 2003.
o Second, to Ohio Central Saving's tax-qualified employee benefit plans.
o Third, to depositors of Ohio Central Savings with aggregate account
balances of at least $50 on December 31, 2004.
o Fourth, to depositors of Ohio Central Savings as of [voting record
date].
Shares of common stock not purchased in the subscription offering may be
offered for sale to the general public in a "community offering." We also may
offer for sale shares of common stock not purchased in the subscription offering
or community offering through a "syndicated community offering" managed by
Keefe, Bruyette & Woods, Inc.
The minimum number of shares you may order is 25 shares. The offering is
expected to expire at 12:00 noon, Eastern Standard Time, on [expiration date].
We may extend this expiration date without notice to you until [extension date],
unless the Office of Thrift Supervision approves a later date, which may not be
beyond ____________, 2007. Once submitted, orders are irrevocable unless the
offering is terminated or is extended beyond [extension date], or the number of
shares of common stock to be sold is increased to more than 793,500 or decreased
to less than 510,000. If the offering is extended beyond [extension date], or if
the number of shares of common stock to be sold is increased to more than
793,500 or decreased to less than510,000, we will promptly return all funds
previously delivered to us to purchase shares of common stock in the offering,
and subscribers may be resolicited with the approval of the Office of Thrift
Supervision. Funds received during the offering will be held in a segregated
account at Ohio Central Savings or another FDIC insured depository institution
and will earn interest at our passbook savings rate.
Keefe, Bruyette & Woods, Inc. will assist us in selling our shares of
common stock on a best efforts basis. Keefe, Bruyette & Woods, Inc. is not
required to purchase any shares of the common stock that are being offered for
sale. Purchasers will not pay a commission to purchase shares of common stock in
the offering.
THIS INVESTMENT INVOLVES A DEGREE OF RISK,
INCLUDING THE POSSIBLE LOSS OF YOUR INVESTMENT.
PLEASE READ "RISK FACTORS" BEGINNING ON PAGE___.
================================================================================
TERMS OF THE OFFERING
PRICE: $10.00 PER SHARE
ADJUSTED
MINIMUM MAXIMUM MAXIMUM
------- ------- -------
Number of shares: 510,000 690,000 793,500
Gross offering proceeds: $ 5,100,000 $ 6,900,000 $ 7,935,000
Estimated offering expenses: $ 510,000 $ 510,000 $ 522,000
Estimated net proceeds: $ 4,590,000 $ 6,390,000 $ 7,413,000
Estimated net proceeds per share: $ 9.00 $ 9.26 $ 9.34
THESE SECURITIES ARE NOT DEPOSITS OR 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 OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
KEEFE, BRUYETTE & WOODS
The date of this prospectus is ______________, 2005.
[MAP SHOWING OHIO CENTRAL SAVINGS' MARKET AREA APPEARS HERE]
TABLE OF CONTENTS
PAGE
----
SUMMARY........................................................................................1
RISK FACTORS..................................................................................16
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA................................................24
FORWARD-LOOKING STATEMENTS....................................................................26
HOW WE INTEND TO USE THE PROCEEDS ............................................................27
OUR POLICY REGARDING DIVIDENDS ...............................................................28
MARKET FOR THE COMMON STOCK...................................................................29
PRO FORMA REGULATORY CAPITAL ANALYSIS ........................................................29
CAPITALIZATION................................................................................32
PRO FORMA DATA................................................................................33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........37
BUSINESS OF OC FINANCIAL......................................................................50
BUSINESS OF OHIO CENTRAL SAVINGS..............................................................51
SUPERVISION AND REGULATION....................................................................73
TAXATION......................................................................................80
MANAGEMENT OF OC FINANCIAL....................................................................82
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS.............................................90
THE CONVERSION AND REORGANIZATION.............................................................91
RESTRICTIONS ON ACQUISITION OF OC FINANCIAL..................................................112
DESCRIPTION OF CAPITAL STOCK.................................................................116
TRANSFER AGENT...............................................................................117
EXPERTS......................................................................................117
LEGAL AND TAX MATTERS........................................................................117
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................................117
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................................F-1
ABOUT THIS PROSPECTUS
The words "we," "our" and other similar references are intended to refer
to Ohio Central Savings and its subsidiary when relating to matters and time
periods prior to the completion of the conversion and reorganization, and to
refer to OC Financial, Inc., a Maryland corporation, and its subsidiaries
(including Ohio Central Savings) when referring to matters and time periods
after completion of the conversion and reorganization.
i
SUMMARY
The following summary highlights selected information in this
prospectus. It may not contain all the information that is important to you. For
additional information, you should read this entire prospectus carefully,
including the consolidated financial statements and the notes to the
consolidated financial statements.
OHIO CENTRAL SAVINGS
Ohio Central Savings is a full-service, community-oriented savings
association with total assets of $55.6 million, total net loans of $26.2 million
and total deposits of $32.3 million at September 30, 2004. We provide financial
services to individuals, families and businesses through our 2 full-service
banking offices, located in Dublin and Cleveland, Ohio. Originally organized in
1949 as a credit union, Ohio Central Savings converted from a federal credit
union in 1998 to a federal mutual savings association. As a credit union, Ohio
Central Savings could only serve customers that were members of its field of
membership group, which consisted of employees of about 200 various employers
located in the State of Ohio. As a federal savings association, Ohio Central
Savings may serve any member of the public. In September 2001, Ohio Central
Savings became a wholly-owned subsidiary of TFS Financial Corporation ("TFS
Financial"), which is a wholly-owned subsidiary of Third Federal Savings and
Loan Association of Cleveland, MHC, Cleveland, Ohio. Third Federal Savings and
Loan Association of Cleveland, MHC and its subsidiaries, other than Ohio Central
Savings and AutoARMtm, LLC ("AutoARMtm") will be referred to as "Third Federal"
in this prospectus for ease of reference unless the context requires otherwise.
In connection with the reorganization and conversion, TFS Financial will
divest Ohio Central Savings as a subsidiary and Ohio Central Savings will become
a subsidiary of OC Financial, Inc. ("OC Financial") as part of Ohio Central
Savings' conversion to stock form. Following the stock conversion and
reorganization, Ohio Central Savings will no longer be affiliated with TFS
Financial or Third Federal Savings and Loan Association of Cleveland, MHC.
Ohio Central Savings' business consists primarily of accepting deposits
from the general public and investing those deposits, together with funds
generated from operations and borrowings, primarily in new and used automobile
loans and to a lesser extent, one to four family residential mortgage loans and
consumer loans, commercial real estate loans and commercial business loans, as
well as servicing automobile loans that we originate and sell. We also offer
automobile loans through our wholly-owned subsidiary, AutoARMtm, which was
formed in August 2003 to provide automobile loan underwriting, funding and
servicing for financial institutions. We also invest in mortgage-backed
securities. We design our service delivery channels to suit the needs of our
customers, with an emphasis on delivering services electronically and on-demand
at our customers' convenience.
Ohio Central Savings continues to serve the customers and businesses
that were affiliated with Ohio Central Savings when the organization was a
credit union. Many of the businesses continue to provide Ohio Central with
payroll deposit and direct deposit from their employees. They also continue to
distribute information about accounts and services offered by Ohio Central
Savings and encourage participation from their employees.
During our affiliation with Third Federal, a major part of our business
was originating, selling and servicing auto loans for Third Federal.
Originations and sales to Third Federal will be discontinued as a part of this
transaction. The servicing of existing loans that we sold to Third Federal will
continue until all the loans in the portfolio are repaid.
1
Ohio Central Savings' executive offices are located at 6033 Perimeter
Drive, Dublin, Ohio 43017. Our telephone number at this address is (800)
678-6228. Our website address is www.ocsavings.com.
OC FINANCIAL, INC.
OC Financial is a newly-formed Maryland corporation that will own all of
the outstanding common stock of Ohio Central Savings upon completion of the
stock conversion and the reorganization. OC Financial has not engaged in any
business to date.
Our executive offices are located at 6033 Perimeter Drive, Dublin, Ohio
43017. Our telephone number at this address is (800) 678-6228.
OUR CURRENT ORGANIZATIONAL STRUCTURE
Ohio Central Savings is currently a wholly-owned subsidiary of TFS
Financial. Third Federal Savings and Loan Association of Cleveland, MHC owns
100% of the outstanding shares of common stock of TFS Financial. Third Federal
Savings and Loan Association of Cleveland, MHC is a mutual holding company that
has no stockholders. TFS Financial has not issued shares of stock to the public.
The depositors of Ohio Central Savings are members of Third Federal Savings and
Loan Association of Cleveland, MHC. The following chart shows our current
organizational structure. Non-financial institution subsidiaries are not shown
other than AutoARMtm.
---------------------------------------------------------------
Third Federal Savings and Loan Association
of Cleveland, MHC
---------------------------------------------------------------
100%
---------------------------------------------------------------
TFS Financial Corporation
---------------------------------------------------------------
100%
------------------- ---------------------------
Ohio Third Federal Savings and
Central Loan Association of
Savings Cleveland
------------------- ---------------------------
-------------------
AutoARMtm
-------------------
OUR PROPOSED ORGANIZATIONAL STRUCTURE
Pursuant to the terms of Ohio Central Savings' plan of conversion and
reorganization, Ohio Central Savings will reorganize from a subsidiary of TFS
Financial and convert from a mutual savings association to a stock savings
association and form OC Financial as its holding company. As part of the stock
conversion, we are offering for sale in a subscription offering, and if
necessary, a community offering and a syndicated community offering, shares of
common stock of OC Financial, a Maryland corporation. The following chart shows
our proposed organizational structure.
2
---------------------------------------------------------------
OC Financial
---------------------------------------------------------------
100%
---------------------------------------------------------------
Ohio Central Savings
---------------------------------------------------------------
100%
----------------------------------
AutoARMtm
----------------------------------
BUSINESS STRATEGY
Our primary business strategy for the past six years has been to
transform Ohio Central Savings from a traditional credit union to a
multi-faceted community based financial institution with a diversified balance
sheet and enhanced capabilities in retail banking products and services, while
developing managerial and technological resources and infrastructure capable of
supporting future growth. We became affiliated with Third Federal in 2001 in
order to avail ourselves of the benefits of being associated with a larger
organization who could provide operational support and capital to support our
growth. Third Federal's strength in mortgage loan origination and our strength
in automobile origination were viewed as complementary aspects of our respective
businesses.
In connection with our affiliation, the strategic plan implemented was
for Ohio Central Savings to emphasize automobile lending and for Third Federal
to originate residential mortgage loans for our customers. During 2004, we
determined that our best course of action to successfully implement our business
model is to become an independent organization in order to fully capitalize on
our automobile lending expertise and to reinitiate our residential mortgage
lending program. Since we became affiliated with Third Federal in September
2001, we have not originated any residential mortgage loans other than home
equity loans and non-conforming one-to four-family residential mortgage loans on
an infrequent basis (for example, rural properties), but rather referred
potential residential loan borrowers to Third Federal. Since we became
affiliated with Third Federal we have originated $117.0 million in automobile
loans of which $89.1 million were sold to Third Federal. We service these loans
as well and will continue to do so following the conversion and reorganization.
We intend to continue to pursue our business strategy after the
conversion and the reorganization, subject to changes necessitated by future
market conditions and other factors. We also intend to focus on the following:
o GROWING OUR ASSETS. Immediately following completion of the
conversion and reorganization we intend to rapidly increase our
assets mortgage backed securities and residential mortgage loans
to increase our earnings until we are able to originate a
sufficient volume of loans to provide a higher level of
earnings.
o RETAINING LOANS. We intend to retain more loans, such as
residential mortgage loans, in our loan portfolio in order to
increase our interest earning assets and income. Due to our
restricted capital base we have not been able to retain as many
loans as we could with the larger capital base we expect to
create following the conversion and reorganization.
o REDUCING OUR SECURITIES PORTFOLIO. Over the first few years
following completion of the conversion and organization, we
intend to reduce our mortgage-backed and other
3
mortgage related securities portfolio and replace such assets
with residential mortgage and other loans that should provide a
higher yield. We will continue to invest in such securities as
necessary for interest-rate risk and liquidity management.
o MAINTAINING THE QUALITY OF OUR LOAN PORTFOLIO. The quality of
our loan portfolio is a key factor in managing our growth. We
will continue to use risk management techniques, such as
independent internal and external loan reviews and risk-focused
portfolio credit analysis in overseeing the performance of our
loan portfolio.
o ACHIEVING EFFICIENT GROWTH BY LEVERAGING OUR EXISTING
OPERATIONAL AND MANAGEMENT RESOURCES. We have invested
significant resources in developing a management team and a
technological infrastructure that are capable of managing a
larger asset and deposit base than we have currently. As a
result, we have a loan department staffed with experienced
professionals who are capable of promoting the continued growth
and oversight of our loan portfolio, and we intend to approach
future growth opportunities with a view toward achieving
improved economies of scale.
o INCREASING OUR NONINTEREST INCOME BY DIVERSIFYING PRODUCTS AND
SERVICES. We intend to supplement our interest income by
increasing our fee income from new products and services.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations --Overview of Financial Condition and Results of
Operations-Business Strategy" for a further discussion of our business strategy.
REASONS FOR THE CONVERSION AND REORGANIZATION
Our primary reasons for the conversion and reorganization and raising
additional capital through the offering are:
o to become an independent financial institution to support loan
and deposit growth in the communities we serve or may serve in
the future;
o to improve our earnings by increasing our interest earning
assets and thereby utilize the staff capacity that we have but
have not been able to effectively use due to our restricted
capital base;
o to enhance our existing products and services and to support the
development of new products and services;
o to improve our overall competitive position;
o to provide better capital management tools, including the
ability to pay dividends and to repurchase shares of our common
stock, though neither is currently planned; and
o to retain and attract qualified personnel by establishing stock
benefit plans for management and employees, including a stock
option plan, a recognition and retention plan and an employee
stock ownership plan.
See "-Business Strategy."
4
TERMS OF THE CONVERSION AND THE REORGANIZATION
Under Ohio Central Savings' plan of conversion and reorganization, our
organization will convert to a fully public form of holding company structure.
In connection with the conversion, we are offering between 510,000 and 690,000
shares of common stock to eligible depositors of Ohio Central Savings, to our
employee benefit plans and, to the extent shares remain available, to the
general public. The number of shares of common stock to be sold may be increased
up to 793,500 as a result of demand for the shares or changes in the market for
financial institution stocks. Unless the number of shares of common stock to be
offered is increased to more than 793,500 or decreased to less than 510,000, or
the offering is extended beyond [extension date], subscribers will not have the
opportunity to change or cancel their stock orders.
The purchase price of each share of common stock to be issued in the
offering is $10.00. All investors will pay the same purchase price per share.
Investors will not be charged a commission to purchase shares of common stock.
Keefe, Bruyette & Woods, Inc. ("Keefe, Bruyette & Woods"), our marketing advisor
in the offering, will use its best efforts to assist us in selling shares of our
common stock. Keefe, Bruyette & Woods is not obligated to purchase any shares of
common stock in the offering.
IMPORTANT RISKS IN OWNING OC FINANCIAL COMMON STOCK
Before you decide to purchase stock, you should read the "Risk Factors"
section on pages __ through __ of this document for information regarding
certain risks to the stock offering.
PERSONS WHO MAY ORDER SHARES OF COMMON STOCK IN THE OFFERING
We are offering the shares of common stock in a "subscription offering"
in the following descending order of priority:
(1) First, to depositors of Ohio Central Savings with aggregate
account balances of at least $50 on September 30, 2003.
(2) Second, to Ohio Central Savings' tax-qualified employee benefit
plans.
(3) Third, to depositors of Ohio Central Savings with aggregate
account balances of at least $50 on December 31, 2004.
(4) Fourth, to depositors of Ohio Central Savings as of January __,
2005.
Shares of common stock not purchased in the subscription offering may be
offered for sale to the general public in a "community offering," with a
preference given to natural persons residing in the Ohio Counties of Franklin
and Cuyahoga. The community offering may begin concurrently with, during or
promptly after the subscription offering as we may determine at any time. We
also may offer for sale shares of common stock not purchased in the subscription
offering or community offering through a "syndicated community offering" managed
by Keefe, Bruyette & Woods.
We have the right to accept or reject, in our sole discretion, orders
received in the community offering or syndicated community offering. We have not
established any set criteria for determining whether to accept or reject a
purchase order in the community offering or the syndicated community offering,
and, accordingly, any determination to accept or reject purchase orders in the
community offering and the syndicated community offering will be based on the
facts and circumstances known to us at the time.
5
If we receive orders for more shares than we are offering, we may not be
able to fully or partially fill your order. Shares will be allocated first to
categories in the subscription offering. A detailed description of share
allocation procedures can be found in the section entitled "The Conversion and
Reorganization; Plan of Distribution."
HOW WE DETERMINED THE OFFERING RANGE AND THE $10.00 PER SHARE OFFERING PRICE
The amount of common stock that we are offering is based on an
independent appraisal of the estimated market value of Ohio Central Savings,
assuming the conversion and the reorganization are completed. RP Financial, LC.
("RP Financial"), our independent appraiser, has estimated that, as of November
26, 2004, this market value ranged from $5.1 million to $7.9 million, with a
midpoint of $6.0 million. 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 510,000 shares to 690,000 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. RP Financial's appraisal is based in part
on our financial condition and results of operations, the effect of the
additional capital raised by the sale of shares of common stock in the offering
and an analysis of a peer group of 12 publicly traded savings bank and thrift
holding companies that RP Financial considered comparable to us.
The following table presents a summary of selected pricing ratios for OC
Financial and our peer group companies identified by RP Financial. Our pro forma
price-to-core earnings multiple is based on earnings for the twelve months ended
September, 2004, while information for the peer group companies is based on
earnings for the twelve months ended September, 2004 or the latest available
trailing twelve-month period. Compared to the average pricing of the peer group,
our pro forma pricing ratios at the maximum of the offering range indicated a
premium of 700.9% on a price-to-earnings basis, a discount of 31.1% on a
price-to-book value basis and a discount of 29.2% on a price-to-tangible book
value basis. Our board of directors, in reviewing and approving the valuation,
considered the range of price-to-core earnings multiples and 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. The appraisal did not
consider one valuation approach to be more important than the other. Instead,
the appraisal concluded that these ranges represented the appropriate balance of
the two approaches to valuing OC Financial, and the number of shares to be sold,
in comparison to the identified peer group institutions. Specifically, in
approving the valuation, the board believed that OC Financial would not be able
to sell its shares at a price-to-book value that was in line with the peer group
taking into consideration the premium to earnings multiple. The estimated
appraised value and the resulting premium/discount took into consideration the
potential financial impact of the conversion and offering.
PRO FORMA PRO FORMA PRO FORMA
PRICE-TO- EARNINGS PRICE-TO-BOOK PRICE-TO-TANGIBLE
MULTIPLE VALUE RATIO BOOK VALUE RATIO
-------------------- -------------------- --------------------
OC FINANCIAL
Maximum............................... 166.67x 80.97% 80.97%
Minimum............................... 166.67 73.48 73.48
VALUATION OF PEER GROUP COMPANIES AS
OF NOVEMBER 26, 2004
Averages.............................. 20.81x 114.37% 117.44%
Medians............................... 20.79 112.32 113.28
THE INDEPENDENT APPRAISAL DOES NOT INDICATE PER SHARE MARKET VALUE. DO
NOT ASSUME OR EXPECT THAT THE VALUATION OF OC FINANCIAL AS INDICATED ABOVE MEANS
THAT, AFTER THE CONVERSION AND THE REORGANIZATION, THE SHARES OF COMMON STOCK
WILL TRADE AT OR ABOVE THE $10.00 OFFERING PRICE.
6
FURTHERMORE, THE PRICING RATIOS PRESENTED ABOVE WERE UTILIZED BY RP FINANCIAL TO
ESTIMATE OUR MARKET VALUE AND NOT TO COMPARE THE RELATIVE VALUE OF OUR SHARES OF
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.
The independent appraisal will be updated prior to the completion of the
conversion and reorganization. If the appraised value decreases below $5.1
million or increases above $7.9 million, we will promptly return all funds
previously delivered to us to purchase shares of common stock in the offering,
and subscribers may be resolicited with the approval of the Office of Thrift
Supervision. For a more complete discussion of the amount of common stock we are
offering for sale and the independent appraisal, see "The Conversion and
Reorganization-Determination of Share Price and Number of Shares to be Issued."
The market price in any particular company's stock is subject to various
factors, including the amount of proceeds a company raises and management's
ability to deploy proceeds (such as through investments, the acquisition of
other financial institutions or other businesses, the payment of dividends and
common stock repurchases). In addition, stock prices may be affected by general
market conditions, the interest rate environment, the market for financial
institutions, merger or takeover transactions, the presence of professional and
other investors who purchase stock on speculation, as well as other
unforeseeable events not necessarily in the control of management or the board
of directors.
RP Financial advised the board of directors that the appraisal was
prepared in conformance with the regulatory appraisal methodology. That
methodology requires a valuation based on an analysis of the trading prices of
comparable public companies whose stocks have traded for at least one year prior
to the valuation date. RP Financial also advised the board of directors that the
aftermarket trading experience of recent transactions was considered in the
appraisal as a general indicator of current market conditions, but was not
relied upon as a primary valuation methodology.
Our board of directors carefully reviewed the information provided to it
by RP Financial through the appraisal process, but did not make any
determination regarding whether prior standard mutual-to-stock conversions have
been undervalued, nor did the board draw any conclusions regarding how the
historical data reflected above may affect OC Financial's appraisal. Instead,
the board of directors engaged RP Financial to help it understand the regulatory
process as it applies to the appraisal and to advise the board of directors as
to how much capital OC Financial would be required to raise under the regulatory
appraisal guidelines.
AFTER-MARKET STOCK PRICE PERFORMANCE
In recent years, the prices of shares of common stock of financial
institutions or their standard holding companies have generally appreciated in
the period immediately following the completion of standard mutual-to-stock
conversions like ours. The appraisal report prepared by RP Financial included
examples of this after-market stock price performance for the three-month period
ended November 26,
7
2004. The following table presents stock price appreciation information for all
mutual holding company offerings and second step offerings by mutual holding
companies completed between August 26, 2004 and November 26, 2004. There were no
full stock conversions completed during this period.
MUTUAL HOLDING COMPANY OFFERINGS AND SECOND STEP OFFERINGS WITH
COMPLETED CLOSING DATES BETWEEN JANUARY 1, 2003 AND NOVEMBER 26, 2004
APPRECIATION FROM INITIAL TRADING DATE
-------------------------------------------------------
THROUGH
SIZE OF CONVERSION NOVEMBER 26,
TRANSACTION OFFERING(1) DATE 1 DAY 1 WEEK 1 MONTH 2004
- -------------------------------------- ------------ ------------ ----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
Second Step Conversions
Roebling Financial Corp. - NJ $ 9,108 10/01/04 (1.0)% (0.5)% (8.0)% (4.0)%
Mutual Holding Company Conversions
PSB Holdings, Inc. - CT $ 30,897 10/05/04 5.0 6.0 5.0 20.0
Atlantic Coast Federal Corp. - GA $ 58,190 10/05/04 17.5 23.1 30.0 41.5
Naugatuck Valley Fin. Corp. - CT $ 32,699 10/01/04 8.0 8.1 8.0 10.0
SI Financial Group, Inc. - CT $ 50,255 10/01/04 12.0 10.6 10.3 21.0
Average 10.6% 12.0% 13.3% 23.1%
The following table presents stock price performance information for all
mutual-to-full stock conversions completed between January 1, 2003 and November
26, 2004. The information shown in the following table was not included in the
appraisal report.
MUTUAL-TO-STOCK CONVERSION OFFERINGS WITH COMPLETED CLOSING DATES BETWEEN
JANUARY 1, 2003 AND NOVEMBER 26, 2004
APPRECIATION FROM INITIAL TRADING DATE
-------------------------------------------------------
THROUGH
SIZE OF CONVERSION NOVEMBER 26,
TRANSACTION OFFERING(1) DATE 1 DAY 1 WEEK 1 MONTH 2004
- -------------------------------------- ------------ ------------ ----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
Third Century Bancorp, Inc. - IN $ 16,531 06/30/04 13.2% 10.5% 12.5% 30.0%
SE Financial Corp. - PA $ 25,789 05/06/04 (0.5) (1.5) (6.0) 11.0
New Alliance Bancshares, Inc. - CT $ 1,024,938 04/02/04 51.7 45.3 36.5 47.8
KNBT Bancorp, Inc. - PA $ 202,012 11/03/03 68.8 67.5 70.5 71.1
Rainier Pacific Fin Group - WA $ 79,350 10/21/03 69.9 66.0 61.9 78.9
Community First Bancorp, Inc. - KY $ 2,777 06/27/03 20.0 20.0 20.5 40.0
Rantoul First Bank, s.b. - IL $ 1,910 04/02/03 15.1 20.0 23.5 40.0
Provident Fin. Services, Inc - NJ $ 596,183 01/16/03 55.0 56.5 51.5 60.0
CCSB Financial Corp. - MO $ 9,787 01/09/03 20.0 23.1 25.0 83.5
Average 34.8% 34.2% 32.9% 50.0%
- ------------------
(1) Reflects amount of stock sold in the offering.
Stock prices of some mutual-to-stock conversions have decreased, and not
increased. For example, while the above table illustrates an average
appreciation of 32.9% after one month of trading, the stock of one company was
trading below its initial offering price. Both of the tables above present only
short-term historical information on stock price performance, which may not be
indicative of the longer-term performance of such stock prices. They are also
not intended to predict how our shares of common stock may perform following the
conversion and the reorganization. The historical information in the tables may
not be meaningful to you because the data were calculated using a small sample
and the transactions from which the data were derived occurred primarily during
a low market interest rate environment, during which time the trading prices for
financial institution stocks typically increase.
Under certain market and other conditions, many investors consider an
investment in mutual-to-stock conversions to be an attractive one. We expect our
directors and executive officers, together with their associates, to subscribe
for 150,000 shares of common stock in the offering, or 25.0% of the shares to be
sold at the midpoint of the offering range.
THERE CAN BE NO ASSURANCE THAT OUR STOCK PRICE WILL NOT TRADE BELOW
$10.00 PER SHARE, AS HAS BEEN THE CASE FOR SOME MUTUAL-TO-STOCK CONVERSIONS.
BEFORE YOU MAKE AN INVESTMENT DECISION, WE URGE YOU TO CAREFULLY READ THIS
PROSPECTUS, INCLUDING, BUT NOT LIMITED TO, THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE ___.
8
LIMITS ON HOW MUCH COMMON STOCK YOU MAY PURCHASE
The minimum number of shares of common stock that may be purchased is 25
shares. Generally, no individual, or individual exercising subscription rights
through a qualifying account held jointly, may purchase more than 10,000 shares
of common stock. If any of the following persons purchases shares of common
stock, their purchases, in all categories of the offering, when combined with
your purchases, cannot exceed 20,000 shares:
o your spouse or relatives living in your house;
o most companies, trusts or other entities in which you are a
trustee, have a substantial beneficial interest or hold a senior
management position; or
o other persons who may be your associates or persons acting in
concert with you.
See the detailed description of "acting in concert" and "associate" in
"The Conversion and Reorganization-Limitations on Common Stock Purchases."
HOW YOU MAY PURCHASE SHARES OF COMMON STOCK
In the subscription offering and community offering, you may pay for
your shares only by:
(1) personal check, bank check or money order, payable to OC
Financial; or
(2) authorizing us to withdraw funds from the types of Ohio Central
Savings deposit accounts designated on the stock order form.
Ohio Central Savings is not permitted to knowingly lend funds to anyone
for the purpose of purchasing shares of common stock in the offering.
Additionally, you may not use a check drawn on a Ohio Central Savings line of
credit or a check from someone other than you to pay for shares of common stock.
You can subscribe for shares of common stock in the offering by
delivering a signed and completed original stock order form, together with full
payment or authorization to withdraw from one or more of your Ohio Central
Savings deposit accounts, as long as we receive the stock order form before
[expiration date], which is the end of the offering period. Checks will be
deposited with Ohio Central Savings or another FDIC insured depository
institution upon receipt. We will pay interest at Ohio Central Savings' passbook
savings rate from the date funds are received until completion or termination of
the conversion and the reorganization. Withdrawals from certificates of deposit
to purchase shares of common stock in the offering may be made without incurring
an early withdrawal penalty. All funds authorized for withdrawal from deposit
accounts with Ohio Central Savings must be in the accounts at the time the stock
order is received. However, funds will not be withdrawn from the accounts until
the completion of the offering and will earn interest at the applicable deposit
account rate until that time. A hold will be placed on those funds when your
stock order is received, making the designated funds unavailable to you. Please
provide a check instead of designating a direct withdrawal from Ohio Central
Savings accounts with check-writing privileges, because we cannot place holds on
checking accounts. If you request that we do so, 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(s). After we receive your order, your order cannot be
changed or cancelled unless the number of shares of common stock to be offered
is increased to more than 793,500 or decreased to less than 510,000, or the
offering is extended beyond [extension date].
9
By signing the stock order form, you are acknowledging receipt of a
prospectus and that the shares of common stock are not deposits or savings
accounts that are federally insured or otherwise guaranteed by Ohio Central
Savings, the Federal Deposit Insurance Corporation or any other government
agency.
You may be able to subscribe for shares of common stock using funds in
your individual retirement account, or IRA. However, shares of common stock must
be purchased through and held in a self-directed retirement account, such as
those offered by a brokerage firm. By regulation, Ohio Central Savings'
individual retirement accounts are not self-directed, so they cannot be used to
purchase or hold our common stock. If you wish to use some or all of the funds
in your Ohio Central Savings individual retirement account to purchase our
common stock, the applicable funds must be transferred to a self-directed
account maintained by an independent trustee, such as a brokerage firm, and the
purchase must be made through that account. If you do not have such an account,
you will need to establish one before placing your stock order. It may take
several weeks to transfer your Ohio Central Savings individual retirement
account to an independent trustee, so please allow yourself sufficient time to
take this action. An annual administrative fee may be payable to the independent
trustee. Because individual circumstances differ and processing of retirement
fund orders takes additional time, we recommend that you contact our Stock
Information Center promptly, preferably at least two weeks before the end of the
offering period, for assistance with purchases using your individual retirement
account or any other retirement account that you may have. Whether you may use
such funds for the purchase of shares in the stock offering may depend on time
constraints and, possibly, limitations imposed by the brokerage firm or
institution where the funds are held.
DELIVERY OF STOCK CERTIFICATES
Certificates representing shares of common stock sold in the offering
will be mailed to the persons entitled thereto at the certificate registration
address noted on the order form, as soon as practicable following consummation
of the offering and receipt of all necessary regulatory approvals. IT IS
POSSIBLE THAT, UNTIL CERTIFICATES FOR THE COMMON STOCK ARE DELIVERED TO
PURCHASERS, PURCHASERS MIGHT NOT BE ABLE TO SELL THE SHARES OF COMMON STOCK
WHICH THEY ORDERED, EVEN THOUGH THE COMMON STOCK WILL HAVE BEGUN TRADING.
HOW WE INTEND TO USE THE PROCEEDS
We estimate net proceeds from the conversion and reorganization will be
between $4.6 million and $6.4 million, or $7.4 million if the offering range is
increased by 15%. Approximately $3.5 million to $3.7 million of the net
proceeds, or $3.8 million if the offering range is increased by 15%, will be
invested in Ohio Central Savings. OC Financial intends to retain between $1.1
million and $2.7 million of the net proceeds, or $3.6 million if the offering
range is increased by 15%, and to invest the remainder in Ohio Central Savings.
We intend to utilize funds we retain to provide a loan to our employee stock
ownership plan to purchase shares in the offering and for general corporate
purposes.
The funds invested in Ohio Central Savings will be used to support
increased lending and new products and services and to replenish the funds used
by Ohio Central Savings to redeem its outstanding shares of common stock held by
TFS Financial for the sum of $792,000. The redemption fee is a negotiated amount
that is primarily based on our net earnings while we were affiliated with Third
Federal plus the $275,000 Third Federal contributed to us as capital. The net
proceeds retained by OC Financial and Ohio Central Savings also may be used for
future business expansion through acquisitions of banking or financial services
companies or new branches, although we have no such acquisitions or branches
currently planned. Initially, a substantial portion of the net proceeds will be
invested in short-term investments, investment-grade debt obligations and
mortgage-backed securities.
10
Please see the section of this Prospectus entitled "How We Intend to Use
the Proceeds From the Offering" for more information on the proposed use of the
proceeds from the offering.
YOU MAY NOT SELL OR TRANSFER YOUR SUBSCRIPTION RIGHTS
Regulations of the Office of Thrift Supervision 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,
including reporting persons to federal or state regulatory agencies, against
anyone who we believe has sold or given away his or her subscription rights. We
will not accept your order if we have reason to believe that you have sold or
transferred your subscription rights. You may not add the names of others for
joint stock registration unless they 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 deposit accounts, giving all names
on each account and the account number at the applicable eligibility date. Your
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.
DEADLINE FOR ORDERS OF COMMON STOCK
If you wish to purchase shares of common stock in the offering, we must
receive a properly completed original stock order form, together with full
payment for the shares of common stock, at either of our offices no later than
12:00 noon, Eastern Standard Time, on [expiration date], unless we extend this
deadline. A postmark prior to ______________, 2004 will not entitle you to
purchase shares of common stock unless we receive the envelope by
_______________, 2004. You may submit your order form by mail using the return
envelope provided, by overnight courier to the indicated address on the order
form, or by delivery to our Stock Information Center. Once we receive it, your
order is irrevocable unless the offering is terminated or extended beyond
[extension date] or the number of shares of common stock to be sold is decreased
to less than 510,000 shares or increased to more than 793,500 shares. If the
offering is extended beyond [extension date], or if the number of shares of
common stock to be sold is decreased to less than 510,000 shares or is increased
to more than 793,500 shares, we will promptly return all funds previously
delivered to us to purchase shares of common stock in the offering, and
subscribers may be resolicited with the approval of the Office of Thrift
Supervision.
Although 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 12:00 noon, Eastern Standard Time, on
______________, 2004, whether or not we have been able to locate each person
entitled to subscription rights.
STEPS WE MAY TAKE IF WE DO NOT RECEIVE ORDERS FOR THE MINIMUM NUMBER OF SHARES
If we do not receive orders for at least 510,000 shares of common stock,
we may take several steps in order to issue the minimum number of shares of
common stock in the offering range. Specifically, we may:
o increase the purchase and ownership limitations; and
o seek the approval of the Office of Thrift Supervision to extend
the offering beyond the [extension date] expiration date, so
long as we resolicit subscriptions that we have previously
received in the offering.
11
In addition, we may terminate the offering at any time prior to the
special meeting of members of Ohio Central Savings that is being called to vote
upon the conversion and reorganization, and at any time after member approval
with the approval of the Office of Thrift Supervision.
PURCHASES BY DIRECTORS AND OFFICERS
We expect our directors and executive officers, together with their
associates, to subscribe for 150,000 shares of common stock in the offering, or
25.0% of the shares to be sold at the midpoint of the offering range. The
purchase price paid by them for their subscribed shares will be the same $10.00
per share price paid by all other persons who purchase shares of common stock in
the offering. Purchases by directors, executive officers and their associates
will be included in determining whether the required minimum number of shares
has been subscribed for in the offering.
BENEFITS TO MANAGEMENT AND POTENTIAL DILUTION TO STOCKHOLDERS FOLLOWING THE
CONVERSION
We expect our tax-qualified employee stock ownership plan to purchase up
to 8% of the shares of common stock that we sell in the offering, or 55,200
shares of common stock, assuming we sell the maximum of the shares proposed to
be sold. If we receive orders for more shares of common stock than the maximum
of the offering range, the employee stock ownership plan will have first
priority to purchase shares over this maximum, up to a total of 8% of the shares
of common stock sold in the offering. We reserve the right to purchase shares of
common stock in the open market following the offering in order to fund the
employee stock ownership plan. This plan is a tax-qualified retirement plan for
the benefit of all our employees. Purchases by the employee stock ownership plan
will be included in determining whether the required minimum number of shares
has been sold in the offering. Assuming the employee stock ownership plan
purchases 55,200 shares in the offering, we will recognize additional annual
compensation expense of $27,600 over a 20-year period, assuming the shares of
common stock have a fair market value of $10.00 per share for the full 20-year
period. If, in the future, the shares of common stock have a fair market value
greater or less than $10.00, the compensation expense will increase or decrease
accordingly.
We also intend to implement a stock-based recognition and retention plan
and a stock option plan no earlier than six months after completion of the
conversion. Stockholder approval of these plans will be required. If adopted
within 12 months following the completion of the conversion, the stock
recognition and retention plan will reserve a number of shares not more than 4%
of the shares sold in the offering, or up to 27,600 shares of common stock at
the maximum of the offering range, for awards to key employees and directors, at
no cost to the recipients. If adopted within 12 months following the completion
of the conversion, the stock option plan will reserve a number of shares not
more than 10% of the shares of common stock sold in the offering, or up to
69,000 shares of common stock at the maximum of the offering range, for key
employees and directors upon their exercise. If the recognition and retention
plan and the stock option plan are adopted after one year from the date of the
completion of the conversion, such plans would be permitted to and may grant or
award shares of common stock and options greater than 4% and/or 10%,
respectively, of the shares of common stock sold in the offering, although such
plans, including the amounts awarded under such plans, may remain subject to
supervisory restrictions. We have not yet determined whether we will present
these plans for stockholder approval within 12 months following the completion
of the conversion and reorganization or whether we will present these plans for
stockholder approval more than 12 months following the completion of the
conversion.
If the shares of common stock awarded under the stock recognition and
retention plan come from authorized but unissued shares of common stock,
stockholders would experience dilution of up to approximately 3.9% in their
ownership interest in OC Financial. If the shares of common stock issued upon
the exercise of options granted under the stock option plan come from authorized
but unissued shares of common stock, stockholders would experience dilution of
approximately 9.1% in their
12
ownership interest in OC Financial. Awards made under these plans would be
subject to vesting over a period of years.
The following table summarizes the number of shares of common stock and
aggregate dollar value of grants (valuing each share granted at the offering
price of $10.00) that are expected under the stock recognition and retention
plan and the stock option plan if such plans are adopted within one year
following the completion of the conversion and the reorganization. The table
also shows the dilution to stockholders if all these shares are issued from
authorized but unissued shares, instead of shares purchased in the open market.
A portion of the stock grants shown in the table below may be made to
non-management employees.
NUMBER OF SHARES TO BE GRANTED OR PURCHASED VALUE OF GRANTS (1)
------------------------------------------- --------------------------
DILUTION
AS A RESULTING
PERCENTAGE FROM
AT AT OF COMMON ISSUANCE OF AT AT
MINIMUM MAXIMUM STOCK TO BE SHARES FOR MINIMUM MAXIMUM
OF OFFERING OF OFFERING ISSUED IN THE STOCK BENEFIT OF OFFERING OF OFFERING
RANGE RANGE OFFERING (2) PLANS (3) RANGE RANGE
----------- ----------- ------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
Employee stock ownership plan.... 40,800 55,200 8.0% --% $ 408,000 $ 552,000
Recognition and retention plan... 20,400 27,600 4.0 3.85 204,000 276,000
Stock option plan................ 51,000 69,000 10.0 9.09 -- --
---------- ---------- --------- --------- ----------- -----------
Total......................... 112,200 151,800 22.0% 12.94% $ 612,000 $ 828,000
========== ========== ========== ========== =========== ===========
- ---------------------------
(1) The actual value of restricted stock grants will be determined based on
their fair value as of the date grants are made. For purposes of this
table, fair value is assumed to be the same as the offering price of $10.00
per share. No value is given for options because their exercise price will
be equal to the fair market value of the common stock on the day the
options are granted. Proposed changes in accounting standards may require
us in the future to recognize expense when we grant stock options.
(2) The stock option plan and recognition and retention plan may award a
greater number of options and shares, respectively, if the plans are
adopted more than one year after the completion of the conversion.
(3) Calculated at the maximum of the offering range.
The actual value of restricted stock grants will be determined based on
their fair value (the market price of shares of common stock of OC Financial) as
of the date grants are made. The recognition and retention plan, which is
subject to stockholder approval, cannot be implemented until at least six months
after the completion of the conversion and reorganization. The following table
presents the total value of all shares to be available for award and issuance
under the recognition and retention plan, assuming the shares for the plan are
purchased or issued in a range of market prices from $8.00 per share to $18.00
per share.
SHARES AWARDED AT SHARES AWARDED AT SHARES AWARDED AT SHARES AWARDED AT
MINIMUM OF OFFERING MIDPOINT OF OFFERING MAXIMUM OF OFFERING MAXIMUM OF OFFERING
SHARE PRICE RANGE RANGE RANGE RANGE, AS ADJUSTED
- ------------------------ --------------------- ---------------------- --------------------- --------------------
(IN THOUSANDS, EXCEPT SHARE PRICE INFORMATION)
$ 8.00 $ 163,200 $ 192,000 $ 220,800 $ 253,920
$10.00 204,000 240,000 276,000 317,400
$12.00 244,800 288,000 331,200 380,880
$14.00 285,600 336,000 386,400 444,360
$16.00 326,400 384,000 441,600 507,840
$18.00 $ 367,400 $ 432,000 $ 496,800 $ 571,320
THE TABLE PRESENTED ABOVE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
THERE CAN BE NO ASSURANCE THAT OUR STOCK PRICE WILL NOT TRADE BELOW $10.00 PER
SHARE. BEFORE YOU MAKE AN INVESTMENT DECISION, WE URGE YOU TO CAREFULLY READ
THIS PROSPECTUS, INCLUDING, BUT NOT LIMITED TO, THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE___.
13
MARKET FOR COMMON STOCK
Due to the relatively small size of our initial public stock offering,
our stock will be quoted on the OTC Bulletin Board. The OTC Bulletin Board is a
market with generally less liquidity and fewer buyers and sellers than the
Nasdaq Stock Market. Even if a liquid market develops for our stock, there is no
assurance that it can be maintained. An active, orderly trading market depends
on the presence and participation of willing buyers and sellers which neither OC
Financial nor the market makers can control. This may affect your ability to
sell your shares on short notice, and the sale of a large number of shares at
one time could temporarily depress the market price. For these reasons, our
stock should not be viewed as a short term investment.
Additionally, the aggregate purchase price of stock sold in the offering
is based on an independent appraisal. After our shares begin trading, the
marketplace will determine the price per share, which may be influenced by
factors, such as prevailing interest rates, investor perceptions of OC
Financial, economic conditions and the outlook for financial institutions. Price
fluctuations may be unrelated to the operating performance of particular
companies. In several cases, due to market volatility, shares of common stock of
newly converted savings institutions traded below the price at which the shares
were sold in their initial public offerings. We cannot assure you that, after
the conversion and reorganization, the trading price of our common stock will be
at or above $10.00. See "Market for the Common Stock."
WE CURRENTLY DO NOT INTEND TO PAY CASH DIVIDENDS
We do not currently intend to pay cash dividends. We intend to retain
our earnings and the net proceeds of the stock offering to support our future
growth. We may, however, determine to pay cash dividends in the future.
OC Financial currently has no intention to initiate any action which
leads to a return of capital (as distinguished from a dividend) to stockholders
of OC Financial. Regulations of the Office of Thrift Supervision prohibit a
return of capital during the term of the three year business plan submitted by
Ohio Central Savings to the Office of Thrift Supervision in connection with the
stock offering. See "Our Policy Regarding Dividends."
TAX CONSEQUENCES
As a general matter, the conversion and reorganization will not be a
taxable transaction for federal income or state tax purposes to Ohio Central
Savings, OC Financial or persons eligible to subscribe in the subscription
offering.
CONDITIONS TO COMPLETION OF THE CONVERSION AND THE REORGANIZATION
We cannot complete the conversion and the reorganization unless:
o The plan of conversion and reorganization is approved by at
least A MAJORITY OF VOTES ELIGIBLE to be cast by the depositors
of Ohio Central Savings. A special meeting of depositors to
consider and vote upon the plan of conversion and reorganization
has been set for _______________, 2005;
o We have received orders to purchase at least the minimum number
of shares of common stock offered; and
14
o We receive the final approval of the Office of Thrift
Supervision to complete the conversion and the reorganization.
