UNITEDTable STATESof Contents

~~SECURITIES~~UNITED ~~AND~~STATES ~~EXCHANGE COMMISSION~~

~~Washington,~~SECURITIES ~~D.C.~~AND ~~20549~~EXCHANGE COMMISSION

~~FORM~~Washington, ~~10-K~~D.C. 20549

~~[X]~~FORM ~~ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~10-K

~~For~~x ~~the~~ANNUAL ~~fiscal~~REPORT ~~year~~PURSUANT ~~ended~~TO ~~September~~SECTION ~~30,~~13 ~~2011~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ORFor the fiscal year ended September 30, 2012

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

~~For~~¨ ~~the~~TRANSITION ~~transition~~REPORT ~~period~~PURSUANT ~~from~~TO ~~____________~~SECTION to13 ~~_____________~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission~~For ~~File~~the ~~Number:~~transition ~~001-34889~~period from to

~~CHARTER~~Commission ~~FINANCIAL~~File ~~CORPORATION~~Number: 001-34889

~~(Exact~~CHARTER ~~name~~FINANCIAL ofCORPORATION ~~registrant as specified in its charter)~~

United States		58-2659667
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

(Exact name of registrant as specified in its charter)

United States		58-2659667
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1233 O. G. Skinner Drive, West Point, Georgia		31833
(Address of principal executive offices)		(Zip Code)

(706) 645-1391

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01 per share		The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ~~[ ]~~ ¨ No ~~[X]~~x

Indicate by check mark ifwhether the registrant is(1) has ~~not~~filed ~~required~~all ~~to file~~ reports ~~pursuant~~required to ~~Section~~be 13filed orby 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 filing 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ~~[ ]~~ x No ~~[X]~~¨

Indicate by check mark ~~whether~~if ~~the~~disclosure ~~registrant~~of ~~(1)~~delinquent ~~has~~filers ~~filed~~pursuant ~~all~~to ~~reports~~Item 405 ~~required~~of toRegulation beS-K ~~filed~~is bynot ~~Section~~contained herein, 13and orwill ~~15(d)~~not ofbe ~~the~~contained, ~~Securities~~to ~~Exchange~~the ~~Act~~best of ~~1934~~the ~~during~~registrant’s ~~the~~knowledge, ~~preceding~~in 12definitive ~~months~~proxy (or ~~for~~information ~~such~~statements ~~shorter~~incorporated ~~period~~by ~~that~~reference ~~the~~in ~~registrant~~Part ~~was~~III ~~required~~of tothis ~~file~~Form ~~such~~10-K ~~reports),~~or ~~and~~any ~~(2)~~amendment ~~has been subject~~ to ~~such~~this ~~filing~~Form ~~requirements for the past 90 days~~10-K. ~~Yes [X ] No [~~x ]

Indicate by check mark whether the registrant ~~has~~is ~~submitted~~a ~~electronically~~large ~~and~~accelerated ~~posted~~filer, onan ~~its~~accelerated ~~corporate Web site~~filer, ifa ~~any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S~~non-Taccelerated (§filer, ~~232.405 of this chapter) during the preceding 12 months (~~or ~~for~~a ~~such~~smaller ~~shorter~~reporting ~~period that the registrant was required to submit and post such files)~~company. ~~Yes [X ] No [ ]~~

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~¨ ifAccelerated ~~disclosure~~filer of¨ ~~delinquent filers pursuant to Item 405 of Regulation S~~Non-Kaccelerated isfiler ~~not~~¨ ~~contained~~Smaller ~~herein,~~reporting ~~and~~company will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]x

Indicate by check mark whether the registrant is a ~~large~~shell ~~accelerated~~company ~~filer,~~(as andefined ~~accelerated~~by ~~filer, a non~~Rule 12b-~~accelerated~~2 ~~filer,~~of orthe ~~a smaller reporting company~~Act). Yes ¨ No x

~~Large~~The ~~accelerated~~aggregate ~~filer~~market [value ]of ~~Accelerated~~the ~~filer~~voting [and ~~] Non~~non-~~accelerated~~voting ~~filer~~common [equity ]held ~~Smaller~~by ~~reporting~~nonaffiliates ~~company~~as ~~[X]~~of March 31, 2012 was approximately $56,099,771.

~~Indicate~~The bynumber ~~check~~of ~~mark~~shares ~~whether~~outstanding of the registrant’s iscommon astock ~~shell company (~~as ~~defined by Rule 12b-2~~ of ~~the~~December 7, ~~Act)~~2012 was 18,277,540. ~~Yes [ ] No [X]~~

~~The~~DOCUMENTS ~~aggregate~~INCORPORATED ~~market~~BY ~~value~~REFERENCE: ~~of the voting and non-voting common equity held by nonaffiliates as of March 31, 2011 was approximately~~

~~$67~~Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on February 20,~~390,646~~ 2013 are incorporated by reference into Part III of this Form 10-K.

TheTable number of shares outstanding of the registrant’s common stock as of December 7, 2011 was 18,487,863.Contents

~~DOCUMENTS~~INDEX ~~INCORPORATED BY REFERENCE:~~

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on February 22, 2012 are incorporated by reference into Part III of this Form 10-K.


Part I

		Page
Item 1.	Business		2
Item 1A.	Risk Factors		20
Item 1B.	Unresolved Staff Comments		30
Item 2.	Properties		30
Item 3.	Legal Proceedings		31
Item 4.	Mine Safety Disclosures

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		32
Item 6.	Selected Financial Data		34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		79
Item 8.	Financial Statements and Supplementary Data		80
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		159
Item 9A.	Controls and Procedures		159
Item 9B.	Other Information		160

Part III

Item 10.	Directors, Executive Officers and Corporate Governance		161
Item 11.	Executive Compensation		161
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		161
Item 13.	Certain Relationships and Related Transactions, and Director Independence		162
Item 14.	Principal Accounting Fees and Services		162

Part IV

Item 15.	Exhibits and Financial Statement Schedules		163

SIGNATURES			167

INDEXTable of Contents

Part I
		Page
Item 1.	Business	2
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	24
Item 4.	[Removed and Reserved.]
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 8.	Financial Statements and Supplementary Data	69
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	150
Item 9A.	Controls and Procedures	150
Item 9B.	Other Information	150
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	151
Item 11.	Executive Compensation	151
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	151
Item 13.	Certain Relationships and Related Transactions, and Director Independence	152
Item 14.	Principal Accounting Fees and Services	152
Part IV
Item 15.	Exhibits and Financial Statement Schedules	153
SIGNATURES		155

Cautionary Note About Forward-Looking Statements

~~Cautionary~~We ~~Note~~have ~~About~~included or incorporated by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-~~Looking~~looking ~~Statements~~statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, as well as statements about the objectives and effectiveness of our risk management and liquidity policies, statements about trends in or growth opportunities for our businesses, statements about our future status, and activities or reporting under U.S. banking and financial regulation. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed below and under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

WePART have included or incorporated by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, as well as statements about the objectives and effectiveness of our risk management and liquidity policies, statements about trends in or growth opportunities for our businesses, statements about our future status, and activities or reporting under U.S. banking and financial regulation. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed below and under “Risk Factors” in Part I, ~~Item 1A of this Annual Report on Form 10-K.~~

~~PART~~Item I1. BUSINESS

~~Item~~General ~~1. BUSINESS~~

~~General~~Charter Financial Corporation, or “Charter Financial,” is a federally chartered corporation established in October 2001 to be the holding company for CharterBank. Charter Financial’s business activity is the ownership of the outstanding capital stock of CharterBank.

~~Charter~~CharterBank ~~Financial~~is ~~Corporation,~~a orfederally ~~“Charter~~chartered ~~Financial~~stock savings bank headquartered in West Point,” isGeorgia. CharterBank was originally founded in 1954 as a federally chartered ~~corporation~~mutual ~~established~~savings and loan association. Our principal business consists of attracting retail deposits from the general public in ~~October~~the ~~2001~~areas tosurrounding beour administrative office in West Point, Georgia and our branch offices located in west-central Georgia, east-central Alabama and now the Florida ~~holding~~Panhandle, ~~company~~and ~~for~~investing ~~CharterBank.~~those ~~Charter~~deposits, ~~Financial’s~~together with funds generated from operations, in commercial real estate loans, one- to four-family residential mortgage loans, construction loans and investment securities and, to a lesser extent, commercial business ~~activity~~loans, home equity loans and lines of credit and other consumer loans. In addition to our branch offices in West Central Georgia, East Central Alabama and the Florida Panhandle, we operate a cashless branch office in Norcross, Georgia. CharterBank is subject to comprehensive regulation and examination by the ~~ownership~~Office of the ~~outstanding~~Comptroller ~~capital~~of ~~stock~~the ofCurrency. CharterBank’s executive offices are located at 1233 O.G. Skinner Dr., West Point, Georgia 31833. Its telephone number at that address is (706) 645-1391.

CharterBank ishas agrown ~~federally~~through ~~chartered~~strategic ~~stock~~de ~~savings~~novo ~~bank~~branching ~~headquartered~~and inacquisitions ~~West~~primarily, along ~~Point~~the I-85/I-185 corridor and adjacent areas anchored by Auburn, Alabama and Atlanta and Columbus, Georgia. ~~CharterBank~~In ~~was~~February ~~originally~~2003, ~~founded~~we expanded our presence in ~~1954~~the asAuburn-Opelika, aAlabama ~~federally~~market ~~chartered~~through ~~mutual~~the ~~savings~~acquisition ~~and~~of ~~loan~~EBA ~~association.~~Bancshares ~~Our~~and ~~principal~~its subsidiary, ~~business~~Eagle ~~consists~~Bank of ~~attracting~~Alabama. ~~retail~~In ~~deposits~~March ~~from~~2005 ~~the~~and ~~general~~May ~~public~~2007, new branches were opened in Lagrange, Georgia. In June 2009, we entered into an agreement with the ~~areas~~Federal ~~surrounding~~Deposit ~~our~~Insurance ~~administrative~~Corporation ~~office~~(“FDIC”) into ~~West~~acquire ~~Point,~~certain ~~Georgia~~assets and assume ~~our~~all ~~branch~~of ~~offices~~the ~~located~~deposits inof ~~west-central~~Neighborhood ~~Georgia~~Community Bank, ~~east~~or “NCB”, a full-~~central~~service ~~Alabama~~commercial ~~and~~bank ~~now~~headquartered ~~the~~in ~~Florida~~Newnan, ~~Panhandle~~Georgia, and ~~investing~~in ~~those~~March ~~deposits~~2010, ~~together~~we entered into an agreement with ~~funds~~the ~~generated~~FDIC ~~from~~to ~~operations,~~acquire incertain ~~investment~~assets ~~securities,~~and ~~commercial~~assume ~~real~~all ~~estate~~of the ~~loans~~deposits of McIntosh Commercial Bank, ~~one-~~or to“MCB”, ~~four~~a full-~~family~~service ~~residential~~commercial ~~mortgage~~bank ~~loans~~headquartered in Carrollton, ~~construction~~Georgia. ~~loans~~In ~~and~~September 2011, we entered into an agreement with the FDIC to aacquire ~~lesser~~certain ~~extent~~assets and assume all of the deposits of The First National Bank of Florida, or “FNB”, a full-service commercial ~~business~~bank ~~loans~~headquartered in Milton, ~~home~~Florida. ~~equity~~The ~~loans~~agreements ~~and~~with ~~lines~~the FDIC in connection with the acquisitions of ~~credit~~NCB, MCB and ~~other~~FNB ~~consumer~~also included loss-sharing agreements with respect to certain loans and assets. In ~~addition~~For toadditional ~~our branch~~information ~~offices~~regarding inthe ~~West~~NCB, ~~Central~~MCB ~~Georgia~~and FNB acquisitions, ~~East~~see ~~Central~~“—FDIC-Assisted ~~Alabama~~Acquisitions” below and ~~the~~“Management’s ~~Florida~~Discussion ~~Panhandle,~~and weAnalysis ~~operate~~of aFinancial ~~cashless~~Condition ~~branch~~and Results ~~office~~of inOperations—FDIC-Assisted ~~Norcross, Georgia~~Acquisitions.”

~~CharterBank~~2 has grown through strategic de novo branching and acquisitions primarily, along the I-85/I-185 corridor and adjacent areas anchored by Auburn, Alabama and Atlanta and Columbus, Georgia. In February 2003, we expanded our presence in the Auburn-Opelika, Alabama market through the acquisition of Eagle Bank of Alabama. In March 2005 and May 2007, new branches were opened in Lagrange, Georgia. In June 2009, we entered into an agreement with the Federal Deposit Insurance Corporation (“FDIC”) to acquire certain assets and assume all of the deposits of Neighborhood Community Bank, or “NCB”, a full-service commercial bank headquartered in Newnan, Georgia, and in March 2010, we entered into an agreement with the FDIC to acquire certain assets and assume all of the deposits of McIntosh Commercial Bank, or “MCB”, a full-service commercial bank headquartered in Carrollton, Georgia. In September 2011, we entered into an agreement with the FDIC to acquire certain assets and assume all of the deposits of The First National Bank of Florida, or “FNB”, a full-service commercial bank headquartered in Milton, Florida. The agreements with the FDIC in connection with the acquisitions of NCB, MCB and FNB also included loss-sharing agreements with respect to certain loans and assets. For additional information regarding the NCB, MCB and FNB acquisitions, see “—Recent FDIC-Assisted Acquisitions” below and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent FDIC-Assisted Acquisitions.”

FirstTable Charter, MHC is our federally chartered mutual holding company. First Charter, MHC’s principal business activity is the ownership of 11,457,924 shares of common stock of Charter Financial, or approximately 61% of Charter Financial’s outstanding shares as of December 15, 2011. As long as we remain in the mutual holding company form of organization, First Charter, MHC must own a majority of the outstanding shares of Charter Financial.Contents

2First Charter, MHC is our federally chartered mutual holding company. First Charter, MHC’s principal business activity is the ownership of 11,457,924 shares of common stock of Charter Financial, or approximately 63% of Charter Financial’s outstanding shares as of December 7, 2012. As long as we remain in the mutual holding company form of organization, First Charter, MHC must own a majority of the outstanding shares of Charter Financial.

