OREANDA-NEWS. Charter Financial Corporation (the “Company”) (NASDAQ:CHFN) today reported net income of $1.3 million for the quarter ended June 30, 2016, or $0.09 per basic and diluted share, respectively, compared with net income of $1.9 million, or $0.12 per basic and diluted share, for the quarter ended June 30, 2015. Net income for the current year quarter decreased 32.2% over the prior year quarter due in part to $3.5 million of costs incurred related to the acquisition of CBS Financial Corporation ("CBS"), which was completed on April 15, 2016, as well as write-downs of $325,000 on assets available for sale, partially offset by a $3.9 million increase in net interest income. Additional merger-related costs are expected to be incurred as full conversion and integration of Community Bank of the South into CharterBank has been completed as of July 2016.

Net income for the nine months ended June 30, 2016, was $8.1 million, or $0.56 and $0.53 per basic and diluted share, respectively, compared with net income of $5.0 million, or $0.32 and $0.30 per basic and diluted share, respectively, for the nine months ended June 30, 2015. The year over year increase was partially attributable to $3.6 million of nonrecurring recoveries on loans that were previously covered by loss share agreements with the FDIC.

Quarterly Operating Results

Quarterly earnings for the third quarter of fiscal 2016 compared with the third quarter of fiscal 2015 were positively impacted by the following items:

  • Loan interest income increased $3.6 million, or 39.8%, while loan interest income excluding accretion and amortization of loss share receivable increased $3.8 million, or 50.3%.
  • Net interest margin was 3.97% for the quarter ended June 30, 2016, compared with 3.62% for the same quarter of fiscal 2015, while net interest margin excluding accretion and amortization of loss share receivable was 3.53% for the quarter ended June 30, 2016, compared with 3.21% for the same quarter of fiscal 2015.
  • Deposit and bankcard fee income increased by a combined $431,000, or 16.1%.
  • Interest expense on FHLB borrowings decreased $75,000, or 13.8%, due to a maturing advance being extended at a substantially lower rate.
  • Nonrecurring income of $259,000 on bank owned life insurance.

The above increases to net income were more than offset by the following items:

  • Approximately $3.5 million of costs related to the CBS merger, consisting primarily of severance payments, occupancy expense, and legal and professional fees.
  • Write-downs of $325,000 on assets available for sale.

Chairman and CEO Robert L. Johnson said, “We are pleased with the results of our third fiscal quarter, our first following the acquisition of CBS. We continued to deliver strong earnings in spite of substantial one-time expenses related to the acquisition. With the systems conversion of CBS completed in July and our new Buckhead branch set to open in early Fall, we believe we will begin to capitalize on our market extension into the attractive North Atlanta market.”

Financial Condition

The Company's total assets increased $400.8 million to $1.4 billion at June 30, 2016, from $1.0 billion at September 30, 2015. Net loans increased $279.0 million, or 39.0%, to $993.8 million at June 30, 2016, from $714.8 million at September 30, 2015. These increases were largely attributable to the completion of the acquisition of CBS, which brought in $376.5 million of total assets and $300.9 million of loans, respectively.

Mr. Johnson continued, “The addition of the approximately $300 million in loans and deposits acquired in the CBS acquisition provides additional leverage to our capital and brings us closer to our earning targets.”

Total deposits were $1.2 billion at June 30, 2016, compared with $738.9 million at September 30, 2015. The increase was due in part to the acquisition of CBS, which added $334.0 million of deposits to the Company's portfolio, as well as a continued increase in the Company's legacy deposits, which grew $73.6 million during the nine months ended June 30, 2016. Overall, transaction and money market accounts increased $144.8 million and $120.0 million, respectively, at June 30, 2016.

