• CBS acquisition positively impacts first-quarter results
  • Basic and diluted EPS of $0.36 and $0.33 for the quarter
  • Year over year increase of $3.0 million in net interest income
  • Nonperforming assets at 0.27% of total assets at December 31, 2016
  • Tangible book value per share of $11.52 at December 31, 2016

WEST POINT, Ga., Jan. 26, 2017 (GLOBE NEWSWIRE) -- Charter Financial Corporation (the "Company") (NASDAQ:CHFN) today reported net income of $5.0 million for the quarter ended December 31, 2016, or $0.36 and $0.33 per basic and diluted share, respectively, compared with net income of $4.6 million, or $0.31 and $0.30 per basic and diluted share, respectively, for the quarter ended December 31, 2015.

Net income for the current-year quarter increased $431,000 over the prior-year quarter. Driving factors were increases in loan interest income and deposit fee income from the acquisition of Community Bank of the South ("CBS"), a negative provision of $750,000 and several large gains on the sales of other real estate owned ("OREO"). These increases were partially offset by $2.9 million of recoveries on loans previously covered by FDIC loss sharing agreements taken to income in the prior year.

Quarterly Operating Results

Quarterly earnings for the first quarter of fiscal 2017 compared with the first quarter of fiscal 2016 were positively impacted by:
  • An increase in loan interest income of $3.1 million, or 33.1%, and an increase in loan interest income excluding accretion of acquired loan discounts of $3.6 million, or 43.2%, partly due to the acquisition of CBS and also due to $220,000 of interest income recorded on the payoff of two long-standing nonperforming loans.
  • A negative provision of $750,000 related to continued net recoveries of $878,000 during the quarter, and positive asset quality, versus no such provision in the same period last year.
  • An increase in deposit and bankcard fee income of $272,000, or 9.4%.
  • An increase in gain on sale of loans of $383,000, or 110.2%, due to improved mortgage activity in legacy markets and the newly acquired market.
  • An increase in net benefit of operations of real estate owned of $338,000 due to $444,000 of gains on sale of OREO, most of which had been written down to market value during the economic downturn.

Quarterly earnings for the first quarter of fiscal 2017 compared with the first quarter of fiscal 2016 were negatively impacted by:
  • An increase in interest expense on deposits of $493,000, or 74.1%, due to higher balances from both legacy accounts and those acquired through the CBS acquisition.
  • An increase in salaries and employee benefits of $871,000, or 16.5%, due to higher payroll related to the CBS acquisition.
  • Recoveries on loans formerly covered by loss sharing agreements decreased $2.6 million due to several large recoveries during the prior year.

Chairman and CEO Robert L. Johnson said, "The CBS acquisition continued to make a positive impact on our results in the first quarter. Additionally, our historically conservative nature benefited us during the quarter, as we improved our asset quality while seeing the benefit of net recoveries on formerly charged off loans and interest, gains on the sales of OREO and a negative provision. While these recovery trends may continue, it will probably not be at the same remarkable rate."

Financial Condition

Total assets increased $23.3 million to $1.5 billion at December 31, 2016, from $1.4 billion at September 30, 2016, largely attributable to a $40.0 million increase in cash and cash equivalents, driven by increases in deposits and paydowns of loans and investment securities held for sale. Net loans decreased $3.4 million, or 0.3%, to $990.6 million at December 31, 2016, from $994.1 million at September 30, 2016, primarily the result of paydowns.

At December 31, 2016, total deposits increased $24.5 million to $1.2 billion; transaction and money market accounts increased $3.8 million and $22.5 million, respectively.

From September 30, 2016 to December 31, 2016, total stockholders' equity increased to $205.5 million compared to $203.1 million due primarily to $5.0 million of net income, partially offset by a $2.9 million decrease in accumulated other comprehensive income on the Company's portfolio of investment securities available for sale. The decrease in accumulated other comprehensive income was driven by market interest rate changes since the November presidential election. The Company's evaluation of its securities portfolio at December 31, 2016 determined there was no new other-than-temporary impairment in the portfolio. Book value per share increased to $13.67 while tangible book value per share increased from $11.36 to $11.52, both due to our retention of earnings.