The Charter Foundation, Inc. (“Charter Foundation”), a nonprofit charitable foundation, was established ~~by CharterBank~~ in December 1994 by members of CharterBank. ~~The~~ Charter Foundation provides funds to eligible nonprofit organizations to help them carry out unique, innovative projects in specific fields of interest. ~~The~~Charter Foundation’s goal is to fund projects that will enhance the quality of life in the communities weserved ~~serve~~by CharterBank.

~~Our~~Charter ~~Internet~~Foundation ~~address~~at isSeptember 30, ~~www~~2012 had approximately $7.~~charterbank.~~0 million in assets and annually distributes 5% of its net asset value in grants to the local community. ~~Information~~ onThe ~~our~~grants ~~website~~and ~~should~~gifts ~~not~~provided beby ~~considered~~Charter aFoundation ~~part~~are generally for charitable causes, and to enhance the quality of ~~this~~life ~~Annual~~and ~~Report~~housing onin CharterBank’s ~~Form~~markets. ~~10-K~~CharterBank indirectly benefits from the favorable publicity and elevated public standing generated through Charter Foundation’s gifts.

~~Market~~Our ~~Area~~Internet address is www.charterbank.net. Information on our website should not be considered a part of this Annual Report on Form 10-K.

~~Prior~~Market toArea acquiring branch offices of NCB, MCB and FNB, we conducted operations primarily in western Georgia and eastern Alabama, through our main office in West Point, Georgia (Troup County), a branch in Valley, Alabama (Chambers County), three branches in LaGrange, Georgia (Troup County), a branch in Opelika, Alabama (Lee County), and two branch offices in Auburn, Alabama (Lee County), for a total of 10 branch offices. We acquired four branches in Georgia, along the I-85 corridor, in the NCB acquisition in June 2009, and closed one branch. In March 2010, we acquired four branches of MCB and closed one branch, further expanding our presence in west-central Georgia. In September 2011, we acquired eight branches of FNB and in October 2011 closed four of these branches in Northwest Florida. The acquisitions have complemented the corporate expansion we have achieved in recent years both through de novo branching and acquisitions. Management believes that the acquisitions are key components to building our retail franchise, as we now have 14 branches on the I-85 corridor and adjacent areas between Newnan, Georgia and Auburn, Alabama, and four branches in the Florida Panhandle. The focus of our near-term acquisition strategy will be to acquire additional franchises primarily with FDIC assistance.

~~The~~Prior ~~economy~~to acquiring branch offices of NCB, MCB and FNB, we conducted operations primarily in western Georgia and eastern Alabama, through our ~~market~~main ~~area~~office ~~historically~~in ~~has~~West ~~been~~Point, ~~supported~~Georgia by(Troup ~~the~~County), ~~textile~~a ~~industry.~~branch ~~During~~in ~~the~~Valley, ~~1980’s~~Alabama (Chambers County), three branches in LaGrange, Georgia (Troup County), a branch in Opelika, Alabama (Lee County), and ~~1990’s~~two branch offices in Auburn, ~~employment~~Alabama ~~growth~~(Lee County), for a total of eight branch offices. We acquired four branches in ~~local~~Georgia, ~~telecommunications~~along ~~companies~~the ~~partially~~I-85 ~~offset~~corridor, ~~declining~~in ~~textile~~the ~~industry~~NCB ~~jobs~~acquisition in June 2009, and closed one branch. In March 2010, we acquired four branches of MCB and subsequently closed three of these branches, further expanding our ~~market~~presence ~~area~~in west-central Georgia with an office in Carrollton (Carroll County). ~~Textile~~In ~~industry~~September ~~employment~~2011, ~~continues~~we toacquired ~~decline~~eight branches of FNB and we subsequently closed five of these branches in Northwest Florida. We kept two branches located in Santa Rosa County and one branch in Escambia County. The ~~median~~acquisitions ~~household~~have ~~income~~complemented the corporate expansion we have achieved in recent years both through de novo branching and acquisitions. Management believes that the acquisitions are key components to building our ~~market~~retail ~~area~~franchise, isas ~~below~~we ~~national~~now have 16 branches on the I-85 corridor and adjacent areas between Newnan, Georgia ~~levels~~and Auburn, Alabama, and in the Florida Panhandle. The focus of our near-term acquisition strategy will be to acquire additional franchises primarily with FDIC assistance.

~~The~~According ~~outlook~~to ~~for~~the ~~our~~2010 ~~market~~U.S. ~~area~~Census, ispopulation ~~for modest growth supported by a new KIA Motors assembly plant~~ in ~~West~~our ~~Point,~~ Georgia ~~and~~market aarea ~~military base realignment which~~ has ~~added~~increased ~~significantly~~from 2000 to ~~employment~~2010, atwith ~~Fort~~growth ~~Benning~~rates inof ~~Columbus~~26.7%, ~~Georgia~~42. ~~However~~7%, ~~the~~16.8%, ~~market~~35.2% ~~area~~and is14.4% ~~significantly~~for ~~overbanked~~Carroll, ~~especially~~Coweta, ~~Newnan~~Fayette, Harris, and ~~Coweta~~Troup ~~County~~Counties, respectively. ~~This~~ ~~has~~As ~~limited~~of ~~our~~2010, ~~ability~~the toGeorgia ~~expand~~market ~~organically,~~area’s ~~thus~~median ~~making~~household ~~geographic~~income ~~expansion~~of ~~more~~$55,342 ~~dependent~~was ~~upon~~above ~~acquisitions~~both ~~and~~the denational ~~novo~~and ~~branching~~state ~~into new markets~~levels. We ~~will~~Consistent ~~seek~~with tonational ~~take~~trends, ~~advantage of~~ the ~~profitable~~Georgia ~~growth opportunities presented within our expanded~~ market area, ~~and~~unemployment ~~capitalize~~in on2012 ~~our~~decreased from ~~expanded~~2011 ~~retail~~levels. ~~footprint~~As ~~resulting~~of ~~from~~October ~~acquisitions. The~~2012, ~~outlook~~the unemployment rate for ~~our~~Carroll, ~~Florida~~Coweta, ~~Panhandle~~Fayette, ~~market~~Harris, isand ~~stable~~Troup ~~due~~Counties towas ~~the~~8.9%, ~~heavy~~7.5%, ~~influences~~7.1%, of6.4% ~~military~~and ~~bases~~9.3%, respectively.

~~Upon~~According to the ~~acquisition~~2010 ofU.S. ~~FNB~~Census, wefrom ~~reopened~~2000 8to ~~branches~~2010, inour ~~the~~Alabama ~~Florida~~market ~~Panhandle~~area ~~under~~population ~~the~~decreased ~~CharterBank~~in ~~brand. Specifically,~~Chambers 4County ~~branches~~by ~~are~~6.5% ~~located~~while increasing in ~~Santa~~Lee ~~Rosa~~ County, 3by ~~branches~~21.9% ~~in Escambia County,~~ and 1our ~~branch~~median inhousehold ~~Okaloosa~~income ~~County. The economy~~ of $34,964 ~~the~~was ~~Florida~~below ~~Panhandle~~both isthe ~~primarily~~national ~~dependent upon tourism~~ and ~~hospitality,~~Alabama ~~farming,~~state ~~forestry,~~levels ~~paper~~as ~~mills,~~of ~~import/export shipping, shipbuilding, and commercial fishing~~2010. ~~Unemployment~~ ~~rates~~Our inAlabama ~~our~~market ~~Florida~~area ~~Panhandle~~has ~~markets~~seen ~~remain~~its ~~below~~unemployment ~~the~~rate ~~inflated~~in ~~statewide~~2012 ~~average. The~~decrease ~~median~~from ~~household~~2011 ~~income~~ levels, inwith the ~~majority~~Chambers ofCounty ~~our~~and ~~Florida~~Lee ~~markets~~County ~~are~~unemployment ~~above~~rate ~~statewide~~at ~~levels but below national levels~~9. ~~Over~~4% ~~the~~and ~~next five years~~6.7%, respectively, ~~our~~as ~~Florida markets are projected to experience moderate growth in terms~~ of ~~total~~October ~~population and number of households~~2012.

~~Competition~~In our Florida market area, population increased 28.6% and 1.1% for Santa Rosa County and Escambia County, respectively, from 2000 to 2010 according to the 2010 U.S. Census. Median household income in our

We3 face intense competition both in making loans and attracting deposits. West-central Georgia, east-central Alabama and the Florida Panhandle have a high concentration of financial institutions, many of which are branches of large money center, super-regional, and regional banks that have resulted from the consolidation of the banking industry in Florida, Alabama, and Georgia. Many of these competitors have greater resources than we do and may offer services that we do not provide.

3Table of Contents

~~Our~~ Florida ~~competition~~market area for ~~loans~~2010 ~~comes~~was ~~from commercial banks~~$46, ~~savings institutions~~000, ~~mortgage~~which ~~banking~~was ~~firms,~~below ~~credit~~the ~~unions,~~national ~~finance~~level ~~companies,~~but ~~credit~~above ~~card~~the ~~banks,~~Florida ~~insurance companies, and brokerage and investment banking firms~~level. Our ~~most~~Florida ~~direct~~market ~~competition~~area ~~for deposits historically~~ has ~~come~~seen ~~from~~its ~~commercial~~unemployment ~~banks,~~rate ~~savings~~in ~~banks,~~2012 ~~savings~~decrease ~~and~~from ~~loan~~2011 ~~associations~~levels, with ~~credit~~the ~~unions,~~Santa ~~and~~Rosa ~~mutual funds. We face additional competition for deposits from short-term money market funds~~ and ~~other~~Escambia ~~corporate~~County ~~and~~unemployment ~~government~~rate ~~securities~~at ~~funds~~7.0% and ~~from~~8.1%, ~~brokerage~~respectively, ~~firms~~as ~~and~~of ~~insurance~~October ~~companies~~2012.

~~FDIC~~The outlook for our market area is for modest growth supported by a $1.0 billion KIA Motors assembly plant, which opened in February 2010 in West Point, Georgia. As of November 2012, the 2.2 million square-~~Assisted~~foot ~~Acquisitions~~automobile manufacturing plant and its nearby suppliers have created more than 10,000 jobs in the area. The outlook for modest growth is also supported by a military base realignment which has added significantly to employment at Fort Benning in Columbus, Georgia. Additionally, in the spring of 2012, Point University, formerly known as Atlanta Christian College, moved their main campus from East Point, Georgia to West Point, Georgia, and with it, its students and numerous facility and staff. However, the market area is significantly overbanked, especially Newnan and Coweta County. This has limited our ability to expand organically, thus making geographic expansion more dependent upon acquisitions and de novo branching into new markets. We will seek to take advantage of the profitable growth opportunities presented within our expanded market area, and capitalize on our expanded retail footprint resulting from acquisitions. The economy of the Florida Panhandle is primarily dependent upon tourism and hospitality, farming, forestry, paper mills, import/export shipping, shipbuilding, and commercial fishing. Over the next five years, our Florida markets are projected to experience moderate growth in terms of total population and number of households. The outlook for our Florida Panhandle market is affected by the heavy influences of military bases and tourism.

~~Neighborhood~~Competition Community Bank. On June 26, 2009, CharterBank entered into a purchase and assumption agreement with the FDIC to acquire certain assets and assume certain liabilities of NCB, a full-service commercial bank headquartered in Newnan, Georgia. We assumed $195.3 million of NCB’s liabilities, including $181.3 million of deposits, with no deposit premium paid. We also acquired $202.8 million of NCB assets, including $159.9 million of loans, net of unearned income, and $17.7 million of real estate owned, at a discount to book value of $26.9 million. The acquisition agreement with the FDIC included loss-sharing agreements pursuant to which the FDIC will assume 80% of losses and share 80% of loss recoveries on the first $82 million of losses on acquired loans and real estate owned, and assume 95% of losses and share 95% of loss recoveries on losses exceeding $82 million. Loans and other real estate owned that are covered under the loss-sharing agreements are referred to in this Annual Report on Form 10-K as “covered loans” and “covered other real estate,” respectively. Collectively, these are referred to as “covered assets.” Loans, other real estate and assets that are not covered by loss-sharing agreements are referred to as “non-covered” loans, other real estate and assets.

ItWe isface ~~expected~~intense ~~that~~competition weboth ~~will~~in ~~have~~making ~~sufficient~~loans ~~nonaccretable discounts~~ and ~~allowances~~attracting ~~for~~deposits. ~~loan~~West-central ~~losses~~Georgia, toeast-central ~~cover~~Alabama ~~any~~and ~~losses on~~ the ~~NCB~~Florida Panhandle ~~covered~~have ~~loans~~a ~~and~~high ~~covered~~concentration ~~other~~of ~~real~~financial ~~estate.~~institutions, ~~Given~~many ~~the~~of ~~foregoing~~which ~~and~~are asbranches aof ~~result~~large ofmoney ~~the~~center, ~~loss~~super-~~sharing~~regional, ~~agreements~~and ~~with~~regional ~~the~~banks ~~FDIC~~that onhave ~~these~~resulted ~~assets,~~from wethe doconsolidation ~~not~~of ~~expect~~the tobanking ~~incur~~industry ~~significant~~in ~~losses. In~~Florida, ~~addition~~Alabama, weand ~~expect~~Georgia. Many toof these competitors have ~~accretable~~greater ~~discounts~~resources tothan ~~provide~~we ~~for~~do ~~market~~and ~~yields~~may onoffer ~~the~~services ~~NCB~~that ~~covered~~we ~~loans~~do not provide.

