• Basic and diluted EPS of $0.31 and $0.29 for the quarter, respectively
  • Strong first full quarter with Resurgens as Charter expands in Metro Atlanta
  • Highest-ever quarter for deposit and bankcard fees, 12.7% growth over the same quarter in 2017
  • Estimated revaluation adjustment of deferred tax asset of $1.4 million due to Tax Cuts and Jobs Act

WEST POINT, Ga., Jan. 26, 2018 (GLOBE NEWSWIRE) -- Charter Financial Corporation (the "Company") (NASDAQ:CHFN) today reported net income of $4.4 million for the quarter ended December 31, 2017, or $0.31 and $0.29 per basic and diluted share, respectively, compared with net income of $5.0 million, or $0.36 and $0.33 per basic and diluted share, respectively, for the quarter ended December 31, 2016.

Net income for the current-year quarter decreased $649,000 from the prior-year quarter. The difference was attributable to a $1.4 million charge to income tax expense as a result of the revaluation of our deferred tax asset, offset in part by $2.2 million of growth in loans receivable interest income, due largely to the Company's first full quarter with the newly acquired Resurgens Bancorp ("Resurgens"). The Company's return on equity for the current year quarter was 8.10%, as compared to 6.89% for the last full fiscal year, while the Company's return on tangible equity (a non-GAAP measure which excludes the average balance of intangible assets from average equity) was 10.10%, as compared to 8.18% for the fiscal year ended September 30, 2017. Revenue increased 7.2% to $19.7 million for the quarter ended December 31, 2017 compared to $18.4 million for the quarter ended September 30, 2017, while noninterest expense declined 17.5% to $11.9 million at December 31, 2017 from $14.4 million at September 30, 2017.

"We had an excellent first quarter with strong revenue growth, aided by our first full quarter with Resurgens," said Chairman and CEO Robert L. Johnson. "We also saw improvement in our noninterest expense when compared to the September 2017 quarter, as we had $1.9 million of merger-related costs last quarter and only $309,000 of deal costs during the current quarter. We had our best-ever quarter of deposit and bankcard fees, continued growth in our net interest margin, and had first-quarter loan growth for the first time in three years, though we still have work to do on growing our portfolio. We had the benefit of several one-time positive items, which were more than offset by the revaluation of our deferred tax asset. We're also beginning to see the benefit of the Resurgens acquisition, as our efficiency ratio improved to 60.26%."

Core system conversion of the Resurgens acquisition is expected to be completed in February 2018, and no further deal costs are expected after that time.

Tax Cuts and Jobs Act

On December 22, 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act, the tax reform bill (the "Tax Act"). Under the Tax Act, federal corporate tax rates were cut to 21% from 35%. The Company's net deferred tax assets, which totaled $6.0 million at September 30, 2017, were calculated using the previous statutory rate of 35%. Because of the change, the Company revalued the net deferred tax asset and recorded an estimated expense of $1.4 million, or approximately $0.10 and $0.09 per basic and diluted share, respectively, as an addition to income tax expense at December 31, 2017. The Company is utilizing the measurement period approach to revalue its deferred tax asset, so the amount may change prior to fiscal year end at September 30, 2018.

In spite of the one-time charge, the Company expects to realize significant savings as a result of the tax rate changes from the Tax Act. Management's calculations estimate that the new rate would have reduced the Company's income tax expense $3.0 million during the previous fiscal year under full implementation of the 21% rate. Due to the Company's fiscal year, our income taxes will be calculated at a blended 24.5% federal statutory rate for the current fiscal year and 21% for future fiscal years. The new, blended tax rate is expected to reduce income tax expense by approximately $2.5 million as compared to the prior rate during the current year, with greater reductions in future years when the new rate is fully implemented. The rate change reduced expense $742,000, or $0.05 per basic and diluted share, in regular tax accruals during the current quarter.

"We are very excited about the opportunities the new tax law will give us," Mr. Johnson said. "We feel the savings provided by the new, lower corporate tax rate will give us far greater ability to provide value for all our stakeholders, principally, our customers, in the long term."