Net Interest Income and Net Interest Margin

Net interest income increased to $12.2 million for the quarter ended December 31, 2016, compared with $9.2 million for the quarter ended December 31, 2015. Interest income increased $3.4 million due to a $3.6 million increase in loan interest income, excluding accretion of acquired loan discounts. The change was largely due to higher average balances from the acquisition of CBS completed in the third quarter of fiscal 2016, offset by a $446,000 decrease in net purchase discount accretion. Quarter over quarter, total interest expense increased $448,000 to $1.7 million for the quarter ended December 31, 2016, largely due to increased balances of higher-costing deposits from CBS, as well as $121,000 of interest expense on the Company's subordinated debentures assumed in the CBS acquisition. These increases were offset partially by a $166,000 decline in interest expense on FHLB borrowings due to a maturing advance being extended at a substantially lower rate in May 2016.

Net interest margin was 3.71% for the three months ended December 31, 2016, compared to 4.03% for the same period in 2015. The decrease was largely due to increased deposit balances, both from legacy growth and the acquisition of CBS, as well as a continued drop in accretion income. The Company's net interest margin, excluding the effects of purchase accounting, decreased to 3.48% for the quarter ended December 31, 2016, compared with 3.51% for the quarter ended December 31, 2015.

Under purchase accounting rules, the Company currently expects to realize remaining loan discount accretion of $270,000 over the next three quarters related to its acquisition of the First National Bank of Florida and $2.1 million related to the CBS acquisition over the life of the loans acquired.

Mr. Johnson continued, "Although we've reached a point in the credit and interest rate cycle where it would be easy to add risk into our balance sheet, we will strive to maintain our conservative appetite to risk, working to build a healthy loan portfolio while maintaining a modest credit and interest rate risk profile."

Provision for Loan Losses

The Company recorded a negative provision for loan losses of $750,000 in the quarter ended December 31, 2016 due to the continued positive credit quality trends of its loan portfolio and net recoveries of previously charged-off loans. No provision was recorded in the three months ended December 31, 2015.

Noninterest Income and Expense

Noninterest income for the quarter ended December 31, 2016 decreased to $5.0 million, compared with $6.8 million for the prior-year period. The prior-year quarter included $2.9 million in recoveries on loans formerly covered by loss sharing agreements, while the current-year quarter included only $250,000, a decrease of $2.6 million. The current-year quarter included increases in core components of $272,000 in bankcard fee and other deposit fee income and $383,000 in gain on sale of loans.

Noninterest expense for the quarter ended December 31, 2016 increased $1.2 million to $10.3 million, compared with $9.1 million for the prior-year period, due in part to increases of $871,000 in salaries and employee benefits and $266,000 in occupancy, both of which were attributable to increased ongoing operational costs from the CBS acquisition. These increases were partially offset by an increase in the net benefit of operations of real estate owned of $338,000 to $359,000 as a result of several large gains on the sales of other real estate owned.

Asset Quality

Nonperforming assets at December 31, 2016 were at 0.27% of total assets, down from 0.45% at September 30, 2016, due to payoffs of two long-standing, high-balance, non-performing loans. The allowance for loan losses was at 1.05% of total loans and 594.81% of nonperforming loans at December 31, 2016, compared to 1.03% and 277.66%, respectively, at September 30, 2016. Not included in the allowance is $2.1 million in yield and credit discounts on the CBS acquired loans. At December 31, 2016, the allowance for loan losses was 1.30% of legacy loans, compared to 1.35% at September 30, 2016. The Company recorded net loan recoveries of $878,000 in its allowance for loan losses for the quarter ended December 31, 2016, compared with net loan recoveries of $207,000 for the quarter ended December 31, 2015.

Capital Management

Beginning with the first quarter of fiscal 2014 through the first quarter of fiscal 2017, the Company repurchased 8.1 million shares, or 35.6%, of its common stock, for $91.9 million. The Company repurchased 150 shares during the quarter ended December 31, 2016. On January 24, 2017, the Company announced an increased dividend of $0.06 per share, the second consecutive quarterly increase after a $0.05 per share dividend was announced in the previous 14 quarters.

