Charter Financial 10Q 2013 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-35870

Charter Financial Corporation

(Exact name of registrant as specified in its charter)

Maryland	90-0947148
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1233 O.G. Skinner Drive, West Point, Georgia	31833
(Address of Principal Executive Offices)	(Zip Code)

(706) 645-1391

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES x NO ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if smaller reporting company)	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

The number of shares of the registrant’s common stock outstanding as of April 30, 2013 was 22,752,214.

CHARTER FINANCIAL CORPORATION

Table of Contents

		Page No.
Part I. Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Statements of Financial Condition at March 31, 2013 and September 30, 2012	3

	Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended March 31, 2013 and 2012	4

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2013 and 2012	5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended March 31, 2013 and Year Ended September 30, 2012	6

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2013 and 2012	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50

Item 4.	Controls and Procedures	50

Part II. Other Information

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 6.	Exhibits	51

	Signatures	53

Part I. Financial Information

Item 1. Financial Statements

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	(Unaudited)
	March 31,			September 30,
	2013			2012
Assets
Cash and amounts due from depository institutions	$	24,374,035		$	13,221,291
Interest-earning deposits in other financial institutions		217,623,175			95,606,929
Cash and cash equivalents		241,997,210			108,828,220

Loans held for sale, fair value of $2,490,778 and $2,741,672		2,445,733			2,691,508
Securities available for sale		197,369,841			189,379,333
Federal Home Loan Bank stock		4,390,300			5,318,200
Loans receivable:
Not covered under FDIC loss sharing agreements		430,851,111			436,966,775
Covered under FDIC loss sharing agreements, net		138,310,221			176,569,131
Allowance for loan losses (covered loans)		(6,951,125	)		(10,340,815	)
Unamortized loan origination fees, net (non-covered loans)		(1,130,053	)		(1,101,481	)
Allowance for loan losses (non-covered loans)		(8,545,784	)		(8,189,895	)
Loans receivable, net		552,534,370			593,903,715
Other real estate owned:
Not covered under FDIC loss sharing agreements		1,240,558			2,106,757
Covered under FDIC loss sharing agreements		17,012,008			21,903,204
Accrued interest and dividends receivable		3,152,586			3,241,320
Premises and equipment, net		22,088,292			23,610,642
Goodwill		4,325,282			4,325,282
Other intangible assets, net of amortization		1,031,909			1,280,309
Cash surrender value of life insurance		34,314,859			33,831,920
FDIC receivable for loss sharing agreements		45,875,194			35,135,533
Deferred income taxes		6,528,359			6,176,199
Other assets		1,118,471			487,954
Total assets	$	1,135,424,972		$	1,032,220,096

Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	918,988,604		$	800,261,546
FHLB advances and other borrowings		70,000,000			81,000,000
Advance payments by borrowers for taxes and insurance		428,938			651,520
Other liabilities		1,325,494			7,786,262
Total liabilities		990,743,036			889,699,328
Stockholders’ equity:
Common stock, $0.01 par value; 19,859,219 shares issued at March 31, 2013 and September 30, 2012, respectively; 18,220,260 shares outstanding at March 31, 2013 and 18,229,760 shares outstanding at September 30, 2012		198,592			198,592
Preferred stock, no par value; 10,000,000 shares authorized		-			-
Additional paid-in capital		73,593,913			73,483,605
Treasury stock, at cost; 1,638,959 shares at March 31, 2013 and 1,629,459 shares at September 30, 2012		(40,526,201	)		(39,362,686	)
Unearned compensation – ESOP		(3,391,839	)		(3,571,121	)
Retained earnings		115,287,694			111,568,998
Accumulated other comprehensive gain (loss) – net of unrealized holding gains (losses) on securities available for sale		(480,223	)		203,380
Total stockholders’ equity		144,681,936			142,520,768
Commitments and contingencies
Total liabilities and stockholders’ equity	$	1,135,424,972		$	1,032,220,096

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2013			2012			2013		2012
Interest and dividend income:
Loans receivable	$	10,147,268		$	11,644,317		$	20,327,197	$	23,192,931
Mortgage-backed securities and collateralized mortgage obligations		738,318			871,954			1,468,573		1,672,188
Federal Home Loan Bank Stock		30,891			30,810			65,791		53,816
Other investment securities available for sale		39,331			68,776			94,472		128,375
Interest-earning deposits in other financial institutions		49,708			26,154			101,393		94,173
Total interest and dividend income		11,005,516			12,642,011			22,057,426		25,141,483
Interest expense:
Deposits		1,088,908			1,712,800			2,306,368		3,854,980
Borrowings		812,569			1,138,050			1,650,038		2,328,642
Total interest expense		1,901,477			2,850,850			3,956,406		6,183,622
Net interest income		9,104,039			9,791,161			18,101,020		18,957,861
Provision for loan losses, not covered under FDIC loss sharing agreements		300,000			300,000			600,000		1,800,000
(Credit) provision for covered loan losses		(42,267	)		290,000			52,483		890,000
Net interest income after provision for loan losses		8,846,306			9,201,161			17,448,537		16,267,861
Noninterest income:
Service charges on deposit accounts		1,878,205			1,619,833			3,828,602		3,346,175
Gain on securities available for sale		-			-			219,913		632,593
Total impairment losses on securities		-			(243,820	)		-		(345,187	)
Portion of losses recognized in other comprehensive income		-			70,561			-		71,928
Net impairment losses recognized in earnings		-			(173,259	)		-		(273,259	)
Bank owned life insurance		227,653			260,075			482,939		532,274
Gain on sale of loans and loan servicing release fees		385,239			161,322			735,212		346,713
Loan servicing fees		79,994			119,285			162,464		209,798
Brokerage commissions		174,644			139,924			315,338		265,985
FDIC receivable for loss sharing agreements accretion		186,237			455,293			333,911		1,025,422
Other		45,096			(23,900	)		109,892		291,263
Total noninterest income		2,977,068			2,558,573			6,188,271		6,376,964
Noninterest expenses:
Salaries and employee benefits		4,366,809			4,617,778			9,042,751		9,305,824
Occupancy		1,717,827			2,013,972			3,478,763		4,052,164
Legal and professional		493,381			447,333			816,587		944,378
Marketing		323,385			494,094			591,402		964,217
Federal insurance premiums and other regulatory fees		(142,409	)		365,406			102,716		708,965
Net cost of operations of real estate owned		1,191,833			626,734			999,507		1,366,725
Furniture and equipment		210,013			259,228			411,959		464,245
Postage, office supplies and printing		277,370			252,217			524,131		531,576
Core deposit intangible amortization expense		120,735			133,278			248,400		273,720
Other		1,197,681			741,164			1,865,317		1,605,727
Total noninterest expenses		9,756,625			9,951,204			18,081,533		20,217,541
Income before income taxes		2,066,749			1,808,530			5,555,275		2,427,284
Income tax expense		682,340			547,858			1,836,579		678,229
Net income	$	1,384,409		$	1,260,672		$	3,718,696	$	1,749,055

Basic net income per share	$	0.07		$	0.06		$	0.19	$	0.09
Diluted net income per share	$	0.07		$	0.06		$	0.19	$	0.09
Weighted average number of common shares outstanding		19,374,112			19,498,676			19,374,829		19,580,892
Weighted average number of common and potential common shares outstanding		19,415,179			19,538,687			19,415,896		19,620,903

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2013			2012		2013			2012
Net income	$	1,384,409		$	1,260,672	$	3,718,696		$	1,749,055
Less reclassification adjustment for net gains realized in net income, net of taxes of $0, $0, $84,887 and $244,181, respectively		-			-		(135,026	)		(388,412	)
Net unrealized holding gains (losses) on investment and mortgage securities available for sale arising during the year, net of taxes of $72,405, $(279,595), $344,870 and $98,020, respectively		(115,173	)		444,744		(548,577	)		(155,918	)
Noncredit portion of other-than-temporary impairment losses recognized in earnings, net of taxes of $0, $(66,878), $0 and $(105,478), respectively		-			106,381		-			167,781
Comprehensive income	$	1,269,236		$	1,811,797	$	3,035,093		$	1,372,506

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common stock															Accumulated
	Number of shares		Amount		Additional paid-in capital		Treasury stock			Unearned compensation ESOP			Retained earnings			other comprehensive income (loss)			Total stockholders' equity
Balance at September 30, 2011		19,859,219	$	198,592	$	73,083,363	$	(36,127,940	)	$	(3,729,390	)	$	107,962,533		$	(1,971,458	)	$	139,415,700
Net income		-		-		-		-			-			4,978,692			-			4,978,692
Change in unrealized loss on securities		-		-		-		-			-			-			2,174,838			2,174,838
Dividends paid, $010 per share		-		-		-		-			-			(1,372,227	)		-			(1,372,227	)
Allocation of ESOP common stock		-		-		-		-			158,269			-			-			158,269
Effect of restricted stock awards		-		-		306,366		353,267			-			-			-			659,633
Stock option expense		-		-		93,876		-			-			-			-			93,876
Repurchase of shares		-		-		-		(3,588,013	)		-			-			-			(3,588,013	)
Balance at September 30, 2012		19,859,219	$	198,592	$	73,483,605	$	(39,362,686	)	$	(3,571,121	)	$	111,568,998		$	203,380		$	142,520,768
Net income		-		-		-		-			-			3,718,696			-			3,718,696
Change in unrealized loss on securities		-		-		-		-			-			-			(683,603	)		(683,603	)
Allocation of ESOP common stock		-		-		31,592		-			179,282			-			-			210,874
Effect of restricted stock awards		-		-		27,915		-			-			-			-			27,915
Stock option expense		-		-		50,801		-			-			-			-			50,801
Repurchase of shares and conversion expenses		-		-		-		(1,163,515	)		-			-			-			(1,163,515	)
Balance at March 31, 2013		19,859,219	$	198,592	$	73,593,913	$	(40,526,201	)	$	(3,391,839	)	$	115,287,694		$	(480,223	)	$	144,681,936

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended March 31,
	2013			2012
Cash flows from operating activities:
Net income	$	3,718,696		$	1,749,055
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses, not covered under FDIC loss sharing agreements		600,000			1,800,000
Provision for covered loan losses		52,483			890,000
Depreciation and amortization		812,241			873,629
Accretion and amortization of premiums and discounts, net		1,472,277			1,353,108
Accretion of fair value discounts related to covered loans		(5,030,780	)		(4,712,198	)
Accretion of fair value discounts related to FDIC receivable		(333,911	)		(1,025,422	)
Gain on sale of loans and loan servicing release fees		(735,212	)		(346,713	)
Proceeds from sale of loans		27,511,446			11,762,216
Originations and purchases of loans held for sale		(26,530,459	)		(12,355,909	)
Gain on sale of mortgage-backed securities, collateralized mortgage obligations and other investments		(219,913	)		(632,593	)
Other-than-temporary impairment-securities		-			273,259
Write down of real estate owned		1,463,746			957,581
Gain on sale of real estate owned		(299,751	)		(43,725	)
Restricted stock award expense		27,915			65,027
Stock option expense		50,801			47,103
Increase in cash surrender value on bank owned life insurance		(482,939	)		(671,385	)
Changes in assets and liabilities:
Decrease (increase) in accrued interest and dividends receivable		88,734			(209,584	)
Decrease in other assets		437,325			673,898
Increase in other liabilities		(6,249,896	)		(2,769,965	)
Net cash used in operating activities		(3,647,197	)		(2,322,618	)

Cash flows from investing activities:
Proceeds from sales of securities available for sale		13,952,478			27,413,475
Principal collections on securities available for sale		24,521,152			31,030,891
Purchase of securities available for sale		(56,478,764	)		(96,161,223	)
Proceeds from maturities or calls of securities available for sale		7,726,500			2,216,000
Proceeds from redemption of FHLB stock		927,900			1,335,400
Net decrease in loans receivable		34,644,810			8,534,866
Net decrease (increase) in FDIC receivable		(5,572,787	)		30,788,624
Proceeds from sale of real estate owned		10,863,269			7,224,735
Purchases of premises and equipment		(109,331	)		(3,237,978	)
Net cash provided by investing activities		30,475,227			9,144,790

Cash flows from financing activities:
Purchase of treasury stock and conversion expense		(1,163,515	)		(3,118,014	)
Dividends paid		-			(900,861	)
Increase (decrease) in deposits		118,727,057			(65,585,502	)
Principal payments on Federal Home Loan Bank advances		(11,000,000	)		(30,000,000	)
Net decrease in advance payments by borrowers for taxes and insurance		(222,582	)		-
Net cash (used in) provided by financing activities		106,340,960			(99,604,377	)
Net increase (decrease) in cash and cash equivalents		133,168,990			(92,782,205	)
Cash and cash equivalents at beginning of period		108,828,220			148,849,886
Cash and cash equivalents at end of period	$	241,997,210		$	56,067,681
Supplemental disclosures of cash flow information:
Interest paid	$	4,025,818		$	6,566,114
Income taxes paid	$	5,720,100		$	265,000
Supplemental disclosure of noncash activities:
Real estate acquired through foreclosure of collateral on loans receivable	$	11,102,832		$	9,465,372
Write down of real estate owned reimbursed by the FDIC	$	6,581,545		$	5,940,000
Provision for covered loan losses reimbursed by the FDIC	$	(1,320,697	)	$	5,480,845
Issuance of common stock under stock benefit plan	$	210,874		$	158,269
Unrealized loss on securities available for sale, net	$	(683,603	)	$	(570,529	)

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Nature of Operations

Charter Financial Corporation (the “Company”), a federally chartered corporation, was organized on October 16, 2001 by CharterBank (the “Bank”), to become the mid-tier holding company for the Bank in connection with the Bank’s reorganization from a federal mutual savings and loan association into the two-tiered mutual holding company structure. In connection with the reorganization, the Company sold 3,964,481 shares of its common stock to the public, representing 20% of the outstanding shares at $10.00 per share, and received net proceeds of $37.2 million. An additional 15,857,924 shares, or 80% of the Company’s outstanding shares, were issued to First Charter, MHC, the Bank’s federally chartered mutual holding company.

In January 2007, the Company repurchased 508,842 shares of its common stock at $52.00 per share through a self-tender offer. Following the stock repurchase, the Company delisted its common stock from the NASDAQ Global Market and deregistered its common stock with the Securities and Exchange Commission. Between January 2007 and September 2009 the Company repurchased 1,186,858 additional shares of its common stock. In September 2010, through an incremental offering, the Company sold 4,400,000 shares with net proceeds of $26.6 million, and First Charter, MHC canceled 4,400,000 shares of Company stock that it held. On September 27, 2011, the Company announced a 5% stock repurchase plan with repurchased shares being held in treasury and available for general corporate purposes. Through the second quarter ended March 31, 2012, 9,500 shares were repurchased at a cost of $88,838 all of which were repurchased in the first fiscal quarter ended December 31, 2012.

As of March 31, 2013, First Charter, MHC owned 11,457,924 shares of the Company’s common stock, representing approximately 62.7% of the Company’s 18,277,540 outstanding shares of common stock at that date. The remaining 6,819,616 shares of common stock, or approximately 37.3% of the outstanding shares of common stock were held by the public.

Plan of conversion and reorganization. On April 8, 2013, Charter Financial Corporation, a Maryland corporation (“Charter Financial”), completed its conversion and reorganization pursuant to which First Charter, MHC was converted to the stock holding company form of organization. Charter Financial sold 14,289,429 shares of common stock at $10.00 per share, for gross offering proceeds of $142.9 million in its stock offering. The Bank, as of April 8, 2013, is now 100% owned by Charter Financial and Charter Financial is 100% owned by public stockholders. Concurrent with the completion of the offering, shares of common stock of the Company have been converted into the right to receive 1.2471 shares of Charter Financial’s common stock for each share of the Company’s common stock that was owned immediately prior to completion of the transaction. Cash in lieu of fractional shares will be paid based on the offering price of $10.00 per share. As a result of the offering and the exchange, Charter Financial now has approximately 22,752,214 shares outstanding. As of April 8, 2013, the Company and First Charter, MHC ceased to exist. Any reference to the Company following April 8, 2013 refers to Charter Financial Corporation, a Maryland corporation.

Regarding the Company’s conversion and public offering, associated direct costs will be deferred and the proceeds from the shares sold in the public offering reduced. Costs of approximately $1.1 million have been incurred related to the conversion as of March 31, 2013.

In regards to weighted average shares outstanding, share amounts held by the public have been restated to reflect the completion of the second-step conversion on April 8, 2013 at a conversion ratio of 1.2471 unless noted otherwise.

Note 2: Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Charter Financial Corporation, the federally chartered corporation, and subsidiary include the accounts of the Company and the Bank as of March 31, 2013 and September 30, 2012 (derived from audited financial statements), and for the three- and six-month periods ended March 31, 2013 and 2012. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements include all necessary adjustments, consisting of normal recurring accruals, necessary for a fair presentation for the periods presented. The results of operations for the three- and six-month periods ended March 31, 2013 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the estimates used for fair value acquisition accounting and the Federal Deposit Insurance Corporation receivable for loss sharing agreements, estimate of expected cash flows on purchased impaired and other acquired loans, and the assessment for other-than-temporary impairment of investment securities, mortgage-backed securities, and collateralized mortgage obligations. Certain reclassifications of 2012 balances have been made to conform to classifications used in 2013. These reclassifications did not change net income.

Note 3: Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board “FASB” issued an update to the accounting standards relating to testing goodwill for impairment. This guidance allows companies to waive comparing the fair value of a reporting unit to its carrying amount in assessing the recoverability of goodwill if, based on qualitative factors, it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. This update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this update as of October 1, 2012, did not have a material impact on the Company’s financial statements.

In October 2012, the FASB issued an update to the accounting standards to provide guidance on the subsequent accounting treatment for an indemnification asset recognized at the acquisition date as a result of a government-assisted acquisition of a financial institution. The amendments in this update require entities that recognize an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification) to subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). The amendments in this guidance are effective for the Company for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The adoption of this update has no impact on the consolidated financial statements because the Company's accounting procedures for the indemnification asset is in compliance with this amendment.

In February 2013, the FASB issued an update to the accounting standards to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This update is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this update increased disclosures in the financial statements.