~~McIntosh~~Our ~~Commercial~~competition for ~~Bank. On~~loans ~~March~~comes ~~26,~~from ~~2010~~commercial banks, ~~CharterBank~~savings ~~entered~~institutions, ~~into~~mortgage anbanking ~~acquisition~~firms, ~~agreement~~credit ~~with~~unions, ~~the~~finance ~~FDIC~~companies, tocredit ~~acquire~~card ~~certain~~banks, ~~assets~~insurance ~~and assume certain liabilities of MCB~~companies, aand ~~full-service~~brokerage ~~commercial~~and ~~bank~~investment ~~headquartered~~banking ~~in Carrollton, Georgia~~firms. We ~~assumed~~Our ~~$306.2~~most ~~million~~direct ofcompetition ~~MCB’s~~for ~~liabilities,~~deposits historically ~~including~~has ~~$295.3~~come ~~million~~from ofcommercial ~~deposits~~banks, ~~with~~savings ~~no deposit premium paid. We also acquired $322.6 million of MCB assets~~banks, ~~including~~savings ~~$207.6~~and ~~million~~loan ~~of loans~~associations, ~~net~~credit ~~of unearned income~~unions, and ~~$55.3~~mutual ~~million of real estate owned, at a discount to book value of $53~~funds.0 ~~million. The~~We ~~purchase~~face ~~and~~additional ~~assumption~~competition ~~agreement~~for ~~with~~deposits ~~the~~from ~~FDIC included loss~~short-~~sharing~~term ~~agreements~~money ~~pursuant~~market tofunds ~~which the FDIC will assume 80% of losses~~ and ~~share~~other ~~80%~~corporate ~~of loss recoveries on the first $106 million of losses on acquired loans~~ and ~~real~~government ~~estate owned~~securities funds, ~~and~~from ~~assume~~brokerage ~~95%~~firms, ofinsurance ~~losses~~companies and ~~share~~non-traditional ~~95%~~financial ofinstitutions, ~~loss~~including ~~recoveries~~non-depository onfinancial ~~losses~~services ~~exceeding $106 million~~providers.

~~We recorded in noninterest income approximately $9.3 million in pre~~FDIC-~~tax~~Assisted ~~acquisition~~Acquisitions gain, or negative goodwill, in connection with the MCB transaction, which represents the excess of the estimated fair value of the assets acquired over the fair value of the liabilities assumed. In addition, it is expected that we will have sufficient credit risk related (nonaccretable) discounts to cover any losses on the MCB covered loans and covered other real estate. We have recorded a FDIC receivable for expected losses to be indemnified and nonaccretable credit discounts for such amounts. It is also expected that we will have accretable discounts to provide for market yields on the MCB covered loans.

~~The~~Neighborhood ~~First~~Community ~~National~~ Bank ~~of Florida~~. On ~~September 9~~On June 26, ~~2011~~2009, CharterBank entered into ana ~~acquisition~~purchase and assumption agreement with the FDIC to acquire certain assets and assume certain liabilities of ~~FNB~~ NCB, a full-service commercial bank headquartered in ~~Milton~~Newnan, ~~Florida~~Georgia. The NCB acquisition extended our retail branch footprint as part of our efforts to increase our retail deposits and reduce our reliance on brokered deposits and borrowings as a significant source of funds. The acquisition of NCB’s four full-service branches, one of which has been closed, has expanded our market presence in west-central Georgia within the I-85 corridor region in which we are seeking to expand. We assumed $~~247~~195.53 million of ~~FNB~~NCB’s liabilities, including $~~244~~181.73 million of deposits, with no deposit premium paid. We also acquired $~~251~~202.8 million of ~~FNB~~NCB assets, including $~~185~~159.9 million of loans, net of unearned income, and $2417.97 million of real estate owned, at a discount to book value of $1026.69 million. The ~~purchase~~acquisition ~~and assumption~~ agreement with the FDIC included loss-sharing agreements pursuant to which the FDIC will assume 80% of losses and share 80% of loss recoveries on the first $82.0 million of losses on acquired loans and real estate owned, and assume 95% of losses and share 95% of loss recoveries on losses exceeding $82.0 million. Loans and other real estate owned that are covered under the loss-sharing agreements are referred to in this annual report on Form 10-K as “covered loans” and “covered other real estate,” respectively. Collectively, these are referred to as “covered assets.” Loans, other real estate and assets that are not covered by loss-sharing agreements are referred to as “non-covered” loans, other real estate and assets.

We4 recorded in noninterest income approximately $1.1 million in pre-tax acquisition gain, or negative goodwill, in connection with the FNB transaction, which represents the excess of the estimated fair value of the assets acquired over the fair value of the liabilities assumed. In addition, it is expected that we will have sufficient credit risk related (nonaccretable) discounts to cover any losses on the FNB covered loans and covered other real estate. We have recorded a FDIC receivable for expected losses to be indemnified and nonaccretable credit discounts for such amounts. It is also expected that we will have accretable discounts to provide for market yields on the FNB covered loans.

4Table of Contents

~~For~~It ~~more~~is ~~information~~expected ~~regarding~~that ~~CharterBank’s~~we ~~FDIC-assisted~~will ~~acquisitions~~have sufficient nonaccretable discounts and allowance for loan losses, ~~see~~after ~~“Management’s~~recording ~~Discussion~~the current year provisions, to cover any losses on the NCB covered loans and ~~Analysis~~covered ofother ~~Financial~~real ~~Condition~~estate. Given the foregoing and ~~Results~~as a result of ~~Operations—FDIC~~the loss-~~Assisted~~sharing ~~Acquisitions~~agreements with the FDIC on these assets, we do not expect to incur significant losses.” In addition, we expect to have accretable discounts (accretable yield) to provide for market yields on the NCB covered loans.

~~Lending~~McIntosh ~~Activities~~Commercial Bank. On March 26, 2010, CharterBank entered into an acquisition agreement with the FDIC to acquire certain assets and assume certain liabilities of MCB, a full-service commercial bank headquartered in Carrollton, Georgia. The MCB acquisition extended our retail branch footprint as part of our efforts to increase our retail deposits and reduce our reliance on brokered deposits and borrowings as a significant source of our funds. The retention of one of MCB’s four full-service branches has expanded our market presence in west-central Georgia within the I-85 corridor region and adjacent areas in which we are seeking to expand. We assumed $306.2 million of MCB’s liabilities, including $295.3 million of deposits, with no deposit premium paid. We also acquired $322.6 million of MCB assets, including $207.6 million of loans, net of unearned income, and $55.3 million of real estate owned, at a discount to book value of $53.0 million. The purchase and assumption agreement with the FDIC included loss-sharing agreements pursuant to which the FDIC will assume 80% of losses and share 80% of loss recoveries on the first $106.0 million of losses on acquired loans and real estate owned, and assume 95% of losses and share 95% of loss recoveries on losses exceeding $106.0 million.

We ~~offer~~recorded ain ~~broad~~noninterest ~~range~~income ofapproximately ~~loan~~$9.3 ~~products~~million ~~with~~in a ~~variety~~pre-tax ofbargain ~~rates~~purchase ~~and~~gain ~~terms. Our~~in ~~lending~~connection ~~operations~~with ~~consist~~the MCB transaction, which represents the excess of the ~~following~~estimated ~~major~~fair ~~segments:~~value ~~commercial~~of ~~real~~the assets ~~estate~~acquired ~~lending;~~over ~~single-family~~the ~~residential~~fair ~~mortgage~~value ~~lending~~of ~~for~~the ~~retention~~liabilities inassumed. ~~our~~In ~~portfolio;~~addition, ~~construction~~it ~~lending;~~is ~~and~~expected ~~residential~~that ~~mortgage~~we ~~lending~~will ~~for~~have ~~resale~~sufficient innonaccretable discounts, after recording the ~~secondary~~current ~~mortgage~~year ~~market~~provisions, ~~generally~~to cover any losses on athe ~~servicing-released~~MCB ~~basis. To~~covered aloans ~~lesser~~and ~~extent,~~covered other wereal ~~also~~estate. ~~originate~~We ~~consumer~~have ~~loans~~recorded ~~(including~~a ~~home~~FDIC ~~equity~~receivable ~~loans~~for ~~and~~expected ~~other~~losses ~~forms~~to ofbe ~~consumer~~indemnified ~~installment~~and nonaccretable covered loan credit), ~~and~~discounts ~~commercial~~for ~~business~~such ~~loans~~amounts. ~~This~~ ~~strategy~~It is ~~consistent~~also ~~with~~expected ~~our~~that ~~community~~we ~~bank~~will ~~orientation~~have accretable discounts to provide for market yields on the MCB covered loans.

WeThe ~~have~~First ~~pursued~~National ~~loan~~Bank ~~diversification~~of Florida. On September 9, 2011, CharterBank entered into an acquisition agreement with the ~~objective~~FDIC to acquire certain assets and assume certain liabilities of ~~lowering~~FNB, ~~credit~~a ~~concentration~~full-service ~~risk~~commercial bank headquartered in Milton, ~~enhancing~~Florida. ~~yields~~The FNB acquisition extended our retail branch footprint as part of our efforts to increase our retail deposits and ~~earnings,~~reduce our reliance on brokered deposits and ~~improving~~borrowings ~~the~~as ~~interest~~a ~~sensitivity~~significant source of our ~~assets~~funds. ~~Historically,~~ weThe ~~have~~retention ~~focused~~of three of FNB’s eight full-service branches has expanded our ~~lending~~market ~~activities~~presence onin ~~residential~~the Florida Panhandle and ~~commercial~~adjacent ~~mortgage~~areas ~~loans~~in aswhich ~~well~~we asare ~~consumer~~seeking ~~loans~~to expand. We assumed $247.5 million of FNB’s liabilities, ~~primarily~~including to$244.7 ~~local~~million ~~customers~~of deposits, with no deposit premium paid. We also ~~have~~acquired ~~initiated~~$251.8 ~~retail~~million of FNB assets, including $185.9 million of loans, net of unearned income, and ~~commercial~~$24.9 ~~business~~million ~~lending~~of inreal estate owned, at a discount to book value of $28.0 million. The purchase and assumption agreement with the ~~markets~~FDIC ~~formerly~~included ~~served~~loss-sharing byagreements ~~NCB,~~pursuant ~~MCB~~to which the FDIC will assume 80% of losses and ~~FNB~~share ~~branches~~80% of loss recoveries on acquired loans and real estate owned.

~~Commercial~~We ~~Real~~recorded ~~Estate~~in noninterest ~~Loans.~~income ~~Commercial~~approximately ~~real~~$1.1 ~~estate~~million ~~lending~~in isa anpre-tax ~~integral~~bargain ~~part~~purchase ofgain ~~our~~in ~~operating~~connection ~~strategy~~with ~~and~~the weFNB ~~intend~~transaction, towhich ~~continue~~represents tothe ~~take~~excess ~~advantage~~ of ~~opportunities~~the toestimated ~~originate~~fair ~~commercial~~value ~~real~~of ~~estate~~the ~~loans,~~assets ~~especially~~acquired inover ~~our~~the ~~new~~fair ~~markets~~value of ~~Carroll,~~the ~~Coweta,~~liabilities ~~Haralson,~~assumed. In ~~Fayette~~addition, ~~Santa~~it ~~Rosa,~~is ~~and~~expected ~~Escambia~~that ~~Counties. Commercial~~we ~~real~~will ~~estate loans typically~~ have ~~higher~~sufficient ~~yields,~~nonaccretable ~~better~~discounts ~~interest rate risk characteristics~~ and ~~larger~~allowance for loan ~~balances~~losses, ~~compared~~after torecording ~~residential~~the ~~mortgage~~current ~~loans. Commercial~~year ~~real~~provisions, ~~estate~~to ~~lending~~cover ~~also~~any ~~has~~losses ~~provided~~on usthe ~~with~~FNB ~~another~~covered ~~means~~loans ofand ~~broadening~~covered ~~our~~other ~~range~~real ~~of customer relationships~~estate. As ofWe ~~September~~have ~~30,~~recorded a ~~2011,~~FDIC ~~non-covered~~receivable ~~commercial~~for ~~real~~expected ~~estate~~losses ~~loans~~to ~~totaled~~be ~~$252.0~~indemnified ~~million,~~and ornonaccretable ~~58.6%~~covered ofloan ~~our~~credit ~~total~~discounts ~~non-covered~~for ~~loan~~such ~~portfolio~~amounts. ~~Additionally,~~ atIt ~~September~~is ~~30,~~also ~~2011,~~expected that we ~~had~~will ~~$263.3~~have ~~million~~accretable ~~(contractual~~discounts ~~amount)~~to ofprovide ~~commercial~~for ~~real~~market ~~estate~~yields ~~loans~~on ~~covered~~the byFNB ~~FDIC~~covered ~~loss-sharing agreements~~loans.

~~Commercial~~For ~~real~~more ~~estate~~information ~~loans~~regarding ~~are~~CharterBank’s ~~generally~~FDIC-assisted ~~made to Georgia~~acquisitions, ~~Alabama~~see or“Management’s ~~Florida~~Discussion ~~entities~~ and ~~are~~Analysis ~~secured by properties in these states. Commercial real estate loans are generally made for up to 85%~~ of Financial ~~the~~Condition value of the underlying real estate. Our commercial real estate loans are typically secured by offices, hotels, strip shopping centers, warehouses/distribution facilities land or convenience stores located principally in Georgia, Alabama and ~~Florida. Multi-family~~Results ~~mortgage loans, which we categorize as a subset~~ of ~~our~~Operations—FDIC-Assisted ~~commercial~~Acquisitions” ~~real estate loans, are originated for both new~~ and ~~existing~~Note ~~properties~~3 ~~and~~to ~~are~~the ~~made~~Notes onto ~~apartment buildings with a wide range of tenant income levels. Many of~~ our ~~multi-family~~Consolidated ~~mortgage~~Financial ~~loans are secured by properties located near college campuses~~Statements.

