Charter Financial 8-K Results of Operations and Financial Condition

EXHIBIT 99.1

FOR IMMEDIATE RELEASE
Contact:
Robert L. Johnson, President & CEO	Curt Kollar, CFO
706-645-1391	706-645-3237
bjohnson@charterbank.net	ckollar@charterbank.net

CHARTER FINANCIAL REPORTS FIRST QUARTER EARNINGS;

ANNOUNCES ADDITIONAL SHARE REPURCHASE

• Net Income increased to $45.8 million

• Results Include $69.5 Million Pre –Tax Gain on Sale of Freddie Mac Stock

• Board Authorizes Repurchase of Additional 400,000 Shares

• Company Reaffirms Intent to Deregister From SEC

WEST POINT, Georgia, January 18, 2007—Charter Financial Corporation (NASDAQ: CHFN) today reported first quarter fiscal 2007 net income of $45.8 million, or $2.35 per share, compared with $5.3 million, or $0.27 per share in same quarter the prior year, an increase of 759%.

The increase in net income for the quarter was attributed to a $69.5 million pretax gain, or approximately $42.6 million after-tax gain, on the sale of Freddie Mac stock. The sale was made to fund the repurchase of 508,842 shares of the company’s common stock at $52.00 through a Dutch auction tender offer completed on January 4, 2007. The company noted that it recorded a gain in the comparable period a year earlier from sale of Freddie Mac stock of $4.8 million.

Separately, Charter Financial announced its board of directors has authorized the Company to repurchase up to an additional 400,000 of its outstanding shares. The purchases will be made from time to time in the open market or in negotiated transactions.

“We made significant progress in managing our capital and Freddie Mac stock,” said Robert L. Johnson, President and CEO. “The recently completed tender offer, combined with the program to repurchase additional shares, will improve our minority shareholders’ position. The sale of Freddie Mac stock to fund the tender offer will increase the proportion of our future earnings that come from core banking operations.”

The company said net interest income in the first quarter was $6.4 million compared with $6.5 million in the same period a year earlier. The slight decline is attributable to higher interest rates on deposits and borrowings.

Reflecting the gain on the sale of Freddie Mac stock mentioned above, noninterest income in the first quarter rose to $71.3 million, compared with $6.0 million in the comparable quarter a year earlier.

The company noted its balance sheet remained solid at the end of the first quarter. Net loans continued to grow. As of the end of the first quarter net loans stood at $391.1 million, up 4.4 percent from $374.7 million at the end of the previous fiscal year. Deposits as of the end of the first quarter were $385.5 million, up 3.6 percent from $372.1 million at the end of fiscal 2006.

The Company also announced it has notified the NASDAQ Stock Market of its intent to suspend trading in its stock on the NASDAQ Global Market and to file a Form 25, Notification of Removal from Listing and/or Registration, with the Securities and Exchange Commission on or about January 30, 2007. The company said it expects its shares will begin trading on the Over the Counter Bulletin Board at that time. Its stock symbol is expected to remain CHFN. “The Bulletin Board is a vibrant market,” Johnson stated.

“The costs associated with increased regulatory reporting requirements have become an increasingly onerous burden for Charter Financial,” Johnson said. “The board believes we can no longer justify those costs and their impact on our financial results. The board, as previously announced, has determined it is in the best interests of the company and shareholders to deregister and relieve itself of that burden. The proposed deregistration from the Securities and Exchange Commission will help control future operating expense. However, we intend to continue making information on our financial performance available through news releases and other communications,” he concluded.

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. Charter Financial Corporation and its subsidiary, CharterBank, are in a mutual holding company structure. Charter Financial owns 3.4 million shares of Freddie Mac common stock with a market value of $231.0 million. CharterBank is headquartered in West Point, Georgia, and operates nine full-service branches on the I-85 corridor from LaGrange, Georgia to Auburn, Alabama. CharterBank’s deposits are insured by the Federal Deposit Insurance Corporation.

Forward-Looking Statements

This release may contain “forward-looking statements” that may be identified by use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” and “potential.” Examples of forward-looking statements include, but are not limited to, 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 general and local economic conditions; changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products, and services. 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. 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.