Note 4: Securities Available for Sale

Securities available for sale are summarized as follows:

	March 31, 2013
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated fair
	Cost		gains		losses			value

Other Investment Securities:
Tax-free municipals	$	14,139,670	$	26,882	$	(626	)	$	14,165,926
U.S. government sponsored entities		10,090,643		62,814		-			10,153,457
Mortgage-backed securities:
FNMA certificates		109,972,750		968,738		(252,456	)		110,689,032
GNMA certificates		3,972,809		233,670		-			4,206,479
FHLMC certificates		38,109,046		868,158		-			38,977,204
Collateralized mortgage obligations:
FNMA		4,961,331		160,577		-			5,121,908
GNMA		159,255		645		-			159,900
FHLMC		439,309		47,253		-			486,562
Private-label mortgage securities: (1)
Investment grade		2,193,249		31,318		(184,465	)		2,040,102
Split rating (2)		1,421,057		55,877		-			1,476,934
Non investment grade		12,638,332		-		(2,745,995	)		9,892,337
Total	$	198,097,451	$	2,455,932	$	(3,183,542	)	$	197,369,841

(1)	Credit ratings are current as of March 31, 2013.

(2)	Bonds with split ratings represent securities with separate investment and non-investment grades.

	September 30, 2012
			Gross		Gross
	Amortized		unrealized		unrealized			Estimated fair
	Cost		gains		losses			value

Other Investment Securities:
Tax-free municipals	$	11,555,068	$	25,004	$	(1,571	)	$	11,578,501
U.S. government sponsored entities		16,519,624		107,431		-			16,627,055
Mortgage-backed securities:
FNMA certificates		84,836,714		1,748,088		-			86,584,802
GNMA certificates		4,568,181		377,231		-			4,945,412
FHLMC certificates		45,178,602		1,065,844		-			46,244,446
Collateralized mortgage obligations:
FNMA		7,712,770		314,386		-			8,027,156
GNMA		499,503		3,960		(152	)		503,311
FHLMC		533,379		46,710		-			580,089
Private-label mortgage securities:
Investment grade		2,480,412		32,214		(155,882	)		2,356,744
Split rating (1)		6,922,884		-		(676,581	)		6,246,303
Non investment grade		8,264,044		-		(2,578,530	)		5,685,514
Total	$	189,071,181	$	3,720,868	$	(3,412,716	)	$	189,379,333

(1)	Bonds with split ratings represent securities with separate investment and non-investment grades.

The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2013, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of the municipal bonds in the table below are pre-funded and are expected to be prepaid before contractual maturity.

	Amortized		Estimated
	cost		fair value

Less than 1 year	$	5,090,643	$	5,106,920
1-5 years		8,290,356		8,341,155
Greater than 5 years		10,849,314		10,871,308
Mortgage-backed securities		173,867,138		173,050,458
Total	$	198,097,451	$	197,369,841

Proceeds from called or matured securities available for sale during the six months ended March 31, 2013 and 2012 were $7,726,500 and $2,216,000, respectively. Proceeds from sales for the six months ended March 31, 2013 and 2012 were $13,952,478 and $27,413,475, respectively. Gross realized gains on the sale of these securities were $219,913 and $634,790 for the six months ended March 31, 2013 and 2012, respectively. Gross realized losses on the sale of these securities were $0 and $2,197 for the six months ended March 31, 2013 and 2012, respectively.

Securities available for sale with an aggregate carrying amount of $128,124,833 and $127,617,291 at March 31, 2013 and September 30, 2012, respectively, were pledged to secure FHLB advances.

Securities available for sale that had been in a continuous unrealized loss position for less than 12 months at March 31, 2013 are as follows:

	March 31, 2013
			Gross
	Amortized		unrealized			Estimated
	cost		losses			fair value
Mortgage-backed securities:
FNMA certificates	$	34,437,599	$	(252,456	)	$	34,185,143
Total	$	34,437,599	$	(252,456	)	$	34,185,143

There were no securities available for sale in a continuous unrealized loss position for less than 12 months at September 30, 2012.

Securities available for sale that had been in a continuous unrealized loss position for greater than 12 months at March 31, 2013 and September 30, 2012 are as follows:

	March 31, 2013
			Gross
	Amortized		unrealized			Estimated
	cost		losses			fair value
Other investment securities:
Tax-free municipals	$	257,977	$	(626	)	$	257,351
Private-label mortgage securities		13,871,779		(2,930,460	)		10,941,319
Total	$	14,129,756	$	(2,931,086	)	$	11,198,670

	September 30, 2012
			Gross
	Amortized		unrealized			Estimated
	cost		losses			fair value
Other investment securities:
Tax-free municipals	$	262,550	$	(1,571	)	$	260,979
Collateralized mortgage obligations:
GNMA		133,587		(152	)		133,435
Private-label mortgage securities		16,485,944		(3,410,993	)		13,074,951
Total	$	16,882,081	$	(3,412,716	)	$	13,469,365

At March 31, 2013 the Company had approximately $2.9 million of gross unrealized losses on non-GSE collateralized mortgage obligations with aggregate amortized cost of approximately $13.9 million. During the quarter ended March 31, 2013 the Company did not record any other than temporary impairment charges. Other than previously stated, the Company is projecting that it will receive essentially all contractual cash flows so there is no break in yield or additional other than temporary impairment.

Regularly, the Company performs an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired other-than-temporarily. The assessment considers many factors including the severity and duration of the impairment, the Company’s intent and ability to hold the security for a period of time sufficient for recovery in value, recent events specific to the industry, and current characteristics of each security such as delinquency and foreclosure levels, credit enhancements, and projected losses and loss coverage ratios. It is possible that the underlying collateral of these securities will perform worse than current expectations, which may lead to adverse changes in cash flows on these securities and potential future other-than-temporary impairment losses. Events that may trigger material declines in fair values for these securities in the future include but are not limited to, deterioration of credit metrics, significantly higher levels of default and severity of loss on the underlying collateral, deteriorating credit enhancement and loss coverage ratios, or further illiquidity. All of these securities were evaluated for other-than-temporary impairment based on an analysis of the factors and characteristics of each security as previously enumerated. The Company considers these unrealized losses to be temporary impairment losses primarily because of continued sufficient levels of credit enhancements and credit coverage levels of less senior tranches to tranches held by the Company.

The following table summarizes the changes in the amount of credit losses on the Company’s investment securities recognized in earnings for the three and six months ended March 31, 2013 and 2012:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2013		2012		2013		2012

Beginning balance of credit losses previously recognized in earnings	$	380,446	$	4,922,916	$	380,446	$	4,822,916

Amount related to credit losses for securities for which an other-than-temporary impairment was not previously recognized in earnings		-		-		-		-

Amount related to credit losses for securities for which an other-than-temporary impairment was previously recognized in earnings		-		173,259		-		273,259

Ending balance of cumulative credit losses recognized in earnings	$	380,446	$	5,096,175	$	380,446	$	5,096,175

The following table shows issuer-specific information, including current par value, book value, fair value, credit rating and unrealized gain (loss) for the Company's portfolio of non-agency collateralized mortgage obligations as of March 31, 2013:

Cusip	Description	Credit Rating (1)			Cumulative Net Impairment Losses Recognized in Earnings		Current Par Value		Book Value		Market Value		Unrealized Gain (Loss)
		Moody	S&P	Fitch	(dollars in thousands)
Investment Grade
36228FQF6	GSR 2003-4F 1A2	n/a	AA+	AA	$	-	$	287	$	287	$	294	$	7
55265KL80	MASTR 2003-8 4A1	n/a	A+	AAA		-		677		673		697		24
86359BVF5	SARM 2004-6 3A3	n/a	A+	n/a		-		1,233		1,233		1,049		(184	)
	Total				$	-	$	2,197	$	2,193	$	2,040	$	(153	)
Split Rating
17307GDL9	CMLTI 2004-HYB1 A31	B1	n/a	BBB	$	-	$	1,421	$	1,421	$	1,477	$	56
	Total				$	-	$	1,421	$	1,421	$	1,477	$	56
Non Investment Grade
576433QD1	MARM 2004-7 5A1	Ba3	BB	n/a	$	-	$	5,095	$	5,095	$	4,474	$	(621	)
576433UQ7	MARM 2004-13 B1	NR	CCC	n/a		380		5,328		4,948		2,916		(2,032	)
576433VN3	MARM 2004-15 4A1	B3	n/a	CCC		-		2,595		2,595		2,502		(93	)
	Total				$	380	$	13,018	$	12,638	$	9,892	$	(2,746	)

	Grand Total				$	380	$	16,636	$	16,252	$	13,409	$	(2,843	)

(1) Credit ratings are current as of March 31, 2013.

The Bank’s investment in the MARM 2004-13 B1 security represents the largest unrealized loss position in the investment portfolio at $2.0 million. Based on assessments of expected cash flows no additional other than temporary impairment exists on this security at March 31, 2013. This bond has previously taken a total of $380,000 in OTTI. The favorable cash flow profile is attributable to a number of pertinent factors, including the relatively low levels of delinquency and the stable levels of default, foreclosure, and severities upon foreclosure. The security has a housing price index adjusted weighted average loan-to-value ratio of 52% on the underlying mortgages, average credit scores of 736 and its 2004 origination indicates its seasoning. Furthermore, 91% of the underlying mortgages have been timely payers for the past 24 months. We believe the unrealized loss position is attributed to liquidity risk.

Changes in accumulated other comprehensive income by component for the six months ended March 31, 2013 are shown in the table below. All amounts are net of tax. The line item affected in the consolidated statements of income by the reclassified amounts is gain on securities available for sale.

	Unrealized Gains/(Losses) on Available-for-Sale Securities

Beginning balance	$	203,380
Other comprehensive income/(loss) before reclassifications		(548,577	)
Amounts reclassified from accumulated other comprehensive income/(loss)		(135,026	)
Net current-period other comprehensive income/(loss)		(683,603	)
Ending balance	$	(480,223	)

Note 5: Loans Receivable

Loans not covered by loss share agreements are summarized as follows:

	March 31,		September 30,
	2013		2012
Loans not covered by loss sharing agreements:
1-4 family residential real estate mortgage	$	105,246,055	$	105,514,544
Commercial real estate		246,253,560		251,379,010
Commercial		16,658,990		16,596,833
Real estate construction		45,107,540		45,369,190
Consumer and other		17,584,966		18,107,198
Loans receivable, net of undisbursed proceeds of loans in process		430,851,111		436,966,775
Less:
Unamortized loan origination fees, net		1,130,053		1,101,481
Allowance for loan losses		8,545,784		8,189,895
Total loans not covered, net	$	421,175,274	$	427,675,399

The carrying amount of covered loans at March 31, 2013 and September 30, 2012, consisted of impaired loans at acquisition date and all other acquired loans and are presented in the following tables.

	March 31, 2013
	Impaired		All Other		Total
	Loans at		Acquired		Covered
	Acquisition		Loans		Loans
Loans covered by loss sharing agreements:
1-4 family residential real estate	$	4,338,243	$	7,745,692	$	12,083,935
Commercial real estate		60,106,841		74,270,117		134,376,958
Commercial		3,495,616		5,976,407		9,472,023
Real estate construction		-		-		-
Consumer and other		599,288		4,250,893		4,850,181
Loans receivable, gross		68,539,988		92,243,109		160,783,097
Less:
Non-accretable difference		10,418,018		3,342,102		13,760,120
Allowance for covered loan losses		1,014,403		5,936,722		6,951,125
Accretable discount		6,438,917		2,011,674		8,450,591
Discount on acquired performing loans		-		238,456		238,456
Unamortized loan origination fees, net		-		23,709		23,709
Total loans covered, net	$	50,668,650	$	80,690,446	$	131,359,096

	September 30, 2012
	Impaired		All Other		Total
	Loans at		Acquired		Covered
	Acquisition		Loans		Loans
Loans covered by loss sharing agreements:
1-4 family residential real estate mortgage	$	5,619,110	$	9,421,190	$	15,040,300
Commercial real estate		71,806,980		88,353,272		160,160,252
Commercial		12,081,845		13,885,559		25,967,404
Real estate construction		1,321,752		559,675		1,881,427
Consumer and other		708,832		5,458,309		6,167,141
Loans receivable, gross		91,538,519		117,678,005		209,216,524
Less:
Non-accretable difference		14,285,220		5,096,952		19,382,172
Allowance for covered loan losses		1,793,943		8,546,872		10,340,815
Accretable discount		9,869,297		3,055,050		12,924,347
Discount on acquired performing loans		-		308,728		308,728
Unamortized loan origination fees, net		-		32,146		32,146
Total loans covered, net	$	65,590,059	$	100,638,257	$	166,228,316

The following table documents changes in the accretable discount on acquired loans during the six months ended March 31, 2013 and the year ended September 30, 2012:

	Impaired Loans			All Other			Total
	At Acquisition			Acquired Loans			Covered Loans

Balance, September 30, 2011	$	16,893,100		$	4,705,432		$	21,598,532
Loan accretion		(7,023,803	)		(1,650,382	)		(8,674,185	)
Balance, September 30, 2012		9,869,297			3,055,050			12,924,347
Loan accretion		(3,857,132	)		(1,103,376	)		(4,960,508	)
Transfer from non-accretable difference		426,752			60,000			486,752
Balance, March 31, 2013	$	6,438,917		$	2,011,674		$	8,450,591

The following is a summary of transactions during the three and six months ended March 31, 2013 and 2012 in the allowance for loan losses on loans covered by loss sharing:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
Balance, beginning of period	$	8,959,002		$	5,871,557		$	10,340,815		$	6,892,425
Loans charged off (net)		(1,916,543	)		(1,116,039	)		(4,634,006	)		(5,136,906	)
Recoveries on loans previously charged off		-			-			10,650			-
(Credit) provision for loan losses charged to FDIC receivable		(49,067	)		3,080,846			1,181,183			5,480,845
(Credit) provision for loan losses charged to operations		(42,267	)		290,000			52,483			890,000
Balance, end of period	$	6,951,125		$	8,126,364		$	6,951,125		$	8,126,364

The following table documents changes in the carrying value of the FDIC receivable for loss sharing agreements relating to covered loans and other real estate owned during the six months ended March 31, 2013 and the year ended September 30, 2012:

	Six Months Ended			Year Ended
	March 31, 2013			September 30, 2012

Balance, beginning of period	$	35,135,533		$	96,777,791
Payments made to (received from) FDIC		7,913,903			(80,528,485	)
Accretion of fair value adjustment		333,911			1,461,779
Recovery of previous loss reimbursements		(4,701,201	)		(3,252,736	)
Reduction in previous loss estimates		(2,847,006	)		-
Provision for estimated losses on covered assets recognized in noninterest expense		7,762,728			15,976,659
External expenses qualifying under loss sharing agreements		2,277,326			4,700,525
Balance, end of period	$	45,875,194		$	35,135,533

Loan Origination and Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial real estate loans are generally made by the Company to Georgia, Alabama or Florida Panhandle entities and are secured by properties in these states. Commercial real estate lending involves additional risks compared to one- to four-family residential lending. Repayment of commercial real estate loans often depends on the successful operations and income stream of the borrowers, and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. The Company’s underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayment, guarantor requirements, net worth requirements and quality of cash flow. As part of the loan approval and underwriting of commercial real estate loans, management undertakes a cash flow analysis, and requires a debt-service coverage ratio of at least 1.15 times. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At March 31, 2013, approximately 30.4% of the outstanding principal balance of the Company’s commercial real estate loans was secured by owner-occupied properties.

The Company makes construction and land development loans primarily for the construction of one- to four-family residences but also for multi-family and nonresidential real estate projects on a select basis. While current market conditions have suppressed demand for construction and land loans, there are opportunities to lend to quality borrowers in the Company’s market area for construction loans. The Company offers two principal types of construction loans: builder loans, including both speculative (unsold) and pre-sold loans to pre-approved local builders; and construction/permanent loans to property owners that are converted to permanent loans at the end of the construction phase. The number of speculative loans that management will extend to a builder at one time depends upon the financial strength and credit history of the builder. The Company’s construction loan program is expected to remain a modest portion of the loan volume and management generally limits the number of outstanding loans on unsold homes under construction within a specific area.

The Company also originates first and second mortgage loans secured by one- to four-family residential properties within Georgia, Alabama and the Florida Panhandle. Management currently originates mortgages at all branch locations, but utilizes a centralized processing location to reduce the underwriting risk. The Company originates both fixed rate and adjustable rate one- to four-family residential mortgage loans. Fixed rate 30-year conforming loans are generally originated for resale into the secondary market on a servicing-released basis and loans that are non-conforming due to property exceptions and that have adjustable rates are generally retained in the Company’s portfolio. The non-conforming loans originated are not considered to be subprime loans and the amount of subprime and low documentation loans held by the Company is not material.

The majority of the Company’s non-mortgage loans consist of consumer loans, including loans on deposits, second mortgage loans, home equity lines of credit, auto loans and various other installment loans. The Company primarily offers consumer loans (excluding second mortgage loans and home equity lines of credit) as an accommodation to customers. Consumer loans tend to have a higher credit risk than residential mortgage loans because they may be secured by rapidly depreciable assets, or may be unsecured. The Company’s consumer lending generally follows accepted industry standards for non sub-prime lending, including credit scores and debt to income ratios. The Company also offers home equity lines of credit as a complement to one- to four-family residential mortgage lending. The underwriting standards applicable to home equity credit lines are similar to those for one- to four-family residential mortgage loans, except for slightly more stringent credit-to-income and credit score requirements. Home equity loans are generally limited to 80% of the value of the underlying property unless the loan is covered by private mortgage insurance or a loss sharing agreement. At March 31, 2013, the Company had $14.1 million of home equity lines of credit and second mortgage loans not covered by FDIC loss sharing agreements (“loss sharing”).

The Company’s commercial business loans are generally limited to terms of five years or less. Management typically collateralizes these loans with a lien on commercial real estate or, very rarely, with a lien on business assets and equipment. Management also generally requires the personal guarantee of the business owner. Interest rates on commercial business loans are generally higher than interest rates on residential or commercial real estate loans due to the risk inherent in this type of loan. Commercial business loans are generally considered to have more risk than residential mortgage loans or commercial real estate loans because the collateral may be in the form of intangible assets and/or readily depreciable inventory. Commercial business loans may also involve relatively large loan balances to single borrowers or groups of related borrowers, with the repayment of such loans typically dependent on the successful operation and income stream of the borrower. Such risks can be significantly affected by economic conditions. In addition, commercial business lending generally requires substantially greater supervision efforts by Management compared to residential mortgage or commercial real estate lending.