Total stockholders' equity decreased to $199.8 million at June 30, 2016, compared to $204.9 million at September 30, 2015, due primarily to $13.2 million of share repurchases during fiscal 2016, offset by $8.1 million of net income during the same period. Book value per share increased to $13.29 at June 30, 2016, from $12.79 per share at September 30, 2015, due to the effects of the company's stock repurchases. Tangible book value per share decreased to $11.11 at June 30, 2016, compared to $12.48 at September 30, 2015, due to $25.7 million of goodwill generated by the purchase of CBS, partially offset by stock repurchases during fiscal 2016 and the associated reduced share count at June 30, 2016.

Net Interest Income and Net Interest Margin

Net interest income increased to $12.1 million for the quarter ended June 30, 2016, compared with $8.1 million for the quarter ended June 30, 2015. Interest income increased $4.3 million due to a $3.8 million increase in loan interest income, excluding accretion and amortization of loss share receivable, combined with a $393,000 increase in net purchase discount accretion and amortization of loss share receivable. Quarter over quarter, total interest expense increased $334,000 to $1.6 million for the quarter ended June 30, 2016, largely due to increased balances of higher-costing deposits from CBS. Net interest margin was 3.97% for the three months ended June 30, 2016, compared to 3.62% for the same period in 2015. The Company's net interest margin, excluding the effects of purchase accounting, increased to 3.53% for the quarter ended June 30, 2016, compared with 3.21% for the quarter ended June 30, 2015.

Net interest income for the nine months ended June 30, 2016, increased $6.4 million, or 27.0%, to $30.0 million, compared to $23.6 million for the prior year period. Interest income increased $6.6 million primarily due to an increase of $4.0 million, or 15.0%, in loan interest income to $30.9 million. Loan interest income, excluding accretion and amortization of loss share receivable, increased $5.2 million, while net purchase discount accretion and amortization of loss share receivable increased $1.3 million during the nine months ended June 30, 2016.

Under purchase accounting rules, the Company currently expects to realize remaining loan discount accretion of $853,000 over the next five quarters related to its acquisitions of McIntosh Community Bank and the First National Bank of Florida, pursuant to its previous entry into loss share agreements with the FDIC, and $3.4 million on the CBS acquisition over the life of the loans acquired.

Provision for Loan Losses

The Company recorded a $100,000 negative provision for loan losses in the three and nine months ended June 30, 2016, due to the continued positive credit quality trends of the loan portfolio, as well as a continued build-up of reserves due to net recoveries of previously charged-off loans. No provision was recorded in the three and nine months ended June 30, 2015.

Noninterest Income and Expense

Noninterest income for the quarter ended June 30, 2016, increased $887,000 to $4.7 million, compared with $3.8 million for the prior year period. The increase was due to a $431,000 increase in bankcard fee and other deposit fee income along with a $167,000 increase in gain on sale of loans and servicing released loan fees, as well as nonrecurring income of $259,000 in bank owned life insurance in other noninterest income.

Noninterest expense for the quarter ended June 30, 2016, increased $6.0 million to $15.1 million, compared with the same period in fiscal 2015, primarily due to $3.5 million in merger expenses  related to the CBS acquisition, as well as write-downs of $325,000 on assets available for sale and a $73,000 lease-cancellation charge.

Noninterest income for the nine months ended June 30, 2016, increased $5.2 million to $16.0 million, compared with $10.8 million for the prior year period. The improvement was due to a $1.1 million increase in bankcard fee and other deposit fee income along with $3.6 million in nonrecurring recoveries on loans that were previously covered by loss share agreements with the FDIC.

Noninterest expense for the nine months ended June 30, 2016, increased $7.2 million to $34.0 million, compared with the same period in fiscal 2015, attributable to $4.0 million of merger-related costs in the current year period, along with unrelated increases in salaries and employee benefits and legal and professional fees.