Tables Follow…

Selected Financial Data (in thousands except share and per share data):

	December 31,				September 30,
	2006		2005		2006
	Unaudited
Total Assets	$	1,114,917	$	1,094,812	$	1,097,321
Loans Receivable, Net		391,094		376,647		374,726
Mortgage Securities Available for Sale		296,507		348,000		308,150
Freddie Mac Common Stock		231,030		289,991		294,339
Other Investment Securities		37,436		17,227		37,582
Retail Deposits		336,485		254,239		321,288
Core Deposits		177,711		128,859		169,129
Total Deposits		385,454		354,977		372,057
Deferred Income Taxes		84,849		106,360		108,186
Borrowings		330,279		351,036		337,928
Realized Stockholders’ Equity*		139,814		96,735		95,220
Accumulated Other Comprehensive Income**		135,833		170,225		172,489
Total Equity		275,647		266,960		267,709
Book Value per Share	$	14.01	$	13.51	$	13.61
Tangible Book Value per Share		13.73		13.22		13.33
Minority Shares Outstanding		3,606,766		3,542,754		3,592,863
Total Shares Outstanding – at Quarter End		19,676,884		19,629,372		19,662,981
Weighted Average Total Shares Outstanding – Basic		19,457,445		19,400,678		19,438,844
Weighted Average Total Shares Outstanding – Fully Diluted		19,632,168		19,575,347		19,591,492

 * Includes Total Stockholders’ Equity less Accumulated Other Comprehensive Income.

** Includes unrealized gains and losses on Freddie Mac common stock and other investment securities adjusted for income taxes at a tax rate of approximately 38.6%

Selected Operating Data (in thousands except share and per share data):

	Three months ended
	December 31,				September 30,
	2006		2005		2006
	Unaudited
Total Interest Income	$	13,845	$	12,787	$	14,003
Total Interest Expense		7,473		6,307		7,605
Net Interest Income		6,372		6,480		6,398
Provision for Loan Losses		—		—		—
Net Interest Income after Provision for Loan Losses		6,372		6,480		6,398
Noninterest Income		71,288		5,961		1,383
Noninterest Expense		4,940		5,040		5,917
Income before Income Taxes		72,720		7,401		1,864
Income Tax Expense		26,923		2,067		(1,045	)
Net Income	$	45,797	$	5,334	$	2,909
Earnings per Share	$	2.35	$	0.27	$	0.15
Earnings per Share – Fully Diluted		2.33		0.27		0.15
Cash Dividends per Share***		0.45		0.70		2.20
Net Charge-offs		47		19		(10	)
Deposit Fees		1,041		833		1,031
Gain on Sale of Loans		223		163		232
Gain on Sale of Freddie Mac Common Stock		69,453		4,769		—
Gain (Loss) on Covered Calls Related to Freddie Mac Common Stock		188		13		(260	)

*** First Charter, MHC has waived its portion of these dividends, resulting in payment only to the minority stockholders.

	Three months ended
	December 31,				September 30,
	2006		2005		2006
	Unaudited
Return on Equity	65.10	%	8.43	%	4.64	%
Return on Assets	16.33		2.00		1.06
Net Interest Margin	2.39		2.50		2.45
Loan Loss Reserve as a % of Total Loans	1.52		1.60		1.59
Loan Loss Reserve as a % of Nonperforming Assets	104.52		128.27		184.60
Nonperforming Assets as a % of Total Loans and REO	1.45		1.24		0.86
Net Chargeoffs as a % of Average Loans	0.01		0.01		—
Nonperforming Assets to Total Assets	0.52		0.44		0.30
Bank Core Capital Ratio	9.21		8.84		9.71
Dividend Payout Ratio	3.54		46.49		271.67
Effective Tax Rate Expense	37.02		27.93		(56.04	)

Supplemental Information

CHARTER FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

December 31, 2006 and September 30, 2006

(unaudited)