Mr. Johnson concluded, "The CBS acquisition has enhanced our leverage of capital and expense structures, and we've seen significant improvements in our return on assets and return on equity, at 1.39% and 9.84%, respectively, at the end of the first quarter of fiscal 2017. These returns allow us to continue our focus on organic and potential acquisitive growth. We continue to seek potential acquisitions that are additive to our existing franchise and will maximize returns to our shareholders."

About Charter Financial Corporation

Charter Financial Corporation is a savings and loan holding company and the parent company of CharterBank, a full-service community bank and a federal savings institution. CharterBank is headquartered in West Point, Georgia, and operates branches in Metro Atlanta, the I-85 corridor south to Auburn, Alabama, and the Florida Gulf Coast. CharterBank's deposits are insured by the Federal Deposit Insurance Corporation. Investors may obtain additional information about Charter Financial Corporation and CharterBank on the internet at www.charterbk.com under About Us.

Forward-Looking Statements

This release may contain "forward-looking statements" within the meaning of the federal securities laws. These statements may be identified by use of such words as "believe," "expect," "anticipate," "should," "planned," "intend," "strive," "probably," "focused on," "estimated," "working on," "continue to," "seek," "leverage," and "potential." Examples of forward-looking statements include, but are not limited to, statements regarding future growth, profitability, expense reduction, improvements in income and margins, increasing stockholder value, and estimates with respect to our financial condition and results of operation and business that are subject to various factors that could cause actual results to differ materially from these estimates. These factors include but are not limited to the Company's inability to implement its business strategy; general and local economic conditions; changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values, and competition; changes in loan defaults and charge-off rates; changes in the value of securities and other assets, adequacy of loan loss reserves, or deposit levels necessitating an increase in borrowing to fund loans and investments; the changing exposure to credit risk; the inability to identify suitable future acquisition targets; the potential inability to effectively manage the new businesses and lending teams that transitioned from Community Bank of the South; the inability to properly leverage the expansion into the North Atlanta market; changes in legislation or regulation; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products, and services; the effect of cyberterrorism and system failures; and the effects of geopolitical instability and risks such as terrorist attacks, the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes, and the effect of any damage to our reputation resulting from developments relating to any of the factors listed herein. Any or all forward-looking statements in this release and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or known or unknown risks and uncertainties. Consequently, no forward-looking statements can be guaranteed. Except as required by law, the Company disclaims any obligation to subsequently revise or update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained from time to time in the Company's filings with the Securities and Exchange Commission. The Company refers you to the section entitled "Risk Factors" contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2016. Copies of each filing may be obtained from the Company or the Securities and Exchange Commission.

The risks included here are not exhaustive and undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to the Company, its management, or persons acting on their behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law.
Charter Financial Corporation
Condensed Consolidated Statements of Financial Condition (unaudited)
 