Quarterly Operating Results

Quarterly earnings for the first quarter of fiscal 2018 compared with the first quarter of fiscal 2017 were positively impacted by:
  • An increase in loans receivable income of $2.2 million, or 17.5%, to $14.8 million for the 2018 first quarter, compared with $12.6 million for the same quarter in 2017, as a result of our first full quarter with Resurgens.
  • An increase in deposit and bankcard fee income of $403,000, or 12.7%.
  • Interest on interest-bearing deposits in other financial institutions increased $250,000 due to our increased cash balances and the Federal Reserve's rate increases.
  • One-time items including a $266,000 gain on the sale of assets available for sale and $215,000 in incentive payments from our bankcard vendor, both included in other income.

Quarterly earnings for the first quarter of fiscal 2018 compared with the first quarter of fiscal 2017 were negatively impacted by:
  • A $1.4 million additional charge to income tax as the result of the revaluation of our deferred tax asset due to the new Tax Act.
  • Nonrecurring deal costs from the Resurgens acquisition of $309,000, largely concentrated in severance costs. No deal costs were recorded in the same period in 2017.
  • An increase in interest expense on deposits of $305,000, or 26.3%, due to higher balances as well as an increase of seven basis points in the Company's cost of deposits due to higher-costing deposits from Resurgens assumed in September 2017, adding to our already increased legacy deposit rates. The Company's cost of deposits increased three basis points from the quarter ended September 30, 2017.
  • Salaries and employee benefits increased $875,000, or 14.3%, and data processing increased $244,000, due to Resurgens transaction costs as well as increased ongoing operating costs as a result of the acquisition.

Financial Condition

Total assets increased $3.5 million from September 30, 2017 to $1.6 billion at December 31, 2017, largely attributable to loan and deposit growth. Net loans grew $2.0 million, or 0.2%, to $1.2 billion at December 31, 2017, driven by $3.4 million of growth in our Atlanta markets.

"We are very pleased with our asset growth during the first quarter of fiscal 2018," Mr. Johnson said. "Over the past several fiscal years, the first quarter has been a challenge for us in growing our loan portfolio, so we are excited to see an increase there, even if a small one. As we continue to integrate our new Resurgens team we expect to use our capital and market base to further expand the loan portfolio."

Total deposits increased $4.9 million to $1.3 billion during the three months ended December 31, 2017, largely due to growth in our money market accounts of $13.1 million. Transaction accounts increased $7.5 million from September 30, 2017, while retail certificates of deposit decreased $14.8 million.

From September 30, 2017 to December 31, 2017, total stockholders' equity increased $4.0 million to $218.2 million due primarily to $4.4 million of net income. Book value per share increased to $14.42 at December 31, 2017 from $14.17 at September 30, 2017 due to the Company's retention of earnings, while tangible book value per share, a non-GAAP financial measure (see Reconciliation of Non-GAAP Measures for further information) increased to $11.59 from $11.33.

Net Interest Income and Net Interest Margin

Net interest income increased $2.1 million to $14.3 million for the first quarter of fiscal 2018, compared with $12.2 million for the prior-year period. Total interest income increased $2.4 million. These increases were attributable to increased loan balances and loans receivable interest income as a result of the Resurgens acquisition, as well as increased loan interest income from the higher market interest rates. Loans receivable interest income increased $2.2 million to $14.8 million during the current quarter from $12.6 million during the prior-year quarter. The Company also experienced an increase of $250,000 in interest income on interest-bearing deposits in other financial institutions during the current-year quarter due to higher cash balances and the Federal Reserve's interest rate increases. Total interest expense increased $306,000 to $2.0 million for the current quarter, with approximately $100,000 due to increased deposit balances and the remainder to higher rates. A portion of the rate increase was attributable to increased interest rates on our money market accounts and certificates of deposit, while the remainder was tied to higher-costing deposits from the Resurgens acquisition.