HOW YOU CAN OBTAIN ADDITIONAL INFORMATION
Our branch office personnel may not, by law, assist with
investment-related questions about the offering. If you have any questions
regarding the conversion or the offering, please call or visit our Stock
Information Center, toll free, at 1-800-678-6228 (extension 134), Monday through
Friday between 9:00 a.m. and 5:00 p.m., Eastern Standard Time. The Stock
Information Center is located at our main office, 6033 Perimeter Drive, Dublin,
Ohio. The Stock Information Center will be closed on weekends and bank holidays.
TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR
TO THE EXPIRATION DATE OF [EXPIRATION DATE] IN ACCORDANCE WITH FEDERAL LAW, NO
PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO [EXPIRATION DATE] OR
HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO [EXPIRATION DATE].
15
RISK FACTORS
You should consider carefully the following risk factors in evaluating
an investment in the shares of common stock.
Our automobile loan portfolio exposes us to increased credit risk.
At September 30, 2004, our portfolio of automobile loans totaled $17.5
million, or 66.3% of our total loans. Although we plan to increase our
residential mortgage lending, we will continue to devote a substantial portion
of our portfolio to automobile loans. These types of loans generally have
greater credit risk than one- to four-family residential mortgage loans because
the collateral may not provide an adequate source of repayment due to
depreciation, damage and loss. In addition, we face strong competition from
automobile manufacturers who offer loans for new automobiles that are far below
market rates. This competition has negatively affected our ability to generate
new automobile loans and can do so in the future. For a complete discussion of
our loss history with respect to our automobile loans, see "Business of Ohio
Central Savings -Delinquent Loans, Other Real Estate Owned and Classified
Assets-Allocation of Allowance for Loan Losses."
Our profitability has been marginal over the past year and there can be no
assurance that our earnings will increase.
Our net income for the fiscal years ended September 30, 2003 and 2004
was approximately $214,000 and $25,000, respectively. We believe the decrease in
our net income in fiscal 2004 was primarily due to the reduction in our
automobile loan originations, thereby substantially decreasing our fee income.
Due to our restricted capital base and the lack of other outlets for our
automobile loans which we had not developed due to our affiliation with Third
Federal, our ability to generate automobile loans and retain them in our
portfolio has been severely affected. For example, in fiscal years 2003 and
2004, respectively, we generated $47.9 million and $36.6 million in automobile
loans of which $38.6 million and $25.0 million, respectively, were sold to Third
Federal. We continue to service such loans and will do so following completion
of the conversion and reorganization. We were not able to generate substitute
earnings by increasing other interest earning assets in a meaningful amount. We
believe that the business model we have developed over the past three years is
best suited for an independent organization rather than being affiliated with a
larger organization. Following the conversion and reorganization we plan to
retain automobile loans in our portfolio and resume our mortgage lending
program. We anticipate the increased lending activity will increase our
earnings, but there can be no guarantee that we will be able to accomplish this
objective.
Our efficiency ratio (non-interest expense divided by net interest
income plus non-interest income) was 96.86% for the year ended September 30,
2004 and 85.35% for the year ended September 30, 2003. These rates were far in
excess of our peer group which was 73.4% at September 30, 2004, reflecting the
high fixed costs of operating two branches, maintaining a staff and
infrastructure that is capable of generating a greater number of loans and the
multiple product lines we offer for an institution our size. Our efforts to grow
in order to increase our net interest and non-interest income relative to our
non-interest expenses has been constrained by our relatively limited capital
base. We believe that our existing systems will be better utilized as we use the
capital raised in the conversion and reorganization to support efforts to make
more loans, attract new customers and increase business with existing customers.
Our costs, however, will increase in the future due to stock-based incentive
plans that we will adopt and compliance with the federal securities laws. There
can be no assurance that our expansion plans will be successful and result in
increased profitability.
16
We will use a third party to originate one- to four-family residential loans.
We have used Third Federal since 2001 to underwrite, process and close
residential mortgage loans for customers that we have referred to Third Federal.
These loans were retained by Third Federal. Substantially all of our current
portfolio of one- to four-family residential mortgage loans were originated
prior to our affiliation with Third Federal. Thus, we have generally not made
any mortgage loans, other than home equity loans, in over three years. Following
our separation from Third Federal we intend to use a third party based in the
Columbus metropolitan area to underwrite, process and close our residential
mortgage loans. We will fund and service these loans. We anticipate retaining a
majority of these loans in our portfolio subject to our liquidity needs, capital
levels and asset and liability management concerns. We intend to use this
company in order to offer our customers this loan product without the expense of
an in-house residential mortgage loan department. We intend to continue this
relationship for the foreseeable future. Should we discontinue this relationship
or otherwise be unable to use this company in the future, our ability to
originate residential mortgage loans may be disrupted unless we are able to find
a suitable replacement or have the capability to perform the function through
our lending staff. Our income may be negatively affected if our lending program
is disrupted. In the event the volume our mortgage loan origination is
unsatisfactory, we may purchase one-to four-family residential mortgage loans in
our market area to increase our interest earning assets and for asset liability
management. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We have relied on Third Federal for the past three years to provide several of
our operational needs.
Following our affiliation with Third Federal, we relied on its staff to
provide support for a number of aspects of our operations including
administration of the 401(k) plan of Third Federal in which our employees
participated as well as for marketing support. In addition, we compensated Third
Federal for our proportionate share of tax and independent auditing services.
Following the conversion and reorganization we will incur the cost of
maintaining our 401(k) plan that we will establish, marketing services and tax
and auditing services, which may be more costly than participating with Third
Federal in the past.
Reliance on chief executive officer.
Not unlike many small institutions, we rely substantially on our
President and Chief Executive Officer, Robert W. Hughes. In the event Mr. Hughes
reduces his involvement in Ohio Central Savings' operations, which is not
currently contemplated, Ohio Central Savings' operations could be adversely
affected.
If our allowance for loan losses is not sufficient to cover actual loan losses,
our earnings could decrease.
In the event that our loan customers do not repay their loans according
to the terms of the loans, and the collateral securing the repayment of these
loans is insufficient to cover any remaining loan balance, we could experience
significant loan losses, which could have a material adverse effect on our
operating results. We make various assumptions and judgments about the
collectibility of our loan portfolio, including the creditworthiness of our
borrowers and the value of the real estate and other assets, if any, serving as
collateral for the repayment of our loans. As of September 30, 2004, our
allowance for loan losses was $230,585 , representing 0.88% of total loans and
591.24% of nonperforming loans as of that date. In determining the amount of our
allowance for loan losses, we rely on our loan quality reviews, our experience
and our evaluation of economic conditions affecting the quality of our loan
products, among other factors. If our judgments are incorrect, our allowance for
loan losses may not be
17
sufficient to cover probable losses inherent in our loan portfolio, which may
require additions to our allowance. Any material additions to our allowance for
loan losses would materially decrease our net income.
As we increase the amount of loans that we originate and retain in our
portfolio, we anticipate that our allowance for loan losses will increase. Our
business strategy also calls for continued origination of automobile loans,
which typically expose us to greater risk than one- to four-family residential
real estate loans. As we further increase the amount of these loans in our loan
portfolio, we may increase our provisions for loan losses, which could adversely
affect our consolidated results of operations.
In addition, bank regulators periodically review our allowance for loan
losses and may require us to increase our provisions for loan losses or
recognize further loan charge-offs. Any increase in our allowance for loan
losses or loan charge-offs as required by regulatory authorities could have a
material adverse effect on our consolidated results of operations and financial
condition.
Holders of OC Financial common stock may not be able to sell their shares when
desired if a liquid trading market does not develop, or for $10.00 or more per
share even if a liquid trading market develops.
Due to the relatively small size of our initial public stock offering,
our stock will be quoted on the OTC Bulletin Board. The OTC Bulletin Board is a
market with generally less liquidity and fewer buyers and sellers than the
Nasdaq Stock Market. Even if a liquid market develops for our stock, there is no
assurance that it can be maintained. An active, orderly trading market depends
on the presence and participation of willing buyers and sellers which neither OC
Financial nor the stock's market makers can control. This may affect your
ability to sell your shares on short notice, and the sale of a large number of
shares at one time could temporarily depress the market price. For these
reasons, our stock should not be viewed as a short-term investment.
Additionally, the aggregate purchase price of stock sold in the offering
is based on an independent appraisal. After our shares begin trading, the
marketplace will determine the price per share, which may be influenced by
various factors, such as prevailing interest rates, investor perceptions of OC
Financial, economic conditions and the outlook for financial institutions. Price
fluctuations may be unrelated to the operating performance of particular
companies. In several cases, due to market volatility, shares of common stock of
newly converted savings banks traded below the price at which the shares were
sold in the companies' initial public offerings. We cannot assure you that,
after the conversion and reorganization, the trading price of our common stock
will be at or above $10.00.
Changes in market interest rates could adversely affect our financial condition
and results of operations.
Our financial condition and results of operations are significantly
affected by changes in market interest rates because our assets are primarily
loans and mortgage-backed securities and our liabilities are primarily deposits.
Our results of operations depend substantially on our net interest income, which
is the difference between the interest income that we earn on our
interest-earning assets and the interest expense that we pay on our
interest-bearing liabilities.
Due to our marginal profitability in our latest fiscal year, changes in
interest rates may have a greater impact on us than other more profitable
financial institutions. Institutions with higher levels of net income may be
more likely to withstand such interest rate changes. To be profitable, we have
to earn more money in interest that we receive on loans and our investments than
we pay in interest to our depositors and lenders. Despite recent increases in
interest rates, interest rates remain near historically
18
low levels. As interest rates rise, our net interest income could be reduced
because interest rates paid on interest-bearing liabilities, including deposits
and borrowings, may increase more quickly than interest received on
interest-earning assets, including loans and mortgage-backed and investment
securities. In a rising rate environment we may fail to produce positive
earnings until our loan portfolio reprices with higher rates. In addition,
rising interest rates may hurt our income because they may reduce the demand for
loans and the interest and fee income earned on such loans as well as the value
of our mortgage-related and investment securities. However, in a declining rate
environment, we may also be susceptible to the payoff or refinance of high rate
mortgage loans and mortgage-backed securities that could reduce our net interest
income. For a further discussion of how changes in interest rates could impact
us, see "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Asset Liability Management."
We also are subject to reinvestment risk associated with changes in
interest rates. Changes in interest rates may affect the average life of loans
and mortgage-related securities. Decreases in interest rates often result in
increased prepayments of loans and mortgage-related securities, as borrowers
refinance their loans to reduce borrowing costs. Under these circumstances, we
are subject to risk that we are unable to reinvest the cash received from such
prepayments in loans or other investments that have interest rates that are
comparable to the interest rates on the prepaid loans and securities. Increases
in interest rates may decrease loan demand and may make it more difficult for
borrowers to repay adjustable rate loans.
We evaluate interest rate sensitivity using a model that estimates the
change in Ohio Central Savings' net portfolio value over a range of interest
rate scenarios. Net portfolio value is the discounted present value of expected
cash flows from assets, liabilities and off-balance sheet contracts. At
September 30, 2004, in the event of an immediate 300 basis point increase in
interest rates, we would be expected to experience a 13.03% decrease in net
portfolio value. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The future price of the shares of common stock may be less than the purchase
price in the conversion and reorganization.
The $10.00 per share price for the common stock in the offering was not
determined through a market mechanism. Instead, we selected this price primarily
because it is the price most commonly used in mutual-to-stock conversions of
financial institutions. We cannot assure you that if you purchase shares of
common stock in the offering you will be able to sell them later at or above the
$10.00 purchase price in the offering at any future time. In many cases, shares
of common stock issued by newly converted savings institutions or mutual holding
companies have traded below the price at which such shares were sold in the
offering conducted by those companies. The aggregate purchase price of the
shares of common stock sold in our offering will be based on an independent
appraisal we have received from RP Financial. The appraisal is not intended, and
should not be construed, as a recommendation of any kind as to the advisability
of purchasing shares of common stock. The valuation is an appraisal of the value
of our equity as a whole and not a determination of the value of an individual
share of our common stock. The valuation is based on estimates and projections
of a number of matters, all of which are subject to change from time to time.
After our shares begin trading, the trading price of our common stock will be
determined by the marketplace, and may be influenced by many factors, including
prevailing interest rates, the overall performance of the economy, external
factors such as geopolitical events, investor perceptions of OC Financial, our
performance and the outlook for the financial institutions industry in general.
19
Our return on stockholders' equity will continue to be low following the
offering.
Net income divided by average stockholders' equity, known as return on
equity, is a ratio many investors use to compare the performance of a financial
institution to its peers. We expect our return on equity to continue to be low
until we are able to use the additional capital raised in the offering to
increase our interest-earning assets. Our return on equity will be reduced by
the capital raised in the offering, higher expenses from the costs of being a
public company, the termination of future asset sales to Third Federal and added
expenses associated with our employee stock ownership plan and any stock
recognition and retention plan that we intend to establish in the future. Until
we can increase our net interest income and noninterest income, we expect our
return on equity to be below the industry average, which may negatively affect
the value of our common stock.
Our return on equity (ratio of net income to average equity) for the
year ended September 30, 2004 was 0.66%. The average return on equity for the
twelve months ended September 30, 2004 for a peer group determined by RP
Financial was 5.39%. On a pro forma basis, assuming we sold 600,000 shares or
the midpoint of the valuation range of common stock in the offering, and we
invested the net proceeds we generated in the offering for additional earnings
during the period, our return on pro forma equity for the twelve months ended
September 30, 2004 would have been 0.45%. See "Pro Forma Data."
Our future success is dependent on our ability to compete effectively in the
highly competitive banking industry.
We face substantial competition in all phases of our operations from a
variety of different competitors. Our future growth and success will depend on
our ability to compete effectively in this highly competitive environment. To
date, we have grown our business successfully by focusing on our geographic
markets and emphasizing the high level of service and responsiveness desired by
our customers. We compete for loans, deposits and other financial services with
other commercial banks, thrifts, credit unions, brokerage houses, mutual funds,
insurance companies and specialized finance companies. Many of our competitors
offer products and services that we do not offer, and many have substantially
greater resources and lending limits, name recognition and market presence that
benefit them in attracting business. In addition, larger competitors may be able
to price loans and deposits more aggressively than we do, and smaller newer
competitors may also be more aggressive in pricing loans and deposits in order
to increase their market share. Some of the financial institutions and financial
services organizations with which we compete are not subject to the extensive
regulations imposed on savings institutions and their holding companies. As a
result, these nonbank competitors have certain advantages over us in accessing
funding and in providing various financial services.
Our stock-based benefit plans will increase our costs, which will reduce our
profitability and stockholders' equity.
We intend to implement a recognition and retention plan after the
offering, subject to receipt of stockholder approval. Under this plan, our
officers and directors may be awarded, at no cost to them, shares of common
stock in an aggregate amount equal to not less than 4% of the shares of common
stock sold in the offering if the plan is adopted within 12 months after
completion of the conversion, and exceeding 4% of the shares sold in the
offering if adopted more than 12 months after the completion of the conversion.
We have not yet determined whether we will present these plans for stockholder
approval within 12 months following the completion of the conversion and
reorganization or whether we will present these plans for stockholder approval
more than 12 months following the completion of the conversion and
reorganization. We will incur an expense for the shares of common stock awarded
under the recognition plan over their vesting period equal to the fair market
value of the shares on the date they are awarded. The recognition and retention
plan cannot be implemented until at least six months after the
20
completion of the offering. If the plan is adopted within 12 months after the
completion of the conversion, it is subject to Office of Thrift Supervision
regulations. Such plans, including the amounts awarded under such plans, may
remain subject to supervisory restrictions if adopted more than 12 months
following the completion of the conversion and reorganization.
If the fair market value of shares of common stock to be granted is the
same as the purchase price in the offering, the aggregate expense resulting from
the grant would be between $204,000, pre-tax at the minimum of the offering
range and $552,000, pre-tax at the adjusted maximum of the offering range
(assuming the recognition and retention plan is adopted within one year
following the completion of the conversion and the offering). To the extent the
fair market value of the shares of common stock at the time of grant exceeds the
offering price of $10.00 per share, the expense would exceed the range described
above. Conversely, to the extent the fair market value of such shares is below
the offering price of $10.00 per share, the expense would be less than the range
described above.
We also intend to implement a stock option plan after the offering,
subject to receipt of stockholder approval. On March 31, 2004, the Financial
Accounting Standard's Board issued an Exposure Draft entitled "Share-Based
Payment - an amendment of Statements No. 123 and 95," which would require
companies to incur, as an expense, the fair value of stock options and other
stock-based compensation to employees beginning in 2006. If we elect or are
required to record an expense for our stock-based compensation plans using the
fair value method as describe in the Exposure Draft, we could have significant
compensation and benefits expense.
The implementation of stock-based benefit plans following the offering may
dilute your ownership interest.
Our stock-based benefit plans will be funded either through shares
purchased in open market transactions, if permitted, or from the issuance of
authorized but unissued shares of common stock of OC Financial. While our
intention is to fund these plans through open market purchases, stockholders
will experience a reduction or dilution in ownership interest of approximately
12.3% in the event newly issued shares are used to fund stock options and stock
awards equal to 10% and 4%, respectively, of the shares sold in the offering.
Our failure to effectively utilize the net proceeds of the offering could reduce
our profitability.
We intend to contribute between $3.5 million and $3.8 million of the net
proceeds of the offering to Ohio Central Savings, but not less than the amount
necessary to ensure that Ohio Central Savings has at least a 10% tangible
regulatory capital ratio upon completion of the conversion and reorganization.
We will use $792,000 of the net proceeds to replenish the funds used to redeem
our current outstanding common stock issued to TFS Financial Corporation
pursuant to the divestiture agreement that we have entered into with TFS
Financial Corporation and Third Federal Savings and Loan Association of
Cleveland, MHC. We may also use the remaining net proceeds for other general
corporate purposes, and possibly to finance the acquisition of other financial
institutions or financial services companies or to fund the payment of
dividends, repurchases of shares of our common stock or the purchase of
securities. We also expect to use a portion of the net proceeds to fund the
purchase of shares of common stock in the offering by the employee stock
ownership plan. Ohio Central Savings may use the proceeds it receives to
establish or acquire new branches, acquire financial institutions or financial
services companies, fund new loans, purchase investment securities or for
general corporate purposes, although no acquisitions or new branches are
currently planned. 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 could have an
adverse effect on our results of operations.
21
Various factors may make takeover attempts that you want to succeed more
difficult to achieve.
Provisions of our articles of incorporation and bylaws, federal
regulations, Maryland law and various other factors may make it more difficult
for companies or persons to acquire control of OC Financial without the consent
of our board of directors. You may want a takeover attempt to succeed because,
for example, a potential acquiror could offer a premium over the then prevailing
price of our common stock. The factors that may discourage takeover attempts or
make them more difficult include:
o OFFICE OF THRIFT SUPERVISION REGULATIONS. Office of Thrift
Supervision regulations prohibit, for three years following the
completion of a mutual-to-stock conversion, the direct or
indirect acquisition of more than 10% of any class of equity
security of a converted savings institution without the prior
approval of the Office of Thrift Supervision.
o ARTICLES OF INCORPORATION, BYLAWS AND STATUTORY PROVISIONS.
Provisions of the articles of incorporation and bylaws of OC
Financial and Maryland law may make it difficult and expensive
to pursue a takeover attempt that our board of directors
opposes, even if the takeover is favored by a majority of our
stockholders. Provisions of our articles of incorporation and
bylaws also may make it difficult to remove our current board of
directors or management if our board of directors opposes the
removal. We have elected to be subject to the Maryland Business
Combination Act, which places restrictions on mergers and other
business combinations with large shareholders. In addition, our
articles of incorporation provide that certain mergers and other
similar transactions, as well as amendments to our articles of
incorporation, must be approved by stockholders owning at least
two-thirds of our shares of common stock entitled to vote on the
matter unless first approved by at least two-thirds of our
entire board of directors. If approved by at least two-thirds of
our board of directors, the action must still be approved by a
majority of our shares entitled to vote on the matter. In
addition, a director can be removed from office, but only for
cause, if such removal is approved by stockholders owning at
least two-thirds of our shares of common stock entitled to vote
on the matter, unless first approved by at least two-thirds of
our board of directors (excluding the director whose removal is
sought). If approved by at least two-thirds of our board of
directors, the removal may be with or without cause, but must
still be approved by a majority of our voting shares entitled to
vote on the matter. Additional provisions include limitations on
the voting rights of any beneficial owners of more than 10% of
our common stock. Our bylaws, which can only be amended by the
board of directors, also contain provisions regarding the
timing, content and procedural requirements for stockholder
proposals and nominations.
o REQUIRED CHANGE-IN-CONTROL PAYMENTS AND ISSUANCE OF STOCK
OPTIONS. We intend to enter into employment agreements with
certain executive officers, which will require payments to be
made to them in the event their employment is terminated
following a change in control of OC Financial or Ohio Central
Savings. We also intend to issue stock options to key employees
and directors that will require payments to them in connection
with a change in control of OC Financial. These payments may
have the effect of increasing the costs of acquiring OC
Financial, thereby discouraging future takeover attempts.
22
We continually encounter technological change, and may have fewer resources than
many of our competitors to continue to invest in technological improvements.
The financial services industry is undergoing rapid technological
changes, with frequent introductions of new technology-driven products and
services. The effective use of technology increases efficiency and enables
financial institutions to better serve customers and to reduce costs. Our future
success will depend, in part, upon our ability to address the needs of our
customers by using technology to provide products and services that will satisfy
customer demands for convenience, as well as to create additional efficiencies
in our operations. Many of our competitors have substantially greater resources
to invest in technological improvements. We may not be able to effectively
implement new technology-driven products and services or be successful in
marketing these products and services to our customers.
Our business may be adversely affected by the highly regulated environment in
which we operate.
We are subject to extensive federal and state legislation, regulation,
examination and supervision. Recently enacted, proposed and future legislation
and regulations have had, and will continue to have a material adverse effect on
our business and operations. Our success depends on our continued ability to
comply with these laws and regulations. Some of these regulations may increase
our costs. While we cannot predict what effect any future changes in these laws
or regulations or their interpretations would have on us, these changes or
interpretations may adversely affect our future operations.
23
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected consolidated historical
financial and other data of Ohio Central Savings for the periods and at the
dates indicated. The information at September 30, 2004 and 2003 and for the
years ended September 30, 2003 and 2004 is derived in part from, and should be
read together with, the audited consolidated financial statements and notes
thereto of Ohio Central Savings beginning at page F-2 of this prospectus.
AT SEPTEMBER 30,
------------------------------
2004 2003
-------------- --------------
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets............................................................ $ 55,567 $ 50,077
Loans, net (including loans held for sale).............................. 26,197 26,700
Securities available for sale........................................... -- --
Securities held to maturity............................................. 22,971 19,103
Deposits................................................................ 32,261 29,887
Borrowings.............................................................. 16,450 12,450
Shareholder's equity.................................................... 3,754 3,730
YEARS ENDED SEPTEMBER 30,
------------------------------
2004 2003
-------------- --------------
(IN THOUSANDS)
SELECTED OPERATING DATA:
Interest and dividend income............................................ $ 2,673 $ 2,673
Interest expense........................................................ 1,294 1,196
-------------- --------------
Net interest income.................................................. 1,379 1,477
Provision for loan losses............................................... 35 60
-------------- --------------
Net interest income after provision for loan losses.................. 1,344 1,417
Non-interest income.....................................................
Loan sales and servicing............................................. 449 620
Other................................................................ 510 525
Non-interest expense ................................................... 2,264 2,238
-------------- --------------
Income before income tax expense........................................ 39 324
Income tax expense...................................................... 14 110
-------------- --------------
Net income........................................................... $ 25 $ 214
============== ==============
(FOOTNOTES ON FOLLOWING PAGE)
24
AT OR FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------
2004 2003
-------------- --------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on assets (ratio of net income to average total assets)............ .05% .45%
Return on equity (ratio of net income to average equity).................. .66% 5.93%
Average interest rate spread (1).......................................... 2.31% 2.82%
Net interest margin (2)................................................... 2.61% 3.21%
Efficiency ratio (3)...................................................... 96.86% 85.35%
Non-interest expense to average total assets.............................. 4.15% 4.67%
Average interest-earning assets to average interest-bearing liabilities... 112.34% 115.05%
ASSET QUALITY RATIOS:
Non-performing assets to total assets..................................... .07% .07%
Non-performing loans to total loans....................................... .15% .13%
Allowance for loan losses to non-performing loans......................... 592.31% 638.24%
Allowance for loan losses to total loans.................................. .88% .81%
CAPITAL RATIOS:
Equity to total assets at end of period................................... 6.76% 7.45%
Average equity to average assets.......................................... 6.90% 7.53%
Tier 1 leverage ratio..................................................... 6.76% 7.45%
OTHER DATA:
Number of full service offices............................................ 2 2
- -------------------------------
(1) The average interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted- average
cost of interest-bearing liabilities for the period.
(2) The net interest margin represents net interest income as a percent of
average interest-earning assets for the period.
(3) The efficiency ratio represents non-interest expense divided by the sum of
net interest income and non-interest income.
25
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be
identified by the use of such words such as "estimate," "project," "believe,"
"intend," "anticipate," "plan," "seek," "expect," "will," "may" and words of
similar meaning. These forward-looking statements include, but are not limited
to:
o statements of our goals, intentions and expectations;
o statements regarding our business plans, prospects, growth and
operating strategies;
o statements regarding the asset quality of our loan and
investment portfolios; and
o estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and
expectations and are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change. We are under no duty to and do not take any obligation to
update any forward-looking statements after the date of this prospectus.
The following factors, among others, could cause actual results to
differ materially from the anticipated results or other expectations expressed
in the forward-looking statements:
o general economic conditions, either nationally or in our market
areas, that are worse than expected;
o competition among depository and other financial institutions;
o inflation and changes in the interest rate environment that
reduce our margins or reduce the fair value of financial
instruments;
o adverse changes in the securities markets;
o changes in laws or government regulations or policies affecting
financial institutions, including changes in regulatory fees and
capital requirements;
o our ability to enter new markets successfully and capitalize on
growth opportunities;
o our ability to successfully integrate acquired entities;
o changes in consumer spending, borrowing and savings habits;
o changes in accounting policies and practices, as may be adopted
by the bank regulatory agencies, the Financial Accounting
Standards Board, the Securities and Exchange Commission and the
Public Company Accounting Oversight Board;
o changes in our organization, compensation and benefit plans;
o changes in our financial condition or results of operations that
reduce capital available to pay dividends;
26
o regulatory changes or actions; and
o changes in the financial condition or future prospects of
issuers of securities that we own.
Because of these and a wide variety of other uncertainties, our actual
future results may be materially different from the results indicated by these
forward-looking statements. Please see "Risk Factors" beginning on page ___.
HOW WE INTEND TO USE THE PROCEEDS
Although OC Financial cannot determine what the actual net proceeds from
the sale of the shares of common stock in the offering will be until the
offering is completed, we anticipate that the net proceeds will be between $4.6
million and $6.4 million, or $7.5 million if the offering range is increased by
15%. We estimate that we will contribute to Ohio Central Savings between
$3.5_million and $3.7 million, or $3.8 million if the offering range is
increased by 15%. Ohio Central Savings will use $792,000 of such amount to
replenish funds used to redeem all of its outstanding common stock previously
issued to TFS Financial. We intend to retain between $1.1 million and $2.7
million of the net proceeds, or $3.6 million if the offering range is increased
by 15%, and we intend to utilize these funds as follows. First, between $408,000
and $552,000 (or $635,000 if the offering range is increased) will be used for
the loan to the employee stock ownership plan to fund its purchase of shares of
common stock. Second, we will retain the remainder of the net proceeds of
between $715,000 and $2.1 million, or $3.0 million if the offering range is
increased by 15%, and may use its for a variety of purposes, including those
discussed below.
A summary of the anticipated net proceeds at the minimum, midpoint,
maximum and adjusted maximum of the offering range and the use of the net
proceeds is as follows:
BASED UPON THE SALE AT $10.00 PER SHARE OF
--------------------------------------------------------------------------------------
510,000 SHARES 600,000 SHARES 690,000 SHARES 793,500 SHARES (1)
-------------------- -------------------- -------------------- --------------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
AMOUNT PROCEEDS AMOUNT PROCEEDS AMOUNT PROCEEDS AMOUNT PROCEEDS
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
Offering proceeds................ $ 5,100 100.0% $ 5,490 100.0% $ 6,390 100.0% $ 7,413 100.0%
Less offering expenses........... 510 10.0% 510 8.5% 510 7.4% 522 6.06
-------- -------- -------- --------
Net offering proceeds......... $ 4,590 90.0% $ 6,000 91.5% $ 6,900 92.6% $ 7,935 93.4%
======== ======= ======== ======= ======== ======= ======== =======
Use of net proceeds:
Contributed to Ohio Central
Savings(2) ................. $ 3,467 75.5% $ 3,583 65.3% $ 3,699 57.9% $ 3,833 51.7%
To fund loan to employee
stock ownership plan........ $ 408 8.9% $ 480 8.7% $ 552 8.6% $ 635 8.6%
Retained by OC Financial...... $ 715 15.6% $ 1,427 26.0% $ 2,139 33.5% $ 2,945 39.7%
- ------------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect demand
for the shares, changes in market or general financial conditions following
the commencement of the offering, or regulatory considerations.
(2) The amount of the net proceeds contributed to Ohio Central Savings may
exceed the noted amounts if necessary to ensure that Ohio Central Savings
has at least a 10% regulatory tangible capital ratio immediately following
completion of the conversion and reorganization including replenisment of
$792,000 paid to redeem the oustanding common stock of Ohio Central Savings
issued to TFS Financial.
Payments for shares of common stock made through withdrawals from
existing deposit accounts will not result in the receipt of new funds for
investment but will result in a reduction of Ohio Central Savings' deposits. The
net proceeds may vary because total expenses relating to the offering may be
more or less than our estimates. For example, our expenses would increase if a
syndicated community offering were used to sell shares of common stock not
purchased in the subscription and community offerings.
27
OC FINANCIAL MAY ALSO USE THE PROCEEDS IT RETAINS FROM THE OFFERING:
o to finance the acquisition of financial institutions or other
financial service companies, although we do not now have any
agreements or current intentions regarding any specific
acquisition transaction;
o to pay cash dividends to stockholders;
o to repurchase shares of our common stock;
o to invest in securities; and
o for other general corporate purposes.
Initially, the net proceeds will be invested in short-term investments,
investment-grade debt obligations and mortgage-backed securities.
Under current Office of Thrift Supervision regulations, we may not
repurchase shares of our common stock during the first year following the
conversion, except when extraordinary circumstances exist and with prior
regulatory approval.
OHIO CENTRAL SAVINGS MAY ALSO USE THE NET PROCEEDS IT RECEIVES FROM THE
OFFERING:
o to fund new loans, including automobile loans, single-family
residential mortgage loans, multi-family mortgage and
nonresidential real estate loans and commercial loans;
o acquire or establish new branches, although we do not have any
agreements or intention regarding such transactions;
o to enhance existing products and services and to support new
products and services;
o to establish off-site ATMs;
o to invest in securities; and
o for other general corporate purposes.
Initially, the net proceeds will be invested in short-term investments,
investment-grade debt obligations and mortgage-backed securities.
OUR POLICY REGARDING DIVIDENDS
In order to retain capital to support the increase of earning assets of
Ohio Central Savings, the board of directors of OC Financial does not currently
intend to pay cash dividends on the common stock of OC Financial. Any payment of
dividends in the future will depend upon a number of factors, including capital
requirements, OC Financial's and Ohio Central Savings' financial condition and
results of operations, tax considerations, statutory and regulatory limitations
and general economic conditions. No assurances can be given that any dividends
will be paid or that, if paid, will not be reduced or eliminated in future
periods. Special cash dividends, stock dividends or returns of capital may, to
the extent permitted by regulations, be paid in addition to, or in lieu of,
regular cash dividends. OC Financial intends to file consolidated tax returns
with Ohio Central Savings. Accordingly, it is anticipated that any
28
cash distributions made by OC Financial to its stockholders would be treated as
cash dividends and not as a non-taxable return of capital for federal and state
tax purposes. See "Taxation."
Dividends from OC Financial will depend, in large part, upon receipt of
dividends from Ohio Central Savings, because OC Financial initially will have no
source of income other than dividends from Ohio Central Savings, earnings from
the investment of proceeds from the sale of shares of common stock retained by
OC Financial and interest payments with respect to OC Financial's loan to the OC
Financial Employee Stock Ownership Plan. A regulation of the Office of Thrift
Supervision imposes limitations on "capital distributions" by savings
institutions. See "How We are Regulated - Limitations on Dividends and Other
Capital Distributions."
OC Financial currently has no intention to initiate any action which
leads to a return of capital (as distinguished from a dividend) to stockholders
of OC Financial. Regulations of the Office of Thrift Supervision prohibit a
return of capital during the three-year term of the business plan submitted by
Ohio Central Savings to the Office of Thrift Supervision in connection with the
conversion and reorganization.
OC Financial is subject to state law limitations on the payment of
dividends. Maryland law generally limits dividends to an amount equal to the
excess of our capital surplus over payments that would be owed upon dissolution
to stockholders whose preferential rights upon dissolution are superior to those
receiving the dividend, and to an amount that would not make us insolvent.
MARKET FOR THE COMMON STOCK
OC Financial has never issued any capital stock to the public, and
consequently, there is no established market for the common stock at this time.
We expect that OC Financial's common stock will be quoted in the over the
counter market on the OTC Bulletin Board upon completion of the stock offering.
However, given the limited amount of shares of OC Financial being offered, it is
unlikely that a liquid trading market will develop. The development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of OC Financial, Ohio Central
Savings or any market maker. Accordingly, the number of active buyers and
sellers of the common stock at any particular time may be limited. Under such
circumstances, you may have difficulty selling shares on short notice.
Therefore, you should not consider the stock as a short-term investment. Trying
to sell a large number of shares at one time may also temporarily depress the
market price of the stock.
A requirement for inclusion on the OTC Bulletin Board is that there be
at least one market maker. Making a market involves maintaining bid and asked
quotations, being able as principal to effect transactions in reasonable
quantities at these quoted prices, subject to various securities laws, and other
regulatory requirements. Although it is under no obligation to do so, Keefe,
Bruyette & Woods has stated that it intends to use its best efforts to make a
market in our common stock, so long as the volume of trading and other
market-making conditions justify such activity. We also intend to encourage
other brokerage firms to make a market in the common stock.
PRO FORMA REGULATORY CAPITAL ANALYSIS
At September 30, 2004, Ohio Central Savings exceeded all of its
applicable regulatory capital requirements. The table sets forth the historical
regulatory capital of Ohio Central Savings at September 30, 2004 and the pro
forma regulatory capital of Ohio Central Savings after giving effect to the
stock offering, based upon the sale of the number of shares shown in the table
and assuming that Ohio Central Savings received estimated net proceeds in an
amount such that it will have a 10% regulatory tangible and core capital ratio
upon completion of the conversion and reorganization. The pro forma
29
regulatory capital reflect the receipt by Ohio Central Savings of the net
proceeds less the amount retained by OC Financial, and the net proceeds received
by Ohio Central Savings to replenish the funds used to redeem the outstanding
common stock held by TFS Financial as well as to fund the employee stock
ownership plan and restricted stock plan. The pro forma risk-based capital
amounts assume the investment of the net proceeds received by Ohio Central
Savings in assets which have a risk-weight equal to the average risk-weight of
Ohio Central Savings' assets, under applicable regulations, as if such net
proceeds had been received and so applied at September 30, 2004. See "How We Are
Regulated."
30
OHIO CENTRAL
SAVINGS HISTORICAL PRO FORMA AT SEPTEMBER 30, 2004, BASED UPON THE SALE IN THE OFFERING OF
AT SEPTEMBER 30, -------------------------------------------------------------------------
2004 510,000 SHARES 600,000 SHARES 690,000 SHARES 793,500 SHARES (1)
---------------- ---------------- ---------------- ---------------- ----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
ASSETS ASSETS ASSETS ASSETS ASSETS
AMOUNT (2) AMOUNT (2) AMOUNT (2) AMOUNT (2) AMOUNT (2)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Equity capital........... $ 3,754 6.74% $ 5,802 10.00% $ 5,810 10.00% $ 5,818 10.00% $ 5,828 10.00%
Tangible capital......... $ 3,754 6.76% $ 5,802 10.00% $ 5,810 10.00% $ 5,818 10.00% $ 5,828 10.00%
Tangible requirement..... 834 1.50 870 1.50 872 1.50 873 1.50 874 1.50
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess................... $ 2,920 5.26% $ 4,932 8.50% $ 4,938 8.50% $ 4,945 8.50% $ 4,954 8.50%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Core (leverage)
capital(4)............ $ 3,754 6.76% $ 5,802 10.00% $ 5,810 10.00% $ 5,818 10.00% $ 5,828 10.00%
Core (leverage)
requirement (3)....... 2,223 4.00 2,321 4.00 2,324 4.00 2,327 4.00 2,331 4.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess................... $ 1,531 2.76% $ 3,481 6.00% $ 3,486 6.00% $ 3,491 6.00% $ 3,497 6.00%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Tier I to risk
weighted
assets(4) (5)......... $ 3,754 13.06% $ 5,802 19.84% $ 5,810 19.82% $ 5,818 19.87% $ 5,828 19.89%
Tier I requirement....... 1,150 4.00 1,170 4.00 1,170 4.00 1,171 4.00 1,172 4.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess................... $ 2,604 9.06% $ 4,632 15.84% $ 4,640 15.82% $ 4,647 15.87% $ 4,656 15.89%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total risk-based
capital (4) (5)....... $ 3,900 13.86% $ 6,033 20.63% $ 6,041 20.60% $ 6,049 20.66% $ 6,059 20.68%
Risk-based
requirement........... 2,300 8.00 2,339 8.00 2,341 8.00 2,342 8.00 2,343 8.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess................... $ 1,685 5.86% $ 3,694 12.63% $ 3,700 12.60% $ 3,707 12.66% $ 3,716 12.68%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Reconciliation of
capital infused into
Ohio Central Savings:
Net proceeds............. $ 3,467 $ 3,583 $ 3,699 $ 3,833
Less:
Common stock
acquired by
employee stock
ownership plan...... (408) (480) (552) (635)
Common stock
acquired by
recognition and
retention plan...... (204) (240) (276) (317)
Common stock
redeemed from
TFS Financial(6).... (792) (792) (792) (792)
------- ------- ------- -------
Pro forma increase in
GAAP and
regulatory
capital............. $ 2,063 $ 2,071 $ 2,079 $ 2,089
======= ======= ======= =======
- ------------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect demand
for the shares, changes in market or general financial conditions following
the commencement of the offering or regulatory considerations.
(2) Tangible and core capital levels are shown as a percentage of total
adjusted assets. Risk-based capital levels are shown as a percentage of
risk-weighted assets.
(3) The current Office of Thrift Supervision core capital requirement for
financial institutions is 3% of total adjusted assets for financial
institutions that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
financial institutions.
(4) Pro forma capital levels assume that OC Financial funds the stock-based
incentive plan with purchases in the open market of 1.96% of the shares of
common stock issued in the conversion and reorganization at a price equal
to the price for which the shares of common stock are sold in the offering,
and that the employee stock ownership plan purchases 8% of the shares of
common stock sold in the offering with funds borrowed from OC Financial.
See "Management" on page ___ for a discussion of the stock-based incentive
plan and employee stock ownership plan.
(5) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk weighting.
(6) Reflects the amount paid to redeem the outstanding common stock of Ohio
Central Savings issued to TS Financial.
31
CAPITALIZATION
The following table presents the historical consolidated capitalization
of Ohio Central Savings, at September 30, 2004 and the pro forma consolidated
capitalization of OC Financial after giving effect to the conversion and the
reorganization, based upon the assumptions set forth in the "Pro Forma Data"
section.
OHIO CENTRAL SAVINGS HISTORICAL PRO FORMA CONSOLIDATED CAPITALIZATION OF OC FINANCIAL,
AT SEPTEMBER 30, BASED UPON THE SALE FOR $10.00 PER SHARE
------------------------------ --------------------------------------------------------------
2004 AS ADJUSTED(5) 510,000 SHARES 600,000 SHARES 690,000 SHARES 793,500 SHARES
------------ -------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Deposits (2)....................... $ 32,261 $ 32,261 $ 32,261 $ 32,261 $ 32,261 $ 32,261
Borrowings......................... 16,450 16,450 16,450 16,450 16,450 16,450
------------ ------------ ------------ ------------ ------------ ------------
Total deposits and borrowed
funds......................... $ 48,711 $ 48,711 $ 48,711 $ 48,711 $ 48,711 $ 48,711
============ ============ ============ ============ ============ ============
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par
value, 5,000,000 shares
authorized; none to be issued... -- -- -- -- --
Common stock $0.01 par value,
20,000,000 shares authorized;
shares to be issued as
reflected (3)................... -- -- 5 6 7 8
Paid-in capital(4)(5)............ 275 -- 4,585 5,484 6,383 7,405
Retained earnings (4) (5)........ 3,479 2,962 2,962 2,962 2,962 2,962
LESS:
Common stock to be acquired by
the employee stock ownership
plan (6)........................ -- -- (408) (480) (552) (635)
Common stock to be acquired by
the recognition and retention
plan (7)........................ -- -- (204) (240) (276) (317)
------------ ------------ ------------- ------------- ------------- -------------
Total stockholders' equity....... $ 3,754 $ 2,962 $ 6,940 $ 7,732 $ 8,524 $ 9,423
============ ============ ============ ============ ============ ============
Total stockholders' equity as
a percentage of total assets.... 6.76% 5.31% 11.81% 12.99% 14.13% 15.39%
- ------------------------------------
(1) As adjusted to give effect to an increase in the number of shares of common
stock which could occur due to a 15% increase in the offering range to
reflect demand for shares, changes in market or general financial
conditions following the commencement of the subscription and community
offerings or regulatory considerations.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
shares of common stock in the conversion and offering. These withdrawals
would reduce pro forma deposits by the amount of the withdrawals.
(3) No effect has been given to the issuance of additional shares of OC
Financial common stock pursuant to an additional stock option plan. If this
plan is implemented, an amount up to 10% of the shares of OC Financial
common stock sold in the offering will be reserved for issuance upon the
exercise of options under the stock option plan. No effect has been given
to the exercise of options currently outstanding. See "Management of OC
Financial."
(4) The retained earnings of Ohio Central Savings will be substantially
restricted after the conversion and reorganization. See "The Conversion;
Plan of Distribution--Liquidation Rights" and "Supervision and
Regulation--Federal Banking Regulation."
(5) Reflects the redemption of the stock of Ohio Central Savings issued to TFS
Financial upon completion of the conversion and reorganization in the sum
of $792,000.
(6) Assumes that 8.0% of the shares sold in the offering will be acquired by
the employee stock ownership plan financed by a loan from OC Financial. The
loan will be repaid principally from Ohio Central Saving's contributions to
the employee stock ownership plan. Since OC Financial will finance the
employee stock ownership plan debt, this debt will be eliminated through
consolidation and no liability will be reflected on OC Financial's
consolidated financial statements. Accordingly, the amount of shares of
common stock acquired by the employee stock ownership plan is shown in this
table as a reduction of total stockholders' equity.
(7) Assumes a number of shares of common stock equal to 4% of the shares of
common stock to be sold in the offering will be purchased by the stock
recognition and retention plan in open market purchases. The dollar amount
of common stock to be purchased is based on the $10.00 per share
subscription price in the offering and represents unearned compensation.
This amount does not reflect possible increases or decreases in the value
of common stock relative to the subscription price in the offering. As OC
Financial accrues compensation expense to reflect the vesting of shares
pursuant to the stock recognition and retention plan, the credit to equity
will be offset by a charge to noninterest expense. Implementation of the
stock recognition and retention plan will require stockholder approval. The
funds to be used by the stock recognition and retention plan to purchase
the shares will be provided by OC Financial. If the shares to fund the plan
are assumed to come from authorized but unissued shares of OC Financial,
the number of outstanding shares at the minimum, midpoint, maximum and the
maximum, as adjusted, of the offering range would be 581,400, 684,000,
786,600 and 904,590, respectively, total stockholders' equity would be $8.0
million, $8.8 million, $9.7 million and $10.7 million, respectively, and
total stockholders' ownership in OC Financial would be diluted by
approximately 3.8%.