The Company maintains an internal loan review function that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. The Company further engages an independent, external loan reviewer on an annual basis.

Nonaccrual and Past Due Loans. Nonaccrual loans not covered by loss sharing, segregated by class of loans were as follows:

	March 31, 2013		September 30, 2012

1-4 family residential real estate	$	2,039,122	$	2,038,340
Commercial real estate		670,359		771,711
Commercial		178,984		191,499
Consumer and other		26,063		42,363
Total	$	2,914,528	$	3,043,913

An age analysis of past due loans not covered by loss sharing, segregated by class of loans at March 31, 2013 and September 30, 2012 were as follows:

March 31, 2013
			Greater than								Loans > 90
	30-89 Days		90 Days		Total				Total		Days
	Past Due		Past Due		Past Due		Current		Loans		Accruing

1-4 family residential real estate	$	507,786	$	619,178	$	1,126,964	$	104,119,091	$	105,246,055	$	171,523
Commercial real estate		2,390,301		-		2,390,301		243,863,259		246,253,560		-
Commercial		77,847		20,479		98,326		16,560,664		16,658,990		-
Real estate construction		-		-		-		45,107,540		45,107,540		-
Consumer and other		59,318		-		59,318		17,525,648		17,584,966		-
	$	3,035,252	$	639,657	$	3,674,909	$	427,176,202	$	430,851,111	$	171,523

September 30, 2012
			Greater than								Loans > 90
	30-89 Days		90 Days		Total				Total		Days
	Past Due		Past Due		Past Due		Current		Loans		Accruing

1-4 family residential real estate	$	1,460,017	$	621,257	$	2,081,274	$	103,433,270	$	105,514,544	$	401,726
Commercial real estate		1,459,472		-		1,459,472		249,919,538		251,379,010		-
Commercial		145,001		-		145,001		16,451,832		16,596,833		-
Real estate construction		-		-		-		45,369,190		45,369,190		-
Consumer and other		125,054		-		125,054		17,982,144		18,107,198		-
	$	3,189,544	$	621,257	$	3,810,801	$	433,155,974	$	436,966,775	$	401,726

An age analysis of past due loans covered by loss sharing, segregated by class of loans at March 31, 2013 and September 30, 2012 were as follows:

March 31, 2013
		Greater than				Loans > 90
	30-89 Days	90 Days	Total		Total	Days
	Past Due	Past Due	Past Due	Current	Loans (1)	Accruing (2)

1-4 family residential real estate	$ 800,822	$ 419,944	$ 1,220,766	$ 9,378,047	$ 10,598,813	$ 419,944
Commercial real estate	8,743,820	9,775,593	18,519,413	101,008,097	119,527,510	9,775,593
Commercial	66,949	686,441	753,390	5,699,924	6,453,314	686,441
Consumer and other	151,660	25,172	176,832	3,315,383	3,492,216	25,172
	$ 9,763,251	$ 10,907,150	$20,670,401	$119,401,451	$140,071,852	$10,907,150

(1)	Covered loan balances are net of non-accretable differences and allowance for covered loan losses and have not been reduced by $8,689,047 of accretable discounts and discounts on acquired performing loans.

(2)	Covered loans contractually past due greater than ninety days are reported as accruing loans because of accretable discounts established at the time of acquisition.

September 30, 2012
		Greater than				Loans > 90
	30-89 Days	90 Days	Total		Total	Days
	Past Due	Past Due	Past Due	Current	Loans (1)	Accruing (2)

1-4 family residential real estate	$ 734,789	$ 834,569	$ 1,569,358	$ 11,460,232	$ 13,029,590	$ 834,570
Commercial real estate	6,546,132	20,588,187	27,134,319	115,540,726	142,675,045	20,588,187
Commercial	917,019	2,984,197	3,901,216	13,723,435	17,624,651	2,984,197
Real estate construction	-	-	-	1,343,072	1,343,072	-
Consumer and other	55,441	391,755	447,196	4,373,983	4,821,179	391,754
	$ 8,253,381	$ 24,798,708	$33,052,089	$146,441,448	$179,493,537	$24,798,708

(1)	Covered loan balances are net of non-accretable differences and allowance for covered loan losses and have not been reduced by$13,233,075 of accretable discounts and discounts on acquired performing loans.

(2)	Covered loans contractually past due greater than ninety days are reported as accruing loans because of accretable discounts established at the time of acquisition.

Impaired Loans. The Company evaluates “impaired” loans, which includes nonperforming loans and accruing troubled debt restructured loans, having risk characteristics that are unique to an individual borrower on a loan-by-loan basis with balances above a specified level. For smaller loans, the allowance is calculated based on the credit grade utilizing historical loss experience and other qualitative factors.

Impaired loans not covered by loss sharing, segregated by class of loans were as follows:

March 31, 2013

							Three Months Ended March 31, 2013				Six Months Ended March 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
With no related allowance recorded:
1-4 family residential real estate	$	2,270,897	$	2,574,610	$	-	$	2,304,305	$	2,118	$	2,326,789	$	4,262
Commercial real estate		11,774,029		12,741,176		-		11,807,038		135,840		11,978,401		276,188
Commercial		2,601,927		2,619,638		-		2,654,860		21,638		2,719,194		44,346
Real estate construction		-		-		-		-		-		-		-
Grand Total:	$	16,646,853	$	17,935,424	$	-	$	16,766,203	$	159,597	$	17,024,385	$	324,796

There were no recorded allowances for impaired loans not covered by loss sharing at March 31, 2013. The recorded investment in accruing troubled debt restructured loans at March 31, 2013 totaled $13,586,865 and is included in the impaired loan table above.

September 30, 2012

							Year Ended September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized
With no related allowance recorded:
1-4 family residential real estate	$	2,500,824	$	2,982,895	$	-	$	2,867,188	$	31,122
Commercial real estate		12,469,240		14,063,513		-		13,689,972		568,615
Commercial		2,847,862		2,860,935		-		2,908,659		95,676
Real estate construction		5,925		34,844		-		32,735		296
Subtotal:	$	17,823,851	$	19,942,187	$	-	$	19,498,554	$	695,709

There were no recorded allowances for impaired loans not covered by loss sharing at September 30, 2012. The recorded investment in accruing troubled debt restructured loans at September 30, 2012 totaled $14,420,575 and is included in the impaired loan table above.

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio for both loans covered and not covered by loss sharing agreements, management tracks certain credit quality indicators including the level of classified loans, net charge-offs, non-performing loans (see details above) and the general economic conditions in its market areas.

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. The risk grade for each individual loan is determined by the loan officer and other approving officers at the time of loan origination and is changed from time to time to reflect an ongoing assessment of loan risk. Risk grades are reviewed on specific loans monthly for all delinquent loans as a part of monthly meetings held by the Loan Committee, quarterly for all nonaccrual and special reserve loans, and annually as part of the Company's internal loan review process. In addition, individual loan risk grades are reviewed in connection with all renewals, extensions and modifications. Risk grades for covered loans are determined by officers within the Special Assets Division based on an ongoing assessment of loan risk. Such risk grades are updated in a manner consistent with non-covered loans, except the grading of such loans are assessed quarterly, as applicable, relating to revised estimates of expected cash flows.

The following table presents the risk grades of the loan portfolio not covered by loss sharing, segregated by class of loans:

March 31, 2013

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Pass (1-4)	$	96,909,124	$	210,918,613	$	13,480,072	$	44,584,146	$	16,839,047	$	382,731,002
Special Mention (5)		2,800,528		4,873,451		80,124		-		471,063		8,225,166
Substandard (6)		5,536,403		30,461,496		3,098,794		523,394		273,553		39,893,640
Doubtful (7)		-		-		-		-		1,303		1,303
Loss (8)		-		-		-		-		-		-
Total not covered loans	$	105,246,055	$	246,253,560	$	16,658,990	$	45,107,540	$	17,584,966	$	430,851,111

September 30, 2012

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Pass (1-4)	$	97,045,428	$	217,582,908	$	13,252,993	$	44,075,754	$	17,357,541	$	389,314,624
Special Mention (5)		3,525,488		11,396,970		93,033		286,505		559,982		15,861,978
Substandard (6)		4,943,628		22,399,132		3,250,807		1,006,931		189,675		31,790,173
Doubtful (7)		-		-		-		-		-		-
Loss (8)		-		-		-		-		-		-
Total not covered loans	$	105,514,544	$	251,379,010	$	16,596,833	$	45,369,190	$	18,107,198	$	436,966,775

The following table presents the risk grades, ignoring grade enhancement provided by the FDIC loss sharing, of the loan portfolio covered by loss sharing agreements, segregated by class of loans at March 31, 2013 and September 30, 2012. Numerical risk ratings 5-8 constitute classified assets for regulatory reporting; however regulatory authorities consider the FDIC loss sharing percentage of either 80% or 95%, as applicable, as a reduction of the regulatory classified balance for covered loans. With respect to classified assets covered by loss sharing agreements, numerical risk ratings 5-8, for regulatory reporting purposes are done under FDIC guidance reporting the Bank’s non-reimbursable amount of the book balance of the loans as classified. The remaining reimbursable portion is classified as pass, numerical risk ratings 1-4.

March 31, 2013

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Numerical risk rating (1-4)	$	6,308,601	$	53,331,870	$	3,098,546	$	-	$	2,933,869	$	65,672,886
Numerical risk rating (5)		1,420,803		21,579,895		868,665		-		419,216		24,288,579
Numerical risk rating (6)		2,773,533		42,397,697		1,841,853		-		127,058		47,140,141
Numerical risk rating (7)		95,876		2,218,048		644,250		-		12,072		2,970,246
Numerical risk rating (8)		-		-		-		-		-		-
Total covered loans (1)	$	10,598,813	$	119,527,510	$	6,453,314	$	-	$	3,492,215	$	140,071,852

(1)	Covered loan balances are net of non-accretable differences and allowances for covered loan losses and have not been reduced by $8,689,047 of accretable discounts and discounts on acquired performing loans.

September 30, 2012

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Numerical risk rating (1-4)	$	7,153,464	$	56,448,239	$	6,912,992		-	$	4,011,268	$	74,525,963
Numerical risk rating (5)		2,223,780		27,564,628		4,040,798		1,343,072		224,720		35,396,998
Numerical risk rating (6)		3,217,548		54,282,789		5,127,288		-		581,495		63,209,120
Numerical risk rating (7)		434,798		4,379,389		1,543,573		-		3,696		6,361,456
Numerical risk rating (8)		-		-		-		-		-		-
Total covered loans (1)	$	13,029,590	$	142,675,045	$	17,624,651	$	1,343,072	$	4,821,179	$	179,493,537

(1)	Covered loan balances are net of non-accretable differences and allowances for covered loan losses and have not been reduced by $13,233,075 of accretable discounts and discounts on acquired performing loans.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense and is an amount that management believes will be adequate to absorb losses on existing loans that become uncollectible, based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, historical loss rates, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect a borrower’s ability to repay. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely and subsequent recoveries are added to the allowance.

Management’s allowance for loan losses methodology is a loan classification-based system. Management bases the required reserve on a percentage of the loan balance for each type of loan and classification level. Loans may be classified manually and are automatically classified if they are not previously classified when they reach certain levels of delinquency. Unclassified loans are reserved at different percentages based on the loan loss history of the last two years. Reserve percentages are also adjusted based upon our estimate of the effect that the current economic environment will have on each type of loan.

Management segments its allowance for loan losses into the following four major categories: (1) specific reserves; (2) general allowances for Classified/Watch loans; (3) general allowances for loans with satisfactory ratings; and (4) an unallocated amount. Risk ratings are initially assigned in accordance with CharterBank’s loan and collection policy. An organizationally independent department reviews risk grade assignments on an ongoing basis. Management reviews current information and events regarding a borrowers’ financial condition and strengths, cash flows available for debt repayment, the related collateral supporting the loan and the effects of known and expected economic conditions. When the evaluation reflects a greater than normal risk associated with the individual loan, management classifies the loan accordingly. If the loan is determined to be impaired, management allocates a portion of the allowance for loan losses for that loan based on the fair value of the collateral, if the loan is considered collateral-dependent, as the measure for the amount of the impairment. Impaired and Classified/Watch loans are aggressively monitored.

The allowances for loans by credit grade are further subdivided by loan type. The Company has developed specific quantitative allowance factors to apply to each loan which considers loan charge-off experience over the most recent two years by loan type. In addition, loss estimates are applied for certain qualitative allowance factors that are subjective in nature and require considerable judgment on the part of management. Such qualitative factors include economic and business conditions, the volume of past due loans, changes in the value of collateral of collateral-dependent loans, and other economic uncertainties. An unallocated component of the allowance is also established for losses that specifically exist in the remainder of the portfolio, but have yet to be identified.

An unallocated allowance is generally maintained in a range of 4% to 12% of the total allowance in recognition of the imprecision of the estimates and other factors. In times of greater economic downturn and uncertainty, the higher end of this range is provided.

Through the FDIC-assisted acquisitions of the loans of Neighborhood Community Bank (“NCB”), McIntosh Commercial Bank (“MCB”) and First National Bank of Florida (“FNB”), management established non-accretable discounts for the acquired impaired loans and also for all other loans of MCB. These non-accretable discounts were based on estimates of future cash flows. Subsequent to the acquisition dates, management continues to assess the experience of actual cash flows compared to estimates. When management determines that non-accretable discounts are insufficient to cover expected losses in the applicable covered loan portfolios, the allowance for covered loans is increased with a corresponding provision for covered loan losses as a charge to earnings and an increase in the applicable FDIC receivable based on loss sharing indemnification.

The Company maintained its allowance for loan losses for the quarter ended March 31, 2013 in response to continued weak economic conditions, net charge-offs, financial indicators for borrowers in the real estate sectors, continuing low collateral values of commercial and residential real estate, and nonaccrual and impaired loans. The following table details the allowance for loan losses on loans not covered by loss sharing by portfolio segment as of the quarters ended March 31, 2013 and 2012. Allocation of a portion of the allowance to one category of loans does not preclude availability to absorb losses in other categories.

The following tables are a summary of transactions in the allowance for loan losses on loans not covered by loss sharing by portfolio segment:

	Three Months Ended March 31, 2013
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Unallocated		Total

Allowance for loan losses:
Balance at beginning of period	$	978,608		$	5,690,448		$	360,435		$	479,230		$	146,404		$	727,230	$	8,382,355
Charge-offs		(52,268	)		(144,522	)		(6,733	)		-			(13,856	)		-		(217,379	)
Recoveries		51,178			6,874			15,874			6,875			7			-		80,808
Provision		(18,656	)		(39,876	)		207,400			(53,612	)		15,372			189,372		300,000
Balance at end of period	$	958,862		$	5,512,924		$	576,976		$	432,493		$	147,927		$	916,602	$	8,545,784

	Six Months Ended March 31, 2013
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction		Consumer and Other			Unallocated		Total

Allowance for loan losses:
Balance at beginning of period	$	879,854		$	5,480,132		$	711,594		$	287,129	$	79,627		$	751,559	$	8,189,895
Charge-offs		(98,538	)		(268,888	)		(6,733	)		-		(21,335	)		-		(395,494	)
Recoveries		58,784			64,730			20,208			6,875		786			-		151,383
Provision		118,762			236,950			(148,093	)		138,489		88,849			165,043		600,000
Balance at end of period	$	958,862		$	5,512,924		$	576,976		$	432,493	$	147,927		$	916,602	$	8,545,784

Ending balance: individually evaluated for impairment	$	-		$	-		$	-		$	-	$	-				$	-

Loans:
Ending balance	$	102,975,158		$	234,479,531		$	14,057,063		$	45,107,540	$	17,584,966				$	414,204,258

Ending balance: individually evaluated for impairment	$	2,270,897		$	11,774,029		$	2,601,927		$	-	$	-				$	16,646,853

	Three Months Ended March 31, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Unallocated		Total

Allowance for loan losses:
Balance at beginning of period	$	579,755		$	6,359,275		$	573,046		$	589,409		$	63,399		$	654,992	$	8,819,876
Charge-offs		(397,259	)		49,244			(247,521	)		-			(129	)		-		(595,665	)
Recoveries		-			-			301			-			811			-		1,112
Provision		398,703			(483,469	)		118,937			(86,875	)		23,222			329,482		300,000
Balance at end of period	$	581,199		$	5,925,050		$	444,763		$	502,534		$	87,303		$	984,474	$	8,525,323

	Six Months Ended March 31, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Unallocated		Total

Allowance for loan losses:
Balance at beginning of period	$	633,364		$	5,972,310		$	821,830		$	1,065,512		$	48,276		$	828,545	$	9,369,837
Charge-offs		(558,817	)		(1,737,353	)		(329,092	)		-			(61,720	)		-		(2,686,982	)
Recoveries		3,914			359			34,982			-			3,213			-		42,468
Provision		502,736			1,689,734			(82,952	)		(562,979	)		97,383			156,078		1,800,000
Loans:	$	581,197		$	5,925,050		$	444,768		$	502,533		$	87,152		$	984,623	$	8,525,323

Ending balance: individually evaluated for impairment	$	-		$	417,834		$	-		$	-		$	-				$	417,834

Loans:
Ending balance	$	104,442,704		$	263,281,942		$	16,266,145		$	41,653,834		$	19,444,607				$	445,089,232

Ending balance: individually evaluated for impairment	$	3,197,748		$	6,853,623		$	2,910,705		$	-		$	-				$	12,962,076

The following tables detail the non-accretable discount and allowance for loan losses on loans covered by loss sharing by portfolio segment:

	Three Months Ended March 31, 2013
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total

Non-accretable differences: (1)
Balance at beginning of period	$	1,521,010		$	16,106,081		$	6,475,348		$	3,484		$	1,285,804		$	25,391,727
Charge-offs		(84,064	)		(1,393,360	)		(444,509	)		(3,484	)		(17,527	)		(1,942,944	)
Recoveries		5,716			241,325			5,422			-			3,685			256,148
Reduction in previous loss estimates credited to FDIC receivable		-			-			(2,500,000	)		-			(1,880	)		(2,501,880	)
Provision (credit) for loan losses charged to FDIC receivable		94,050			27,882			(266,000	)		-			95,001			(49,067	)
(Credit) provision for loan losses charged to operations		(51,586	)		(132,482	)		148,448			-			(6,647	)		(42,267	)
Transfer to accretable discount		-			-			(400,000	)		-			(470	)		(400,470	)
Balance at end of period	$	1,485,126		$	14,849,446		$	3,018,709		$	-		$	1,357,966		$	20,711,247

	Six Months Ended March 31, 2013
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total

Non-accretable differences: (1)
Balance at beginning of period	$	2,010,709		$	17,485,206		$	8,342,754		$	538,355		$	1,345,963		$	29,722,987
Charge-offs		(626,007	)		(3,306,727	)		(3,219,692	)		(108,483	)		(123,025	)		(7,383,934	)
Recoveries		8,368			448,628			10,051			1,000			4,239			472,286
Reduction in previous loss estimates credited to FDIC receivable		-			-			(2,500,000	)		(345,126	)		(1,880	)		(2,847,006	)
Provision (credit) for loan losses charged to FDIC receivable		127,300			327,132			589,000			-			137,751			1,181,182
(Credit) provision for loan losses charged to operations		(35,244	)		(104,793	)		196,596			536			(4,612	)		52,483
Transfer to accretable discount		-			-			(400,000	)		(86,282	)		(470	)		(486,752	)
Balance at end of period	$	1,485,126		$	14,849,446		$	3,018,709		$	-		$	1,357,966		$	20,711,247

Covered loans:
Ending contractual balance	$	12,083,935		$	134,376,958		$	9,472,023		$	-		$	4,850,181		$	160,783,097

(1)	Amounts include the allowance for covered loan losses.