"We've benefited from the rate increases from the Federal Reserve, both in our prime-based loans receivable income and our interest-bearing overnight deposits," Mr. Johnson said. "Thus far we've been able to keep our deposit rates low, despite a slight uptick in the last two quarters. Our mix of deposits from our non-metro legacy markets with relatively stable deposit costs and our more recently acquired Metro Atlanta deposits provide a nice blend of growth potential and rate stability.  "

Net interest margin was 3.87% for the first quarter of fiscal 2018, compared to 3.71% for the first quarter of fiscal 2017. The impact of purchase accounting on the Company's net interest margin was 0.10% for the quarter ended December 31, 2017, compared to 0.23% for the quarter ended December 31, 2016 as our accretion income has dropped while legacy loans receivable income has increased. The increase in net interest margin was attributable to increased loan income, both from acquisitions and legacy loan growth, as well as increased yields on the Company's Federal Reserve deposits. While the Company will use some of the benefits of the Tax Act to increase rates on deposits, we are relatively well-positioned to protect net interest margin due to our high liquidity and moderate level of loans to deposits.

At December 31, 2017, the Company had $3.7 million of remaining loan discount accretion related to the Community Bank of the South ("CBS") and Resurgens acquisitions, which will be accreted over the lives of the loans acquired.

Provision for Loan Losses

The Company recorded no provision for loan losses in the quarter ended December 31, 2017, due to the continued positive credit quality trends of its loan portfolio and net recoveries of previously charged-off loans. A negative provision of $750,000 was recorded in the quarter ended December 31, 2016.

Noninterest Income and Expense

Noninterest income increased $409,000 to $5.4 million in the fiscal 2018 first quarter compared to $5.0 million in the same period of 2017. The increase was primarily due to a $403,000, or 12.7%, increase in deposit and bankcard fees, reflecting the continued success of the Company's signature debit card transaction marketing and deposit growth, a $215,000 gain on incentive rebates from our debit card vendor, and a nonrecurring $266,000 gain on the sale of assets available for sale. These increases were offset in part by a $112,000 decrease in gain on sale of loans due to reduced mortgage sale activity. The Company also recorded $250,000 of recoveries on loans formerly covered under loss share agreements during the prior year quarter, while no such gain was recorded for the three months ended December 31, 2017.

Noninterest expense for the quarter ended December 31, 2017, increased $1.6 million to $11.9 million, compared with $10.3 million for the prior-year quarter, primarily due to increased ongoing operational costs as a result of the acquisition of Resurgens. Salaries and employee benefits increased $875,000, or 14.3%, to $7.0 million during the current quarter, while occupancy and data processing increased $154,000 and $244,000, or 11.7% and 26.8%, over the prior-year quarter. The Company also recorded $309,000 of merger costs from the Resurgens acquisition, which were largely concentrated in severance costs. Net benefit of operations of real estate owned decreased $310,000 due to reduced sales activity in the current quarter as the balance of real estate owned has fallen to minimal levels.

Asset Quality

Nonperforming assets at December 31, 2017 were at 0.19% of total assets, unchanged from September 30, 2017. The allowance for loan losses was at 0.96% of total loans and 575.09% of nonperforming loans at December 31, 2017, compared to 0.96% and 649.13%, respectively, at September 30, 2017. Not included in the allowance at December 31, 2017 was $3.7 million in yield and credit discounts on the CBS- and Resurgens-acquired loans. At December 31, 2017, the allowance for loan losses was 1.19% of legacy loans, compared to 1.22% at September 30, 2017. The Company recorded net loan recoveries of $36,000 in its allowance for loan losses for the quarter ended December 31, 2017, compared with net loan recoveries of $878,000 for the same period in the prior year.

Capital Management

From the first quarter of fiscal 2014 through the first quarter of fiscal 2017, the Company has repurchased 8.1 million shares, or 35.6%, of its common stock, for $91.9 million. The company repurchased 14,364 shares for cash proceeds of $263,000 during the quarter ended December 31, 2017 to satisfy tax withholding obligations for restricted stock awards of certain  officers, not as part of its publicly announced repurchase program.

During the quarter ended December 31, 2017, the Company paid a $0.075 per-share dividend. The Company announced on January 23, 2018 it would pay a dividend of $0.08 per share on February 27, 2018 to shareholders of record as of February 13, 2018. This will be the sixth consecutive quarterly dividend increase. The Company's equity as a percent of total assets stood at 13.27% at December 31, 2017, as compared to 13.06% at September 30, 2017, while the Company's tangible common equity ratio, a non-GAAP measure, was 10.96% at December 31, 2017, up from 10.72% at September 30, 2017.