~~Commercial~~Lending ~~real~~Activities 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. To compensate for the increased risk, our commercial real estate loans generally have higher interest rates and shorter maturities than our residential mortgage loans. We offer commercial real estate loans at fixed rates and adjustable rates tied to the prime interest rate. However, the interest rates on a portion of our commercial real estate loan portfolio are tied to yields on U.S. Treasury securities or LIBOR. We currently offer fixed-rate terms of five years; however, in prior years we originated fixed-rate loans with maturities of up to 20 years.

~~Our~~We ~~underwriting~~offer ~~criteria~~a ~~for~~broad ~~commercial~~range ~~real~~of ~~estate~~loan ~~loans~~products ~~include~~with ~~maximum~~a ~~loan-to-value~~variety of ~~ratios,~~rates ~~debt~~and ~~coverage~~terms. ~~ratios,~~Our ~~secondary~~lending ~~sources~~operations consist of ~~repayment,~~the ~~guarantor~~following ~~requirements,~~major ~~net~~segments: ~~worth~~commercial ~~requirements~~real ~~and~~estate ~~quality~~lending; ofsingle-family ~~cash~~residential ~~flow. As~~mortgage ~~part~~lending offor ~~our~~retention ~~loan~~in ~~approval~~our ~~and~~portfolio; ~~underwriting~~construction oflending; ~~commercial~~and ~~real~~residential ~~estate~~mortgage ~~loans,~~lending wefor resale ~~undertake~~in athe ~~cash~~secondary ~~flow~~mortgage ~~analysis~~market, ~~and we~~ generally ~~require~~on a ~~debt~~servicing-~~service~~released ~~coverage~~basis. ~~ratio~~To ofa atlesser ~~least~~extent, ~~1.15~~we ~~times. We~~also ~~believe~~originate ~~that~~consumer ~~this~~loans ~~segment~~(including ofhome ~~the~~equity ~~market~~loans ~~offers~~and another ~~opportunity~~forms toof ~~expand~~consumer ~~our~~installment ~~portfolio~~credit), ~~while~~and ~~realizing~~commercial ~~strong~~business ~~risk-adjusted~~loans. ~~returns~~This strategy ~~because~~is ~~many~~consistent ~~lenders~~with ~~are~~our nocommunity ~~longer~~bank ~~active in this market~~orientation.

Residential Mortgage Loans. We originate first and second mortgage loans secured by one- to four-family residential properties within Georgia and Alabama. We currently originate mortgages at all of our offices, but utilize centralized processing at our corporate office. As of September 30, 2011, non-covered residential mortgage loans totaled $98.8 million, or 23.0% of total non-covered loans. As of September 30, 2011, covered residential mortgage loans totaled $16.5 ~~million, or 6.5% of total covered loans.~~

5Table of Contents

We ~~originate~~have ~~both~~pursued ~~fixed~~loan ~~rate~~diversification ~~and~~with ~~adjustable~~the ~~rate~~objective ~~one-~~of tolowering ~~four-family~~credit ~~residential~~concentration risk, ~~mortgage~~enhancing ~~loans. Fixed~~yields ~~rate,~~and ~~30 year~~earnings, ~~conforming~~ ~~loans~~and ~~are~~improving ~~generally originated for resale into~~ the ~~secondary~~interest ~~market~~sensitivity onof ~~a servicing-released basis. We generally retain in~~ our ~~portfolio loans that are 15 year fixed rate or non-conforming due to property exceptions and loans that have adjustable rates~~assets. As ~~of September 30~~Historically, ~~2011,~~we ~~approximately~~have ~~38.4%~~focused of our ~~one-~~lending toactivities ~~four-family~~on ~~loan~~residential ~~portfolio consisted of fixed-rate mortgage loans~~ and ~~61.6%~~commercial ~~consisted of either adjustable rate~~ mortgage loans ~~(“ARMs”)~~as orwell ~~hybrid~~as ~~loans~~consumer ~~with fixed interest rates for the first one~~loans, ~~three,~~primarily ~~five~~to orlocal ~~seven~~customers. ~~years~~We also ofhave ~~the~~initiated ~~loan,~~retail and ~~adjustable~~commercial ~~rates~~business ~~thereafter. After~~lending ~~the~~in ~~initial term,~~ the ~~interest~~markets ~~rate~~formerly onserved ~~ARMs~~by ~~generally adjusts on an annual basis at a fixed spread over the monthly average yield on United States Treasury securities~~NCB, ~~the~~MCB ~~prime interest rate as listed in The Wall Street Journal, or LIBOR. The interest rate adjustments are generally subject to a maximum increase of 2% per adjustment period~~ and 6%FNB ~~over the life of the loan~~branches.

~~Traditionally,~~Commercial weReal ~~have~~Estate ~~sought~~Loans. toCommercial ~~distinguish~~real ~~ourselves~~estate inlending ~~the~~is ~~area~~an ofintegral ~~non-conforming~~part ~~residential~~of ~~mortgage~~our ~~lending. While~~operating ~~the~~strategy ~~risks~~and ofwe ~~non-conforming~~intend ~~lending~~to continue ~~may~~to betake ~~somewhat~~advantage ~~higher~~of ~~than~~opportunities ~~originating~~to ~~conforming~~originate ~~residential~~commercial ~~mortgage~~real estate loans, weespecially ~~believe~~in ~~that~~our ~~the~~new ~~greater~~markets ~~yield and shorter repricing terms~~ of ~~these~~Carroll, ~~loans~~Coweta ~~compensate~~and usFayette ~~for~~Counties ~~this~~in ~~additional~~Georgia ~~risk. Additionally,~~and ~~management~~Santa ~~believes~~Rosa ~~that~~and ~~the~~Escambia ~~credit~~Counties ~~quality~~in ofFlorida. ~~our~~Commercial ~~loan~~real ~~portfolio~~estate isloans typically ~~largely~~have ~~unaffected~~higher ~~by the non-conforming loans~~yields, ~~since~~better ~~the~~interest ~~majority~~rate ofrisk ~~these~~characteristics ~~loans~~and ~~are~~larger ~~non-conforming~~loan ~~due~~balances tocompared ~~factors unrelated~~ to ~~credit~~residential ~~quality~~mortgage (iloans.~~e.,~~ ~~high~~Commercial ~~acreage,~~real ~~leased~~estate ~~land,~~lending ~~multiple~~also ~~structures~~has orprovided ~~newly~~us ~~self-employed~~with ~~borrowers). The~~another ~~loans~~means ~~may~~of ~~also~~broadening beour ~~non-conforming~~range ~~because~~ of acustomer relationships. ~~deficiency~~As ~~in the credit record~~ of aSeptember 30, ~~borrower~~2012, ~~but~~non-covered ~~which~~commercial ~~management~~real ~~believes~~estate ~~does~~loans ~~not~~totaled ~~impair~~$251.4 ~~the~~million, ~~borrower’s~~or ~~ability~~57.5% toof ~~repay~~our ~~the~~total ~~loan. Thus, the~~ non-~~conforming~~covered ~~loans~~loan ~~we originate are not subprime loans~~portfolio. ~~CharterBank~~ ~~originates~~Additionally, ~~one-~~at toSeptember 30, ~~four-family~~2012, ~~loans~~we ~~with~~had ~~LTVs~~$160.2 upmillion to(contractual ~~80%. We~~amount) ~~will~~of commercial ~~occasionally~~real ~~originate~~estate loans ~~with~~covered ~~LTVs~~by inFDIC ~~excess~~loss-sharing ofagreements, ~~80%~~or ~~with private mortgage insurance~~76. ~~The~~6% ~~substantial portion~~ of ~~our~~total ~~one-~~covered ~~to four-family residential mortgage~~ loans ~~are secured by properties in Georgia, Alabama and Florida~~.

~~The~~Commercial ~~amount~~real ofestate loans ~~subprime~~are ~~loans~~generally ~~held~~made to Georgia, Alabama or Florida entities and are secured by ~~CharterBank~~properties isin ~~not~~these ~~material~~states. We ~~consider~~Commercial ~~“subprime”~~real estate loans toare begenerally ~~loans~~made ~~originated~~for up to ~~borrowers~~85% ~~having~~of ~~credit~~the ~~scores~~value ~~below~~of ~~580 at~~ the ~~time~~underlying ofreal ~~origination~~estate. WeOur docommercial ~~not~~real estate loans are typically secured by offices, ~~and~~hotels, ~~have~~strip ~~not~~shopping centers, ~~originated~~warehouses/distribution ~~“low~~facilities ~~documentation”~~land or ~~“no~~convenience ~~documentation”~~stores ~~loans~~located principally in Georgia, ~~“option~~Alabama ~~ARM”~~and Florida. Multi-family mortgage loans, orwhich ~~other~~we categorize as a subset of our commercial real estate loans, are originated for both new and existing properties and are made on apartment buildings with ~~special~~a orwide ~~unusual~~range ~~payment~~of ~~arrangements~~tenant income levels. Many of our multi-family mortgage loans are secured by properties located near college campuses.

WeCommercial ~~modify~~real ~~residential~~estate ~~mortgage~~lending ~~loans~~involves ~~when~~additional itrisks iscompared ~~mutually~~to ~~beneficial~~one- to usfour-family residential lending. Repayment of commercial real estate loans often depends on the successful operations and income stream of the ~~borrower~~borrowers, and oncommercial ~~terms~~real ~~that~~estate ~~are~~loans ~~appropriate~~typically involve larger loan balances to ~~the~~single ~~circumstances~~borrowers or groups of related borrowers compared to residential real estate loans. We ~~have~~To nocompensate ~~non-covered~~for the increased risk, our commercial real estate loans ingenerally ~~government~~have ~~modification~~higher ~~programs~~interest rates and shorter maturities than our residential mortgage loans. ~~Covered~~ We offer commercial real estate loans ~~have~~at ~~FDIC~~fixed ~~modification~~rates ~~programs~~and ~~available~~adjustable rates tied to the prime interest rate. However, ~~these~~the ~~program~~interest rates on a portion of our commercial real estate loan portfolio are ~~outlined~~tied to yields on U.S. Treasury securities or LIBOR. We currently offer fixed-rate terms of 15 years; however, in ~~their~~prior ~~respective~~years ~~purchase~~we ~~and~~originated ~~assumption~~fixed-rate ~~agreements~~loans with maturities of up to 20 years.

~~Construction~~Our underwriting ~~and~~criteria ~~Development~~for ~~Loans.~~commercial ~~Consistent~~real ~~with~~estate ~~our~~loans ~~community~~include ~~bank~~maximum ~~strategy~~loan-to-value ratios, ~~construction~~debt ~~and~~coverage ~~development~~ratios, ~~lending~~secondary ~~has~~sources ~~been an integral part~~ of ~~our~~repayment, ~~overall~~guarantor ~~lending~~requirements, ~~strategy. While~~net ~~current~~worth ~~market~~requirements ~~conditions have suppressed demand for construction~~ and ~~land loans, there are opportunities to lend to~~ quality ~~borrowers~~of incash ~~our market area~~flow. ~~Management~~ ~~believes~~As ~~that~~part ~~the~~of ~~reduction~~our inloan ~~the~~approval and ~~number~~underwriting of ~~construction~~commercial ~~lenders~~real ~~has~~estate ~~reduced~~loans, ~~the~~we ~~supply~~undertake ofa ~~construction~~cash ~~loans~~flow analysis, and ~~there~~we isgenerally anrequire ~~opportunity~~a todebt-service ~~lend~~coverage toratio ~~borrowers~~of ~~with~~at ~~superior~~least ~~liquidity,~~1.15 ~~capital and management skills~~times. We ~~intend~~believe tothat ~~remain~~this ansegment ~~active~~of ~~participant in~~ the ~~construction~~market ~~lending~~offers ~~market,~~an ~~primarily~~opportunity ~~through~~to expand our portfolio ~~loan~~while ~~production~~realizing ~~office~~strong inrisk-adjusted ~~Norcross,~~returns ~~Georgia.~~because Wemany lenders are ~~making virtually~~ no ~~development~~longer ~~loans~~active ~~and~~in wethis ~~are~~market. ~~providing~~Our ~~very~~capacity ~~limited~~to ~~financing~~expand ~~for~~this ~~the~~portfolio ~~purchase~~may ofbe ~~building~~tempered ~~lots. Construction~~by ~~loans~~lack ~~represent an important segment~~ of ~~the~~demand ~~loan~~from ~~portfolio,~~qualified ~~totaling $41.7 million~~borrowers, orintense ~~9.7%~~competition offor ~~non-covered~~good loans, and atpossible ~~September~~loan ~~30, 2011~~concentrations.

Residential Mortgage Loans. We ~~make~~originate ~~loans~~first ~~primarily~~and ~~for~~second ~~the~~mortgage ~~construction~~loans secured ofby one- to four-family ~~residences~~residential ~~but~~properties ~~also~~within ~~for~~Georgia, ~~multi-family~~Florida and ~~nonresidential real estate projects on a select basis~~Alabama. We ~~offer~~currently ~~two~~originate ~~principal~~mortgages ~~types~~at all of ~~construction~~our ~~loans: builder loans~~offices, ~~including~~but ~~both~~utilize ~~speculative~~centralized ~~(unsold)~~processing ~~and pre-sold loans to pre-approved local builders; and construction/permanent loans to property owners that are converted to permanent loans~~ at ~~the~~our ~~end~~corporate ~~of the construction phase~~office. ~~The~~ ~~number~~As of ~~speculative~~September 30, ~~loans~~2012, ~~that~~non-covered residential wemortgage ~~will~~loans ~~extend~~totaled to$105.5 amillion, ~~builder~~or ~~at one time depends upon the financial strength and credit history of the builder~~24. ~~Our~~1% ~~construction loan program is expected to remain a modest portion~~ of ~~our~~total ~~loan~~non-covered ~~volume~~loans. We ~~generally~~As ~~limit the number~~ of ~~outstanding~~September 30, ~~loans~~2012, oncovered ~~unsold~~residential ~~homes~~mortgage ~~under~~loans ~~construction~~totaled ~~within~~$15.0 amillion, ~~specific area and/~~or to7.2% aof ~~specific~~total ~~borrower~~covered loans.