Asset Quality

Asset quality remained strong with nonperforming assets at 0.46% of total assets and the allowance for loan losses at 1.00% of total loans and 300.10% of nonperforming loans at June 30, 2016. Not included in the allowance is $3.4 million in yield and credit discounts on the CBS acquired loans. The allowance for loan losses was 1.37% of legacy loans. The Company recorded net loan recoveries of $367,000 and $729,000 in its allowance for loan losses for the three and nine months ended June 30, 2016, respectively, compared with net loan recoveries of $24,000 and charge-offs of $38,000 for the same periods in fiscal 2015.

Capital Management

During the quarter ended June 30, 2016, the Company repurchased 9,639 shares of its common stock for approximately $121,000, or $12.53 per share. Beginning with the first quarter of fiscal 2014 through the third quarter of fiscal 2016, the Company repurchased a combined 8.1 million shares, or 35.6%, of the Company's common stock at an amount of $91.9 million, which approximates tangible book value.

The Company completed the acquisition of CBS for a total purchase price of $55.9 million during the quarter.

Mr. Johnson concluded, “Our strategy of increasing capital and operating leverage has improved shareholder value, and our stock repurchases over the last 11 quarters have returned capital to our shareholders. With our stock now trading above book value, we will focus our efforts on leveraging our expense structure through organic growth and possible acquisitive growth, improving our noninterest income and realizing the anticipated growth in earnings as a result of our Atlanta expansion.”

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.

 
Charter Financial Corporation
Condensed Consolidated Statements of Financial Condition (unaudited)
 
  June 30, 2016   September 30, 2015 (1)
Assets
Cash and amounts due from depository institutions $ 27,254,886     $ 9,921,822  
Interest-earning deposits in other financial institutions 78,852,621     20,421,403  
Cash and cash equivalents 106,107,507     30,343,225  
Loans held for sale, fair value of $3,863,387 and $1,444,042 3,770,556     1,406,902  
Certificates of deposit held at other financial institutions 19,969,470     —  
Investment securities available for sale 169,736,987     184,404,089  
Federal Home Loan Bank stock 3,361,800     3,515,600  
Restricted securities, at cost 279,000     —  
Loans receivable 1,005,154,835     725,673,178  
Unamortized loan origination fees, net (1,251,261 )   (1,423,456 )
Allowance for loan losses (10,117,763 )   (9,488,512 )
Loans receivable, net 993,785,811     714,761,210  
Other real estate owned 3,180,502     3,410,538  
Accrued interest and dividends receivable 3,410,176     2,668,406  
Premises and equipment, net 28,282,764     19,660,012  
Goodwill 29,989,946     4,325,282  
Other intangible assets, net of amortization 2,797,381     157,226  
Cash surrender value of life insurance 48,936,378     48,423,510  
Deferred income taxes 5,399,464     5,674,095  
Other assets 8,843,203     8,329,239  
Total assets $ 1,427,850,945     $ 1,027,079,334  
Liabilities and Stockholders’ Equity
Liabilities:      
Deposits $ 1,155,245,321     $ 738,855,076  
Federal Home Loan Bank advances 50,000,000     62,000,000  
Floating rate junior subordinated debt 6,553,274     —  
Advance payments by borrowers for taxes and insurance 1,925,582     1,745,753  
Other liabilities 14,326,890     19,547,895  
Total liabilities 1,228,051,067     822,148,724  
Stockholders’ equity:      
Common stock, $0.01 par value; 15,031,076 shares issued and outstanding at June 30, 2016 and 16,027,654 shares issued and outstanding at September 30, 2015 150,311     160,277  
Preferred stock, $0.01 par value; 50,000,000 shares authorized at June 30, 2016 and September 30, 2015 —     —  
Additional paid-in capital 83,370,080     95,355,054  
Unearned compensation – ESOP (5,106,169 )   (5,551,193 )
Retained earnings 120,248,463     114,362,386  
Accumulated other comprehensive income 1,137,193     604,086  
Total stockholders’ equity 199,799,878     204,930,610  
Total liabilities and stockholders’ equity $ 1,427,850,945     $ 1,027,079,334  
__________________________________              
  (1 ) Financial information at September 30, 2015 has been derived from audited financial statements.
 