32
PRO FORMA DATA
The following tables summarize historical data of Ohio Central Savings
and pro forma data at and for the year ended September 30, 2004. This
information is based on assumptions set forth below and in the table, and should
not be used as a basis for projections of market value of the shares of common
stock following the conversion and offering. No effect has been given in the
table to the possible issuance of additional shares of common stock pursuant to
any stock option plan that may be adopted by our stockholders no earlier than
six months after the conversion. Moreover, pro forma stockholders' equity per
share does not give effect to the liquidation account to be established in the
conversion or, in the event of a liquidation of Ohio Central Savings, to the
recoverability of intangibles or the tax effect of the recapture of any bad debt
reserve. See "The Conversion and Reorganizaiton; - Liquidation Rights."
The net proceeds in the tables are based upon the following assumptions:
o all shares of common stock will be sold in the subscription and
community offerings;
o 150,000 shares of common stock will be purchased by our
executive officers and directors, and their associates;
o the adjustment of our stockholders' equity for the redemption of
Ohio Central Savings' common stock from TFS Financial for
$792,000;
o our employee stock ownership plan will purchase 8% of the shares
of common stock sold in the offering with a loan from OC
Financial. The loan will be repaid in substantially equal
payments of principal and interest over a period of 20 years;
o Keefe, Bruyette & Woods will receive a fee equal to the greater
of $75,000, or 1.5% of the dollar amount of shares of common
stock sold in the offering. Shares purchased by our employee
benefit plans or by our officers, directors and employees, and
their immediate families will not be included in calculating the
shares of common stock sold, for this purpose; and
o total expenses of the offering, including the marketing fees to
be paid to Keefe, Bruyette & Woods, will be between $510,000 at
the minimum of the offering range and $522,000 at the maximum of
the offering range, as adjusted.
We calculated pro forma consolidated net income for the year ended
September 30, 2004 as if the estimated net proceeds we received had been
invested at an assumed interest rate of 2.21% (1.46% on an after-tax basis).
These figures represent a blended rate assuming investing the remaining funds to
yield the rate on the one-year U.S. Treasury Bill as of September 30, 2004,
equal to 2.21% which we consider to more accurately reflect the pro forma
reinvestment rate than an arithmetic average method in light of current market
interests rates).
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur, and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amounts of our assets and liabilities. The pro
forma stockholders' equity is not intended to represent the fair market value of
the shares of common stock. The effect of withdrawals from deposit accounts for
the purchase of shares of common stock has not been reflected. Historical and
pro forma per share amounts have been calculated by dividing historical and pro
forma amounts by the indicated number of shares of common stock. No effect has
been given in the pro forma stockholders'
33
equity calculations for the assumed earnings on the net proceeds. It is assumed
that OC Financial will retain between $1.1 million and $2.7 million of the
estimated net proceeds in the offering, or $3.6 million if the offering range is
increased by 15%. The actual net proceeds from the sale of shares of common
stock will not be determined until the offering is completed. However, we
currently estimate the net proceeds to be between $4.6 million and $6.4 million,
or $7.4 million if the offering range is increased by 15%. It is assumed that
all shares of common stock will be sold in the subscription and community
offerings.
34
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 2004
BASED UPON THE SALE AT $10.00 PER SHARE OF
----------------------------------------------------------------
510,000 600,000 690.000 793,500
SHARES SHARES SHARES SHARES (1)
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds...................................... $ 5,100 $ 6,000 $ 6,900 $ 7,935
Expenses............................................ 510 510 510 522
------------ ------------ ------------ ------------
Estimated net proceeds........................... 4,590 5,490 6,390 7,413
LESS:
Common stock acquired by employee stock
ownership plan (2)................................ (408) (480) (552) (635)
Common stock acquired by recognition and retention
plan (3)............................................ (204) (240) (276) (317)
Redemption of common stock from TFS Financial....... (792) (792) (792) (792)
------------ ------------ ------------ ------------
Estimated net proceeds, as adjusted.............. $ 3,186 $ 3,978 $ 4,770 $ 5,669
============ ============ ============ ============
FOR THE YEAR ENDED SEPTEMBER 30, 2004
-------------------------------------
Consolidated net income:
Historical....................................... $ 25 $ 25 $ 25 $ 25
Pro forma adjustments:
Income on adjusted net proceeds.................. 46 58 70 83
Employee stock ownership plan (2)................ (13) (16) (18) (21)
Recognition and retention plan (3)............... (27) (32) (36) (42)
------------ ------------ ------------ ------------
Pro forma net income........................... $ 31 $ 35 $ 41 $ 45
============ ============ ============ ============
Income per share (4):
Historical....................................... $ 0.05 $ 0.05 $ 0.04 $ 0.03
Pro forma adjustments:
Income on adjusted net proceeds.................. 0.10 0.10 0.11 0.11
Employee stock ownership plan (2)................ (0.03) (0.03) (0.03) (0.03)
Recognition and retention plan (3)............... (0.06) (0.06) (0.06) (0.06)
------------ ------------ ------------ ------------
Pro forma income per share (4) (5)............. $ 0.06 $ 0.06 $ 0.06 $ 0.05
============ ============ ============ ============
Offering price to net income per share.............. 166.67 166.67 166.67 200.00
Number of shares used in income per share
calculations........................................ 471,240 554,400 637,560 733,194
AT SEPTEMBER 30, 2004
---------------------
Stockholders' equity:
Historical....................................... $ 3,754 $ 3,754 $ 3,754 $ 3,754
Estimated net proceeds........................... 4,590 5,490 6,390 7,413
Common stock acquired by employee stock
ownership
plan (2)........................................ (408) (480) (552) (635)
Common stock acquired by recognition and
retention
plan (3)........................................ (204) (240) (276) (317)
Redemption of common stock from TFS Financial.... (792) (792) (792) (792)
------------ ------------ ------------ ------------
Pro forma stockholders' equity (6)............. $ 6,940 $ 7,732 $ 8,524 $ 9,423
============ ============ ============ ============
Stockholders' equity per share:
Historical....................................... $ 7.36 $ 6.26 $ 5.44 $ 4.73
Estimated net proceeds........................... 9.00 9.15 9.26 9.34
Common stock acquired by employee stock
ownership
plan (2)........................................ (0.80) (0.80) (0.80) (0.80)
Common stock acquired by recognition and
retention
plan (3)........................................ (0.40) (0.40) (0.40) (0.40)
Redemption of common stock from TFS Financial.... (1.55) (1.32) (1.15) (1.00)
------------ ------------ ------------ ------------
Pro forma tangible stockholders' equity per
share (6)...................................... $ 13.61 $ 12.89 $ 12.35 $ 11.87
============ ============ ============ ============
Offering price as percentage of pro forma
consolidated stockholders' equity per
share............................................ 73.48% 77.58% 80.97% 84.25%
Number of shares used in book value per share
calculations........................................ 510,000 600,000 690,000 793,500
(FOOTNOTES BEGIN ON FOLLOWING PAGE)
35
- ------------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect demand
for the shares, changes in market and financial conditions following the
commencement of the offering or regulatory considerations.
(2) Assumes that 8% of shares of common stock sold in the offering will be
purchased by the employee stock ownership plan. For purposes of this table,
the funds used to acquire these shares are assumed to have been borrowed by
the employee stock ownership plan from OC Financial. Ohio Central Savings
intends to make annual contributions to the employee stock ownership plan
in an amount at least equal to the required principal and interest payments
on the debt. Ohio Central Saving's total annual payments on the employee
stock ownership plan debt are based upon 20 equal annual installments of
principal and interest. SOP 93-6 requires that an employer record
compensation expense in an amount equal to the fair value of the shares
committed to be released to employees. The pro forma adjustments assume
that the employee stock ownership plan shares are allocated in equal annual
installments based on the number of loan repayment installments assumed to
be paid by Ohio Central Savings, the fair value of the common stock remains
equal to the subscription price and the employee stock ownership plan
expense reflects an effective combined federal and state tax rate of 34%.
The unallocated employee stock ownership plan shares are reflected as a
reduction of stockholders' equity. No reinvestment is assumed on proceeds
contributed to fund the employee stock ownership plan. The pro forma net
income further assumes that 408,000, 480,000, 552,000 and 635,000 shares
were committed to be released during the period at the minimum, midpoint,
maximum, and adjusted maximum of the offering range, respectively, and in
accordance with SOP 93-6, only the employee stock ownership plan shares
committed to be released during the period were considered outstanding for
purposes of income per share calculations.
(3) If approved by OC Financial's stockholders, the stock recognition and
retention plan may purchase an aggregate number of shares of common stock
equal to 4% of the shares to be sold in the offering (or possibly a greater
number of shares if the plan is implemented more than one year after
completion of the conversion, although such plan, including the amount
awarded under such plan, may remain subject to supervisory restrictions).
Stockholder approval of the stock recognition and retention plan, and
purchases by the plan may not occur earlier than six months after the
completion of the conversion. The shares may be acquired directly from OC
Financial or through open market purchases. The funds to be used by the
stock recognition and retention plan to purchase the shares will be
provided by OC Financial. The table assumes that (i) the stock recognition
and retention plan acquires the shares through open market purchases at
$10.00 per share, (ii) 20% of the amount contributed to the stock
recognition and retention plan is amortized as an expense during the year
ended September 30, 2004, and (iii) the stock recognition and retention
plan expense reflects an effective combined federal and state tax rate of
34%. Assuming stockholder approval of the stock recognition and retention
plan and that shares of common stock (equal to 4% of the shares sold in the
offering) are awarded through the use of authorized but unissued shares of
common stock, stockholders would have their ownership and voting interests
diluted by approximately 3.8%.
(4) Income per share computations are determined by taking the number of shares
assumed to be sold in the offering and, in accordance with SOP 93-6,
subtracting the employee stock ownership plan shares which have not been
committed for release during the respective periods. See note 2. The number
of shares of common stock actually sold may be more or less than the
assumed amounts.
(5) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan, which is expected to be adopted by
OC Financial following the offering and presented to stockholders for
approval not earlier than six months after the completion of the conversion
and reorganization. If the stock option plan is approved by stockholders, a
number of shares up to 10% of the shares sold in the offering (or possibly
a greater number of shares if the plan is implemented more than one year
after completion of the conversion, although such plan, including the
amount awarded under such plan, may remain subject to supervisory
restrictions) will be reserved for future issuance upon the exercise of
options to be granted under the stock option plan. The issuance of
authorized but previously unissued shares of common stock pursuant to the
exercise of options under such plan would dilute existing stockholders'
ownership and voting interests by approximately 9.1% at the maximum of the
offering range.
(6) The retained earnings of Ohio Central Savings will be substantially
restricted after the conversion and reorganization. See "Our Dividend
Policy," "The Conversion and Reorganization; Plan of
Distribution-Liquidation Rights" and "Supervision and Regulation--Federal
Banking Regulation-Capital Distributions."
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On March 31, 1998, Ohio Central Savings converted its charter from a
federally-chartered credit union to a federally-chartered thrift and became a
taxable organization.
Our principal business has historically consisted of attracting deposits
from the general public and the business community and making loans secured by
various types of collateral, including vehicles, real estate and general
business assets. Ohio Central Savings is significantly affected by prevailing
economic conditions as well as government policies and regulations concerning,
among other things, monetary and fiscal affairs, housing and financial
institutions. Deposit flows are influenced by a number of factors, including
interest rates paid on competing investments, account maturities, fee
structures, and level of personal income and savings. Lending activities are
influenced by the demand for funds, the number and quality of lenders, and
regional economic cycles. Sources of funds for lending activities of Ohio
Central Savings include deposits, borrowings, payments on loans, maturities of
securities and income provided from operations. Ohio Central Savings' earnings
are primarily dependent upon Ohio Central Savings' net interest income, the
difference between interest income and interest expense.
Interest income is a function of the balances of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amount of deposits and
borrowings outstanding during the same period and interest rates paid on such
deposits and borrowings. Ohio Central Savings' earnings are also affected by
Ohio Central Savings' provision for loan losses, service charges, gains from
sales of loans, commission income, interchange fees, other income, operating
expenses and income taxes.
CRITICAL ACCOUNTING POLICIES
Certain of our accounting policies are important to the portrayal of our
financial condition, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently
uncertain. Estimates associated with these policies are susceptible to material
changes as a result of changes in facts and circumstances. Facts and
circumstances which could affect these judgments include, but without
limitation, changes in interest rates, changes in the performance of the economy
or in the financial condition of borrowers. Management believes that its
critical accounting policies include determining the allowance for loan losses,
determining the fair value of securities, accounting for deferred income taxes,
and the valuation of intangible assets including goodwill. Ohio Central Savings'
accounting policies are discussed in detail in Note 1 of the Notes to the
Consolidated Financial Statements.
The allowance for loan losses is a valuation allowance for probable
incurred credit losses, increased by the provision for loan losses and decreased
by charge-offs less recoveries. Management estimates the allowance balance
required using the past loan loss experience, the nature and volume of the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged-off. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed.
The allowance consists of specific and general components. The specific
component relates to loans that are individually classified as impaired or loans
otherwise classified as special mention,
37
substandard, or doubtful. The general component covers non-classified loans and
is based on historical loss experience adjusted for current factors. The
portfolio consists primarily of smaller balance homogeneous loans, therefore,
impaired loans are analyzed primarily on a pooled basis for purposes of
establishing the allowance for loan losses.
The allowance for loan losses and related provision expense are
susceptible to material change as a result of significant changes in individual
borrower circumstances on larger dollar loans. The allowance for loan losses was
$230,585 at September 30, 2004 and $216,749 at September 30, 2003. The increase
in the allowance for loan losses from September 30, 2003 to September 30, 2004
was the result of funding the allowance for probable loan losses in excess of
charged-off loans occurring in 2004. The allowance for loan losses as a
percentage of total loans was 0.88% at September 30, 2004 and 0.81% at September
30, 2003. Provision for loan losses totaled $35,000 and $60,000 for the year
ended September 30, 2004 and 2003. Changes in economic conditions, the nature
and size of the loan portfolio and individual borrower conditions that cause
charge-offs or delays in collection can dramatically impact our required level
of allowance for loan losses in relatively short periods of time. The amount of
allowance for loan losses allocated to individually evaluated loan relationships
was $76,897 for the year ending September 30, 2004, and $67,523 for the year
ending September 30, 2003. Management anticipates that additional provision for
loan losses will need to be made in the future as Ohio Central Savings continues
to grow and add additional loan accounts. See "-Changes in Lending and Growth
and Types of Loans."
BUSINESS STRATEGY
Prior to our affiliation with Third Federal, Ohio Central Savings was a
full service community based savings intitution generating a wide variety of
loans for our customers. As a result of our affiliation, our potential mortgage
loan customers were referred to Third Federal as part of our strategic plan. We
also increased our automobile lending program as part of the alliance through
marketing efforts with Third Federal. Since we affiliated with Third Federal we
originated $117.0 million in automobile loasn, 80% of which we sold to Third
Federal. During our three year affiliation our mortgage portfolio declined by
$11.3 million from $17.9 million to $6.6 million or about 63.0%. After our
separation from Third Federal we plan to reinitiate mortgage lending activity
within our market areas. See "Business of Ohio Central Savings-
One-to-Four-Family Residential Mortgage Lending".
We will also pursue growth in other loan and deposit accounts within our
market areas. We plan to market home equity loans, auto loans and credit card
accounts. We will seek deposit accounts in a blend of certificate of deposits,
NOW accounts and money market accounts to provide funds for lending activities.
We plan to retain these loans in our portfolio in order to improve our earnings.
Due to the limits of our capital base, our ability to increase interest earning
assets has been constrained even though we otherwise have the resources to
increase our lending operations. Our profitability was marginal in the last
fiscal year. Following completion of the conversion and reorganization, however,
we believe our higher capital levels will allow us to improve our profitability
by increasing interest earning assets such as loans and to reduce substantially
our reliance on income from securities in our investment portfolio. We do not
anticipate the need to hire any new employees, however, in connection with the
conversion and reorganization.
We will also continue to pursue our auto loan origination and servicing
business offered to other financial institutions through our AutoARMtm
subsidiary. This subsidiary was formed in August 2003 and is a proposed third
party originator and servicer of direct auto loans for other financial
institutions. AutoARMtm has not generated any earnings as of September 30, 2004.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003.
GENERAL. Total assets increased by $5.6 million, or 11.0%, to $55.7
million at September 30, 2004 from $50.1 million at September 30, 2003. The
increase is primarily a result of an increase in investments of $6.2 million.
The increase in total assets was funded by an increase in customer deposits of
$2.4 million and an increase in Federal Home Loan Bank advances of $4.0 million
during 2004.
38
ASSETS. Our loan portfolio (including loans held for sale) decreased
from $26.7 million to $26.2 million from September 30, 2003 to September 30,
2004. Our lending strategy has changed significantly during the past three years
emphasizing the origination of auto loans and decreasing originations of
mortgage loans since our affiliation with Third Federal. As a result mortgage
loans have decreased substantially from $17.6 million in September 2001 to $6.6
million in September 2004, representing a reduction of $11.3 million during the
period we were affiliated with Third Federal.
The loss in mortgage assets was primarily due to the historically low
interest rates that prompted our customers to refinance their mortgages to a
lower rate. During this time Third Federal determined it was impractical to sell
our customers' loans back to us due to the limited volume of loans and the
overall size and structure of our respective institutions and instead packaged
our loans with other loans they originated into securities that we purchased.
This increased our holdings of mortgage-backed securities while reducing the
balance of our one-to-four-family residential mortgage loans. It was necessary
for us to continue to have mortgage-backed assets in order to comply with the
qualified thrift lender test and the Community Reinvestment Act. The net effect
of replacing mortgage assets with mortgage-backed security assets was to lower
the asset risk levels and also lower the interest rate spread. This shift had a
negative impact on the profitability of Ohio Central Savings. Until we are able
to replace these assets with higher yielding residential mortgage loans this
negative impact will continue.
The securities purchased during this time consisted of Fannie Mae,
Ginnie Mae and Freddie Mac mortgage-backed securities (MBS) from both Third
Federal and the open market. Two MBS pools purchased from Third Federal were
specifically created to meet Community Reinvestment Act requirements in the
Dublin and Cleveland assessment areas. Other MBS pools were of shorter duration
to manage interest rate risk while providing additional yield over cash
investments.
Our allowance for loan losses at September 30, 2004 was $230,585 or .71%
of loans, compared to the $216,749 or .81% of loans at the end of September 30,
2003. To the best of management's knowledge, the allowance for loan losses
represents losses that are both probable and reasonably estimable as of
September 30, 2004. The allowance for loan losses consists of general reserve
allocations made for pools of homogeneous loans and specific reserves on
individual loans for which management has significant concerns regarding the
borrowers' ability to repay the loans in accordance with the terms of the loans.
Nonperforming loans totaled $39,000 and $34,000 at September 30, 2004 and
September 30, 2003, respectively. In determining the amount of allowance for
loan loss allocations needed for nonperforming loans, management has considered
expected future borrower cash flows and the estimated realizable value of
underlying collateral. The amount of allowance for loan losses allocated to
individual loan relationships remained fairly stable in 2004 increasing from
$67,523 at September 30, 2003 to $76,897 at September 30, 2004.
DEPOSITS. Total deposits increased by $2.4 million, or 7.9%, to $32.3
million at September 30, 2004 from $29.9 million at September 30, 2003. NOW
accounts and money market accounts increased $3.0 million while time deposits
increased $1.7 million and savings deposits decreased $2.3 million. The increase
in deposits was a result of our efforts to expand our customer base in existing
markets through improved products and marketing. The number of deposit accounts
has declined in recent years as we have focused on attracting larger depositors,
and we have implemented fee programs that discourages accounts with very low
balances. We plan to continue this strategy following completion of the
conversion and reorganization.
BORROWINGS. Federal Home Loan Bank advances increased $4.0 million, or
32.0% to $16.5 million at September 30, 2004 from $12.5 million at September 30,
2003. The additional Federal Home Loan Bank advances obtained during 2003 were
utilized to help fund loan growth during the year. Management expects that
Federal Home Loan Bank advances will continue to provide Ohio Central Savings
with a significant additional funding source to meet the needs of its lending
activities.
39
EQUITY. Total equity increased $24,711 by fiscal 2004 net income, or
0.66%, to $3.75 million at September 30, 2004 from $3.73 million at September
30, 2003. The limited increase in equity is primarily due to the reduction in
gain on sale for auto loans sold to Third Federal discussed in more detail in
the Comparison of Results of Operation.
COMPARISON OF RESULTS OF OPERATION FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND
2003
GENERAL. Net income for the year ended September 30, 2004 was $24,711, a
decrease of $89,714, or 88.5%, from $214,425 for the year ended September 30,
2003.
The decrease in net income resulted primarily from the change in the
volume of loans sold to Third Federal decreasing from $38.6 million for the year
ending September 30, 2003 to $25.0 million for the year ending September 30,
2004. This represents a reduction in auto loans sold of $13.6 million. Gains
from loan sales was $314,000 for the year ending September 30, 2004, compared to
$523,000 for the year ending September 30, 2003, a decrease of $209,000. In
addition, continued reduction in mortgage loans and replacing those loans with
lower yielding mortgage-backed securities also had a negative effect on income.
The basis for our affiliation with Third Federal in 2001 was to provide
resources to Ohio Central Savings that it was unable to obtain as an independent
mutual organization. The resources anticipated included capital, marketing
resources and management resources. Over the past year, however, it became clear
to both parties that the organizations had different strategic goals that were
not able to support their respective business plans.
We expect that returning to generating mortgage loans from our own
market area and future loan growth and overall business expansion will provide
for additional revenue from growth in future periods. There is no assurance that
the expected increase in revenue from such growth and expansion will occur or
result in increased profitability.
INTEREST INCOME. Interest income remained nearly unchanged at $2.7
million for 2003 and 2004. The primary reason for maintaining the interest
income levels is the increase in investment and other interest income from
$592,035 in 2003 to $1.1 million in 2004. The increase in investment income was
significantly offset by a reduction in loan income. Loan income decreased
$484,000 in 2004 from 2003. The decrease in loan income was primarily due to
declining yields in the portfolio as older, higher rate loans are paid and
replaced by loans at currently low rates. The weighted average yield on loans
decreased from 7.12% for the year ended September 30, 2003 to 6.14% for the year
ended September 30, 2004. This decrease was due to market rates and the short
term nature of the majority of our loan portfolio. The weighted average yield on
securities increased from 3.54% for fiscal 2003 to 4.01% for fiscal 2004 as
longer duration mortgage-backed securities were added to the portfolio. Total
average interest earning assets increased $6.9 million from September 30, 2003
to September 30, 2004, and the weighted average yield on interest earning assets
declined 75 basis points from 5.81% to 5.06%. As we increase our emphasis on
residential mortgage lending this trend of increasing interest earning assets
may continue.
INTEREST EXPENSE. Interest expense increased $98,000 to $1.3 million for
fiscal 2004 from $1.2 million for fiscal 2003. The increase in interest expense
was primarily due to an increase in FHLB advances of $4.2 million. Interest
expense on Federal Home Loan Bank advances increased $163,655 to $781,017 for
the year ended September 30, 2004 from $617,362 for the year ended September 30,
2003. Federal Home Loan Bank advances increased to $16.5 million for the year
ended September 30, 2004 from $12.5 million for the year ended September 30,
2003. This increase was partially offset by a 149
40
basis point decrease in the weighted average cost of Federal Home Loan Bank
advances, from 6.31% for 2003 to 4.82% for 2004.
As interest rates stabilize or increase, we expect interest expense will
increase as our interest bearing liabilities increase. Ohio Central Savings'
cost of funds was a weighted average of 2.75% for fiscal 2004 compared to 2.99%
for fiscal 2003. Interest expense on deposits decreased $66,000 to $512,000 for
fiscal 2004 from $578,000 for fiscal 2003. The decrease in interest expense
attributable to declines in interest rates paid on deposit accounts and
borrowings was more than offset by additional interest expense incurred due to
the increase in average interest bearing liabilities of $7.1 million for the
year ended September 30, 2004 compared to the year ended September 30, 2003.
NET INTEREST INCOME. Net interest income remained relatively stable,
decreasing $98,000 to approximately $1.38 million during the year ended
September 30, 2004 from $1.48 million for the year ended September 30, 2003. The
decrease in net interest income is primarily the result of declining interest
rates and a continuing shift from loans to investments as described above. Our
net interest margin was 2.61% for the year ended September 30, 2004 compared to
3.21% for the year ended September 30, 2003.
PROVISION FOR LOAN LOSSES. We establish provisions for loan losses,
which are charged to operations, at a level required to reflect probable
incurred credit losses in the loan portfolio. In evaluating the level of the
allowance for loan losses, management considers historical loss experience, the
types of loans and the amount of loans in the loan portfolio, adverse situations
that may affect borrowers' ability to repay, estimated value of any underlying
collateral, and prevailing economic conditions. Large groups of smaller balance
homogeneous loans, such as automobile loans, residential real estate and other
consumer loans, are evaluated in the aggregate using historical loss factors
adjusted for current economic conditions and other relevant data. Larger
non-homogeneous loans such as commercial loans for which management has concerns
about the borrowers' ability to repay are evaluated individually, and specific
reserves are provided for such loans when necessary.
Based on management's evaluation of these factors, provisions of $35,000
and $60,000 were made during the year ended September 30, 2004 and the year
ended September 30, 2003. The decrease in provision for loan losses is primarily
attributable to decreased loan levels as discussed above. The amount of general
reserve allocations made for smaller balance homogeneous loans decreased during
the year ended September 30, 2004 primarily resulting from the performance of
the portfolio, actual losses and recoveries. Loan losses were $45,000 in fiscal
2004, down from $105,000 in fiscal 2003. Recoveries were $24,000 in fiscal 2004
and $22,000 in fiscal 2003.
Management assesses the allowance for loan losses on a quarterly basis
and makes provisions for loan losses in order to provide reserves for losses
that are probable and reasonably estimable. While management uses available
information to recognize losses on loans, future loan loss provisions may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and may require us to
recognize additional provisions based on their judgment of information available
to them at the time of their examination. The allowance for loan losses as of
September 30, 2004 is maintained at a level that represents management's best
estimate of probable incurred losses in the loan portfolio.
NONINTEREST INCOME. Noninterest income decreased $186,000 to $959,000
million for the year ended September 30, 2004 from $1.1 million for the year
ended September 30, 2003. The overall decrease in noninterest income is
primarily due to lower auto loan sales to Third Federal as discussed above.
41
NONINTEREST EXPENSE. Noninterest expense was virtually unchanged in 2004
compared to 2003. With the reduction in loan volume the loan processing expense
was down $22,000. However this was offset by the increase in audit expense. The
increase in audit expense is the result of our proposed separation from Third
Federal. The proposed transaction requires an opinion audit of Ohio Central
Savings separate from audits of Third Federal.
INCOME TAX EXPENSE. Income tax expense decreased from $109,759 to
$13,815 primarily a result of a decrease in income before income taxes. Ohio
Central Savings' effective federal income tax rate was 36% and 34% for 2004 and
2003, respectively.
LIQUIDITY
Management maintains a liquidity position that it believes will
adequately provide funding for loan demand and deposit run-off that may occur in
the normal course of business. Ohio Central Savings relies on a number of
different sources in order to meet its potential liquidity demands. The primary
sources are increases in deposit accounts and cash flows from loan payments and
the securities portfolio.
In addition to these primary sources of funds, management has several
secondary sources available to meet potential funding requirements. As of
September 30, 2004, Ohio Central Savings had additional borrowing capacity of
$7.5 million with the Federal Home Loan Bank of Cincinnati. Additionally, Ohio
Central Savings has access to the Federal Reserve Bank discount window for
borrowing. The available line at the discount window is $14.0 million. The stock
offering will increase our liquidity until such time that we deploy the net
proceeds from cash and other short term investments to loans consistent with our
business plan submitted to the Office of Thrift Supervision in connection with
the stock offering and our Business Strategy discussion in this Prospectus. See
"-Business Strategy." The stock offering will also increase our regulatory
capital. See "-Pro Forma Regulatory Capital Analysis."
Our stock offering will provide significant additional liquidity and
capital resources. As our liquidity positions have historically been maintained
to provide for loan demand and deposit run-off, the stock offering proceeds may
provide excess liquidity in the near term. As shown in "Pro Forma Regulatory
Capital Analysis," the stock offering will increase Ohio Central Savings'
capital ratios which already exceed minimum standards to be considered
well-capitalized. The additional liquidity and capital resources from the stock
offering will help provide for the future growth of Ohio Central Savings.
42
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table presents Ohio Central Savings' longer term,
non-deposit related, contractual obligations and commitments to extend credit to
our borrowers, in aggregate and by payment due dates.
September 30, 2004
-----------------------------------------------------------------
Through Four
Less Than Three Through After Five
One Year Years Five Years Years Total
------------- --------- ------------ ------------ -----------
(In thousands)
Federal Home Loan Bank advances $ -- $ 10,500 $ 2,300 $ 3,650 $ 16,450
Operating leases (premises) 49 29 -- -- 78
------------- --------- ------------ ------------ -----------
Borrowings and operating leases 49 10,529 2,300 3,650 16,528
------------- --------- ------------ ------------ -----------
Undisbursed portion of loans closed -- -- -- 98 98
Unused lines of credit 3,371 -- -- -- 3,371
------------- --------- ------------ ------------ -----------
Total loan commitments 3,371 -- -- 98 3,469
------------- --------- ------------ ------------ -----------
Total contractual obligations
and loan commitments $ 3,420 $ 10,529 $ 2,300 $ 3,748 $ 19,997
------------- --------- ------------ ------------ -----------
CAPITAL RESOURCES
At September 30, 2004, equity totaled $3.8 million. Management monitors
the capital levels of Ohio Central Savings to provide for current and future
business opportunities and to meet regulatory guidelines for "well capitalized"
institutions.
Ohio Central Savings is required by the Office of Thrift Supervision to
meet minimum capital adequacy requirements. Ohio Central Savings' actual and
required levels of capital as reported to the Office of Thrift Supervision at
September 30, 2004 are as follows:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
As of September 30, 2004
- ------------------------
Total capital (to risk weighted assets) $3,985 13.86% $2,311 8.0% $2,889 10.0%
Tier 1 (core) capital (to risk weighted assets) $3,754 13.00% $1,155 4.0% $1,733 6.0%
Tier 1 (core) capital (to adjusted total assets) $3,754 6.76% $2,228 4.0% $2,785 5.0%
43
At September 30, 2004, Ohio Central Savings exceeded all regulatory
minimum capital requirements and is considered to be "well-capitalized." In
addition, as of September 30, 2004 we were not aware of any recommendation by a
regulatory authority which if it were implemented would have a material effect
on our liquidity, capital resources or operations.
Under regulations of the Office of Thrift Supervision, limitations have
been imposed on all "capital distributions" by savings institutions, including
cash dividends. The regulation establishes a six-tiered system of restrictions,
with the greatest flexibility afforded to savings associations which are both
well-capitalized and given favorable qualitative examination ratings by the
Office of Thrift Supervision. For example, a savings association which is given
one of the two highest examination ratings and has "capital" equal to its fully
phased-in regulatory capital requirements (a tier 1 institution) could make
capital distributions in any year of 100% of its retained net income for the
calendar year-to-date period plus net income for the previous two calendar years
(less any dividends previously paid) as long as the savings associations would
remain "well capitalized," following the proposed distribution. Other savings
associations would be subject to more stringent procedural and substantive
requirements, the most restrictive being prior Office of Thrift Supervision
approval of any capital distribution.
INFLATION
The effects of price changes and inflation can vary substantially for
most financial institutions. While management believes that inflation affects
the growth of total assets, it believes that it is difficult to assess the
overall impact. Management believes this to be the case due to the fact that
generally neither the timing nor the magnitude of the inflationary changes in
the consumer price index ("CPI") coincides with changes in interest rates. The
price of one or more of the components of the CPI may fluctuate considerably and
thereby influence the overall CPI without having a corresponding affect on
interest rates or upon the cost of those goods and services normally purchased
by Ohio Central Savings. In years of high inflation and high interest rates,
intermediate and long-term interest rates tend to increase, thereby adversely
impacting the market values of investment securities, mortgage loans and other
long-term fixed rate loans. In addition, higher short-term interest rates caused
by inflation tend to increase the cost of funds. In other years, the opposite
may occur.
ASSET/LIABILITY MANAGEMENT
Ohio Central Savings is subject to interest rate risk to the extent that
its interest-bearing liabilities, primarily deposits and FHLB advances, reprice
more rapidly or at different rates than its interest-earning assets.
In order to minimize the potential for adverse effects of material
prolonged increases or decreases in interest rates on our results of operations,
we have adopted an asset and liability management policy. The board of directors
sets the asset and liability policy for Ohio Central Savings, which is
implemented by the Asset/Liability Committee.
The purpose of this Committee is to communicate, coordinate and control
asset/liability management consistent with our business plan and board approved
policies. The committee establishes and monitors the volume and mix of assets
and funding sources taking into account relative costs and spreads, interest
rate sensitivity and liquidity needs. The objectives are to manage assets and
funding sources to produce results that are consistent with liquidity, capital
adequacy, growth, risk and profitability goals.
The Committee generally meets on a quarterly basis to review, among
other things, economic conditions and interest rate outlook, current and
projected liquidity needs and capital position, anticipated
44
changes in the volume and mix of assets and liabilities and interest rate
exposure limits versus current projections pursuant to market value of portfolio
equity analysis and income simulations. The Committee recommends appropriate
strategy changes based on this review. The Committee is responsible for
reviewing and reporting the effects of the policy implementations and strategies
to the board of directors at least quarterly.
A key element of Ohio Central Savings' asset/liability plan is to
protect net earnings by managing the maturity or repricing mismatch between its
interest-earning assets and rate-sensitive liabilities. Historically, Ohio
Central Savings has sought to reduce exposure to its earnings through the use of
adjustable rate loans and through the sale of certain fixed rate loans in the
secondary market, and by extending funding maturities through the use of FHLB
advances.
As part of its efforts to monitor and manage interest rate risk, Ohio
Central Savings uses a Net Portfolio Value ("NPV") methodology which is similar
to the NPV methodology adopted by the Office of Thrift Supervision as part of
its capital regulations. In essence, this approach calculates the difference
between the present value of expected cash flows from assets and the present
value of expected cash flows from liabilities. Management and the board of
directors review model estimates of NPV on a quarterly basis to determine
whether Ohio Central Savings' interest rate exposure is within the guidelines
and limits established by the board of directors in the Ohio Central Savings'
interest rate risk policy.
Ohio Central Savings' asset/liability management strategy dictates
acceptable limits on the amounts of change given certain changes in interest
rates. For decreases in interest rates of 100, 200 and 300 basis points, Ohio
Central Savings' policy requires the NPV ratio to be at least 6.625%, 6.00%, and
5.375%, respectively. For interest rate increases of 100, 200 and 300 basis
points, our policy dictates that our NPV ratio should not fall below 6.625%,
6.00% and 5.375%, respectively. As illustrated by the table below, we are in
compliance with this aspect of our asset/liability management policy.
The table presented below, as of September 30, 2004, is an analysis of
the Ohio Central Savings' interest rate risk as measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments, up 300 basis points and down 100 basis points.
As illustrated in the table below, our NPV would be negatively impacted
by decreases in interest rates as the current interest rate environment limits
our ability to significantly reduce interest rates on many of our deposit
products.
NPV AS % OF PORTFOLIO VALUE
NPV OF ASSETS
-------------------------------------------- ----------------------------
ESTIMATED INCREASE (DECREASE)
CHANGE IN IN NPV
INTEREST RATES ESTIMATED -----------------------------
(BASIS POINTS) NPV ($000) AMOUNT PERCENT NPV RATIO BP CHANGE
------------ -------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
+300 $ 3,458 $ -518 -13.03% 6.32% -67 bp
+200 3,625 -351 -8.84% 6.54 -45 bp
+100 3,742 -234 -5.90% 6.67 -32 bp
0 3,976 -- -- 6.99 --
-100 4,061 85 2.12% 7.05 -6 bp
Specifically, the table above indicates that Ohio Central Savings' NPV
was $3.97 million or 6.99% of the market value of portfolio assets as of
September 30, 2004. Based upon the assumptions utilized, an immediate 200 basis
point increase in market interest rates would result in a $351,000 decrease in
our NPV and would result in a 45 basis point decrease in our NPV ratio to 6.54%.
45
In addition to monitoring selected measures of NPV, management also
monitors effects on net interest income resulting from increases or decreases in
rates. This process is used in conjunction with NPV measures to identify
excessive interest rate risk. In managing its asset/liability mix, Ohio Central
Savings, depending on the relationship between long and short term interest
rates, market conditions and consumer preference, may place somewhat greater
emphasis on maximizing its net interest margin than on strictly matching the
interest rate sensitivity of its assets and liabilities. Management believes
that the increased net income which may result from an acceptable mismatch in
the actual maturity or repricing of its asset and liability portfolios can,
during periods of declining or stable interest rates, provide sufficient returns
to justify the increased exposure to sudden and unexpected increases in interest
rates which may result from such a mismatch. Management believes that Ohio
Central Savings' level of interest rate risk is acceptable under this approach.
In evaluating the Ohio Central Savings' exposure to interest rate
movements, certain shortcomings inherent in the method of analysis presented in
the foregoing table must be considered. For example, although certain assets and
liabilities may have similar maturities or repricing periods, 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 interest rates. Additionally, certain assets, such as adjustable rate
mortgages (ARM's), have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of a
significant change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed above. Finally, the
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase. Ohio Central Savings considers all of these factors in
monitoring its exposure to interest rate risk.
The board of directors and management of Ohio Central Savings believe
that certain factors afford Ohio Central Savings the ability to operate
successfully despite its exposure to interest rate risk. Ohio Central Savings
manages its interest rate risk by originating and retaining adjustable rate
loans in its portfolio and by normally selling currently originated fixed rate
one-to-four family real estate loans.
The board of directors and management of Ohio Central Savings believe in
an active approach to managing interest rate risk. The board of directors and
management have instituted policies and procedures that ensure compliance with
the overall goals of the organization as well as the regulatory limits imposed
on Ohio Central Savings. These policies and procedures are designed to ensure
management and board awareness of the association's interest rate risk exposure;
enable dynamic measurement and management of interest rate risk; use both
interest income and market value oriented techniques to select strategies that
optimize the relationship between risk and return; and establish interest rate
risk exposure limits for fluctuations in net interest income and NPV. These
activities help the board and management to select strategies intended to
optimize the ability of Ohio Central Savings to meet its long-range financial
goals while maintaining interest rate risk within policy limits established by
the board of directors. Interest rates and loan characteristics are inherently
volatile and subject to wide fluctuations over time. The interest rate risk
monitoring and management program cannot provide a guarantee of acceptable
results.
Ohio Central Savings' investment strategy is to maintain a diversified
portfolio of high quality investments that balances the goals of minimizing
interest rate and credit risks while striving to maximize investment return and
provide liquidity necessary to meet funding needs.
46
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following tables sets forth average balance sheets, average yields
and costs, and certain other information for the years indicated. No
tax-equivalent yield adjustments were made, as the effect thereof was not
material. All average balances are daily average balances. Non-accrual loans
were included in the computation of average balances, but have been reflected in
the table as loans carrying a zero yield. The yields set forth below include the
effect of deferred fees, discounts and premiums that are amortized or accreted
to interest income or expense.
At For the Year Ended September 30,
September ------------------------------------------------------------------------------------
30, 2004 2004 2003
---------- ----------------------------------------- -----------------------------------------
Average Average Average Average Average
Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- ------------- ---------- ------------ ------------- ---------- ------------
INTEREST-EARNING ASSETS (Dollars in thousands)
- -----------------------
Loans(including loans held
for sale)(1)............... 5.50% $ 26,019 $ 1,597 6.14% $ 29,243 $ 2,081 7.12%
Securities available
for sale(2)................
Securities held to maturity
and other interest-earning
assets(3) ................. 3.93 26,830 1,076 4.01 16,726 592 3.54
---------- ------------- ---------- ------------ ------------- ---------- ------------
Total interest-earning
assets.................. 4.70 52,849 2,673 5.06 45,969 2,673 5.81
---------- -------------
Non-interest earning assets.. 1,752 1,949
------------- -------------
Total assets.............. $ 54,601 $ 47,918
============= =============
INTEREST-BEARING LIABILITIES
- ----------------------------
Savings deposits............. 0.23 $ 14,100 32 0.23 $ 12,584 29 0.23
Money market accounts........ 1.18 3,103 26 0.84 3,576 36 1.01
NOW deposits 1.73 5,297 54 1.02 3,402 4 0.12
Certificates of deposit...... 3.94 8,344 401 4.81 10,611 510 4.81
---------- ------------- ---------- ------------ ------------- ---------- ------------
Total deposits............ 1.65 30,844 513 1.66 30,173 579 1.92
Borrowings................... 4.81 16,200 781 4.82% 9,783 617 6.31
------------- ----------- ------------ ------------- ---------- ------------
Total interest-bearing
liabilities............. 47,044 1,294 2.75 39,956 1,196 2.99
---------- ------------ ---------- ------------
Non-interest bearing
liabilities................ 3,788 4,352
------------- -------------
Total liabilities......... 50,832 44,308
Stockholders' equity......... 3,769 3,610
------------- -------------
Total liabilities and
stockholder's equity.... $ 54,601 $ 47,918
============= =============
Net interest income.......... $ 1,379 $ 1,477
========== ==========
Net interest rate spread..... 2.01% 2.31% 2.82%
========== ============ ============
Net earning assets........... $ 5,805 $ 6,013
============= =============
Net interest margin(4)....... 2.61% 3.71%
============ ============
Ratio of interest-earning
assets to interest-bearing
liabilities................ 112.34% 115.05%
- -----------------------------------------------------------------------
(1) Calculated net of deferred fees and loss reserves. Nonaccrual loans included
as loans carrying a zero yield.
(2) Calculated based on carrying value. Not full tax equivalents, as the numbers
would not change materially from those presented in the table.
(3) Includes Federal Home Loan Bank stock at cost and term deposits with other
financial institutions.
(4) Net interest income divided by average interest-earning assets.
47
RATE/VOLUME ANALYSIS
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume, which are changes in volume multiplied by the old rate;
and (2) changes in rate, which are changes in rate multiplied by the old volume;
and (3) changes not solely attributable to rate or volume have been allocated
proportionately to the change due to volume and the change due to rate.
FOR THE YEARS ENDED SEPTEMBER 30,
2004 VS. 2003
-------------------------------------------
INCREASE/(DECREASE)
DUE TO
-------------------------- TOTAL INCREASE
VOLUME RATE (DECREASE)
-------------------------------------------
(IN THOUSANDS)
INTEREST-EARNING ASSETS
Loans receivable.................... $ (215) $ (269) $ (484)
Securities and other................ 397 87 484
------------ --------------- --------------
Total interest-earning assets 182 (182) 0
------------ --------------- --------------
INTEREST-BEARING LIABILITIES:
Savings deposits.................... 3 -- 3
Money market accounts............... (4) (6) (10)
NOW deposits........................ 3 47 50
Time deposits....................... (109) -- (109)
FHLB advances....................... 256 (92) 164
------------ --------------- --------------
Total interest-bearing liabilities.. 149 (51) 98
------------ --------------- --------------
Net interest income................. $ 33 $ (131) $ (98)
============ =============== ==============
RECENT ACCOUNTING STANDARDS
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
This Statement is effective for contracts entered into or modified after June
30, 2003, with certain exceptions, and for hedging relationships designated
after June 30, 2003. The adoption of this statement did not have an impact on
Ohio Central Savings' financial statements since it does not have these types of
instruments.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
Statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. The adoption of this Statement did
not have an impact on Ohio Central Savings' financial statements since it does
not have these types of instruments.