Mr. Johnson concluded, "Charter Financial continues to be in great position to capitalize on our long term goals, and the new tax bill should only help us achieve these goals. Asset quality remains strong, and our new teams in Cobb and DeKalb Counties are positioned to perform well as we expand into the Metro Atlanta market. We still have plenty of capacity to use our capital to expand the balance sheet, either through acquisitions or legacy loan growth. Our capital position remains strong and the increase in the dividend is evidence of the board's confidence in our promising outlook for 2018 and beyond."

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," "well-positioned," "planned," "intend," "strive," "probably," "focused on," "estimated," "working on," "continue to," "seek," "leverage," "building," 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 and Resurgens Bank; 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; the uncertainty in global markets resulting from the new administration; 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, 2017. 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.
     
Robert L. Johnson, Chairman & CEO   Dresner Corporate Services
Curt Kollar, CFO   Steve Carr
706-645-1391   312-780-7211
bjohnson@charterbank.net or   scarr@dresnerco.com
ckollar@charterbank.net    

Charter Financial Corporation Condensed Consolidated Statements of Financial Condition (unaudited)
  December 31, 2017   September 30, 2017 (1)
Assets
Cash and amounts due from depository institutions $ 30,039,650     $ 25,455,465  
Interest-earning deposits in other financial institutions 133,103,757     126,882,924  
Cash and cash equivalents 163,143,407     152,338,389  
Loans held for sale, fair value of $1,255,793 and $1,998,988 1,227,642     1,961,185  
Certificates of deposit held at other financial institutions 6,028,670     7,514,630  
Investment securities available for sale 180,204,970     183,789,821  
Federal Home Loan Bank stock 4,054,400     4,054,400  
Restricted securities, at cost 279,000     279,000  
Loans receivable 1,163,447,715     1,161,519,752  
Unamortized loan origination fees, net (1,020,158 )   (1,165,148 )
Allowance for loan losses (11,113,945 )   (11,078,422 )
Loans receivable, net 1,151,313,612     1,149,276,182  
Other real estate owned 1,244,367     1,437,345  
Accrued interest and dividends receivable 4,632,342     4,197,708  
Premises and equipment, net 29,312,694     29,578,513  
Goodwill 39,347,378     39,347,378  
Other intangible assets, net of amortization 3,424,082     3,614,833  
Cash surrender value of life insurance 53,838,402     53,516,317  
Deferred income taxes 3,366,683     5,970,282  
Other assets 2,254,893     3,282,577  
Total assets $ 1,643,672,542     $ 1,640,158,560  
Liabilities and Stockholders' Equity
Liabilities:      
Deposits $ 1,343,997,345     $ 1,339,143,287  
Short-term borrowings 3,009,550      
Long-term borrowings 57,009,550     60,023,100  
Floating rate junior subordinated debt 6,758,921     6,724,646  
Advance payments by borrowers for taxes and insurance 1,279,972     2,956,441  
Other liabilities 13,430,494     17,112,581  
Total liabilities 1,425,485,832     1,425,960,055  
Stockholders' equity:      
Common stock, $0.01 par value; 15,132,320 shares issued and outstanding at December 31, 2017 and 15,115,883 shares issued and outstanding at September 30, 2017 151,323     151,159  
Preferred stock, $0.01 par value; 50,000,000 shares authorized at December 31, 2017 and September 30, 2017      
Additional paid-in capital 86,384,212     85,651,391  
Unearned compensation - ESOP (4,192,308 )   (4,673,761 )
Retained earnings 137,525,408     134,207,368  
Accumulated other comprehensive loss (1,681,925 )   (1,137,652 )
Total stockholders' equity 218,186,710     214,198,505  
Total liabilities and stockholders' equity $ 1,643,672,542     $ 1,640,158,560  

__________________________________
  1. Financial information at September 30, 2017 has been derived from audited financial statements.