~~Commercial~~We ~~Loans~~originate ~~and~~both ~~Consumer~~fixed ~~Loans. To~~rate aand ~~much~~adjustable ~~lesser~~rate ~~extent,~~one- weto ~~also~~four-family ~~originate~~residential ~~non-~~mortgage loans,. ~~including~~Fixed ~~commercial~~rate, ~~business~~30 ~~and~~year, ~~consumer~~conforming loans~~. At~~ are ~~September~~generally ~~30,~~originated ~~2011,~~for ~~non-covered~~resale ~~commercial~~into ~~loans~~the ~~totaled~~secondary ~~$17.6~~market ~~million,~~on ora 4servicing-released basis.1% ofWe ~~total~~generally ~~non-covered~~retain in our portfolio loans, ~~and~~that are 15 year fixed rate or non-~~covered~~conforming ~~consumer~~due to property exceptions and loans ~~totaled~~that ~~$20~~have adjustable rates.1 ~~million~~As of September 30, or2012, 4approximately 51.73% of ~~non~~our one-~~covered~~ ~~loans. Additionally,~~to atfour-family ~~September~~loan ~~30,~~portfolio ~~2011,~~consisted weof ~~had~~fixed-rate ~~$32~~mortgage loans and 48.7% ~~million~~consisted ~~(contractual~~of ~~amount~~either adjustable rate mortgage loans (“ARMs”) ofor ~~commercial~~hybrid loans ~~and~~with ~~$8.6~~fixed ~~million~~interest rates ~~(contractual~~for ~~amount)~~the offirst ~~consumer~~one, ~~loans~~three, ~~covered~~five byor ~~FDIC~~seven ~~loss~~years ~~sharing~~of ~~agreements.~~the

TheTable majority of our non-mortgage non-covered loans are consumer loans, including loans on deposits, second mortgage loans, home equity lines of credit, auto loans and various other installment loans. We primarily offer 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. Our consumer lending generally follows accepted industry standards for non sub-prime lending, including credit scores and debt to income ratios.Contents

We loan, ~~offer~~and ~~home~~adjustable ~~equity~~rates ~~lines of credit as a complement to our one- to four-family residential mortgage lending~~thereafter. WeAfter ~~believe~~the ~~that~~initial ~~offering~~term, ~~home~~the ~~equity~~interest ~~credit~~rate ~~lines~~on ~~helps~~ARMs togenerally ~~expand~~adjusts ~~and~~on ~~create~~an ~~stronger~~annual ~~ties~~basis toat ~~our~~a ~~existing~~fixed ~~customer~~spread ~~base~~over ~~by increasing~~ the ~~number~~monthly ofaverage ~~customer~~yield ~~relationships and providing cross-marketing opportunities. Home equity credit lines have adjustable-rates and are secured by a first or second mortgage~~ on ~~owner-occupied~~United ~~one-~~States Treasury ~~to four-family residences located primarily in Georgia~~securities, ~~Alabama and Florida. Home equity credit lines enable customers to borrow at rates tied to~~ the prime interest rate as ~~reported~~listed in The Wall Street Journal~~. The underwriting standards applicable to home equity credit lines are similar to those for one- to four-family residential mortgage loans~~, ~~except~~or ~~for slightly more stringent credit-to-income and credit score requirements~~LIBOR. ~~Home~~The ~~equity~~interest ~~loans~~rate adjustments are generally ~~limited~~subject to ~~80% of the value of the underlying property unless the loan is covered by private mortgage insurance or~~ a ~~loss~~maximum ~~sharing~~increase ~~agreement. At September 30, 2011, we had $15.8 million~~ of ~~home~~2% per ~~equity~~adjustment ~~lines~~period ~~of credit~~ and ~~second~~6% ~~mortgage~~over ~~loans not covered by~~ the ~~FDIC.~~life ~~We also had $9.7 million~~ of ~~unfunded home equity line of credit commitments not covered by~~ the ~~FDIC at September 30, 2011~~loan.

~~Our~~Traditionally, ~~commercial~~we ~~business~~have ~~loans~~sought ~~are~~to ~~generally~~distinguish ~~limited~~ourselves toin ~~terms~~the area of ~~five~~non-conforming ~~years~~residential ormortgage ~~less~~lending. We ~~typically~~While ~~collateralize~~the risks ~~these~~of ~~loans~~non-conforming ~~with~~lending amay ~~lien~~be onsomewhat ~~commercial~~higher ~~real~~than ~~estate~~originating ~~or,~~conforming ~~occasionally~~residential mortgage loans, ~~with~~we abelieve ~~lien~~that onthe ~~business~~greater ~~assets~~yield and ~~equipment. We~~shorter ~~also~~repricing ~~generally~~terms ~~require~~of ~~the~~these ~~personal~~loans ~~guarantee~~compensate ofus ~~the~~for ~~business~~this ~~owner~~additional risk. ~~Interest~~ ~~rates~~Additionally, management onbelieves ~~commercial~~that ~~business~~the ~~loans~~credit ~~are~~quality ~~generally~~of ~~higher~~our ~~than~~loan ~~interest~~portfolio ~~rates~~is onlargely ~~residential~~unaffected orby ~~commercial~~the ~~real~~non-conforming ~~estate~~ loans, ~~due~~since to the ~~risk~~majority ~~inherent in this type~~ of ~~loan.~~these ~~Commercial business~~ loans are ~~generally~~non-conforming ~~considered~~due to ~~have~~factors ~~more~~unrelated ~~risk~~to ~~than~~credit ~~residential~~quality ~~mortgage~~(i.e., ~~loans~~high oracreage, ~~commercial~~leased ~~real~~land, multiple ~~estate~~structures ~~loans~~or ~~because~~newly ~~the~~self-employed ~~collateral~~borrowers). The loans may also be innon-conforming ~~the~~because ~~form~~ of ~~intangible~~a ~~assets~~deficiency ~~and/or~~in ~~readily~~the ~~depreciable~~credit ~~inventory.~~record ~~Commercial~~of ~~business~~a ~~loans~~borrower, ~~may~~but ~~also~~which ~~involve~~management ~~relatively~~believes ~~large~~does ~~loan~~not ~~balances~~impair tothe ~~single~~borrower’s ~~borrowers~~ability orto ~~groups~~repay ofthe ~~related borrowers~~loan. Thus, ~~with~~ the ~~repayment~~non-conforming ofloans ~~such~~we ~~loans~~originate ~~typically~~are ~~dependent~~not onsubprime ~~the~~loans. ~~successful~~CharterBank ~~operation~~originates ~~and~~one- ~~income~~to ~~stream~~four-family ofloans ~~the~~with ~~borrower.~~loan-to-values ~~Such~~of ~~risks~~up ~~can~~to be80%. ~~significantly~~We ~~affected~~will byoccasionally ~~economic~~originate ~~conditions.~~loans Inwith ~~addition,~~loan-to-values ~~commercial~~in ~~business~~excess ~~lending~~of ~~generally~~80% ~~requires~~with ~~substantially~~private ~~greater~~mortgage insurance. ~~supervision~~The ~~efforts~~substantial byportion of our ~~management~~one- ~~compared~~ to four-family residential mortgage orloans ~~commercial~~are ~~real~~secured ~~estate~~by ~~lending~~properties in Georgia, Alabama and Florida.

~~Loan~~The ~~Origination~~amount ~~and~~of ~~Approval~~subprime ~~Procedures~~loans ~~and~~held ~~Authority. The~~by ~~following~~CharterBank ~~describes~~is ~~our~~not ~~current~~material. ~~lending~~We ~~procedures~~consider ~~for~~“subprime” ~~residential mortgage~~ loans ~~and~~to ~~home~~be ~~equity~~ loans ~~and~~originated ~~lines~~to ofborrowers having credit. ~~Upon~~scores ~~receipt~~below of580 aat ~~completed~~the ~~loan~~time ~~application~~of ~~from~~origination. aWe do ~~prospective borrower~~not, ~~we order a credit report~~ and ~~verify~~have ~~other information. If necessary~~not, weoriginated ~~obtain~~“low ~~additional~~documentation” ~~financial~~ or ~~credit~~“no ~~related~~documentation” ~~information. We require an appraisal for all residential and mortgage~~ loans, ~~except~~“option ~~for~~ARM” ~~home equity~~ loans, or ~~lines~~other ~~where~~loans awith ~~valuation~~special ~~may be used to determine the loan-to-value ratio. Appraisals are performed by licensed~~ or ~~certified~~unusual ~~third-party~~payment ~~appraisal firms and are reviewed by our lending department~~arrangements. ~~We require title insurance or a title opinion on all mortgage loans.~~

We ~~require~~modify ~~borrowers~~residential tomortgage ~~obtain~~loans ~~hazard~~when ~~insurance~~it ~~and~~is wemutually ~~may~~beneficial ~~require borrowers~~ to ~~obtain~~us ~~flood~~and ~~insurance~~the ~~prior to closing. For properties with a private sewage disposal system~~borrower, weand ~~also require evidence of compliance with applicable laws~~ on ~~residential~~terms ~~mortgage~~that ~~loans.~~are ~~Further,~~appropriate ~~we generally require borrowers~~ to ~~advance~~the circumstances. ~~funds~~We onhave ano ~~monthly~~non-covered ~~basis~~loans ~~together~~in ~~with~~government ~~each~~modification ~~payment~~programs. ofCovered ~~principal~~loans ~~and~~have ~~interest~~FDIC tomodification aprograms ~~mortgage~~available, ~~escrow~~these ~~account~~programs ~~from~~are ~~which~~outlined wein ~~make~~their ~~disbursements~~respective ~~for~~purchase ~~items such as real estate taxes, hazard insurance, flood insurance,~~ and ~~private~~assumption ~~mortgage insurance premiums, if required~~agreements.

~~Commercial~~Construction ~~loans~~and ~~are~~Development ~~approved~~Loans. ~~through~~Consistent ~~CharterBank’s~~with ~~Management~~our ~~Loan~~community ~~Committee~~bank ~~process.~~strategy, ~~The~~construction ~~Management~~and ~~Loan~~development ~~Committee~~lending ~~consists~~has been an integral part of ~~the~~our ~~Chief~~overall ~~Executive~~lending ~~Officer,~~strategy. ~~the~~While ~~President,~~current ~~the~~market ~~Chief~~conditions ~~Financial~~have ~~Officer,~~suppressed ~~the~~demand ~~Senior~~for ~~Credit~~construction ~~Administrator~~and land loans, ~~and~~there ~~certain~~are ~~other~~opportunities ~~senior~~to ~~lending~~lend ~~and~~to ~~credit~~quality ~~officers.~~borrowers ~~The~~in our market area. Management ~~Loan~~believes ~~Committee~~that the reduction in the number of construction lenders has ~~authority~~reduced tothe ~~approve~~supply ~~loan~~of ~~relationships~~construction uploans, and there is an opportunity to ~~$2.0~~lend ~~million.~~to ~~Commercial~~borrowers ~~loan~~with ~~relationships~~superior ofliquidity, $1capital and management skills.0 ~~million~~We orintend ~~less~~to ~~may~~remain bean ~~approved~~active ~~outside~~participant in the construction ~~Committee~~lending ~~process~~market, byprimarily ~~two~~through ~~officers~~our ~~who~~cashless ~~have~~branch ~~commercial~~in ~~loan~~Norcross, ~~authority~~Georgia. ~~Commercial~~We ~~loan~~are ~~relationships~~making ~~greater~~virtually ~~than~~no ~~$2.0~~development ~~million~~loans and we are ~~approved~~providing byvery limited financing for the ~~Management~~purchase ~~Loan~~of ~~Committee~~building ~~and~~lots. ~~the~~Construction ~~Board’s~~loans ~~Loan~~represent ~~Committee~~an important orsegment byof the ~~entire~~loan ~~Board~~portfolio, totaling $45.4 million, or 10.4% of ~~Directors~~non-covered loans at September 30, 2012.

~~Investments~~We make 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. We offer 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 we will extend to a builder at one time depends upon the financial strength and credit history of the builder. Our construction loan program is expected to remain a modest portion of our loan volume. We generally limit the number of outstanding loans on unsold homes under construction within a specific area and/or to a specific borrower.

~~The~~Commercial ~~Board~~Loans ofand ~~Directors~~Consumer Loans. ~~reviews~~To ~~and~~a ~~approves~~much ~~our~~lesser ~~investment~~extent, ~~policy~~we onalso anoriginate ~~annual~~non-mortgage ~~basis.~~loans, ~~The~~including ~~CEO~~commercial business and ~~Chief~~consumer ~~Financial~~loans. ~~Officer~~At September 30, as2012, ~~authorized~~non-covered bycommercial ~~the~~loans ~~Board~~totaled $16.6 million, ~~implement~~or ~~this~~3.8% ~~policy~~of ~~based~~total onnon-covered ~~the~~loans, ~~established~~and non-covered ~~guidelines~~consumer ~~within~~and ~~the~~other ~~written~~loans ~~investment~~totaled ~~policy~~$18.1 million, ~~and~~or ~~other~~4.1% ~~established~~of ~~guidelines~~non-covered loans. Additionally, ~~including~~at ~~those~~September 30, ~~set~~2012, ~~periodically~~we had $26.0 million (contractual amount) of commercial loans and $6.2 million (contractual amount) of consumer and other loans covered by ~~the~~FDIC ~~Asset-Liability~~loss ~~Management~~sharing ~~Committee~~agreements.