	Three Months Ended March 31, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total

Non-accretable differences: (1)
Balance at beginning of period	$	3,033,327		$	56,975,138		$	7,569,168		$	1,512,098		$	553,341		$	69,643,072
Charge-offs		(635,584	)		(23,936,147	)		(2,114,750	)		(709,856	)		(214,982	)		(27,611,319	)
Recoveries		900			54,213			74,082			-			226			129,421
Provision for loan losses charged to FDIC receivable		124,140			1,144,549			710,807			4,214			1,097,136			3,080,846
Provision for loan losses charged to operations		13,113			173,121			44,165			651			58,950			290,000
Balance at end of period	$	2,535,896		$	34,410,874		$	6,283,472		$	807,107		$	1,494,671		$	45,532,020

	Six Months Ended March 31, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total

Non-accretable differences: (1)
Balance at beginning of period	$	3,429,923		$	61,165,928		$	7,706,431		$	2,970,506		$	764,924		$	76,037,712
Charge-offs		(1,070,634	)		(30,918,980	)		(2,755,928	)		(2,168,264	)		(231,883	)		(37,145,689	)
Recoveries		2,540			160,438			104,361			-			1,813			269,152
Provision for loan losses charged to FDIC receivable		153,591			3,293,203			1,089,716			4,214			940,121			5,480,845
Provision for loan losses charged to operations		20,476			710,285			138,892			651			19,696			890,000
Balance at end of period	$	2,535,896		$	34,410,874		$	6,283,472		$	807,107		$	1,494,671		$	45,532,020

Covered loans:
Ending contractual balance	$	16,683,228		$	202,499,744		$	34,510,895		$	5,890,468		$	7,114,620		$	266,698,955

(1)	Amounts include the allowance for covered loan losses.

For the six month period ended March 31, 2013 and 2012 the following tables present a breakdown of the types of concessions determined to be troubled debt restructurings (“TDRs”) during the period by loan class:

	Accruing Loans						Nonaccrual Loans
	Six Months Ended March 31, 2013						Six Months Ended March 31, 2013
	Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		��
Payment structure modification
Commercial Real Estate		-	$	-	$	-		1	$	80,462	$	41,080
Total		-	$	-	$	-		1	$	80,462	$	41,080

Grand Total		-	$	-	$	-		1	$	80,462	$	41,080

	Accruing Loans						Nonaccrual Loans
	Six Months Ended March 31, 2012						Six Months Ended March 31, 2012
	Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Below market interest rate
Commercial Real Estate		8	$	4,576,588	$	4,511,749		-	$	-	$	-
Commercial		1		2,710,914		2,689,076		-		-		-
Total		9	$	7,287,502	$	7,200,825		-	$	-	$	-

Grand Total		9	$	7,287,502	$	7,200,825		-	$	-	$	-

Loans are classified as restructured by the Company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The Company only restructures loans for borrowers in financial difficulty that have designed a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. The concessions granted on TDRs generally include terms to reduce the interest rate or extend the term of the debt obligation.

Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the loan is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower's financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

As of March 31, 2013 and 2012, loans with a balance of $268,115 and $42,000, respectively, defaulted within twelve months after their restructure.

Note 6: Derivative Instruments and Hedging Activities

The Bank has entered into interest rate swap contracts in connection with its hedging of specific loans. As of March 31, 2013, the Bank has entered into interest rate swaps totaling approximately $4.5 million using a receive-variable swap to mitigate the exposure to changes in the fair value attributable to the benchmark interest rate (fixed rate) and the hedged items (loans receivable) from the effective date of the hedged instruments. As structured, the pay-fixed, receive-variable swap is evaluated as a fair value hedge and is considered highly effective. As a highly effective fair value designated hedge, the underlying hedged instrument is recorded on the balance sheet at fair value of $4.4 million with the periodic changes of the fair value reported in the consolidated statements of income.

For the three and six months ended March 31, 2013, the interest rate swaps designated as a fair value hedge resulted in a reduction to interest income of $15,384 and $28,644 respectively, on the related loans receivable. The fair value of the swaps at March 31, 2013 was recorded on the consolidated statements of financial condition as a receivable of $21,066.

The fixed rate loans being hedged with an interest rate swap are structured to include a prepayment make-whole clause. The prepayment make-whole fee represents a reasonable estimate of the economic loss (if any) from the early prepayment, in part or in whole, of the loan.

Note 7: Income Per Share

Basic net income per share is computed on the weighted average number of shares outstanding. Diluted net income per share is computed by dividing net income by weighted average shares outstanding plus potential common shares resulting from dilutive stock options, determined using the treasury stock method.

Share amounts held by the public on March 31, 2013 and 2012, respectively, have been restated to reflect the completion of the second-step conversion on April 8, 2013 using a conversion ratio of 1.2471.

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2013		2012		2013		2012

Net income	$	1,384,409	$	1,260,672	$	3,718,696	$	1,749,055
Denominator:
Weighted average common shares outstanding		19,374,112		19,498,676		19,374,829		19,580,892
Common stock equivalents		41,067		40,011		41,067		40,011
Diluted shares		19,415,179		19,538,687		19,415,896		19,620,903
Net income per share:
Basic	$	0.07	$	0.06	$	0.19	$	0.09
Diluted	$	0.07	$	0.06	$	0.19	$	0.09

For the periods ended March 31, 2013 and 2012 there were 11,272 and 0, respectively, of dilutive stock options. For the periods ended March 31, 2013 and 2012 there were 29,794 and 40,011 shares, respectively, of non-vested restricted stock which were also dilutive. The Company excluded from the calculations of diluted earnings per share for the three and six month periods ended March 31, 2013 and 2012, 417,810 and 706,202 shares, respectively, which shares were subject to options issued with exercise prices in excess of the average market value per share during those periods.

Basic earnings per share for the three and six month periods ended March 31, 2013 and 2012 were computed by dividing net income to common shareholders by the weighted-average number of shares of common stock outstanding, which consists of issued shares less treasury stock.

Diluted earnings per share for the three and six month periods ended March 31, 2013 and 2012 were computed by dividing net income to common shareholders by the weighted-average number of shares of common stock outstanding and the dilutive effect of the shares awarded under the Company’s equity compensation plans.

Note 8: Real Estate Owned

The following is a summary of transactions in real estate owned:

Non-covered real estate owned:
	Six Months Ended			Year Ended
	March 31, 2013			September 30, 2012

Balance, beginning of period	$	2,106,757		$	4,093,214
Real estate acquired through foreclosure of loans receivable		518,021			2,577,269
Real estate sold		(1,055,714	)		(3,453,111	)
Write down of real estate owned		(446,942	)		(612,541	)
Gain (loss) on sale of real estate owned		118,436			(24,074	)
Real estate transferred to premises and equipment		-			(474,000	)
Balance, end of period	$	1,240,558		$	2,106,757

Covered real estate owned:
	Six Months Ended			Year Ended
	March 31, 2013			September 30, 2012

Balance, beginning of period	$	21,903,204		$	24,671,626
Real estate acquired through foreclosure of loans receivable		10,584,811			22,602,951
Real estate sold		(9,807,556	)		(16,911,373	)
Gain on real estate sold recognized in noninterest expense		181,315			-
Gain on real estate sold payable to (receivable from ) the FDIC		1,748,583			-
Provision for losses on real estate owned recognized in noninterest expense		(1,016,804	)		(685,500	)
Increase of FDIC receivable for loss sharing agreements		(6,581,545	)		(7,774,500	)
Balance, end of period	$	17,012,008		$	21,903,204

Note 9: Employee Benefits

The Company has a stock option plan which allows for stock option awards of the Company’s common stock to eligible directors and key employees of the Company. The option price is determined by a committee of the board of directors at the time of the grant and may not be less than 100% of the market value of the common stock on the date of the grant. When granted, the options vest over periods up to four or five years from grant date or upon death, disability, or qualified retirement. All options must be exercised within a 10 year period from grant date. The Company may grant either incentive stock options, which qualify for special federal income tax treatment, or nonqualified stock options, which do not receive such tax treatment. The Company’s stockholders have authorized 882,876 shares for the plan of which 68,155 have been issued or retired upon the exercise of the option granted under the plan, 693,418 are granted and outstanding with the remaining 121,303 shares available to be granted at March 31, 2013. All share and share amounts related to employee benefits have been restated to reflect the completion of the second-step conversion on April 8, 2013 at a conversion ratio of 1.2471.

No shares were granted during the quarter ended March 31, 2013.

The following table summarizes activity for shares under option and weighted average exercise price per share:

	Shares		Weighted average exercise price/share		Weighted average remaining life (years)

Options outstanding - September 30, 2012		697,160	$	8.45		7
Option exercised		-		-		-
Options forfeited		3,742		-		-
Options granted		-		-		-
Options outstanding - March 31, 2013		693,418	$	8.45		7

Options exercisable - March 31, 2013		-	$	-		-

The stock price at March 31, 2013 was less than or equal to the exercise prices of options outstanding and exercisable and therefore had no intrinsic value except for 275,609 shares issued in 2010 and 2011 with an intrinsic value of $92,702.

Stock option expense was $50,801 and $47,103 for the six months ended March 31, 2013 and 2012, respectively. The following table summarizes information about the options outstanding at March 31, 2013:

Number of shares outstanding at March 31, 2013		Weighted average remaining contractual life in years	Exercise price per share

	417,810	6	$	8.82
	187,065	7	$	8.18
	67,343	8	$	7.22
	16,212	9	$	7.34
	4,988	9	$	7.79
	693,418

The Company has a recognition and retention plan which has been authorized to grant up to 353,150 shares of restricted stock to key employees and directors. The Company has established a grantor trust to purchase these common shares of the Company in the open market or in private transactions. The grantor trust has not purchased previously authorized but unissued shares from the Company. As of March 31, 2013, 71,434 shares remain in the trust and are disclosed as treasury stock in the consolidated statements of financial condition. Of these shares, 41,639 shares that were available for grants will be cancelled as part of the Company’s second-step conversion with 29,794 shares remaining in the trust that had been granted.

	Shares		Weighted average grant date fair value per award

Unvested restricted stock awards-September 30, 2012		29,794	$	12.45
Granted		-		-
Vested		-		-
Cancelled or expired		-		-
Unvested restricted stock awards-March 31, 2013		29,794	$	12.45

All grants prior to October 1, 2005 vest at the earlier of the scheduled vesting or death, disability, or qualified retirement which is generally age 65 or age 55 with 10 years of service. All grants prior to October 1, 2005 are expensed to the scheduled vesting date. Grants between October 1, 2005 and January 1, 2009 will be expensed to the earlier of scheduled vesting or substantive vesting which is when the recipient becomes qualified for retirement which is generally age 65 or age 55 with ten years of service. Grants subsequent to January 1, 2009 will be expensed to the earlier of scheduled vesting or substantive vesting which is when the recipient becomes qualified for retirement at age 65.

Note 10: Commitments and Contingent Liabilities

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby letters of credit. At March 31, 2013, commitments to extend credit and standby letters of credit totaled $60.3 million. The Company does not anticipate any material losses as a result of these transactions.

In the normal course of business, the Company is party (both as plaintiff and defendant) to certain matters of litigation. In the opinion of management, none of these matters should have a material adverse effect on the Company’s financial position or results of operation.

Note 11: Fair Value of Financial Instruments and Fair Value Measurement

Accounting standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting standards also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The applicable standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. For example, changes in market activity or the addition of new unobservable inputs could, in the Company’s judgment, cause a transfer to either a higher or lower level. For the three months ended March 31, 2013, there were no transfers between levels.

At March 31, 2013, the Company holds, as part of its investment portfolio, available for sale securities reported at fair value consisting of municipal securities, U.S government sponsored entities, mortgage-backed securities, and collateralized mortgage obligations. The fair value of the majority of these securities is determined using widely accepted valuation techniques including matrix pricing and broker-quote based applications. Inputs include benchmark yields, reported trades, issuer spreads, prepayment speeds and other relevant items. These are inputs used by a third-party pricing service used by the Company. To validate the appropriateness of the valuations provided by the third party, the Company regularly updates its understanding of the inputs used and compares valuations to an additional third party source.

All of the Company’s available for sale securities fall into Level 2 of the fair value hierarchy. These securities are priced via independent service providers. In obtaining such valuation information, the Company has evaluated the valuation methodologies used to develop the fair values.

The Company also holds assets available for sale reported at fair value consisting of a former branch and a parcel of land adjacent to a current branch and are included in other assets. The fair value of these assets is determined using current appraisals adjusted at management’s discretion to reflect any decline in the fair value of the properties since the time the appraisal was performed. Appraisal values are reviewed and monitored internally and fair value is reassessed at least quarterly or more frequently when circumstances occur that indicate a change in fair value. All of the Company’s assets held for sale fall into level 3 of the fair value hierarchy.

The Company uses interest-rate swaps to provide long-term fixed rate funding to its customers. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract. Therefore, these derivative contracts are classified as Level 2. The Company utilizes an independent third party valuation company to validate the dealer prices. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are considered as Level 3 inputs. The Company also utilizes this approach to estimate its own credit risk on derivative liability positions. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position.

Assets and Liabilities Measured on a Recurring Basis:

Assets and liabilities measured at fair value on a recurring basis are summarized below.

	March 31, 2013
	Estimated fair value		Quoted prices in active markets for identical assets (Level 1 inputs)		Quoted prices for similar assets (Level 2 inputs)		Significant unobservable inputs (Level 3 inputs)

Assets:
Investment securities available for sale:
Tax free municipals	$	14,165,926	$	-	$	14,165,926	$	-
U.S. government sponsored entities		10,153,457		-		10,153,457		-
Mortgage–backed securities:
FNMA certificates		110,689,032		-		110,689,032		-
GNMA certificates		4,206,479		-		4,206,479		-
FHLMC certificates		38,977,204		-		38,977,204		-
Collateralized mortgage obligations:
FNMA		5,121,908		-		5,121,908		-
GNMA		159,900		-		159,900		-
FHLMC		486,562		-		486,562		-
Private-label mortgage securities:
Investment grade		2,040,102		-		2,040,102		-
Split rating (1)		1,476,934		-		1,476,934		-
Non investment grade		9,892,337		-		9,892,337		-
Total investment securities available for sale		197,369,841		-		197,369,841		-
Derivative instruments-swap asset		21,066		-		21,066		-
Assets held for sale		1,654,280		-		-		1,654,280
Total recurring assets at fair value	$	199,045,187	$	-	$	197,390,907	$	1,654,280

(1)	Bonds with split ratings represent securities with separate investment and non-investment grades.

	September 30, 2012
	Estimated fair value		Quoted prices in active markets for identical assets (Level 1 inputs)		Quoted prices for similar assets (Level 2 inputs)		Significant unobservable inputs (Level 3 inputs)

Assets:
Investment securities available for sale:
Tax free municipals	$	11,578,501	$	-	$	11,578,501	$	-
U.S. government sponsored entities		16,627,055		-		16,627,055		-
Mortgage–backed securities:		-				-
FNMA certificates		86,584,802		-		86,584,802		-
GNMA certificates		4,945,412		-		4,945,412		-
FHLMC certificates		46,244,446		-		46,244,446		-
Collateralized mortgage obligations:		-				-
FNMA		8,027,156		-		8,027,156		-
GNMA		503,311		-		503,311		-
FHLMC		580,089		-		580,089		-
Private-label mortgage securities:		-				-
Investment grade		2,356,744		-		2,356,744		-
Split rating (1)		6,246,303		-		6,246,303		-
Non investment grade		5,685,514		-		5,685,514		-
Total investment securities available for sale		189,379,333		-		189,379,333		-

Assets held for sale		1,054,280		-		-		1,054,280

Total recurring assets at fair value	$	190,433,613	$	-	$	189,379,333	$	1,054,280

Liabilities:
Derivative instruments–swap liability	$	12,443	$	-	$	12,443	$	-
Total recurring liabilities at fair value	$	12,443	$	-	$	12,443	$	-

(1)	Bonds with split ratings represent securities with separate investment and non-investment grades.

A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis is as follows:

	Six Months Ended			Year Ended
	March 31, 2013			September 30, 2012
Fair value, beginning balance	$	1,054,280		$	1,064,338
Purchases		-			-
Sales		-			(373,107	)
Settlements		-			-
Change in unrealized loss recognized in other comprehensive income		-			-
Valuation loss recognized in noninterest expense		(468,000	)		(442,000	)
Total realized losses included in income		-			(81,231	)
Transfers in and/or out of level 3		1,068,000			886,280
Fair value, ending balance	$	1,654,280		$	1,054,280

During the six months ended March 31, 2013, the Company transferred a real estate property to be used as a branch location at a cost basis of $1,068,000 into assets held for sale. As a result of the transfer, a valuation loss of $468,000 was recognized in noninterest expense.

Assets and Liabilities Measured on a Nonrecurring Basis:

Assets and liabilities measured at fair value on a nonrecurring basis are summarized below.

