Charter Financial Announces Second Quarter Fiscal 2017 Earnings of $3.3 Million

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| Source: Charter Financial Corporation
  • Basic and diluted EPS of $0.23 and $0.22, respectively
  • $3.0 million improvement in net interest income over same quarter in fiscal 2016
  • 14.9% increase in bankcard fees year over year
  • $16.9 million growth in loans in quarter
  • Nonperforming assets at 0.24% of total assets

WEST POINT, Ga., April 27, 2017 (GLOBE NEWSWIRE) -- Charter Financial Corporation (the “Company”) (NASDAQ:CHFN) today reported net income of $3.3 million for the quarter ended March 31, 2017, or $0.23 and $0.22 per basic and diluted share, respectively, compared with net income of $2.1 million, or $0.15 and $0.14 per basic and diluted share, respectively, for the quarter ended March 31, 2016.

Net income for the current-year quarter increased $1.2 million 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") and a negative provision of $150,000, resulting from continued net recoveries. These increases were partially offset by an increase of $847,000 in noninterest expense, largely attributable to increased ongoing operational costs post-acquisition.

Net income for the six months ended March 31, 2017 was $8.4 million, or $0.59 and $0.55 per basic and diluted share, respectively, compared with net income of $6.8 million, or $0.46 and $0.44 per basic and diluted share, respectively, for the six months ended March 31, 2016.

Quarterly Operating Results

Chairman and CEO Robert L. Johnson said, “We delivered strong earnings to our shareholders in the second quarter due in part to excellent returns from our CBS acquisition as well as the continued growth of our bankcard fee program. Though we know we still have room for improvement, our efficiency ratio of 66.35%, compared to 75.23% in the prior-year quarter, shows we've made significant progress in leveraging our operational structure. Sequentially, the first quarter of fiscal 2017 had numerous one-time items which benefited our results, and our second quarter was impacted negatively by typical seasonal items, such as deposit fees and mortgage activity, making it a challenge to compare quarters."

Quarterly earnings for the second quarter of fiscal 2017 compared with the second quarter of fiscal 2016 were positively impacted by:

  • An increase in loan interest income of $3.0 million, or 34.3%, and an increase in loan interest income excluding accretion of acquired loan discounts of $3.5 million, or 43.8%, both largely due to the acquisition of CBS.
  • A negative provision of $150,000 related to continued net recoveries of $156,000 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 $258,000, or 9.2%.
  • A gain on investment securities available for sale of $248,000, compared to no such gains in the second quarter of fiscal 2016.
  • An increase in brokerage commissions and gain on sale of loans of $78,000 and $183,000, respectively, compared to the prior-year period.
  • A decrease in legal and professional fees and data processing of $291,000, or 42.9%, and $41,000, or 4.0%, respectively, largely due to acquisition expenses during the prior-year period.

Quarterly earnings for the second quarter of fiscal 2017 compared with the second quarter of fiscal 2016 were negatively impacted by:

  • An increase in interest expense on deposits of $473,000, or 68.4%, due to higher balances from both legacy accounts and those assumed in the CBS acquisition.
  • An increase in salaries and employee benefits of $791,000, or 15.0%, due to higher payroll related to the CBS acquisition.
  • The absence of recoveries on loans formerly covered by FDIC loss sharing agreements in the current-year quarter, compared to $750,000 of such recoveries in the second quarter of fiscal 2016.
  • An increase in income tax expense of $1.2 million, or 104.4%, to $2.3 million at March 31, 2017, compared to $1.1 million in the prior-year period attributable to increased net income as our tax-advantaged investments and state tax credits have remained stable, leading to a higher effective tax rate.

Financial Condition

Total assets increased $46.4 million to $1.5 billion at March 31, 2017, from $1.4 billion at September 30, 2016, largely attributable to a $48.4 million increase in cash and cash equivalents, driven by increased deposits and paydowns and sales of investment securities available for sale. Net loans grew $13.5 million, or 1.4%, to $1.0 billion at March 31, 2017, from $994.1 million at September 30, 2016. Loans increased $16.9 million during the current quarter after falling $3.5 million in the first quarter.