    December 31,2016   September 30,2016 (1)
Assets          
Cash and amounts due from depository institutions   $ 15,234,277     $ 14,472,867  
Interest-earning deposits in other financial institutions   116,614,291     77,376,632  
Cash and cash equivalents   131,848,568     91,849,499  
Loans held for sale, fair value of $3,290,098 and $2,991,756   3,235,852     2,941,982  
Certificates of deposit held at other financial institutions   12,256,580     14,496,410  
Investment securities available for sale   196,278,652     206,336,287  
Federal Home Loan Bank stock   3,361,800     3,361,800  
Restricted securities, at cost   279,000     279,000  
Loans receivable   1,002,346,206     1,005,702,737  
Unamortized loan origination fees, net   (1,211,828 )   (1,278,830 )
Allowance for loan losses   (10,499,228 )   (10,371,416 )
Loans receivable, net   990,635,150     994,052,491  
Other real estate owned   2,160,694     2,706,461  
Accrued interest and dividends receivable   3,579,205     3,442,051  
Premises and equipment, net   28,291,503     28,078,591  
Goodwill   29,793,756     29,793,756  
Other intangible assets, net of amortization   2,485,947     2,639,608  
Cash surrender value of life insurance   49,601,324     49,268,973  
Deferred income taxes   5,849,030     4,366,522  
Other assets   2,009,914     4,775,805  
Total assets   $ 1,461,666,975     $ 1,438,389,236  
Liabilities and Stockholders' Equity          
Liabilities:        
Deposits   $ 1,186,346,952     $ 1,161,843,586  
Long-term borrowings   50,000,000     50,000,000  
Floating rate junior subordinated debt   6,621,823     6,587,549  
Advance payments by borrowers for taxes and insurance   1,211,165     2,298,513  
Other liabilities   11,986,812     14,510,052  
Total liabilities   1,256,166,752     1,235,239,700  
Stockholders' equity:        
Common stock, $0.01 par value; 15,030,926 shares issued and outstanding at December 31,2016 and 15,031,076 shares issued and outstanding at September 30, 2016   150,309     150,311  
Preferred stock, $0.01 par value; 50,000,000 shares authorized at December 31, 2016 andSeptember 30, 2016        
Additional paid-in capital   84,182,259     83,651,623  
Unearned compensation - ESOP   (4,673,761 )   (5,106,169 )
Retained earnings   127,615,344     123,349,890  
Accumulated other comprehensive (loss) income   (1,773,928 )   1,103,881  
Total stockholders' equity   205,500,223     203,149,536  
Total liabilities and stockholders' equity   $ 1,461,666,975     $ 1,438,389,236  

__________________________________

(1) Financial information at September 30, 2016 has been derived from audited financial statements.

Charter Financial Corporation
Condensed Consolidated Statements of Income (unaudited)
 
  Three Months Ended  December 31,
  2016   2015
Interest income:      
Loans receivable $ 12,569,903     $ 9,441,525  
Taxable investment securities 1,095,900     946,510  
Nontaxable investment securities 4,571      
Federal Home Loan Bank stock 39,210     38,928  
Interest-earning deposits in other financial institutions 110,817     12,391  
Certificates of deposit held at other financial institutions 42,629      
Restricted securities 2,573      
Total interest income 13,865,603     10,439,354  
Interest expense:      
Deposits 1,158,316     665,433  
Borrowings 386,975     552,882  
Floating rate junior subordinated debt 120,792      
Total interest expense 1,666,083     1,218,315  
Net interest income 12,199,520     9,221,039  
Provision for loan losses (750,000 )    
Net interest income after provision for loan losses 12,949,520     9,221,039  
Noninterest income:      
Service charges on deposit accounts 1,887,810     1,752,558  
Bankcard fees 1,282,358     1,145,826  
Gain on investment securities available for sale     35,965  
Bank owned life insurance 332,352     320,663  
Gain on sale of loans 731,262     347,856  
Brokerage commissions 165,996     141,715  
Recoveries on acquired loans previously covered under FDIC loss share agreements 250,000     2,875,000  
Other 333,067     210,957  
Total noninterest income 4,982,845     6,830,540  
Noninterest expenses:      
Salaries and employee benefits 6,133,673     5,262,989  
Occupancy 1,323,323     1,057,274  
Data processing 908,955     824,517  
Legal and professional 284,156     379,838  
Marketing 356,524     289,575  
Federal insurance premiums and other regulatory fees 165,495     223,843  
Net benefit of operations of real estate owned (359,270 )   (21,243 )
Furniture and equipment 174,055     168,415  
Postage, office supplies and printing 270,385     184,712  
Core deposit intangible amortization expense 153,662     48,985  
Other 878,549     659,125  
Total noninterest expenses 10,289,507     9,078,030  
Income before income taxes 7,642,858     6,973,549  
Income tax expense 2,597,191     2,359,271  
Net income $ 5,045,667     $ 4,614,278  
Basic net income per share $ 0.36     $ 0.31  
Diluted net income per share $ 0.33     $ 0.30  
Weighted average number of common shares outstanding 14,207,468     14,885,529  
Weighted average number of common and potential common shares outstanding 15,064,879     15,545,216  