	December 31, 2006			September 30, 2006
Assets
Cash and amounts due from depository institutions	$	15,467,885		14,780,668
Interest-bearing deposits in other financial institutions		81,597,983		9,640,178
Cash and cash equivalents		97,065,868		24,420,846
Loans held for sale, market value of $2,369,623 and $913,825 at December 31, 2006 and September 30, 2006, respectively		2,356,705		909,206
Freddie Mac common stock available for sale		231,029,750		294,339,375
Mortgage-backed securities and collateralized mortgage obligations available for sale		296,507,462		308,149,540
Other investment securities available for sale		37,435,604		37,582,398
Federal Home Loan Bank stock		15,981,200		15,981,200
Loans receivable		398,036,392		381,721,931
Unamortized loan origination fees, net		(903,252	)	(909,229	)
Allowance for loan losses		(6,039,096	)	(6,086,205	)
Loans receivable, net		391,094,044		374,726,497
Real estate owned		732,843		460,223
Accrued interest and dividends receivable		3,784,957		3,578,371
Premises and equipment, net		17,017,655		17,025,398
Intangible assets, net of amortization		5,559,315		5,598,817
Cash surrender value of life insurance		12,388,063		12,265,590
Other assets		3,963,320		2,284,034
Total assets	$	1,114,916,786		1,097,321,495
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	385,454,234		372,056,697
FHLB advances and other borrowings		330,279,000		337,928,000
Advance payments by borrowers for taxes and insurance		661,389		1,344,221
Deferred income taxes		84,849,038		108,185,711
Other liabilities		38,026,414		10,097,621
Total liabilities		839,270,075		829,612,250
Stockholders’ Equity:
Common stock, $0.01 par value; 19,851,719 and 19,837,816 shares issued at December 31, 2006 and September 30, 2006, respectively; 19,676,884 and 19,662,981 shares outstanding at December 31, 2006 and September 30, 2006, respectively		198,517		198,378
Additional paid-in capital		39,450,280		39,031,515
Treasury stock, at cost; 174,835 shares at
December 31, 2006 and September 30, 2006		(5,436,393	)	(5,436,393	)
Unearned compensation – ESOP		(2,121,940	)	(2,121,940	)
Retained earnings		107,722,754		63,548,301
Accumulated other comprehensive income:
Net unrealized holding gains on securities available for sale, net of tax		135,833,493		172,489,384
Total stockholders’ equity		275,646,711		267,709,245
Commitments and contingencies
Total liabilities and stockholders’ equity	$	1,114,916,786		1,097,321,495

CHARTER FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

For the Three Months Ended December 31, 2006 and 2005

(unaudited)

	Three Month Ended December 31, 2006			Three Month Ended December 31, 2005
Interest and dividend income:
Loans receivable	$	7,007,259		6,144,683
Mortgage-backed securities and collateralized mortgage obligations		3,672,287		4,092,430
Equity securities		2,436,972		2,287,362
Debt securities		477,473		172,757
Interest-bearing deposits in other financial institutions		251,081		89,866
Total interest and dividend income		13,845,072		12,787,098
Interest expense:
Deposits		3,668,086		2,284,054
Borrowings		3,804,581		4,023,290
Total interest expense		7,472,667		6,307,344
Net interest income		6,372,405		6,479,754
Provision for loan losses		—		—
Net interest income after provision for loan losses		6,372,405		6,479,754
Noninterest income:
Gain on sale of loans and servicing released loan fees		222,816		162,729
Service charges on deposit accounts		1,041,413		833,473
Gain on sale of Freddie Mac common stock		69,453,332		4,768,735
Gain on sale of mortgage-backed securities, collateralized mortgage obligations, and other investments		—		—
Loan servicing fees		69,710		62,352
Gain (Loss) on operations of covered call program		188,125		13,254
Brokerage commissions		115,114		115,611
Other		197,911		4,364
Total noninterest income		71,288,421		5,960,518
Noninterest expenses:
Salaries and employee benefits		2,917,223		2,857,094
Occupancy		850,623		877,632
Legal and professional		229,784		360,538
Marketing		252,753		180,361
Furniture and equipment		154,721		144,520
Federal insurance premiums and other regulatory fees		64,211		58,334
Net cost of operations of real estate owned		(3,590	)	45,049
Postage, office supplies, and printing		120,956		134,841
Deposit premium amortization expense		39,502		44,703
Other		314,307		336,548
Total noninterest expenses		4,940,490		5,039,620
Income before income taxes	$	72,720,336		7,400,652
Income tax expense		26,922,838		2,066,883
Net income	$	45,797,498		5,333,769
Basic net income per share	$	2.35		0.27
Diluted net income per share	$	2.33		0.27
Weighted average number of common shares outstanding		19,457,445		19,400,678
Weighted average number of common and common equivalent shares outstanding		19,632,168		19,575,347

CHARTER CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended December 31, 2006 and December 31, 2005

(unaudited)