48
In December 2003, FASB issued Interpretation ("FIN") No. 45, "Grantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation requires recognizing
the fair value of guarantees made and information about the maximum potential
payments that might be required, as well as the collateral or other recourse
obtainable. Interpretation 45 covers guarantees such as standby letters of
credit, performance guarantees, and direct or indirect guarantees of the
indebtedness of others, but not guarantees of funding. The adoption of this
Statement did not have an impact on Ohio Central Savings' financial statements
since it does not have these types of instruments.
In December 2003, FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." This Interpretation, as revised in December 2003, changes
the accounting model for consolidation from one based on consideration of
control through voting interests. Whether to consolidate an entity will now also
consider whether that entity has sufficient equity at risk to enable it to
operate without additional financial support, whether the equity owners in that
entity lack the obligation to absorb expected losses or the right to receive
residual returns of the entity, or whether voting rights in the entity are not
proportional to the equity interest and substantially all the entity's
activities are conducted for an investor with few voting rights. The adoption of
this Statement did not have an impact on Ohio Central Savings' financial
statements.
In November 2003, Emerging Issues Task Force ("EITF") Consensus 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" was updated to require additional numerical and narrative
disclosures for debt and marketable equity securities that have unrealized
losses. The Corporation included the disclosures in the 2004 consolidated
financial statements.
EITF 03-1 also contains measurement and recognition guidance, the
effective date of which has been delayed due to additional proposed guidance
expected to be finalized in 2005. The original guidance indicated that for
equity securities (including cost method investments), and for debt securities
that can contractually be prepaid or otherwise settled in such a way that the
investor would not recover substantially all of its cost, an impairment is
other-than-temporary unless the investor has the ability and intent to hold an
investment for a reasonable period of time sufficient for a forecasted recovery
of fair value up to (or beyond) the cost of the investment, and evidence
indicating that the cost of the investment is recoverable within a reasonable
period of time outweighs evidence to the contrary. For all other debt
securities, an impairment shall be deemed other than temporary if the investor
does not have the ability and intent to hold an investment until a forecasted
recovery of fair value up to (or beyond) the cost of the investment, which in
certain cases may mean until maturity, or it is probable that the investor will
be unable to collect all amounts due according to the contractual terms of the
debt security. If the impairment is other than temporary, the investor should
recognize impairment equal to the difference between the investment's cost and
its fair value. The impairment loss should be recognized in earnings equal to
the difference between cost and fair value of the investment at the end of the
reporting period. The fair value becomes the new cost basis of the investment
and should not be adjusted for subsequent recoveries in fair value.
EITF 03-1 was further updated to state that "Although not presumptive, a
pattern of selling investments at a loss prior to the forecasted recovery of
fair value may call into question the investor's intent" to hold the securities
until they recover from their loss position. Thus, such an investor may not be
able to demonstrate that it has the ability and intent to hold other available
for sale securities in a loss position until their fair value recovers.
49
We are continuing to evaluate the impact of EITF 03-1. The amount of
other-than-temporary impairment to be recognized, if any, will be dependent on
market conditions, management's intent and ability to hold investments until a
forecasted recovery, and the finalization of the proposed guidance.
In March 2004, Staff Accounting Bulletin No. 105 was issued, which
provides guidance regarding loan commitments that are accounted for as
derivative instruments under Statement of Financial Accounting Standards No. 133
(as amended), "Accounting for Derivative Instruments and Hedging Activities." In
this Bulletin, the Securities and Exchange Commission ruled that the amount of
expected servicing rights should not be included when determining the fair value
of derivative interest rate lock commitments. This guidance must be applied to
rate locks initiated after March 31, 2004. The adoption of this guidance did not
have a material impact on our consolidated financial statements.
The Financial Accounting Standards Board is preparing a proposed
Statement that would be effective for all employee awards granted, modified, or
settled in 2006 for calendar year-end companies. As of the effective date,
compensation expense related to the non-vested portion of awards outstanding as
of that date would be based in the grant-date fair value as calculated under the
original provisions of Statement 123, "Accounting for Stock-Based Compensation."
Adoption of this proposed statement could materially impact the amount of
compensation expense incurred for future financial statements reporting if we
have a stock award program in place at the time the proposed statement becomes
effective.
BUSINESS OF OC FINANCIAL
OC Financial is incorporated in the State of Maryland. We have not
engaged in any business to date. Upon completion of the conversion and
reorganization, we will own all of the issued and outstanding stock of Ohio
Central Savings. We will retain up to 50% of the net proceeds from the offering
and invest not less than 50% of the remaining net proceeds in Ohio Central
Savings as additional capital in exchange for 100% of the outstanding common
stock of Ohio Central Savings. We will use a portion of the net proceeds to
replenish the funds used by Ohio Central Savings to redeem its outstanding
common stock issued to TFS Financial Corporation and to make a loan to our
employee stock ownership plan. At a later date, we may use the net proceeds to
pay dividends to stockholders and may repurchase shares of common stock, subject
to regulatory limitations. We will invest our initial capital as discussed in
"How We Intend to Use the Proceeds from the Offering."
In the future, OC Financial, as the holding company of Ohio Central
Savings, will be authorized to pursue other business activities permitted by
applicable laws and regulations for savings association holding companies, which
may include the acquisition of banking and financial services companies. See
"Supervision and Regulation-Holding Company Regulation-Permitted Activities" for
a discussion of the activities that are permitted for savings association
holding companies. We currently have no specific arrangements or understandings
regarding any specific acquisition transaction. We may also borrow funds for
reinvestment in Ohio Central Savings.
Following the conversion and reorganization, our cash flow will depend
on earnings from the investment of the net proceeds from the offering that we
retain, and any dividends received from Ohio Central Savings. Initially, OC
Financial will neither own nor lease any property, but will instead pay a fee to
Ohio Central Savings for the use of its premises, equipment and furniture. At
the present time, we intend to utilize only persons who are officers of Ohio
Central Savings to serve as officers of OC Financial. We will, however, use the
support staff of Ohio Central Savings from time to time. We will pay a fee to
Ohio Central Savings for the time devoted to OC Financial by employees of Ohio
Central Savings. However, these persons will not be separately compensated by OC
Financial. OC Financial may hire additional employees, as appropriate, to the
extent it expands its business in the future.
50
BUSINESS OF OHIO CENTRAL SAVINGS
GENERAL
Ohio Central Savings is a full-service, community-oriented savings
institution with total assets of $55.6 million, total net loans of $26.2 million
and total deposits of $32.3 million at September 30, 2004. We provide financial
services to individuals, families and businesses through our 2 full-service
banking offices, located in Dublin and Cleveland, Ohio. Originally organized in
1949 as an Ohio-chartered credit union, Ohio Central Savings converted to a
federal mutual savings association in 1998 and reorganized into the mutual
holding company structure in September 2001 by becoming a wholly-owned
subsidiary of TFS Financial which is a wholly-owned subsidiary of Third Federal
Savings and Loan Association of Cleveland, MHC, a mutual holding company.
Ohio Central Savings' business consists primarily of accepting deposits
from the general public and investing those deposits, together with funds
generated from operations and borrowings, primarily in new and used automobile
loans, as well as one- to four-family residential mortgage loans and in agency
securities and mortgage-backed securities. We also make, to a much lesser
extent, consumer loans, commercial real estate loans and commercial business
loans. In 2003, we also organized AutoARMtm to underwrite, fund and/or service
automobile loans for other institutions. We are currently marketing its services
and anticipate reaching agreements with a few institutions in the near future.
We design our service delivery channels to suit the needs of our customers, with
an emphasis on delivering services electronically and on-demand at our
customers' convenience.
We seek to distinguish ourselves through proactive customer service. We
identify and meet customer needs in a professional manner through market
research, continuing education of our employees, systems-based internal
coordination and performance-tracking.
MARKET AREA
At September 30, 2004, we had full-service banking office located in
each of Dublin and Cleveland, Ohio. Our primary market for deposits is currently
concentrated around the areas where our full-service banking offices are
located. Our primary lending area consists of the counties where our two offices
are located and the counties contiguous to such counties. We have less than a 1%
loan and deposit share in our market area.
Dublin is located in the Columbus, Ohio metropolitan area. Columbus is
located in Franklin County. The county has a diversified economy, employment
base and population base. The unemployment rate was 4.8% as of August, 2004, as
compared to 5.4% in the United States as a whole. The population of Franklin
County increased at an annual growth rate of approximately 0.6% between 2000 and
2004, compared to an annual growth rate of 1.0% for the United States as a whole
during the same period. Dublin is an upscale suburb of Columbus located on the
northwest side. Dublin is an active growth area with very active residential and
commercial development. The Ohio Central office is located just off Interstate
270, the Columbus outer beltway. The office is easily accessible from the
Columbus metropolitan area with travel time to the city center of less than 20
minutes. Two of the largest employers in Franklin County are the State of Ohio
and Ohio State University, each based in Columbus. Franklin County is also home
to several major medical centers. Ohio Central Savings has about 50.0% of its
loans based in Franklin County and about 21.0% of its loans in Cuyahoga County
and we have about 39.0% of our deposits based in Cuyahoga County and about 60.0%
of our deposits in Franklin County, reflecting the different economic trends of
its two respective market areas.
The Cleveland office is located in University Circle on the east side of
Cleveland. Cleveland is located in Cuyahoga County. The county had an
unemployment rate of 6.5% as of August 2004, with the
51
State of Ohio with an unemployment rate of 6.3%. Contrasted with Franklin
County, the population of Cuyahoga County has been shrinking at a rate of 0.5%
over the period of 2000-2004. The area consists mainly of the campus of Case
Western Reserve University, the Cleveland Clinic as well as several museums and
the Cleveland Playhouse. The area is fairly congested and is not easily
accessible for much of the Cleveland metropolitan area as it is not near a major
highway or interstate. Cuyahoga County is home to two large automobile
manufacturers in addition to the university.
Ohio Central Savings has maintained relationships with the employer
organizations that it served as a credit union. These employers still provide
Ohio Central Savings with payroll deduction from their associates, and
opportunities to solicit business from their associates and to continue to offer
our programs and products to their associates. In Cleveland, these businesses
are located close to our office and include a number of the companies located in
University Circle. In Columbus, the businesses are more evenly distributed
around the metropolitan area. Ohio Central Savings has continued to tailor its
operations to ensure exceptional service to these sponsor organizations
including establishing hours and operations to meet their specific needs. We do
not anticipate any change in these relationships as a result of the conversion
and reorganization.
LENDING ACTIVITIES
GENERAL. We primarily originate new and used automobile loans. While we
have originated a limited amount of one- to four-family residential mortgage
loans in the past three years, we plan to originate more one- to four-family
mortgage loans in the future. In addition, we originate commercial real estate,
commercial business loans and consumer loans.
As of September 30, 2004, $17.5 million, or 66.3%, of our total loan
portfolio consisted of new and used automobile loans, $6.6 million, or 24.9%, of
our total loan portfolio consisted of one- to four-family residential real
estate loans (a significant amount of which were originated prior to our
affiliation with Third Federal in 2001). Home equity loans constituted $864,000
or 3.2% of our loan portfolio. Commercial real estate loans and commercial
business loans constituted $376,000 or 2.8% of our total loan portfolio.
At September 30, 2004, the maximum amount which we could have loaned to
any one borrower and the borrower's related entities under applicable
regulations was generally $500,000. Our five largest lending relationships at
September 30, 2004 were as follows: (1) a $484,408 total loan relationship
secured by a first mortgage or a one-to four-family dwelling, a home equity line
of credit and an automobile, (2) a $426,228 loan secured by a retail
establishment, (3) a $397,685 loan secured by a first mortgage on a one- to
four-family dwelling, (4) a $345,829 loan secured by a first mortgage on a
one-to four-family dwelling, and (5) a $344,153 loan secured by a first mortgage
on a one-to four-family dwelling.
52
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of our loan portfolio (including loans held for sale) by type of
loan at the dates indicated.
AT SEPTEMBER 30,
-----------------------------------------------------------
2004 2003
--------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
REAL ESTATE
- -----------
One- to four-family.............................. $ 6,595 24.95% 8,044 29.88%
Home equity loans ............................... $ 864 3.27 $ 1,296 4.81
One- to four-family construction loans........... -- -- -- --
------------ ----------- ------------ -----------
Total real estate loans....................... $ 7,459 28.22 9,340 34.69
------------ ----------- ------------ -----------
OTHER LOANS
- -----------
Automobile loans(1).............................. $ 17,508 66.23 $ 15,992 59.41
Other consumer loans............................. $ 731 2.77 821 3.05
------------ ----------- ------------ -----------
Total consumer loans.......................... $ 18,239 69.00 $ 16,813 62.46
------------ ----------- ------------ -----------
Commercial real estate loans..................... $ 645 2.44 673 2.50
Commercial business loans........................ $ 91 0.34 94 0.35
------------ ----------- ------------ -----------
Total loans................................... $ 26,434 100.00% $ 26,920 100.00%
=========== ===========
Net deferred fees, costs and premiums............ (6) (3)
Allowance for loan losses........................ $ (231) $ (217)
------------- ------------
Total loans, net................................. $ 26,197 $ 26,700
============ ============
- --------------------
(1) Including loans held for sale.
53
The following table shows the composition of Ohio Central Savings' loan
portfolio (including loans held for sale) by fixed- and adjustable-rate at the
dates indicated.
AT SEPTEMBER 30,
------------------------------------------------
2004 2003
---- ----
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
FIXED-RATE LOANS
Real Estate
- -----------
One- to four-family............ $ 5,675 21.47% $ 6,603 24.53%
Home equity loans ............. 24 0.09 48 0.18
-------- --------- --------- ----------
Total residential loans..... 5,699 21.56 6,651 24.71
Other Loans
- -----------
Automobile loans(1)............ 17,508 66.23 15,992 59.41
Other consumer loans........... 109 0.41 136 0.51
-------- --------- --------- ----------
Total consumer loans........ 17,617 66.64 16,128 59.92
-------- --------- --------- ----------
Total fixed-rate loans....... 23,316 88.20 22,779 84.63
-------- --------- --------- ----------
ADJUSTABLE-RATE LOANS
Real Estate
- -----------
One- to four-family............ 920 3.48 1,441 5.35
Home equity loans ............. 840 3.18 1,248 4.64
-------- --------- --------- ----------
Total real estate loans...... 1,760 6.66 2,689 9.99
-------- --------- --------- ----------
Other Loans
- -----------
Commercial business............ 91 0.34 94 0.35
Commercial real estate......... 645 2.44 673 2.50
Consumer....................... 622 2.35 685 2.54
Total other loans......... 1,358 5.14 1,452 5.39
-------- --------- --------- ----------
Total adjustable loans.... 3,118 11.80 4,141 15.38
-------- --------- --------- ----------
Total loans............... 26,434 100.00% 26,920 100.00%
========== ===========
Add (Deduct):
Net deferred fees costs
and premiums.............. (6) (3)
Allowance for loan losses... (231) (217)
-------- ---------
Total loans, net.......... $ 26,197 $ 26,700
======== =========
- --------------------
(1) Including loans held for sale.
54
LOAN PORTFOLIO MATURITIES AND YIELDS. The following table summarizes the
scheduled maturities of our loan portfolio at September 30, 2004. Demand loans,
loans having no stated repayment schedule or maturity, and overdraft loans are
reported as being due in one year or less. No effect is given to amortization or
prepayments.
ONE- TO FOUR-FAMILY HOME EQUITY AUTOMOBILE(2) OTHER CONSUMER
--------------------- --------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
Due During the Years
Ending September 30,
- --------------------
2005 (1)............... $ -- --% $ 38 6.21% $ 798 5.47% $ 647 9.12%
2006 to 2009........... 552 5.39 466 6.62 11,559 4.95 84 10.20
2010 and beyond........ 6,043 5.74 360 7.06 5,151 3.90 -- --
--------- --------- --------- --------
Total......... $ 6,595 5.27% $ 864 6.79% $ 17,508 4.23% $ 731 9.25%
========= ========= ========= ========
- -------------------------------
(1) Includes demand loans, loans having no stated repayment schedule or
maturity, and overdraft loans.
(2) Includes loans held for sale.
COMMERCIAL
REAL ESTATE COMMERCIAL BUSINESS TOTAL
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
Due During the Years
Ending September 30,
- --------------------
2005 (1)............... $ -- --% $ 3 6.5% $ 1,486 7.07%
2006 to 2009........... -- -- 88 7.44 12,749 5.14
2010 and beyond........ 645 9.31 0 -- 12,199 5.19
--------- --------- ---------
Total......... $ 645 9.31% $ 91 7.41% $ 26,434 5.50%
========= ========= =========
- -------------------------------
(1) Includes demand loans, loans having no stated repayment schedule or
maturity, and overdraft loans.
55
LOAN REPRICING. The following schedule illustrates the interest rate
sensitivity of Ohio Central Savings' loan portfolio (including loans available
for sale) at September 30, 2004. Loans which have adjustable or renegotiable
interest rates are shown as maturing in the period during which the loan
reprices. The schedule does not include scheduled payments or potential
prepayments
Real Estate
---------------------------------------------
ONE- TO FOUR- COMMERCIAL
DUE FAMILY REAL ESTATE HOME EQUITY AUTOMOBILE(1)
--- ------ ----------- ------------ -------------
(In Thousands)
Within 1 year(1).................. $ 119 $ -- $ 840 $ 800
After 1 Year through 3 Years...... 11 -- -- 5,604
After 3 Years through 5 Years..... 1,342 -- -- 5,996
After 5 Years through 10 Years.... 687 -- -- 5,108
After 10 Years through 15 Years... 837 -- 24 --
Over 15 years..................... 3,599 645 -- --
----------- ----------- ----------- -----------
Total............................. $ 6,595 $ 645 $ 864 $ 17,508
=========== =========== =========== ===========
(CONTINUED)
COMMERCIAL OTHER
BUSINESS CONSUMER TOTAL
-------- -------- -----
Within 1 year(1).................. $ 79 $ 622 $ 2,460
After 1 Year through 3 Years...... 12 109 5,736
After 3 Years through 5 Years..... -- -- 7,338
After 5 Years through 10 Years.... -- -- 5,795
After 10 Years through 15 Years... -- -- 861
Over 15 years..................... -- -- 4,244
----------- ----------- ---------
Total............................. $ 91 $ 731 $ 26,434
=========== =========== =========
- -------------------------------
(1) Includes loans held for sale.
56
CONSUMER LOANS. We currently offer a variety of consumer loans. Consumer
loans generally have shorter terms to maturity, which reduces our exposure to
changes in interest rates, and carry higher rates of interest than do one-
to-four family residential mortgage loans. At September 30, 2004, our consumer
loan portfolio, exclusive of automobile loans, totaled $731,000, or 2.8%, of our
gross loan portfolio. Such loans consisted of credit card loans and other
unsecured consumer loans.
The most significant component of our consumer lending is automobile
loans. We originate automobile loans only on a direct basis with the borrower.
Loans secured by automobiles totaled $17.5 million at September 30, 2004, or
66.3%, of our gross loan portfolio. Loans secured by used automobiles
constituted $7.2 million or 27.5% our gross loan portfolio. Automobile loans may
be written for up to six years for new automobiles and a maximum of five years
for used automobiles and have fixed rates of interest. Loan to value ratios for
automobile loans are up to 100% of the sales price for new automobiles and up to
100% of value on used cars, based on retail valuation from official used car
guides. Approximately 60.0% of our automobile loan originations are generated
through applications submitted through our website, many of which are Ohio
residents. Substantially all these loans are closed in our offices where we make
personal identification of the borrower. We only permit a closing off-site in
the case of a refinance with an existing customer, or a new automobile with a
dealer with whom we have an existing relationship.
For the past 15 years auto lending has been a primary focus of Ohio
Central Savings. All of our auto lending is direct to the consumer; there are no
relationships with auto dealers. We specialize in the origination of auto loans
at fixed rates and with fixed terms for the purchase, refinance and lease
buy-outs of new and used cars. By maintaining 15 years of underwriting history
we have developed policies and procedures that allow us to make these loans with
good delinquency and loss experience. This will continue to be a major part of
the activity of Ohio Central Savings after the conversion and reorganization.
Consumer loans may entail greater risk than do one- to-four family
residential mortgage loans, particularly in the case of consumer loans which are
secured by rapidly depreciable assets, such as automobiles and credit card loans
that are unsecured. In these cases, any repossessed collateral for a defaulted
loan may not provide an adequate source of repayment of the outstanding loan
balance. As a result, consumer loan collections are dependent on the borrower's
continuing financial stability and, thus, are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. We actively
manage this risk and have been successful in managing this risk in the past. Our
management begins with our policies that are carried out through detailed
underwriting and proprietary processing and documentation. All closed loans are
quality reviewed for accuracy. Collection activity is closely tracked and we
promptly contact any slow paying borrower. See "Risk Factors - Our loan
portfolio possesses increased risk due to our substantial number of consumer
loans, which could increase the level of our provision for loan losses."
ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING. We offer both
fixed-rate and adjustable-rate conforming one-to-four-family residential
mortgage loans. This portfolio totaled $6.6 million, or 24.9% of our total loan
portfolio at September 30, 2004. Substantially all of these loans were
originated prior to our affiliation with Third Federal when we began to refer
our residential loan customers to Third Federal. At September 30, 2004, we also
had $964,000 in home equity loans, or 3.2% of our total loan portfolio.
We currently offer fixed-rate conventional mortgage loans with terms of
10 to 30 years that are fully amortizing and adjustable-rate conventional
mortgage loans that amortize up to 30 years. One- to four-family residential
mortgage loans are generally underwritten according to Fannie Mae or Freddie Mac
guidelines, and loans that conform to such guidelines are referred to as
"conforming loans." We generally originate both fixed- and adjustable-rate loans
in amounts up to the maximum conforming loan
57
limits as established by Fannie Mae or Freddie Mac, which is currently $333,700
for single-family homes. Private mortgage insurance is required for first
mortgage loans with loan-to-value ratios in excess of 85%. Our current portfolio
consists of 46 loans. Following the conversion and reorganization, we intend to
use a third party to underwrite, process and close our residential mortgage
loans. We will rund and service these loans. We intend to emphasize the
origination of adjustable rate loans and shorter term fixed rate mortgages for
our portfolio. We anticipate we will sell mortgages with greater than 15-year
maturities into the secondary market for interest rate risk management purposes.
We also originate loans above conforming limits, referred to as "jumbo
loans," that have been underwritten to the credit standards of Fannie Mae or
Freddie Mac. These loans are generally eligible for sale to various firms that
specialize in the purchase of such non-conforming loans. We also originate loans
at higher rates that do not fully meet the credit standards of Fannie Mae or
Freddie Mac but are deemed to be acceptable risks.
Our adjustable-rate loan products secured by residential properties with
rates that are fixed for an initial period ranging from one year to five years.
After the initial fixed period, the interest rate on these loans is generally
reset every year based upon a contractual spread or margin above the average
yield on U.S. Treasury securities, adjusted to a constant maturity of one year,
as published weekly by the Federal Reserve Board, subject to certain periodic
and lifetime limitations on interest rate changes. Many of the borrowers who
select these loans have shorter-term credit needs than those who select
long-term, fixed-rate loans. Adjustable-rate mortgage loans generally pose
different credit risks than fixed-rate loans primarily because the underlying
debt service payments of the borrowers rise as interest rates rise, thereby
increasing the potential for default. At September 30, 2004, our adjustable-rate
mortgage portfolio was $920,000 or 3.51% of our gross loan portfolio.
We require title insurance on all of our one- to four-family residential
mortgage loans, and we also require that borrowers maintain fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) in an amount
at least equal to the lesser of the loan balance or the replacement cost of the
improvements. We do not require a mortgage escrow account from which
disbursements are made for real estate taxes and for hazard and flood insurance.
We do not conduct environmental testing on residential mortgage loans unless
specific concerns for hazards are determined by the appraiser utilized in
connection with the loan.
In addition to traditional one- to four-family residential mortgage
loans, we offer home equity loans and home equity lines of credit that are
secured by the borrower's primary residence. The borrower is permitted to draw
on a home equity line of credit during the first three years after it is
originated and may repay the outstanding balance over a term not to exceed seven
years from the date the home equity line of credit is originated. Our home
equity lines of credit are originated with adjustable rates of interest and our
home equity loans with fixed rates of interest. Home equity loans and home
equity lines of credit are generally underwritten with the same criteria that we
use to underwrite fixed-rate, one- to four-family residential mortgage loans.
Home equity lines of credit and home equity loans may be underwritten with a
loan-to-value ratio of 95% and 80%, respectively, when combined with the
principal balance of the existing mortgage loan. We appraise the property
securing the loan at the time of the loan application in order to determine the
value of the property securing the home equity loan or line of credit. At the
time we close a home equity loan or line of credit, we file a mortgage to
perfect our security interest in the underlying collateral.
COMMERCIAL AND REAL ESTATE AND COMMERCIAL BUSINESS LOANS. We make
various types of secured commercial loans to customers in our market area for
the purpose of financing equipment acquisition, expansion, working capital and
other general business purposes. We also make real estate loans secured by
commercial properties, typically small businesses or professional offices. The
terms of these loans generally range from less than one year to 25 years. The
loans are either negotiated on a fixed-rate basis or carry adjustable interest
rates indexed to (i) a lending rate that is determined internally, or (ii) a
short-term market rate index. At September 30, 2004, we had 8 commercial loans
outstanding with an aggregate balance of $68,000, or 0.26% of our gross loan
portfolio and 3 commercial real
58
estate loans with a aggregate balance of $668,000 or 2.53% of our gross loan
portfolio. We do not plan to actively market commercial loans, but rather to
make such loans as the opportunity may arise. We have no current plans to
originate commercial real estate construction loans.
LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. While we originate
both fixed-rate and adjustable-rate loans, our ability to generate each type of
loan depends upon borrower demand, market interest rates, borrower preference
for fixed- versus adjustable-rate loans, and the interest rates offered on each
type of loan by other lenders competing in our market area. Loan originations
are derived from a number of sources, including branch office personnel, our
website, existing customers, borrowers, builders, attorneys, accountants and
other professionals, real estate and mortgage brokers and walk-in customers.
Our loan origination and sales activity may be adversely affected by a
rising interest rate environment that typically results in decreased loan
demand, while declining interest rates may stimulate increased loan demand.
Accordingly, the volume of loan originations, the mix of fixed and
adjustable-rate loans, and the profitability of this activity can vary from
period to period. One- to four-family residential mortgage loans are generally
underwritten to current Fannie Mae or Freddie Mac seller/servicer guidelines,
and closed on standard Fannie Mae or Freddie Mac documents. If such loans are
sold, the sales are conducted using standard Fannie Mae or Freddie Mac purchase
contracts and master commitments as applicable. One- to four-family mortgage
loans may be sold to Fannie Mae or Freddie Mac on a non-recourse basis whereby
foreclosure losses are generally the responsibility of the purchaser.
59
The following table shows the loan origination, purchase, sale and
repayment activities of Ohio Central Savings for the periods indicated.
YEAR ENDED SEPTEMBER 30,
--------------------------
2004 2003
----------- -----------
(IN THOUSANDS)
Beginning of period................... $ 26,700 $ 33,079
Originations by Type:
- ---------------------
Real estate mortgage:
One- to four-family residential.. 13 191
Home equity...................... -- --
Consumer:
Automobile....................... 35,098 49,430
Other consumer................... -- --
Other................................. -- --
Total loans originated......... 35,111 49,621
Purchases:
Real estate mortgage:
One- to four-family residential.. -- --
Home equity...................... -- --
Residential construction......... -- --
Consumer:
Automobile....................... -- --
Other consumer................... -- --
Other................................. -- --
Total loans purchased.......... -- --
Sales and Repayments:
Real estate mortgage:
One- to four-family residential.. -- --
Home equity...................... -- --
Residential construction......... -- --
Consumer:
Automobile....................... 25,014 38,012
Other consumer................... --
Other.................................
Total loans sold............... 25,014 38,012
Principal repayments............... 10,564 17,927
----------- -----------
Total reductions............... 35,578 55,939
Increase (decrease) in other items,
net................................ (36) (61)
----------- -----------
Net increase (decrease)........ (503) (6,379)
----------- -----------
Ending balance................. $ 26,197 $ 26,700
=========== ===========
LOAN APPROVAL AUTHORITY AND UNDERWRITING. Our board of directors grants
lending authority to the Credit Committee (the members of which are two
directors and an officer), and individual executive
60
officers and loan officers. Our lending activities are subject to written
policies established by the board of directors. These policies are reviewed
periodically.
The Credit Committee may approve loans in accordance with applicable
loan policies, including our policy governing loans to one borrower. This policy
places limits on the aggregate dollar amount of credit that may be extended to
any one borrower and related entities. The Credit Committee may approve loans up
to an aggregate of $500,000, to any one borrower and related borrowers The
Credit Committee also may approve unsecured loans in amounts up to $50,000. Our
practices generally provide for a maximum loan-to-one-borrower limit of
$500,000. We may increase this limit following the conversion and reorganization
as a result of our increased capital base.
In connection with our residential and commercial real estate loans, we
generally require property appraisals to be performed by independent appraisers
who are approved by the board of directors. Appraisals are then reviewed by the
appropriate loan underwriting areas. Under certain conditions, we may not
require appraisals for loans under $250,000, but we obtain appraisals in many of
these cases. We also require title insurance, hazard insurance and, if
indicated, flood insurance on property securing mortgage loans.
DELINQUENT LOANS, OTHER REAL ESTATE OWNED AND CLASSIFIED ASSETS
COLLECTION PROCEDURES. We send a computer-generated late notice by the
11th day after the payment due date on a loan requesting the payment due plus
any late charge that is assessed. Accounts are distributed to a collector or
account officer to contact borrowers, determine the reason for delinquency and
arrange for payment, and accounts are monitored electronically for receipt of
payments. If payments are not received within 30 days of the original due date,
a letter demanding payment of all arrearages is sent and contact efforts are
continued. If contact is not made and satisfactory arrangements are not made or
if payment is not received, we generally accelerate loans and demand payment in
full and take action to recover any collateral. In addition, failure to pay
within 60 days of the original due date generally results in legal action,
notwithstanding ongoing collection efforts. Generally loans with no payments in
180 days are charged-off. For commercial loans, procedures may vary depending
upon individual circumstances.
LOANS PAST DUE AND NONPERFORMING ASSETS. Loans are reviewed on a regular
basis, and are placed on nonaccrual status when either principal or interest is
90 days or more past due. In addition, we place loans on nonaccrual status when
we believe that there is sufficient reason to question the borrower's ability to
continue to meet contractual principal or interest payment obligations. Interest
accrued and unpaid at the time a loan is placed on nonaccrual status is reversed
from interest income. Interest payments received on nonaccrual loans are not
recognized as income unless warranted based on the borrower's financial
condition and payment record. At September 30, 2004, we had nonaccrual loans of
$69,037.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned ("REO") until such time as it is
sold. When real estate is acquired through foreclosure or by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the fair value of the property is less than the loan balance, the difference
is charged against the allowance for loan losses. At September 30, 2004, we had
no REO.
61
The following table sets forth certain information with respect to our
loan portfolio delinquencies at the dates indicated. Loans delinquent for 90
days or more are also classified as nonaccrual loans.
LOANS DELINQUENT FOR
--------------------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL
----------------------- ---------------------- ------------------------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
---------- --------- ---------- -------- ---------- ----------
(IN THOUSANDS)
At September 30, 2004
- ---------------------
One- to four-family........ $ -- $ -- $ -- $ -- $ -- $ --
Home equity................ 1 3 -- -- 19 3
Other consumer............. 11 18 8 16 3 34
Automobile................. 1 1 2 23 -- 24
Commercial real estate..... -- -- -- -- -- --
Commercial business........ -- 18 -- -- -- --
---------- --------- ---------- -------- ---------- ----------
Total.................... $ 13 $ 22 $ 10 $ 39 $ 23 $ 61
========== ========= ========== ======== ========== ==========
At September 30, 2003
- ---------------------
One- to four-family........ $ -- $ -- $ -- $ -- $ -- $ --
Home equity................ -- -- -- -- -- --
Other consumer............. 5 13 8 17 13 30
Automobile................. 4 26 4 17 8 43
Commercial real estate..... -- -- -- -- -- --
Commercial business........ -- -- -- -- -- --
---------- --------- ---------- -------- ---------- ----------
Total.................... $ 9 $ 39 $ 12 $ 34 $ 21 $ 73
========== ========= ========== ======== ========== ==========
NONPERFORMING ASSETS. The table below sets forth the amounts and
categories of our nonperforming assets at the dates indicated. At each date
presented, we had no troubled debt restructurings (loans for which a portion of
interest or principal has been forgiven and loans modified at interest rates
materially less than current market rates).
AT SEPTEMBER 30,
-----------------------------
2004 2003
------------ ------------
(DOLLARS IN THOUSANDS)
Non-accrual loans:
One- to four-family...................... $ -- $ --
Home equity.............................. -- --
Automobile............................... 23 17
Other consumer........................... 16 17
Commercial real estate................... -- --
Commercial business...................... -- --
------------ ------------
Total non-performing loans............. $ 39 $ 34
============ ============
Real estate owned:
One- to four-family...................... $ -- $ --
Home equity.............................. -- --
Commercial real estate................... -- --
Total real estate owned................ -- --
------------ ------------
Total non-performing assets................. $ 39 $ 34
============ ============
Ratios:
Non-performing loans to total loans...... 0.15% 0.13%
Non-performing assets to total assets.... 0.07% 0.07%
62
For the year ended September 30, 2004, gross interest income that would
have been recorded had the nonaccrual loans at the end of the period remained on
accrual status throughout the period amounted to $763.00. No interest income was
recognized on these loans.
CLASSIFICATION OF ASSETS. Our policies, consistent with regulatory
guidelines, provide for the classification of loans and other assets that are
considered to be of lesser quality as substandard, doubtful, or loss assets. An
asset is considered substandard if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that we will sustain some loss if the deficiencies are not corrected. Assets
classified as doubtful have all of the weaknesses inherent in those classified
substandard with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, highly questionable and improbable. Assets classified as
loss are those considered uncollectible and of such little value that their
continuance as assets is not warranted. Assets that do not expose us to risk
sufficient to warrant classification in one of the aforementioned categories,
but which possess potential weaknesses that deserve our close attention, are
required to be designated as special mention.
When we classify assets as either substandard or doubtful, we allocate a
portion of the related general loss allowances to such assets as we deem
prudent. The allowance for loan losses represents amounts that have been
established to recognize losses inherent in the loan portfolio that are both
probable and reasonably estimable at the date of the financial statements. When
we classify problem assets as loss, we charge-off such amount. Our determination
as to the classification of our assets and the amount of our loss allowances are
subject to review by our regulatory agencies, which can require that we
establish additional loss allowances. We regularly review our asset portfolio to
determine whether any assets require classification in accordance with
applicable regulations. On the basis of our review of our assets at September
30, 2004, classified assets consisted of substandard assets of $39,000. The
classified assets total consists of nonperforming loans.
The aggregate amount of our classified assets at the dates indicated
were as follows:
At September 30,
------------------------------------
2004 2003
----------------- ---------------
(In thousands)
Loss.................... $ -- $ --
Doubtful................ -- --
Substandard............. 39 34
Special Mention......... -- --
----------------- ---------------
Total................... $ 39 $ 34
================= ===============
ALLOWANCE FOR LOAN LOSSES. We provide for loan losses based on the
allowance method. Accordingly, all loan losses are charged to the related
allowance and all recoveries are credited to it. Additions to the allowance for
loan losses are provided by charges to income based on various factors which, in
our judgment, deserve current recognition in estimating probable losses. We
regularly review the loan portfolio and make provisions for loan losses in order
to maintain the allowance for loan losses in accordance with accounting
principles generally accepted in the United States of America. The allowance for
loan losses consists of three components:
(1) specific reserves established for any impaired multi-family
mortgage, commercial real estate, construction and commercial
loans for which the recorded investment in the loan exceeds the
measured value of the loan;
(2) allowances for loan losses for each loan type based on
historical loan loss experience; and
63
(3) adjustments to historical loss experience (general reserves),
maintained to cover uncertainties that affect our estimate of
probable losses for each loan type.
The adjustments to historical loss experience are based on our
evaluation of several factors, including:
o levels of, and trends in, past due and classified loans;
o levels of, and trends in, charge-offs and recoveries;
o trends in volume and terms of loans, including any credit
concentrations in the loan portfolio;
o experience, ability, and depth of lending management and other
relevant staff; and
o national and local economic trends and conditions.
We evaluate the allowance for loan losses based upon the combined total
of the specific, historical loss and general components. Generally when the loan
portfolio increases, absent other factors, the allowance for loan loss
methodology results in a higher dollar amount of estimated probable losses than
would be the case without the increase. Generally when the loan portfolio
decreases, absent other factors, the allowance for loan loss methodology results
in a lower dollar amount of estimated probable losses than would be the case
without the decrease.
We consider commercial business loans and commercial real estate loans
to have greater risk than one-to four-family residential mortgage loans.
Commercial business loans involve a higher risk of default than residential
loans of like duration since their repayment generally depends on the successful
operation of the borrower's business and the sufficiency of collateral, if any.
Commercial real estate loans also have greater credit risks compared to one- to
four-family residential mortgage loans, as they typically involve large loan
balances concentrated with single borrowers or groups of related borrowers. In
addition, the payment experience on loans secured by income-producing properties
typically depends on the successful operation of the related real estate project
and thus may be subject to a greater extent to adverse conditions in the real
estate market and in the general economy.
We periodically evaluate the carrying value of loans and the allowance
is adjusted accordingly. While we use the best information available to make
evaluations, future adjustments to the allowance may be necessary if conditions
differ substantially from the information used in making the evaluations. In
addition, as an integral part of their examination process, our regulatory
agencies periodically review the allowance for loan losses. Such agencies may
require us to recognize additions to the allowance based on their judgments of
information available to them at the time of their examination.
64
The following table sets forth activity in our allowance for loan losses
for the periods indicated.
AT OR FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------
2004 2003
------------ ------------
(DOLLARS IN THOUSANDS)
Balance at beginning of year.................................... $ 217 $ 240
Charge-offs:
One- to four-family.......................................... -- --
Home equity.................................................. -- 29
Automobile................................................... 16 36
Other consumer............................................... 29 31
Commercial real estate....................................... -- --
Commercial business.......................................... -- 9
------------ ------------
Total charge-offs.......................................... 45 105
------------ ------------
Recoveries:
One- to four-family.......................................... -- --
Home equity.................................................. 7 --
Automobile................................................... 3 18
Other consumer............................................... 14 4
Commercial real estate....................................... -- --
Commercial business.......................................... -- --
------------ ------------
Total recoveries........................................... 24 22
------------ ------------
Net (charge-offs) recoveries.................................... (21) (83)
Provision for loan losses....................................... 35 60
------------ ------------
Balance at end of year.......................................... $ 231 $ 217
============ ============
Ratios:
Net charge-offs to average loans outstanding (annualized).... 0.08% 0.28%
Allowance for loan losses to non-performing loans............ 592.31% 638.24%
Allowance for loan losses to total loans..................... 0.88% 0.81%
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following tables set forth
the allowance for loan losses allocated by loan category, the total loan
balances by category (excluding loans held for sale) and the percent of loans in
each category to total loans at the dates indicated. The allowance for loan
losses allocated to each category is not necessarily indicative of future losses
in any particular category and does not restrict the use of the allowance to
absorb losses in other categories.
AT SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------
2004 2003
------------------------------------------------- -----------------------------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
ALLOWANCE FOR LOAN BALANCES CATEGORY TO ALLOWANCE FOR LOAN BALANCES CATEGORY TO
LOAN LOSSES BY CATEGORY TOTAL LOANS LOAN LOSSES BY CATEGORY TOTAL LOANS
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
One- to four-family..... $ 57 $ 6,595 24.95% $ 64 $ 8,044 29.88%
Home equity............. 8 864 3.27 11 1,296 4.81
Automobile.............. 153 17,508 66.23 129 15,992 59.41
Other consumer.......... 7 731 2.77 7 821 3.05
Commercial real estate.. 5 645 2.44 5 673 2.50
Commercial business..... 1 91 0.34 1 94 0.35
--------- ----------- ----------- ------------ --------- ---------
Total................ $ 231 $ 26,434 100.00% $ 217 $ 26,920 100.00%
========= =========== ============ ============ ========= ==========
65
SECURITIES ACTIVITIES
Our securities investment policy is established by our board of
directors. This policy dictates that investment decisions be made based on the
safety of the investment, liquidity requirements, potential returns, cash flow
targets, and consistency with our interest rate risk management strategy and in
order to meet the qualified thrift lender test. Our asset/liability management
committee ("ALCO"), which consists of senior management, oversees our investing
strategies. The asset/liability management committee of the board of directors
then reviews the ALCO's activities and strategies, and reports to the full board
of directors, which evaluates on an ongoing basis our investment policy and
objectives. Our chief financial officer is responsible for making securities
portfolio decisions in accordance with established policies. Our chief financial
officer has the authority to purchase and sell securities within specific
guidelines established by the investment policy. In addition, all transactions
are reviewed by the ALCO at least monthly.
Our current investment policy generally permits securities investments
in debt securities issued by the U.S. government and U.S. agencies, municipal
bonds, and corporate debt obligations, as well as investments in preferred and
common stock of government agencies and government sponsored enterprises such as
Fannie Mae, Freddie Mac and the Federal Home Loan Bank of Cincinnati (federal
agency securities) and, to a much lesser extent, other equity securities.
Securities in these categories are classified as "investment securities" for
financial reporting purposes. The policy also permits investments in
mortgage-backed securities, including pass-through securities issued and
guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as well as collateralized
mortgage obligations ("CMOs") issued or backed by securities issued by these
government agencies. Also permitted are investments in securities issued or
backed by the Small Business Administration, privately issued mortgage-backed
securities and asset-backed securities collateralized by auto loans, credit card
receivables, and home equity and home improvement loans. Our current investment
strategy uses a risk management approach of diversified investing in fixed-rate
securities with short- to intermediate-term maturities, as well as
adjustable-rate securities, which may have a longer term to maturity. The
emphasis of this approach is to increase overall investment securities yields
while managing interest rate risk.
SFAS No. 115 requires that, at the time of purchase, we designate a
security as held to maturity, available-for-sale, or trading, depending on our
ability and intent. Securities available-for-sale and trading securities are
reported at fair value, while securities held to maturity are reported at
amortized cost. We have not designated any securities as available for sale in
fiscal 2004 or 2003.
MORTGAGE-BACKED SECURITIES. We purchase mortgage-backed securities in
order to generate positive interest rate spreads with minimal administrative
expense, lower credit risk as a result of the guarantees provided by Freddie
Mac, Fannie Mae and Ginnie Mae, and increased liquidity. We invest primarily in
mortgage-backed securities issued or sponsored by Fannie Mae, Freddie Mac, and
Ginnie Mae. To a lesser extent, we also invest in securities backed by U.S.
government agencies. At September 30, 2004, our mortgage-backed securities
portfolio had a book value of $20.4 million, consisting of $19.5 million of
pass-through securities and $885,000 of collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs").
Mortgage-backed securities are created by pooling mortgages and issuing
a security collateralized by the pool of mortgages with an interest rate that is
less than the interest rate on the underlying mortgages. Mortgage-backed
securities typically represent a participation interest in a pool of
single-family or multi-family mortgages, although most of our mortgage-backed
securities are collateralized by single-family mortgages. The issuers of such
securities (generally U.S. government agencies and government sponsored
enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell
the participation interests in the form of securities to investors, such as Ohio
Central Savings, and
66
guarantee the payment of principal and interest to these investors. Investments
in mortgage-backed securities involve a risk that actual prepayments will be
greater or less than the prepayment rate estimated at the time of purchase,
which may require adjustments to the amortization of any premium or accretion of
any discount relating to such instruments, thereby affecting the net yield on
such securities. We review prepayment estimates for our mortgage-backed
securities at the time of purchase to ensure that prepayment assumptions are
reasonable considering the underlying collateral for the securities at issue and
current interest rates, and to determine the yield and estimated maturity of the
mortgage-backed securities portfolio. Periodic reviews of current prepayment
speeds are performed in order to ascertain whether prepayment estimates require
modification that would cause amortization or accretion adjustments.