Charter Financial Corporation
Condensed Consolidated Statements of Income (unaudited)
 
  Three Months Ended
 June 30,		   Nine Months Ended
 June 30,
  2016   2015   2016   2015
Interest income:              
Loans receivable $ 12,563,466     $ 8,988,725     $ 30,868,429     $ 26,832,782  
Taxable investment securities 922,435     911,572     2,803,482     2,720,800  
Nontaxable investment securities 6,702     —     6,702     12,417  
Federal Home Loan Bank stock 38,416     35,316     113,493     109,001  
Interest-earning deposits in other financial institutions 46,374     25,611     112,812     85,459  
Certificates of deposit held at other financial institutions 54,452     —     54,452     —  
Restricted securities 2,503     —     2,503     —  
Amortization of FDIC loss share receivable —     (596,691 )   —     (2,387,205 )
Total interest income 13,634,348     9,364,533     33,961,873     27,373,254  
Interest expense:              
Deposits 977,520     672,525     2,335,171     2,063,898  
Borrowings 470,219     545,368     1,568,470     1,725,750  
Floating rate junior subordinated debt 103,771     —     103,771     —  
Total interest expense 1,551,510     1,217,893     4,007,412     3,789,648  
Net interest income 12,082,838     8,146,640     29,954,461     23,583,606  
Provision for loan losses (100,000 )   —     (100,000 )   —  
Net interest income after provision for loan losses 12,182,838     8,146,640     30,054,461     23,583,606  
Noninterest income:              
Service charges on deposit accounts 1,810,166     1,663,324     5,182,869     4,758,276  
Bankcard fees 1,299,988     1,015,719     3,634,995     2,956,880  
Gain (loss) on investment securities available for sale 12,920     —     48,885     (27,209 )
Bank owned life insurance 327,304     321,102     892,828     924,817  
Gain on sale of loans and loan servicing release fees 602,178     435,055     1,309,784     1,153,636  
Brokerage commissions 163,912     210,563     452,057     567,349  
Recoveries on acquired loans previously covered under FDIC loss share agreements —     —     3,625,000     —  
FDIC receivable for loss sharing agreements accretion —     19,711     —     94,230  
Other 486,462     150,933     899,955     405,086  
Total noninterest income 4,702,930     3,816,407     16,046,373     10,833,065  
Noninterest expenses:              
Salaries and employee benefits 8,470,498     5,034,540     19,020,827     15,126,581  
Occupancy 3,220,260     1,926,645     7,353,044     5,640,356  
Legal and professional 793,489     352,116     1,851,892     978,025  
Marketing 468,354     305,991     1,081,515     938,461  
Federal insurance premiums and other regulatory fees 185,333     189,089     619,213     564,535  
Net (benefit) cost of operations of real estate owned (75,897 )   (29,675 )   (25,732 )   54,573  
Furniture and equipment 301,137     229,105     630,859     603,306  
Postage, office supplies and printing 236,704     222,151     592,086     686,783  
Core deposit intangible amortization expense 172,706     64,009     257,845     206,405  
Other 1,291,259     756,546     2,663,095     2,050,328  
Total noninterest expenses 15,063,843     9,050,517     34,044,644     26,849,353  
Income before income taxes 1,821,925     2,912,530     12,056,190     7,567,318  
Income tax expense 526,690     1,000,796     4,003,588     2,547,849  
Net income $ 1,295,235     $ 1,911,734     $ 8,052,602     $ 5,019,469  
Basic net income per share $ 0.09     $ 0.12     $ 0.56     $ 0.32  
Diluted net income per share $ 0.09     $ 0.12     $ 0.53     $ 0.30  
Weighted average number of common shares outstanding 14,184,675     15,559,917     14,433,345     15,858,186  
Weighted average number of common and potential common shares outstanding 14,841,814     16,210,424     15,090,484     16,508,693  