	Three Months Ended December 31, 2006			Three Months Ended December 31, 2005
Cash flows from operating activities:
Net income	$	45,797,498		5,333,769
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		—		—
Depreciation and amortization		245,546		237,956
(Accretion) amortization of premiums and discounts, net		(43,573	)	(10,834	)
Gain on sale of loans		(222,816	)	(162,729	)
Proceeds from sale of loans		6,553,102		6,087,167
Originations and purchases of loans held for sale		(7,777,786	)	(6,135,516	)
Gain on sale of Freddie Mac common stock		(69,453,332	)	(4,768,735	)
Gain on sales of mortgage-backed securities, collateralized mortgage obligations, and other investments		—		—
Writedown of real estate owned		—		61,818
Gain on sale of real estate owned		(5,436	)	(4,209	)
Gain on sale of assets		(106,975	)
Stock option expense		41,450		55,276
Increase in cash surrender value on bank owned life insurance		(122,473	)
Changes in assets and liabilities:
Increase in accrued interest and dividends receivable		(206,586	)	(409,764	)
Decrease (increase) in other assets		(1,686,777	)	335,649
Increase (decrease) in other liabilities		27,928,795		4,584,226
Net cash provided by operating activities		940,637		5,204,074
Cash flows from investing activities:
Principal collections on agencies available for sale		226,181		—
Proceeds from sale of mortgage-backed securities and collateralized mortgage obligations available for sale		—		—
Principal collections on mortgage-backed securities and collateralized mortgage obligations available for sale		13,729,734		27,292,085
Purchases of mortgage-backed securities and collateralized mortgage obligations available for sale		—		(18,211,184	)
Proceeds from sale of other investment securities available for sale		—		—
Proceeds from sale of Freddie Mac common stock		70,646,923		4,910,794
Proceeds from maturities of other securities available for sale				427,548
Purchase of FHLB stock				(371,300	)
Proceeds from redemption of FHLB stock		—		292,500
Net increase in loans receivable, exclusive of loan sales		(16,860,228	)	(20,217,738	)
Proceeds from sale of real estate owned		225,496		392,927
Proceeds from sale of premises and equipment		106,975		—
Purchases of premises and equipment, net of dispositions		(190,810	)	(613,357	)
Net cash (used in) provided by investing activities		67,884,271		(6,097,725	)
Cash flows from financing activities:
Stock options exercised		377,454		—
Dividends paid		(1,623,045	)	(2,479,928	)
Net increase (decrease) in deposits		13,397,537		34,848,256
Proceeds from Federal Home Loan Bank advances		—		12,250,000
Principal payments on advances from Federal Home Loan Bank		—		(10,500,000	)
Proceeds from other borrowings		62,125,000		312,006,000
Principal payments on other borrowings		(69,774,000	)	(345,056,000	)
Net decrease in advance payments by borrowers for taxes and insurance		(682,832	)	(709,414	)
Capital contribution		—
Net cash provided by (used in) financing activities		3,820,114		358,914
Net (decrease) increase in cash and cash equivalents		72,645,022		(534,737	)
Cash and cash equivalents at beginning of period		24,420,846		20,864,105
Cash and cash equivalents at end of period	$	97,065,868		20,329,368
Supplemental disclosures of cash flow information:
Interest paid	$	7,270,082		5,930,387
Income taxes paid	$	—		291,330
Supplemental disclosure of noncash financing activities:
Real estate acquired through foreclosure of the loans receivable	$	492,680		378,026

Earnings per Share

Earnings per share are calculated according to the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 128 “Earnings per Share.” ESOP shares are only considered outstanding for earnings per share calculations when the shares have been committed to be released. Presented below are the calculations for basic and diluted earnings per share for the three months ended December 31, 2006 and 2005:

	Three Months Ended December 31, 2006		Three Months Ended December 31, 2005
Basic:
Net income	$	45,797,498	5,333,769
Weighted average number of common shares oustanding		19,457,445	19,400,678
Basic earnings per share	$	2.35	0.27
Diluted:
Net income	$	45,797,498	5,333,769
Weighted average number of common and common equivalent shares oustanding		19,632,168	19,575,347
Diluted earnings per share	$	2.33	0.27

Comprehensive Income

The primary component of other comprehensive income for the Company is net unrealized gains and losses on Freddie Mac common stock and investment and mortgage-backed securities available for sale. The table below summarizes total comprehensive income for the three months ended December 31, 2006 and 2005.