A portion of our mortgage-backed securities portfolio is invested in
CMOs and REMICs backed by Fannie Mae and Freddie Mac. CMOs and REMICs are types
of debt securities issued by a special-purpose entity that aggregates pools of
mortgages and mortgage-backed securities and creates different classes of
securities with varying maturities and amortization schedules, as well as a
residual interest, with each class possessing different risk characteristics.
The cash flows from the underlying collateral are generally divided into
"tranches" or classes that have descending priorities with respect to the
distribution of principal and interest cash flows, while cash flows on
pass-through mortgage-backed securities are distributed pro rata to all security
holders. Our practice is to limit fixed-rate CMO investments primarily to the
early-to-intermediate tranches, which have the greatest cash flow stability.
Floating rate CMOs are purchased with emphasis on the relative trade-offs
between lifetime interest rate caps, prepayment risk and interest rates.
EQUITY SECURITIES. At September 30, 2004, our equity securities
consisted almost exclusively of shares of common stock issued by the Federal
Home Loan Bank of Cincinnati. We hold the Federal Home Loan Bank of Cincinnati
common stock to qualify for membership in the Federal Home Loan Bank System and
to be eligible to borrow funds under the Federal Home Loan Bank of Cincinnati's
advance program. There is no market for the common stock, but it is the current
practice of the Federal Home Loan Bank of Cincinnati to redeem tendered shares
at par value on the same day the redemption request is made.
The aggregate carrying value of our Federal Home Loan Bank of Cincinnati
common stock as of September 30, 2004 was $688,900, based on its cost since it
is a restricted stock that can only be sold back to the Federal Home Loan Bank.
Due to our receipt of stock dividends and reduction of our outstanding advances,
we owned shares of Federal Home Loan Bank of Cincinnati common stock at
September 30, 2004 with a par value that was $279,157 more than we were required
to own to maintain our membership in the Federal Home Loan Bank System and to be
eligible to obtain advances.
Mutual funds totaled $58,000 and $40,000 at year-end 2004 and 2003,
respectively. These consist of money market funds and are designated as trading
securities.
67
The following table sets forth the composition of our securities
portfolio at the dates indicated with respect to securities held for sale. The
securities consist of a mutual fund held for the benefit of directors who have
deferred receipt of their board fees.
AT SEPTEMBER 30,
-----------------------------------------------------------
2004 2003
---------------------------- ----------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ------------ ------------
(IN THOUSANDS)
INVESTMENT SECURITIES:
Mutual funds................................... $ 55 $ 58 $ 39 $ 40
------------ ------------ ------------ ------------
Total trading securities....................... 55 55 39 39
============ ============ ============ ============
HELD TO MATURITY PORTFOLIO. The following table sets forth the
composition of our held to maturity portfolio at the dates indicated.
AT SEPTEMBER 30,
---------------------------------------------------------------
2004 2003
----------------------------- -----------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ------------ ------------
(IN THOUSANDS)
INVESTMENT SECURITIES:
U.S. Government securities.................. $ -- $ -- $ -- $ --
Federal agency obligations.................. 2,583 2,577 2,494 2,501
Corporate debt securities................... -- -- -- --
State and municipal securities.............. -- -- -- --
Equity securities........................... -- -- -- --
------------ ------------ ------------ ------------
Total investment securities held to
maturity.................................. 2,583 2,577 2,494 2,501
------------ ------------ ------------ ------------
MORTGAGE-BACKED SECURITIES:
Pass-through securities:
Ginnie Mae................................ 9,023 9,079 6,917 7,048
Fannie Mae................................ 10,480 10,415 8,707 8,687
Freddie Mac............................... -- -- -- --
Other..................................... -- -- -- --
CMOs and REMICs............................. 885 890 985 995
------------ ------------ ------------ ------------
Total mortgage-backed securities held to
maturity.................................. 20,388 20,384 16,609 16,730
------------ ------------ ------------ ------------
Total securities held to maturity........... $ 22,971 $ 22,961 $ 19,103 $ 19,231
============ ============ ============ ============
68
PORTFOLIO MATURITIES AND YIELDS. The composition and maturities of the
investment debt securities portfolio and the mortgage-backed securities
portfolio at September 30, 2004 are summarized in the following table. At
September 30, 2004, we held no debt securities or mortgage-backed securities for
sale. Maturities are based on the final contractual payment dates, and do not
reflect the impact of prepayments or early redemptions that may occur. State and
municipal securities yields have not been adjusted to a tax-equivalent basis.
MORE THAN ONE YEAR MORE THAN FIVE YEARS
ONE YEAR OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS MORE THAN TEN YEARS
--------------------- --------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST YIELD COST YIELD COST YIELD COST YIELD
---------- -------- ---------- -------- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
HELD TO MATURITY:
MORTGAGE-BACKED SECURITIES
Fannie Mae.................. $ -- --% $ -- --% $ 1,601 3.54% $ 8,879 4.04%
Freddie Mac................. -- -- -- -- -- -- --
Ginnie Mae -- -- -- -- -- -- 9,023 4.44%
Other CMO................... -- -- -- -- -- -- 885 4.43%
---------- -------- ---------- ---------- ----------
Total..................... -- -- -- -- 1,601 3.54% 18,787 4.26%
INVESTMENT SECURITIES
Agency Securities........... -- -- 2,583 3.10 -- -- -- --
State and municipal
securities................ -- -- -- -- -- -- --
---------- -------- ---------- ---------- ----------
Total debt securities held
to maturity............... $ -- --% $ 2,583 3.10% $ 1,601 3.54% $ 18,787 4.26%
========== ======== ========== ========== ==========
(CONTINUED)
TOTAL SECURITIES
-------------------------------------
WEIGHTED
AMORTIZED FAIR AVERAGE
COST VALUE YIELD
---------- --------- -----------
(DOLLARS IN THOUSANDS)
HELD TO MATURITY:
MORTGAGE-BACKED SECURITIES
Fannie Mae.................. $ 10,480 $ 10,415 3.93%
Freddie Mac................. -- -- --
Ginnie Mae 9,023 9,023 4.44%
Other CMO................... 885 890 4.43%
---------- --------- -----------
Total..................... 20,388 20,384 4.18
INVESTMENT SECURITIES
Agency Securities........... 2,583 2,577 3.10%
State and municipal
securities................ -- -- --
---------- --------- -----------
Total debt securities held
to maturity............... $ 22,971 $ 22,961 3.93%
========== ========= ===========
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SOURCES OF FUNDS
GENERAL. Deposits, borrowings, repayments and prepayments of loans and
securities, proceeds from sales of loans and securities, proceeds from maturing
securities and cash flows from operations are the primary sources of our funds
for use in lending, investing and for other general purposes.
DEPOSITS. We offer a variety of deposit accounts with a range of
interest rates and terms. Our deposit accounts consist of savings accounts, NOW
accounts, checking accounts, money market accounts, club accounts, certificates
of deposit and IRAs and other qualified plan accounts. We provide commercial
checking accounts for businesses. In addition, we provide low-cost checking
account services for low-income customers.
At September 30, 2004, our total deposits, all of which were interest
bearing, totaled $32.3 million. We have no demand deposits. NOW, savings and
money market deposits totaled $23.5 million at September 30, 2004. At September
30, 2004, we had a total of $8.7 million in certificates of deposit, of which
$3.5 million had maturities of one year or less. Although we have a significant
portion of our deposits in shorter-term certificates of deposit, we monitor
activity on these accounts and, based on historical experience and our current
pricing strategy, we believe we will retain a large portion of these accounts
upon maturity.
Our deposits are obtained predominantly from the areas in which our
branch offices are located. We rely on our favorable locations, customer service
and competitive pricing to attract and retain these deposits. In addition, we
continue to maintain our relationships developed as a credit union. These
relationships include employer organizations that provide payroll deduction from
their employees to Ohio Central Savings. These relationships also allow Ohio
Central Savings to distribute marketing materials and solicit deposits and loans
from their employees. We do accept certificates of deposit in excess of $100,000
for which we may provide preferential rates, however, we generally do not
solicit such deposits as they are more difficult to retain than core deposits.
We do not solicit brokered deposits.
The following tables set forth the distribution of total deposit
accounts, by account type, for the periods indicated.
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2004 2003
-------------------------------------- ---------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE PERCENT RATE BALANCE PERCENT RATE
----------- ----------- ---------- ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
NOW deposits.................. $ 5,297 17.17% 1.02% $ 3,402 11.27% 0.12
Savings deposits.............. 14,100 45.71 0.23 12,584 41.71 1.23
Money market deposits......... 3,103 10.06 0.84 3,576 11.85 1.01
Certificates of deposit....... 8.344 27.06 4.81 10,611 35.17 4.81
Total deposits............. $ 30,844 100.00% 1.66% $ 30,173 100.00% 1.92%
=========== =========== ============ ===========
70
The following table sets forth, by interest rate ranges, information
concerning certificates of deposit at the dates indicated.
AT SEPTEMBER 30, 2004
--------------------------------------------------------------------------------------
PERIOD TO MATURITY
--------------------------------------------------------------------------------------
LESS THAN ONE TO TWO TWO TO MORE THAN PERCENT OF
ONE YEAR YEARS THREE YEARS THREE YEARS TOTAL TOTAL
----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
Interest Rate Range:
2.00% and below... $ 1,836 $ 53 $ 0 $ 0 $ 1,889 22.00%
2.01% to 3.00%.... 445 262 130 1 838 10.00
3.01% to 4.00%.... 37 0 107 543 687 8.00
4.01% to 5.00%.... 112 16 277 2,340 2,745 31.00
5.01% to 6.00%.... 33 1,162 15 367 1,577 18.00
6.01% and above... 991 0 0 0 991 11.00
----------- ----------- ----------- ----------- ----------- ----------
Total............. $ 3,454 $ 1,493 $ 529 $ 3,251 $ 8,727 100.00%
=========== =========== =========== =========== =========== ==========
The following table sets forth certificates of deposit by time remaining
until maturity as of September 30, 2004.
MATURITY
---------------------------------------------------------
3 MONTHS OR OVER 3 TO 6 OVER 6 TO 12 OVER 12
LESS MONTHS MONTHS MONTHS TOTAL
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
Certificates of deposit less than $100,000... $ 752 $ 864 $ 1,738 $ 3,798 $ 7,152
Certificates of deposit of $100,000 or
more (1)................................... -- 100 -- 1,475 1,575
------------ ------------ ------------ ------------ ------------
Total of certificates of deposit.......... $ 752 $ 964 $ 1,738 $ 5,273 $ 8,727
============ ============ ============ ============ ============
- -----------------------
(1) The weighted average interest rates for these accounts, by maturity period,
are: 0% for 3 months or less; 4.16% for 3 to 6 months; 0% for 6 to 12
months; and 4.86% for over 12 months. The overall weighted average interest
rate for accounts of $100,000 or more was 4.82%.
BORROWINGS. Our borrowings consist of Federal Home Loan Bank advances
and repurchase agreements. The following table sets forth information concerning
balances and interest rates on our borrowings at the dates and for the periods
indicated.
AT OR FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------
2004 2003
-------------- --------------
(DOLLARS IN THOUSANDS)
Balance at end of period.......................... $ 16,450 $ 12,450
Average balance during period..................... 16,200 9,783
Maximum outstanding at any month end.............. 16,450 12,450
Weighted average interest rate at end of period... 4.81% 5.52%
Average interest rate during period............... 4.82% 6.31%
At September 30, 2004, we had access to additional Federal Home Loan
Bank advances of up to $7.5 million. In addition $17.5 million of our automobile
loan portfolio was pledged to the Federal Reserve Bank of Cleveland to secure up
to $14.0 million in potential advances.
COMPETITION
We face significant competition in both originating loans and attracting
deposits. The Dublin and Cleveland metropolitan areas and the counties in which
we operate have a high concentration of financial
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institutions, many of which are significantly larger institutions and have
greater financial resources than we, and many of which are our competitors to
varying degrees. We have less than a 1% market share of both deposits and loans
in these markets. Our competition for loans comes principally from commercial
banks, savings banks, mortgage banking companies, credit unions, leasing
companies, insurance companies and other financial service companies. Our most
direct competition for deposits has historically come from commercial banks,
savings banks and credit unions. We face additional competition for deposits
from nondepository competitors such as the mutual fund industry, securities and
brokerage firms and insurance companies.
We seek to meet this competition by emphasizing personalized banking and
the advantage of local decision-making in our banking business. Specifically, we
promote and maintain relationships and build customer loyalty within local
communities by emphasizing decentralized regional management and by focusing our
marketing and community involvement on the specific needs of individual
neighborhoods. In addition, we seek to meet competition for loans by offering
our current and prospective borrowers preferred rates and terms on deposit
products for new lending business. This strategy appears to have been well
received in our market area. We do not rely on any individual, group, or entity
for a material portion of our deposits.
EMPLOYEES
As of September 30, 2004, we had 18 full-time employees and 5 part-time
employees. The employees are not represented by a collective bargaining unit and
we consider our relationship with our employees to be good.
PROPERTIES
As of September 30, 2004, the net book value of our properties and fix
assets was $732,892. The following is a list of our offices:
Headquarters Branch Office
- ------------ -------------
6033 Perimeter Drive 11401 Mayfield Road
Dublin, Ohio 43017 Cleveland, Ohio 44106
Our headquarters office is owned. At September 30, 2004, it had a net
book value of $570,714. The Cleveland office is leased, with an expiration date
of March 31, 2006.
SUBSIDIARY ACTIVITIES
Ohio Central Savings has one wholly-owned subsidiary, AutoARMtm, which
was started in August, 2003. AutoARMtm was formed to provide loan origination
funding and servicing for new and used automobiles for third party financial
institutions. For the year ended September 30, 2004, AutoARMtm had no net
income.
LEGAL PROCEEDINGS
We are not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business, which, in the
aggregate, involve amounts which we believe are immaterial to our consolidated
financial condition and results of operations.
72
SUPERVISION AND REGULATION
GENERAL
As a federally chartered savings association, Ohio Central Savings is
regulated and supervised by the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation. This regulation and supervision establishes a
comprehensive framework of activities in which a financial institution may
engage and is intended primarily for the protection of the Federal Deposit
Insurance Corporation's deposit insurance funds and depositors. Under this
system of federal regulation, financial institutions are periodically examined
to ensure that they satisfy applicable standards with respect to their capital
adequacy, assets, management, earnings, liquidity and sensitivity to market
interest rates. After completing an examination, the federal agency critiques
the financial institution's operations and assigns its rating (known as an
institution's CAMELS rating). Under federal law, an institution may not disclose
its CAMELS rating to the public. Ohio Central Savings also is a member of, and
owns stock in, the Federal Home Loan Bank of Cincinnati, which is one of the 12
regional banks in the Federal Home Loan Bank System. Ohio Central Savings also
is regulated to a lesser extent by the Board of Governors of the Federal Reserve
System, with regard to reserves to be maintained against deposits and other
matters. The Office of Thrift Supervision examines Ohio Central Savings and
prepares reports for the consideration of its board of directors on any
operating deficiencies. Ohio Central Savings' relationship with its depositors
and borrowers also is regulated to a great extent by both federal and state
laws, especially in matters concerning the ownership of deposit accounts and the
form and content of Ohio Central Savings' loan documents.
There can be no assurance that changes to existing laws, rules and
regulations or any other new laws, rules or regulations, will not be adopted in
the future, which could make compliance more difficult or expensive or otherwise
adversely affect our business, financial condition, results of operations or
prospects. Any change in these laws or regulations, or in regulatory policy,
whether by the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the Board of Governors of the Federal Reserve System, or Congress,
could have a material adverse impact on OC Financial, Ohio Central Savings and
their respective operations.
FEDERAL BANKING REGULATION
BUSINESS ACTIVITIES. A federal savings association derives its lending
and investment powers from the Home Owners' Loan Act, as amended, and the
regulations of the Office of Thrift Supervision. Under these laws and
regulations, Ohio Central Savings may invest in mortgage loans secured by
residential and nonresidential real estate, commercial business and consumer
loans, certain types of debt securities and certain other loans and assets. Ohio
Central Savings also may establish subsidiaries that may engage in activities
not otherwise permissible for Ohio Central Savings directly, including real
estate investments.
CAPITAL REQUIREMENTS. Office of Thrift Supervision regulations require
savings institutions to meet four minimum capital standards: a ratio of tangible
capital to adjusted total assets of 1.5%, a ratio of Tier 1 (core) capital to
adjusted total assets of 4.0% (3% for institutions receiving the highest rating
on the CAMELS rating system), a ratio of Tier 1 capital to risk-adjusted assets
of 4% and a ratio of total capital (which includes core capital and risk-based
capital) to total risk-adjusted assets of 8.0%. The prompt corrective action
standards discussed below, in effect, establish a minimum 2% tangible capital
standard.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet assets, are multiplied by a risk-weight factor of 0%
to 100%, assigned by the Office of Thrift Supervision capital regulation based
on the risks inherent in the type of asset. Core capital is defined as common
73
stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus and minority interests in equity
accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative perpetual preferred stock,
long-term preferred stock, mandatory convertible securities, subordinated debt
and intermediate-term preferred stock, allowance for loan and lease losses up to
a maximum of 1.25% of risk-weighted assets and up to 45% of net unrealized gains
on available-for-sale equity securities with readily determinable fair market
values. Overall, the amount of supplementary capital included as part of total
capital cannot exceed 100% of core capital.
At September 30, 2004, Ohio Central Savings' capital exceeded all
applicable requirements.
LOANS TO ONE BORROWER. A federal savings institution generally may not
make a loan or extend credit to a single or related group of borrowers in excess
of the greater of $500,000 or 15% of unimpaired capital and surplus on an
unsecured basis. An additional amount may be loaned, equal to 10% of unimpaired
capital and surplus, if the loan is secured by readily marketable collateral,
such as government securities. As of September 30, 2004, Ohio Central Savings
was in compliance with the loans-to-one-borrower limitations and had a loan to
one borrower limit of $500,000.
QUALIFIED THRIFT LENDER TEST. As a federal savings institution, Ohio
Central Savings is subject to a qualified thrift lender, or "QTL," test. Under
the QTL test, Ohio Central Savings must maintain at least 65% of its "portfolio
assets" in "qualified thrift investments" in at least nine months of the most
recent 12-month period. "Portfolio assets" generally means total assets of a
savings institution, less the sum of specified liquid assets up to 20% of total
assets, goodwill and other intangible assets, and the value of property used in
the conduct of the savings institution's business.
"Qualified thrift investments" include various types of loans made for
residential and housing purposes, investments related to those purposes,
including certain mortgage-backed and related securities, and loans for
personal, family, household and certain other purposes up to a limit of 20% of
portfolio assets. "Qualified thrift investments" also include 100% of an
institution's credit card loans, education loans and small business loans. Ohio
Central Savings also may satisfy the QTL test by qualifying as a "domestic
building and loan association" as defined in the Internal Revenue Code of 1986.
A savings institution that fails the QTL test must either convert to a
bank charter or operate under restrictions applicable to national banks. At June
30, 2004, Ohio Central Savings maintained approximately 82.6% of its portfolio
assets in qualified thrift investments, and, as of that date, satisfied the QTL
test.
CAPITAL DISTRIBUTIONS. Office of Thrift Supervision regulations govern
capital distributions by a federal savings institution, which include cash
dividends, stock repurchases and other transactions charged to the institution's
capital account. A savings institution must file an application for approval of
a capital distribution if:
o the total capital distributions for the applicable calendar year
exceed the sum of the savings institution's net income for that
year to date plus the savings institution's retained net income
for the preceding two years;
o the savings institution would not be at least adequately
capitalized following the distribution;
o the distribution would violate any applicable statute,
regulation, agreement or Office of Thrift Supervision-imposed
condition; or
74
o the savings institution is not eligible for expedited treatment
of its filings.
Even if an application is not otherwise required, every federal savings
institution that is a subsidiary of a holding company must still file a notice
with the Office of Thrift Supervision at least 30 days before the board of
directors declares a dividend or approves a capital distribution.
The Office of Thrift Supervision may disapprove a notice or application
if:
o the savings institution would be undercapitalized following the
distribution;
o the proposed capital distribution raises safety and soundness
concerns; or
o the capital distribution would violate a prohibition contained
in any statute, regulation or agreement.
LIQUIDITY. A federal savings institution is required to maintain a
sufficient amount of liquid assets to ensure its safe and sound operation.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. All savings
institutions have a responsibility under the Community Reinvestment Act and
related regulations of the Office of Thrift Supervision to help meet the credit
needs of their communities, including low- and moderate-income neighborhoods. In
connection with its examination of a federal savings institution, the Office of
Thrift Supervision is required to assess the savings institution's record of
compliance with the Community Reinvestment Act. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in
their lending practices on the basis of characteristics specified in those
statutes. A savings institution's failure to comply with the provisions of the
Community Reinvestment Act could, at a minimum, result in regulatory
restrictions on its activities. The failure to comply with the Equal Credit
Opportunity Act and the Fair Housing Act could result in enforcement actions by
the Office of Thrift Supervision, as well as other federal regulatory agencies
and the Department of Justice. Ohio Central Savings received an "satisfactory"
Community Reinvestment Act rating in its most recent federal examination.
PRIVACY STANDARDS. Effective July 2001, financial institutions,
including Ohio Central Savings, became subject to regulations implementing the
privacy protection provisions of the Gramm-Leach-Bliley Act. These regulations
require Ohio Central Savings to disclose its privacy policy, including
identifying with whom it shares "nonpublic personnel information," to customers
at the time of establishing the customer relationship and annually thereafter.
In addition, Ohio Central Savings is required to provide its customers with the
ability to "opt-out" of having Ohio Central Savings share their nonpublic
personal information with unaffiliated third parties before it can disclose such
information, subject to certain exceptions. The implementation of these
regulations did not have a material adverse effect on Ohio Central Savings. The
Gramm-Leach-Bliley Act also allows each state to enact legislation that is more
protective of consumers' personal information.
Also effective July 1, 2001, the Office of Thrift Supervision and other
federal banking agencies adopted guidelines establishing standards for
safeguarding customer information to implement certain provisions of the
Gramm-Leach-Bliley Act. The guidelines describe the agencies' expectations for
the creation, implementation and maintenance of an information security program,
which would include administrative, technical and physical safeguards
appropriate to the size and complexity of a financial institution and the nature
and scope of its activities. The standards set forth in the guidelines are
intended to insure the security and confidentiality of customer records and
information, to protect against
75
any anticipated threats or hazards to the security or integrity of such records
and to protect against unauthorized access to or use of such records, or
information that could result in substantial harm or inconvenience to any
customer. Ohio Central Savings has implemented these guidelines, and such
implementation did not have a material adverse effect on our operations.
TRANSACTIONS WITH RELATED PARTIES. A federal savings institution's
authority to engage in transactions with its "affiliates" is limited by Office
of Thrift Supervision regulations and by Sections 23A and 23B of the Federal
Reserve Act. The term "affiliates" for these purposes generally means any
company that controls or is under common control with an institution. OC
Financial and its non-savings institution subsidiaries will be affiliates of
Ohio Central Savings. In general, transactions with affiliates must be on terms
that are as favorable to the savings institution as comparable transactions with
non-affiliates. In addition, certain types of these transactions are restricted
to an aggregate percentage of the savings institution's capital. Collateral in
specified amounts must usually be provided by affiliates in order to receive
loans from the savings institution. In addition, Office of Thrift Supervision
regulations prohibit a savings institution from lending to any of its affiliates
that are engaged in activities that are not permissible for bank holding
companies and from purchasing the securities of any affiliate, other than a
subsidiary.
Ohio Central Savings' authority to extend credit to its directors,
executive officers and 10% shareholders, as well as to entities controlled by
such persons, is currently governed by the requirements of Sections 22(g) and
22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.
Among other things, these provisions require that extensions of credit to
insiders (i) be made on terms that are substantially the same as, and follow
credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons and that do not
involve more than the normal risk of repayment or present other unfavorable
features, and (ii) not exceed certain limitations on the amount of credit
extended to such persons, individually and in the aggregate, which limits are
based, in part, on the amount of Ohio Central Savings' capital. In addition,
extensions of credit in excess of certain limits must be approved by Ohio
Central Savings' board of directors.
ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over federal savings institutions and has the authority to bring
enforcement action against all "institution-affiliated parties," including
stockholders, attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action 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 of
the institution, receivership, conservatorship or the termination of deposit
insurance. Civil penalties cover a wide range of violations and actions, and
range up to $25,000 per day, unless a finding of reckless disregard is made, in
which case penalties may be as high as $1 million per day. The Federal Deposit
Insurance Corporation also has the authority to recommend to the Director of the
Office of Thrift Supervision that enforcement action be taken with respect to a
particular savings institution. If action is not taken by the Director, the
Federal Deposit Insurance Corporation has authority to take action under
specified circumstances.
STANDARDS FOR SAFETY AND SOUNDNESS. Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions. These standards relate to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, compensation and other operational
and managerial standards as the agency deems appropriate. The federal banking
agencies adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness to implement the safety and soundness standards required under federal
law. The guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The guidelines address
internal controls and information systems, internal audit systems, credit
underwriting, loan documentation, interest rate risk exposure, asset growth,
compensation, fees and
76
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard. If an institution fails to meet these
standards, the appropriate federal banking agency may require the institution to
submit a compliance plan.
PROMPT CORRECTIVE ACTION REGULATIONS. Under the prompt corrective action
regulations, the Office of Thrift Supervision is required and authorized to take
supervisory actions against undercapitalized savings institutions. For this
purpose, a savings institution is placed in one of the following five categories
based on the savings institution's capital:
o well-capitalized (at least 5% leverage or core capital, 6% tier
1 risk-based capital and 10% total risk-based capital);
o adequately capitalized (at least 4% leverage or core capital, 4%
tier 1 risk-based capital and 8% total risk-based capital);
o undercapitalized (less than 3% leverage or core capital, 4% tier
1 risk-based capital or 8% total risk-based capital);
o significantly undercapitalized (less than 3% leverage or core
capital, 3% tier 1 risk-based capital or 6% total risk-based
capital); and
o critically undercapitalized (less than 2% tangible capital).
Generally, the banking regulator is required to appoint a receiver or
conservator for a savings bank that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
Office of Thrift Supervision within 45 days of the date a bank receives notice
that it is "undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the savings institution, including, but not limited
to, restrictions on growth, investment activities, capital distributions and
affiliate transactions. The Office of Thrift Supervision may also take any one
of a number of discretionary supervisory actions against undercapitalized
savings institutions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
At September 30, 2004, Ohio Central Savings met the criteria for being
considered "well-capitalized."
INSURANCE OF DEPOSIT ACCOUNTS. Deposit accounts in Ohio Central Savings
are insured by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation, generally up to a maximum of $100,000 per separately
insured depositor. Ohio Central Savings' deposits, therefore, are subject to
Federal Deposit Insurance Corporation deposit insurance assessments. The Federal
Deposit Insurance Corporation has adopted a risk-based system for determining
deposit insurance assessments based upon an institutions capital and CAMELS
rating. Institutions that are well-capitalized and have one of the two highest
CAMELS ratings do not pay any insurance premiums. The Federal Deposit Insurance
Corporation is authorized to raise the assessment rates as necessary to maintain
the required ratio of reserves to insured deposits of 1.25%. In addition, all
Federal Deposit Insurance Corporation-insured institutions must pay assessments
to the Federal Deposit Insurance Corporation at an annual rate of approximately
0.0212% of insured deposits to fund interest payments on bonds maturing in 2017
that were issued by a federal agency to recapitalize the predecessor to the
Savings Association Insurance Fund.
77
PROHIBITIONS AGAINST TYING ARRANGEMENTS. Federal savings institutions
are prohibited, subject to some exceptions, from extending credit to or offering
any other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or its affiliates or not obtain services of a
competitor of the institution.
FEDERAL HOME LOAN BANK SYSTEM. Ohio Central Savings is a member of the
Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks. The Federal Home Loan Bank System provides a central credit facility
primarily for member institutions. As a member of The Federal Home Loan Bank of
Cincinnati, Ohio Central Savings is required to acquire and hold shares of
capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its borrowings
from the Federal Home Loan Bank, whichever is greater. As of September 30, 2004,
Ohio Central Savings was in compliance with this requirement.
FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require savings banks to maintain
noninterest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts. At September 30,
2004, Ohio Central Savings was in compliance with these reserve requirements.
The balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision.
THE USA PATRIOT ACT
The USA PATRIOT Act gives the federal government powers to address
terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing and broadened anti-money
laundering requirements. Certain provisions of the act impose affirmative
obligations on a broad range of financial institutions, including federal
savings institutions like Ohio Central Savings. These obligations include
enhanced anti-money laundering programs, customer identification programs and
regulations relating to private banking accounts or correspondent accounts in
the United States for non-United States persons or their representatives
(including foreign individuals visiting the United States).
The federal banking agencies have begun to propose and implement
regulations pursuant to the USA PATRIOT Act. These regulations would require
financial institutions to adopt the policies and procedures contemplated by the
USA PATRIOT Act. We believe we are in compliance with the requirements of the
USA PATRIOT Act.
HOLDING COMPANY REGULATION
Upon completion of the conversion, OC Financial will be a unitary
savings and loan holding company, subject to regulation and supervision by the
Office of Thrift Supervision. The Office of Thrift Supervision will have
enforcement authority over OC Financial and its non-savings institution
subsidiaries. Among other things, this authority permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a risk
to Ohio Central Savings.
Under prior law, a unitary savings and loan holding company generally
had no regulatory restrictions on the types of business activities in which it
could engage, provided that its subsidiary savings bank was a qualified thrift
lender. The Gramm-Leach-Bliley Act of 1999, however, restricts unitary savings
and loan holding companies not existing on, or applied for before, May 4, 1999
to those
78
activities permissible for financial holding companies or for multiple savings
and loan holding companies. OC Financial will not be a grandfathered unitary
savings and loan holding company and, therefore, will be limited to the
activities permissible for financial holding companies or for multiple savings
and loan holding companies. A financial holding company may engage in activities
that are financial in nature, including underwriting equity securities and
insurance, incidental to financial activities or complementary to a financial
activity. A multiple savings and loan holding company is generally limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the Office of Thrift
Supervision, and certain additional activities authorized by Office of Thrift
Supervision regulations.
Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring control of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with specified exceptions, more than 5% of the equity
securities of a company engaged in activities that are not closely related to
banking or financial in nature or acquiring or retaining control of an
institution that is not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources and future prospects of the
savings institution involved, the effect of the acquisition on the risk to the
insurance fund, the convenience and needs of the community and competitive
factors.
SARBANES-OXLEY ACT OF 2002
The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") provides for corporate
governance, disclosure and accounting reforms intended to address corporate and
accounting fraud. Sarbanes-Oxley established an accounting oversight board that
enforces auditing, quality control and independence standards, and is funded by
fees from all publicly-traded companies. Sarbanes-Oxley also places certain
restrictions on the scope of services that may be provided by accounting firms
to their public company audit clients. Any non-audit services being provided to
a public company audit client will require preapproval by the company's audit
committee. In addition, Sarbanes-Oxley makes certain changes to the requirements
for audit partner rotation after a period of time. Sarbanes-Oxley also requires
chief executive officers and chief financial officers, or their equivalent, to
certify to the accuracy of periodic reports filed with the Securities and
Exchange Commission, subject to civil and criminal penalties if they knowingly
or willingly violate this certification requirement. In addition, under
Sarbanes-Oxley, counsel will be required to report to the chief executive
officer or chief legal officer of the company, evidence of a material violation
of the securities laws or a breach of fiduciary duty by a company and, if such
officer does not appropriately respond, to report such evidence to the audit
committee or other similar committee of the board of directors or the board
itself.
Under Sarbanes-Oxley, longer prison terms will apply to corporate
executives who violate federal securities laws; the period during which certain
types of suits can be brought against a company or its officers is extended; and
bonuses issued to top executives prior to restating a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods, and loans to company executives (other than
loans by financial institutions permitted by federal rules and regulations) are
restricted. The Federal Accounts for Investor Restitution provision also
requires the Securities and Exchange Commission to develop methods of improving
collection rates. The legislation accelerates the time frame for disclosures by
public companies, as they must immediately disclose any material changes in
their financial condition or operations. Directors and executive officers must
also provide information for most changes in beneficial ownership in a company's
securities within two business days of the change.
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Sarbanes-Oxley also increases the oversight of, and codifies certain
requirements relating to, audit committees of public companies and how they
interact with the company's "registered public accounting firm." Audit committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the public company. In addition,
companies must disclose whether at least one member of the committee is an
"audit committee financial expert" (as defined by Securities and Exchange
Commission regulations) and if not, why the company does not have one. Under
Sarbanes-Oxley, a company's registered public accounting firm will be prohibited
from performing statutorily mandated audit services for a company if such
company's chief executive officer, chief financial officer, comptroller, chief
accounting officer or any person serving in equivalent positions had been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. Sarbanes-Oxley prohibits
any officer or director of a company or any other person acting under their
direction from taking any action to fraudulently influence, coerce, manipulate
or mislead any independent accountant engaged in the audit of the company's
financial statements for the purpose of rendering the financial statements
materially misleading. Sarbanes-Oxley also requires the Securities and Exchange
Commission to prescribe rules requiring inclusion of any internal control report
and assessment by management in the annual report to shareholders.
Sarbanes-Oxley requires the company's registered public accounting firm that
issues the audit report to attest to and report on management's assessment of
the company's internal controls.
Although we will incur additional expense in complying with the
provisions of Sarbanes-Oxley and the resulting regulations, we do not expect
that such compliance will have a material impact on our consolidated results of
operations or consolidated financial condition.
FEDERAL SECURITIES LAWS
OC Financial has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended, for the
registration of the shares of common stock to be issued pursuant to the
conversion and the offering. Upon completion of the conversion and the offering,
shares of OC Financial common stock will be registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended. OC
Financial will be subject to the information, proxy solicitation, insider
trading restrictions and other requirements of the Securities Exchange Act of
1934.
The registration under the Securities Act of 1933 of 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 OC
Financial may be resold without registration. Shares purchased by an affiliate
of OC Financial will be subject to the resale restrictions of Rule 144 under the
Securities Act of 1933. If OC Financial meets the current public information
reporting requirements of Rule 144 under the Securities Act of 1933, each
affiliate of OC Financial 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 market, without registration,
a number of shares not to exceed, in any three-month period, the greater of 1%
of the outstanding shares of OC Financial or the average weekly volume of
trading in the shares during the preceding four calendar weeks. In the future,
OC Financial may permit affiliates to have their shares registered for sale
under the Securities Act of 1933.
TAXATION
FEDERAL TAXATION
GENERAL. Ohio Central Savings is currently part of the consolidated
federal income tax return of Third Federal Savings and Loan Association of
Cleveland, MHC. OC Financial and Ohio Central Savings will elect to file a
consolidated federal income tax return and will be subject to federal income
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taxation in the same general manner as other corporations, following completion
of the conversion and reorganization with some exceptions discussed below. The
following discussion of federal income taxation is intended only to summarize
material federal income tax matters and is not a comprehensive description of
the tax rules applicable to OC Financial and Ohio Central Savings.
OVERALL METHOD OF ACCOUNTING. For federal income tax purposes, Ohio
Central Savings currently reports its income and expenses on the accrual method
of accounting and uses a tax year ending September 30th.
BAD DEBT RESERVES. For fiscal years beginning before December 31, 1996,
savings 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 for large corporations and the percentage of taxable
income method for tax years beginning after 1995 and required savings
institutions to recapture or take into income certain portions of their
accumulated that bad debt reserves. Since Ohio Central Savings was not a taxable
entity prior to December 31, 1996 and is currently part of a large corporation's
consolidated tax return, it has no such reserves.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back
net operating losses to the preceding two taxable years (five years for losses
incurred in 2001 and 2002) and forward to the succeeding 20 taxable years. At
September 30, 2004, Ohio Central Savings had no net operating loss carry forward
for federal income tax purposes.
CORPORATE DIVIDENDS. OC Financial may exclude from its taxable income
100% of dividends received from Ohio Central Savings as a member of the same
affiliated group of corporations. Any future dividends paid by OC Financial to
its shareholders will be taxable as dividend income to those shareholders.
STATE AND LOCAL TAXATION
MARYLAND STATE TAXATION. As a Maryland business corporation, OC
Financial will be required to file annual property tax returns and pay annual
fees to the State of Maryland. Since OC Financial will not be earning income in
Maryland, it will be exempt from Maryland corporate income tax.
OHIO STATE TAXATION. OC Financial will be subject to the Ohio
corporation franchise tax, which is a tax measured by both net income and net
worth. In general, the tax liability is the greater of 5.1% on the first $50,000
of computed Ohio taxable income and 8.5% of computed Ohio taxable income in
excess of $50,000, or 0.40% of taxable net worth. Various formulas determine the
jurisdictions to which total net income and total net worth are apportioned or
allocated. The minimum tax is $50 per year and maximum tax liability as measured
by net worth is limited to $150,000 per year.
A special litter tax also applies to all corporations, including OC
Financial, subject to the Ohio corporation franchise tax. If a corporation pays
franchise tax on the basis of net income, the litter tax is equal to 0.11% of
the first $50,000 of computed Ohio taxable income and 0.22% of computed Ohio
taxable income in excess of $50,000. If a corporation pays franchise tax on the
basis of net worth,
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the litter tax is equal to 0.014% of taxable net worth. This litter tax does not
apply to "financial institutions," such as Ohio Central Savings.
Ohio Central Savings is a financial institution for Ohio tax purposes.
Accordingly, it must pay tax imposed annually at a rate of 1.3% of its
apportioned book net worth, determined under generally accepted accounting
principles, less any statutory deduction. As a financial institution, Ohio
Central Savings does not pay any Ohio tax based upon net income.
MANAGEMENT OF OC FINANCIAL
SHARED MANAGEMENT STRUCTURE
The board of directors of OC Financial will consist of the same seven
individuals who are directors of Ohio Central Savings. These individuals will
continue to constitute the board of directors of Ohio Central Savings. In
addition, each of the executive officers of OC Financial will continue to serve
as an executive officer of Ohio Central Savings
OC Financial does not intend to separately compensate their executive
officers, nor pay director's fees to individuals who serve on the board of
directors of OC Financial. OC Financial will compensate Ohio Central Savings for
the percentage of time that executive officers spend on holding company matters.
OUR DIRECTORS
The directors of OC Financial serve staggered terms so that only a
portion of the directors will be elected at each annual meeting of stockholders.
The board of directors is divided into three classes. The initial term of the
first class of directors will expire at the annual meeting of stockholders to be
held in 2006, and the initial term of each of the remaining classes will expire
at its respective annual meeting of stockholders to be held in the year
identified in the table below. The directors of Ohio Central Savings will be
elected annually by OC Financial as its sole stockholder.
The table below sets forth certain information regarding the current
members of the boards of directors, including the initial term of office for
each board member.
POSITION(S) HELD WITH OHIO
NAME CENTRAL SAVINGS AGE (1) DIRECTOR SINCE (2) TERM EXPIRES (3)
- --------------------------- ----------------------------- ------- ------------------ ----------------
Nils C. Muladore Director 47 1992 2006
Michael B. Bowman Director 50 1991 2006
Christopher L. Lardiere (4) Director 49 2004 2007
Diane M. Gregg (4) Director, Vice President and 37 2004 2007
Chief Operating Officer
Thomas J. Parliment (4) Director 58 2004 2008
Robert W. Hughes Chairman of the Board, 46 1998 2008
President and Chief
Executive Officer
Thomas H. Lagos (4) Director 54 2004 2008
- ----------
(1) As of September 30, 2004
(2) Includes service with Ohio Central Savings and its predecessor, Ohio
Central Federal Credit Union.
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(3) Currently the terms of each director expires annually. Following completion
of the conversion and reorganization the terms of each director will expire
as shown in the table.
(4) Messrs. Lagos and Parliment and Ms. Gregg were appointed in November 2004
and Mr. Lardiere was appointed in October 2004. The directors replaced a
representative from Third Federal and three other directors who chose not
to remain as directors in connection with the conversion and reorganization
THE BUSINESS BACKGROUND OF OUR DIRECTORS
The business experience for the past five years for each of our
directors is as follows:
NILS C. MULADORE. Mr. Muldadore has been employed by Online Computer
Library Center, Inc., Dublin, Ohio in various capacities since 1985 and has
served as the Assistant Controller of the company since 1992.
MICHAEL B. BOWMAN. Mr. Bowman has been employed by Wendy's
International, Dublin, Ohio in various capacities since 1978 and has served as
the Director of Tax for since 1999.
CHRISTOPHER L. LARDIERE. Mr. Lardiere is a partner in the law firm of
Kemp Schaeffer, Rowe & Lardiere, Co., L.P.A, Columbus, Ohio where has practiced
law since 1983.
DIANE M. GREGG. Ms. Gregg has been employed at Ohio Central Savings and
its predecessor, Ohio Central Federal Credit Union, since 1989 and served as
Vice President and Chief Operations Officer since 1989.
THOMAS J. PARLIMENT. Mr. Parliment is a managing director of Farin &
Associates, an asset liability management consulting firm located in Madison,
Wisconsin. He is also the president of Parliment Consulting, located in Key
West, Florida, which he founded in 1990. The firm specializes in financial
institution asset liability management consulting.
ROBERT W. HUGHES. Mr. Hughes has served as President and Chief Executive
Officer of Ohio Central Savings and its predecessor, Ohio Central Federal Credit
Union, since 1989.
THOMAS H. LAGOS. Mr. Lagos is a partner in the law firm of Lagos &
Lagos, P.L.L., Springfield, Ohio, where he has practiced since 1972. Mr. Lagos
is also a principal in various commercial and real estate development firms.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Regular meetings of the board of directors of Ohio Central Savings are
held monthly. Following the completion of the conversion, regular meetings of
the board of directors of OC Financial are expected to be held quarterly.
Special meetings of these boards are held as needed. There were 12 regular
meetings and 11 special meetings of the board of directors of Ohio Central
Savings during fiscal 2004. OC Financial was not incorporated until December
2004.
The board of directors of Ohio Central Savings has established various
committees, including Audit, Credit, Asset/Liability Management and Compensation
Committees. The board of directors of OC Financial has established Audit,
Compensation and Governance/Nominating Committees. Except for the
Governance/Nominating Committee of the board of directors of OC Financial, the
functions of these holding company committees overlap with the functions of
their corresponding bank-level committees, and consequently these committees
took no separate actions. OC Financial was incorporated in December 2004, and
its board of directors established Audit, Compensation and Governance/Nominating
Committees.
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The Audit Committee of the board of directors of OC Financial reviews
the records and affairs of OC Financial to determine its financial condition,
reviews with management and the independent auditors the systems of internal
control and monitors adherence in accounting and financial reporting to
accounting principles generally accepted in the United States of America.
Messrs. Muladore (Chairman), Parliment and Lagos serve as members of the Audit
Committee of OC Financial. Each member of the Audit Committee is "independent"
of OC Financial, as that term is defined by Nasdaq listing standards. The board
of directors of OC Financial has determined that Mr. Parliment qualifies as an
"audit committee financial expert" and will serve as such for the Audit
Committee. The Audit Committees of Ohio Central Savings and OC Financial have
the same members and authorities. The Audit Committee of Ohio Central Savings
met _____ times during 2004.
The Credit Committee of the board of directors of Ohio Central Savings
is responsible for the oversight of risks regarding loan originations, loan
portfolio management and nonperforming assets, and compliance with all policies
relating to credit risk, the Community Reinvestment Act and the fair lending
laws. The Credit Committee meets periodically to approve loans within the limits
of its authority and to review reports, activity and proposed significant
actions relating to loans and asset quality. The Credit Committee also
coordinates with the Audit Committee certain oversight responsibilities relating
to internal controls for credit operations. Mr. Hughes chairs the Credit
Committee and Ms. Gregg serves as the other member. The Credit Committee met 52
times during 2004.