Charter Financial Corporation
Supplemental Financial Data (unaudited)
in thousands except per share data
 
    Quarter to Date     Year to Date
    12/31/2016   9/30/2016 (1)   6/30/2016   3/31/2016   12/31/2015     12/31/2016   12/31/2015
                               
Consolidated balance sheet data:                              
Total assets   $ 1,461,667     $ 1,438,389     $ 1,427,851     $ 1,051,281     $ 1,004,880       $ 1,461,667     $ 1,004,880  
Cash and cash equivalents   131,849     91,849     106,108     79,331     51,881       131,849     51,881  
Loans receivable, net   990,635     994,052     993,786     701,399     679,870       990,635     679,870  
Other real estate owned   2,161     2,706     3,181     2,711     3,165       2,161     3,165  
Securities available for sale   196,279     206,336     169,737     172,197     175,988       196,279     175,988  
Transaction accounts   481,841     478,028     472,123     353,834     331,570       481,841     331,570  
Total deposits   1,186,347     1,161,844     1,155,245     791,692     744,234       1,186,347     744,234  
Borrowings   56,622     56,588     56,553     50,000     50,000       56,622     50,000  
Total stockholders' equity   205,500     203,150     199,800     198,031     198,368       205,500     198,368  
                               
Consolidated earnings summary:                              
Interest income   $ 13,866     $ 13,822     $ 13,635     $ 9,888     $ 10,439       $ 13,866     $ 10,439  
Interest expense   1,666     1,622     1,552     1,237     1,218       1,666     1,218  
Net interest income   12,200     12,200     12,083     8,651     9,221       12,200     9,221  
Provision for loan losses   (750 )   (150 )   (100 )             (750 )    
Net interest income afterprovision for loan losses   12,950     12,350     12,183     8,651     9,221       12,950     9,221  
Noninterest income   4,983     4,918     4,703     4,513     6,831       4,983     6,831  
Noninterest expense   10,290     11,354     15,064     9,903     9,079       10,290     9,079  
Income tax expense   2,597     2,103     527     1,118     2,359       2,597     2,359  
Net income   $ 5,046     $ 3,811     $ 1,295     $ 2,143     $ 4,614       $ 5,046     $ 4,614  
                               
Per share data:                              
Earnings per share - basic   $ 0.36     $ 0.27     $ 0.09     $ 0.15     $ 0.31       $ 0.36     $ 0.31  
Earnings per share - fully diluted   $ 0.33     $ 0.26     $ 0.09     $ 0.14     $ 0.30       $ 0.33     $ 0.30  
Cash dividends per share   $ 0.055     $ 0.050     $ 0.050     $ 0.050     $ 0.050       $ 0.055     $ 0.050  
                               
Weighted average basic shares   14,207     14,186     14,185     14,225     14,886       14,207     14,886  
Weighted average diluted shares   15,065     14,798     14,842     14,910     15,545       15,065     15,545  
Total shares outstanding   15,031     15,031     15,031     15,026     15,229       15,031     15,229  
                               
Book value per share   $ 13.67     $ 13.52     $ 13.29     $ 13.18     $ 13.03       $ 13.67     $ 13.03  
Tangible book value per share (2)   $ 11.52     $ 11.36     $ 11.11     $ 12.89     $ 12.73       $ 11.52     $ 12.73  

__________________________________

(1) Financial information at and for the year ended September 30, 2016 has been derived from audited financial statements. (2) Non-GAAP financial measure, calculated as total stockholders' equity less goodwill and other intangible assets divided by period-end shares outstanding.