	Three Months Ended December 31, 2006		Three Months Ended December 31, 2005
Total comprehensive income	$	9,141,607	26,154,162
Change in net unrealized holding gains on securities, net of income taxes		5,988,455	23,748,396
Less reclassification adjustment for net gains realized in net income		42,644,346	2,928,003
Net Income	$	45,797,498	5,333,769

Covered Call Program

At December 31, 2006, Charter Financial had covered call options on Freddie Mac common stock outstanding on 35,000 shares. Deferred income, which is recorded in the liability section of the consolidated statement of financial condition, is cash that we received when writing the call. If the call expires unexercised, deferred income is realized upon maturity of the call. If the call is exercised, deferred income is included as gain or loss on the sale of Freddie Mac common stock. Charter Financial has also recorded the unrealized loss and gain in the income statement, as the derivative instruments do not qualify as hedges under SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities. The mark to market loss or gain is recorded in noninterest income of our consolidated statement of income. During the three months ended December 31, 2006 holders of the covered call options exercised options to purchase 75,000 shares of Freddie Mac common stock. The income statement impact of the covered call premium and mark to market is as follows:

	Three Months Ended December 31, 2006			Three Months Ended December 31, 2005
Net (Loss) Gain on Fair Value in Income Statement	$	(89,250	)	13,254
Realized Income		277,375		—
Income on Covered Calls	$	188,125		13,254

Capital (CharterBank)

CharterBank is and has traditionally been a well-capitalized savings association. The following table sets forth the tier one capital levels, risk-based capital levels, and ratios for the past several quarters.

For the Quarters Ended	Tier 1 Capital	Risk-Weighted Capital Ratio	Regulatory Core Capital Ratio	Total Risk- Based Capital	Total Risk-Based Capital Ratio
	(Dollars in Millions)
December 31, 2006	80.4	12.95	9.21	160.7	25.88
September 30, 2006	78.4	13.24	9.71	156.8	26.49
June 30, 2006	75.4	12.64	8.77	150.8	25.28
March 31, 2006	73.4	12.47	8.79	146.8	24.94
December 31, 2005	71.4	12.73	8.84	142.9	25.46
September 30, 2005	78.8	14.69	9.86	148.1	27.62
June 30, 2005	77.3	14.24	9.86	154.5	28.48
March 31, 2005	75.7	14.28	9.64	151.4	28.56

At December 31, 2006 and September 30, 2006, we significantly exceeded each of the applicable regulatory capital requirements. Tier 1 capital as a percent of total regulatory assets is consistently above the “well-capitalized” requirement of 5.0%. Total risk-based capital ratios exceed the applicable “well-capitalized” requirement for risk-based capital of 10.0%. CharterBank exceeded the “well-capitalized” level of its various regulatory capital requirements by amounts ranging from $36.7 million to $98.6 million at December 31, 2006. We made a capital distribution from CharterBank to Charter Financial of $9.0 million during the first quarter of fiscal 2006, which resulted in the $7.4 million reduction in Tier 1 capital shown in the table above at December 31, 2005.

Capital (Charter Financial)

Accumulated other comprehensive income (“unrealized equity”) is comprised of net unrealized holding gains on securities available for sale. The primary cause of decrease in unrealized equity was the conversion of $69.5 million to realized equity through a gain on sale of Freddie Mac stock in the December 2006 quarter. The following table shows realized and unrealized equity and the Freddie Mac common stock price for the past eight quarters. A comparison of the unrealized equity and Freddie Mac common stock price demonstrates the relationship between the price of Freddie Mac common stock and our unrealized equity.

For the Quarters Ended	Total Capital	Realized Equity	Unrealized Equity	Percentage of Unrealized Capital to Total Capital		Freddie Mac Common Stock Price
	(Dollars in Millions)
December 31, 2006	275,647	139,814	135,833	49.28	%	$	67.90
September 30, 2006	267,709	95,220	172,489	64.43			66.33
June 30, 2006	243,655	99,411	144,244	59.20			57.01
March 31, 2006	255,588	97,781	157,807	61.74			61.00
December 31, 2005	266,960	96,735	170,225	63.76			65.35
September 30, 2005	243,230	93,825	149,405	61.43			56.46
June 30, 2005	268,768	91,530	177,238	65.94			65.23
March 31, 2005	258,546	89,552	168,994	65.36			63.20