7The majority of our non-mortgage non-covered loans are consumer loans, including loans on deposits, second mortgage loans, home equity lines of credit, automobile loans and various other installment loans. We primarily offer consumer loans (excluding second mortgage loans and home equity lines of credit) as an

~~The~~7 primary goal of our investment policy is to invest funds in assets with varying maturities that will result in the best possible yield while maintaining the safety of the principal invested and assisting in managing our interest rate risk. We also seek to use our strong capital position to maximize our net income by investing in higher yielding mortgage-related securities funded by borrowings. We also consider our investment portfolio as a source of liquidity.

TheTable broad objectives of our investment portfolio management are to:Contents

· accommodation ~~minimize~~to ~~the~~customers. Consumer loans tend to have a higher credit risk ofthan ~~loss~~residential ofmortgage ~~principal~~loans because they may be secured by rapidly depreciable assets, or ~~interest;~~may be unsecured. Our consumer lending generally follows accepted industry standards for non sub-prime lending, including credit scores and debt to income ratios.

·We ~~generate~~offer ~~favorable~~home ~~returns~~equity ~~without~~lines ~~incurring~~of ~~undue~~credit ~~interest~~as a complement to our one- to four-family residential mortgage lending. We believe that offering home equity credit lines helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. Home equity credit lines have adjustable-rates and are secured by a first or second mortgage on owner-occupied one- to four-family residences located primarily in Georgia, Alabama and Florida. Home equity credit lines enable customers to borrow at rates tied to the prime rate as reported in The Wall Street Journal. 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 ~~risk;~~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 September 30, 2012, we had $14.0 million of home equity lines of credit and second mortgage loans not covered by the FDIC. Of the funded home equity loans not covered by the FDIC $1.6 million had current credit scores of 650 or under as of October 2012. We had $8.7 million of unfunded home equity line of credit commitments not covered by the FDIC at September 30, 2012.

·Our ~~manage~~commercial business loans are generally limited to terms of five years or less. We typically attempt to collateralize these loans with a lien on commercial real estate or, occasionally, with a lien on business assets and equipment. We also generally require the personal guarantee of the business owner. Interest rates on commercial business loans are generally higher than interest ~~rate~~rates ~~sensitivity~~on residential or commercial real estate loans due to the risk inherent in this type of ~~our~~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 ~~liabilities;~~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 our management compared to residential mortgage or commercial real estate lending.

·Loan Origination ~~meet~~and ~~daily~~Approval Procedures and Authority. The following describes our current lending procedures for residential mortgage loans and home equity loans and lines of credit. Upon receipt of a completed loan application from a prospective borrower, ~~cyclical~~we order a credit report and ~~long~~verify ~~term~~other ~~liquidity~~information. ~~requirements~~If ~~while~~necessary, ~~complying~~we ~~with~~obtain ~~our~~additional ~~established~~financial ~~policies~~or credit related information. We require an appraisal for all residential and ~~regulatory~~mortgage ~~liquidity~~loans, ~~requirements;~~except for home equity loans or lines where a valuation may be used to determine the loan-to-value ratio. Appraisals are performed by licensed or certified third-party appraisal firms and are reviewed by our lending department. We require title insurance or a title opinion on all mortgage loans.

·We ~~provide~~require borrowers to obtain hazard insurance and we may require borrowers to obtain flood insurance prior to closing. For properties with a ~~stream~~private sewage disposal system, we also require evidence of ~~cash~~compliance ~~flow~~with applicable laws on residential mortgage loans. Further, we generally require borrowers to advance funds on a monthly basis together with each payment of principal and interest to a mortgage escrow account from which we make disbursements for items such as real estate taxes, hazard insurance, flood insurance, and private mortgage insurance premiums, if required.

·Commercial ~~diversify~~loans ~~assets~~are approved through CharterBank’s Management Loan Committee process. The Management Loan Committee consists of the Chief Executive Officer, the President, the Chief Financial Officer, the Senior Credit Administrator, and ~~address~~certain ~~maturity~~other senior lending and credit officers. Commercial loan relationships of $1.0 million or ~~interest~~less ~~repricing~~may ~~imbalances;~~be ~~and~~approved outside the Committee process by two senior officers who have commercial loan authority. Commercial loan relationships greater than $1.0 million are approved by the Management Loan Committee.

·Loan ~~provide~~Originations, ~~collateral~~Participations, ~~for~~Purchases ~~pledging~~and ~~requirements~~Sales. Most of our loan originations are generated by our loan personnel operating at our corporate headquarters and banking office locations. All loans we originate are underwritten pursuant to our policies and procedures. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period.

In8 determining our investment strategies, we consider our interest rate sensitivity, yield, credit risk factors, maturity and amortization schedules, asset prepayment risks, collateral value and other characteristics of the securities to be held.

SourcesTable of FundsContents

~~Deposits~~Consistent ~~are~~with ~~the~~our ~~major~~interest ~~source~~rate ofrisk ~~balance~~strategy, ~~sheet~~in ~~funding~~the ~~for~~low ~~lending~~interest ~~and~~rate ~~other~~environment ~~investment~~that has ~~purposes. Additional~~existed ~~significant~~in ~~sources~~recent ~~of funds include liquidity~~years, ~~repayment~~we ofhave ~~loans,~~sold ~~loan~~almost ~~sales,~~all ~~maturing investments~~fixed-rate, ~~and~~30-year ~~borrowings. We~~conforming ~~believe~~one- ~~that~~to ~~our~~four-family ~~standing~~residential asmortgage aloans ~~sound~~in ~~and~~the ~~secure~~secondary ~~financial~~market ~~institution~~generally ~~and our emphasis~~ on ~~the~~a ~~convenience~~servicing-released ofbasis ~~our~~while ~~customers~~retaining ~~will~~commercial ~~continue~~real toestate ~~contribute~~loans ~~to our ability to attract~~ and non-conforming ~~retain~~or ~~deposits. We~~15-year ~~offer~~fixed ~~extended~~rate ~~hours~~one- ~~at the majority of our offices and alternative banking delivery systems that allow customers~~ to ~~pay~~four-family ~~bills,~~residential ~~transfer~~mortgage ~~funds~~loans ~~and~~for ~~monitor~~retention ~~account~~in ~~balances~~our ~~at any time~~portfolio. We ~~also~~sold offer competitive rates as well as a competitive selection of deposit products, including checking, NOW, money market, regular savings and term certificate accounts. In addition, we offer a Rewards checking product that offers a higher rate on deposit balances up to $~~15,000 if certain conditions are met~~40. ~~These~~1 ~~conditions~~million ~~include receiving only electronic statements, having at least one monthly ACH transaction and ten or more point~~ of ~~sale~~loans ~~transactions per month. For accounts that do not meet these conditions~~ in ~~any~~fiscal ~~given month, the rate paid on the balances is reduced~~2012.

WeInfrequently, ~~also~~we ~~rely~~have onpurchased ~~advertising~~loan ~~and~~participations ~~long-standing~~in ~~relationships~~commercial loans in which we are not the lead lender that are secured by real estate or other assets. With regard to ~~maintain~~all loan participations, we follow our customary loan underwriting and ~~develop~~approval ~~depositor~~policies, ~~relationships~~and although we may be only approving and servicing a portion of the loan, ~~while~~we ~~competitive~~underwrite ~~rates~~the ~~are~~loan ~~also~~request ~~paid~~as if we had originated the loan to ~~attract~~ensure cash flow and ~~retain~~collateral ~~deposits~~are sufficient. ~~Furthermore~~ At September 30, ~~the~~2012, ~~NCB~~our loan participations totaled $2.7 million, ~~MCB~~or 0.61%, ~~and~~of ~~FNB~~our ~~acquisitions~~non-covered ~~are~~loan ~~expected~~portfolio. As toof ~~enhance~~September 30, ~~customer~~2012, ~~convenience~~all byof ~~broadening~~our ~~the~~loan ~~markets~~participations ~~currently~~were ~~served~~performing byin ~~CharterBank~~accordance with their terms.

WeDuring ~~continually~~fiscal ~~evaluate~~2012 ~~opportunities to enhance deposit growth. Potential avenues of growth include de novo branching and branch or institution acquisitions. Additionally, to the extent additional funds are needed,~~ we ~~may~~did ~~employ~~not ~~available~~purchase ~~collateral~~any ~~to reduce borrowings, which are expected to consist primarily of Federal Home Loan Bank advances~~loans. ~~However,~~ we have reduced and intend to continue to reduce our reliance on wholesale funds. We have a source of emergency liquidity with the Federal Reserve, and at September 30, 2011 we had collateral pledged that provided access to approximately $38.7 million of discount window borrowings.

~~Personnel~~Investments

AsThe Board of ~~September~~Directors ~~30,~~reviews ~~2011, we had 294 full-time employees~~ and 24approves ~~part-time~~our ~~employees~~investment policy. As ofThe ~~September~~Chief ~~30,~~Executive ~~2011,~~Officer weand ~~also~~Chief ~~had~~Financial ~~employees~~Officer, ~~from~~as ~~FNB~~authorized ~~through~~by athe ~~contract~~Board, ~~payroll~~implement ~~service~~this aspolicy webased ~~transitioned~~on ~~them~~the ~~from~~established ~~payroll~~guidelines ~~system. Our~~within ~~employees~~the ~~are~~written ~~not~~investment ~~represented~~policy, byand ~~any~~other ~~collective~~established ~~bargaining~~guidelines, ~~group. Management~~including ~~believes~~those ~~that~~set periodically weby ~~have~~the ~~good~~Asset-Liability ~~relations~~Management ~~with our employees~~Committee.

8The primary goal of our investment policy is to invest funds in assets with varying maturities that will result in the best possible yield while maintaining the safety of the principal invested and assisting in managing our interest rate risk. We also seek to use our strong capital position to maximize our net income by investing in higher yielding mortgage-related securities funded by borrowings. We also consider our investment portfolio as a source of liquidity.

~~Subsidiaries~~The broad objectives of our investment portfolio management are to:

~~Charter~~• ~~Financial~~minimize ~~Corporation~~the ~~has~~risk noof ~~direct~~loss orof ~~indirect~~principal ~~subsidiaries~~or ~~other than CharterBank.~~ interest;

~~REGULATION~~• ~~AND~~generate ~~SUPERVISION~~favorable returns without incurring undue interest rate and credit risk;

~~General~~• manage the interest rate sensitivity of our assets and liabilities;

~~Charter~~• ~~Financial~~meet ~~is a savings and loan holding company~~daily, ~~and~~cyclical ~~is required to file certain reports with,~~ and islong ~~subject~~term toliquidity ~~examination~~requirements ~~by,~~while ~~and~~complying ~~otherwise must comply~~ with ~~the~~our ~~rules~~established ~~and~~policies ~~regulations of the Board of Governors of the Federal Reserve System (“FRB”). Charter Financial is also subject to the rules~~ and ~~regulations~~regulatory ofliquidity ~~the Securities and Exchange Commission under the federal securities laws.~~requirements;

~~The~~• ~~Bank~~provide is a ~~federal~~stream ~~savings association, examined and supervised by the Office~~ of ~~the~~cash Comptroller of the Currency (“OCC”) and is subject to examination by the Federal Deposit Insurance Corporation (“FDIC”). This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit insurance fund and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the federal agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. The Bank also is a member of and owns stock in the FHLB of Atlanta, which is one of the twelve regional banks in the Federal Home Loan Bank System. The Bank also is regulated to a lesser extent by the FRB, governing reserves to be maintained against deposits and other matters. The OCC will examine the Bank and prepare reports for the consideration of the Bank’s board of directors on any operating deficiencies. The Bank’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of the Bank’s mortgage documents.flow;

~~Any~~• ~~change~~diversify inassets ~~these~~and ~~laws~~address ormaturity ~~regulations, whether by the FDIC, the OCC, the FRB~~ or ~~Congress,~~interest ~~could~~repricing ~~have~~imbalances; ~~a material adverse impact on Charter Financial, the Bank~~ and ~~their operations.~~

~~Certain~~• ofprovide ~~the~~collateral ~~regulatory~~for ~~requirements~~pledging ~~that are applicable to the Bank and Charter Financial are described below~~requirements. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on the Bank and Charter Financial and is qualified in its entirety by reference to the actual statutes and regulations.

~~Federal~~In ~~Legislation~~determining our investment strategies, we consider our interest rate sensitivity, yield, credit risk factors, maturity and amortization schedules, asset prepayment risks, collateral value and other characteristics of the securities to be held.