Charter Financial Corporation
Supplemental Information (unaudited)
dollars in thousands
 
    Quarter to Date     Year to Date
    12/31/2016   9/30/2016   6/30/2016   3/31/2016   12/31/2015     12/31/2016   12/31/2015
                               
Loans receivable:                              
1-4 family residential real estate   $ 223,609     $ 236,940     $ 234,346     $ 190,180     $ 182,297       $ 223,609     $ 182,297  
Commercial real estate   595,207     595,157     586,082     392,946     396,023       595,207     396,023  
Commercial   73,182     71,865     64,700     43,741     39,836       73,182     39,836  
Real estate construction   79,136     80,500     104,389     72,323     61,816       79,136     61,816  
Consumer and other   31,212     21,241     15,638     13,205     10,715       31,212     10,715  
Total loans receivable   $ 1,002,346     $ 1,005,703     $ 1,005,155     $ 712,395     $ 690,687       $ 1,002,346     $ 690,687  
                               
Allowance for loan losses:                              
Balance at beginning of period   $ 10,371     $ 10,118     $ 9,850     $ 9,695     $ 9,489       $ 10,371     $ 9,489  
Charge-offs   (50 )   (1 )   (7 )   (205 )   (15 )     (50 )   (15 )
Recoveries   928     404     375     360     221       928     221  
Provision   (750 )   (150 )   (100 )             (750 )    
Balance at end of period   $ 10,499     $ 10,371     $ 10,118     $ 9,850     $ 9,695       $ 10,499     $ 9,695  
                               
Nonperforming assets: (1)                              
Nonaccrual loans   $ 1,527     $ 3,735     $ 3,371     $ 2,098     $ 2,463       $ 1,527     $ 2,463  
Loans delinquent 90 days or greaterand still accruing   238             52     14       238     14  
Total nonperforming loans   1,765     3,735     3,371     2,150     2,477       1,765     2,477  
Other real estate owned   2,161     2,706     3,181     2,711     3,165       2,161     3,165  
Total nonperforming assets   $ 3,926     $ 6,441     $ 6,552     $ 4,861     $ 5,642       $ 3,926     $ 5,642  
                               
Troubled debt restructuring:                              
Troubled debt restructurings - accruing   $ 4,761     $ 4,585     $ 4,999     $ 7,267     $ 7,265       $ 4,761     $ 7,265  
Troubled debt restructurings -nonaccrual   192     1,760     1,716     332     317       192     317  
Total troubled debt restructurings   $ 4,953     $ 6,345     $ 6,715     $ 7,599     $ 7,582       $ 4,953     $ 7,582  

__________________________________

(1) Loans being accounted for under purchase accounting rules which have associated accretion income established at the time of acquisition remaining to recognize, that were greater than 90 days delinquent or otherwise considered nonperforming loans are excluded from this table.

Charter Financial Corporation
Supplemental Information (unaudited)
 
    Quarter to Date     Year to Date
    12/31/2016   9/30/2016   6/30/2016   3/31/2016   12/31/2015     12/31/2016   12/31/2015
                               
Return on equity (annualized)   9.84 %   7.55 %   2.61 %   4.32 %   8.97 %     9.84 %   8.97 %
Return on assets (annualized)   1.39 %   1.07 %   0.38 %   0.83 %   1.83 %     1.39 %   1.83 %
Net interest margin (annualized)   3.71 %   3.82 %   3.97 %   3.72 %   4.03 %     3.71 %   4.03 %
Net interest margin, excluding the effects of purchase accounting (1)   3.48 %   3.47 %   3.53 %   3.36 %   3.51 %     3.48 %   3.51 %
Holding company tier 1 leverage ratio (2)   12.83 %   12.68 %   12.60 %   18.89 %   19.29 %     12.83 %   19.29 %
Holding company total risk-based capital ratio (2)   17.55 %   16.74 %   15.93 %   25.11 %   25.89 %     17.55 %   25.89 %
Bank tier 1 leverage ratio (3)   11.70 %   11.51 %   11.32 %   17.13 %   17.19 %     11.70 %   17.19 %
Bank total risk-based capital ratio   16.06 %   15.26 %   14.99 %   22.98 %   23.23 %     16.06 %   23.23 %
Effective tax rate   33.98 %   35.56 %   28.91 %   34.28 %   33.83 %     33.98 %   33.83 %
Yield on loans   5.01 %   5.07 %   5.20 %   5.03 %   5.33 %     5.01 %   5.33 %
Cost of deposits   0.46 %   0.46 %   0.43 %   0.42 %   0.42 %     0.46 %   0.42 %
                               