Freddie Mac and Comprehensive Income

	For the Quarters Ended
	December 31, 2006			September 30, 2006		June 30, 2006			March 31, 2006			December 31, 2005
Freddie Mac:
Number of shares		3,402,500			4,437,500		4,437,500			4,437,500			4,437,500
Market Price	$	67.90		$	66.33	$	57.01		$	61.00		$	65.35
Market Value	$	231,029,750		$	294,339,375	$	252,981,875		$	270,687,500		$	289,990,625
Unrealized Gain Net of Tax	$	139,177,761		$	177,090,209	$	151,696,704		$	162,567,957		$	174,420,076
Other Comprehensive Income (Loss)
Related to Mortgage Securities and other Investments	$	1,256,557		$	2,851,945	$	(2,692,124	)	$	(566,020	)	$	(888,764	)
Freddie Mac Common Stock	$	(37,912,447	)	$	25,393,505	$	(10,871,254	)	$	(11,852,119	)	$	21,709,158
Change in net unrealized holdings gains on securities, net of income taxes	$	(36,655,890	)	$	28,245,450	$	(13,563,378	)	$	(12,418,139	)	$	20,820,394

Loan Balances

For the Quarters Ended	1-4 Family Residential			Construction		Commercial Real Estate		Consumer		Commercial Non- Real Estate		Total Loans	Percent Change per Quarter
	(Dollars in Thousands)
December 31, 2006
Loan balance as a % of loan portfolio		36.1	%	12.5	%	41.7	%	5.1	%	4.6	%		NA
Loan balance as a % of total assets		12.9	%	4.4	%	14.9	%	1.8	%	1.7	%		NA
Actual Balance:	$	143,652		49,566		166,140		20,144		18,535		398,037	NA
Average Balance:
December 31, 2006		142,913		45,079		162,790		19,792		18,669		389,243	0.4
September 30, 2006		144,993		43,382		161,397		19,262		18,495		387,529	(0.4	)
June 30, 2006		145,486		42,263		165,629		18,925		16,845		389,148	1.1
March 31, 2006		147,093		37,020		164,804		19,088		16,719		384,724	3.4
December 31, 2005		148,408		32,362		156,331		18,932		16,041		372,074	5.3

The nonresidential real estate loan growth reflects our strategy to increase this portion of the portfolio. Future growth of our nonresidential real estate portfolio depends primarily on interest rates, growth in the economy and competitiveness in the market to obtain new loans. In recent years, CharterBank has made an effort to build its loans secured by commercial real estate properties and these loans now make up 41.7% of the loan portfolio. In a significant number of the loans secured by commercial properties, the owner occupies the properties and the ongoing operations of the business provide the cash to service the debt. CharterBank’s largest funded loan relationship is a $6.4 million loan for development purposes. The largest industry concentration of commercial purpose loans is the hospitality industry where we have an aggregate of $16.2 million, or 4.1% of our loan portfolio, to various hotel and motel operations. Construction and development loans, which comprise 12.5% of the loan portfolio, are carefully monitored since the repayment is generally dependent upon the liquidation of the real estate and is impacted by national and local economic conditions.

Deposit Balances

Total deposits increased from $372.1 million at September 30, 2006 to $385.5 million at December 31, 2006. Of the $13.4 million increase, $15.2 million was in retail deposits and $1.8 million decrease in wholesale certificates of deposit. CharterBank has focused on attracting and retaining core deposits in order to fund loans and reduce dependence on higher cost deposits. Accordingly, as shown in the following table, over the last two years, core deposits (checking, money market and savings accounts) have significantly increased from $126.7 million to $177.7 million. A portion of this increase is in high balance accounts, which may be more volatile than lower balance accounts. Fees on core deposit accounts increased from $833,000 in the December 2005 quarter to $1.0 million in the December 2006 quarter.