"We are pleased with our strong loan and checking account growth in the second quarter," Mr. Johnson continued. "As we continue to leverage our footprint in Metro Atlanta, including the recent opening of our Buckhead branch, we believe we can provide solid net interest income with a low risk profile, as we've done in our legacy markets."

Total deposits increased $39.9 million to $1.2 billion during the six months ended March 31, 2017. Transaction and certificate of deposit accounts increased $35.3 million and $4.1 million, respectively, while money market accounts decreased $478,000 from September 30, 2016.

From September 30, 2016 to March 31, 2017, total stockholders' equity increased $5.3 million to $208.4 million from $203.1 million due primarily to $8.4 million of net income, partially offset by a $2.8 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. Book value per share increased to $13.84 while tangible book value per share increased from $11.36 to $11.70, both due to the Company's retention of earnings.

Net Interest Income and Net Interest Margin

Net interest income increased to $11.7 million for the second quarter of fiscal 2017, compared with $8.7 million for the prior-year period. Year over year, interest income improved $3.4 million due to a $3.5 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 $475,000 decrease in net purchase discount accretion. Total interest expense increased $414,000 to $1.7 million for the current quarter, largely due to increased balances of higher-costing deposits from CBS, as well as $124,000 of interest expense on the Company's subordinated debentures assumed in the CBS acquisition. These increases were offset partially by a $182,000 decline in interest expense on FHLB borrowings due to a restructuring of one of the Company's $25.0 million advances in March of 2017 from an interest rate of 4.30% to 3.43%, as well as the replacement of the Company's other $25.0 million advance with a new, substantially lower-costing advance in May of 2016.

Net interest margin was 3.52% for the second quarter of fiscal 2017, compared to 3.72% for the second quarter of fiscal 2016. The decrease was largely due to higher interest expense as a result of higher customer deposit balances, including greater-costing acquired CBS deposits and legacy growth, as well as a continued reduction in accretion income. Net interest margin was also impacted negatively by our higher balances in lower-yielding Federal Reserve deposits. The Company's net interest margin, excluding the effects of purchase accounting, increased to 3.41% for the quarter ended March 31, 2017, from 3.36% for the quarter ended March 31, 2016.

Net interest income for the six months ended March 31, 2017, increased $6.0 million, or 33.5%, to $23.9 million, compared to $17.9 million for the prior-year period. Interest income increased $6.8 million to $27.2 million due to increased loan balances as a result of the CBS acquisition, as well as a $258,000 increase in interest bearing deposits in other financial institutions, primarily the result of increased cash balances and the Federal Reserve's increases of interest rates. Loan interest income, excluding accretion of acquired loan discounts, increased $7.1 million, while net purchase discount accretion decreased $920,000.

The Company currently expects to realize remaining loan discount accretion of $139,000 over the next two quarters related to its 2011 acquisition of the First National Bank of Florida under purchase accounting rules. The Company has $1.9 million of remaining loan discount accretion related to the CBS acquisition, which will be accreted over the life of the loans acquired.

Provision for Loan Losses

The Company recorded negative provisions for loan losses of $150,000 and $900,000 in the three and six month periods ended March 31, 2017, respectively, 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 and six month periods ended March 31, 2016.

Noninterest Income and Expense

Noninterest income increased $33,000 to $4.5 million in the fiscal 2017 second quarter from the fiscal 2016 second quarter. The current-year quarter included increases in core components of $258,000 in bankcard fee and other deposit fee income and $183,000 in gains on sale of loans, as well as $78,000 in brokerage commissions. Bankcard fees increased $178,000, or 14.9%, compared to the prior-year period, due mainly to the Company's marketing efforts for signature debit card transactions. The Company also recognized a gain of $248,000 on the sale of investment securities available for sale. These increases were partially offset by $750,000 in recoveries on loans formerly covered by loss sharing agreements in the prior-year period. No such recoveries were recorded in the current quarter.