	Fair value measurements using:
	Fair value		Quoted prices in active markets for identical assets (Level 1 inputs)		Quoted prices for similar assets (Level 2 inputs)		Significant unobservable inputs (Level 3 inputs)

March 31, 2013
Impaired loans:
Not covered under loss share	$	1,511,960	$	-	$	-	$	1,511,960
Other real estate owned:
Not covered under loss share		1,240,558		-		-		1,240,558
Covered under loss share		17,012,008		-		-		17,012,008
September 30, 2012
Impaired loans:
Not covered under loss share		2,925,972		-		-		2,925,972
Other real estate owned:
Not covered under loss share		2,106,757		-		-		2,106,757
Covered under loss share		21,903,204		-		-		21,903,204

Loans considered impaired are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect write-downs that are based on the market price or current appraised value of the collateral, adjusted to reflect local market conditions or other economic factors. After evaluating the underlying collateral, the fair value of the impaired loans is determined by allocating specific reserves from the allowance for loan and lease losses to the loans. Thus, the fair value reflects the loan balance less the specifically allocated reserve. Certain collateral-dependent impaired loans are reported at the fair value of the underlying collateral. Impairment is measured based on the fair value of the collateral, which is typically derived from appraisals that take into consideration prices in observed transactions involving similar assets and similar locations. Each appraisal is updated on an annual basis, either through a new appraisal or through the Company’s comprehensive internal review process. Appraised values are reviewed and monitored internally and fair value is re-assessed at least quarterly or more frequently when circumstances occur that indicate a change in fair value. The fair value of impaired loans that are not collateral dependent is measured using a discounted cash flow analysis considered to be a Level 3 input.

Other real estate owned is initially accounted for at fair value, less estimated costs to dispose of the property. Any excess of the recorded investment over fair value, less costs to dispose, is charged to the allowance for loan and lease losses at the time of foreclosure. A provision is charged to earnings for subsequent losses on other real estate owned when market conditions indicate such losses have occurred. The ability of the Company to recover the carrying value of other real estate owned is based upon future sales of the real estate. The ability to affect such sales is subject to market conditions and other factors beyond our control, and future declines in the value of the real estate would result in a charge to earnings. The recognition of sales and sales gains is dependent upon whether the nature and terms of the sales, including possible future involvement of the Company, if any, meet certain defined requirements. If those requirements are not met, sale and gain recognition is deferred. OREO represents real property taken by the Company either through foreclosure or through a deed in lieu thereof from the borrower. The fair value of OREO is based on property appraisals adjusted at management’s discretion to reflect a further decline in the fair value of properties since the time the appraisal analysis was performed. It has been the Company’s experience that appraisals quickly become outdated due to the volatile real-estate environment. Appraised values are reviewed and monitored internally and fair value is re-assessed at least quarterly or more frequently when circumstances occur that indicate a change in fair value. Therefore, the inputs used to determine the fair value of OREO and repossessed assets fall within Level 3. The Company may include within OREO other repossessed assets received as partial satisfaction of a loan. These assets are not material and do not typically have readily determinable market values and are considered Level 3 inputs.

The following table provides information describing the valuation processes used to determine recurring and nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy at March 31, 2013:

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation Technique	Unobservable Input	General Range (Discount)			Weighted Average Discount

Impaired Loans	$	1,511,960	Property appraisals	Management discount for property type and recent market volatility	1%	-	28%		21	%
REO	$	18,252,566	Property appraisals	Management discount for property type and recent market volatility	30%	-	52%		43	%

Accounting standards require disclosures of fair value information about financial instruments, whether or not recognized in the Statement of Condition, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented herein are based on pertinent information available to Management as of March 31, 2013 and September 30, 2012.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

CASH AND CASH EQUIVALENTS - The carrying amount approximates fair value because of the short maturity of these instruments.

INVESTMENTS AVAILABLE FOR SALE AND FHLB STOCK - The fair value of investments and mortgage–backed securities and collateralized mortgage obligations available for sale is estimated based on bid quotations received from securities dealers. The FHLB stock is considered a restricted stock and is carried at cost which approximates its fair value.

LOANS RECEIVABLE - Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type. The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit risk inherent in the loan. The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of the current economic and lending conditions.

Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. The estimated fair value at March 31, 2013 and September 30, 2012 has been affected by an estimate of liquidity risk of 5.5%.

LOANS HELD FOR SALE - Loans held for sale are carried at the lower of cost or market value. The fair values of loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics

CASH SURRENDER VALUE OF LIFE INSURANCE - The Company’s cash surrender value of bank owned life insurance approximates its fair value.

FDIC RECEIVABLE FOR LOSS SHARING AGREEMENTS – Fair value is estimated based on discounted future cash flows using current discount rates for instruments with similar risk and cash flow volatility.

DEPOSITS - The fair value of deposits with no stated maturity, such as noninterest–bearing demand deposits, savings, NOW accounts, and money market and checking accounts, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

BORROWINGS - The fair value of the Company’s Federal Home Loan Bank advances is estimated based on the discounted value of contractual cash flows. The fair value of securities sold under agreements to repurchase approximates the carrying amount because of the short maturity of these borrowings. The discount rate is estimated using rates quoted for the same or similar issues or the current rates offered to the Company for debt of the same remaining maturities.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Company uses interest-rate swaps to provide long-term fixed rate funding to its customers. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract. Therefore, these derivative contracts are classified as Level 2. The Company utilizes an independent third party valuation company to validate the dealer prices. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are classified as Level 3.

ACCRUED INTEREST AND DIVIDENDS RECEIVABLE AND PAYABLE - The carrying amount of accrued interest and dividends receivable on loans and investments and payable on borrowings and deposits approximate their fair values.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The value of these unrecognized financial instruments is estimated based on the fee income associated with the commitments which, in the absence of credit exposure, is considered to approximate their settlement value. Since no significant credit exposure existed, and because such fee income is not material to the Company's financial statements at March 31, 2013 and at September 30, 2012, the fair value of these commitments is not presented.

Many of the Company’s assets and liabilities are short-term financial instruments whose carrying amounts reported in the Statement of Condition approximate fair value. These items include cash and due from banks, interest-bearing bank balances, federal funds sold, other short-term borrowings and accrued interest receivable and payable balances. The estimated fair value of the Company’s remaining on-balance sheet financial instruments as of March 31, 2013 and September 30, 2012 is summarized below:

	March 31, 2013
					Estimated Fair Value
	Carrying Value		Total Estimated Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	241,997,210	$	241,997,210	$	241,997,210	$	-	$	-
Investments available for sale		197,369,841		197,369,841		-		197,369,841		-
FHLB Stock		4,390,300		4,390,300		-		4,390,300		-
Loans receivable, net		552,534,370		530,554,819		-		-		530,554,819
Loans held for sale		2,445,733		2,490,778		-		2,490,778		-
Cash surrender value of life insurance		34,314,859		34,314,859		-		34,314,859		-
FDIC receivable for loss sharing arrangements		45,875,194		45,882,040		-		-		45,882,040
Derivative instruments		21,066		21,066		-		21,066		-
Assets held for sale		1,654,280		1,654,280		-		-		1,654,280
Accrued interest and dividends receivable		3,152,586		3,152,586		-		667,792		2,484,794
Financial liabilities:
Deposits	$	918,988,604	$	885,678,181	$	-	$	885,678,181	$	-
FHLB advances and other borrowings		70,000,000		78,210,158		-		78,210,158		-
Accrued interest payable		251,568		251,568		-		251,568		-

	September 30, 2012
					Estimated Fair Value
	Carrying Value		Total Estimated Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	108,828,220	$	108,828,220	$	108,828,220	$	-	$	-
Investments available for sale		189,379,333		189,379,333		-		189,379,333		-
FHLB Stock		5,318,200		5,318,200		-		5,318,200		-
Loans receivable, net		593,903,715		561,448,457		-		-		561,448,457
Loans held for sale		2,691,508		2,741,672		-		2,741,672		-
Cash surrender value of life insurance		33,831,920		33,831,920		-		33,831,920		-
FDIC receivable for loss sharing arrangements		-		35,492,184		-		-		35,492,184
Assets held for sale		1,054,280		1,054,280		-		-		1,054,280
Accrued interest and dividends receivable		3,241,320		3,241,320		-		721,048		2,520,272
Financial liabilities:
Deposits	$	800,261,546	$	805,422,429	$	-	$	805,422,429	$	-
FHLB advances and other borrowings		81,000,000		90,732,925		-		90,732,925		-
Derivative instruments		12,443		12,443		-		12,443		-
Accrued interest payable		320,980		320,980		-		320,980		-

Note 12: Subsequent Events

On April 8, 2013, Charter Financial Corporation, a Maryland corporation (“Charter Financial”), completed its second-step conversion, and the related public offering, from a mutual holding company to a stock holding company form of organization. The conversion and offering was approved by First Charter, MHC’s members and the Company’s shareholders at meetings on April 2, 2013.

A total of 14,289,429 shares of common stock were sold in the subscription and community offerings at a price of $10.00 per share for gross offering proceeds of $142.9 million. Estimated costs of $5.6 million related to the conversion and public offering create net proceeds of approximately $137.1 million. As part of the conversion, each existing share of the Company’s common stock held by public shareholders was converted into the right to receive 1.2471 shares of Charter Financial common stock. The exchange ratio ensured that, after the conversion and offering, the public shareholders of the Company maintained approximately the same ownership interest in Charter Financial as they owned previously, exclusive of any new shares purchased or cash issued in lieu of fractional shares. As a result of the offering and the exchange of shares, Charter Financial has approximately 22,752,214 shares outstanding. As of April 8, 2013, the Company and First Charter, MHC ceased to exist.

Charter Financial’s common stock began trading on the Nasdaq Capital Market on April 9, 2013, under the trading symbol “CHFN”.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended March 31, 2013 and 2012 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company include, but are not limited to, general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities; our incurring higher than expected loan charge-offs with respect to assets acquired in FDIC-assisted acquisitions; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board; and changes in our organization, compensation and benefit plans. Additional factors are discussed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012 under Part I Item 1A.- “Risk Factors,” and in the Company’s other filings with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities, collateralized mortgage obligations and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of deposits and Federal Home Loan Bank advances and other borrowings.

Our principal business consists of attracting deposits from the general public and investing those funds primarily in loans. We make commercial real estate loans, loans secured by first mortgages on owner-occupied, one- to four-family residences, consumer loans, loans secured by first mortgages on non-owner-occupied one- to four-family residences, construction loans secured by one- to four-family residences, commercial business loans and multi-family real estate loans. While our primary business is the origination of loans funded through retail deposits, we also purchase whole loans and invest in certain investment securities and mortgage-backed securities, and use FHLB advances, repurchase agreements and other borrowings as additional funding sources.

The Company is significantly affected by prevailing economic conditions, including federal monetary and fiscal policies and federal regulation of financial institutions. Deposit balances are influenced by a number of factors, including interest rates paid on competing personal investment products, the level of personal income, and the personal rate of savings within our market areas. Lending activities are influenced by the demand for housing and other loans, changing loan underwriting guidelines, as well as interest rate pricing competition from other lending institutions. The primary sources of funds for lending activities include deposits, loan repayments, investment income, borrowings, and funds provided from operations.

On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market rates to assess all pricing strategies. Generally, deposit pricing is based upon a survey of competitors in the Bank’s market areas, and the need to attract funding and retain maturing deposits. The majority of our loans are adjustable rate products that have a fixed rate for three months to five years with annual adjustments thereafter.

During the first six months of fiscal year 2013, the national economy continued to show signs of recovery, as evidenced by increases in consumer spending and the stabilization of the labor market, the housing sector, and financial markets. However, unemployment levels remained elevated and unemployment periods prolonged, housing prices remained depressed and demand for housing was weak, due to distressed sales and tightened lending standards. The local economy continues to experience many of these same negative trends and seems to be lagging the national economy in exhibiting many of the recovery signs mentioned above. In an effort to support mortgage lending and housing market recovery, and to help improve credit conditions overall, the Federal Open Market Committee of the Federal Reserve has maintained the overnight lending rate between zero and 25 basis points since December 2008.

Net income was $3.7 million for the six months ended March 31, 2013 compared to $1.7 million for the six months ended March 31, 2012, an increase of $2.0 million over the prior period. Net income was $1.4 million for the three months ended March 31, 2013 compared to $1.3 million for the three months ended March 31, 2012.

On April 8, 2013, Charter Financial Corporation, a Maryland corporation, completed its conversion from the mutual holding company to the stock holding company form of organization. As of the same date, the Company and First Charter, MHC ceased to exist. A total of 14,289,429 shares of common stock were sold in the subscription and community offerings at a price of $10.00 per share. As part of the conversion, each existing share of the Company’s common stock held by public shareholders was converted into the right to receive 1.2471 shares of Charter Financial common stock. The exchange ratio ensured that, after the conversion and offering, the public shareholders of the Company maintained approximately the same ownership interest in Charter Financial as they owned previously, exclusive of any new shares purchased or cash issued in lieu of fractional shares.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions. As discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, the Company considers its critical accounting policies to be the allowance for loan losses, other-than-temporary impairment of investment securities, real estate owned, goodwill and other intangible assets, deferred income taxes, receivable from FDIC under loss sharing agreements, and estimation of fair value. There have been no material changes in our critical accounting policies during the six months ended March 31, 2013.

Comparison of Financial Condition at March 31, 2013 and September 30, 2012

Assets. Total assets increased by $103.2 million, or 10.0%, to $1.14 billion at March 31, 2013. Cash and cash equivalents increased by $133.2 million, FDIC loss share receivable increased by $10.7 million and securities available for sale increased by $8.0 million. These increases were partially offset by a decline of $41.4 million in net loans receivable.

Cash and cash equivalents. Cash and cash equivalents increased to $242.0 million at March 31, 2013, up from $108.8 million at September 30, 2012. This increase was primarily due to an increase in cash from the second-step stock orders received in March, pending closing of the conversion on April 8, 2013.

Loans. At March 31, 2013, total loans were $552.5 million, or 48.7% of total assets. As indicated by the table below, during the six months ended March 31, 2013, our loan portfolio decreased by $41.4 million, or 7.0%. Total loans not covered by loss share agreements, decreased $6.5 million or 1.5%, to $421.2 million at March 31, 2013 from $427.7 million at September 30, 2012, due primarily to a decrease of $5.1 million in commercial real estate loans. Loans covered by loss share agreements, net, decreased $34.8 million, or 21.0%, to $131.4 million at March 31, 2013 from $166.2 million at September 30, 2012, as we continue to progress through the resolution process on loss share assets.

Non-covered and Covered Loans, net

	Non-covered (1)		Covered		Total
	(dollars in thousands)
Loan Balances:
March 31, 2013	$	421,175	$	131,359	$	552,534
December 31, 2012		426,370		149,268		575,638
September 30, 2012		427,676		166,228		593,904
June 30, 2012		430,292		186,545		616,837
March 31, 2012		435,424		203,626		639,050
December 31, 2011		432,108		218,623		650,731
September 30, 2011		419,979		235,050		655,028
June 30, 2011		434,309		120,140		554,449
March 31, 2011		435,276		124,583		559,859

(1)	Non-covered loans are shown net of deferred loan fees and allowance for loan losses.

FDIC Receivable for Loss Share Agreements. As of March 31, 2013, 23.8% of our outstanding principal balance of loans and 93.2% of our other real estate owned assets were covered under loss share agreements with the FDIC in which the FDIC has agreed to reimburse us for 80% or 95%, depending on the contract of all losses incurred in connection with those assets. We estimated the FDIC reimbursement that will result from losses incurred as we dispose of covered loans and other real estate owned assets, and we recorded the estimate as a receivable from the FDIC. The FDIC receivable for loss share agreements was $45.9 million as of March 31, 2013 and $35.1 million as of September 30, 2012. The increase in the amount of FDIC receivable was largely attributable to cash proceeds we paid to the FDIC during the first six months of the current fiscal year related to a modified interpretation of the timing of reimbursable losses at September 30, 2012. The balance of the FDIC receivable was also reduced or increased as a result of changes in estimated cash flows to be received from the FDIC from transactions in the covered assets. When these transactions are recorded, we also record an offsetting amount in our consolidated statements of income.

Investment Securities Portfolio. At March 31, 2013, our investment securities portfolio totaled $197.4 million, compared to $189.4 million at September 30, 2012. The increase was due to $56.5 million in securities purchased, partially offset by $14.0 million in sales, $5.0 million in securities that were called and $28.7 million in principal paydowns and maturities.

During the first six months of fiscal 2013, we had no additional other-than-temporary impairment charges on non-agency collateralized mortgage backed securities. Through March 31, 2013, we had cumulatively recorded $380,000 of other-than-temporary impairment charges with respect to one private label security. No other non-agency collateralized mortgage backed securities in our investment portfolio were other- than- temporarily impaired at March 31, 2013.

Bank Owned Life Insurance. The total cash surrender values of bank owned life insurance policies at March 31, 2013 and September 30, 2012 were $34.3 million and $33.8 million, respectively.

Deposits. Total deposits increased $118.7 million, or 14.8%, to $919.0 million at March 31, 2013 from $800.3 million at September 30, 2012. The increase was caused primarily by a $155.7 million increase in transaction accounts of which $138.6 million were funds received and held for the purchase of Charter Financial common stock and a $2.4 million increase in money market accounts. The increase was partially offset by a $38.1 million decline in certificates of deposit and a $1.3 million decline in savings accounts. We reduced the rates paid on certificates of deposit to better match the level of our interest-bearing liabilities with loans. At March 31, 2013, deposits were $919.0 million, of which $767.2 million were retail deposits and the remaining $138.6 million were for stock orders related to the second-step conversion. In addition, $13.2 million were brokered and other wholesale deposits. Funds on deposit from internet services and brokered deposits are considered as wholesale deposits. The following table shows deposit fees earned and deposit balances by category for the quarter end periods indicated:

			Deposit Balances
	Deposit Fees		Transaction Accounts (1)		Savings		Money Market		Total Core Deposits (1)		Retail Certificates of Deposit		Wholesale Certificates of Deposit		Total Deposits (1)
	(dollars in thousands)

March 31, 2013	$	1,878	$	293,143	$	49,890	$	131,523	$	474,556	$	292,650	$	13,215	$	780,421
December 31, 2012		1,950		284,509		48,685		130,151		463,345		312,026		30,747		806,118
September 30, 2012		1,950		275,998		51,192		129,103		456,293		323,105		20,864		800,262
June 30, 2012		1,713		281,358		52,703		133,807		467,868		332,707		20,958		821,533
March 31, 2012		1,620		285,858		55,980		128,996		470,834		353,723		20,951		849,508
December 31, 2011		1,724		266,515		54,055		130,122		450,692		385,926		22,887		859,505
September 30, 2011		1,601		268,515		56,857		121,804		447,176		436,213		27,705		911,094
June 30, 2011		1,448		211,513		19,438		88,409		319,360		344,474		31,984		695,818
March 31, 2011		1,360		214,810		19,329		87,005		321,144		372,160		41,987		735,291

(1)	March 31, 2013 core deposits are reduced by $138,567 of deposits held by the Bank for stock proceeds from the second-step conversion which closed April 8, 2013.

Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank of Atlanta. At March 31, 2013, borrowings totaled $70.0 million, a decrease of $11.0 million from September 30, 2012. The decrease was due to the payoff of a short-term daily rate Federal Home Loan Bank advance in October 2012 and a maturing $10.0 million 3.42% fixed rate advance in March 2013.

Based upon available investment and loan collateral, additional advances of $133.2 million were available from the Federal Home Loan Bank of Atlanta at March 31, 2013.

At March 31, 2013, approximately $55.5 million of a line of credit was available to us at the Federal Reserve Bank of Atlanta based on loan collateral pledged. The line of credit at the Federal Reserve Bank of Atlanta was not used other than periodic tests to ensure the line was functional.

Stockholders’ Equity. At March 31, 2013, total stockholders’ equity totaled $144.7 million, or $8.12 per share, a $2.2 million increase from September 30, 2012. The increase was primarily due to net income of $3.7 million for the six months ended March 31, 2013 but was partially offset by $1.2 million due to the repurchase of shares and deferred conversion expenses and a $683,000 increase in unrealized losses on available for sale securities.

Comparison of Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012

General. Net income increased $124,000, or 9.82%, to $1.4 million for the quarter ended March 31, 2013 from $1.3 million for the quarter ended March 31, 2012. Net interest income declined $687,000, or 7.0%, to $9.1 million for the quarter ended March 31, 2013 from $9.8 million for the quarter ended March 31, 2012 as a result of lower yields and average balances of interest earning assets. For the quarter ended March 31, 2013, our net interest margin decreased to 4.14% from 4.35% for the quarter ended March 31, 2012 due to lower interest rates related to interest-earning assets. The non-covered provision for loan losses was $300,000 for both quarters ended March 31, 2013 and March 31, 2012. Covered provision for loan losses was a recapture of $42,000 in the quarter ended March 31, 2013 compared to a provision of $290,000 for the quarter ended March 31, 2012. Noninterest income increased $418,000, or 16.4%, to $3.0 million for the quarter ended March 31, 2013 from $2.6 million for the quarter ended March 31, 2012. Noninterest expense decreased by $195,000 to $9.8 million for the quarter ended March 31, 2013 from $10.0 million for the quarter ended March 31, 2012. Noninterest expense was lower as a result of higher noninterest expense incurred in the prior year primarily as a result of the integration of the FNB assisted acquisition.

Interest and Dividend Income. Total interest and dividend income decreased $1.6 million, or 12.9%, to $11.0 million for the quarter ended March 31, 2013 from $12.6 million for the quarter ended March 31, 2012 due primarily to the decrease in interest on loans. Interest on loans decreased $1.5 million, or 12.9%, to $10.1 million for the quarter ended March 31, 2013 as a result of a $79.6 million, or 12.2%, decrease in the average balance of loans receivable to $573.7 million for the quarter ended March 31, 2013. The lower average balance was primarily the result of loan repayments and charge-offs on loans covered by loss share agreements. The average yield on loans declined to 7.08% for the quarter ended March 31, 2013 compared to 7.13% for the quarter ended March 31, 2012. Continued low interest rates and the repayment of higher yielding existing loans, partially offset by a $471,000 increase in accretable discounts on covered loans, contributed to the lower overall loan yield. Our loans acquired through FDIC acquisitions carry higher yields than our legacy loan portfolio. As our percentage of covered loans to total loans declines in future periods, our net interest margin will likely also decline.

Interest on mortgage-backed securities and collateralized mortgage obligations decreased $134,000 to $738,000 for the quarter ended March 31, 2013 from $872,000 for the quarter ended March 31, 2012, as a result of a 40 basis point decrease in average yield to 1.84% partially offset by a $5.0 million, or 3.2%, increase in the average balance of such securities to $160.6 million.

Interest on other investment securities, which consisted of agency and municipal securities decreased $30,000 to $39,000 for the quarter ended March 31, 2013 from $69,000 for the quarter ended March 31, 2012 as investment security average balances declined $5.4 million to $23.1 million while the average yield decreased to 0.68% for the quarter ended March 31, 2013 from 0.97% for the quarter ended March 31, 2012 as interest rates remained low.

Interest on interest earning deposits increased $24,000 to $50,000 for the quarter ended March 31, 2013 from $26,000 for the quarter ended March 31, 2012 as average balances on interest earning deposits increased $63.5 million due to lower loan demand and as a result of our holding short-term investable funds on deposit for our second-step conversion which closed in April 2013.

The following table shows selected yield and rate information for the quarter end periods indicated:

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2013			2012			2012			2012			2012
Yield on Loans		7.08	%		6.87	%		6.65	%		6.76	%		7.13	%
Yield on Mortgage Securities		1.84	%		1.80	%		1.94	%		2.20	%		2.24	%
Yield on Assets		5.00	%		5.07	%		5.05	%		5.36	%		5.62	%

Cost of Deposits		0.62	%		0.68	%		0.71	%		0.77	%		0.89	%
Cost of CD's		1.13	%		1.20	%		1.24	%		1.30	%		1.44	%
Cost of NOW Accounts		0.13	%		0.14	%		0.15	%		0.15	%		0.16	%
Cost of Rewards Checking		0.37	%		0.40	%		0.41	%		0.62	%		0.67	%
Cost of Savings		0.05	%		0.05	%		0.05	%		0.05	%		0.24	%
Cost of MMDA		0.26	%		0.29	%		0.31	%		0.35	%		0.37	%
Cost of Borrowings		4.10	%		4.19	%		4.18	%		4.13	%		4.28	%
Cost of Liabilities		0.97	%		1.04	%		1.06	%		1.09	%		1.30	%

Loan/Deposit Spread		6.46	%		6.19	%		5.94	%		5.99	%		6.24	%
Mortgage Securities/Borrowings Spread		-2.26	%		-2.39	%		-2.24	%		-1.93	%		-2.04	%
Asset/Liability Spread		4.03	%		4.03	%		3.99	%		4.27	%		4.32	%

Interest Expense. Total interest expense decreased $1.0 million, or 33.3%, to $1.9 million for the quarter ended March 31, 2013 compared to $2.9 million for the quarter ended March 31, 2012. Interest expense declined due to a 33 basis point, or 33.3%, decrease in the average cost of interest-bearing liabilities to 0.97% for the quarter ended March 31, 2013 from 1.30% for the quarter ended March 31, 2012, reflecting continued low market interest rates. The average balance of interest-bearing liabilities decreased by $93.9 million, or 10.7%, to $786.6 million for the quarter ended March 31, 2013 compared to $880.5 million for the quarter ended March 31, 2012 as higher costing FHLB advances matured and were repaid and a reduction in higher cost certificates of deposit acquired in FDIC acquisitions.

Interest expense on deposits decreased $624,000 or 36.4%, to $1.1 million for the quarter ended March 31, 2013 compared to $1.7 million for the quarter ended March 31, 2012. The decrease was due primarily to a 27 basis point decrease in average cost of deposits to 0.62% compared to 0.89% for the quarter ended March 31, 2012. The decrease in the average cost of deposits was largely due to lower market interest rates and an increase in the mix of lower costing demand deposits relative to higher costing certificates of deposit. The average cost on savings accounts decreased 19 basis points from 0.24% for the quarter ended March 31, 2012 to 0.05%, for the quarter ended March 31, 2013. The average cost on rewards checking decreased 30 basis points to 0.37% for the quarter ended March 31, 2013 compared to 0.67% for the quarter ended March 31, 2012. Rewards checking is a premium rate demand account based on average balance, electronic transaction activity, and other criteria. Interest expense on certificates of deposit decreased $512,000 to $898,000 for the quarter ended March 31, 2013, from $1.4 million for the quarter ended March 31, 2012, reflecting the $73.4 million, or 18.7%, decrease in the average balance of such deposits and a 31 basis point decrease in average certificate of deposit cost to 1.13%.

Interest expense on Federal Home Loan Bank advances decreased $325,000 to $813,000 for the quarter ended March 31, 2013 compared to $1.1 million for the quarter ended March 31, 2012, due to a decrease of $27.2 million, or 25.6%, in the average balance of advances. The average cost of advances decreased 18 basis points for the quarter ended March 31, 2013 compared to the quarter ended March 31, 2012.

Net Interest Income. Net interest income decreased $687,000, or 7.0%, to $9.1 million for the quarter ended March 31, 2013, from $9.8 million for the quarter ended March 31, 2012. The decrease was primarily due to a decrease in interest and dividend income of $1.6 million, partially offset by a decrease in interest expense of $1.0 million. Interest and dividend income decreased due to the decrease in the average balance of loans receivable of $79.7 million partially offset by an increase in the average balance of mortgage-backed securities and collateralized mortgage obligations available for sale of $5.0 million for the quarter ended March 31, 2013. In addition, the average yield on assets deceased 62 basis point during the quarter ended March 31, 2013 as compared to the prior year quarter. The decrease in interest expense was due to a 27 basis point decline in the average cost of total interest bearing deposits to 0.62% for the quarter ended March 31, 2013 from 0.89% for the quarter ended March 31, 2012, and an 18 basis point decrease in the average cost of borrowings to 4.10% for the quarter ended March 31, 2013 from 4.28% for the quarter ended March 31, 2012. In addition, the average balance of interest-bearing liabilities decreased $93.9 million during the quarter ended March 31, 2013 as compared to the same prior year quarter. As the table indicates below, our net interest margin decreased 21 basis points to 4.14% for the March quarter of 2013 from 4.35% for the March quarter of 2012, while our net interest rate spread decreased 29 basis points to 4.03% for the second fiscal quarter of 2013 from 4.32% for the comparable quarter of 2012. Lower average balances on loans outstanding, partially offset by lower rates paid on certificates of deposits and borrowings contributed to reduced net interest margin.

	For the Three Months Ended March 31,
	2013							2012
	Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
	(dollars in thousands)
Assets:
Interest-earning assets:
Loans
Interest-earning deposits in other financial institutions	$	117,121	$	50		0.17	%	$	53,658	$	26		0.19	%
FHLB common stock and other equity securities		5,190		31		2.39			9,256		31		1.34
Mortgage-backed securities and collateralized mortgage obligations available for sale (3)		160,622		738		1.84			155,602		872		2.24
Other investment securities available for sale (3)		23,075		39		0.68			28,448		69		0.97
Loans receivable (1)(2)(3)		573,694		10,148		7.08			653,340		11,644		7.13
Total interest-earning assets		879,702		11,006		5.00			900,304		12,642		5.62
Total noninterest-earning assets		149,365		-					189,690		-
Total assets	$	1,029,067		11,006				$	1,089,994		12,642

Liabilities and Equity:
Interest-bearing liabilities:
NOW accounts	$	155,463	$	51		0.13	%	$	143,967	$	58		0.16	%
Rewards checking		52,629		49		0.37			57,611		97		0.67
Savings accounts		49,658		6		0.05			54,898		33		0.24
Money market deposit accounts		130,626		85		0.26			125,204		115		0.37
Certificate of deposit accounts		318,978		898		1.13			392,337		1,410		1.44
Total interest-bearing deposits		707,354		1,089		0.62			774,017		1,713		0.89
Borrowed funds		79,222		813		4.10			106,429		1,138		4.28
Total interest-bearing liabilities		786,576		1,902		0.97			880,446		2,851		1.30
Noninterest-bearing deposits		92,872							63,197
Other noninterest-bearing liabilities		5,003		-					9,139		-
Total noninterest-bearing liabilities		97,875		-					72,336		-
Total liabilities		884,451		1,902					952,782		2,851
Total stockholders' equity		144,616		-					137,212		-
Total liabilities and stockholders' equity	$	1,029,067		1,902				$	1,089,994		2,851
Net interest income			$	9,104						$	9,791

Net interest earning assets (5)			$	93,126						$	19,858
Net interest rate spread (4)						4.03	%						4.32	%
Net interest margin (6)						4.14	%						4.35	%
Ratio of average interest-earning assets to average interest-bearing liabilities						111.84	%						102.26	%

(1)	Includes net loan fees deferred and accreted pursuant to applicable accounting requirements.

(2)	Interest income on loans is interest income as recorded in the income statement and, therefore, does not include interest income on non-accrual loans.

(3)	Tax exempt or tax-advantaged securities and loans are shown at their contractual yields and are not shown at a tax equivalent yield.

(4)	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.

(5)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rates (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The combined column represents the net change in volume between the two periods multiplied by the net change in rate between the two periods. The net column represents the sum of the prior columns.

	For the Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012 Increase/(Decrease)
	Due to
	(in thousands)
	Volume			Rate			Combined			Net
Interest Income:
Interest-earning deposits in other financial institutions	$	31		$	(3	)	$	(4	)	$	24
FHLB common stock and other equity securities		(14	)		25			(11	)		-
Mortgage-backed securities and collateralized mortgage obligations available for sale		28			(157	)		(5	)		(134	)
Other investment securities available for sale		(13	)		(21	)		4			(30	)
Loans receivable		(1,420	)		(87	)		11			(1,496	)
Total interest-earnings assets	$	(1,388	)	$	(243	)	$	(5	)	$	(1,636	)

Interest Expense
NOW accounts	$	5		$	(58	)	$	(2	)	$	(55	)
Savings accounts		(3	)		(27	)		3			(27	)
Money market deposit accounts		5			(34	)		(1	)		(30	)
Certificate of deposit accounts		(264	)		(305	)		57			(512	)
Total interest-bearing deposits		(257	)		(424	)		57			(624	)
Borrowed funds		(292	)		(46	)		13			(325	)
Total Interest-bearing Liabilities	$	(549	)	$	(470	)	$	70		$	(949	)

Net Change in net interest income	$	(839	)	$	227		$	(75	)	$	(687	)

Provision for Non-Covered Loan Losses. The provisions for loan losses for the quarters ended March 31, 2013 and March 31, 2012 were $300,000 for non-covered loans. Net charge-offs on non-covered loans decreased to $137,000 for the quarter ended March 31, 2013, from $595,000 for the quarter ended March 31, 2012. The allowance for loan losses for non-covered loans was $8.5 million, or 1.98% of total non-covered loans receivable at March 31, 2013 compared to $8.5 million, or 1.92% of total non-covered loans receivable, at March 31, 2012. Our nonperforming loans declined to $3.1 million at March 31, 2013 from $6.9 million at March 31, 2012.

Provision (Credit) for Covered Loan Losses. For the quarter ended March 31, 2013, the provision for covered loan losses was a provision recapture of $42,000 compared to a provision of $290,000 for the quarter ended March 31, 2012 as our estimate of losses on covered loans declined. The provision for covered loans for the quarter ended March 31, 2013 primarily related to a recapture of $9,000 related to certain loans of NCB, a recapture of $58,000 related to certain loans of FNB, and a provision of $25,000 related to certain loans of MCB. If future losses occur due to declines in the market during the five year period covered by loss share agreements, the losses on loans acquired from both NCB and MCB will be reimbursed at 95% and FNB at 80% based on the terms of the FDIC loss sharing agreements. At March 31, 2013 covered loans totaled $131.4 million, with $20.7 million in related non-accretable discounts and allowances.

Noninterest Income. Noninterest income increased $418,000, or 16.4%, to $3.0 million for the quarter ended March 31, 2013 from $2.6 million for the quarter ended March 31, 2012. Fees on checking accounts increased by $258,000, or 16.0%, due primarily to increases in network exchange fees and slight increases in NSF and other deposit service charges. Gains on loans and servicing released fees increased $224,000 as a result of higher mortgage loan production. As indicated below, discount accretion on FDIC assisted transactions declined 59.1% to $186,000 for the quarter ended March 31, 2013 from $455,000 for the quarter ended March 31, 2012 due to accretion on FDIC covered real estate during the 2013 period. For the quarter ended March 31, 2013 we incurred no additional charges for other-than-temporary impairment of non-agency collateralized mortgage-backed securities compared to $173,000 for the quarter ended March 31, 2012.

	For the Three Months Ended
	(Dollars in Thousands)
	March 31,		December 31,		September 30,		June 30,		March 31,
	2013		2012		2012		2012		2012
Deposit fees	$	1,878	$	1,950	$	1,950	$	1,713	$	1,620
Gain on the sale of loans		385		350		353		262		161
Brokerage commissions		175		141		70		222		140
Bank owned life insurance		228		255		261		264		260
Gain on sale of investments, net		-		220		307		-		-
Impairment losses on securities recognized in earnings		-		-		-		-		(173	)
FDIC receivable accretion		186		148		186		251		455
Loss on sale of other assets held for sale		-		-		68		3		-
Other income		125		147		423		212		96
Total Noninterest Income	$	2,977	$	3,211	$	3,618	$	2,927	$	2,559

Noninterest Expense. Total noninterest expense decreased $195,000, or 2.0% to $9.8 million for the quarter ended March 31, 2013, compared to $10.0 million for the quarter ended March 31, 2012. The decrease was primarily due to declines in compensation, employee benefits and occupancy expenses of $251,000 and $296,000, respectively, as expenses relating to FDIC acquisitions and the related personnel and branches were lower in the March 31, 2013 quarter as compared to the same prior year period. FDIC deposit insurance expense also declined $495,000 in the March 31, 2013 quarter from the year earlier period due to being over expensed in prior quarters and was trued up in the current quarter to account for the refund of our prepaid premiums from the FDIC we will receive in June 2013.. These reductions were offset in part by a $565,000 increase in other real estate owned expense as provisions were recorded for valuation allowances and a $457,000 increase in other operating expense, primarily resulting from a $468,000 write-down of an asset held for sale.