Asset quality ratios: (4)                              
Allowance for loan losses as a % of total loans (5)   1.05 %   1.03 %   1.00 %   1.38 %   1.40 %     1.05 %   1.40 %
Allowance for loan losses as a % of nonperforming loans   594.81 %   277.66 %   300.10 %   458.13 %   391.42 %     594.81 %   391.42 %
Nonperforming assets as a % of total loans and OREO   0.39 %   0.64 %   0.65 %   0.68 %   0.81 %     0.39 %   0.81 %
Nonperforming assets as a % of total assets   0.27 %   0.45 %   0.46 %   0.46 %   0.56 %     0.27 %   0.56 %
Net charge-offs (recoveries) as a % of average loans (annualized)   (0.35 )%   (0.16 )%   (0.15 )%   (0.09 )%   (0.12 )%     (0.35 )%   (0.12 )%

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(1) Net interest income excluding accretion and amortization of acquired loans divided by average net interest earning assets excluding average loan accretable discounts, a non-GAAP measure, in the amount of $2.9 million, $3.8 million, $4.7 million, $2.0 million, and $3.1 million for the quarters ended December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015, respectively. (2) Current period holding company capital ratios are estimated as of the date of this earnings release. (3) During the quarter ended June 30, 2016, a net downstream of capital was made between the holding company and the bank in the amount of $6.1 million as part of the Company's acquisition of CBS. (4) Ratios for the three months ended December, 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015 include all assets with the exception of FAS ASC 310-30 loans that are excluded from nonperforming loans due to the ongoing recognition of accretion income established at the time of acquisition. (5) Accounting requirements for the third quarter 2016 acquisition of CBS have affected the comparability of the allowance for loan losses as a percentage of loans. Excluding former CBS loans totaling $191.9 million, $236.4 million and $264.7 million at December 31, 2016, September 30, 2016, and June 30, 2016, respectively, which were recorded at acquisition date fair value, the allowance approximated 1.30%, 1.35% and 1.37% of all other loans at December 31, 2016, September 30, 2016, and June 30, 2016, respectively.

Charter Financial Corporation
Average Balances, Interest Rates and Yields (unaudited)
dollars in thousands
 
  Quarter to Date
  12/31/2016   12/31/2015
  AverageBalance   Interest   AverageYield/Cost (10)   AverageBalance   Interest   AverageYield/Cost (10)
Assets:                      
Interest-earning assets:                      
Interest-earning deposits in other financial institutions $ 99,268     $ 111     0.45 %   $ 23,371     $ 12     0.21 %
Certificates of deposit held at other financial institutions 13,351     43     1.28              
FHLB common stock and other equity securities 3,362     39     4.67     3,078     39     5.06  
Taxable investment securities 195,131     1,096     2.25     180,573     946     2.10  
Nontaxable investment securities (1) 1,597     5     1.14              
Restricted securities 279     3     3.69              
Loans receivable (1)(2)(3)(4) 1,003,322     11,846     4.72     707,926     8,273     4.67  
Accretion, net, of acquired loan discounts (5)     723     0.29         1,169     0.86  
Total interest-earning assets 1,316,310     13,866     4.21     914,948     10,439     4.56  
Total noninterest-earning assets 134,572             94,441          
Total assets $ 1,450,882             $ 1,009,389          
Liabilities and Equity:                      
Interest-bearing liabilities:                      
Interest bearing checking $ 251,070     $ 86     0.14 %   $ 177,536     $ 55     0.12 %
Bank rewarded checking 51,752     26     0.20     46,705     23     0.20  
Savings accounts 62,157     6     0.04     50,390     4     0.03  
Money market deposit accounts 255,332     194     0.30     130,890     75     0.23  
Certificate of deposit accounts 380,962     846     0.89     232,011     508     0.88  
Total interest-bearing deposits 1,001,273     1,158     0.46     637,532     665     0.42  
Borrowed funds 50,000     387     3.10     51,630     553     4.28  
Floating rate junior subordinated debt 6,599     121     7.32              
Total interest-bearing liabilities 1,057,872     1,666     0.63     689,162     1,218     0.71  
Noninterest-bearing deposits 172,247             103,433          
Other noninterest-bearing liabilities 15,775             10,916          
Total noninterest-bearing liabilities 188,022             114,349          
Total liabilities 1,245,894             803,511          
Total stockholders' equity 205,021             205,878          
Total liabilities and stockholders' equity $ 1,450,915             $ 1,009,389          
Net interest income     $ 12,200             $ 9,221      
Net interest earning assets (6)     $ 258,438             $ 225,786      
Net interest rate spread (7)         3.58 %           3.85 %
Net interest margin (8)         3.71 %           4.03 %
Net interest margin, excluding the effects of purchase accounting (9)         3.48 %           3.51 %
Ratio of average interest-earning assets to average interest-bearing liabilities         124.43 %           132.76 %