Noninterest expense for the quarter ended March 31, 2017, increased $847,000 to $10.7 million, compared with $9.9 million for the prior-year quarter, due in part to increases of $791,000 in salaries and employee benefits and $70,000 in occupancy, both of which were attributable to higher ongoing operational costs from the CBS acquisition, as well as a $113,000 increase in core deposit intangible amortization expense. These increases were partially offset by reductions of $291,000 and $41,000 in legal and professional fees and data processing, both of which were related to deal costs in preparation for the CBS acquisition in the prior year.

"We were able to achieve significant cost saving through the CBS integration," Mr. Johnson continued. "Along with our improved efficiency ratio, we've seen a decline of nearly $900,000 in noninterest expense since the third quarter of fiscal 2016, net of $3.5 million of deal costs recorded in that quarter, our first with CBS on the books."

Noninterest income for the six months ended March 31, 2017, decreased $1.8 million to $9.5 million, compared with $11.3 million for the prior-year period. In the fiscal 2017 period, the Company recorded $250,000 of recoveries on loans formerly covered by FDIC loss sharing agreements, compared to $3.6 million of such recoveries in the prior-year period. The decrease in recoveries was partially offset by increased service charge and bankcard fees of $530,000, gains on the sale of loans of $566,000, gains on investment securities available for sale of $212,000 and brokerage commissions of $102,000 during the current-year period.

Noninterest expense for the six months ended March 31, 2017 increased $2.0 million to $21.0 million compared with $19.0 million for the prior-year period due to increases of $1.7 million, $336,000, and $218,000 in salaries, occupancy and core deposit intangible amortization expense, respectively, in the current-year period, all of which were attributable to ongoing operational costs from the acquisition of CBS. These increases were offset in part by reductions of $396,000 and $387,000 in the net cost of operations of real estate owned and legal and professional fees, respectively, compared to the prior-year period.

Asset Quality

Nonperforming assets at March 31, 2017 were at 0.24% of total assets, down from 0.45% at September 30, 2016, due to payoffs of two long-standing, high-balance, non-performing loans and continued positive asset quality trends. The allowance for loan losses was at 1.04% of total loans and 652.47% of nonperforming loans at March 31, 2017, compared to 1.03% and 277.66%, respectively, at September 30, 2016. Not included in the allowance is $1.9 million in yield and credit discounts on the CBS-acquired loans. At March 31, 2017, the allowance for loan losses was 1.24% of legacy loans, compared to 1.35% at September 30, 2016. The Company recorded net loan recoveries of $156,000 and $1.0 million in its allowance for loan losses for the three and six months ended March 31, 2017, respectively, compared with net loan recoveries of $155,000 and $361,000 for the same periods 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 no shares during the quarter ended March 31, 2017. On April 25, 2017, the Company announced an increased dividend of $0.065 per share, the third consecutive quarterly increase after a $0.05 per share dividend was announced in the previous 14 quarters.

Mr. Johnson concluded, “Our stock buybacks, acquisitions and historically conservative lending practices have provided us with a robust balance sheet with superior asset quality. With nonperforming assets at 0.24% of total assets, tangible book value per share of $11.70, and a year-to-date return on assets of 1.15%, we are well positioned for continued quality returns for the last half of fiscal 2017. We will also continue to seek out growth opportunities, including potential strategic acquisitions that could be additive to our existing franchise and strongly accretive to our earnings. With our current market success, we are also well positioned to potentially use our stock as currency in such a transaction."

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," 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; 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, 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)
 