 

 
 
Charter Financial Corporation
Supplemental Financial Data (unaudited)
in thousands except per share data
 
  Quarter to Date     Year to Date
  6/30/2016   3/31/2016   12/31/2015   9/30/2015 (1)   6/30/2015     6/30/2016   6/30/2015
                             
Consolidated balance sheet data:                            
Total assets $ 1,427,851     $ 1,051,281     $ 1,004,880     $ 1,027,079     $ 1,004,936       $ 1,427,851     $ 1,004,936  
Cash and cash equivalents 106,108     79,331     51,881     30,343     39,951       106,108     39,951  
Loans receivable, net 993,786     701,399     679,870     714,761     672,830       993,786     672,830  
Other real estate owned 3,181     2,711     3,165     3,411     3,290       3,181     3,290  
Securities available for sale 169,737     172,197     175,988     184,404     189,791       169,737     189,791  
Transaction accounts 472,123     353,834     331,570     327,373     328,961       472,123     328,961  
Total deposits 1,155,245     791,692     744,234     738,855     734,238       1,155,245     734,238  
Borrowings 56,553     50,000     50,000     62,000     50,000       56,553     50,000  
Total stockholders’ equity 199,800     198,031     198,368     204,931     208,919       199,800     208,919  
                             
Consolidated earnings summary:                            
Interest income $ 13,635     $ 9,888     $ 10,439     $ 10,519     $ 9,365       $ 33,962     $ 27,373  
Interest expense 1,552     1,237     1,218     1,223     1,218       4,008     3,789  
Net interest income 12,083     8,651     9,221     9,296     8,147       29,954     23,584  
Provision for loan losses (100 )   —     —     —     —       (100 )   —  
Net interest income after provision for loan losses 12,183     8,651     9,221     9,296     8,147       30,054     23,584  
Noninterest income 4,703     4,513     6,831     1,496     3,816       16,046     10,833  
Noninterest expense 15,064     9,903     9,079     9,982     9,050       34,043     26,850  
Income tax expense 527     1,118     2,359     257     1,001       4,004     2,548  
Net income $ 1,295     $ 2,143     $ 4,614     $ 553     $ 1,912       $ 8,053     $ 5,019  
                             
Per share data:                            
Earnings per share – basic $ 0.09     $ 0.15     $ 0.31     $ 0.04     $ 0.12       $ 0.56     $ 0.32  
Earnings per share – fully diluted $ 0.09     $ 0.14     $ 0.30     $ 0.04     $ 0.12       $ 0.53     $ 0.30  
Cash dividends per share $ 0.05     $ 0.05     $ 0.05     $ 0.05     $ 0.05       $ 0.15     $ 0.15  
                             
Weighted average basic shares 14,185     14,225     14,886     15,300     15,560       14,433     15,858  
Weighted average diluted shares 14,842     14,910     15,545     15,982     16,210       15,090     16,509  
Total shares outstanding 15,031     15,026     15,229     16,028     16,404       15,031     16,404  
                             
Book value per share $ 13.29     $ 13.18     $ 13.03     $ 12.79     $ 12.74       $ 13.29     $ 12.74  
Tangible book value per share $ 11.11     $ 12.89     $ 12.73     $ 12.48     $ 12.44       $ 11.11     $ 12.44  
__________________________________                                    
  (1 ) Financial information at and for the year ended September 30, 2015 has been derived from audited financial statements.
 