The Compensation Committee of the board of directors of OC Financial
reviews and approves executive compensation, benefit plans, incentive
compensation plans and employment agreements, and makes recommendations with
respect thereto to the board of directors. Messrs. Lardiere (Chairman), Bowman,
and Parliment serve as members of the Compensation Committee. The Compensation
Committee of Ohio Central Savings has the same members and authorities. The
Compensation Committee of Ohio Central Savings did not meet during fiscal 2004.
The Asset Liability Management Committee of the board of directors of
Ohio Central Savings is responsible for the oversight of Ohio Central Savings'
liquidity, interest rate movements, secondary market operations (including
originated mortgage servicing rights valuations), investment portfolio
management and compliance with policies relating to asset and liability
management. The Asset Liability Management Committee meets periodically to
approve transactions within the limits of its authority and to review reports,
activity and proposed significant actions relating to asset and liability
management. The Asset Liability Management Committee also coordinates with the
Audit Committee certain oversight responsibilities relating to internal controls
for asset and liability management operations. Mr. Parliment chairs the
Asset-Liability Management Committee and Mr. Hughes and Mr. Fitz Gibbon serve as
a members. The Asset Liability Management Committee met 52 times during 2004.
The Governance/Nominating Committee of OC Financial nominates
individuals for election as directors. The current members of this committee
consist of Messrs. Lagos (Chairman) and Lardiere. The independent directors who
are not standing for election will serve as the members of this committee for OC
Financial.
CORPORATE GOVERNANCE POLICIES AND PROCEDURES
In addition to establishing committees of the board of directors, OC
Financial will adopt a corporate governance policy and a code of business
conduct and ethics. The corporate governance policy is expected to cover such
matters as the following:
o the duties and responsibilities of each director;
84
o the composition, responsibilities and operation of the board of
directors;
o the establishment and operation of board committees, including
audit, nominating and compensation committees;
o succession planning;
o convening executive sessions of independent directors;
o the board of directors' interaction with management and third
parties; and
o the evaluation of the performance of the board of directors and
the chief executive officer.
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.
DIRECTORS' COMPENSATION
DIRECTORS' FEES. Except for Mr. Hughes and Ms. Gregg, who receive no
fees for serving as directors, each director receives a fee of $750 for each
regular board meeting attended . Committee members are not separately
compensated.
THE BUSINESS BACKGROUND OF OUR EXECUTIVE OFFICERS
The business experience for the past five years other executive officer,
other than Mr. Hughes and Ms. Gregg, is as follows:
H. STEWART FITZ GIBBON, III (Age 47), Mr. Fitz Gibbon has served as the
Vice President and Chief Financial Officer of Ohio Central Savings since June
2003. From November 1999 until June 2003, he served as the Manager of Asset
Liability Management for Third Federal Savings and Loan Association of
Cleveland. He has also served as a national bank examiner.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information as to the total remuneration paid by Ohio Central Savings to its
Chairman, President and Chief Executive Officer. No other officer received
salary and bonus payments, other than the named individual, in excess of
$100,000 for the year ending September 30, 2004.
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- -------------------- ------------------------
YEAR RESTRICTED OPTIONS/
NAME AND PRINCIPAL ENDED OTHER ANNUAL STOCK SARS LTIP ALL OTHER
POSITION 9/30(1) SALARY BONUS COMPENSATION(2) AWARDS (#) PAYOUTS COMPENSATION(3)
------------------ ------- ------- ------- -------------- ---------- --------- ------- ---------------
Robert W. Hughes, 2004 $175,000 $ -- $ -- $ -- -- $ -- $ 11,941
Chairman of the Board,
President and Chief
Executive Officer
- ----------
(1) Summary compensation information is excluded for the years ended September
30, 2003 and 2002, as Ohio Central Savings was not a subsidiary of a public
company during those periods.
(2) Ohio Central Savings also provides certain members of senior management
with a car allowance and certain other personal benefits. The aggregate
value of such personal benefits did not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus reported for each officer.
(3) Represents Ohio Central Savings' contributions pursuant to the 401(k).
EMPLOYMENT AGREEMENTS. Effective upon the completion of the conversion
and reorganization, Ohio Central Savings plans to enter into employment
agreements with each of Messrs. Hughes and Fitz Gibbon and Ms. Gregg in
replacement of their existing AGREEMENTS. The employment agreements each have a
term of 36 months. On the first anniversary date of the employment agreements
and each anniversary date thereafter, each employment agreement may be extended
for an additional year at the discretion of the board of directors, so that the
remaining term will be 36 months. Under the employment agreements, Ohio Central
Savings will pay the executives their base salary at the inception of the
Agreement, subject to discretionary increases by the board of directors. The
base salary under the agreements for Messrs. Hughes and Fitz Gibbon is $182,228
and $86,528, respectively, and for Ms. Gregg is $97,344. The employment
agreements provide that the base salary may be increased but not decreased. In
addition to base salary and bonus, the employment agreements provide for, among
other things, participation in a employee benefits plan including, group
medical, dental, vision, disability and life insurance plans, 401(k) plan and
other employee and fringe benefits applicable to executive personnel.
In the event of termination of employment due to disability, the
executive officer will be entitled one-twelfth of his or her base salary
multiplied by the number of full years of employment (including any partial year
over six months), and continued coverage under the life, medical and dental
plans until the earlier of executive's return to full-time employment with Ohio
Central Savings, attaining age 65, employment with another employer or death,
subject to the executive officer's continued payment of the costs and
contributions for which he is responsible.
In the event the executive officer's employment is terminated without
cause by Ohio Central Savings, Ohio Central Savings will pay the executive
officer three times his or her current salary plus three times the greater of
the average cash bonus over the previous three fiscal years or the most recently
completed fiscal year. Payment of medical, life and dental benefits will be made
in installments over 36 months, however, Ohio Central Savings has the right to
elect to make a discounted lump sum payment.
Under the employment agreements, the executive officer may terminate
his or her employment for good reason by giving notice within 60 days after the
event giving rise to the right to terminate
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employment. "Good reason" generally includes our (i) decision not to re-elect or
failure to re-elect the executive officer to his present position; (ii)
relocation of the executive officer's principal place of employment by more than
25 miles from Ohio Central Savings current home office; (iii) reduction in the
executive officer's base salary or a material reduction in the benefits the
executive officer is entitled to; (iv) liquidation or dissolution of Ohio
Central Savings or OC Financial; or (v) material uncured breach of the
employment agreement. In the event an executive officer's employment is
terminated for good reason, he will receive the same amounts and the same
coverage under the medical and health plans that he would have received if his
employment had been terminated without cause. In the event the executive officer
terminates his employment by resignation other than due to good reason, he will
be entitled to his earned salary through the date of termination.
The executive officer is required under the employment agreement to
execute a general release in consideration for any severance amounts. The
executive officer also agrees not to compete with us for 12 months after
termination other than in connection with a change in control. Payment of
benefits under the employment agreement may be made in installments or in a lump
sum discounted to present value in the case of future cash payments, as
determined by Ohio Central Savings. Benefits under the Ohio Central Savings
agreement may be reduced to avoid constituting an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended. The
employment agreements between Messrs. Hughes and Fitz Gibbon and Ms. Gregg and
Ohio Central Savings are substantially similar.
BENEFITS
GENERAL. We currently provide health and welfare benefits to our
employees, including hospitalization and comprehensive medical insurance, life
insurance, subject to deductibles and co-payments by employees.
OHIO CENTRAL SAVINGS 401(K) AND PROFIT SHARING PLAN. Following
completion of the conversion and reorganization, we plan to provide our
employees a qualified profit sharing plan under the applicable provisions of the
Internal Revenue Code of 1986. Currently, our employees participate in the plan
sponsored by Third Federal for all its employees.
All regular employees are eligible to begin making salary deferral
contributions beginning in the first calendar quarter on or after they become an
employee. This is their earliest entry date. Leased employees are expressly
excluded from participating in the plan. Employees are eligible to receive
contributions other than salary deferral contributions beginning in the first
calendar quarter on or after they are an employee.
Eligible employees may contribute up to 15% of their compensation each
pay period to the 401(k) Plan on a pre-tax basis, not to exceed $13,000 for the
calendar year 2004 plus another $3,000 for employees the age of 50 and over.
Ohio Central Savings will match 100% of the employee's contribution up to 4% of
the employee's contribution. The maximum deferral percentage and/or dollar
amount may also be limited by IRS regulations.
Employees who are at least 21 years of age and have worked at least
1,000 hours in a year are eligible to participate in the plan. Employees are
always 100% vested in the contributions they choose to defer, whereas vesting in
Ohio Central Savings contributions is based on years of vesting service in which
an employee works at least 1,000 hours. Vesting in Ohio Central Savings
contributions begins after two years of vesting service and increases ratably
for each year of vesting service until an employee becomes fully vested after
six years of vesting service.
Employees may receive money from their vested accounts at normal
retirement (age 65) and upon death, disability, or termination of employment.
Employees may obtain loans from their vested account
87
balances or withdraw all or part of their vested accounts (not earnings) if they
can prove financial hardship and are unable to meet their financial needs
another way.
We may amend the 401(k) Plan at any time, except that no amendment may
be made which would reduce the interest of any participant in or beneficiary of
the 401(k) Plan trust fund or divert any of the assets of the 401(k) Plan trust
fund to purposes other than the benefit of participants or their beneficiaries
unless necessary to comply with any law or regulation issued by any governmental
agency to which the 401(k) Plan is subject.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. We intend to implement an
employee stock ownership plan in connection with the offering. The board of
directors of Ohio Central Savings has adopted the employee stock ownership plan
effective as of January 1, 2005. Employees with at least one year of employment
with Ohio Central Savings are eligible to participate. As part of the offering,
the employee stock ownership plan trust intends to borrow funds from OC
Financial and use those funds to purchase a number of shares equal to 8% of the
common stock sold in the offering. Collateral for the loan will be the common
stock purchased by the employee stock ownership plan. The loan will be repaid
principally from Ohio Central Savings through discretionary contributions to the
employee stock ownership plan over a period of up to twenty years. The loan
documents will provide that the loan may be repaid over a shorter period,
without penalty for prepayments. It is anticipated that the interest rate for
the loan will be equal to the prime rate. Shares purchased by the employee stock
ownership plan will be held in a suspense account for allocation among
participants as the loan is repaid.
Contributions to the employee stock ownership plan and shares released
from the suspense account in an amount proportional to the repayment of the
employee stock ownership plan loan will be allocated among employee stock
ownership plan participants on the basis of compensation in the year of
allocation. Benefits under the plan will become fully vested upon completion of
five years of credited service, with credit given to participants for years of
credited service with Ohio Central Savings prior to the adoption of the plan. A
participant's interest in his account under the plan will also fully vest in the
event of termination of service due to a participant's early or normal
retirement, death, disability, or upon a change in control (as defined in the
plan). Vested benefits will be payable in the form of common stock and/or cash.
Ohio Central Savings' contributions to the employee stock ownership plan are
discretionary, subject to the loan terms and tax law limits. Therefore, benefits
payable under the employee stock ownership plan cannot be estimated. Pursuant to
SOP 93-6, we will be required to record compensation expense each year in an
amount equal to the fair market value of the shares released from the suspense
account. The employee stock ownership plan will terminate in the event of a
change in control.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Ohio Central Savings does extend credit to its executive officers and
directors and as of September 30, 2004, there was approximately $673,131 in
principal amount of outstanding loans. Such loans are made on the same terms and
conditions as loans to third parties and contain no unfavorable features.
Christopher L. Lardiere, in addition to his duties as a Director of Ohio
Central Savings and OC Financial, is a partner in the law firm of Kemp,
Schaeffer, Rowe & Lardiere, Co., L.P.A. which provides legal services to Ohio
Central Savings. During the year ended September 30, 2004, Ohio Central Savings
paid Kemp, Schaeffer, Rowe & Lardiere, Co., L.P.A. legal fees of $26,000.
BENEFITS TO BE CONSIDERED FOLLOWING COMPLETION OF THE CONVERSION AND
REORGANIZATION
STOCK OPTION PLAN. We intend to request stockholder approval of a stock
option plan no earlier than six months after the completion of the conversion.
If approved by the stockholders, the new stock
88
option plan would, if adopted within one year of the conversion, reserve an
amount equal to 10% of the shares of common stock sold in the offering for
issuance upon exercise of stock options. 10% of the shares of common stock
issued in the offering would amount to 51,000 shares, 60,000 shares, 69,000
shares and 79,350 shares at the minimum, midpoint, maximum and adjusted maximum
of the offering range, respectively. If we adopt the stock option plan after one
year following the completion of the conversion, we may grant options in an
amount greater than 10% of the shares of common stock sold in the offering,
although such plan, including the amount reserved under such plan, may remain
subject to supervisory restrictions. We have not yet determined whether we will
present this plan for stockholder approval within 12 months following the
completion of the conversion or whether we will present this plan for
stockholder approval more than 12 months following the completion of the
conversion. No options would be granted under the new stock option plan until
stockholder approval of the plan is received. In the event that shares
underlying options come from authorized but unissued shares of common stock,
stockholders would experience dilution of approximately 9.1% of their ownership
interest in OC Financial at the midpoint of the offering range.
The exercise price of the options granted under the new stock option
plan will be equal to the fair market value of OC Financial common stock on the
date of grant of the stock options. If the stock option plan is adopted within
one year following the conversion, options may vest no faster than 20% per year
beginning 12 months after the date of grant. Options granted under the stock
option plan would be adjusted for capital changes such as stock splits and stock
dividends. Awards will be 100% vested upon termination of employment due to
death, disability or following a change in control, and if the stock option plan
is adopted more than one year after the conversion, awards would be 100% vested
upon normal retirement. Under Office of Thrift Supervision regulations, if the
stock option plan is adopted within one year of the conversion, no individual
officer may receive more than 25% of the awards under the plan, no non-employee
director may receive more than 5% of the awards under the plan and all
non-employee directors as a group may receive in the aggregate no more than 30%
of the awards under the plan.
The stock option plan would be administered by a committee of
non-employee members of OC Financial's board of directors. Options granted under
the stock option plan to employees may be "incentive" stock options, which are
designed to result in a beneficial tax treatment to the employee but no tax
deduction to OC Financial. Non-qualified stock options may also be granted to
employees under the stock option plan, and will be granted to the non-employee
directors who receive stock options. In the event an option recipient terminated
his or her employment or service as an employee or director, the options would
terminate after certain specified periods following termination.
STOCK RECOGNITION AND RETENTION PLAN. We intend to request stockholder
approval of a new stock recognition and retention plan, no earlier than six
months after the completion of the conversion. If approved by stockholders, the
new stock recognition and retention plan would, if adopted within one year of
the conversion, reserve an amount equal to 4% of the shares of common stock sold
in the offering, or 20,400 shares, 24,000 shares, 27,600 shares and 31,740
shares at the minimum, midpoint, maximum and adjusted maximum of the offering
range, respectively. If we adopt the recognition and retention plan after one
year following the completion of the conversion, we may grant shares in an
amount greater than 4% of the shares of common stock sold in the offering,
although such plan, including the amount granted under such plan, may remain
subject to supervisory restrictions. We have not yet determined whether we will
present this plan for stockholder approval within 12 months following the
completion of the conversion or whether we will present this plan for
stockholder approval more than 12 months following the completion of the
conversion. We must recognize an expense for shares of common stock awarded over
their vesting period at the fair market value of the shares on the date they are
awarded. The recipients will be awarded shares of common stock under the stock
recognition and retention plan at no cost to them. No awards would be made under
the stock recognition and retention plan until the plan is
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approved by stockholders. If the shares awarded under the stock recognition and
retention plan come from authorized but unissued shares of the common stock
totaling 4% of the shares sold in the offering, stockholders would experience
dilution of approximately 3.8% in their ownership interest in OC Financial at
the midpoint of the offering range. The recognition and retention plan would be
administered by a committee of non-employee members of OC Financial's board of
directors.
Awards granted under the stock recognition and retention plan would be
nontransferable and nonassignable. Under Office of Thrift Supervision
regulations, if the stock recognition and retention plan is adopted within one
year following the conversion, the shares of common stock which are subject to
an award may vest no faster than 20% per year beginning 12 months after the date
of grant of the award. Awards would be adjusted for capital changes such as
stock dividends and stock splits. Awards would be 100% vested upon termination
of employment or service due to death, disability or following a change in
control, and if the stock recognition and retention plan is adopted more than
one year after the conversion, awards also would be 100% vested upon normal
retirement. If employment or service were to terminate for other reasons, the
award recipient would forfeit any nonvested award. If employment or service were
to terminate for cause, which term would be defined in the plan, unvested shares
would be forfeited. Under Office of Thrift Supervision rules, if the stock
recognition and retention plan is adopted within one year of the conversion, no
individual officer may receive more than 25% of the awards under the plan, no
non-employee director may receive more than 5% of the awards under the plan, and
all non-employee directors as a group may receive no more than 30% of the awards
under the plan in the aggregate.
The recipient of an award will recognize income equal to the fair market
value of the stock earned, determined as of the date of vesting, unless the
recipient makes an election under Section 83(b) of the Internal Revenue Code of
1986, as amended, to be taxed earlier. The amount of income recognized by the
recipient would be a deductible expense of OC Financial for tax purposes.
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding intended common
stock purchases by each of the directors and executive officers of Ohio Central
Savings and their associates, and by all directors and executive officers as a
group. In the event the individual maximum purchase limitation is increased,
persons subscribing for the maximum amount may increase their purchase order.
Directors and executive officers will purchase shares of common stock at the
same $10.00 purchase price per share and on the same terms as other purchasers
in the offering. This table excludes shares of common stock to be purchased by
the employee stock ownership plan, as well as any recognition and retention plan
awards or stock option grants that may be made no earlier than six months after
the completion of the offering. The directors and officers have indicated their
intention to purchase in the offering an aggregate of $1.5 million of common
stock, equal to 29.4%, 25.0%, 21.7% and 18.9% of the number of shares of common
stock to be sold in the offering at the minimum, midpoint, maximum and adjusted
maximum of the offering range, respectively. Purchases by directors, executive
officers and their associates will be included in determining whether the
required minimum number of shares has been subscribed for in the offering.
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AGGREGATE
NUMBER OF PURCHASE PERCENT AT
NAME SHARES (1) PRICE (1) MIDPOINT
- ---- ---------- --------- --------
Robert W. Hughes 37,500 $ 375,000
Thomas H. Lagos 37,500 $ 375,000 *%
Christopher L. Lardiere 25,000 $ 250,000 *
Thomas J. Parliment 20,000 $ 200,000 *
H. Stewart Fitz Gibbon, III 10,000 $ 100,000 *
Diane M. Gregg 10,000 $ 100,000 *
Nils C. Muladore 6,500 $ 65,000 *
Michael B. Bowman 3,500 $ 35,000 *
All directors and executive officers as a group.... 150,000 $ 1,500,000 25.0%
- ----------
* Less than 1%.
(1) Includes purchases by the individual's spouse and other relatives of the
named individual living in the same household. The above named individuals
are not aware of any other purchases by a person who, or entity which,
would be considered an associate of the named individuals under the Plan of
Conversion and Reorganization.
THE CONVERSION AND REORGANIZATION
The boards of directors of OC Financial and Ohio Central Savings have
approved the plan of conversion and reorganization. The plan of conversion and
reorganization must also be approved by those members of Third Federal Savings
and Loan Association of Cleveland, MHC who are depositors of Ohio Central
Savings. A special meeting of members has been called for this purpose. The
Office of Thrift Supervision has conditionally approved the plan of conversion
and reorganization; however, such approval does not constitute a recommendation
or endorsement of the plan of conversion and reorganization by that agency.
GENERAL
Ohio Central Savings, TFS Financial and Third Federal Savings and Loan
Association of Cleveland, MHC entered into a Divestiture Agreement, dated
December 13, 2004, whereby TFS will divest its control of Ohio Central Savings.
Ohio Central Savings will become an independent institution by redeeming all its
outstanding common stock issued to TFS Financial. Immediately following the
redemption, Ohio Central Savings will convert to stock form in accordance with
the plan of conversion and reorganization. In connection with the redemption,
Ohio Central Savings will pay TFS Financial the sum of $792,000. Following the
conversion and reorganization, Ohio Central Savings will no longer be affiliated
with Third Federal and have no business relationship other than to continue to
service automobile loans that it sold to Third Federal during the past three
years. No representative of Third Federal will continue to serve as a director
or officer of OC Financial or Ohio Central Savings. In connection with the
divestiture, the respective boards of directors of Ohio Central Savings and OC
Financial adopted the plan of conversion and reorganization on December 14,
2004. Pursuant to the plan of conversion and reorganization, our organization
will convert from the mutual holding company form of organization to the stock
form of organization and we will sell shares of common stock to the public in
our offering. OC Financial, a new Maryland corporation, will own 100% of Ohio
Central Savings. When the conversion and reorganization is completed, all of the
capital stock of Ohio Central Savings will be owned by OC Financial, and all of
the common stock of OC Financial and all of the common stock of OC Financial
will be owned by public stockholders.
We intend to retain between $1.1 million and $2.7 million of the net
proceeds of the offering, or $3.6 million if the offering range is increased by
15%, and to contribute the balance of the net proceeds to Ohio Central Savings.
The conversion and reorganization will be consummated only upon the issuance of
at least 510,000 shares of our common stock offered pursuant to the plan of
conversion and reorganization.
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The plan of conversion and reorganization provides that we will offer
shares of common stock for sale in the subscription offering to eligible account
holders, our tax-qualified employee benefit plans, including the employee stock
ownership plan, supplemental eligible account holders and other members
(depositors of Ohio Central Savings ). If all shares are not subscribed for in
the subscription offering, we may, at our discretion, offer common stock for
sale in a community offering to members of the general public, with a preference
given to natural persons residing in the Ohio counties of Franklin and Cuyahoga.
We have the right to accept or reject, in whole or in part, any orders
to purchase shares of the common stock received in the community offering. The
community offering, if any, may begin at the same time as, during, or after the
subscription offering, and must be completed within 45 days after the completion
of the subscription offering unless otherwise extended by us with the approval
of the Office of Thrift Supervision. See "- Community Offering."
We determined the number of shares of common stock to be offered in the
offering based upon an independent valuation appraisal of the estimated
consolidated pro forma market value of OC Financial. All shares of common stock
to be sold in the offering will be sold at $10.00 per share. Investors will not
be charged a commission to purchase shares of common stock. The independent
valuation will be updated and the final number of the shares of common stock to
be issued in the offering will be determined at the completion of the offering.
See "- Determination of Share Price and Number of Shares to be Issued" for more
information as to the determination of the estimated pro forma market value of
the common stock.
The following is a brief summary of the conversion and reorganization
and is qualified in its entirety by reference to the provisions of the plan of
conversion and reorganization. A copy of the plan of conversion and
reorganization is available for inspection at each office of Ohio Central
Savings and at the Northeast Regional and the Washington, D.C. offices of the
Office of Thrift Supervision. The plan of conversion and reorganization is also
filed as an exhibit to Ohio Central Savings' application to convert from mutual
to stock form of which this prospectus is a part, copies of which may be
obtained from the Office of Thrift Supervision. See "Where You Can Find
Additional Information."
REASONS FOR THE CONVERSION AND REORGANIZATION
The primary reasons for the conversion and reorganization are:
o to increase our capital and become an independent financial
institution in order to provide additional financial resources
to support our internal growth through lending in communities we
serve or may serve in the future;
o to enhance our existing products and services and to support the
development of new products and services;
o to improve our overall competitive position;
o to provide better capital management tools, including the
ability to pay dividends and to repurchase shares of our common
stock; and
o to retain and attract qualified personnel by establishing stock
benefit plans for management and employees, including a stock
option plan, a recognition and retention plan and an employee
stock ownership plan.
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As a stock holding company, we will have greater flexibility in
structuring mergers and acquisitions. We have no current plans on agreements to
acquire other banks, thrifts on financial service companies. Our current mutual
holding company structure limits our ability to offer shares of our common stock
as consideration for a merger or acquisition, although we have no such
acquisitions currently planned. Potential sellers often want stock for at least
part of the acquisition consideration. Our new stock holding company structure
will enable us to offer stock or cash consideration, or a combination thereof,
and will therefore enhance our ability to compete with other bidders when
acquisition opportunities arise.
APPROVALS REQUIRED
The affirmative vote of a majority of the total eligible votes of the
depositors of Ohio Central Savings at the special meeting of members is required
to approve the plan of conversion and reorganization. The plan of conversion and
reorganization also must be approved by the Office of Thrift Supervision, which
has given its conditional approval.
A special meeting of members to consider and vote upon the plan of
conversion and reorganization has been set for _________, 2005.
EFFECTS OF CONVERSION ON DEPOSITORS, BORROWERS AND MEMBERS
CONTINUITY. While the conversion and reorganization is being
accomplished, the normal business of Ohio Central Savings of accepting deposits
and making loans will continue without interruption. Ohio Central Savings will
continue to be a federally chartered savings institution and will continue to be
regulated by the Office of Thrift Supervision. After the conversion and
reorganization, Ohio Central Savings will continue to offer existing services to
depositors, borrowers and other customers. The directors serving Ohio Central
Savings at the time of the conversion and reorganization will be the directors
of OC Financial after the conversion.
EFFECT ON DEPOSIT ACCOUNTS. Pursuant to the plan of conversion and
reorganization, each depositor of Ohio Central Savings at the time of the
conversion and reorganization will automatically continue as a depositor after
the conversion and reorganization, and the deposit balance, interest rate and
other terms of such deposit accounts will not change as a result of the
conversion and reorganization. Each such account will be insured by the Federal
Deposit Insurance Corporation to the same extent as before the conversion and
reorganization. Depositors will continue to hold their existing certificates,
passbooks and other evidences of their accounts.
EFFECT ON LOANS. No loan outstanding from Ohio Central Savings will be
affected by the conversion and reorganization, and the amount, interest rate,
maturity and security for each loan will remain as it was contractually fixed
prior to the conversion and reorganization.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors of Ohio
Central Savings are members of, and have voting rights in, Third Federal Savings
and Loan Association of Cleveland, MHC as to all matters requiring membership
action. Upon completion of the conversion and reorganization, depositors of Ohio
Central Savings will cease to be members of Third Federal Savings and Loan
Association of Cleveland, MHC and will no longer have voting rights. Upon
completion of the conversion and reorganization, all voting rights in Ohio
Central Savings will be vested in OC Financial as the sole stockholder of Ohio
Central Savings. The stockholders of OC Financial will possess exclusive voting
rights with respect to OC Financial common stock.
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TAX EFFECTS. We will receive an opinion of counsel or tax advisor with
regard to federal and state income tax consequences of the conversion and
reorganization to the effect that the conversion and reorganization will not be
taxable for federal or state income tax purposes to OC Financial, Ohio Central
Savings eligible account holders, supplemental eligible account holders, or
other depositors of Ohio Central Savings. See "- Material Income Tax
Consequences."
EFFECT ON LIQUIDATION RIGHTS. Each depositor in Ohio Central Savings has
both a deposit account in Ohio Central Savings and a pro rata ownership interest
in the net worth of Third Federal Savings and Loan Association of Cleveland, MHC
based upon the deposit balance in his or her account. This ownership interest is
tied to the depositor's account and has no tangible market value separate from
the deposit account. This interest may only be realized in the event of a
complete liquidation of Third Federal Savings and Loan Association of Cleveland,
MHC. Any depositor who opens a deposit account at Ohio Central Savings obtains a
pro rata ownership interest in Third Federal Savings and Loan Association of
Cleveland, MHC 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,
respectively, of the balance in the deposit account but nothing for his or her
ownership interest in the net worth of Third Federal Savings and Loan
Association of Cleveland, MHC, which is lost to the extent that the balance in
the account is reduced or closed.
Consequently, depositors in a stock subsidiary of a mutual holding
company, such as Ohio Central Savings, normally have no way of realizing the
value of their ownership interest, which has realizable value only in the
unlikely event that Third Federal Savings and Loan Association of Cleveland, MHC
is completely liquidated. If this occurs, the depositors of record at that time,
as owners, would share pro rata in any residual surplus and reserves of Third
Federal Savings and Loan Association of Cleveland, MHC after other claims,
including claims of depositors to the amounts of their deposits, are paid.
In the unlikely event that Ohio Central Savings were to liquidate after
the conversion and reorganization, all claims of creditors, including those of
depositors, also would be paid first, followed by distribution of the
"liquidation account" to depositors as of September 30, 2003 and December 31,
2004 who continue to maintain their deposit accounts as of the date of
liquidation, with any assets remaining thereafter distributed to OC Financial as
the holder of Ohio Central Savings' capital stock. Pursuant to the rules and
regulations of the Office of Thrift Supervision, a post-conversion merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured savings institution would not be considered a liquidation and,
in such a transaction, the liquidation account would be assumed by the surviving
institution. See "-Liquidation Rights."
DETERMINATION OF SHARE PRICE AND NUMBER OF SHARES TO BE ISSUED
The plan of conversion and reorganization and federal regulations
require that the aggregate purchase price of the common stock sold in the
offering be based on the appraised pro forma market value of the common stock,
as determined by an independent valuation. Ohio Central Savings and OC Financial
have retained RP Financial to prepare an independent valuation appraisal. For
its services in preparing the initial valuation, RP Financial will receive a fee
of $25,000, and will be reimbursed for its expenses. RP Financial will receive
an additional fee of $2,500 for each update to the valuation appraisal. Ohio
Central Savings and OC Financial have agreed to indemnify RP Financial and its
employees and affiliates against specified losses, including any losses in
connection with claims under the federal securities laws, arising out of its
services as independent appraiser, except where such liability results from its
negligence or bad faith.
The independent valuation appraisal considered the pro forma impact of
the offering. Consistent with the Office of Thrift Supervision appraisal
guidelines, the appraisal applied three primary
94
methodologies: the pro forma price-to-book value approach applied to both
reported book value and tangible book value; the pro forma price-to-earnings
approach applied to reported earnings; and the pro forma price-to-assets
approach. The market value ratios applied in the three methodologies were based
upon the current market valuations of the peer group companies identified by RP
Financial, subject to valuation adjustments applied by RP Financial to account
for differences between OC Financial and the peer group.
The independent valuation was prepared by RP Financial in reliance upon
the information contained in this prospectus, including the consolidated
financial statements of Ohio Central Savings. RP Financial also considered the
following factors, among others:
o the present results and financial condition of Ohio Central
Savings, and the projected results and financial condition of OC
Financial;
o the economic and demographic conditions in Ohio Central Savings'
existing market area;
o certain historical, financial and other information relating to
Ohio Central Savings ;
o a comparative evaluation of the operating and financial
characteristics of Ohio Central Savings with those of other
similarly situated publicly traded savings institutions located
in the State of Ohio, and other states in the Midwest United
States;
o the aggregate size of the offering of the shares of common
stock;
o the impact of the conversion and the offering on OC Financial's
stockholders' equity and earnings potential;
o the proposed dividend policy of OC Financial;
o the trading market for securities of comparable institutions and
general conditions in the market for such securities; and
o the capital and earnings impact of the separation from Third
Federal.
Included in RP Financial's independent valuation were certain
assumptions as to the pro forma earnings of OC Financial after the conversion
and reorganization that were utilized in determining the appraised value. These
assumptions included estimated expenses, an assumed after-tax rate of return on
the net offering proceeds and purchases in the open market of 4% of the common
stock issued in the offering by the recognition and retention plan at the $10.00
purchase price. See "Pro Forma Data" for additional information concerning these
assumptions. The use of different assumptions may yield different results.
The independent valuation states that as of November 26, 2004, the
estimated pro forma market value of OC Financial ranged from $5.1 million to
$6.9 million, with a midpoint of $6.0 million. The board of directors of OC
Financial decided to offer the shares of common stock for a price of $10.00 per
share primarily because it is the price most commonly used in mutual-to-stock
conversions of financial institutions. The number of shares offered will be
equal to the aggregate offering price of the shares divided by the price per
share. Based on the valuation range and the $10.00 price per share, the minimum
of the offering range will be 510,000 shares, the midpoint of the offering range
will be 600,000 shares and the maximum of the offering range will be 690,000
shares, or 793,500 if the maximum amount is adjusted because of demand for
shares or changes in market conditions.
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The following table presents a summary of selected pricing ratios for OC
Financial and our peer group companies identified by RP Financial. Our pro forma
price-to-earnings multiple is annualized based on earnings for the twelve months
ended September 30, 2004, while information for the peer group companies is
based on earnings for the twelve months ended September 30, 2004 or the latest
available trailing twelve-month period. Compared to the average pricing of the
peer group, our pro forma pricing ratios at the maximum of the offering range
indicated a premium of 700.97% on a price-to-earnings basis, a discount of 29.2%
on a price-to-book basis and a discount of 31.1% on a price-to-tangible book
basis. The pricing ratios result from our generally having higher levels of
equity but lower earnings than the companies in the peer group. Our board of
directors, in reviewing and approving the valuation, considered the range of
price-to- earnings multiples and 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. The appraisal did not consider one valuation approach to
be more important than the other. Instead, the appraisal concluded that these
ranges represented the appropriate balance of the two approaches to valuing OC
Financial, and the number of shares to be sold, in comparison to the peer group
institutions. Specifically, in approving the valuation, the board believed that
OC Financial would not be able to sell its shares at a price-to-book value that
was in line with the peer group without unreasonably exceeding the identified
peer group on a price-to-core earnings basis. The estimated appraised value and
the resulting premium/discount took into consideration the potential financial
impact of the conversion and reorganization.
PRO FORMA
------------------------ PRO FORMA PRO FORMA
PRICE-TO-EARNINGS PRICE-TO-BOOK PRICE-TO-TANGIBLE
MULTIPLE VALUE RATIO BOOK VALUE RATIO
-------- ----------- ----------------
OC FINANCIAL
Maximum............................... 166.67x 80.97% 80.97%
Minimum............................... 166.67 73.48 73.48
VALUATION OF PEER GROUP COMPANIES AS
OF NOVEMBER 26, 2004
Averages.............................. 20.81x 114.37% 117.44%
Medians............................... 20.79 112.32 113.28
The board of directors of Ohio Central Savings reviewed the independent
valuation and, in particular, considered the following:
o Ohio Central Savings' financial condition and results of
operations;
o comparison of financial performance ratios of Ohio Central
Savings to those of other financial institutions of similar
size; and
o market conditions generally and, in particular, for financial
institutions.
All of these factors are set forth in the independent valuation. The
board of directors also reviewed the methodology and the assumptions used by RP
Financial in preparing the independent valuation and believes that such
assumptions were reasonable. The offering range may be amended with the approval
of the Office of Thrift Supervision, if required, as a result of subsequent
developments in the financial condition of Ohio Central Savings or market
conditions generally. In the event the independent valuation is updated to amend
the pro forma market value of OC Financial to less than $7.9 million or more
than $5.1 million, the appraisal will be filed with the Securities and Exchange
Commission by a post-effective amendment to OC Financial's registration
statement.
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THE INDEPENDENT VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING OUR SHARES OF
COMMON STOCK. RP FINANCIAL DID NOT INDEPENDENTLY VERIFY OUR CONSOLIDATED
FINANCIAL STATEMENTS AND OTHER INFORMATION THAT WE PROVIDED TO THEM, NOR DID RP
FINANCIAL INDEPENDENTLY VALUE OUR ASSETS OR LIABILITIES. THE INDEPENDENT
VALUATION CONSIDERS OHIO CENTRAL SAVINGS AS A GOING CONCERN AND SHOULD NOT BE
CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF OHIO CENTRAL SAVINGS.
MOREOVER, BECAUSE THE VALUATION IS NECESSARILY BASED UPON ESTIMATES AND
PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH MAY CHANGE FROM TIME TO TIME,
NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING OUR COMMON STOCK IN THE
OFFERING WILL THEREAFTER BE ABLE TO SELL THEIR SHARES AT PRICES AT OR ABOVE THE
$10.00 OFFERING PRICE PER SHARE.
Following commencement of the subscription offering, the maximum of the
valuation range may be increased by up to 15.0%, or up to $7.9 million, without
resoliciting subscribers, which will result in a corresponding increase of up to
15% in the maximum of the offering range to up to 793,500 shares, to reflect
changes in the market and financial conditions or demand for the shares. We will
not decrease the minimum of the valuation range and the minimum of the offering
range without a resolicitation of subscribers. The subscription price of $10.00
per share will remain fixed. See "- Limitations on Common Stock Purchases" as to
the method of distribution and allocation of additional shares that may be
issued in the event of an increase in the offering range to fill unfilled orders
in the offering.
If the update to the independent valuation at the conclusion of the
offering results in an increase in the maximum of the valuation range to more
than $7.9 million and a corresponding increase in the offering range to more
than 793,500 shares, or a decrease in the minimum of the valuation range to less
than $5.1 million and a corresponding decrease in the offering range to fewer
than 510,000 shares, then we will promptly return with interest at Ohio Central
Savings' passbook savings rate of interest all funds previously delivered to us
to purchase shares of common stock and cancel deposit account withdrawal
authorizations, and, after consulting with the Office of Thrift Supervision, we
may terminate the plan of conversion and reorganization. Alternatively, we may
hold a new offering, establish a new offering range, extend the offering period
and commence a resolicitation of subscribers or take other actions as permitted
by the Office of Thrift Supervision in order to complete the conversion and the
reorganization. In the event that a resolicitation is commenced, we will
promptly cancel deposit account withdrawal authorizations and return all funds
received to subscribers as described above. We will notify subscribers of the
extension of time and of the rights of subscribers to place a new stock order
for a specified period of time. Any resolicitation following the conclusion of
the subscription and community offerings would not exceed 45 days unless further
extended by the Office of Thrift Supervision for periods of up to 90 days.
An increase in the number of shares to be issued in the offering would
decrease both a subscriber's ownership interest and OC Financial's pro forma
earnings and stockholders' equity on a per share basis while increasing pro
forma earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the offering would increase both a subscriber's
ownership interest and OC Financial's pro forma earnings and stockholders'
equity on a per share basis, while decreasing pro forma earnings and
stockholders' equity on an aggregate basis. For a presentation of the effects of
these changes, see "Pro Forma Data."
Copies of the independent valuation appraisal report of RP Financial and
the detailed memorandum setting forth the method and assumptions used in the
appraisal report are available for inspection at the main office of Ohio Central
Savings and as specified under "Where You Can Find Additional Information."
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SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the plan of conversion and reorganization, rights to
subscribe for shares of common stock in the subscription offering have been
granted in the following descending order of priority. The filling of all
subscriptions that we receive will depend on the availability of common stock
after satisfaction of all subscriptions of all persons having prior rights in
the subscription offering and to the maximum, minimum and overall purchase
limitations set forth in the plan of conversion and reorganization and as
described below under "-Limitations on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Ohio Central Savings
depositor with aggregate deposit account balances of $50.00 or more (a
"Qualifying Deposit") on September 30, 2003 (an "Eligible Account Holder") will
receive, without payment therefor, nontransferable subscription rights to
purchase, subject to the overall purchase limitations, up to 10,000 shares of
our common stock or, if greater, 15 times the number of subscription shares
offered multiplied by the aggregate Qualifying Deposit account balances of the
Eligible Account Holder divided by the aggregate Qualifying Deposit account
balances of all Eligible Account Holders. See "-Limitations on Common Stock
Purchases." If there are not sufficient shares available to satisfy all
subscriptions, shares will first be allocated so as to permit each Eligible
Account Holder to purchase a number of shares sufficient to make his or her
total allocation equal to the lesser of 100 shares or the number of shares for
which he or she subscribed. Thereafter, unallocated shares will be allocated to
each Eligible Account Holder whose subscription remains unfilled in the
proportion that the amount of his or her Qualifying Deposit bears to the total
amount of Qualifying Deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled. If an amount so allocated exceeds the amount
subscribed for by any one or more Eligible Account Holders, the excess shall be
reallocated among those Eligible Account Holders whose subscriptions are not
fully satisfied until all available shares have been allocated.
To ensure proper allocation of our shares of common stock, each Eligible
Account Holder must list on his or her stock order form all deposit accounts in
which he or she has an ownership interest on September 30, 2003. In the event of
oversubscription, failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed. In the event of an
oversubscription, the subscription rights of Eligible Account Holders who are
also directors or executive officers of OC Financial or their associates will be
subordinated to the subscription rights of other Eligible Account Holders to the
extent attributable to increased deposits in the twelve months preceding
September 30, 2003.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. Each tax-qualified employee
plan, including the employee stock ownership plan, shall be entitled to receive,
without payment therefore, second priority, nontransferable subscription rights
to purchase up to 10.0% of the common stock, provided that individually or in
the aggregate such plans (other than that portion of such plans which is
self-directed) shall not purchase more than 10.0% of the shares of common stock
sold, including any increase in the number of shares of common stock to be
issued as a result of an increase of up to 15% in the maximum of the estimated
offering range. The proposed Ohio Central Savings Employee Stock Ownership Plan,
which is the only plan expected to order shares, intends to purchase 8.0% of the
shares of common stock sold in the stock offering, or 408,000 shares and 552,000
shares based on the minimum and maximum of the estimated offering range,
respectively. Subscriptions by the tax-qualified employee plans will not be
aggregated with shares of common stock purchased directly by or which are
otherwise attributable to any other participants in the subscription and direct
community offerings, including subscriptions of any of Ohio Central Savings'
directors, officers, employees or their associates. Subscription rights received
in this category shall be subordinated to all rights received by Eligible
Account Holders to purchase shares in Priority No. 1; provided, however, that
notwithstanding any other provisions of the plan of conversion and
reorganization and stock issuance to the contrary, in the event that the total
number of shares offered
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in the stock offering is increased to an amount greater than the number of
shares representing the maximum of the estimated offering range, each
tax-qualified employee plan will have a priority right to purchase any such
shares exceeding the maximum of the estimated offering range up to an aggregate
of 10.0% of the common stock sold in the stock offering. See "Management of OC
Financial - Benefits - Employee Stock Ownership Plan."
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares of common stock remaining after satisfaction of
subscriptions by Eligible Account Holders and our tax-qualified employee stock
benefit plans, each Ohio Central Savings depositor with a Qualifying Deposit on
December 31, 2004 who is not an Eligible Account Holder ("Supplemental Eligible
Account Holder") will receive, without payment therefor, nontransferable
subscription rights to purchase up to 10,000 shares of common stock or, if
greater, 15 times the number of subscription shares offered multiplied by the
aggregate Qualifying Deposit account balances of the Supplemental Eligible
Account Holder divided by the aggregate Qualifying Deposit account balances of
all Supplemental Eligible Account Holders, subject to the overall purchase
limitations. See "- Limitations on Common Stock Purchases." If there are not
sufficient shares available to satisfy all subscriptions, shares will be
allocated so as to permit each Supplemental Eligible Account Holder to purchase
a number of shares sufficient to make his or her total allocation equal to the
lesser of 100 shares of common stock or the number of shares for which he or she
subscribed. Thereafter, unallocated shares will be allocated to each
Supplemental Eligible Account Holder whose subscription remains unfilled in the
proportion that the amount of his or her Qualifying Deposit bears to the total
amount of Qualifying Deposits of all Supplemental Eligible Account Holders whose
subscriptions remain unfilled. If an amount so allocated exceeds the amount
subscribed for by any one or more Supplemental Eligible Account Holders, the
excess shall be reallocated among those Supplemental Eligible Account Holders
whose subscriptions are not fully satisfied until all available shares have been
allocated.
To ensure proper allocation of common stock, each Supplemental Eligible
Account Holder must list on the stock order form all deposit accounts in which
he or she has an ownership interest at December 31, 2004. In the event of
oversubscription, failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed.
PRIORITY 4: OTHER MEMBERS. To the extent that there are shares of common
stock remaining after satisfaction of subscriptions by Eligible Account Holders,
our tax-qualified employee stock benefit plans and Supplemental Eligible Account
Holders, each depositor of Ohio Central Savings on the voting record date of
[voting record date] who is not an Eligible Account Holder or Supplemental
Eligible Account Holder ("Other Members") will receive, without payment
therefor, nontransferable subscription rights to purchase up to 10,000 shares of
common stock, subject to the overall purchase limitations. See "--Limitations on
Common Stock Purchases." If there are not sufficient shares available to satisfy
all subscriptions, available shares will be allocated on a pro rata basis based
on the size of the order of each Other Member whose order remains unfilled.