~~The~~Sources ~~Dodd-Frank Wall Street Reform and Consumer Protection Act~~ of ~~2010~~Funds (the “Dodd-Frank Act”), enacted on July 21, 2010, is significantly changing the bank regulatory structure and affecting the lending, investment, trading and operating activities of depository institutions and their holding companies. The Dodd-Frank Act eliminated our former primary federal regulator, the Office of Thrift Supervision, and required the Bank to be regulated by the OCC (the primary federal regulator for national banks). The Dodd-Frank Act also authorized the FRB to supervise and regulate all savings and loan holding companies, including mutual holding companies and their mid-tier holding companies, like First Charter, MHC (the “MHC”) and Charter Financial, in addition to bank holding companies which the FRB already regulated. Accordingly, the MHC will require the approval of the FRB before it may waive the receipt of any dividends from Charter Financial and there is no assurance that the FRB will approve future dividend waivers or, if it does, what conditions it may impose on such waivers. For additional discussion regarding the waiver of dividends by the MHC, see “—Holding Company Regulation—Waivers of Dividend by First Charter, MHC.” The Dodd-Frank Act also requires the FRB to set minimum capital levels for depository institution holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. There is a five-year transition period (from the July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements will apply to savings and loan holding companies. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect on July 21, 2010, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months from the enactment of the Dodd-Frank Act that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

9Deposits are the major source of balance sheet funding for lending and other investment purposes. Additional significant sources of funds include liquidity, repayment of loans, loan sales, maturing investments, and borrowings. We believe that our standing as a sound and secure financial institution and our emphasis on the

~~The~~9 Dodd-Frank Act also created a new Consumer Financial Protection Bureau with substantial power to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as the Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets such as the Bank will continue to be examined by their applicable federal bank regulators. The legislation also weakened the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

TheTable legislation broadened the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012. The Dodd-Frank Act increased stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directed the FRB to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded. The Dodd-Frank Act provided for originators of certain securitized loans to retain a percentage of the risk for transferred loans, directed the FRB to regulate pricing of certain debit card interchange fees and contained a number of reforms related to mortgage origination.Contents

~~Many~~ convenience of ~~the~~our ~~provisions~~customers ofwill ~~the~~continue ~~Dodd-Frank~~to ~~Act~~contribute ~~have~~to ~~delayed~~our ~~effective~~ability ~~dates~~to attract and retain deposits. We offer extended hours at the ~~legislation~~majority ~~requires~~of ~~various~~our ~~federal~~offices ~~agencies~~and alternative banking delivery systems that allow customers to ~~promulgate~~pay ~~numerous~~bills, ~~and~~transfer ~~extensive~~funds ~~implementing~~and ~~regulations~~monitor ~~over~~account ~~the~~balances ~~next~~at ~~several~~any ~~years~~time. ~~Although~~ ~~the~~We ~~substance~~also ~~and~~offer ~~scope~~competitive rates as well as a competitive selection of ~~these~~deposit ~~regulations~~products, ~~cannot~~including bechecking, ~~completely~~NOW, ~~determined~~money atmarket, ~~this~~regular ~~time~~savings and term certificate accounts. In addition, itwe isoffer ~~expected~~a Rewards checking product that ~~the~~offers ~~legislation~~a ~~and~~higher ~~implementing~~rate ~~regulations~~on ~~will~~deposit ~~increase~~balances ~~our~~up ~~operating~~to $15,000 if certain conditions are met. These conditions include receiving only electronic statements, having at least one monthly ACH transaction and ~~compliance~~ten ~~costs~~or more point of sale transactions per month. For accounts that do not meet these conditions in any given month, the rate paid on the balances is reduced.

~~Federal~~We ~~Banking~~also ~~Regulation~~rely on advertising and long-standing relationships to maintain and develop depositor relationships, while competitive rates are also paid to attract and retain deposits. Furthermore, the NCB, MCB, and FNB acquisitions are expected to enhance customer convenience by broadening the markets currently served by CharterBank.

~~Business~~We ~~Activities. A~~continually ~~federal~~evaluate ~~savings~~opportunities ~~association~~to ~~derives~~enhance ~~its~~deposit ~~lending~~growth. ~~and~~Potential ~~investment~~avenues ~~powers~~of ~~from~~growth ~~the~~include ~~Home~~de ~~Owners’~~novo ~~Loan~~branching ~~Act,~~and asbranch or ~~amended~~institution acquisitions. Additionally, ~~and~~to ~~federal~~the ~~regulations. Under~~extent ~~these~~additional ~~laws~~funds ~~and~~are ~~regulations~~needed, ~~the~~we ~~Bank~~ may ~~invest~~employ inavailable ~~mortgage~~collateral ~~loans~~to ~~secured~~reduce byborrowings, ~~residential~~which ~~real~~are ~~estate~~expected ~~without~~to ~~limitations~~consist asprimarily ~~a percentage~~ of ~~assets,~~Federal ~~and~~Home ~~may~~Loan ~~invest~~Bank inadvances. ~~non-residential~~Based ~~real~~on ~~estate~~asset ~~loans~~limitations upwe have to$234.5 ~~400%~~million ofavailable ~~capital~~at in the ~~aggregate,~~Federal ~~commercial~~Home ~~business~~Loan ~~loans~~Bank upof toAtlanta ~~20%~~at ofSeptember 30, ~~assets~~2012. inBased ~~the~~on ~~aggregate~~available ~~and~~collateral ~~consumer~~we ~~loans~~are uplimited to ~~35%~~$140.7 ofmillion ~~assets~~at inSeptember 30, ~~the aggregate~~2012. ~~The~~ ~~Bank~~However, ~~may~~we ~~also~~have ~~invest~~reduced inand ~~certain~~intend ~~types~~to ofcontinue ~~debt~~to ~~securities~~reduce our ~~and~~reliance ~~certain~~on ~~other~~wholesale ~~assets~~funds. A ~~bank~~We ~~also~~have ~~may~~a ~~establish~~source ~~subsidiaries~~of ~~that~~emergency ~~may~~liquidity ~~engage~~with inthe ~~certain~~Federal ~~activities not otherwise permissible for a bank~~Reserve, ~~including real estate investment~~ and ~~securities~~at ~~and~~September 30, ~~insurance~~2012 ~~brokerage. The~~we ~~Dodd-Frank~~had ~~Act~~collateral ~~authorized~~pledged ~~depository~~that ~~institutions~~provided access to ~~commence~~approximately ~~paying~~$48.1 ~~interest~~million onof ~~business~~discount ~~checking~~window ~~accounts, effective July 21, 2011~~borrowings.

~~Capital~~Employees Requirements. Federal regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for savings associations receiving the highest rating on the CAMELS rating system and meeting certain other requirements) and an 8% risk-based capital ratio.

~~The~~As ~~risk-based capital standard for savings associations requires the maintenance~~ of ~~Tier~~September ~~1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of at least 4% and 8%~~30, ~~respectively. In determining the amount of risk-weighted assets~~2012, ~~all~~we ~~assets,~~had ~~including~~286 ~~certain off~~full-~~balance~~time ~~sheet~~employees assets, are multiplied by a risk-weight factor of 0% to 100% (or 200% for certain residual interests in transferred assets), assigned by the applicable regulatory agency, based on the risks believed inherent in the type of asset. Core capital is defined as common shareholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and ~~related~~12 surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, longpart-~~term~~time ~~perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1~~employees.~~25%~~ ofOur ~~risk-weighted~~employees ~~assets~~are ~~and~~not uprepresented toby ~~45%~~any collective ofbargaining ~~net unrealized gains on available-for-sale equity securities with readily determinable fair market values~~group. ~~Overall,~~ ~~the~~Management ~~amount~~believes ofthat ~~supplementary~~we ~~capital~~have ~~included as part of total capital cannot exceed 100% of core capital. Additionally,~~ a ~~savings~~good ~~association~~working ~~that~~relationship ~~retains credit risk in connection~~ with anour ~~asset sale may be required to maintain additional regulatory capital because of the recourse back to the savings association~~employees.

10Subsidiary Activities

AtCharter ~~September~~Financial ~~30,~~has ~~2011,~~no ~~the~~direct ~~Bank’s~~or ~~capital~~indirect ~~exceeded~~subsidiaries ~~all~~other ~~applicable~~than ~~requirements~~CharterBank.

~~Loans-to-One~~SUPERVISION ~~Borrower. Generally,~~AND aREGULATION federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2011, the Bank was in compliance with the loans-to-one borrower limitations.

~~Qualified~~General Thrift Lender Test. As a federal savings association, the Bank must satisfy the qualified thrift lender, or “QTL”, test. Under the QTL test, the Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related investments, including mortgage-backed securities) in at least nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings institution, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business.

~~The~~Charter ~~Bank~~Financial ~~also~~is ~~may~~a ~~satisfy~~savings ~~the~~and ~~QTL~~loan ~~test~~holding company, and is required to file certain reports with, and is subject to examination by, ~~qualifying~~and asotherwise amust ~~“domestic~~comply ~~building~~with the rules and ~~loan~~regulations ~~association~~of the Board of Governors of the Federal Reserve System (“FRB”). asCharter ~~defined~~Financial inis also subject to the rules ~~Internal~~and ~~Revenue~~regulations ~~Code~~of the Securities and Exchange Commission under the federal securities laws.

AThe Bank is a federal savings association, ~~that~~examined ~~fails~~and supervised by the ~~qualified~~Office ~~thrift~~of ~~lender~~the ~~test~~Comptroller ~~must~~of ~~operate~~the ~~under~~Currency ~~specified~~(“OCC”) ~~restrictions~~and is subject to examination by the Federal Deposit Insurance Corporation (“FDIC”). ~~Under~~ This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the ~~Dodd-Frank~~protection ~~Act~~of the FDIC’s deposit insurance fund and depositors. Under this system of federal regulation, ~~non-compliance~~financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the ~~QTL~~federal ~~test~~agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may ~~subject~~not ~~the~~disclose ~~Bank~~its CAMELS rating to ~~agency~~the ~~enforcement~~public. ~~action~~The ~~for~~Bank also is a member ~~violation~~of and owns stock in the FHLB of ~~law~~Atlanta, which is one of the twelve regional banks in the Federal Home Loan Bank System. At ~~September~~The ~~30,~~Bank ~~2011~~also is regulated to a lesser extent by the FRB, governing reserves to be maintained against deposits and other matters. The OCC will examine the Bank ~~satisfied~~and prepare reports for the ~~QTL~~consideration ~~test~~of the Bank’s board of directors on any operating deficiencies. The

~~Capital~~10 Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if:

●Table the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;Contents

● Bank’s ~~the~~relationship ~~savings~~with ~~association~~its ~~would~~depositors ~~not~~and beborrowers atalso ~~least~~is ~~adequately~~regulated ~~capitalized~~to ~~following~~a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership ~~distribution;~~of deposit accounts and the form and content of the Bank’s mortgage documents.

●Any ~~the~~change ~~distribution~~in ~~would~~these ~~violate~~laws ~~any~~or regulations, ~~applicable~~whether ~~statute~~by the FDIC, ~~regulation~~the OCC, ~~agreement~~the FRB or ~~condition~~Congress, ~~imposed~~could byhave a ~~regulator;~~material oradverse impact on Charter Financial, the Bank and their operations.

●Certain of the ~~savings~~regulatory ~~association~~requirements that are applicable to the Bank and Charter Financial are described below. This description of statutes and regulations is not ~~eligible~~intended ~~for~~to ~~expedited~~be ~~treatment~~a complete explanation of such statutes and regulations and their effects on the Bank and Charter Financial and is qualified in its ~~filings~~entirety by reference to the actual statutes and regulations.

~~Even~~Federal ifLegislation an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company must still file a notice with the FRB at least 30 days before the board of directors declares a dividend or approves a capital distribution.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), enacted on July 21, 2010, is significantly changing the bank regulatory structure and affecting the lending, investment, trading and operating activities of depository institutions and their holding companies. The Dodd-Frank Act eliminated our former primary federal regulator, the Office of Thrift Supervision, and required the Bank to be regulated by the OCC (the primary federal regulator for national banks). The Dodd-Frank Act also authorized the FRB to supervise and regulate all savings and loan holding companies, including mutual holding companies and their mid-tier holding companies, like First Charter, MHC (the “MHC”) and Charter Financial, in addition to bank holding companies which the FRB ~~have~~already ~~established~~regulated. ~~similar~~Accordingly, ~~criteria~~the ~~for~~MHC ~~approving~~will anrequire ~~application~~the orapproval of the FRB before it may waive the receipt of any dividends from Charter Financial. The FRB currently requires a ~~notice~~“grandfathered” mutual holding company, like the MHC, to obtain member (depositor) approval and ~~may~~comply ~~disapprove~~with other procedural requirements prior to waiving dividends, which would make dividend waivers more difficult to secure. For additional discussion regarding the waiver of dividends by the MHC, see “Holding Company Regulation Waivers of Dividend by First Charter, MHC.” The Dodd-Frank Act also requires the FRB to set minimum capital levels for depository institution holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. There is a ~~notice~~five-year transition period (from the July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements should apply to savings and loan holding companies, although it is uncertain at this time whether the FRB will impose such capital requirements sooner. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or ~~application~~savings ~~if:~~and loan holding companies with less than $15 billion of assets. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect on July 21, 2010.

●The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with substantial power to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rulemaking authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as the Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings ~~association~~institutions ~~would~~with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets such as the Bank will continue to be ~~undercapitalized~~examined ~~following~~by their applicable federal bank regulators. The legislation also weakened the ~~distribution;~~federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

●The legislation broadened the ~~proposed~~base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital ~~distribution~~of ~~raises~~a ~~safety~~depository institution instead of aggregate deposits. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and ~~soundness~~credit ~~concerns;~~unions orto $250,000 per depositor, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012. The Dodd-Frank Act increased stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directed the FRB to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded. The Dodd-Frank Act provided for originators of certain securitized loans to retain a percentage of the risk for transferred loans, directed the FRB to regulate pricing of certain debit card interchange fees and contained a number of reforms related to mortgage origination.

●Table theof capital distribution would violate a prohibition contained in any statute, regulation or agreement.Contents

InMany ~~addition,~~of the ~~Federal~~provisions ~~Deposit~~of ~~Insurance~~the Dodd-Frank Act ~~provides~~have ~~that~~delayed aneffective ~~insured~~dates ~~depository~~and ~~institution~~the legislation ~~may~~requires ~~not~~various ~~make~~federal ~~any~~agencies ~~capital~~to ~~distribution,~~promulgate ifnumerous and extensive implementing regulations over the ~~institution~~next ~~would~~several years. Although the substance and scope of these regulations cannot be ~~undercapitalized~~completely ~~after~~determined at this time, it is expected that the ~~distribution~~legislation and implementing regulations will increase our operating and compliance costs.