Charter Financial Corporation
Supplemental Information (unaudited)
dollars in thousands
 
  Quarter to Date     Year to Date
  6/30/2016   3/31/2016   12/31/2015   9/30/2015   6/30/2015     6/30/2016   6/30/2015
                             
Loans receivable:                            
1-4 family residential real estate $ 234,346     $ 190,180     $ 182,297     $ 188,044     $ 182,290       $ 234,346     $ 182,290  
Commercial real estate 586,082     392,946     396,023     416,576     394,417       586,082     394,417  
Commercial 64,700     43,741     39,836     37,444     31,847       64,700     31,847  
Real estate construction 104,389     72,323     61,816     77,217     70,189       104,389     70,189  
Consumer and other 15,638     13,205     10,715     6,392     4,924       15,638     4,924  
Total loans receivable (1) $ 1,005,155     $ 712,395     $ 690,687     $ 725,673     $ 683,667       $ 1,005,155     $ 683,667  
                             
Allowance for loan losses:                            
Balance at beginning of period $ 9,850     $ 9,695     $ 9,489     $ 9,433     $ 9,409       $ 9,489     $ 9,471  
Charge-offs (7 )   (205 )   (15 )   (263 )   (54 )     (227 )   (266 )
Recoveries 375     360     221     319     78       956     228  
Provision (100 )   —     —     —     —       (100 )   —  
Balance at end of period $ 10,118     $ 9,850     $ 9,695     $ 9,489     $ 9,433       $ 10,118     $ 9,433  
                             
Nonperforming assets: (2)                            
Nonaccrual loans $ 3,371     $ 2,098     $ 2,463     $ 4,114     $ 4,310       $ 3,371     $ 4,310  
Loans delinquent 90 days or greater and still accruing —     52     14     14     —       —     —  
Total nonperforming loans 3,371     2,150     2,477     4,128     4,310       3,371     4,310  
Other real estate owned (3) 3,181     2,711     3,165     3,411     3,290       3,181     3,290  
Total nonperforming assets $ 6,552     $ 4,861     $ 5,642     $ 7,539     $ 7,600       $ 6,552     $ 7,600  
                             
Troubled debt restructuring:                            
Troubled debt restructurings - accruing $ 4,999     $ 7,267     $ 7,265     $ 6,046     $ 6,105       $ 4,999     $ 6,105  
Troubled debt restructurings - nonaccrual 1,716     332     317     1,607     1,790       1,716     1,790  
Total troubled debt restructurings $ 6,715     $ 7,599     $ 7,582     $ 7,653     $ 7,895       $ 6,715     $ 7,895  
__________________________________
  (1 ) Included in the loan balances are loans that were previously covered under loss share agreements with the FDIC in the amount of $46.8 million and $50.0 million at September 30, 2015, and June 30, 2015, respectively.
  (2 ) 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.
  (3 ) Included in the balances is OREO that was previously covered under loss share agreements with the FDIC in the amount of $2.4 million and $3.3 million at September 30, 2015 and June 30, 2015, respectively.
 
Charter Financial Corporation
Supplemental Information (unaudited)
 
  Quarter to Date     Year to Date
  6/30/2016   3/31/2016   12/31/2015   9/30/2015   6/30/2015     6/30/2016   6/30/2015
                             
Return on equity (annualized) 2.61 %   4.32 %   8.97 %   1.06 %   3.62 %     5.34 %   3.13 %
Return on assets (annualized) 0.38 %   0.83 %   1.83 %   0.22 %   0.76 %     0.95 %   0.67 %
Net interest margin (annualized) 3.97 %   3.72 %   4.03 %   4.05 %   3.62 %     3.91 %   3.54 %
Net interest margin, excluding the effects of purchase accounting (1) 3.53 %   3.36 %   3.51 %   3.37 %   3.21 %     3.47 %   3.22 %
Bank tier 1 leverage ratio (2) 11.32 %   17.13 %   17.19 %   16.04 %   16.70 %     11.32 %   16.70 %
Bank total risk-based capital ratio 14.99 %   22.98 %   23.23 %   21.71 %   22.88 %     14.99 %   22.88 %
Effective tax rate 28.91 %   34.28 %   33.83 %   31.78 %   34.36 %     33.21 %   33.67 %
Yield on loans 5.20 %   5.03 %   5.33 %   5.40 %   5.02 %     5.19 %   5.04 %
Cost of deposits 0.43 %   0.42 %   0.42 %   0.42 %   0.43 %     0.42 %   0.45 %
                             
