Charter Financial Announces Third Quarter Fiscal 2018 Earnings of $4.6 Million

• Quarter-to-date and year-to-date EPS of $0.32 and $0.99, up 33.3% and 19.3% from 2017, respectively
  
• Quarterly net interest margin up 38 basis points to 3.98%
• Quarterly noninterest income up 12.6%
• Nonperforming assets at 0.11% of total assets
• Merger process with CenterState Bank Corporation on track

WEST POINT, Ga., July 26, 2018 (GLOBE NEWSWIRE) -- Charter Financial Corporation (the "Company") CHFN today reported net income of $4.6 million for the quarter ended June 30, 2018, or $0.32 and $0.30 per basic and diluted share, respectively, compared with net income of $3.5 million, or $0.24 and $0.23 per basic and diluted share, respectively, for the quarter ended June 30, 2017.

Net income for the current-year quarter increased $1.1 million from the prior-year quarter. The increase was attributable to an increase of $2.9 million, or 23.6%, in loans receivable income due largely to the Company's September 2017 acquisition of Resurgens Bancorp ("Resurgens") and the associated increase in loan balances. The interest income increase was offset in part by a $2.2 million increase in noninterest expense, which was tied to increased ongoing operational costs as a result of the Resurgens acquisition and nonrecurring merger-related costs from the Company's pending merger with CenterState Bank Corporation ("CenterState").

"We are pleased with another strong quarter," said Chairman and CEO Robert L. Johnson. "Over the last few years we've stacked quarterly improvements in net interest margin, earnings per share, and asset quality, and these trends drive value."

Net income for the nine months ended June 30, 2018 was $14.3 million, or $0.99 and $0.94 per basic and diluted share, respectively, compared with net income of $11.9 million, or $0.83 and $0.78 per basic and diluted share, respectively, for the same period in 2017. The increase was largely a result of increased interest income as a result of the Resurgens acquisition, offset in part by a discrete tax expense from a reduction of the Company's net deferred tax assets of $1.5 million as a result of the Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017 (the "Tax Act"). The Company's year-to-date annualized return on equity as of June 30, 2018 was 8.65%, as compared to 6.89% for the last full fiscal year, while the Company's annualized return on tangible equity (a non-GAAP measure which excludes the average balance of intangible assets from average equity) was 10.73%, as compared to 8.18% for the fiscal year ended September 30, 2017.

Merger agreement with CenterState Bank Corporation

As previously announced on April 24, 2018, the Company and CenterState signed a definitive agreement and plan of merger (the "Merger Agreement") pursuant to which the Company will merge with and into CenterState (the "Merger"), while the Company's bank subsidiary, CharterBank (the "Bank"), will merge with and into CenterState Bank, the wholly-owned bank subsidiary of CenterState (the "Bank Merger"). Subject to the terms of the Merger Agreement, the Company's stockholders will receive 0.738 shares of CenterState common stock and $2.30 in cash consideration for each outstanding share of the Company's common stock. Lee Washam, President of the Company and the Bank, will join CenterState as Regional President for Georgia. Completion of the merger is subject to customary closing conditions, including regulatory approval and approval of Charter's stockholders. The Company will hold a special meeting of stockholders on August 21, 2018, at 10:00 a.m. Eastern time to vote on the Merger Agreement.

Quarterly Operating Results

Quarterly earnings for the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017 were positively impacted by:

• An increase in loans receivable income of $2.9 million, or 23.6%, to $15.2 million for the 2018 third quarter, compared with $12.3 million for the same quarter in 2017, as a result of the Resurgens acquisition, as well as additional accretion of $296,000 due to the renewal of a loan acquired from Community Bank of the South ("CBS").
• An increase in bankcard fee income of $247,000, or 17.1%, due to the continued success of the Company's signature debit card marketing.
• Interest on interest-bearing deposits in other financial institutions increased $376,000 due to increased cash balances and the Federal Reserve's rate increases.
• A new quarterly incentive payment of $93,000 from the Company's bankcard vendor, included in other income.

Quarterly earnings for the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017 were negatively impacted by:

• Nonrecurring merger-related expenses from the pending CenterState merger of $844,000, largely consisting of legal and professional fees. Virtually no merger-related costs were recorded in the same period in 2017.
• An increase in interest expense on deposits of $414,000, or 35.0%, due to higher balances as well as an increase of 12 basis points in the Company's cost of deposits due to higher-costing deposits from Resurgens assumed in September 2017 and higher interest rates driven by the Federal Reserve's rate increases pushing legacy deposit costs higher.
• Salaries and employee benefits increased $519,000, or 7.9%, due to increased incentive compensation accruals as well as increased ongoing costs as a result of the Resurgens acquisition.