 March 31, 2017 September 30,
2016 
(1)
Assets
Cash and amounts due from depository institutions$18,823,967  $14,472,867 
Interest-earning deposits in other financial institutions121,461,070  77,376,632 
Cash and cash equivalents140,285,037  91,849,499 
Loans held for sale, fair value of $2,385,655 and $2,991,7562,353,484  2,941,982 
Certificates of deposit held at other financial institutions10,511,240  14,496,410 
Investment securities available for sale191,482,806  206,336,287 
Federal Home Loan Bank stock3,484,600  3,361,800 
Restricted securities, at cost279,000  279,000 
Loans receivable1,019,172,569  1,005,702,737 
Unamortized loan origination fees, net(1,116,362) (1,278,830)
Allowance for loan losses(10,504,538) (10,371,416)
Loans receivable, net1,007,551,669  994,052,491 
Other real estate owned1,957,194  2,706,461 
Accrued interest and dividends receivable3,502,097  3,442,051 
Premises and equipment, net28,397,858  28,078,591 
Goodwill29,793,756  29,793,756 
Other intangible assets, net of amortization2,336,512  2,639,608 
Cash surrender value of life insurance49,848,239  49,268,973 
Deferred income taxes5,834,565  4,366,522 
Other assets7,178,170  4,775,805 
    Total assets$1,484,796,227  $1,438,389,236 
Liabilities and Stockholders’ Equity
Liabilities:   
Deposits$1,201,731,475  $1,161,843,586 
Long-term borrowings50,000,000  50,000,000 
Floating rate junior subordinated debt6,656,098  6,587,549 
Advance payments by borrowers for taxes and insurance1,809,038  2,298,513 
Other liabilities16,186,614  14,510,052 
Total liabilities1,276,383,225  1,235,239,700 
Stockholders’ equity:   
Common stock, $0.01 par value; 15,060,616 shares issued and outstanding at March 31, 2017 and 15,031,076 shares issued and outstanding at September 30, 2016150,606  150,311 
Preferred stock, $0.01 par value; 50,000,000 shares authorized at March 31, 2017 and September 30, 2016   
Additional paid-in capital84,609,090  83,651,623 
Unearned compensation – ESOP(4,673,761) (5,106,169)
Retained earnings130,072,917  123,349,890 
Accumulated other comprehensive (loss) income(1,745,850) 1,103,881 
Total stockholders’ equity208,413,002  203,149,536 
    Total liabilities and stockholders’ equity$1,484,796,227  $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
 March 31,
 Six Months Ended
 March 31,
 2017 2016 2017 2016
Interest income:       
Loans receivable$11,903,416  $8,863,437  $24,473,319  $18,304,962 
Taxable investment securities1,103,740  934,536  2,199,640  1,881,047 
Nontaxable investment securities4,571    9,143   
Federal Home Loan Bank stock40,309  36,149  79,519  75,077 
Interest-earning deposits in other financial institutions213,310  54,047  324,127  66,438 
Certificates of deposit held at other financial institutions38,775    81,404   
Restricted securities2,679    5,252   
Total interest income13,306,800  9,888,169  27,172,404  20,327,524 
Interest expense:       
Deposits1,165,459  692,218  2,323,776  1,357,652 
Borrowings362,880  545,368  749,855  1,098,250 
Floating rate junior subordinated debt123,631    244,422   
Total interest expense1,651,970  1,237,586  3,318,053  2,455,902 
    Net interest income11,654,830  8,650,583  23,854,351  17,871,622 
Provision for loan losses(150,000)   (900,000)  
    Net interest income after provision for loan losses11,804,830  8,650,583  24,754,351  17,871,622 
Noninterest income:       
Service charges on deposit accounts1,700,713  1,620,144  3,588,524  3,372,702 
Bankcard fees1,366,686  1,189,181  2,649,045  2,335,007 
Gain on investment securities available for sale247,780    247,780  35,965 
Bank owned life insurance246,915  244,860  579,266  565,523 
Gain on sale of loans542,824  359,750  1,274,086  707,606 
Brokerage commissions224,567  146,430  390,563  288,145 
Recoveries on acquired loans previously covered under FDIC loss share agreements  750,000  250,000  3,625,000 
Other216,671  202,538  549,737  413,495 
Total noninterest income4,546,156  4,512,903  9,529,001  11,343,443 
Noninterest expenses:       
Salaries and employee benefits6,078,575  5,287,339  12,212,248  10,550,328 
Occupancy1,219,866  1,150,155  2,543,189  2,207,430 
Data processing1,003,974  1,045,336  1,912,929  1,869,852 
Legal and professional387,590  678,565  671,745  1,058,403 
Marketing411,943  379,088  768,467  668,663 
Federal insurance premiums and other regulatory fees197,261  210,038  362,756  433,881 
Net cost (benefit) of operations of real estate owned13,827  71,408  (345,443) 50,164 
Furniture and equipment228,383  161,308  402,437  329,722 
Postage, office supplies and printing223,317  170,670  493,702  355,382 
Core deposit intangible amortization expense149,435  36,154  303,097  85,138 
Other835,540  712,710  1,714,092  1,371,838 
Total noninterest expenses10,749,711  9,902,771  21,039,219  18,980,801 
Income before income taxes5,601,275  3,260,715  13,244,133  10,234,264 
Income tax expense2,284,480  1,117,627  4,881,671  3,476,898 
    Net income$3,316,795  $2,143,088  $8,362,462  $6,757,366 
Basic net income per share$0.23  $0.15  $0.59  $0.46 
Diluted net income per share$0.22  $0.14  $0.55  $0.44 
Weighted average number of common shares outstanding14,322,290  14,224,862  14,264,248  14,557,000 
Weighted average number of common and potential common shares outstanding15,340,320  14,909,947  15,282,278  15,242,085 