EXPIRATION DATE. The Subscription Offering will expire at 12:00 noon,
Eastern Standard Time, on [expiration date], unless extended by us for up to 45
days or such additional periods with the approval of the Office of Thrift
Supervision, if necessary. Subscription rights will expire whether or not each
eligible depositor can be located. We may decide to extend the expiration date
of the subscription offering for any reason, whether or not subscriptions have
been received for shares at the minimum, midpoint or maximum of the offering
range. Subscription rights which have not been exercised prior to the expiration
date will become void.
We will not execute orders until we received orders to purchase at least
the minimum number of shares of common stock. If we have not received orders to
purchase at least 510,000 shares within 45
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days after the expiration date and the Office of Thrift Supervision has not
consented to an extension, all funds delivered to us to purchase shares of
common stock in the offering will be returned promptly to the subscribers with
interest at Ohio Central Savings' passbook savings rate and all deposit account
withdrawal authorizations will be canceled. If an extension beyond the 45-day
period following the expiration date is granted by the Office of Thrift
Supervision, all funds delivered to us to purchase shares of common stock in the
offering will be returned promptly to the subscribers with interest at Ohio
Central Savings' passbook savings rate and all deposit account withdrawal
authorizations will be canceled. We will notify subscribers of the extension of
time and of the rights of subscribers to place a new stock order for a specified
period of time. Extensions may not go beyond ____________________, 2007,which is
two years after the special meeting of members of Ohio Central Savings to vote
on the conversion.
PERSONS WHO ARE NOT PERMITTED TO PARTICIPATE IN THE STOCK OFFERING
OC Financial 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 through the plan of conversion and reorganization reside. However, OC
Financial is not required to offer stock in the subscription offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which:
o the number of persons otherwise eligible to subscribe for shares
under the plan of conversion and reorganization who reside in
such jurisdiction is small;
o the granting of subscription rights or the offer or sale of
shares of common stock to these persons would require any of OC
Financial and Ohio Central Savings or their officers, directors
or employees, under the laws of that jurisdiction, to register
as a broker, dealer, salesman or selling agent or to register or
otherwise qualify its securities for sale in that jurisdiction
or to qualify as a foreign corporation or file a consent to
service of process in that jurisdiction; or
o the registration, qualification or filing in the judgment of OC
Financial would be impracticable or unduly burdensome for
reasons of cost or otherwise.
Where the number of persons eligible to subscribe for shares in one
state is small, OC Financial will base its decision as to whether or not to
offer the common stock in that state on a number of factors, including but not
limited to the size of accounts held by account holders in the state, the cost
of registering or qualifying the shares or the need to register OC Financial or
Ohio Central Savings, its officers, directors or employees as brokers, dealers
or salesmen.
COMMUNITY OFFERING
To the extent that shares of common stock remain available for purchase
after satisfaction of all subscriptions of the Eligible Account Holders, our
tax-qualified employee stock benefit plans, Supplemental Eligible Account
Holders and Other Members, we may offer shares pursuant to the plan of
conversion and reorganization to members of the general public in a community
offering. Shares may be offered with a preference to natural persons residing in
the Ohio counties of Franklin and Cuyahoga.
Subscribers in the community offering may purchase up to 10,000 shares
of common stock, subject to the overall purchase limitations. See "- Limitations
on Common Stock Purchases." THE OPPORTUNITY TO PURCHASE SHARES OF COMMON STOCK
IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO OUR RIGHT, IN OUR SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
EXPIRATION DATE OF THE OFFERING.
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If we do not have sufficient shares of common stock available to fill
the orders of natural persons residing in the Ohio counties of Franklin and
Cuyahoga, we will allocate the available shares among those persons in a manner
that permits each of them, to the extent possible, to purchase the lesser of 100
shares, or the number of shares subscribed for by such person. Thereafter,
unallocated shares will be allocated among natural persons residing in the Ohio
counties of Franklin and Cuyahoga whose orders remain unsatisfied based on the
size of the unfilled order of each such person relative to the size of the
aggregate unfilled orders of other natural persons residing in the Ohio counties
of Franklin and Cuyahoga. In addition, orders received for shares of common
stock in the community offering will first be filled up to a maximum of two
percent of the shares sold in the offering, and thereafter any remaining shares
will be allocated on an equal number of shares basis per order.
The term "residing" or "resident" as used in this prospectus means any
person who occupies a dwelling within the Ohio counties of Franklin and
Cuyahoga, has a present intent to remain within this community for a period of
time and manifests the genuineness of that intent by establishing an ongoing
physical presence within the community, together with an indication that this
presence within the community is something other than merely transitory in
nature. We may utilize deposit or loan records or other evidence provided to us
to decide whether a person is a resident. In all cases, however, the
determination shall be in our sole discretion.
EXPIRATION DATE. The community offering, if conducted, may begin during
or after the subscription offering, and is currently expected to terminate at
the same time as the subscription offering, and must terminate no more than 45
days following the subscription offering. OC Financial may decide to extend the
community offering for any reason and is not required to give purchasers notice
of any such extension unless such period extends beyond [extension date]. If we
have not received orders to purchase 510,000 shares by [extension date], all
funds delivered to us will be returned promptly to the subscribers with interest
at Ohio Central Savings' passbook savings rate and all withdrawal authorizations
will be canceled. If an extension is granted by the Office of Thrift
Supervision, we will notify purchasers of the extension of time and of the
rights of purchasers to place a new stock order for a specified period of time.
These extensions may not go beyond _______________, 2007, which is two years
after the special meeting of members of Ohio Central Savings to vote on the
conversion and reorganization.
SYNDICATED COMMUNITY OFFERING
All shares of common stock not purchased in the subscription and
community offerings, if any, may be offered for sale to the general public in a
syndicated community offering through a syndicate of registered broker-dealers
to be formed and managed by Keefe, Bruyette & Woods. OC Financial and Ohio
Central Savings expect to market any shares of common stock which remain
unsubscribed after the subscription and community offerings through a syndicated
community offering. OC Financial and Ohio Central Savings have the right to
reject orders in whole or part in their sole discretion in the syndicated
community offering. Neither Keefe, Bruyette & Woods nor any registered
broker-dealer shall have any obligation to take or purchase any shares of common
stock in the syndicated community offering; however, in the event Keefe,
Bruyette & Woods agrees to participate in a syndicated community offering, it
will use its best efforts in the sale of shares of common stock in the
syndicated community offering.
The price at which shares of common stock are sold in the syndicated
community offering will be the same price as in the subscription and community
offerings. Subject to the overall purchase limitations, no person by himself or
herself may subscribe for or purchase more than 10,000 shares of common stock.
Keefe, Bruyette & Woods may enter into agreements with selected dealers
to assist in the sale of the shares of common stock in the syndicated community
offering. No orders may be placed or filled by
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or for a selected dealer during the subscription offering. After the close of
the subscription offering, Keefe, Bruyette & Woods will instruct selected
dealers as to the number of shares of common stock to be allocated to each
selected dealer. Only after the close of the subscription offering and upon
allocation of shares to selected dealers may selected dealers take orders from
their customers. During the subscription and community offerings, selected
dealers may only solicit indications of interest from their customers to place
orders with OC Financial as of a certain order date for the purchase of shares
of common stock. When and if OC Financial, in consultation with Keefe, Bruyette
& Woods believes that enough indications of interest and orders have not been
received in the subscription and community offerings to consummate the offering,
it will instruct Keefe, Bruyette & Woods to request, as of the order date,
selected dealers to submit orders to purchase shares for which they have
previously received indications of interest from their customers. Selected
dealers will send confirmations of the orders to customers on the next business
day after the order date. Selected dealers will debit the accounts of their
customers on the settlement date, which date will be three business days from
the order date. Customers who authorize selected dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the settlement date. On the settlement date, selected dealers
will remit funds to the account established by OC Financial for each selected
dealer. After payment has been received by OC Financial from selected dealers,
funds will earn interest at Ohio Central Savings' passbook rate until the
completion or termination of the reorganization and offering. Funds will be
promptly returned, with interest, in the event the reorganization and offering
is not completed as described above.
The syndicated community offering will terminate no more than 45 days
following the subscription expiration date, unless extended by OC Financial and
Ohio Central Savings with the approval of the Office of Thrift Supervision.
LIMITATIONS ON COMMON STOCK PURCHASES
The plan of conversion and reorganization includes the following
limitations on the number of shares of common stock that may be purchased in the
offering:
o No person may purchase fewer than 25 shares of common stock or
generally more than 10,000 shares;
o Our tax-qualified stock benefit plans, including our employee
stock ownership plan, may purchase in the aggregate up to 10% of
the shares of common stock issued in the offering, including
shares issued in the event of an increase in the offering range
of up to 15%;
o Except for the tax-qualified employee stock benefit plans and
those subscribers in Priority 1 and Priority 3, as described
above, no person or entity, together with associates or persons
acting in concert with such person or entity, may purchase more
than 20,000 shares in all categories of the offering combined;
and
o The maximum number of shares of common stock that may be
purchased in all categories of the offering by our executive
officers and directors and their associates, in the aggregate
may not exceed 34.0% of the shares issued in the offering.
Depending upon market or financial conditions, our board of directors,
with the approval of the Office of Thrift Supervision and without further
approval of members of Ohio Central Savings, may decrease or increase the
purchase limitations. If a purchase limitation is increased, subscribers in the
subscription offering who ordered the maximum amount will be, and, in our sole
discretion, some other large subscribers may be, given the opportunity to
increase their subscriptions up to the then applicable
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limit. The effect of this type of resolicitation will be an increase in the
number of shares of common stock owned by subscribers who choose to increase
their subscriptions.
In the event of an increase in the offering range of up to 15% of the
total number of shares of common stock offered in the offering, shares will be
allocated in the following order of priority in accordance with the plan of
conversion:
(1) to fill our tax-qualified employee stock benefit plans'
subscriptions for up to 10% of the total number of shares of
common stock issued in the offering;
(2) in the event that there is an oversubscription at the Eligible
Account Holder, Supplemental Eligible Account Holder or Other
Member levels, to fill unfulfilled subscriptions of these
subscribers according to their respective priorities; and
(3) to fill unfulfilled subscriptions in the community offering,
with preference given first to natural persons residing in the
Ohio counties of Franklin and Cuyahoga.
The term "associate" of a person means:
(1) any corporation or organization, other than OC Financial, Ohio
Central Savings or a majority-owned subsidiary of Ohio Central
Savings, of which the person is a senior officer, partner or 10%
beneficial stockholder;
(2) any trust or other estate in which the person has a substantial
beneficial interest or serves as a trustee or in a fiduciary
capacity, excluding any employee stock benefit plan in which the
person has a substantial beneficial interest or serves as
trustee or in a fiduciary capacity; and
(3) any blood or marriage relative of the person, who either lives
in the same home as the person or who is a director or officer
of OC Financial or Ohio Central Savings.
The term "acting in concert" means:
(1) knowing participation in a joint activity or interdependent
conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or
(2) 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 capacity solely for
the purpose of determining whether common stock held by the trustee and common
stock held by the employee stock benefit plan will be aggregated.
Our directors are not treated as associates of each other solely because
of their membership on the board of directors. We have the right to determine
whether prospective purchasers are associates or acting in concert. Common stock
purchased in the offering will be freely transferable except for shares
purchased by executive officers and directors of OC Financial or Ohio Central
Savings and except as
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described below. Any purchases made by any associate of OC Financial or Ohio
Central Savings for the explicit purpose of meeting the minimum number of shares
of common stock required to be sold in order to complete the offering shall be
made for investment purposes only and not with a view toward redistribution. In
addition, under the guidelines of the National Association of Securities
Dealers, Inc., members of the National Association of Securities Dealers and
their associates are subject to certain restrictions on transfer of securities
purchased in accordance with subscription rights and to certain reporting
requirements upon purchase of these securities. For a further discussion of
limitations on purchases of our shares of common stock at the time of conversion
and thereafter, see "- Certain Restrictions on Purchase or Transfer of Our
Shares after Conversion" and "Restrictions on Acquisition of OC Financial."
MARKETING AND DISTRIBUTION; COMPENSATION
Offering materials have been initially distributed to certain persons by
mail, with additional copies made available through our Stock Information
Center.
We have engaged Keefe, Bruyette & Woods a broker-dealer registered with
the National Association of Securities Dealers, as a financial and marketing
advisor in connection with the offering of our common stock. In its role as
financial and marketing advisor, Keefe, Bruyette & Woods will assist us in the
offering as follows:
o consulting as to the securities marketing implications of any
aspect of the plan of conversion or any related corporate
documents;
o reviewing with our board of directors the securities marketing
implications of the independent appraiser's appraisal of the
common stock;
o reviewing all offering documents, including this prospectus,
stock order forms and related offering materials (we are
responsible for the preparation and filing of such documents);
o assisting in the design and implementation of a marketing
strategy for the offering;
o assisting us in scheduling and preparing for meetings with
potential investors and broker-dealers; and
o providing such other general advice and assistance we may
request to promote the successful completion of the offering.
For these services, Keefe, Bruyette & Woods will receive a fee of the
greater of $75,000 or 1.50% of the aggregate dollar amount of the common stock
sold in the subscription and community offerings if the conversion is
consummated, excluding in each case shares purchased by our tax qualified
employee benefit plans and shares purchased by our directors, officers and
employees and their immediate families. For these services, we will make an
advance payment of $25,000 to Keefe, Bruyette & Woods in five monthly
installments commencing upon adoption of the Plan.
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 the common stock
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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 management fee of 5.5% of the aggregate dollar amount of the
common stock sold in the syndicated community offering. The total fees payable
to Keefe, Bruyette & Woods and other NASD member firms in the syndicated
community offering will not exceed 5.5% of the aggregate dollar amount of the
common stock sold in the syndicated community offering.
We also will reimburse Keefe, Bruyette & Woods for its reasonable
out-of-pocket expenses for counsel associated with its marketing effort, up to a
maximum of $30,000 unless otherwise agreed by us. If the plan of conversion is
terminated or if Keefe, Bruyette & Woods' engagement is terminated in accordance
with the provisions of the agreement, Keefe, Bruyette & Woods will only receive
reimbursement of its reasonable out-of-pocket expenses and will return any
amounts paid or advanced by us in excess of these expenses. We will indemnify
Keefe, Bruyette & Woods against liabilities and expenses (including legal fees)
incurred in connection with certain claims or litigation arising out of or based
upon untrue statements or omissions contained in the offering material for the
common stock, including liabilities under the Securities Act of 1933.
Our directors and executive officers may participate in the
solicitation of offers to purchase common stock. These persons will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with the solicitation. Other trained employees of Ohio Central Savings may
assist in the offering in ministerial capacities, providing clerical work in
effecting a sales transaction or answering questions of a ministerial nature. No
offers or sales may be made by tellers or at the teller counters. All sales
activity will be conducted in a segregated or separately identifiable area of
Ohio Central Savings' Dublin office facility apart from the area accessible to
the general public. Other questions of prospective purchasers will be directed
to executive officers or registered representatives of Keefe, Bruyette & Woods.
Our other employees have been instructed not to solicit offers to purchase
shares of common stock or provide advice regarding the purchase of common stock.
We will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as
amended, and sales of common stock will be conducted within the requirements of
Rule 3a4-1, so as to permit officers, directors and employees to participate in
the sale of common stock. None of our officers, directors or employees will be
compensated in connection with their participation in the offering by the
payment of commissions or other remuneration based either directly or indirectly
on the transactions in the shares of common stock.
The offering will comply with the requirements of Rule 10b-9 under the
Securities Exchange Act of 1934.
PROCEDURE FOR PURCHASING SHARES
EXPIRATION DATE. The offering will expire at 12:00 noon, Eastern
Standard Time, on ______________, 2005, unless we extend it for up to 45 days,
with the approval of the Office of Thrift Supervision, if required. This
extension may be approved by us, in our sole discretion, without further
approval or additional notice to purchasers in the offering. Any extension of
the subscription and/or community offering beyond [extension date] would require
the Office of Thrift Supervision's approval. All funds delivered to us to
purchase shares of common stock in the offering would be returned promptly to
the subscribers with interest at Ohio Central Savings' passbook savings rate and
all deposit account withdrawal authorizations would be canceled. Potential
purchasers would be given the right to place new orders for common stock. If we
have not received orders to purchase the minimum number of shares offered in the
offering by the expiration date or any extension thereof, we may terminate the
offering and promptly refund all funds received for shares of common stock. If
the number of shares offered is reduced below the minimum of the offering range,
or increased above the adjusted maximum of the offering range, we will promptly
return all funds previously delivered to us to purchase shares of common
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stock with interest at Ohio Central Savings' passbook savings rate and all
deposit account withdrawal authorizations will be canceled. Subscribers may be
resolicited with the approval of the Office of Thrift Supervision.
To ensure that each purchaser receives a prospectus at least 48 hours
before the expiration date of the offering in accordance with Rule 15c2-8 of the
Securities Exchange Act, no prospectus will be mailed any later than five days
prior to the expiration date or hand delivered any later than two days prior to
the expiration date. Execution of an order form will confirm receipt of delivery
in accordance with Rule 15c2-8. Order forms will be distributed only with a
prospectus. Subscription funds will be maintained in a segregated account at
Ohio Central Savings or at another insured depository institution and will earn
interest at our passbook savings rate from the date of receipt.
We reserve the right in our sole discretion to terminate the offering
at any time and for any reason, in which case we will cancel any deposit account
withdrawal orders and promptly return all funds delivered to us, with interest
at Ohio Central Savings' passbook savings rate from the date of receipt.
We have the right to reject any order submitted in the offering by a
person who we believe is making false representations or who we otherwise
believe, either alone or acting in concert with others, is violating, evading,
circumventing, or intends to violate, evade or circumvent the terms and
conditions of the plan of conversion.
USE OF ORDER FORMS. In order to purchase shares of common stock in the
subscription offering and community offering, you must complete an order form
and remit full payment. We will not be required to accept incomplete order
forms, unsigned order forms, orders submitted on photocopied or facsimiled order
forms. We must receive all order forms prior to 12:00 noon, Eastern Standard
Time, on [expiration date]. We are not required to accept order forms that are
not received by that time, are executed defectively or are received without full
payment or without appropriate withdrawal instructions. A postmark prior to
____________, 2005, will not entitle you to purchase shares of common stock
unless we receive the envelope by _____________, 2005. We are not required to
notify subscribers of incomplete or improperly executed order forms, and we have
the right to permit the correction of incomplete or improperly executed order
forms or waive immaterial irregularities. We do not represent, however, that we
will do so and we have no affirmative duty to notify any prospective subscriber
of any such defects. You may submit your order form and payment by mail using
the return envelope provided, by bringing your order form to our Stock
Information Center or by overnight delivery to the indicated address on the
order form. Once tendered, an order form cannot be modified or revoked without
our consent. We reserve the absolute right, in our sole discretion, to reject
orders received in the community offering, in whole or in part, at the time of
receipt or at any time prior to completion of the offering. If you are ordering
shares, you must represent that you are purchasing shares for your own account
and that you have no agreement or understanding with any person for the sale or
transfer of the shares. Our interpretation of the terms and conditions of the
plan of conversion and reorganization and of the acceptability of the order
forms will be final, subject to the authority of the Office of Thrift
Supervision.
By signing the order form, you will be acknowledging that the common
stock is not a deposit or savings account and is not federally insured or
otherwise guaranteed by Ohio Central Savings or the federal government, and that
you received a copy of this prospectus. However, signing the order form will not
result in you waiving your rights under the Securities Act of 1933 or the
Securities Exchange Act of 1934.
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PAYMENT FOR SHARES. Payment for all shares of common stock will be
required to accompany all completed order forms for the purchase to be valid.
Payment for shares may be made by:
(1) personal check, bank check or money order, payable to OC
Financial; or
(2) authorization of withdrawal from Ohio Central Savings deposit
accounts designated on the order form.
Appropriate means for designating withdrawals from deposit accounts at
Ohio Central Savings are provided in the order forms. The funds designated must
be available in the account(s) at the time the order form is received. A hold
will be placed on these funds, making them unavailable to the depositor. Funds
authorized for withdrawal will continue to earn interest within the account at
the contract rate until the offering is completed, at which time the designated
withdrawal will be made. Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares of common stock; however, if a withdrawal results in a certificate
account with a balance less than the applicable minimum balance requirement, the
certificate will be canceled at the time of withdrawal without penalty and the
remaining balance will earn interest at the current passbook rate subsequent to
the withdrawal. In the case of payments made by check or money order, these
funds must be available in the account(s) and will be immediately cashed and
placed in a segregated account at Ohio Central Savings and/or another FDIC
insured depository institution and will earn interest at Ohio Central Savings'
passbook savings rate from the date payment is received until the offering is
completed or terminated. The funds received by OC Financial, along with all
other accounts held in the same title, will be insured by the FDIC up to
$100,000 in accordance with applicable FDIC regulations.
You may not use a check drawn on a Ohio Central Savings line of credit,
and we will not accept third-party checks (a check written by someone other than
you) payable to you and endorsed over to OC Financial. Please provide a check
instead of designating a direct withdrawal from Ohio Central Savings accounts
with check-writing privileges, because we cannot place holds on checking
accounts. If you request that we do so, 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. Once we receive your executed order form, it may not be
modified, amended or rescinded without our consent, unless the offering is not
completed by the expiration date, in which event purchasers may be given the
opportunity to increase, decrease or rescind their orders for a specified period
of time.
If you are interested in using your individual retirement account funds
to purchase shares of common stock, you must do so through a self-directed
individual retirement account such as a brokerage firm individual retirement
account. By regulation, Ohio Central Savings' individual retirement accounts are
not self-directed, so they cannot be invested in our shares of common stock.
Therefore, if you wish to use your funds that are currently in a Ohio Central
Savings individual 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 Ohio Central Savings individual 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 an individual
retirement account or any other 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 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
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institutions where such funds are currently held. We cannot guarantee that you
will be able to use such funds.
We will have the right, in our sole discretion, to permit institutional
investors to submit irrevocable orders together with the legally binding
commitment for payment and to thereafter pay for the shares of common stock for
which they subscribe in the community offering at any time prior to 48 hours
before the completion of the offering. This payment may be made by wire
transfer.
Our employee stock ownership plan will not be required to pay for any
shares purchased in the offering until consummation of the offering, provided
there is a loan commitment from an unrelated financial institution or OC
Financial to lend to the employee stock ownership plan the necessary amount to
fund the purchase.
Regulations prohibit Ohio Central Savings from knowingly lending funds
or extending credit to any persons to purchase shares of common stock in the
offering.
DELIVERY OF STOCK CERTIFICATES. Certificates representing shares of
common stock issued in the offering and Ohio Central Savings checks representing
any applicable refund and/or interest paid on subscriptions made by check or
money order will be mailed to the persons entitled thereto at the certificate
registration address noted on the order form, as soon as practicable following
consummation of the offering and receipt of all necessary regulatory approvals.
Any certificates returned as undeliverable will be held by the transfer agent
until claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. UNTIL CERTIFICATES FOR THE SHARES OF COMMON
STOCK ARE 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.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
OFFICE OF THRIFT SUPERVISION REGULATIONS PROHIBIT ANY PERSON WITH
SUBSCRIPTION RIGHTS, INCLUDING THE ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS, FROM TRANSFERRING OR ENTERING INTO
ANY AGREEMENT OR UNDERSTANDING TO TRANSFER THE LEGAL OR BENEFICIAL OWNERSHIP OF
THE SUBSCRIPTION RIGHTS ISSUED UNDER THE PLAN OF CONVERSION AND REORGANIZATION
OR THE SHARES OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE. THESE RIGHTS MAY
BE EXERCISED ONLY BY THE PERSON TO WHOM THEY ARE GRANTED AND ONLY FOR HIS OR HER
ACCOUNT. EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY
THAT HE OR SHE IS PURCHASING SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT
HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF
SUCH SHARES. THE REGULATIONS ALSO PROHIBIT ANY PERSON FROM OFFERING OR MAKING AN
ANNOUNCEMENT OF AN OFFER OR INTENT TO MAKE AN OFFER TO PURCHASE SUBSCRIPTION
RIGHTS OR SHARES OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE PRIOR TO
COMPLETION OF THE OFFERING.
WE INTEND TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE
EVENT WE BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS, AND WE WILL NOT
HONOR ORDERS THAT WE BELIEVE INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS.
STOCK INFORMATION CENTER
If you have any questions regarding the offering, please call or visit
our Stock Information Center, toll free, at 1-800-678-6228 (extension 134), from
9:00 a.m. to 5:00 p.m., Eastern Standard Time, Monday through Friday. The Stock
Information Center is located at our main office, 6033 Perimeter Drive, Dublin,
Ohio. The Stock Information Center will be closed weekends and bank holidays.
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LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of Third Federal Savings
and Loan Association of Cleveland, MHC prior to the conversion, all claims of
creditors of Third Federal Savings and Loan Association of Cleveland, MHC,
including those of depositors of Third Federal Savings and Loan Association of
Cleveland and Ohio Central Savings (to the extent of their deposit balances),
would be paid first. Thereafter, if there were any assets of Third Federal
Savings and Loan Association of Cleveland, MHC remaining, these assets would be
paid to members of Third Federal Savings and Loan Association of Cleveland, MHC,
including depositors of Ohio Central Savings, pro rata, based upon the deposit
balances in their deposit account in Ohio Central Savings immediately prior to
liquidation,. In the unlikely event that Ohio Central Savings were to liquidate
after the conversion, all claims of creditors, including those of depositors,
would be paid first, followed by distribution of the "liquidation account" to
certain depositors, with any assets remaining thereafter distributed to OC
Financial as the holder of Ohio Central Savings capital stock. Pursuant to the
rules and regulations of the Office of Thrift Supervision, a post-conversion
merger, consolidation, sale of bulk assets or similar combination or transaction
with another insured savings institution would not be considered a liquidation
and, in these types of transactions, the liquidation account would be assumed by
the surviving institution.
The plan of conversion and reorganization provides for the
establishment, upon the completion of the conversion and reorganization,
of a special "liquidation
account" for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in an amount equal to the total equity of Ohio Central Savings
as of the date of its latest balance sheet contained in this prospectus.
The purpose of the liquidation account is to provide Eligible Account
Holders and Supplemental Eligible Account Holders who maintain their deposit
accounts with Ohio Central Savings after the conversion and reorganization with
a liquidation interest in the unlikely event of the complete liquidation of Ohio
Central Savings after the conversion and reorganization. Each Eligible Account
Holder and Supplemental Eligible Account Holder that continues to maintain his
or her deposit account at Ohio Central Savings, would be entitled, on a complete
liquidation of Ohio Central Savings after the conversion and reorganization, to
an interest in the liquidation account prior to any payment to the stockholders
of OC Financial. Each Eligible Account Holder and Supplemental Eligible Account
Holder would have an initial interest in the liquidation account for each
deposit account, including savings accounts, transaction accounts such as
negotiable order of withdrawal accounts, money market deposit accounts, and
certificates of deposit, with a balance of $50 or more held in Ohio Central
Savings on September 30, 2003 and December 31, 2004, respectively. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have a pro rata
interest in the total liquidation account for each such deposit account, based
on the proportion that the balance of each such deposit account on September 30,
2003 or December 31, 2004, respectively, bears to the balance of all deposit
accounts in Ohio Central Savings on such dates.
If, however, on any December 31 annual closing date commencing on or
after the effective date of the conversion and reorganization, the amount in any
such deposit account is less than the amount in the deposit account on September
30, 2003 or December 31, 2004, as applicable, or any other annual closing date,
then the interest in the liquidation account relating to such deposit account
would be reduced from time to time by the proportion of any such reduction, and
such interest will cease to exist if such deposit account is closed. In
addition, no interest in the liquidation account would ever be increased despite
any subsequent increase in the related deposit account. Payment pursuant to
liquidation rights of Eligible Account Holders and Supplemental Eligible Account
Holders would be separate and apart from the payment of any insured deposit
accounts to such depositor. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to OC Financial as the sole stockholder of Ohio
Central Savings
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MATERIAL INCOME TAX CONSEQUENCES
Consummation of the conversion is subject to the prior receipt of an
opinion of counsel or tax advisor with respect to federal and state income
taxation that the conversion will not be a taxable transaction to OC Financial,
Ohio Central Savings, Eligible Account Holders, Supplemental Eligible Account
Holders, and other members of Ohio Central Savings. Unlike private letter
rulings, opinions of counsel or tax advisors are not binding on the Internal
Revenue Service or any state taxing authority, and such authorities may disagree
with such opinions. In the event of such disagreement, there can be no assurance
that OC Financial or Ohio Central Savings would prevail in a judicial
proceeding.
Ohio Central Savings and OC Financial have received an opinion of
counsel, Luse Gorman Pomerenk & Schick, P.C., regarding all of the material
federal income tax consequences of the conversion, which includes the following:
1. The conversion of Ohio Central Savings to a federally chartered
stock savings association will qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code.
2. Neither OC Financial nor Ohio Central Savings will recognize any
gain or loss upon the transfer of assets of OC Financial to Ohio
Central Savings in exchange for shares of common stock of Ohio
Central Savings. (Sections 361 and 1032(a) of the Internal
Revenue Code.)
3. The basis of the assets of Ohio Central Savings and the holding
period of such assets to be received by Ohio Central Savings
will be the same as the basis and holding period in such assets
in the hands of Ohio Central Savings immediately before the
exchange. (Sections 362(b) and 1223(2) of the Internal Revenue
Code).
4. The exchange of Eligible Account Holders' and Supplemental
Account Holders' interests in Ohio Central Savings for interests
in a liquidation account established in Ohio Central Savings
will satisfy the continuity of interest requirement of Section
1.368-1(b) of the Federal Income Tax Regulations.
5. None of OC Financial, Ohio Central Savings, nor Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members,
will recognize any gain or loss on the transfer of the assets of
Ohio Central Savings in exchange for an interest in a
liquidation account established in Ohio Central Savings for the
benefit of Eligible Account Holders and Supplemental Eligible
Account holders who remain depositors of Ohio Central Savings
and nontransferable subscription rights to purchase shares of OC
Financial common stock.
6. It is more likely than not that the nontransferable subscription
rights have no value, based on the fact that these rights are
acquired by the recipients without cost, are nontransferable and
of short duration, and afford the recipients the right only to
purchase the common stock at a price equal to its estimated fair
market value, which will be the same price as the subscription
price for the shares of common stock in the offering. Assuming
that nontransferable subscription rights have no value, no gain
or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders or other members upon
distribution to them of nontransferable subscription rights to
purchase shares of OC Financial common stock, provided that the
amount to be paid for OC Financial common stock is equal to the
fair market value of OC Financial common stock.
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7. The basis of the shares of OC Financial common stock purchased
in the offering will be the purchase price. The holding period
of the OC Financial common stock purchased pursuant to the
exercise of nontransferable subscription rights will commence on
the date on which the right to acquire such stock was exercised.
8. No gain or loss will be recognized by OC Financial on the
receipt of money in exchange for shares of OC Financial common
stock sold in the offering.
In the view of RP Financial (who is acting as independent appraiser of
the value of the shares of OC Financial common stock in connection with the
conversion), whose view is not binding on the Internal Revenue Service, the
subscription rights do not have any value for the reasons set forth in paragraph
7, above. If the subscription rights granted to Eligible Account Holders and
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
receipt of these rights could result in taxable gain to those Eligible Account
Holders and Supplemental Eligible Account Holders who exercise the subscription
rights in an amount equal to their value, and OC Financial could recognize gain
on a distribution. Eligible Account Holders and Supplemental Eligible Account
Holders are encouraged to consult with their own tax advisors as to the tax
consequences in the event that subscription rights are deemed to have an
ascertainable value.
The Internal Revenue Service has announced that it will not issue
private letter rulings with respect to the issue of whether nontransferable
rights have value. Unlike private letter rulings, an opinion of counsel or the
view of an independent appraiser is not binding on the Internal Revenue Service
and the Internal Revenue Service could disagree with the conclusions reached
therein. Depending on the conclusion or conclusions with which the Internal
Revenue Service disagrees, the Internal Revenue Service may take the position
that the transaction is taxable to any one or more of Ohio Central Savings, the
members of Ohio Central Savings, OC Financial and the Eligible Account Holders
and Supplemental Eligible Account Holders who exercise their subscription
rights. In the event of a disagreement, there can be no assurance that OC
Financial or Ohio Central Savings would prevail in a judicial or administrative
proceeding.
The federal tax opinion has been filed with the Securities and Exchange
Commission as an exhibit to OC Financial's registration statement. Advice
regarding the Ohio state tax consequences consistent with the federal tax
opinion has been issued by Crowe Chizek and Company LLC, tax advisors to Ohio
Central Savings and OC Financial.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF OUR SHARES AFTER CONVERSION
All shares of common stock purchased in the offering by a director or an
executive officer of Ohio Central Savings generally may not be sold for a period
of one year following the closing of the conversion, except in the event of the
death of the director or executive officer. Each certificate for restricted
shares will bear a legend giving notice of this restriction on transfer, and
instructions will be issued to the effect that any transfer within this time
period of any certificate or record ownership of the shares other than as
provided above is a violation of the restriction. Any shares of common stock
issued at a later date as a stock dividend, stock split or otherwise with
respect to the restricted stock will be similarly restricted. The directors and
executive officers of OC Financial also will be restricted by the insider
trading rules promulgated pursuant to the Securities Exchange Act of 1934.
Purchases of shares of our common stock by any of our directors,
executive officers and their associates, during the three-year period following
the closing of the conversion may be made only
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through a broker or dealer registered with the Securities and Exchange
Commission, except with the prior written approval of the Office of Thrift
Supervision. This restriction does not apply, however, to negotiated
transactions involving more than 1% of our outstanding common stock or to
purchases of our common stock by our stock option plan or any of our
tax-qualified employee stock benefit plans or nontax-qualified employee stock
benefit plans, including any recognition and retention plans or restricted stock
plans.
Office of Thrift Supervision regulations prohibit OC Financial from
repurchasing its shares of common stock during the first year following
conversion unless compelling business reasons exist for such repurchases. After
one year, the Office of Thrift Supervision does not impose any repurchase
restrictions.
RESTRICTIONS ON ACQUISITION OF OC FINANCIAL
Although the board of directors of OC Financial is not aware of any
effort that might be made to obtain control of OC Financial after the
conversion, the board of directors believes that it is appropriate to include
certain provisions as part of OC Financial's articles of incorporation to
protect the interests of OC Financial and its stockholders from takeovers which
the board of directors of OC Financial might conclude are not in the best
interests of Ohio Central Savings, OC Financial or OC Financial's stockholders.
The following discussion is a general summary of the material provisions
of OC Financial's articles of incorporation and bylaws, Ohio Central Savings'
charter and bylaws and certain other statutory and regulatory provisions that
may be deemed to have an "anti-takeover" effect. The following description of
certain of these provisions is necessarily general and, with respect to
provisions contained in OC Financial's articles of incorporation and bylaws and
Ohio Central Savings' charter and bylaws, reference should be made in each case
to the document in question, each of which is part of Ohio Central Savings
application for conversion with the Office of Thrift Supervision and OC
Financial's registration statement filed with the Securities and Exchange
Commission. See "Where You Can Find Additional Information."
OC FINANCIAL'S ARTICLES OF INCORPORATION AND BYLAWS
OC Financial's articles of incorporation contain a number of provisions
relating to corporate governance and rights of stockholders that might
discourage future takeover attempts. As a result, stockholders who might desire
to participate in such transactions may not have an opportunity to do so. In
addition, these provisions will also render the removal of the board of
directors or management of OC Financial more difficult.
The following description is a summary of the provisions of the articles
of incorporation and bylaws. See "Where You Can Find Additional Information" as
to how to review a copy of these documents.
DIRECTORS. Initially, the board of directors will be divided into three
classes. Only one class of directors will be elected annually. Thus, it would
take at least two annual elections to replace a majority of OC Financial's board
of directors. Further, the bylaws authorize the board of directors to establish
additional classes of directors, and impose notice, informational and other
requirements and conditions in connection with the nomination by stockholders of
candidates for election to the board of directors or the proposal by
stockholders of business to be acted upon at an annual meeting of stockholders.
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RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The bylaws provide that
special meetings of stockholders can be called by the Chief Executive Officer,
the President or the board of directors pursuant to a resolution adopted by a
majority of the total number of directors authorized by our articles of
incorporation and bylaws or upon the written request of stockholders entitled to
cast a majority of the votes entitled to be cast at the Special Meeting, subject
to compliance with certain rules and procedures set forth in the bylaws.
PROHIBITION OF CUMULATIVE VOTING. The articles of incorporation
prohibit cumulative voting for the election of directors.
LIMITATION OF VOTING RIGHTS. The articles of incorporation provide that
in no event will any person who beneficially owns, directly or indirectly, more
than 10% of the then-outstanding shares of common stock, be entitled or
permitted to vote any of the shares of common stock held in excess of the 10%
limit.
RESTRICTIONS ON REMOVING DIRECTORS FROM OFFICE. The articles of
incorporation provide that directors can be removed from office for cause if the
removal is approved by the vote of stockholders owning at least two-thirds of
the shares entitled to vote in the election of directors (after giving effect to
the limitation on voting rights discussed above in "- Limitation of Voting
Rights). However, if removal of a director is recommended by at least two-thirds
of the total number of directors authorized by our articles of incorporation and
bylaws (excluding the director whose removal is sought), a director may be
removed with or without cause and the removal need only be approved by
stockholders owning a majority of the shares entitled to vote on the matter
(after giving effect to the limitation on voting rights discussed above in
"-Limitation of Voting Rights").
AUTHORIZED BUT UNISSUED SHARES. After the conversion, OC Financial will
have authorized but unissued shares of common and preferred stock. See
"Description of Capital Stock of OC Financial Following the Conversion." The
articles of incorporation authorize 20,000,000 shares of common stock and
5,000,000 shares of serial preferred stock. The board of directors of OC
Financial may amend the articles of incorporation, without action by the
stockholders, to increase or decrease the aggregate number of shares of stock or
the number of shares of stock of any class or series that OC Financial has
authority to issue. In addition, the board of directors of OC Financial is
authorized, without further approval of the stockholders, to issue additional
shares of common or preferred stock and to classify or reclassify any unissued
shares of stock (including common stock and preferred stock) from time to time
into one or more classes or series subject to applicable provisions of law, and
the board of directors is authorized to fix by setting or changing the
designations, and the relative preferences, conversion or other rights
(including offering rights), voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption for each class or series, voting rights, if any, including without
limitation, offering rights of such shares (which could be multiple or as a
separate class). In the event of a proposed merger, tender offer or other
attempt to gain control of OC Financial that the board of directors does not
approve, it might be possible for the board of directors to authorize the
issuance of common stock or a series of preferred stock with rights and
preferences that would impede the completion of the transaction. An effect of
the possible issuance of common or preferred stock therefore may be to deter a
future attempt to gain control of OC Financial. The board of directors has no
present plan or understanding to issue any preferred stock.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS. Maryland law
provides that, subject to limited exceptions, the amendment or repeal of any
provision of our articles of incorporation requires the approval at least
two-thirds shares of common stock entitled to vote on the matter (after giving
effect to the limitation on voting rights discussed above in "--Limitation of
Voting Rights"). Our articles of incorporation, however, provide that if a
proposed amendment or repeal is approved by at least two-thirds
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of the total number of directors authorized by our articles of incorporation and
bylaws, the proposed amendment or repeal need only be approved by a majority of
the shares entitled to vote on the matter (after giving effect to the limitation
on voting rights discussed above in "-Limitation of Voting Rights"). Maryland
law and our articles of incorporation also provide that, in any event, the
proposed amendment or repeal of any provision of our articles of incorporation
must be approved and deemed advisable by our board of directors before it can be
submitted for consideration at an annual or special meeting.
The bylaws may be amended exclusively by the affirmative vote of a
majority of the total number of authorized directors of OC Financial.
APPROVAL OF CONSOLIDATIONS, MERGERS, AND OTHER SIMILAR TRANSACTIONS.
Maryland law provides that, subject to limited exceptions, consolidations,
mergers and other similar transactions require the approval at stockholders
owning at least two-thirds of the shares of common stock entitled to vote on the
matter (after giving effect to the limitation on voting rights discussed above
in "--Limitation of Voting Rights"). However, our articles of incorporation
provide that if the transaction is approved by at least two-thirds of total
number of directors authorized by our articles of incorporation and bylaws, the
transaction need only be approved by stockholders owning a majority of the
shares entitled to vote on the matter (after giving effect to the limitation on
voting rights discussed above in "-Limitation of Voting Rights").
In addition, OC Financial is subject to the Maryland business
combination statute, which prohibits a business combination between a
corporation and an interested stockholder (one who beneficially owns 10% or more
of the voting power of the corporation's shares or an affiliate or associate of
the corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then outstanding voting stock of the corporation) or an affiliate of an
interested stockholder for a period of five years after the most recent date on
which the interested stockholder becomes an interested stockholder, unless the
board of directors approved in advance the transaction by which the interested
stockholder otherwise would have become an interested stockholder or the
corporation has exempted itself from the statute pursuant to a charter provision
or by a resolution of its board of directors. After the five-year period has
elapsed, a corporation subject to the statute may not consummate a business
combination with an interested stockholder unless (1) the transaction has been
recommended by the board of directors and (2) the transaction has been approved
by the affirmative vote of at least (a) 80% of the votes entitled to be cast by
holders of outstanding shares of voting stock of the corporation and (b)
two-thirds of the votes entitled to be cast by holders of voting stock other
than shares owned by the interested stockholder with whom or with whose
affiliate the business combination is to be effected or held by an affiliate or
associate of the interested stockholder. These approval requirements do not have
to be met if certain fair price and terms criteria have been satisfied.
CONVERSION REGULATIONS
Office of Thrift Supervision regulations 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
Office of Thrift Supervision, 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 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 Office of
Thrift Supervision has defined "person" to include any individual, group acting
in concert, corporation, partnership, association, joint stock company, trust,
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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 bank 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.
CHANGE OF CONTROL REGULATIONS
Under the Change in Bank Control Act, no person may acquire control of
an insured federal savings bank or its parent holding company unless the Office
of Thrift Supervision has been given 60 days' prior written notice and has not
issued a notice disapproving the proposed acquisition. In addition, Office of
Thrift Supervision regulations provide that no company may acquire control of a
savings institution without the prior approval of the Office of Thrift
Supervision. Any company that acquires such control becomes a "savings and loan
holding company" subject to registration, examination and regulation by the
Office of Thrift Supervision.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings bank's
directors, or a determination by the Office of Thrift Supervision that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of any class of a savings bank's voting stock, if
the acquiror is also subject to any one of eight "control factors," constitutes
a rebuttable determination of control under the regulations. Such control
factors include the acquiror being one of the two largest stockholders. The
determination of control may be rebutted by submission to the Office of Thrift
Supervision, prior to the acquisition of stock or the occurrence of any other
circumstances giving rise to such determination, of a statement setting forth
facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings bank's stock who do not intend to
participate in or seek to exercise control over a savings bank's management or
policies may qualify for a safe harbor by filing with the Office of Thrift
Supervision a certification form that states, among other things, that the
holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the Office of Thrift Supervision, as applicable. There are also
rebuttable presumptions in the regulations concerning whether a group "acting in
concert" exists, including presumed action in concert among members of an
"immediate family."
The Office of Thrift Supervision may prohibit an acquisition of control
if it finds, among other things, that:
(1) the acquisition would result in a monopoly or substantially
lessen competition;
(2) the financial condition of the acquiring person might jeopardize
the financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors
or the public to permit the acquisition of control by such
person.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
At the effective date, OC Financial will be authorized to issue
20,000,000 shares of common stock, par value of $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share. OC Financial currently
expects to issue in the offering up to 690,000 shares of common stock, subject
to adjustment. OC Financial will not issue shares of preferred stock in the
conversion. Each share of OC Financial common stock will have the same relative
rights as, and will be identical in all respects to, each other share of common
stock. Upon payment of the subscription price for the common stock, in
accordance with the plan of conversion and reorganization, all of the shares of
common stock will be duly authorized, fully paid and nonassessable.