Charter Financial Corporation Condensed Consolidated Statements of Income (unaudited)

  Three Months Ended  December 31,
  2017   2016
Interest income:      
Loans receivable $ 14,771,827     $ 12,569,903  
Taxable investment securities 1,064,082     1,095,900  
Nontaxable investment securities 3,274     4,571  
Federal Home Loan Bank stock 51,199     39,210  
Interest-earning deposits in other financial institutions 361,276     110,817  
Certificates of deposit held at other financial institutions 25,106     42,629  
Restricted securities 3,067     2,573  
Total interest income 16,279,831     13,865,603  
Interest expense:      
Deposits 1,463,297     1,158,316  
Borrowings 371,575     386,975  
Floating rate junior subordinated debt 137,480     120,792  
Total interest expense 1,972,352     1,666,083  
Net interest income 14,307,479     12,199,520  
Provision for loan losses     (750,000 )
Net interest income after provision for loan losses 14,307,479     12,949,520  
Noninterest income:      
Service charges on deposit accounts 2,113,531     1,887,810  
Bankcard fees 1,459,473     1,282,358  
Gain on investment securities available for sale 1,074      
Bank owned life insurance 322,085     332,352  
Gain on sale of loans 619,209     731,262  
Brokerage commissions 172,377     165,996  
Recoveries on acquired loans previously covered under FDIC-assisted acquisitions     250,000  
Other 703,709     333,067  
Total noninterest income 5,391,458     4,982,845  
Noninterest expenses:      
Salaries and employee benefits 7,008,791     6,133,673  
Occupancy 1,477,818     1,323,323  
Data processing 1,152,728     908,955  
Legal and professional 266,394     284,156  
Marketing 329,137     356,524  
Federal insurance premiums and other regulatory fees 188,314     165,495  
Net benefit of operations of real estate owned (49,602 )   (359,270 )
Furniture and equipment 239,984     174,055  
Postage, office supplies and printing 231,718     270,385  
Core deposit intangible amortization expense 190,751     153,662  
Other 835,310     878,549  
Total noninterest expenses 11,871,343     10,289,507  
Income before income taxes 7,827,594     7,642,858  
Income tax expense 3,430,591     2,597,191  
Net income $ 4,397,003     $ 5,045,667  
Basic net income per share $ 0.31     $ 0.36  
Diluted net income per share $ 0.29     $ 0.33  
Weighted average number of common shares outstanding 14,408,416     14,207,468  
Weighted average number of common and potential common shares outstanding 15,233,282     15,064,879  

Charter Financial Corporation Supplemental Financial Data (unaudited) in thousands except per share data

  Quarter to Date     Year to Date
  12/31/2017   9/30/2017 (1)   6/30/2017   3/31/2017   12/31/2016     12/31/2017   12/31/2016
                             
Consolidated balance sheet data:                            
Total assets $ 1,643,673     $ 1,640,159     $ 1,480,122     $ 1,484,796     $ 1,461,667       $ 1,643,673     $ 1,461,667  
Cash and cash equivalents 163,143     152,338     120,144     140,285     131,849       163,143     131,849  
Loans receivable, net 1,151,314     1,149,276     1,032,108     1,007,552     990,635       1,151,314     990,635  
Other real estate owned 1,244     1,437     1,938     1,957     2,161       1,244     2,161  
Securities available for sale 180,205     183,790     187,655     191,483     196,279       180,205     196,279  
Transaction accounts 574,682     567,213     510,810     513,294     481,841       574,682     481,841  
Total deposits 1,343,997     1,339,143     1,194,254     1,201,731     1,186,347       1,343,997     1,186,347  
Borrowings 66,778     66,748     56,690     56,656     56,622       66,778     56,622  
Total stockholders' equity 218,187     214,199     212,080     208,413     205,500       218,187     205,500  
                             
Consolidated earnings summary:                            
Interest income $ 16,280     $ 15,062     $ 13,626     $ 13,307     $ 13,866       $ 16,280     $ 13,866  
Interest expense 1,973     1,762     1,639     1,652     1,666       1,973     1,666  
Net interest income 14,307     13,300     11,987     11,655     12,200       14,307     12,200  
Provision for loan losses             (150 )   (750 )         (750 )
Net interest income after provision for loan losses 14,307     13,300     11,987     11,805     12,950       14,307     12,950  
Noninterest income 5,391     5,070     4,639     4,546     4,983       5,391     4,983  
Noninterest expense 11,870     14,386     11,096     10,750     10,290       11,870     10,290  
Income tax expense 3,431     1,424     2,016     2,284     2,597       3,431     2,597  
Net income $ 4,397     $ 2,560     $ 3,514     $ 3,317     $ 5,046       $ 4,397     $ 5,046  
                             