Asset quality ratios: (3)                            
Allowance for loan losses as a % of total loans (4) 1.00 %   1.38 %   1.40 %   1.30 %   1.33 %     1.00 %   1.33 %
Allowance for loan losses as a % of nonperforming loans 300.10 %   458.13 %   391.42 %   229.85 %   196.86 %     300.10 %   196.86 %
Nonperforming assets as a % of total loans and OREO 0.65 %   0.68 %   0.81 %   1.04 %   0.82 %     0.65 %   0.82 %
Nonperforming assets as a % of total assets 0.46 %   0.46 %   0.56 %   0.73 %   0.55 %     0.46 %   0.55 %
Net charge-offs (recoveries) as a % of average loans (annualized) (0.15 )%   (0.09 )%   (0.12 )%   (0.15 )%   (0.01 )%     (0.12 )%   — %
__________________________________                                
  (1 ) Net interest income excluding accretion and amortization of acquired loans divided by average net interest earning assets excluding average loan accretable discounts in the amount of $4.7 million, $2.0 million, $3.1 million, $3.8 million, and $3.9 million for the quarters ended June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015, and June 30, 2015, respectively.
  (2 ) During the quarter ended June 30, 2016, a 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.
  (3 ) Due to the early termination of the FDIC loss share agreements in the fourth quarter of fiscal 2015, ratios for the three and nine months ended June 30, 2016 and the three months ended March 31, 2016, December 31, 2015 and September 30, 2015 include all previously covered 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. Ratios for periods prior to September 30, 2015, represent non-covered data only.
  (4 ) 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 $264.7 million at June 30, 2016, which were recorded at acquisition date fair value, the allowance approximated 1.37% of all other loans at June 30, 2016.
 
Charter Financial Corporation
Average Balances, Interest Rates and Yields (unaudited)
dollars in thousands
 
  Quarter to Date
  6/30/2016   6/30/2015
  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 $ 54,423     $ 47     0.35 %   $ 44,748     $ 26     0.23 %
Certificates of deposit held at other financial institutions 19,404     54     1.12     —     —     —  
FHLB common stock and other equity securities 3,442     38     4.46     3,006     35     4.70  
Taxable investment securities 172,065     922     2.14     183,498     911     1.99  
Nontaxable investment securities (1) 2,409     7     1.11     —     —     —  
Restricted securities 236     3     4.24     —     —     —  
Loans receivable (1)(2)(3)(4) 966,375     11,285     4.67     668,329     7,508     4.49  
Accretion and amortization of acquired loan discounts (5)     1,278     0.53         885     0.53  
Total interest-earning assets 1,218,354     13,634     4.48     899,581     9,365     4.16  
Total noninterest-earning assets 145,454             103,728          
Total assets $ 1,363,808             $ 1,003,309          
Liabilities and Equity:                      
Interest-bearing liabilities:                      
Interest bearing checking $ 229,650     $ 72     0.12 %   $ 175,641     $ 53     0.12 %
Bank rewarded checking 50,188     25     0.20     49,743     25     0.20  
Savings accounts 61,364     9     0.06     50,409     2     0.02  
Money market deposit accounts 228,316     178     0.31     123,392     62     0.20  
Certificate of deposit accounts 349,773     694     0.79     231,077     531     0.92  
Total interest-bearing deposits 919,291     978     0.43     630,262     673     0.43  
Borrowed funds 53,101     470     3.54     50,000     545     4.36  
Floating rate junior subordinated debt 5,516     104     7.53     —     —     —  
Total interest-bearing liabilities 977,908     1,552     0.63     680,262     1,218     0.72  
Noninterest-bearing deposits 171,913             99,138          
Other noninterest-bearing liabilities 15,390             12,417          
Total noninterest-bearing liabilities 187,303             111,555          
Total liabilities 1,165,211             791,817          
Total stockholders' equity 198,597             211,492          
Total liabilities and stockholders' equity $ 1,363,808             $ 1,003,309          
Net interest income     $ 12,082             $ 8,147      
Net interest earning assets (6)     $ 240,446             $ 219,319      
Net interest rate spread (7)         3.85 %           3.44 %
Net interest margin (8)         3.97 %           3.62 %
Net interest margin, excluding the effects of purchase accounting (9)         3.53 %           3.21 %
Ratio of average interest-earning assets to average interest-bearing liabilities         124.59 %           132.24 %
__________________________________                        
  (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 and amortization of the overstatement of FDIC indemnification asset.
  (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 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 $4.7 million and $3.9 million for the quarters ended June 30, 2016 and June 30, 2015, respectively.
  (10 ) Annualized.
 