The shares of common stock of OC Financial will represent
nonwithdrawable capital, will not be an account of an insurable type, and will
not be insured by the Federal Deposit Insurance Corporation or any other
government agency.
COMMON STOCK
DIVIDENDS. OC Financial may pay dividends out of statutory surplus or
from net earnings if, as and when declared by its board of directors. The
payment of dividends by OC Financial is subject to limitations that are imposed
by law and applicable regulation. The holders of common stock of OC Financial
will be entitled to receive and share equally in dividends as may be declared by
the board of directors of OC Financial out of funds legally available therefor.
If OC Financial issues shares of preferred stock, the holders thereof may have a
priority over the holders of the common stock with respect to dividends. We have
no present intention to pay dividends. See "Our Policy Regarding Dividends."
VOTING RIGHTS. Upon consummation of the conversion, the holders of
common stock of OC Financial will have exclusive voting rights in OC Financial.
They will elect OC Financial's board of directors and act on other matters as
are required to be presented to them under Maryland law or as are otherwise
presented to them by the board of directors. Generally, each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. Any person who beneficially owns
more than 10% of the then-outstanding shares of OC Financial's common stock,
however, will not be entitled or permitted to vote any shares of common stock
held in excess of the 10% limit. If OC Financial issues shares of preferred
stock, holders of the preferred stock may also possess voting rights. Certain
matters, including a consolidation, merger, share exchange or a sale of
substantially all of the assets of OC Financial require a two-thirds stockholder
vote unless the transaction is first approved by at least two-thirds of the
board of directors.
As a federal stock savings institution, corporate powers and control of
Ohio Central Savings are vested in its board of directors, who elect the
officers of Ohio Central Savings and who fill any vacancies on the board of
directors. Voting rights of Ohio Central Savings are vested exclusively in the
owners of the shares of capital stock of Ohio Central Savings, which will be OC
Financial, and voted at the direction of OC Financial's board of directors.
Consequently, the holders of the common stock of OC Financial will not have
direct control of Ohio Central Savings
LIQUIDATION. In the event of any liquidation, dissolution or winding up
of Ohio Central Savings, OC Financial, as the holder of 100% of Ohio Central
Savings' capital stock, would be entitled to receive all assets of Ohio Central
Savings available for distribution, after payment or provision for payment of
all debts and liabilities of Ohio Central Savings, including all deposit
accounts and accrued interest thereon, and after distribution of the balance in
the liquidation account to Eligible Account Holders and
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Supplemental Eligible Account Holders, all assets of Ohio Central Savings
available for distribution. In the event of liquidation, dissolution or winding
up of OC Financial, the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of OC Financial available for distribution. If
preferred stock is issued, the holders thereof may have a priority over the
holders of the common stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of the common stock of OC Financial will not
be entitled to preemptive rights with respect to any shares that may be issued.
The common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of OC Financial's authorized preferred stock will be
issued as part of the offering. Preferred stock may be issued with preferences
and designations as our board of directors may from time to time determine. Our
board of directors may, without stockholder approval, issue shares of preferred
stock with voting, dividend, liquidation and conversion rights that could dilute
the voting strength of the holders of the common stock and may assist management
in impeding an unfriendly takeover or attempted change in control.
TRANSFER AGENT
The transfer agent and registrar for OC Financial's common stock is
Registrar and Transfer Company.
EXPERTS
The consolidated financial statements of Ohio Central Savings as of
September 30, 2004 and 2003, and for each of the years in the two-year period
ended September 30, 2004, appearing elsewhere in this prospectus have been
included herein and in the registration statement in reliance upon the report of
Crowe Chizek and Company LLC, independent registered public accounting firm,
which is included herein and upon the authority of said firm as experts in
accounting and auditing.
RP Financial has consented to the publication herein of the summary of
its report to OC Financial setting forth its opinion as to the estimated pro
forma market value of the shares of common stock upon completion of the
conversion and offering and its letter with respect to subscription rights.
LEGAL MATTERS
Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., counsel to OC
Financial and Ohio Central Savings, will issue to OC Financial its opinion
regarding the legality of the common stock and the federal income tax
consequences of the conversion. Certain legal matters will be passed upon for
Keefe, Bruyette & Woods by Muldoon Murphy Faucette & Aguggia LLP, Washington,
D.C.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
OC Financial has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 with respect to the
shares of common stock offered hereby. As permitted by the rules and regulations
of the Securities and Exchange Commission, this prospectus does not contain all
the information set forth in the registration statement. Such information,
including the appraisal report which is an exhibit to the registration
statement, can be examined without charge at the public reference facilities of
the Securities and Exchange Commission located at 450 Fifth Street, N.W.,
Washington, D.C.
117
20549, and copies of such material can be obtained from the Securities and
Exchange Commission at prescribed rates. The Securities and Exchange Commission
telephone number is 1-800-SEC-0330. In addition, the Securities and Exchange
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission, including
OC Financial. The statements contained in this prospectus as to the contents of
any contract or other document filed as an exhibit to the registration statement
are, of necessity, brief descriptions of the material terms of, and should be
read in conjunction with, such contract or document.
Ohio Central Savings has filed with the Office of Thrift Supervision an
Application on Form AC with respect to the conversion. This prospectus omits
certain information contained in the application. The application may be
examined at the principal office of the Office of Thrift Supervision, 1700 G
Street, N.W., Washington, D.C. 20552, and at the Northeast Regional Office of
the Office of Thrift Supervision, Harborside Financial Center Plaza Five, Suite
1600, Jersey City, New Jersey 07311.
IN CONNECTION WITH THE OFFERING, OC FINANCIAL WILL REGISTER ITS COMMON
STOCK UNDER SECTION 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 AND, UPON SUCH
REGISTRATION, OC FINANCIAL 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 SECURITIES EXCHANGE ACT OF 1934. UNDER THE PLAN OF CONVERSION AND
REORGANIZATION, OC FINANCIAL HAS UNDERTAKEN THAT IT WILL NOT TERMINATE SUCH
REGISTRATION FOR A PERIOD OF AT LEAST THREE YEARS FOLLOWING THE CONVERSION AND
THE OFFERING.
118
Dublin, Ohio
ANNUAL REPORT
September 30, 2004 and 2003
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS .......................................... F-3
CONSOLIDATED STATEMENTS OF INCOME .................................... F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY....................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................... F-7
F-1.
[LOGO] Crowe
CROWE CHIZEK AND COMPANY LLC
Member Horwath International
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Ohio Central Savings
Dublin, Ohio
We have audited the accompanying consolidated balance sheets of Ohio Central
Savings as of September 30, 2004 and 2003, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the years
then ended. These financial statements are the responsibility of the Company'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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ohio Central Savings
as of September 30, 2004 and 2003 and the results of its operations and its cash
flows for each of the years then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ Crowe Chizek and Company LLC
Crowe Chizek and Company LLC
Columbus, Ohio
December 14, 2004
- --------------------------------------------------------------------------------
F-2.
OHIO CENTRAL SAVINGS
CONSOLIDATED BALANCE SHEETS
September 30, 2004 and 2003
- -------------------------------------------------------------------------------------------------------------------
2004 2003
---- ----
ASSETS
Cash and due from financial institutions $ 665,049 $ 884,351
Federal funds sold 3,820,000 994,000
--------------- ----------------
Total cash and cash equivalents 4,485,049 1,878,351
Investment in mutual funds 58,196 39,505
Certificates of deposit in other financial institutions 99,000 599,000
Securities held to maturity (fair value: 2004 - $22,961,177;
2003 - $19,231,003) 22,970,895 19,103,088
Federal Home Loan Bank stock 688,900 658,600
Loans, net of allowance of $230,585 in 2004 and $216,749 in 2003 26,104,278 26,081,567
Loans held for sale 92,296 618,732
Premises and equipment, net 732,892 747,091
Accrued interest receivable 181,177 188,257
Prepaid expenses 70,627 115,270
Other assets 84,072 47,624
--------------- ----------------
Total assets $ 55,567,382 $ 50,077,085
=============== ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits
Savings deposits $ 13,687,434 $ 15,953,530
Demand deposits 6,838,187 3,510,760
Money market deposits 3,007,420 3,370,378
Time deposits 8,727,589 7,052,389
--------------- ----------------
Total deposits 32,260,630 29,887,057
Federal Home Loan Bank advances 16,450,000 12,450,000
Payments collected on loans sold 1,946,878 1,703,171
Accrued interest payable 67,342 56,610
Drafts in process 798,860 1,976,134
Other liabilities 289,242 274,394
--------------- ----------------
Total liabilities 51,812,952 46,347,366
Common stock, $0.01 par value; 1,000
shares authorized, issued and outstanding 10 10
Additional paid-in capital 274,990 274,990
Retained earnings 3,479,430 3,454,719
--------------- ----------------
Total shareholder's equity 3,754,430 3,729,719
--------------- ----------------
Total liabilities and shareholder's equity $ 55,567,382 $ 50,077,085
=============== ================
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3.
OHIO CENTRAL SAVINGS
CONSOLIDATED STATEMENTS OF INCOME
Years ended September 30, 2004 and 2003
- -------------------------------------------------------------------------------------------------------------------
2004 2003
---- ----
INTEREST INCOME
Loans, including fees $ 1,596,681 $ 2,080,488
Securities and other investments 1,055,260 543,801
Federal funds sold and other 20,607 48,234
-------------- ---------------
2,672,548 2,672,523
INTEREST EXPENSE
Deposits 512,483 578,311
Federal Home Loan Bank advances 781,017 617,362
-------------- ---------------
1,293,500 1,195,673
-------------- ---------------
NET INTEREST INCOME 1,379,048 1,476,850
Provision for loan losses 35,000 60,000
-------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,344,048 1,416,850
NONINTEREST INCOME
Service charges and other deposit fees 402,260 424,429
Gain on loan sales 314,423 523,359
Gain on sale of securities 2,964 --
Income from servicing of loans 134,395 96,485
Visa and ATM interchange income 66,800 76,004
Other 38,140 24,782
-------------- ---------------
958,982 1,145,059
NONINTEREST EXPENSE
Compensation and benefits 1,142,734 1,110,747
Occupancy and equipment 115,694 128,181
Depreciation and amortization 113,965 119,664
Computer processing expense 92,680 101,278
VISA and ATM expense 97,761 95,236
Bank service charges 77,096 75,110
Collection and loan expense 36,869 40,848
Advertising and promotion 187,354 186,735
Other insurance premiums 30,975 35,163
Professional and supervisory fees 81,578 63,435
State franchise tax expense 39,089 42,562
Other 248,709 238,766
-------------- ---------------
2,264,504 2,237,725
-------------- ---------------
INCOME BEFORE INCOME TAXES 38,526 324,184
Income tax expense 13,815 109,759
-------------- ---------------
NET INCOME $ 24,711 $ 214,425
============== ===============
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4.
OHIO CENTRAL SAVINGS
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended September 30, 2004 and 2003
- -------------------------------------------------------------------------------------------------------------------
Additional Total
Common Paid-in Retained Shareholder's
Stock Capital Earnings Equity
----- ------- -------- ------
BALANCE AT OCTOBER 1, 2002 $ 10 $ 274,990 $ 3,240,294 $ 3,515,294
Net income for the year ended
September 30, 2003 214,425 214,425
--------------- -------------- -------------- ---------------
BALANCE AT SEPTEMBER 30, 2003 10 274,990 3,454,719 3,729,719
Net income for the year ended
September 30, 2004 24,711 24,711
--------------- -------------- -------------- ---------------
BALANCE AT SEPTEMBER 30, 2004 $ 10 $ 274,990 $ 3,479,430 $ 3,754,430
=============== ============== ============== ===============
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5.
OHIO CENTRAL SAVINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 2004 and 2003
- -------------------------------------------------------------------------------------------------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 24,711 $ 214,425
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 113,965 119,664
Provision for loan losses 35,000 60,000
Deferred fee/costs amortization 4,183 (22,327)
Federal Home Loan Bank stock dividends (27,100) (26,300)
Net amortization/(accretion) on investment securities 4,734 (38,145)
Purchases of mutual funds (15,098) (36,848)
Gain on mutual funds (3,593) (2,657)
Gain on sale of securities (2,964) --
Loans originated for sale (24,639,685) (38,623,393)
Proceeds from sale of loans 25,480,544 39,147,902
Net gains on sales of loans (314,423) (523,359)
Changes in other assets and other liabilities (892,712) 99,984
-------------- ---------------
Net cash from operating activities (232,438) 368,946
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities held to maturity
Purchases (11,333,175) (18,252,685)
Maturities, calls and principal payments 7,463,598 6,530,174
Federal Home Loan Bank stock purchase (3,200) --
Net (increase)/decrease in loans (61,894) 6,318,672
Net change in certificates of deposit in other financial institutions 500,000 498,000
Proceeds from disposal of equipment -- 13,586
Premises and equipment expenditures (99,766) (101,762)
-------------- ---------------
Net cash from investing activities (3,534,437) (4,994,015)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 2,373,573 (1,248,654)
Proceeds from Federal Home Loan Bank advances 6,246,000 3,707,000
Repayment of Federal Home Loan Bank advances (2,246,000) (1,207,000)
-------------- ---------------
Net cash from financing activities 6,373,573 1,251,346
-------------- ---------------
Net change in cash and cash equivalents 2,606,698 (3,373,723)
Cash and cash equivalents at beginning of year 1,878,351 5,252,074
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,485,049 $ 1,878,351
============== ===============
Supplemental disclosures of cash flow information Cash paid during the year for:
Interest $ 1,282,768 $ 1,192,185
Income taxes 64,543 161,931
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include Ohio Central Savings ("the Bank") and its wholly-owned
subsidiary, AutoARM, LLC, together referred to as "the Company." Intercompany
transactions and balances are eliminated in consolidation.
Ohio Central Savings is engaged in the business of residential and consumer
banking with operations conducted through its offices in Dublin and Cleveland,
Ohio. These communities are the source of substantially all of the Bank's loan
and deposit activities. The majority of the Bank's income is derived from
residential and consumer lending and investments activities. AutoARM, LLC was
formed to provide automobile loan underwriting, funding and servicing for
community financial institutions. No activity occurred in AutoARM, LLC in either
period presented.
Originally organized in 1949, Ohio Central Savings converted from a federal
credit union in 1998 to a federal mutual savings association. In September 2001,
Ohio Central Savings became a wholly-owned subsidiary of TFS Financial
Corporation (TFS), which is a wholly-owned subsidiary of Third Federal Savings
and Loan Association of Cleveland, Cleveland, Ohio.
USE OF ESTIMATES: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan
losses and status of contingencies are particularly subject to change.
CASH FLOWS: Cash and cash equivalents include cash on hand, demand deposits with
other financial institutions and federal funds sold. Net cash flows are reported
for customer loan and deposit transactions, interest-bearing time deposits with
financial institutions and short-term borrowings with maturities of 90 days or
less.
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Trading securities, consisting of mutual funds, are carried at fair
value, with changes in unrealized holding gains and losses included in income.
Other securities such as Federal Home Loan Bank stock are carried at cost. The
Company has no securities classified as available for sale in any period
reported.
Interest income includes amortization of purchase premiums and discounts. Gains
and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.
LOANS HELD FOR SALE: Loans originated and intended for sale are carried at the
lower of cost or market in the aggregate. Net unrealized losses, if any, are
recorded as a valuation allowance and charged to earnings.
LOANS: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of deferred loan fees and costs and an allowance for
loan losses.
- --------------------------------------------------------------------------------
(Continued)
F-7.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. Payments received on such loans
are reported as principal reductions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgement, should be charged-off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer loans, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported net, at the present value of
estimated future cash flows using the loan's existing rate or at the fair value
of collateral if repayment is expected solely from the collateral.
PREMISES AND EQUIPMENT: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Depreciation is computed over the
assets useful lives on a straight line basis. These assets are reviewed for
impairment when events indicate the carrying amount may not be recoverable.
Maintenance and repairs are charged to expense as incurred and improvements are
capitalized.
INCOME TAXES: Income tax expense is the total of the current-year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between the carrying amounts and tax basis of assets and liabilities
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
FINANCIAL INSTRUMENTS: Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and standby letters of credit,
issued to meet customer financing needs. The face amount for these items
represent the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.
ADOPTION OF NEW ACCOUNTING STANDARDS: During 2003 and 2004, the Company adopted
FASB Statement 132(R), EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS, FASB Statement 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS, FASB Statement 145, RESCISSION OF FAS STATEMENT 4, 44 AND 64,
AMENDMENT OF FASB STATEMENT 13, AND TECHNICAL CORRECTIONS, FASB Statement 146,
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, FASB Statement
149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, FASB Statement 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS
WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITIES, FASB Interpretation 45,
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, and FASB
Interpretation 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES. Adoption of the
new standards did not materially affect the Company's operating results or
financial condition.
- --------------------------------------------------------------------------------
(Continued)
F-8.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Standards newly issued but not yet effective include AcSEC Statement of Position
(SOP) 03-3, ACCOUNTING FOR CERTAIN LOANS AND DEBT SECURITIES ACQUIRED IN A
TRANSFER and Emerging Issues Task Force (EITF) Consensus 03-01, THE MEANING OF
OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS.
Management has not yet determined the likely impact of these pronouncements on
the Company's financial statements.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
OPERATING SEGMENTS: While the chief decision-makers monitor the revenue streams
of the various products and services, the identifiable segments are not material
and operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the financial service operations are
considered by management to be aggregated in one reportable operating segment.
NOTE 2 - SUBSEQUENT EVENT - PROPOSED CONVERSION (UNAUDITED)
In October 2004, the Company's Board of Directors approved proceeding with a
Plan of Conversion and Reorganization whereby the Company will redeem the shares
owned by TFS in exchange for a cash payment of $792,000. The proposed
reorganization and conversion then provides for the conversion of the Company to
a federal capital stock savings association through issuing shares in an initial
public offering. All of the stock of the Company will be held by a newly-formed
corporation, OC Financial, Inc. The purpose of this conversion is to enable the
Company to be in the stock form of organization, like commercial banks and most
other corporations. The conversion will result in an increase in the Company's
capital available to support growth and for expansion of its lending activities,
possible diversification into other related financial activities and further
enhance the Company's ability to render services to the public and compete with
other financial institutions. Following the reorganization and conversion,
neither Ohio Central Savings nor OC Financial, Inc. will be affiliated with TFS
or its subsidiaries or affiliates.
- --------------------------------------------------------------------------------
(Continued)
F-9.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES
At September 30, 2004 and 2003, the Bank held mutual funds classified as trading
assets, with a fair value of $58,196 and $39,505, respectively. The net gain on
trading activities included in earnings was $3,593 and $2,657 for 2004 and 2003.
The carrying amount, unrecognized gains and losses and fair value of securities
held to maturity were as follows:
Gross Gross
Carrying Unrecognized Unrecognized Fair
Amount Gains Losses Value
------ ----- ------ -----
2004
- ----
U.S. Government and
agency obligations $ 2,583,233 $ 9,484 $ (15,246) $ 2,577,471
Mortgage-backed securities 20,387,662 144,384 (148,340) 20,383,706
------------- ------------- ------------- -------------
Total $ 22,970,895 $ 153,868 $ (163,586) $ 22,961,177
============= ============= ============= =============
2003
- ----
U.S. Government and
agency obligations $ 2,493,988 $ 9,672 $ (2,852) $ 2,500,803
Mortgage-backed securities 16,609,100 205,158 (84,058) 16,730,200
------------- ------------- ------------- -------------
Total $ 19,103,088 $ 214,830 $ (86,910) $ 19,231,003
============= ============= ============= =============
The carrying value and fair value of debt securities held to maturity at fiscal
year end 2004 by contractual maturity were as follows. Securities not due at a
single maturity date, primarily mortgage-backed securities, are shown
separately.
Held to Maturity
Carrying Fair
Value Value
----- -----
Due in one year or less $ -- $ --
Due after one year through five years 2,583,233 2,577,471
Mortgage-backed securities 20,387,662 20,383,706
------------- -------------
$ 22,970,895 $ 22,961,177
============= =============
At year-end 2004 and 2003, securities with carrying amounts of $20,304,000 and
$15,046,000 were pledged to secure public deposits, borrowings and other
financial purposes as required or permitted by law. At year-end 2004 and 2003,
there were no holdings of securities of any one issuer, other than the U.S.
Government and its agencies, in an amount greater than 10% of total
shareholder's equity.
- --------------------------------------------------------------------------------
(Continued)
F-10.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
Securities with unrecognized losses at year-end 2004, aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, are as follows:
Less than 12 Months 12 Months or More Total
------------------- ----------------- -----
Fair Unrecognized Fair Unrecognized Fair Unrecognized
Description of Securities Value Loss Value Loss Value Loss
- ------------------------- ----- ---- ----- ---- ----- ----
U.S. Government and
agency obligations $ 1,331,583 $ (11,434) $ 246,188 $ (3,813) $ 1,577,771 $ (15,246)
Mortgage-backed securities 6,574,852 (40,520) 3,518,245 (107,820) 10,093,097 (148,340)
------------ ----------- ------------ ----------- ------------ -----------
Total temporarily impaired $ 7,906,435 $ (51,954) $ 3,764,433 $ (111,632) $ 11,670,868 $ (163,586)
============ =========== ============ =========== ============ ===========
At September 30, 2004, securities with unrealized losses had depreciated only
1.4% from the Company's amortized cost basis. These unrealized losses related
principally to changes in interest rates. Substantially all mortgage-backed
securities are issued or guaranteed by agencies or corporations of the United
States Government. As the Company has the intent and ability to hold these
securities to maturity since they are classified as held to maturity, no
declines were deemed to be other than temporary.
Sales of held-to-maturity mortgage-backed securities with remaining balances
less than 15% of the original balances were as follows. As allowed by FASB
Statement No. 115, such sales are considered to be maturities in remaining
disclosures.
2004 2003
---- ----
Proceeds $ 94,067 $ --
Gross gains 2,964 --
Gross losses -- --
NOTE 4 - LOANS
Loans at year-end were as follows:
2004 2003
---- ----
Vehicle loans $ 17,416,040 $ 15,372,926
Visa loans 622,046 684,860
Signature loans 80,329 82,880
First mortgage loans 6,594,592 8,044,168
Other mortgage loans 864,109 1,295,784
Deposit secured loans 28,421 53,271
Commercial loans 736,250 767,168
-------------- --------------
26,341,787 26,301,057
Less: Allowance for loan losses (230,585) (216,749)
Deferred costs and fees (6,924) (2,741)
-------------- --------------
$ 26,104,278 $ 26,081,567
============== ==============
- --------------------------------------------------------------------------------
(Continued)
F-11.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 4 - LOANS (Continued)
Activity in the allowance for loan losses for the year was as follows:
2004 2003
---- ----
Beginning balance $ 216,749 $ 240,180
Provision for loan losses 35,000 60,000
Loans charged-off (45,012) (105,082)
Recoveries 23,848 21,651
-------------- --------------
Ending balance $ 230,585 $ 216,749
============== ==============
The Bank had no loans considered impaired under the provisions of SFAS No. 114
during 2004 or 2003. The Bank had nonaccrual loans of $39,000 and $34,000 at
September 30, 2004 and 2003, respectively. No loans past due over 90 days were
still accruing interest at September 30, 2004 or 2003.
NOTE 5 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
2004 2003
---- ----
Land $ 152,433 $ 152,433
Building 685,024 685,024
Leasehold improvements 175,168 175,168
Furniture and equipment 732,647 1,165,916
-------------- --------------
1,745,272 2,178,541
Accumulated depreciation (1,012,380) (1,431,450)
-------------- --------------
$ 732,892 $ 747,091
============== ==============
The Bank has entered a five-year noncancelable operating lease for their branch
office in Cleveland, Ohio. The lease may be renewed for one additional five-year
term after April 30, 2006. Rental expense for 2004 and 2003 was $46,000 and
$49,000. At September 30, 2004, future minimum lease payments, excluding
tenant's share of common area maintenance expense, were as follows:
2005 $ 48,972
2006 28,567
--------------
Total $ 77,539
==============
- --------------------------------------------------------------------------------
(Continued)
F-12.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
Time deposits of $100,000 or more were $1,575,000 and $1,431,000 at September
30, 2004 and 2003.
Scheduled maturities of time deposits as of September 30, 2004 were as follows:
2005 $ 3,454,486
2006 1,492,844
2007 529,550
2008 458,649
2009 1,433,111
Thereafter 1,358,949
-------------
Total $ 8,727,589
=============
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Cincinnati. As a
member, the Bank has the ability to obtain advances from the FHLB. At fiscal
year-end 2004, the Bank had twenty fixed-rate advances totaling $16,450,000 with
interest rates ranging from 2.65% to 7.44%. At fiscal year-end 2003, the Bank
had eighteen fixed rate advances totaling $12,450,000 with interest rates
ranging from 2.73% to 7.44%. Interest on the advances is payable monthly with
principal due upon maturity. Residential mortgage loans, mortgage-backed
securities and stock of the FHLB of Cincinnati owned by the Bank are pledged as
collateral for the advances.
Maturities of Federal Home Loan Bank Advances are as follows for the years
ending September 30:
2005 $ --
2006 9,250,000
2007 1,250,000
2008 500,000
2009 1,800,000
Thereafter 3,650,000
-------------
$ 16,450,000
=============
The Bank also has an agreement with the Federal Reserve Bank of Cleveland in
which the Bank may borrow funds which are secured by pledged automobile loans.
There were no such borrowings outstanding with the Federal Reserve at year end
2004 or 2003. Auto loans in the amount of $17,460,000 and $15,908,000 were
pledged to secure potential borrowings at year-end 2004 and 2003.
- --------------------------------------------------------------------------------
(Continued)
F-13.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 8 - LOAN SALES AND SERVICING ACTIVITIES
The Bank sells much of its current production of consumer auto loans with terms
between 42 and 60 months. Although the Bank maintains servicing on these loans,
management does not believe that the servicing spread received results in a
servicing asset that is material to the financial statements taken as a whole
and thus, does not record such an asset.
The following summarizes loan sales and servicing activities for each year (in
thousands):
2004 2003
---- ----
ACTIVITY DURING THE YEAR:
Loans originated for resale, net of
principal paydowns $ 24,640 $ 38,624
Proceeds from sales of loans held
for sale 25,480 39,148
Net gains on sales of loans held
for sale 314 523
Loan servicing fee income 135 96
BALANCE AT YEAR END:
Loans held for sale $ 92 $ 619
Less: Allowance to adjust to lower of cost or
market - -
----------- -----------
Loans held for sale, net $ 92 $ 619
=========== ===========
Loans serviced for others and not reported as assets $ 51,371 $ 48,219
=========== ===========
NOTE 9 - BENEFIT PLANS
Until completion of the proposed conversion from TFS, the Company currently
participates in a multi-employer defined benefit pension plan. Benefits are
based on years of service. An employee becomes fully vested after 5 years of
qualifying service. The plan is currently overfunded and does not require an
annual contribution by the Company. Specific plan asset and accumulated benefit
information for the Company's portion of the fund is not available.
Subsequent event (unaudited): Upon the reorganization and conversion as
discussed in Note 2, the Company will make and expense a one time $64,000
payment to reimburse TFS for termination payments to participants in the pension
plan. Any Company employee with a balance of at least $5,000 at that time has
the option of remaining in the TFS plan.
The Company maintains a deferred compensation plan whereby members of the board
of directors may elect to defer a portion of their regular director fees. The
fees deferred are invested in mutual funds and bank certificates of deposit,
with the Company's return on these investments changing the Company's obligation
to the participating directors. The Company's obligations are payable at the
earlier of the participant director reaching age 70 or termination from service.
The deferred fee liability totals $72,417 and $53,356 at year-end 2004 and 2003
respectively.
- --------------------------------------------------------------------------------
(Continued)
F-14.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES
Income tax expense was as follows:
2004 2003
---- ----
Current $ 2,448 $ 101,726
Deferred 11,367 8,033
------------ ------------
$ 13,815 $ 109,759
============ ============
Year-end deferred tax assets and liabilities were due to the following:
2004 2003
---- ----
Deferred tax assets:
Allowance for loan losses $ 78,399 $ 73,695
Deferred compensation 24,622 17,238
Other 7,381 6,777
------------ ------------
110,402 97,710
Deferred tax liabilities:
FHLB stock dividends (58,956) (49,742)
Fixed asset depreciation (11,246) (5,806)
Prepaid pension (15,052) (4,322)
Bad debt reserve recapture (5,805) (10,159)
Other (5,988) (2,959)
------------ ------------
(97,047) (72,988)
Net deferred tax asset $ 13,355 $ 24,722
============ ============
Effective tax rates differ from federal statutory rate of 34% applied to income
before income taxes due to the following.
2004 2003
---- ----
Tax at federal statutory rate $ 13,099 $ 110,223
Effect of other adjustments 716 (464)
------------ ------------
Income tax expense $ 13,815 $ 109,759
============ ============
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Some financial instruments, such as loan commitments, credit lines, letters of
credit and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
- --------------------------------------------------------------------------------
(Continued)
F-15.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
The contractual amount of financial instruments with off-balance-sheet risk was
as follows at year-end:
2004 2003
---- ----
Fixed Variable Fixed Variable
Rate Rate Rate Rate
---- ---- ---- ----
Commitments to extend credit $ 98,409 $ -- $ -- $ --
Credit card arrangements 422,854 1,802,693 494,591 2,108,522
Unused lines of credit 136,220 1,008,837 161,357 1,297,866
-------------- ------------ ------------- -------------
$ 657,483 $ 2,811,530 $ 655,948 $ 3,406,388
============== ============ ============= =============
The one construction loan commitment outstanding at September 30, 2004 is
expected to be disbursed by December 31, 2004 and is at a rate of 5.5%. There
were no letters of credit or loans sold with recourse at year-end 2004 and 2003.
The Bank has entered into employment agreements with certain officers. The
agreements provide for a term of three years and a salary and performance review
by the Board of Directors not less often than annually, as well as inclusion of
the employee in any formally established benefit, bonus, pension and
profit-sharing plans for which management is eligible. The employment agreements
also provide for vacation and sick leave.
NOTE 12 - RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in fiscal 2004 were
as follows.
Beginning balance $ 690,000
New loans 57,000
Effect of changes in related parties --
Repayments (74,000)
-----------
Ending balance $ 673,000
===========
Deposits from principal officers, directors, and their affiliates at year-end
2004 and 2003 were $420,000 and $317,000.
- --------------------------------------------------------------------------------
(Continued)
F-16.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY CAPITAL REQUIREMENTS
Banks are subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgements
by regulators. Failure to meet capital requirements can initiate regulatory
action.
Prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. At year-end 2004 and
2003, the most recent regulatory notifications categorized the Bank as
well-capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
Actual and required capital amounts (in thousands) and ratios are presented
below at year-end:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
2004
- ----
Total capital to risk-
weighted assets $ 3,985 13.9% $ 2,311 8.0% $ 2,889 10.0%
Tier 1 (core) capital to
risk-weighted assets 3,754 13.1 1,155 4.0 1,733 6.0
Tier 1 (core) capital to
adjusted total assets 3,754 6.8 1,671 3.0 2,785 5.0
Tangible capital to
adjusted total assets 3,754 6.8 836 1.5 N/A N/A
2003
- ----
Total capital to risk-
weighted assets $ 3,947 14.2% $ 2,228 8.0% $ 2,785 10.0%
Tier 1 (core) capital to
risk-weighted assets 3,730 13.4 1,114 4.0 1,671 6.0
Tier 1 (core) capital to
adjusted total assets 3,730 7.5 1,506 3.0 2,510 5.0
Tangible capital to
adjusted total assets 3,730 7.5 753 1.5 N/A N/A
- --------------------------------------------------------------------------------
(Continued)
F-17.
OHIO CENTRAL SAVINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and 2003
- --------------------------------------------------------------------------------
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments (in
thousands) were as follows at year-end:
2004 2003
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets
Cash and cash equivalents $ 4,485 $ 4,485 $ 1,878 $ 1,878
Investment in mutual funds 58 58 40 40
Interest bearing deposits 99 100 599 603
Securities held to maturity 22,971 22,961 19,103 19,231
Federal Home Loan Bank stock 689 689 659 668
Loans, net 26,104 26,172 26,082 26,787
Loans held for sale 92 93 619 627
Accrued interest receivable 181 181 188 188
Financial liabilities
Deposits $ (32,261) $ (31,004) $ (29,887) $ (29,414)
Federal Home Loan Bank
advances (16,450) (17,423) (12,450) (13,676)
Accrued interest payable (67) (67) (57) (57)
The methods and assumptions used to estimate fair value are described as
follows. Carrying amount is the estimated fair value for cash and cash
equivalents, Federal Home Loan Bank stock, accrued interest receivable and
payable, demand deposits, short-term debt, and variable rate loans or deposits
that reprice frequently and fully. Security fair values are based on market
prices or dealer quotes, and if no such information is available, on the rate
and term of the security and information about the issuer. For fixed rate loans,
interest-bearing deposits with other financial institutions, customer deposits
and for variable rate loans or deposits with infrequent repricing or repricing
limits, fair value is based on discounted cash flows using current market rates
applied to the estimated life and credit risk. Fair values for impaired loans
are estimated using discounted cash flow analysis or underlying collateral
values. The allowance for loan losses is considered to be a reasonable estimate
of loan credit risk. Fair value of loans held for sale is based on negotiated
transactions. Fair value of Federal Home Loan Bank Advances is based on current
rates for similar financing. The fair value of off-balance-sheet items is based
on the current fees or cost that would be charged to enter into or terminate
such arrangements, and are not considered to be material for presentation.
- --------------------------------------------------------------------------------
(Continued)
F-18.
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY OC FINANCIAL OR OHIO CENTRAL SAVINGS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF OC FINANCIAL OR OHIO
CENTRAL SAVINGS SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED
HEREIN OR SINCE THE DATE HEREOF.
UP TO 793,500 SHARES
OC FINANCIAL, INC.
(PROPOSED HOLDING COMPANY FOR
OHIO CENTRAL SAVINGS)
COMMON STOCK
PAR VALUE $0.01 PER SHARE
------------------
PROSPECTUS
------------------
KEEFE, BRUYETTE & WOODS
_________, 2005
----------------
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED.
----------------
UNTIL ______________, 2005 OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles 12 and 13 of the Articles of Incorporation of OC Financial, Inc., a
Maryland corporation (the "Corporation"), set forth circumstances under which
directors, officers, employees and agents of the Corporation may be insured or
indemnified against liability which they incur in their capacities as such:
ARTICLE 12. INDEMNIFICATION.
SECTION A. INDEMNIFICATION. The Corporation: (1) shall indemnify its
current and former Directors (including any Director who was or is also an
officer of the Corporation), whether serving the Corporation or at its request
serving any other entity, including, without limitation, any subsidiary or other
affiliate of the Corporation, to the fullest extent required or permitted by the
MGCL (but, in the case of any amendment to the MGCL, only to the extent that
such amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
including the advancement of expenses under procedures permitted or required by
applicable law and to the fullest extent permitted by applicable law; (2) shall
indemnify (including the advancement of expenses under procedures permitted or
required by applicable law) its current and former officers to the fullest
extent, consistent with applicable law, as may be required in a contract
approved by the Board of Directors pursuant to a resolution approved by a
majority of Directors then in office, or as may be required the Bylaws of the
Corporation; and (3) may, to the extent not required pursuant to paragraph (2)
of this Section A of this Article 12, indemnify (including the advancement of
expenses under procedures permitted or required by applicable law) current and
former officers and other employees and agents of the Corporation as may be
authorized by the Board of Directors in the specific case and permitted by
applicable law or the Bylaws of the Corporation; provided, however, that, except
as provided in Section B of this Article 12 with respect to proceedings to
enforce rights to indemnification or in a contract approved by the Board of
Directors pursuant to a resolution approved by a majority of Directors then in
office, the Corporation shall not indemnify any such indemnitee in connection
with a proceeding (or part thereof) initiated by such indemnitee unless such
proceeding (or part thereof) was authorized by the Board of Directors pursuant
to a resolution approved by a majority of the Directors then in office.
SECTION B. PROCEDURE. If a claim under Section A of this Article 12 is
not paid in full by the Corporation within 60 days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 30 days,
the indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, the indemnitee shall also be entitled to be reimbursed the expense of
prosecuting or defending such suit against the Corporation. It shall be a
defense to any action for advancement of expenses that the Corporation has not
received both: (1) an undertaking as required by law to repay such advances in
the event it shall ultimately be determined that the standard of conduct for
indemnification has not been met; and (2) a written affirmation by the
indemnitee of his or her good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the MGCL, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by an
indemnitee to whom the Corporation has not agreed to advance expenses, be a
defense to such suit. In any suit brought by the indemnitee to enforce any right
to indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article or
otherwise, shall be on the Corporation.
SECTION C. NON-EXCLUSIVITY. The rights to indemnification and to the
advancement of expenses conferred in this Article shall not be exclusive of any
other right that any person may have or hereafter acquire under any statute,
this Charter, the Bylaws of the Corporation, any contract, agreement, vote of
stockholders or disinterested Directors, or otherwise.
SECTION D. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself or any Director, officer, employee or agent of the
Corporation or another corporation, partnership, limited liability company,
joint venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the MGCL.
SECTION E. MISCELLANEOUS. The Corporation shall not be liable for any
payment under this Article 12 in connection with a claim made by any indemnitee
to the extent such indemnitee has otherwise actually and unconditionally
received payment under any insurance policy, agreement, or otherwise, of the
amounts otherwise indemnifiable hereunder. The rights to indemnification and to
the advancement of expenses conferred in Sections A and B of this Article 12
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a Director or officer of the Corporation and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. Any repeal or
modification of this Article 12 shall not in any way diminish any rights of any
person to indemnification or advancement of expenses of or the obligations of
the Corporation arising hereunder with respect to events occurring, or claims
made, while this Article is in force.
ARTICLE 13. LIMITATION OF LIABILITY.
An officer or Director of the Corporation, as such, shall not be liable
to the Corporation or its stockholders for money damages except: (A) to the
extent that it is proved that the person actually received an improper benefit
or profit in money, property or services for the amount of the benefit or profit
in money, property or services actually received; or (B) to the extent that a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. If the MGCL is
amended to further eliminate or limit the personal liability of officers and
directors, then the liability of officers and Directors of the Corporation shall
be further eliminated or limited to the fullest extent permitted by MGCL, as so
amended. Any repeal or modification of this Article 13 by the stockholders of
the Corporation shall not adversely affect any right or protection of a Director
or officer of the Corporation existing at the time of such repeal or
modification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Amount
------
* Legal Fees and Expenses............................................ $ 150,000
* Accounting Fees and Expenses....................................... 95,000
* Data Processing Fees............................................... 5,000
* Marketing Agent Fees and Expenses, including attorney's fees (1)... 105,000
* Appraisal Fees and Expenses........................................ 25,000
* Business Plan Fees and Expenses.................................... 15,000
* Printing, Postage, Mailing and EDGAR............................... 65,000
* OTS Filing Fee..................................................... 12,000
* SEC Filing Fee..................................................... 934
* NASD Fee........................................................... 1,294
* State "Blue Sky" Legal and Filing Fees............................. 30,000
* Other.............................................................. 5,772
--------------
* Total ............................................................. $ 510,000
==============
- ------------------
* Estimated
(1) OC Financial, Inc. has retained Keefe, Bruyette & Woods, Inc. to assist
in the sale of common stock on a best efforts basis in the offerings.
Fees are estimated at the midpoint of the offering range.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are as
follows:
(A) LIST OF EXHIBITS
1.1 Engagement Letter between Ohio Central Savings and Keefe, Bruyette &
Woods, Inc.
1.2 Form of Agency Agreement between OC Financial, Inc. and Keefe, Bruyette
& Woods, Inc. *
2 Plan of Conversion and Reorganization from Mutual to Stock Form
3.1 Articles of Incorporation of OC Financial, Inc.
3.2 Bylaws of OC Financial, Inc.
4 Form of Common Stock Certificate of OC Financial, Inc.
5 Opinion of Luse Gorman Pomerenk & Schick regarding legality of
securities being registered
8 Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick*
10.1 Employee Stock Ownership Plan*
10.2 Divestiture Agreement with TFS Financial Corporation
10.3 Employment Agreement with Robert W. Hughes
10.4 Employment Agreement with Diane M. Gregg
10.5 Employment Agreement with H. Stewart Fitz Gibbon, III
21 Subsidiaries of Registrant
23.1 Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
as Exhibits 5 and 8)
23.2 Consent of Crowe Chizek and Company LLC
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal Agreement between Ohio Central Savings and RP Financial, LC.
99.2 Business Plan Agreement between Ohio Central Savings and Keller and
Company, Inc.
99.3 Appraisal Report of RP Financial, LC.*,**
99.4 Letter of RP Financial, LC. with respect to Subscription Rights
99.5 Marketing Materials
99.6 Order and Acknowledgment Form
- -------------------------------
* To be filed supplementally or by amendment.
** Supporting financial schedules filed pursuant to Rule 202 of Regulation
S-T.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding the
foregoing, 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 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
(iii) Include any additional or changed material
information as the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement as the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering thereof.
(3) To file a post-effective amendment to remove from
registration any of the securities being registered that remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer 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 small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer 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.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Dublin,
State of Ohio on December 14, 2004.
OC FINANCIAL, INC.
By: /s/ Robert W. Hughes
----------------------------------------
Robert W. Hughes
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of OC Financial, Inc. (the
"Company") hereby severally constitute and appoint Robert W. Hughes as our true
and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said Robert W. Hughes may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form SB-2 relating
to the offering of the Company's common stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said Robert W. Hughes shall do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Robert W. Hughes President, Chief Executive December 14, 2004
- -------------------------------- Officer and Chairman of the
Robert W. Hughes Board of Directors (Principal
Executive Officer)
/s/ H. Stewart Fitz Gibbon, III Vice President and Chief December 14, 2004
- -------------------------------- Financial Officer (Principal
H. Stewart Fitz Gibbon, III Financial and Accounting Officer)
/s/ Nils C. Muladore Director December 14, 2004
- --------------------------------
Nils C. Muladore
/s/ Michael B. Bowman Director December 14, 2004
- --------------------------------
Michael B. Bowman
/s/ Diane M. Gregg Director December 14, 2004
- --------------------------------
Diane M. Gregg
/s/ Thomas J. Parliment Director December 14, 2004
- -------------------------------
Thomas J. Parliment
/s/ Christopher L. Lardiere Director December 14, 2004
- -------------------------------
Christopher L. Lardiere
/s/ Thomas H. Lagos Director December 14, 2004
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Thomas H. Lagos
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 2004
REGISTRATION NO. 333-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
OC FINANCIAL, INC.
DUBLIN, OHIO
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EXHIBIT INDEX
1.1 Engagement Letter between Ohio Central Savings and Keefe, Bruyette &
Woods, Inc.
1.2 Form of Agency Agreement between OC Financial, Inc. and Keefe, Bruyette
& Woods, Inc. *
2 Plan of Conversion and Reorganization from Mutual to Stock Form
3.1 Articles of Incorporation of OC Financial, Inc.
3.2 Bylaws of OC Financial, Inc.
4 Form of Common Stock Certificate of OC Financial, Inc.
5 Opinion of Luse Gorman Pomerenk & Schick regarding legality of
securities being registered
8 Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick*
10.1 Employee Stock Ownership Plan*
10.2 Divestiture Agreement with TFS Financial Corporation
10.3 Employment Agreement with Robert W. Hughes
10.4 Employment Agreement with Diane M. Gregg
10.5 Employment Agreement with H. Stewart Fitz Gibbon, III
21 Subsidiaries of Registrant
23.1 Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
as Exhibits 5 and 8)
23.2 Consent of Crowe Chizek and Company LLC
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal Agreement between Ohio Central Savings and RP Financial, LC.
99.2 Business Plan Agreement between Ohio Central Savings and Keller and
Company, Inc.
99.3 Appraisal Report of RP Financial, LC.*,**
99.4 Letter of RP Financial, LC. with respect to Subscription Rights
99.5 Marketing Materials
99.6 Order and Acknowledgment Form
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* To be filed supplementally or by amendment.
** Supporting financial schedules filed pursuant to Rule 202 of Regulation
S-T.