Per share data:                            
Earnings per share - basic $ 0.31     $ 0.18     $ 0.24     $ 0.23     $ 0.36       $ 0.31     $ 0.36  
Earnings per share - fully diluted $ 0.29     $ 0.17     $ 0.23     $ 0.22     $ 0.33       $ 0.29     $ 0.33  
Cash dividends per share $ 0.075     $ 0.070     $ 0.065     $ 0.060     $ 0.055       $ 0.075     $ 0.060  
                             
Weighted average basic shares 14,408     14,384     14,353     14,322     14,207       14,408     14,207  
Weighted average diluted shares 15,233     15,241     15,257     15,340     15,065       15,233     15,065  
Total shares outstanding 15,132     15,116     15,112     15,061     15,031       15,132     15,031  
                             
Book value per share $ 14.42     $ 14.17     $ 14.03     $ 13.84     $ 13.67       $ 14.42     $ 13.67  
Tangible book value per share (2) $ 11.59     $ 11.33     $ 11.92     $ 11.70     $ 11.52       $ 11.59     $ 11.52  

__________________________________
  1. Financial information at and for the year ended September 30, 2017 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
  12/31/2017   9/30/2017   6/30/2017   3/31/2017   12/31/2016     12/31/2017   12/31/2016
                             
Loans receivable:                            
1-4 family residential real estate $ 224,829     $ 232,040     $ 222,904     $ 223,216     $ 223,609       $ 224,829     $ 223,609  
Commercial real estate 698,906     697,071     624,926     608,206     595,207       698,906     595,207  
Commercial 106,669     103,673     79,695     73,119     73,182       106,669     73,182  
Real estate construction 94,142     88,792     75,941     77,332     79,136       94,142     79,136  
Consumer and other 38,902     39,944     40,675     37,300     31,212       38,902     31,212  
Total loans receivable $ 1,163,448     $ 1,161,520     $ 1,044,141     $ 1,019,173     $ 1,002,346       $ 1,163,448     $ 1,002,346  
                             
Allowance for loan losses:                            
Balance at beginning of period $ 11,078     $ 10,800     $ 10,505     $ 10,499     $ 10,371       $ 11,078     $ 10,371  
Charge-offs (267 )   (76 )   (73 )   (103 )   (50 )     (267 )   (50 )
Recoveries 303     354     368     259     928       303     928  
Provision             (150 )   (750 )         (750 )
Balance at end of period $ 11,114     $ 11,078     $ 10,800     $ 10,505     $ 10,499       $ 11,114     $ 10,499  
                             
Nonperforming assets: (1)                            
Nonaccrual loans $ 1,600     $ 1,661     $ 1,549     $ 1,610     $ 1,527       $ 1,600     $ 1,527  
Loans delinquent 90 days or greater and still accruing 332     46     291         238       332     238  
Total nonperforming loans 1,932     1,707     1,840     1,610     1,765       1,932     1,765  
Other real estate owned 1,244     1,437     1,938     1,957     2,161       1,244     2,161  
Total nonperforming assets $ 3,177     $ 3,144     $ 3,778     $ 3,567     $ 3,925       $ 3,176     $ 3,925  
                             
Troubled debt restructuring:                            
Troubled debt restructurings - accruing $ 4,368     $ 4,951     $ 5,007     $ 5,073     $ 4,761       $ 4,368     $ 4,761  
Troubled debt restructurings - nonaccrual 90     92     107     137     192       90     192  
Total troubled debt restructurings $ 4,458     $ 5,043     $ 5,114     $ 5,210     $ 4,953       $ 4,458     $ 4,953  

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  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 at the acquisition date are excluded from this table.