Charter Financial Corporation
Supplemental Financial Data (unaudited)
in thousands except per share data
 
 Quarter to Date  Year to Date
 3/31/2017 12/31/2016 9/30/2016 (1) 6/30/2016 3/31/2016  3/31/2017 3/31/2016
               
Consolidated balance sheet data:              
Total assets$1,484,796  $1,461,667  $1,438,389  $1,427,851  $1,051,281   $1,484,796  $1,051,281 
Cash and cash equivalents140,285  131,849  91,849  106,108  79,331   140,285  79,331 
Loans receivable, net1,007,552  990,635  994,052  993,786  701,399   1,007,552  701,399 
Other real estate owned1,957  2,161  2,706  3,181  2,711   1,957  2,711 
Securities available for sale191,483  196,279  206,336  169,737  172,197   191,483  172,197 
Transaction accounts513,294  481,841  478,028  472,123  353,834   513,294  353,834 
Total deposits1,201,731  1,186,347  1,161,844  1,155,245  791,692   1,201,731  791,692 
Borrowings56,656  56,622  56,588  56,553  50,000   56,656  50,000 
Total stockholders’ equity208,413  205,500  203,150  199,800  198,031   208,413  198,031 
               
Consolidated earnings summary:              
Interest income$13,307  $13,866  $13,822  $13,635  $9,888   $27,172  $20,328 
Interest expense1,652  1,666  1,622  1,552  1,237   3,318  2,456 
Net interest income11,655  12,200  12,200  12,083  8,651   23,854  17,872 
Provision for loan losses(150) (750) (150) (100)    (900)  
Net interest income after provision for loan losses11,805  12,950  12,350  12,183  8,651   24,754  17,872 
Noninterest income4,546  4,983  4,918  4,703  4,513   9,529  11,343 
Noninterest expense10,750  10,290  11,354  15,064  9,903   21,039  18,981 
Income tax expense2,284  2,597  2,103  527  1,118   4,882  3,477 
Net income$3,317  $5,046  $3,811  $1,295  $2,143   $8,362  $6,757 
               
Per share data:              
Earnings per share – basic$0.23  $0.36  $0.27  $0.09  $0.15   $0.59  $0.46 
Earnings per share – fully diluted$0.22  $0.33  $0.26  $0.09  $0.14   $0.55  $0.44 
Cash dividends per share$0.060  $0.055  $0.050  $0.050  $0.050   $0.115  $0.100 
               
Weighted average basic shares14,322  14,207  14,186  14,185  14,225   14,264  14,557 
Weighted average diluted shares15,340  15,065  14,798  14,842  14,910   15,282  15,242 
Total shares outstanding15,061  15,031  15,031  15,031  15,026   15,061  15,026 
               