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(1) Tax exempt or tax-advantaged securities and loans are shown at their contractual yields and are not shown at a tax equivalent yield. (2) Includes net loan fees deferred and accreted pursuant to applicable accounting requirements. (3) Interest income on loans is interest income as recorded in the income statement and does not include interest income on nonaccrual loans. (4) Interest income on loans excludes discount accretion and amortization of the indemnification asset. (5) Accretion of accretable purchase discount on loans acquired. (6) Net interest-earning assets represent total average interest-earning assets less total average interest-bearing liabilities. (7) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. (8) Net interest margin represents net interest income as a percentage of average interest-earning assets. (9) Net interest margin, excluding the effects of purchase accounting, a non-GAAP measure, represents net interest income excluding accretion and amortization of acquired loans receivable as a percentage of average net interest earning assets excluding loan accretable discounts in the amount of $2.9 million and $3.1 million for the quarters ended December 31, 2016 and December 31, 2015, respectively. (10) Annualized.

Charter Financial Corporation Reconciliation of Non-GAAP Measures (unaudited)

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. Charter Financial management uses non-GAAP financial measures, including loans receivable income excluding accretion, net interest margin excluding the effects of purchase accounting, and tangible book value per share, in its analysis of the Company's performance. Loans receivable income excluding accretion excludes the following from loans receivable income: accretion from purchase discounts related to acquired loans. Net interest margin excluding the effects of purchase accounting excludes the following from net interest margin: net purchase discount accretion and the average balance of purchase discounts. Tangible book value per share excludes the following from book value per share: the balance of goodwill and other intangible assets.

Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company and provide meaningful comparison to its peers. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

    For the Quarters Ended
    12/31/2016   9/30/2016   6/30/2016   3/31/2016   12/31/2015
Loans Receivable Income Excluding Accretion                    
Loans receivable income   $ 12,569,903     $ 12,680,420     $ 12,563,466     $ 8,863,437     $ 9,441,525  
Net purchase discount accretion   724,109     1,090,886     1,278,040     833,179     1,168,982  
Loans receivable income excluding accretion (Non-GAAP)   $ 11,845,794     $ 11,589,534     $ 11,285,426     $ 8,030,258     $ 8,272,543  
                     
Net Interest Margin Excluding the Effects of Purchase Accounting                    
Net Interest Margin   3.71 %   3.82 %   3.97 %   3.72 %   4.03 %
Effect to adjust for net purchase discount accretion   (0.23 )   (0.35 )   (0.44 )   (0.36 )   (0.52 )
Net interest margin excluding the effectsof purchase accounting (Non-GAAP)   3.48 %   3.47 %   3.53 %   3.36 %   3.51 %
                     
Tangible Book Value Per Share                    
Book value per share   $ 13.67     $ 13.52     $ 13.29     $ 13.18     $ 13.03  
Effect to adjust for goodwill and other intangible assets   (2.15 )   (2.16 )   (2.18 )   (0.29 )   (0.30 )
Tangible book value per share (Non-GAAP)   $ 11.52     $ 11.36     $ 11.11     $ 12.89     $ 12.73  

 
Contact:Robert L. Johnson, Chairman & CEOCurt Kollar, CFO706-645-1391bjohnson@charterbank.net orckollar@charterbank.netDresner Corporate ServicesSteve Carr312-780-7211scarr@dresnerco.com

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