Charter Financial Corporation Supplemental Information (unaudited)

  Quarter to Date     Year to Date
  12/31/2017   9/30/2017   6/30/2017   3/31/2017   12/31/2016     12/31/2017   12/31/2016
                             
Return on equity (annualized) 8.10 %   4.77 %   6.65 %   6.40 %   9.84 %     8.10 %   9.84 %
Return on tangible equity (annualized) (1) 10.10 %   5.72 %   7.84 %   7.58 %   11.69 %     10.10 %   11.69 %
Return on assets (annualized) 1.08 %   0.67 %   0.96 %   0.91 %   1.39 %     1.08 %   1.39 %
Net interest margin (annualized) 3.87 %   3.85 %   3.60 %   3.52 %   3.71 %     3.87 %   3.71 %
Impact of purchase accounting on net interest margin (2) 0.10 %   0.14 %   0.05 %   0.11 %   0.23 %     0.10 %   0.23 %
Holding company tier 1 leverage ratio (3) 11.55 %   12.05 %   13.08 %   12.92 %   12.83 %     11.55 %   12.83 %
Holding company total risk-based capital ratio (3) 15.90 %   15.79 %   17.98 %   17.93 %   17.38 %     15.90 %   17.38 %
Bank tier 1 leverage ratio (3) (4) 10.57 %   10.96 %   12.06 %   11.84 %   11.70 %     10.57 %   11.70 %
Bank total risk-based capital ratio (3) 14.61 %   14.45 %   16.67 %   16.53 %   15.91 %     14.61 %   15.91 %
Effective tax rate (5) 43.83 %   35.75 %   36.46 %   40.78 %   33.98 %     43.83 %   33.98 %
Yield on loans 5.10 %   5.04 %   4.79 %   4.74 %   5.01 %     5.10 %   5.01 %
Cost of deposits 0.53 %   0.50 %   0.47 %   0.46 %   0.46 %     0.53 %   0.46 %
                             
Asset quality ratios: (6)                            
Allowance for loan losses as a % of total loans (7) 0.96 %   0.96 %   1.04 %   1.04 %   1.05 %     0.96 %   1.05 %
Allowance for loan losses as a % of nonperforming loans 575.09 %   649.13 %   586.83 %   652.47 %   594.81 %     575.09 %   594.81 %
Nonperforming assets as a % of total loans and OREO 0.27 %   0.27 %   0.36 %   0.35 %   0.39 %     0.27 %   0.39 %
Nonperforming assets as a % of total assets 0.19 %   0.19 %   0.26 %   0.24 %   0.27 %     0.19 %   0.27 %
Net charge-offs (recoveries) as a % of average loans (annualized) (0.01 )%   (0.10 )%   (0.12 )%   (0.06 )%   (0.35 )%     (0.01 )%   (0.35 )%

__________________________________
  1. Non-GAAP financial measure, derived as net income divided by average tangible equity.
  2. Impact on net interest margin when excluding accretion income and average balance of accretable discounts.
  3. Current period bank and holding company capital ratios are estimated as of the date of this earnings release.
  4. During the quarter ended September 30, 2017, a net upstream of capital was made between the bank and the holding company in the amount of $2.7 million as part of the Company's acquisition of Resurgens.
  5. Excluding the revaluation of the Company's deferred tax asset, which resulted in an additional charge to income tax expense of $1.4 million, the Company's effective tax rate for the three months ended December 31, 2017 was 25.7%.
  6. Ratios for the three months ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016 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.
  7. Excluding former CBS and Resurgens loans totaling $224.8 million, $254.2 million, $154.0 million, $166.5 million, and $191.9 million at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively, which were recorded at acquisition date fair value, the allowance approximated 1.19%, 1.22%, 1.22%, 1.24%, and 1.30% of all other loans at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively.