The following table shows noninterest expense by category for the periods indicated:

	For the Three Months Ended
	(Dollars In Thousands)
	March 31,			December 31,			September 30,		June 30,		March 31,
	2013			2012			2012		2012		2012
Compensation & employee benefits	$	4,367		$	4,676		$	4,757	$	5,270	$	4,618
Occupancy		1,718			1,761			1,849		1,897		2,014
Legal and professional		493			323			342		341		447
Marketing		323			268			384		527		494
Furniture and equipment		210			202			209		246		259
Postage, office supplies, and printing		277			247			214		280		252
Core deposit intangible amortization expense		121			128			132		142		133
Other		1,198			667			408		1,681		742
Federal insurance premiums and other regulatory fees		(142	)		245			252		389		365
Net cost (benefit) of operations of other real estate owned		1,192			(192	)		47		731		627
Total Noninterest Expense	$	9,757		$	8,325		$	8,594	$	11,504	$	9,951

Income Taxes. Income taxes increased to $682,000 for the quarter ended March 31, 2013 from $548,000 for the quarter ended March 31, 2012 due to an increase in our income before provision for income taxes of $258,000. Our effective tax rate was 33.0% in the quarter ended March 31, 2013 and 30.29% in quarter ended March 31, 2012. The increase was related to higher income before income taxes in the current period while income exempt from taxation remained relatively constant.

Comparison of Operating Results for the Six Months Ended March 31, 2013 and March 31, 2012

General. Net income increased $2.0 million, or 112.6%, to $3.7 million for the six months ended March 31, 2013 from $1.7 million for the six months ended March 31, 2012. Net interest income declined $857,000, or 4.5%, to $18.1 million for the six months ended March 31, 2013 from $19.0 million for the six months ended March 31, 2012 as a result of lower average balance and average yields of interest earning assets. For the six months ended March 31, 2013, our net interest margin remained unchanged at 4.14% from the six months ended March 31, 2012. The non-covered provision for loan losses was $600,000 for the six months ended March 31, 2013 and $1.8 million for the six months ended March 31, 2012. Covered provision for loan losses totaled $52,000 in the six months ended March 31, 2013 compared to a provision of $890,000 for the six months ended March 31, 2012. Noninterest income decreased $189,000, or 3.0%, to $6.2 million for the six months ended March 31, 2013 from $6.4 million for the six months ended March 31, 2012. Noninterest expense decreased $2.1 million to $18.1 million for the six months ended March 31, 2013 from $20.2 million for the six months ended March 31, 2012. Noninterest expense was lower as a result of higher noninterest expense incurred in the prior year period as a result of the integration of the FNB assisted acquisition and also lower net costs of operations of real estate owned in the current period.

Interest and Dividend Income. Total interest and dividend income decreased $3.1 million, or 12.3%, to $22.1 million for the six months ended March 31, 2013 from $25.1 million for the six months ended March 31, 2012 due primarily to the decrease in interest on loans. Interest on loans decreased $2.9 million, or 12.4%, to $20.3 million for the six months ended March 31, 2013 as a result of a $72.9 million, or 11.1%, decrease in the average balance of loans receivable to $583.5 million for the six months ended March 31, 2013. The lower average balance was primarily the result of loan repayments and charge-offs on loans covered by loss share agreements. The average yield on loans declined to 6.97% for the six months ended March 31, 2013 compared to 7.07% for the six months ended March 31, 2012. Continued low interest rates, lower accretion of discount on purchased loans and the repayment of higher yielding existing loans contributed to the lower overall loan yield. Our loans acquired through FDIC acquisitions carry higher yields than our legacy loan portfolio. As our percentage of covered loans to total loans declines in future periods, our net interest margin will likely also decline.

Interest on mortgage-backed securities and collateralized mortgage obligations decreased $204,000 to $1.5 million for the six months ended March 31, 2013 from $1.7 million for the six months ended March 31, 2012, reflecting a 48 basis point decrease in average yield to 1.82%, partially offset by a $16.3 million, or 11.2%, increase in the average balance of such securities to $161.6 million.

Interest and dividend income on Federal Home Loan Bank of Atlanta common stock increased to $66,000 for the six months ended March 31, 2013 from $54,000 for the six months ended March 31, 2012 as the FHLB dividend rate increased.

Interest on other investment securities, which consisted of agency and municipal securities decreased $34,000 to $94,000 for the six months ended March 31, 2013 from $128,000 for the six months ended March 31, 2012 as investment security average balances decreased by $2.7 million for the current period and the average yield decreased to 0.76% for the six months ended March 31, 2013 from 0.94% for the six months ended March 31, 2012 as interest rates remained low.

Interest on interest earning deposits increased $7,000 to $101,000 for the six months ended March 31, 2013 from $94,000 for the six months ended March 31, 2012 as average balances increased $22.2 million as a result of our holding short-term investable funds on deposit for our second-step stock conversion which closed in April, 2013.

Interest Expense. Total interest expense decreased $2.2 million, or 36.0%, to $4.0 million for the six months ended March 31, 2013 compared to $6.2 million for the six months ended March 31, 2012. Interest expense decreased due to a 37 basis point, or 27.0%, decrease in the average cost of interest-bearing liabilities to 1.0% for the six months ended March 31, 2013 from 1.37% for the six months ended March 31, 2012, reflecting continued low market interest rates. The average balance of interest-bearing liabilities decreased by $112.3 million, or 12.5%, to $789.5 million for the six months ended March 31, 2013 compared to $901.8 million for the six months ended March 31, 2012 as higher costing FHLB advances matured and were repaid and a reduction in higher cost certificates of deposit acquired in FDIC acquisitions.

Interest expense on deposits decreased $1.6 million, or 40.2%, to $2.3 million for the six months ended March 31, 2013 compared to $3.9 million for the six months ended March 31, 2012. The decrease was due primarily to a 32 basis point decrease in average cost of deposits to 0.65% compared to 0.97% for the six months ended March 31, 2012. The decrease in the average cost of deposits was largely due to lower market interest rates and an increase in the mix of lower costing demand deposits relative to higher costing certificates of deposit and the repricing downward of higher costing certificates of deposit. The average cost on savings accounts decreased 28 basis points from 0.33% for the six months ended March 31, 2012 to 0.05% for the six months ended March 31, 2013. The average cost on rewards checking decreased 27 basis points to 0.39% for the six months ended March 31, 2013 compared to 0.66% for the six months ended March 31, 2012. Rewards checking is a premium rate demand account based on average balance, electronic transaction activity, and other criteria. Interest expense on certificates of deposit decreased $1.3 million to $1.9 million for the six months ended March 31, 2013, from $3.2 million for the six months ended March 31, 2012, reflecting the $85.7 million, or 20.7%, decrease in the average balance of such deposits and a 38 basis point decrease in average certificate of deposit cost to 1.16%.

Interest expense on Federal Home Loan Bank advances decreased $679,000 to $1.7 million for the six months ended March 31, 2013 compared to $2.3 million for the six months ended March 31, 2012, due to a decrease of $28.6 million, or 26.4%, in the average balance of advances. The average cost of advances decreased 16 basis points for the six months ended March 31, 2013 compared to the six months ended March 31, 2012.

Net Interest Income. Net interest income decreased $857,000, or 4.5%, to $18.1 million for the six months ended March 31, 2013, from $19.0 million for the six months ended March 31, 2012. The decrease was primarily due to a decrease in interest and dividend income of $3.1 million, partially offset by a decrease in interest expense of $2.2 million. Interest and dividend income decreased due to the decrease in the average balance of loans receivable of $72.9 million partially offset by an increase in the average balance of mortgage-backed securities and collateralized mortgage obligations available for sale of $16.3 million for the six months ended March 31, 2013. In addition, the average yield on assets decreased 44 basis points during the six months ended March 31, 2013 as compared to the same prior year period. The decrease in interest expense was due to a 32 basis point decline in the average cost of total interest bearing deposits to 0.65% for the six months ended March 31, 2013 from 0.97% for the six months ended March 31, 2012, and a 16 basis point decrease in the average cost of borrowings to 4.14% for the six months ended March 31, 2013 from 4.30% for the six months ended March 31, 2012. In addition, the average balance of interest bearing liabilities decreased $112.3 million for the six months ended March 31, 2013 as compared to the same prior year period. As the table indicates below, our net interest margin remained unchanged at 4.14% for the six months ended March 31, 2013 compared to the six months ended March 31, 2012, while our net interest rate spread decreased 7 basis points to 4.04% for the first six months of fiscal 2013 from 4.11% for the comparable six months of 2012.

	For the Six Months Ended March 31,
	2013							2012
	Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
	(dollars in thousands)
Assets:
Interest-earning assets:
Loans
Interest-bearing deposits in other financial institutions	$	100,397	$	101		0.20	%	$	78,212	$	94		0.24	%
FHLB common stock and other equity securities		5,244		66		2.51			9,598		54		1.13
Mortgage-backed securities and collateralized mortgage obligations available for sale (3)		161,563		1,469		1.82			145,251		1,672		2.30
Other investment securities available for sale (3)		24,719		94		0.76			27,451		129		0.94
Loans receivable (1) (2) (3)		583,484		20,327		6.97			656,423		23,193		7.07
Total interest-earning assets		875,407		22,057		5.04			916,935		25,142		5.48
Total noninterest-earning assets		145,685		-					194,828		-
Total assets	$	1,021,092		22,057				$	1,111,763		25,142

Liabilities and Equity:
Interest-bearing liabilities:
NOW accounts	$	150,488	$	100		0.13		$	141,919	$	119		0.17	%
Rewards checking		52,120		102		0.39			58,729		193		0.66
Savings accounts		49,544		12		0.05			54,701		91		0.33
Money market deposit accounts		128,755		177		0.27			123,651		258		0.42
Certificate of deposit accounts		328,934		1,915		1.16			414,580		3,194		1.54
Total interest-bearing deposits		709,841		2,306		0.65			793,580		3,855		0.97
Borrowed funds		79,637		1,650		4.14			108,235		2,329		4.30
Total interest-bearing liabilities		789,478		3,956		1.00			901,815		6,184		1.37
Noninterest-bearing deposits		81,188							61,629
Other noninterest-bearing liabilities		6,424		-					10,278		-
Total noninterest-bearing liabilities		87,612		-					71,907		-
Total liabilities		877,090		3,956					973,722		6,184
Total stockholders' equity		144,002		-					138,036		-
Total liabilities and stockholders' equity	$	1,021,092		3,956				$	1,111,758		6,184
Net interest income			$	18,101						$	18,958

Net interest earning assets (4)			$	85,929						$	15,120
Net interest rate spread (5)						4.04	%						4.11	%
Net interest margin (6)						4.14	%						4.14	%
Ratio of average interest-earning assets to average interest-bearing liabilities						110.88	%						101.68	%

(1)	Includes net loan fees deferred and accreted pursuant to applicable accounting requirements.

(2)	Interest income on loans is interest income as recorded in the income statement and, therefore, does not include interest income on non-accrual loans.

(3)	Tax exempt or tax-advantaged securities and loans are shown at their contractual yields and are not shown at a tax equivalent yield.

(4)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(5)	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.

(6)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

	For the Six Months Ended March 31, 2013 Compared to the Six Months Ended March 31, 2012 Increase/(Decrease) Due to
	Volume			Rate			Combined			Net
	(in thousands)
Interest Income:
Interest-earning deposits in other financial institutions	$	26		$	(15	)	$	(4	)	$	7
FHLB common stock and other equity securities		(24	)		66			(30	)		12
Mortgage-backed securities and collateralized mortgage obligations available for sale		188			(352	)		(39	)		(203	)
Other investment securities available for sale		(13	)		(24	)		2			(35	)
Loans receivable		(2,577	)		(325	)		36			(2,866	)
Total interest-earnings assets	$	(2,400	)	$	(650	)	$	(35	)	$	(3,085	)

Interest Expense
NOW accounts	$	3		$	(112	)	$	(1	)	$	(110	)
Savings accounts		(9	)		(77	)		7			(79	)
Money market deposit accounts		11			(88	)		(4	)		(81	)
Certificate of deposit accounts		(660	)		(780	)		161			(1,279	)
Total interest-bearing deposits		(655	)		(1,057	)		163			(1,549	)
Borrowed funds		(616	)		(86	)		23			(679	)
Total Interest-Bearing Liabilities	$	(1,271	)	$	(1,143	)	$	186		$	(2,228	)

Net Change in net interest income	$	(1,129	)	$	493		$	(221	)	$	(857	)

Provision for Non-Covered Loan Losses. The provision for loan losses for the six months ended March 31, 2013 was $600,000 for non-covered loans, compared to $1.8 million for non-covered loans for the six months ended March 31, 2012. Net charge-offs on non-covered loans decreased to $244,000 for the six months ended March 31, 2013, from $2.6 million for the six months ended March 31, 2012. The allowance for loan losses for non-covered loans was $8.5 million, or 1.98% of total non-covered loans receivable at March 31, 2013 compared to $8.5 million, or 1.92% of total non-covered loans receivable, at March 31, 2012. Our nonperforming loans declined to $3.1 million at March 31, 2013 from $6.9 million at March 31, 2012. As a result, our allowance as a percent of nonperforming loans increased to 276.92% at March 31, 2013 compared to 124.34% at March 31, 2012.

Provision for Covered Loan Losses. For the six months ended March 31, 2013, the provision for covered loan losses was $52,000 compared to $890,000 for the six months ended March 31, 2012. The provisions for covered loans for the six months ended March 31, 2013 primarily related to certain loans of NCB with a $43,000 provision, MCB with a $38,000 provision and FNB with a $29,000 recapture. If future losses occur due to declines in the market during the five year period covered by loss share agreements, the losses on loans acquired from both NCB and MCB will be reimbursed at 95% and FNB at 80% based on the terms of the FDIC loss sharing agreements. At March 31, 2013 covered loans totaled $140.1million, with $20.7 million in related non-accretable discounts and allowances.

Noninterest Income. Noninterest income decreased $189,000 or 2.96%, to $6.2 million for the six months ended March 31, 2013 from $6.4 million for the six months ended March 31, 2012. Discount accretion on FDIC assisted transactions declined $692,000 to $334,000 for the six months ended March 31, 2013 from $1.0 million for the six months ended March 31, 2012 due to a decline in covered loans during that same period. Gains on the sale of securities declined $413,000 to $220,000 for the six months ended March 31, 2013 from $633,000 for the six months ended March 31, 2012. Fees on checking accounts increased by $482,000 or 14.4%, due primarily to increases in network exchange fees and slight increases in NSF and other deposit service charges. Gains on loans and servicing released fees increased $388,000 as a result of higher mortgage loan production. For the six months ended March 31, 2013 we incurred no additional charges for other-than-temporary impairment of non-agency collateralized mortgage-backed securities compared to $273,000 for the six months ended March 31, 2012.

Noninterest Expense. Total noninterest expense decreased $2.1 million, or 10.6%, to $18.1 million for the six months ended March 31, 2013, compared to $20.2 million for the six months ended March 31, 2012. The decrease was primarily due to lower costs associated with other real estate owned operations in the six months ended March 31, 2013 and higher personnel and occupancy costs associated with the acquisition of FNB assets incurred in the six months ended March 31, 2012.

During the six months ended March 31, 2013, net cost of operations of other real estate owned declined by $367,000 or 26.9% to $1.0 million partially as a result of recognition of a $450,000 deferred gain on a property previously sold and gains recognized on other properties. Occupancy expense declined $573,000 or 14.2% and salaries and employee benefits declined $263,000 or 2.8% as we closed branches associated with our FDIC acquisitions. Legal and professional fees decreased $128,000 or 13.5% as we incurred lower costs associated with resolution of foreclosed real estate. Marketing expenses decreased $373,000 or 38.7% due to higher costs relating to our entry into the FNB marketplace in the six months ended March 31, 2012. The decline in FDIC insurance premiums was due to being over expensed in prior quarters and was trued up in the current quarter to account for the refund of our prepaid premiums from the FDIC we will receive in June 2013. Other expense increased $260,000 or 16.2% as a result of a write down of real estate owned by the Bank that is classified as available for sale.

Income Taxes. Income taxes increased to $1.8 million for the six months ended March 31, 2013 from $678,000 for the six months ended March 31, 2012 due to an increase in our income before provision for income taxes of $3.1 million. Our effective tax rate was 33.1% in the six months ended March 31, 2013 and 27.94% in the six months ended March 31, 2012. The increase was related to higher income before income taxes in the current period while income exempt from taxation represented a smaller percentage of net income in the current period.

Asset Quality

Delinquent Loans and Foreclosed Assets. Our policies require that management continuously monitor the status of the loan portfolio and report to the Loan Committee of the Board of Directors on a monthly basis. These reports include information on delinquent loans and foreclosed real estate, and our actions and plans to cure the delinquent status of the loans and to dispose of the foreclosed property. The Loan Committee approves action plans on all loans that are 90 days or more delinquent. The Loan Committee consists of three outside directors. One position on the committee, the chairman, is permanent, and the other two positions alternate between four outside directors.

We generally stop accruing interest income when we consider the timely collectability of interest or principal to be doubtful. We generally stop accruing for loans that are 90 days or more past due unless the loan is well secured and we determine that the ultimate collection of all principal and interest is not in doubt. When we designate loans as nonaccrual, we reverse all outstanding interest that we had previously credited. These loans remain on nonaccrual status until a regular pattern of timely payments is established.

Impaired loans are individually assessed to determine whether the carrying value exceeds the fair value of the collateral or the present value of the expected cash flows to be received. Smaller balance homogeneous loans, such as residential mortgage loans and consumer loans, are collectively evaluated for impairment.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of the related loan balance or its fair value as determined by an appraisal, less estimated costs of disposal. If the value of the property is less than the loan, less any related specific loan loss reserve allocations, the difference is charged against the allowance for loan losses. Any subsequent write-down of real estate owned or loss at the time of disposition is charged against earnings.

As of March 31, 2013, our nonperforming non-covered assets totaled $4.3 million and consisted of $2.9 million of nonaccrual loans, $171,000 of loans 90 days or more past due and still accruing loans and other real estate owned of $1.2 million. The table below sets forth the amounts and categories of our non-covered non-performing assets at the dates indicated.