	Deposit Fees		Transaction Accounts		Savings		Money Market Accounts		Total Core Deposits		Certificates of Deposit
	(Dollars in Thousands)
December 31, 2006	$	1,041	$	79,771	$	12,468	$	85,471	$	177,710	$	207,743
September 30, 2006		1,031		80,679		13,213		75,238		169,130		202,927
June 30, 2006		981		89,310		14,202		72,131		175,643		220,764
March 31, 2006		883		77,598		14,193		51,595		143,386		222,115
December 31, 2005		833		66,195		13,550		49,115		128,860		226,118
September 30, 2005		745		68,110		14,739		48,512		131,361		188,768
June 30, 2005		679		67,224		14,926		44,497		126,647		165,125
March 31, 2005		632		65,245		15,698		45,623		126,566		160,666

Average Balances and Yields

The following table shows the average balances of the key components of earning assets and interest bearing liabilities for the past five quarters. From December 2005 to December 2006, we have increased our average loan balance $17.2 million while we decreased the average balance in mortgage and investment securities by $28.2 million. During the same period, we decreased our average borrowings balance by $39.7 million and increased our interest costing deposits by $53.5 million.

	Average Assets
	Interest Earning Assets		Freddie Mac		Loans		Mortgage and Investment Securities
	(Dollars in Thousands)
December 31, 2006	$	1,066,898	$	297,019	$	389,243	$	340,202
September 30, 2006		1,042,734		264,119		387,529		352,119
June 30, 2006		1,049,484		269,179		389,148		363,565
March 31, 2006		1,072,418		296,359		384,724		364,955
December 31, 2005		1,036,088		271,443		372,074		368,417
	Average Liabilities
	Total Interest Bearing Liabilities		Borrowings		Non Interest Earning Deposits		Interest Costing Deposits
	(Dollars in Thousands)
December 31, 2006	$	689,860	$	332,429	$	29,823	$	357,431
September 30, 2006		702,357		347,019		30,125		355,338
June 30, 2006		704,867		360,503		29,729		344,364
March 31, 2006		685,140		355,809		26,989		329,331
December 31, 2005		676,056		372,103		28,645		303,953

The table below shows the costs of liabilities and yield on assets and the components of both. Our spread between the yield on securities and the cost of borrowings has varied from 27 basis points to 55 basis points, with the most recent quarter being 27 basis points. Our loan yield and deposit cost spread has narrowed 50 basis points since the December 2005 quarter as deposits have repriced upwards faster than our loans have repriced.

	Three Months Ended
	December 2006	September 2006	June 2006	March 2006	December 2005	September 2005	June 2005	March 2005	December 2004
Cost of Liabilities	4.33	4.33	4.13	3.86	3.73	3.55	3.36	3.18	3.05
Cost of Deposits	4.10	4.05	3.76	3.38	3.01	2.68	2.38	2.25	2.05
Cost of CD’s	4.63	4.45	4.21	3.92	3.59	3.26	2.97	2.80	2.67
Cost of NOW Accounts	1.97	2.02	1.93	1.26	0.76	0.81	0.78	0.72	0.57
Cost of Savings	0.25	0.24	0.23	0.26	0.25	0.25	0.23	0.23	0.24
Cost of MMDA	4.57	4.87	4.39	3.83	3.21	2.97	2.52	2.43	1.93
Cost of Borrowings	4.58	4.62	4.48	4.30	4.32	4.18	3.98	3.74	3.67
Yield of Assets	5.19	5.37	5.24	4.95	4.94	4.46	4.37	4.16	4.02
Yield on Freddie Mac	2.96	3.16	3.10	2.82	3.13	2.22	2.21	2.09	1.79
Yield on Assets excluding Freddie Mac	6.05	6.12	5.97	5.77	5.58	5.32	5.20	4.99	4.92
Yield on Loans	7.20	7.19	7.00	6.73	6.61	6.32	6.20	5.99	6.10
Yield on Mortgage Securities	4.85	5.00	4.95	4.80	4.66	4.52	4.42	4.29	4.12
Loan/Deposit Spread	3.10	3.14	3.24	3.35	3.60	3.64	3.82	3.74	4.05
Mortgage Securities/Borrowings Spread	0.27	0.38	0.47	0.50	0.34	0.34	0.44	0.55	0.45

The following table shows our net interest income, net interest spread and net interest margin and the impact the dividends on each of these from our Freddie Mac stock and its dividends. Net interest rate spread is the difference between yield on assets and cost of liabilities. Net interest margin is net interest income as a percent of average earning assets.