Book value per share$13.84  $13.67  $13.52  $13.29  $13.18   $13.84  $13.18 
Tangible book value per share (2)$11.70  $11.52  $11.36  $11.11  $12.89   $11.70  $12.89 
                                                                                       
(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
 3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016  3/31/2017 3/31/2016
               
Loans receivable:              
1-4 family residential real estate$223,216  $223,609  $236,940  $234,346  $190,180   $223,216  $190,180 
Commercial real estate608,206  595,207  595,157  586,082  392,946   608,206  392,946 
Commercial73,119  73,182  71,865  64,700  43,741   73,119  43,741 
Real estate construction77,332  79,136  80,500  104,389  72,323   77,332  72,323 
Consumer and other37,300  31,212  21,241  15,638  13,205   37,300  13,205 
Total loans receivable$1,019,173  $1,002,346  $1,005,703  $1,005,155  $712,395   $1,019,173  $712,395 
               
Allowance for loan losses:              
Balance at beginning of period$10,499  $10,371  $10,118  $9,850  $9,695   $10,371  $9,489 
Charge-offs(103) (50) (1) (7) (205)  (152) (220)
Recoveries259  928  404  375  360   1,186  581 
Provision(150) (750) (150) (100)    (900)  
Balance at end of period$10,505  $10,499  $10,371  $10,118  $9,850   $10,505  $9,850 
               
Nonperforming assets: (1)              
Nonaccrual loans$1,610  $1,527  $3,735  $3,371  $2,098   $1,610  $2,098 
Loans delinquent 90 days or greater and still accruing  238      52     52 
Total nonperforming loans1,610  1,765  3,735  3,371  2,150   1,610  2,150 
Other real estate owned1,957  2,161  2,706  3,181  2,711   1,957  2,711 
Total nonperforming assets$3,567  $3,926  $6,441  $6,552  $4,861   $3,567  $4,861 
               
Troubled debt restructuring:              
Troubled debt restructurings - accruing$5,073  $4,761  $4,585  $4,999  $7,267   $5,073  $7,267 
Troubled debt restructurings - nonaccrual137  192  1,760  1,716  332   137  332 
Total troubled debt restructurings$5,210  $4,953  $6,345  $6,715  $7,599   $5,210  $7,599 
                                                                                   
(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
 3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016  3/31/2017 3/31/2016
               
Return on equity (annualized)6.40% 9.84% 7.55% 2.61% 4.32%  8.11% 6.69%
Return on assets (annualized)0.91% 1.39% 1.07% 0.38% 0.83%  1.15% 1.33%
Net interest margin (annualized)3.52% 3.71% 3.82% 3.97% 3.72%  3.61% 3.88%
Net interest margin, excluding the effects of purchase accounting (1)3.41% 3.48% 3.47% 3.53% 3.36%  3.44% 3.43%
Holding company tier 1 leverage ratio (2)12.92% 12.83% 12.68% 12.60% 18.89%  12.92% 18.89%
Holding company total risk-based capital ratio (2)17.93% 17.38% 16.74% 15.93% 25.11%  17.93% 25.11%
Bank tier 1 leverage ratio (2) (3)11.84% 11.70% 11.51% 11.32% 17.13%  11.84% 17.13%
Bank total risk-based capital ratio (2)16.53% 15.91% 15.26% 14.99% 22.98%  16.53% 22.98%
Effective tax rate40.78% 33.98% 35.56% 28.91% 34.28%  36.86% 33.97%
Yield on loans4.74% 5.01% 5.07% 5.20% 5.03%  4.87% 5.18%
Cost of deposits0.46% 0.46% 0.46% 0.43% 0.42%  0.46% 0.42%
               
Asset quality ratios: (4)              
Allowance for loan losses as a % of total loans (5)1.04% 1.05% 1.03% 1.00% 1.38%  1.04% 1.38%
Allowance for loan losses as a % of nonperforming loans652.47% 594.81% 277.66% 300.10% 458.13%  652.47% 458.13%
Nonperforming assets as a % of total loans and OREO0.35% 0.39% 0.64% 0.65% 0.68%  0.35% 0.68%
Nonperforming assets as a % of total assets0.24% 0.27% 0.45% 0.46% 0.46%  0.24% 0.46%
Net charge-offs (recoveries) as a % of average loans (annualized)(0.06)% (0.35)% (0.16)% (0.15)% (0.09)%  (0.21)% (0.10)%
                                                                   