Financial Condition

Total assets decreased $14.3 million from September 30, 2017, to $1.6 billion at June 30, 2018, largely attributable to a $26.6 million, or 14.4%, decline in investment securities available for sale due to paydowns and payoffs. Net loans grew $2.2 million, or 0.2%, to $1.2 billion at June 30, 2018, due primarily to $2.9 million of growth in the Atlanta Metropolitan Statistical Area ("MSA"). Loans in the Atlanta MSA now account for 56% of the Company's gross loan balance.

Total deposits decreased $21.4 million to $1.3 billion during the nine months ended June 30, 2018, largely due to a decrease of $37.3 million in retail certificates of deposit. The decrease in CDs was offset in part by growth of $12.7 million in transaction accounts and $6.7 million in money market deposit accounts from September 30, 2017.

From September 30, 2017 to June 30, 2018, total stockholders' equity increased $10.2 million to $224.4 million due primarily to $14.3 million of net income, offset by a $2.0 million increase in accumulated other comprehensive loss and $3.5 million in dividends. Book value per share increased to $14.70 at June 30, 2018, from $14.17 at September 30, 2017, while tangible book value per share, a non-GAAP financial measure (see Reconciliation of Non-GAAP Measures for further information) increased to $11.92 from $11.33, both due to the Company's retention of earnings.

Net Interest Income and Net Interest Margin

Net interest income increased $2.8 million to $14.8 million for the third quarter of fiscal 2018, compared with $12.0 million for the prior-year period. Total interest income increased $3.3 million over the same period. 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 $2.9 million to $15.2 million during the current quarter from $12.3 million during the prior-year quarter. The Company also experienced an increase of $376,000 in interest income on interest-bearing deposits in other financial institutions during the current-year quarter due to higher balances and higher rates paid on overnight balances. Total interest expense increased $474,000 to $2.1 million for the current quarter, due to an 11 basis point increase in the average cost and a $97.9 million increase in the average balance of interest-bearing liabilities. A portion of the rate increase was attributable to increased interest rates on money market accounts and certificates of deposit, while the remainder was tied to higher-costing deposits from the Resurgens acquisition.

"Our sturdy deposit base has added resilience to our liquidity and helped us grow net interest margin in a rising rate environment," Mr. Johnson added. "It provides significant flexibility in pricing and product offerings on deposits and loans, which allows us to remain competitive."

Net interest margin was 3.98% for the third quarter of fiscal 2018, compared to 3.60% for the third quarter of fiscal 2017. The impact of purchase accounting on the Company's net interest margin was 0.17% for the quarter ended June 30, 2018, compared to 0.05% for the quarter ended June 30, 2017, due to the aforementioned $296,000 of additional accretion during the current quarter. 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.

Net interest income for the nine months ended June 30, 2018, increased $7.9 million, or 22.1%, to $43.8 million, compared to $35.8 million for the prior-year period. Interest income increased $9.0 million, or 22.1%, to $49.8 million due to increased balances and higher yields on loans from the Resurgens acquisition and interest-bearing deposits in other financial institutions. Interest expense increased $1.1 million, or 22.3%, to $6.1 million due to higher deposit balances from the Resurgens acquisition and an increase in the average cost of deposits of eight basis points.

At June 30, 2018, the Company had $2.3 million of remaining loan discount accretion related to the 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 during the three months ended June 30, 2018, and a $350,000 negative provision during the nine months ended June 30, 2018, due to the continued positive credit quality trends of its loan portfolio and net recoveries of previously charged-off loans. No provision was recorded during the three months ended June 30, 2017, while a negative provision of $900,000 was recorded during the nine months ended June 30, 2017.

Noninterest Income and Expense

Noninterest income increased $585,000, or 12.6%, to $5.2 million in the fiscal 2018 third quarter compared to $4.6 million in the same period of 2017 as the Company's efforts to diversify its income streams continued to be effective. The increase was primarily due to a $373,000, or 10.9%, increase in deposit and bankcard fees. The Company's $1.7 million of bankcard fee income was its highest-ever quarterly total. There was also a $93,000 gain on incentive rebates from our debit card vendor.

Noninterest expense for the quarter ended June 30, 2018, increased $2.2 million to $13.3 million, compared with $11.1 million for the prior-year quarter, primarily due to increased ongoing operational costs as a result of the acquisition of Resurgens as well as $844,000 of acquisition costs from the pending CenterState merger. Salaries and employee benefits increased $519,000, or 7.9%, to $7.0 million during the current quarter, while occupancy and data processing increased $393,000 and $188,000, or 34.0% and 17.2%, over the prior-year quarter.