Charter Financial Corporation
Average Balances, Interest Rates and Yields (unaudited)
dollars in thousands
 
  Fiscal Year to Date
  6/30/2016   6/30/2015
  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 $ 41,580     $ 113     0.36 %   $ 50,140     $ 85     0.23 %
Certificates of deposit held at other financial institutions 6,444     54     1.13     —     —     —  
FHLB common stock and other equity securities 3,175     113     4.77     3,276     109     4.44  
Taxable investment securities 175,776     2,803     2.13     182,891     2,721     1.98  
Nontaxable investment securities (1) 800     7     1.12     3,995     12     0.41  
Restricted securities 78     3     4.28     —     —     —  
Loans receivable (1)(2)(3)(4) 792,607     27,588     4.64     647,306     22,422     4.62  
Accretion and amortization of acquired loan discounts (5)     3,280     0.55         2,024     0.41  
Total interest-earning assets 1,020,460     33,961     4.44     887,608     27,373     4.11  
Total noninterest-earning assets 112,802             107,218          
Total assets $ 1,133,262             $ 994,826          
Liabilities and Equity:                      
Interest-bearing liabilities:                      
Interest bearing checking $ 196,187     $ 182     0.12 %   $ 169,518     $ 157     0.12 %
Bank rewarded checking 48,577     73     0.20     48,730     77     0.21  
Savings accounts 54,871     16     0.04     49,270     7     0.02  
Money market deposit accounts 167,194     342     0.27     124,565     196     0.21  
Certificate of deposit accounts 271,776     1,722     0.84     226,293     1,627     0.96  
Total interest-bearing deposits 738,605     2,335     0.42     618,376     2,064     0.45  
Borrowed funds 51,577     1,568     4.05     53,077     1,725     4.33  
Floating rate junior subordinated debt 1,833     104     7.55     —     —     —  
Total interest-bearing liabilities 792,015     4,007     0.67     671,453     3,789     0.75  
Noninterest-bearing deposits 127,130             97,598          
Other noninterest-bearing liabilities 13,172             11,807          
Total noninterest-bearing liabilities 140,302             109,405          
Total liabilities 932,317             780,858          
Total stockholders' equity 200,945             213,968          
Total liabilities and stockholders' equity $ 1,133,262             $ 994,826          
Net interest income     $ 29,954             $ 23,584      
Net interest earning assets (6)     $ 228,445             $ 216,155      
Net interest rate spread (7)         3.77 %           3.36 %
Net interest margin (8)         3.91 %           3.54 %
Net interest margin, excluding the effects of purchase accounting (9)         3.47 %           3.22 %
Ratio of average interest-earning assets to average interest-bearing liabilities         128.84 %           132.19 %
__________________________________                        
  (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 and amortization of the overstatement of FDIC indemnification asset.
  (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 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 $3.2 million and $4.8 million for the nine months ended June 30, 2016 and June 30, 2015, respectively.
  (10 ) Annualized.