	At March 31, 2013			At September 30, 2012
	(dollars in thousands)
Non-accrual loans:
One- to four-family residential real estate	$	2,039		$	2,038
Commercial real estate		670			772
Real estate construction		-			-
Commercial		179			192
Consumer and other loans		26			42
Total non-accrual loans	$	2,915		$	3,044

Loans delinquent 90 days or greater and still accruing:
One- to four-family residential real estate	$	171		$	402
Commercial real estate		-			-
Real estate construction		-			-
Commercial		-			-
Consumer and other loans		-			-
Total loans delinquent 90 days or greater and still accruing	$	171		$	402

Total non-performing loans	$	3,086		$	3,446

Real estate owned:
One- to four-family residential real estate	$	543		$	735
Commercial real estate		698			1,233
Real estate construction		-			139
Commercial		-			-
Consumer and other loans		-			-
Total real estate owned	$	1,241		$	2,107

Total non-performing assets	$	4,327		$	5,553

Ratios:
Non-performing loans as a percentage of total non-covered loans		0.72	%		0.79	%
Non-performing assets as a percentage of total non-covered assets		0.46	%		0.69	%

Non-performing assets not covered by loss share declined $1.3 million, or 22.1%, to $4.3 million at March 31, 2013 from $5.6 million at September 30, 2012. The decrease was due primarily to an $866,000 decrease in real estate owned and a $231,000 decrease in loans greater than 90 days past due and still accruing. We have 31 non-covered loans that remain non-performing at March 31, 2013, and the largest non-performing non-covered loan had a balance of $355,000 at March 31, 2013 and was secured by commercial real estate. Real estate owned decreased primarily due to the disposition of $488,000 in commercial and single family real estate owned by CharterBank as well as $447,000 in additional write downs on real estate owned.

Covered nonperforming assets decreased to $27.9 million at March 31, 2013 from $46.7 million at September 30, 2012. The purchased loans and commitments (“covered loans”) and other real estate owned (“covered other real estate”) acquired in the MCB, NCB and FNB acquisitions are covered by loss sharing agreements between the FDIC and CharterBank. Under these agreements, with respect to the NCB acquisition, the FDIC will assume 80% of losses and share 80% of loss recoveries on the first $82.0 million of losses, and assume 95% of losses and share 95% of loss recoveries on losses exceeding that amount; with respect to the MCB acquisition, the FDIC will assume 80% of losses and share 80% of loss recoveries on the first $106.0 million of losses, and assume 95% of losses and share 95% of loss recoveries on losses exceeding that amount. We have exceeded the threshold level that results in 95% loss sharing with respect to the NCB and MCB acquisitions; with respect to the FNB acquisition, the FDIC will assume 80% of all losses and share 80% of all loss recoveries.

Allowance for Loan Losses on Non-covered Loans. The allowance for loan losses on non-covered loans represents a reserve for probable loan losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans with particular emphasis on impaired, non-accruing, past due and other loans that management believes require special attention. The determination of the allowance for loan losses is considered a critical accounting policy.

Additions to the allowance for loan losses are made periodically to maintain the allowance at an appropriate level based on management’s analysis of loss inherent in the loan portfolio. The amount of the provision for loan losses is determined by an evaluation of the level of loans outstanding, loss risk as determined based on a loan grading system, the level of non-performing loans, historical loss experience, delinquency trends, the amount of losses charged to the allowance in a given period, and an assessment of economic conditions. Management believes the current allowance for loan losses is adequate based on its analysis of the estimated losses in the portfolio.

The Company maintained its allowance for loan losses for the six months ending March 31, 2013 in response to continued weak economic conditions, net charge-offs, weak financial indicators for borrowers in the real estate sectors, continuing low collateral values of commercial and residential real estate, and nonaccrual and impaired loans.

The following table sets forth activity in our allowance for loan losses for the period indicated. Loans covered by the loss sharing agreement with the FDIC are excluded from the table.

	Six Months Ended March 31, 2013
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction		Consumer and Other			Unallocated		Total

Allowance for loan losses:
Balance at beginning of period	$	879,854		$	5,480,132		$	711,594		$	287,129	$	79,627		$	751,559	$	8,189,895
Charge-offs		(98,538	)		(268,888	)		(6,733	)		-		(21,335	)		-		(395,494	)
Recoveries		58,784			64,730			20,208			6,875		786			-		151,383
Provision		118,762			236,950			(148,093	)		138,489		88,849			165,043		600,000
Balance at end of period	$	958,862		$	5,512,924		$	576,976		$	432,493	$	147,927		$	916,602	$	8,545,784

Ending balance: individually evaluated for impairment	$	-		$	-		$	-		$	-	$	-				$	-

Loans:
Ending balance	$	102,975,158		$	234,479,531		$	14,057,063		$	45,107,540	$	17,584,966				$	414,204,258

Ending balance: individually evaluated for impairment	$	2,270,897		$	11,774,029		$	2,601,927		$	-	$	-				$	16,646,853

Our allowance for loan loss methodology is a loan classification-based system. Our allowance for loan losses is segmented into the following four major categories: (1) specific reserves; (2) general allowances for Classified/Watch loans; (3) general allowances for loans with satisfactory ratings; and (4) an unallocated amount. We base the required reserve on a percentage of the loan balance for each type of loan and classification level. Loans may be classified manually and are automatically classified if they are not previously classified when they reach certain levels of delinquency. Unclassified loans are reserved at different percentages based on our loan loss history for the last two years. Reserve percentages are also adjusted based upon our estimate of the effect that the current economic environment will have on each type of loan.

Potential problem loans are non-covered loans as to which management has serious doubts as to the ability of the borrowers to comply with present repayment terms. Management classifies potential problem loans as either special mention, substandard, or loss. Potential problem loans at March 31, 2013 aggregated $48.1 million with $8.2 million classified special mention, $39.9 million classified substandard and $1,000 classified loss compared to potential problem loans at September 30, 2012 which aggregated $47.7 million with $15.9 million classified special mention and $31.8 million classified substandard.

Our largest substandard loan relationship at March 31, 2013 had a balance of $8.4 million. The loan relationship was recently strengthened by the borrower pledging additional collateral. As of March 31, 2013, the loans in this relationship were not delinquent. The loan is collateralized by income producing properties.

The allowance for loan losses represented 276.92% and 124.34% of non-performing loans at March 31, 2013 and March 31, 2012, respectively. This increase was due to lower non-performing loans in the current period. The allowance for loan losses as a percentage of non-covered loans was 1.98% and 1.92% at March 31, 2013 and March 31, 2012, respectively. Management continues to retain an unallocated allowance to maintain the overall allowance at a level reflective of continued economic uncertainties. Management reviews the adequacy of the allowance for loan losses on a continuous basis. Management considered the allowance for loan losses on non-covered loans adequate at March 31, 2013 to absorb probable losses inherent in the loan portfolio. However, adverse economic circumstances or other events, including additional loan review, future regulatory examination findings or changes in borrowers' financial conditions, could result in increased losses in the loan portfolio or in the need for increases in the allowance for loan losses.

Non-accretable Differences on Covered Loans. Through the FDIC-assisted acquisitions of the loans of NCB, MCB and FNB, we established an allowance for loan losses for non-impaired covered loans for NCB, non-accretable discounts for the acquired impaired loans for NCB, MCB and FNB, and we also established non-accretable discounts for all other loans of MCB. Collectively, these non-accretable discounts were based on estimates of future cash flows. Subsequent to the acquisition dates, we continue to assess the experience of actual cash flows compared to our estimates. When we determine that non-accretable discounts are insufficient to cover expected losses in the applicable covered loan portfolios, such non-accretable discounts are increased with a corresponding provision for covered loan losses as a charge to earnings and an increase in the applicable FDIC receivable based on loss sharing indemnification.

The following table details the non-accretable discount, including any allowance for covered loan losses, on loans covered by loss sharing by portfolio segment as of and for the six months ended March 31, 2013:

	Six Months Ended March 31, 2013
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total

Non-accretable differences: (1)
Balance at beginning of period	$	2,010,709		$	17,485,206		$	8,342,754		$	538,355		$	1,345,963		$	29,722,987
Charge-offs		(626,007	)		(3,306,727	)		(3,219,692	)		(108,483	)		(123,025	)		(7,383,934	)
Recoveries		8,368			448,628			10,051			1,000			4,239			472,286
Reduction in previous loss estimates credited to FDIC receivable		-			-			(2,500,000	)		(345,126	)		(1,880	)		(2,847,006	)
Provision (credit) for loan losses charged to FDIC receivable		127,300			327,132			589,000			-			137,751			1,181,183
(Credit) provision for loan losses charged to operations		(35,244	)		(104,793	)		196,596			536			(4,612	)		52,483
Transfer to accretable discount		-			-			(400,000	)		(86,282	)		(470	)		(486,752	)
Balance at end of period	$	1,485,126		$	14,849,446		$	3,018,709		$	-		$	1,357,966		$	20,711,247

Covered loans:
Ending contractual balance	$	12,083,935		$	134,376,958		$	9,472,023		$	-		$	4,850,181		$	160,783,097

(1) Amounts include the allowance for covered loan losses.

The total non-accretable discount and allowance for covered loans as a percentage of the ending contractual balance of acquired loans was 12.88% at March 31, 2013, compared to 14.21% at September 30, 2012. This decrease during the six month period ended March 31, 2013 was related to charge-off activity on covered loans with such losses subject to applicable loss sharing agreements with the FDIC as the Bank reduced its contractual balance on covered loans by $48.4 million during the six months ended March 31, 2013. It is expected that the ratio of non-accretable discounts to contractual covered principal outstanding will continue to trend downwards as the more significant problem loans are charged-off and submitted for loss sharing reimbursement from the FDIC. Management considered the non-accretable discounts on covered loans adequate at March 31, 2013 to absorb probable losses inherent in the covered loan portfolio.

Liquidity Management. Liquidity is the ability to meet current and future short-term financial obligations. Our primary sources of funds consist of deposit inflows, advances from the Federal Home Loan Bank, loan payments and prepayments, mortgage-backed securities and collateralized mortgage obligations repayments and maturities and sales of loans and other securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies. At March 31, 2013 and September 30, 2012, we had access to immediately available funds of approximately $437.9 million and $297.6 million, respectively, including overnight funds, FHLB borrowing capacity and a Federal Reserve line of credit. The March 31, 2013 increase in cash was due primarily to $138.6 million in deposits held for subscribers in our second-step conversion which was closed in April 2013.

We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are subject to our operating, financing, lending and investing activities during any given period. At March 31, 2013, cash and cash equivalents totaled $242.0 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $197.4 million. At March 31, 2013, we had $70.0 million in advances outstanding from the FHLB. However, based on available collateral other than cash, additional advances would be limited to $133.2 million.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.

At March 31, 2013, we had $4.0 million of loan commitments outstanding, and $39.5 million of unfunded construction and development loans. In addition to commitments to originate loans, we had $20.7 million of unused lines of credit to borrowers. Certificates of deposit due within one year of March 31, 2013 totaled $206.4 million, or 22.5% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2014. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. During the six months ended March 31, 2013, we originated $130.4 million of loans and purchased $56.5 million of securities and other investments.

Financing activities consist primarily of additions to deposit accounts and Federal Home Loan Bank advances. We experienced a net increase in total deposits of $118.7 million for the six months ended March 31, 2013, primarily from stock orders in March related to the second-step conversion that closed on April 8, 2013. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank which provides an additional source of funds. Federal Home Loan Bank advances have been used primarily to fund loan demand and to purchase securities.

Cash receipts arising from payments on covered loans and loss-sharing collections from the FDIC are providing and are expected to continue to provide positive net cash flows in periods following the wholesale funding outflows.

Capital Management and Resources. CharterBank is subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2013, CharterBank exceeded all of its regulatory capital requirements. CharterBank is considered “well capitalized” under regulatory guidelines.

											To be Well Capitalized
											Under Prompt Corrective
	Actual					For Capital Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
March 31, 2013
Total Capital (to Risk-Weighted Assets)	$	135,621		23.0	%	$	47,144		8.0	%	$	58,930		10.0	%
Tier 1 Capital (to Risk-Weighted Assets)		128,154		21.8	%		23,572		4.0	%		35,358		6.0	%
Tier 1 Capital (to Average Assets)		128,154		11.3	%		45,258		4.0	%		56,573		5.0	%

September 30, 2012
Total Capital (to Risk-Weighted Assets)	$	133,626		19.2	%	$	55,610		8.0	%	$	69,512		10.0	%
Tier 1 Capital (to Risk-Weighted Assets)		124,931		18.0	%		27,805		4.0	%		41,707		6.0	%
Tier 1 Capital (to Average Assets)		124,931		12.2	%		41,097		4.0	%		51,371		5.0	%

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the six months ended March 31, 2013, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Qualitative Aspects of Market Risk. The Company’s most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. We employ several strategies to manage the interest rate risk inherent in our mix of assets and liabilities, including:

•

selling fixed rate mortgages we originate to the secondary market, generally on a servicing released basis;

•

maintaining the diversity of our existing loan portfolio by originating commercial real estate and consumer loans, which typically have adjustable rates and/or shorter terms than residential mortgages;

•

emphasizing loans with adjustable interest rates;

•

maintaining fixed rate borrowings from the Federal Home Loan Bank of Atlanta; and

•

increasing retail transaction deposit accounts, which typically have long durations.

We have an Asset/Liability Management Committee to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Quantitative Aspects of Market Risk. We compute the amounts by which the difference between the present value of an institution’s assets and liabilities (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. Our simulation model uses a discounted cash flow analysis to measure the interest rate sensitivity of NPV. Depending on current market interest rates we historically have estimated the economic value of these assets and liabilities under the assumption that interest rates experience an instantaneous and sustained increase of 100, 200, or 300 basis points, or a decrease of 100 and 200 basis points. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. Given the current relatively low level of market interest rates, a NPV calculation for an interest rate decrease of greater than 100 basis points has not been prepared.

The table below sets forth, as of March 31, 2013, our calculation of the estimated changes in CharterBank’s net portfolio value that would result from the designated instantaneous parallel shift in the interest rate yield curve.

									NPV Ratio as a			Increase (Decrease)
									Percent of Present			in NPV Ratio as a
Change in Interest			Estimated Increase			Percentage Change			Value			Percent of Present
Rates (bp) (1)	Estimated NPV (2)		(Decrease) in NPV			in NPV			of Assets (3)(4)			Value of Assets (3)(4)
(dollars in thousands)
+300	$	223,778	$	60,831			37.3	%		19.8	%		5.3	%
+200		207,506		44,558			27.3	%		18.4	%		3.9	%
+100		188,046		25,098			15.4	%		16.7	%		2.2	%
0		162,947		-			-			14.5	%		-
-100		144,559		(18,388	)		(11.3	)%		12.8	%		(1.7	)%

(1)	Assumes an instantaneous uniform change in interest rates at all maturities.

(2)	NPV is the difference between the present value of an institution’s assets and liabilities.

(3)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)	NPV Ratio represents NPV divided by the present value of assets.

The table above indicates that at March 31, 2013, in the event of a 200 basis point increase in interest rates, we would experience a 27.3% increase in net portfolio value. In the event of a 100 basis point decrease in interest rates, we would experience an 11.3% decrease in net portfolio value. Additionally, our internal policy states that our minimum NPV of estimated present value of assets and liabilities shall range from a low of 5.5% for a 300 basis point change in rates to 7.5% for no change in interest rates.

The effects of interest rates on net portfolio value and net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in these computations. Although some assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in market interest rates. Rates on other types of assets and liabilities may lag behind changes in market interest rates. Assets, such as adjustable rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset. After a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making the calculations set forth above. Additionally, increased credit risk may result if our borrowers are unable to meet their repayment obligations as interest rates increase.

Item 4.

Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, no change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, we may be party to various legal proceedings incident to our business. At March 31, 2013, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.

Risk Factors

Risk factors that may affect future results were discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 and in the Company’s or Charter Financial’s other filings with the Securities and Exchange Commission. The risks described in our Annual Report on Form 10-K and other filings are not only the risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable

On December 14, 2012, Charter Financial Corporation filed a Registration Statement on Form S-1 with the Securities and Exchange Commission in connection with the second-step conversion of First Charter, MHC and the related offering of common stock by Charter Financial Corporation. The Registration Statement (File No. 333-185482) was declared effective by the Securities and Exchange Commission on February 11, 2013. Charter Financial Corporation registered 24,700,550 shares of common stock, par value $0.01 per share, pursuant to the Registration Statement for an aggregate offering price of $247.0 million. The stock offering commenced on February 25, 2013, and ended on April 8, 2013.

Stifel, Nicolaus & Company, Incorporated was engaged to assist in the marketing of the common stock. For its services, Stifel, Nicolaus & Company, Incorporated received a fee of $3.7 million. Stifel, Nicolaus & Company, Incorporated was also reimbursed $187,000 for its reasonable out-of-pocket expenses, inclusive of its legal fees and expenses.

The stock offering resulted in gross proceeds of $142.9 million, through the sale of 14,289,429 shares of common stock at a price of $10.00 per share. Expenses related to the offering were approximately $5.6 million, including $3.7 million paid to Stifel, Nicolaus & Company, Incorporated. Net proceeds of the offering were approximately $137.3 million.

Charter Financial Corporation contributed approximately $70.0 million of the net proceeds of the offering to CharterBank. In addition, $2.9 million of the net proceeds were used to fund the loan to the employee stock ownership plan, and approximately $64.5 million of the net proceeds were retained by Charter Financial Corporation. The net proceeds contributed to CharterBank have been invested in short term instruments and used to make loans. The net proceeds retained by Charter Financial Corporation have been deposited with CharterBank.

Not applicable

Item 6.

Exhibits.

31.1	Rule 13a-14(a)/15d-14(c) Certification of Chief Executive Officer

31.2	Rule 13a-14(a)/15d-14(c) Certification of Chief Financial Officer

32.1	Section 1350 Certifications

101

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statements of Financial Condition as of March 31, 2013 and September 30, 2012, (ii) the Unaudited Condensed Consolidated Statements of Income for three and six months ended March 31, 2013 and 2012, (iii) the Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (iv) the Unaudited Condensed Consolidated Comprehensive Income for the six months ended March 31, 2013 and the year ended September 30, 2012, (v) the Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2013 and 2012, and (vi) the Notes to the Unaudited Condensed Consolidated Financial Statements.*

*	This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CHARTER FINANCIAL CORPORATION

Date: May 10, 2013	By:	/s/Robert L. Johnson
		Robert L. Johnson
		President and Chief Executive Officer

Date: May 10, 2013	By:	/s/ Curtis R. Kollar
		Curtis R. Kollar
		Senior Vice President and Chief Financial Officer

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Charter Financial (CHFN) Inactive 10-Q2013 Q2 Quarterly report

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