(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 $2.2 million, $2.9 million, $3.8 million, $4.7 million, and $2.0 million for the quarters ended March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, and March 31, 2016, respectively.
(2) Current period bank and 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 March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, and March 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.
(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 $166.5 million, $191.9 million, $236.4 million and $264.7 million at March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016, respectively, which were recorded at acquisition date fair value, the allowance approximated 1.24%, 1.30%, 1.35% and 1.37% of all other loans at March 31, 2017, 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
 3/31/2017 3/31/2016
 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$105,705  $213  0.81% $47,144  $54  0.46%
Certificates of deposit held at other financial institutions11,893  39  1.30       
FHLB common stock and other equity securities3,393  40  4.75  3,007  36  4.81 
Taxable investment securities195,694  1,104  2.26  174,637  934  2.14 
Nontaxable investment securities (1)1,588  5  1.15       
Restricted securities279  3  3.84       
Loans receivable (1)(2)(3)(4)1,005,473  11,545  4.59  704,452  8,031  4.56 
Accretion, net, of acquired loan discounts (5)  358  0.14    833  0.47 
Total interest-earning assets1,324,025  13,307  4.02  929,240  9,888  4.26 
Total noninterest-earning assets137,189      98,710     
Total assets$1,461,214      $1,027,950     
Liabilities and Equity:           
Interest-bearing liabilities:           
Interest bearing checking$251,150  $94  0.15% $181,581  $55  0.12%
Bank rewarded checking53,653  26  0.19  48,859  25  0.20 
Savings accounts62,718  6  0.04  52,907  4  0.03 
Money market deposit accounts259,470  195  0.30  142,777  89  0.25 
Certificate of deposit accounts380,198  844  0.89  233,980  519  0.89 
Total interest-bearing deposits1,007,189  1,165  0.46  660,104  692  0.42 
Borrowed funds50,011  363  2.90  50,000  545  4.36 
Floating rate junior subordinated debt6,634  124  7.45       
Total interest-bearing liabilities1,063,834  1,652  0.62  710,104  1,237  0.70 
Noninterest-bearing deposits174,904      106,304     
Other noninterest-bearing liabilities15,137      13,235     
Total noninterest-bearing liabilities190,041      119,539     
Total liabilities1,253,875      829,643     
Total stockholders' equity207,339      198,307     
  Total liabilities and stockholders' equity$1,461,214      $1,027,950     
    Net interest income  $11,655      $8,651   
    Net interest earning assets (6)  $260,191      $219,136   
Net interest rate spread (7)    3.40%     3.56%
Net interest margin (8)    3.52%     3.72%
Net interest margin, excluding the effects of purchase accounting (9)    3.41%     3.36%
Ratio of average interest-earning assets to average interest-bearing liabilities    124.46%     130.86%
                                                                     
(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 $2.2 million and $2.0 million for the quarters ended March 31, 2017 and March 31, 2016, respectively.
(10) Annualized.


Charter Financial Corporation
Average Balances, Interest Rates and Yields (unaudited)
dollars in thousands
  