Charter Financial Corporation Average Balances, Interest Rates and Yields (unaudited) dollars in thousands

  Quarter to Date
  12/31/2017   12/31/2016
  Average Balance   Interest   Average Yield/Cost (10)   Average Balance   Interest   Average Yield/Cost (10)
Assets:                      
Interest-earning assets:                      
Interest-earning deposits in other financial institutions $ 126,831     $ 361     1.14 %   $ 99,268     $ 111     0.45 %
Certificates of deposit held at other financial institutions 6,991     25     1.44     13,351     43     1.28  
FHLB common stock and other equity securities 4,054     51     5.05     3,362     39     4.67  
Taxable investment securities 181,992     1,064     2.34     195,131     1,096     2.25  
Nontaxable investment securities (1) 1,065     3     1.23     1,597     5     1.14  
Restricted securities 279     3     4.40     279     3     3.69  
Loans receivable (1)(2)(3)(4) 1,158,058     14,437     4.99     1,003,322     11,846     4.72  
Accretion, net, of acquired loan discounts (5)     335     0.12         723     0.29  
Total interest-earning assets 1,479,270     16,280     4.40     1,316,310     13,866     4.21  
Total noninterest-earning assets 156,540             134,605          
Total assets $ 1,635,810             $ 1,450,915          
Liabilities and Equity:                      
Interest-bearing liabilities:                      
Interest bearing checking $ 277,130     $ 127     0.18 %   $ 251,070     $ 86     0.14 %
Bank rewarded checking 53,186     27     0.20     51,752     26     0.20  
Savings accounts 66,177     7     0.04     62,157     6     0.04  
Money market deposit accounts 286,673     305     0.43     255,332     194     0.30  
Certificate of deposit accounts 414,981     998     0.96     380,962     846     0.89  
Total interest-bearing deposits 1,098,147     1,464     0.53     1,001,273     1,158     0.46  
Borrowed funds 60,022     372     2.48     50,000     387     3.10  
Floating rate junior subordinated debt 6,736     137     8.16     6,599     121     7.32  
Total interest-bearing liabilities 1,164,905     1,973     0.68     1,057,872     1,666     0.63  
Noninterest-bearing deposits 235,894             172,247          
Other noninterest-bearing liabilities 17,991             15,775          
Total noninterest-bearing liabilities 253,885             188,022          
Total liabilities 1,418,790             1,245,894          
Total stockholders' equity 217,020             205,021          
Total liabilities and stockholders' equity $ 1,635,810             $ 1,450,915          
Net interest income     $ 14,307             $ 12,200      
Net interest earning assets (6)     $ 314,365             $ 258,438      
Net interest rate spread (7)         3.72 %           3.58 %
Net interest margin (8)         3.87 %           3.71 %
Impact of purchase accounting on net interest margin (9)         0.10 %           0.23 %
Ratio of average interest-earning assets to average interest-bearing liabilities         126.99 %           124.43 %

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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.
  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. Impact on net interest margin when excluding accretion income and average accretable discounts.
  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 tangible book value per share, tangible common equity ratio, and return on average tangible equity in its analysis of the Company's performance. Tangible book value per share excludes the following from book value per share: the balance of goodwill and other intangible assets. Tangible common equity ratio excludes the following from total equity to total assets: the balance of goodwill and other intangible assets in both total equity and total assets. Return on average tangible equity excludes the following from return on average equity: the average 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
  12/31/2017   9/30/2017   6/30/2017   3/31/2017   12/31/2016
Tangible Book Value Per Share                  
Book value per share $ 14.42     $ 14.17     $ 14.03     $ 13.84     $ 13.67  
Effect to adjust for goodwill and other intangible assets (2.83 )   (2.84 )   (2.11 )   (2.14 )   (2.15 )
Tangible book value per share (Non-GAAP) $ 11.59     $ 11.33     $ 11.92     $ 11.70     $ 11.52  
                   
Tangible Common Equity Ratio                  
Total equity to total assets 13.27 %   13.06 %   14.33 %   14.04 %   14.06 %
Effect to adjust for goodwill and other intangible assets (2.31 )   (2.34 )   (1.90 )   (1.90 )   (1.94 )
Tangible common equity ratio (Non-GAAP) 10.96 %   10.72 %   12.43 %   12.14 %   12.12 %
                   
Return On Average Tangible Equity                  
Return on average equity 8.10 %   4.77 %   6.65 %   6.40 %   9.84 %
Effect to adjust for goodwill and other intangible assets 2.00     0.95     1.19     1.18     1.85  
Return on average tangible equity (Non-GAAP) 10.10 %   5.72 %   7.84 %   7.58 %   11.69 %

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