"Our noninterest income streams continue to perform well," Mr. Johnson continued. "Thanks again to our strong checking deposit base, we have grown reliable deposit service charges. Our bankcard fees are best in class. Brokerage fees, debit card vendor incentive rebates, and mortgage-related fees add to what make us an attractive, stable franchise."

Noninterest income for the nine months ended June 30, 2018, increased $1.4 million, or 10.0%, to $15.6 million, compared with $14.2 million for the prior-year period. The increase was largely due to an increase of $1.2 million, or 12.8%, in deposit and bankcard fees, $387,000 in incentive rebates from the Company's bankcard vendor, a nonrecurring $266,000 gain on the sale of assets available for sale, and a $145,000, or 16.4% increase in bank owned life insurance. These increases were offset in part by a $247,000 decrease in gains on the sale of investment securities for sale and a decrease in gains on sale of loans of $177,000 due to reduced activity. The Company also recorded a $250,000 recovery on loans previously covered in FDIC-assisted acquisitions during the prior year, while no such gain was recorded for the same period in the current fiscal year.

Noninterest expense for the nine months ended June 30, 2018 increased $5.7 million, or 17.9%, to $37.9 million compared with $32.1 million for the prior-year period. The increase was primarily attributable to increased ongoing operational costs from the Resurgens acquisition, as well as a combined $1.8 million of merger-related expenses from Resurgens and CenterState. Salaries and employee benefits, occupancy, and data processing increased $1.7 million, $880,000, and $677,000, respectively. The net benefit of operations of real estate owned also decreased $287,000 due to reduced sales activity as the Company's portfolio of other real estate has fallen to minimal levels. These increases were offset in part by a reduction of $221,000 in legal and professional fees.

Asset Quality

Nonperforming assets at June 30, 2018, were at 0.11% of total assets, an eight basis point decline from September 30, 2017. The decrease was primarily attributable to a $1.2 million, or 84.2%, decline in the balance of other real estate owned to $228,000 at June 30, 2018. Nonaccrual loans also declined $293,000 from September 30, 2017.

The allowance for loan losses was at 0.99% of total loans and 714.79% of nonperforming loans at June 30, 2018, compared to 0.96% and 649.13%, respectively, at September 30, 2017. Not included in the allowance at June 30, 2018, was $2.3 million in yield and credit discounts on the acquired loans from CBS and Resurgens. At June 30, 2018, the allowance for loan losses was 1.15% of legacy loans, compared to 1.22% at September 30, 2017. The Company recorded net loan recoveries of $386,000 and $768,000 in its allowance for loan losses for the three and nine months ended June 30, 2018, respectively, compared with net loan recoveries of $296,000 and $1.3 million 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 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 June 30, 2018.

During the quarter ended June 30, 2018, the Company paid a $0.085 per share dividend, the seventh consecutive quarterly dividend increase. The Company's equity as a percent of total assets was 13.80% at June 30, 2018, as compared to 13.06% at September 30, 2017, while the Company's tangible common equity ratio, a non-GAAP measure (see Reconciliation of Non-GAAP Measures for further information), was 11.49% at June 30, 2018, up from 10.72% at September 30, 2017.

"We are proud of the CharterBank team. Their work to build balance sheet scale and stability with a customer- and community-driven focus has led to a profitable, attractive franchise," Mr. Johnson concluded.

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; business disruption as a result of the Company's pending merger with CenterState; diversion of management's time on issues relating to the merger; the failure to complete the merger with CenterState on a timely basis or at all; fluctuations in CenterState's stock price prior to the completion of the merger; the reaction of our customers and employees to the merger; 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.

Charter Financial Corporation
Condensed Consolidated Statements of Financial Condition (unaudited)

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

Charter Financial Corporation
Condensed Consolidated Statements of Income (unaudited)

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

(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

(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)

(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 additional charges to income tax expense of $40,000, $49,000, and $1.4 million during the three months ended June 30, 2018, March 31, 2018, and December 31, 2017, respectively, the Company's effective tax rate for the three months ended June 30, 2018, March 31, 2018, and December 31, 2017 was 30.3%, 27.0% and 25.7%, respectively.
(6) Ratios for the three months ended June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017 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 $163.2 million, $192.0 million, $224.8 million, $254.2 million, and $154.0 million at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively, which were recorded at acquisition date fair value, the allowance approximated 1.15%, 1.15%, 1.19%, 1.22%, and 1.22%, of all other loans at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

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

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

(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.

Contact:
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