 Fiscal Year to Date
 3/31/2017 3/31/2016
 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$102,451  $324  0.63% $35,192  $66  0.38%
Certificates of deposit held at other financial institutions12,630  81  1.29       
FHLB common stock and other equity securities3,377  80  4.71  3,043  75  4.93 
Taxable investment securities195,409  2,200  2.25  177,621  1,882  2.12 
Nontaxable investment securities (1)1,593  9  1.15       
Restricted securities279  5  3.76       
Loans receivable (1)(2)(3)(4)1,004,386  23,391  4.66  706,199  16,303  4.62 
Accretion and amortization of acquired loan discounts (5)  1,082  0.21    2,002  0.57 
Total interest-earning assets1,320,125  27,172  4.12  922,055  20,328  4.41 
Total noninterest-earning assets135,883      96,564     
Total assets$1,456,008      $1,018,619     
Liabilities and Equity:           
Interest-bearing liabilities:           
Interest bearing checking$251,110  $180  0.14% $179,548  $110  0.12%
Bank rewarded checking52,692  52  0.20  47,776  48  0.20 
Savings accounts62,434  12  0.04  51,642  8  0.03 
Money market deposit accounts257,379  389  0.30  136,800  165  0.24 
Certificate of deposit accounts380,584  1,691  0.89  232,990  1,027  0.88 
Total interest-bearing deposits1,004,199  2,324  0.46  648,756  1,358  0.42 
Borrowed funds50,006  750  3.00  50,820  1,098  4.32 
Floating rate junior subordinated debt6,616  244  7.39       
Total interest-bearing liabilities1,060,821  3,318  0.63  699,576  2,456  0.70 
Noninterest-bearing deposits173,561      104,861     
Other noninterest-bearing liabilities15,459      12,069     
Total noninterest-bearing liabilities189,020      116,930     
Total liabilities1,249,841      816,506     
Total stockholders' equity206,167      202,113     
  Total liabilities and stockholders' equity$1,456,008      $1,018,619     
    Net interest income  $23,854      $17,872   
    Net interest earning assets (6)  $259,304      $222,479   
Net interest rate spread (7)    3.49%     3.71%
Net interest margin (8)    3.61%     3.88%
Net interest margin, excluding the effects of purchase accounting (9)    3.44%     3.43%
Ratio of average interest-earning assets to average interest-bearing liabilities    124.44%     131.80%
                                                                   
(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 $2.6 million and $2.5 million for the six months ended March 31, 2017 and March 31, 2016, 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
 3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
Loans Receivable Income Excluding Accretion         
Loans receivable income$11,903,416  $12,569,903  $12,680,420  $12,563,466  $8,863,437 
Net purchase discount accretion358,031  724,109  1,090,886  1,278,040  833,179 
Loans receivable income excluding accretion (Non-GAAP)$11,545,385  $11,845,794  $11,589,534  $11,285,426  $8,030,258 
          
Net Interest Margin Excluding the Effects of Purchase Accounting         
Net Interest Margin3.52% 3.71% 3.82% 3.97% 3.72%
Effect to adjust for net purchase discount accretion(0.11) (0.23) (0.35) (0.44) (0.36)
Net interest margin excluding the effects of purchase accounting (Non-GAAP)3.41% 3.48% 3.47% 3.53% 3.36%
          
Tangible Book Value Per Share         
Book value per share$13.84  $13.67  $13.52  $13.29  $13.18 
Effect to adjust for goodwill and other intangible assets(2.14) (2.15) (2.16) (2.18) (0.29)
Tangible book value per share (Non-GAAP)$11.70  $11.52  $11.36  $11.11  $12.89 


 For the Six Months Ended
 3/31/2017 3/31/2016
Loans Receivable Income Excluding Accretion   
Loans receivable income$24,473,319  $18,304,962 
Net purchase discount accretion1,082,140  2,002,161 
Loans receivable income excluding accretion (Non-GAAP)$23,391,179  $16,302,801 
    
Net Interest Margin Excluding the Effects of Purchase Accounting   
Net Interest Margin3.61% 3.88%
Effect to adjust for net purchase discount accretion(0.17) (0.45)
Net interest margin excluding the effects of purchase accounting (Non-GAAP)                                                                                            3.44% 3.43%
    
Tangible Book Value Per Share   
Book value per share$13.84  $13.18 
Effect to adjust for goodwill and other intangible assets(2.14) (0.29)
Tangible book value per share (Non-GAAP)$11.70  $12.89 
Robert L. Johnson, Chairman & CEO
Curt Kollar, CFO
706-645-1391
bjohnson@charterbank.net or
ckollar@charterbank.net

Dresner Corporate Services
Steve Carr
312-780-7211
scarr@dresnerco.com