	Three Months Ended
	December 2006			September 2006			June 2006			March 2006			December 2005			September 2005			June 2005			March 2005			December 2004
Net Interest Income	$	6,372		$	6,398		$	6,457		$	6,667		$	6,480		$	5,699		$	5,811		$	5,757		$	5,640
Net Interest Income excluding
Freddie Mac dividends	$	4,171		$	4,312		$	4,371		$	4,581		$	4,359		$	4,120		$	4,212		$	4,158		$	4,262
Attributable to Freddie Mac dividends	$	2,201		$	2,086		$	2,086		$	2,086		$	2,121		$	1,579		$	1,599		$	1,599		$	1,378
Net Interest Spread		0.86	%		1.04	%		1.11	%		1.09	%		1.21	%		0.91	%		1.01	%		0.98	%		0.97	%
Net Interest Spread excluding
Freddie Mac dividends		1.72	%		1.79	%		1.84	%		1.91	%		1.85	%		1.77	%		1.84	%		1.81	%		1.87	%
Attributable to Freddie Mac dividends		-0.86	%		-0.75	%		-0.73	%		-0.82	%		-0.64	%		-0.86	%		-0.83	%		-0.83	%		-0.90	%
Net Interest Margin		2.39	%		2.45	%		2.46	%		2.49	%		2.50	%		2.21	%		2.22	%		2.16	%		2.12	%
Net Interest Margin excluding
Freddie Mac dividends		2.17	%		2.22	%		2.24	%		2.36	%		2.28	%		2.20	%		2.23	%		2.19	%		2.26	%
Attributable to Freddie Mac dividends		0.22	%		0.23	%		0.22	%		0.13	%		0.22	%		0.01	%		-0.01	%		-0.03	%		-0.14	%
Yield on Assets		5.19	%		5.37	%		5.24	%		4.95	%		4.94	%		4.46	%		4.37	%		4.16	%		4.02	%
Cost of Liabilities		4.33	%		4.33	%		4.13	%		3.86	%		3.73	%		3.55	%		3.36	%		3.18	%		3.05	%

Noninterest Income

The table below shows the components of noninterest income for the last five quarters. There was a $69.5 million gain on sale of securities during the three months ended December 31, 2006 compared to $4.8 million for the three months ended December 31, 2005. One million shares of Freddie Mac common stock was sold resulting in a gain of $67.4 million and the Charter Financial call option program had 35,000 shares of Freddie Mac common stock exercised resulting in a gain of $2.1 million during the three months ended December 31, 2006. Our deposit fees have increased as our checking products have increased in balance and to a lesser extent increased fees. Insufficient funds fees were $604,000 of the $1.0 million deposit fees for the three months ended December 31, 2006.

	For the Three Months Ended
	December 2006	September 2006		June 2006	March 2006	December 2005
Loan servicing fees	70	71		64	69	62
Deposit fees	1,041	1,031		981	883	833
Gain on the sale of loans	223	232		193	153	163
Gain on sale of investments, net	69,453	0		0	0	4,769
Gain (loss) on covered call program	188	(260	)	215	309	13
Brokerage commissions	115	88		174	121	116
Other income	198	221		161	158	4
Total	71,288	1,383		1,788	1,693	5,960

Noninterest Expense

	For the Three Months Ended
	December 2006		September 2006	June 2006	March 2006		December 2005
Compensation & employee benefits	2,917		3,410	3,095	2,673		2,857
Occupancy	851		846	760	906		877
Legal & professional	230		554	313	356		361
Marketing	253		235	236	270		180
Furniture & equipment	155		177	185	159		145
Postage, office supplies, and printing	120		140	147	120		135
Federal insurance premiums and other regulatory fees	64		64	61	60		58
Net cost (gain) of operations of real estate owned	(4	)	17	45	(3	)	45
Deposit premium amortization expense	40		40	40	43		45
Other	314		434	418	288		337
Total	4,940		5,917	5,300	4,872		5,040

Asset Quality

The following table shows under-performing loans and nonperforming assets. Approximately 98.4% of our nonaccrual loans had real estate as collateral at December 31, 2006. Nonperforming loans at December 31, 2006 include one loan of $3.0 million that has an 80% guarantee from U. S. Department of Agriculture.

	December 31, 2006			September 30, 2006
	(Dollars in Thousands)
Underperforming loans	$	52		$	392
Total nonperforming loans		5,045			2,837
Foreclosed real estate, net		733			460
Total nonperforming assets	$	5,778		$	3,297
Nonperforming loans to total loans		1.27	%		0.74	%
Nonperforming assets to total assets		0.52	%		0.30	%