~~Liquidity. A~~Federal ~~federal~~Banking ~~savings association is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.~~Regulation

~~Community~~Business ~~Reinvestment~~Activities. ~~Act~~A ~~and~~federal ~~Fair~~savings ~~Lending~~association ~~Laws. All~~derives ~~savings~~its ~~associations~~lending ~~have~~and ainvestment ~~responsibility~~powers ~~under~~from the Home ~~Community~~Owners’ ~~Reinvestment~~Loan Act, as amended and federal regulations. toUnder ~~help~~these ~~meet~~laws ~~the~~and ~~credit~~regulations, ~~needs~~the ofBank ~~their~~may ~~communities,~~invest ~~including~~in ~~low-~~mortgage ~~and~~loans ~~moderate-income~~secured ~~neighborhoods. In~~by ~~connection~~residential ~~with~~real ~~its~~estate ~~examination~~without oflimitations as a ~~federal~~percentage ~~savings~~of ~~association~~assets, ~~the~~and ~~OCC~~may isinvest ~~required~~in non-residential toreal ~~assess~~estate ~~the~~loans ~~savings~~up ~~association’s~~to ~~record~~400% of ~~compliance~~capital ~~with~~in the ~~Community~~aggregate, ~~Reinvestment~~commercial ~~Act. In~~business ~~addition,~~loans ~~the~~up ~~Equal~~to ~~Credit~~20% ~~Opportunity~~of ~~Act~~assets ~~and~~in the ~~Fair~~aggregate ~~Housing~~and ~~Act~~consumer ~~prohibit~~loans ~~lenders~~up ~~from~~to ~~discriminating~~35% inof ~~their~~assets ~~lending~~in ~~practices~~the onaggregate. ~~the~~The ~~basis~~Bank ofmay ~~characteristics~~also ~~specified~~invest in ~~those~~certain ~~statutes. A~~types ~~savings~~of ~~association’s~~debt securities ~~failure~~and tocertain ~~comply~~other ~~with~~assets. ~~the~~A ~~provisions~~bank ofalso ~~the~~may ~~Community~~establish ~~Reinvestment~~subsidiaries ~~Act~~that ~~could,~~may atengage ~~a minimum, result~~ in ~~denial of~~ certain ~~corporate~~activities ~~applications~~not ~~such~~otherwise aspermissible ~~branches~~for ora ~~mergers~~bank, orincluding inreal ~~restrictions~~estate oninvestment ~~its~~and ~~activities. The~~securities ~~failure~~and toinsurance ~~comply~~brokerage. ~~with~~The ~~the~~Dodd-Frank ~~Equal Credit Opportunity~~ Act authorized ~~and~~depository ~~the~~institutions ~~Fair~~to ~~Housing~~commence ~~Act~~paying ~~could~~interest ~~result~~on inbusiness ~~enforcement~~checking ~~actions~~accounts, byeffective ~~the OCC~~July 21, ~~as well as other federal regulatory agencies and the Department of Justice~~2011.

~~The~~Capital ~~Bank~~Requirements. ~~received~~Federal regulations require savings associations to meet three minimum capital standards: a ~~satisfactory~~1.5% tangible ~~Community~~capital ~~Reinvestment~~ratio, ~~Act~~a 4% leverage ratio (3% for savings associations receiving the highest rating on the CAMELS rating system and meeting certain other requirements) and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in ~~its~~effect, ~~most~~a ~~recent~~minimum ~~federal~~2% ~~examination~~tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS financial institution rating system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. Federal regulations also require that in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities that are not permissible for a national bank.

~~Transactions~~The ~~with~~risk-based ~~Related~~capital ~~Parties. A~~standard ~~federal~~for savings ~~association’s~~associations requires ~~authority~~the tomaintenance ~~engage~~of inTier 1 ~~transactions~~(core) ~~with~~and ~~its~~total ~~affiliates~~capital (which is ~~limited~~defined byas ~~FRB~~core ~~regulations~~capital and bysupplementary ~~Sections~~capital) ~~23A~~to ~~and~~risk-weighted ~~23B~~assets of ~~the~~at ~~Federal~~least ~~Reserve~~4% ~~Act~~ and ~~its~~8%, ~~implementing~~respectively. ~~Regulation~~In ~~W. An~~determining ~~affiliate~~the isamount aof ~~company~~risk-weighted ~~that~~assets, ~~controls~~all assets, including iscertain ~~controlled~~off-balance bysheet assets, orare ismultiplied ~~under~~by ~~common~~a ~~control~~risk-weight ~~with~~factor anof ~~insured~~0% ~~depository~~to ~~institution~~100% ~~such~~(or as200% ~~the~~for ~~Bank. First~~certain ~~Charter,~~residual ~~MHC~~interests ~~and~~in ~~Charter~~transferred ~~Financial~~assets), ~~are~~assigned ~~affiliates~~by of the ~~Bank. In~~applicable ~~general~~regulatory agency, ~~loan~~based ~~transactions~~on ~~between~~the anrisks ~~insured~~believed ~~depository~~inherent ~~institution~~in the ~~and~~type ~~its~~of ~~affiliates~~asset. ~~are~~Core ~~subject~~capital tois ~~certain~~defined ~~quantitative~~as ~~and~~common ~~collateral~~shareholders’ ~~requirements. In~~equity ~~this~~(including ~~regard~~retained earnings), ~~transactions~~certain ~~between~~non-cumulative anperpetual ~~insured~~preferred ~~depository~~stock ~~institution~~ and ~~its~~related ~~affiliates~~surplus ~~are~~and ~~limited~~minority tointerests ~~10%~~in equity accounts of ~~the~~consolidated subsidiaries, ~~institution’s~~less ~~unimpaired~~intangibles ~~capital~~other ~~and~~than ~~unimpaired~~certain ~~surplus~~mortgage ~~for~~servicing ~~transactions~~rights ~~with~~and ~~any~~credit ~~one~~card ~~affiliate~~relationships. ~~and~~The ~~20%~~components of ~~unimpaired~~supplementary capital ~~and~~currently ~~unimpaired~~include ~~surplus~~cumulative ~~for~~preferred ~~transactions~~stock, inlong-term ~~the~~perpetual ~~aggregate~~preferred ~~with~~stock, ~~all~~mandatory convertible ~~affiliates. Collateral~~securities, insubordinated ~~specified~~debt ~~amounts~~and ~~ranging~~intermediate ~~from~~preferred ~~100%~~stock, tothe ~~130%~~allowance offor ~~the~~loan ~~amount~~and oflease ~~the~~losses ~~transaction~~limited ~~must~~to ~~usually~~a bemaximum ~~provided~~of by1.25% ~~affiliates~~of inrisk-weighted ~~order~~assets and up to ~~receive~~45% ~~loans~~of ~~from~~net ~~the~~unrealized ~~savings~~gains ~~association. In~~on ~~addition,~~available-for-sale ~~federal~~equity ~~regulations~~securities with ~~prohibit~~readily adeterminable ~~savings~~fair ~~association~~market ~~from~~values. ~~lending~~Overall, tothe ~~any~~amount of ~~its~~supplementary ~~affiliates~~capital ~~that~~included ~~are~~as ~~engaged~~part inof ~~activities~~total ~~that~~capital ~~are~~cannot ~~not~~exceed ~~permissible~~100% ~~for~~of ~~bank~~core ~~holding~~capital. ~~companies~~Additionally, ~~and~~a ~~from~~savings ~~purchasing~~association ~~the~~that ~~securities~~retains ofcredit ~~any~~risk ~~affiliate,~~in ~~other~~connection ~~than~~with aan ~~subsidiary. Finally,~~asset sale ~~transactions~~may ~~with~~be ~~affiliates~~required ~~must~~to bemaintain ~~consistent~~additional ~~with~~regulatory ~~safe~~capital ~~and~~because ~~sound~~of ~~banking~~the ~~practices,~~recourse ~~not~~back ~~involve~~to ~~low-quality~~the ~~assets~~savings ~~and~~association. beIn onassessing ~~terms~~an ~~that~~institution’s ~~are~~capital asadequacy, ~~favorable~~the toOCC ~~the~~takes ~~institution~~into asconsideration ~~comparable~~not ~~transactions~~only ~~with~~these ~~non-affiliates. Savings~~numeric ~~associations~~factors ~~are~~but ~~required~~also qualitative factors, and has the authority to ~~maintain~~establish ~~detailed~~higher ~~records~~capital ofrequirements ~~all~~for ~~transactions~~individual ~~with~~associations ~~affiliates~~where necessary.

On June ~~The~~6, ~~Bank’s~~2012, ~~authority~~the toOCC ~~extend~~and ~~credit~~the toother ~~its~~federal ~~directors,~~bank ~~executive~~regulatory ~~officers~~agencies issued a series of proposed rules that would revise their risk-based and ~~10%~~leverage ~~shareholders,~~capital asrequirements ~~well~~and astheir method for calculating risk-weighted assets to ~~entities~~make ~~controlled~~them byconsistent ~~such~~with ~~persons,~~the isagreements ~~currently~~that ~~governed~~were reached by the ~~requirements~~Basel ofCommittee ~~Sections 22(g)~~on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and 22Banking Systems” (h“Basel III”) and certain provisions of the ~~Federal~~Dodd-Frank ~~Reserve~~ Act. The ~~and~~proposed ~~Regulation~~rules Owould apply to all depository institutions, top-tier bank holding companies with total consolidated assets of ~~the~~$500 ~~FRB~~million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, ~~these~~the ~~provisions~~proposed ~~require~~rules ~~that~~establish ~~extensions~~a ofnew ~~credit~~common equity tier 1 minimum capital requirement and a higher minimum tier 1 capital requirement and assign higher risk weightings (150%) to ~~insiders:~~exposures that are more than 90 days past due or are on nonaccrual status and

●12 subject to certain exceptions for loan law programs made available to all employees, be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and

●Table not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital.Contents

In certain ~~addition~~commercial real estate facilities that finance the acquisition, ~~extensions~~development or construction of ~~credit~~real inproperty. The ~~excess~~proposed ofrules also required unrealized gains and losses on certain securities ~~limits~~holdings ~~must~~to be ~~approved~~included byfor ~~the~~purposes ~~Bank~~of calculating regulatory capital requirements. The proposed rules limit a banking organization’s ~~board~~capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of ~~directors~~a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The proposed rules indicated that the final rule would become effective on January 1, 2013, and the changes set forth in the final rules will be phased in from January 1, 2013 through January 1, 2019. However, the agencies have recently indicated that, due to the volume of public comments received, the final rule would not be in effect on January 1, 2013.

~~Enforcement. The~~At ~~OCC has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all “institution-affiliated parties~~September 30,” ~~including shareholders~~2012, ~~and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by~~ the Bank’s ~~OCC may range from the issuance of a~~ capital ~~directive~~exceeded orall ~~cease~~applicable ~~and desist order, to removal of officers and/or directors of the institution and the appointment of a receiver or conservator~~requirements. ~~Civil~~ penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or to recommend to the OCC that enforcement action be taken with respect to a particular savings institution. If action is not taken by the OCC, the FDIC has authority to take action under specified circumstances.

12Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2012, the Bank was in compliance with the loans-to-one borrower limitations.

~~Standards~~Qualified ~~for~~Thrift ~~Safety~~Lender ~~and Soundness~~Test. ~~Federal~~ ~~law~~As ~~requires~~a ~~each~~ federal ~~banking~~savings ~~agency to prescribe certain standards for all insured depository institutions. These standards relate to~~association, ~~among~~the ~~other~~Bank ~~things,~~must ~~internal~~satisfy ~~controls,~~the ~~information~~qualified ~~systems~~thrift ~~and audit systems~~lender, or ~~loan documentation~~“QTL”, ~~credit~~test. ~~underwriting,~~Under ~~interest~~the ~~rate~~QTL ~~risk exposure~~test, ~~asset growth, compensation, and other operational and managerial standards as~~ the ~~agency~~Bank ~~deems~~must ~~appropriate. The~~maintain ~~federal~~at ~~banking~~least ~~agencies~~65% ~~adopted~~of ~~Interagency~~its ~~Guidelines~~“portfolio ~~Prescribing~~assets” ~~Standards~~in ~~for~~“qualified ~~Safety~~thrift ~~and~~investments” ~~Soundness~~(primarily toresidential ~~implement~~mortgages ~~the safety~~ and ~~soundness~~related ~~standards~~investments, ~~required~~including ~~under~~mortgage-backed securities) ~~federal~~in ~~law. The~~at ~~guidelines~~least ~~set~~nine ~~forth~~months ~~the~~of ~~safety and soundness standards that~~ the ~~federal~~most ~~banking~~recent ~~agencies~~12-month ~~use~~period. to“Portfolio ~~identify~~assets” ~~and~~generally ~~address~~means ~~problems~~total atassets ~~insured~~of ~~depository~~a ~~institutions~~savings ~~before~~institution, ~~capital~~less ~~becomes impaired. If~~ the ~~appropriate~~sum ~~federal~~of ~~banking~~specified ~~agency~~liquid ~~determines~~assets ~~that~~up ~~an institution fails~~ to ~~meet~~20% ~~any~~of ~~standard~~total ~~prescribed by the guidelines~~assets, ~~the~~goodwill ~~agency~~and ~~may~~other intangible ~~require~~assets, ~~the~~and ~~institution to submit to~~ the ~~agency~~value anof ~~acceptable~~property ~~plan~~used toin ~~achieve compliance with~~ the ~~standard. If~~conduct anof ~~institution fails to meet these standards,~~ the ~~appropriate~~savings ~~federal~~association’s ~~banking agency may require the institution to submit a compliance plan~~business.

~~Prompt~~The ~~Corrective~~Bank ~~Action~~also may ~~Regulations. Under~~satisfy the ~~prompt~~QTL ~~corrective~~test ~~action~~by ~~regulations,~~qualifying ~~the~~as ~~OCC~~a is“domestic ~~required~~building and ~~authorized~~loan toassociation” ~~take~~as ~~supervisory~~defined ~~actions~~in ~~against~~the ~~undercapitalized~~Internal Revenue Code. A savings ~~associations~~association that fails the qualified thrift lender test must operate under specified restrictions. ~~For~~ Under ~~this~~the ~~purpose~~Dodd-Frank Act, anon-compliance ~~savings~~with ~~association~~the isQTL ~~placed~~test inmay ~~one~~subject the Bank to agency enforcement action for a violation of ~~the~~law. ~~following~~At ~~five~~September 30, ~~categories~~2012, ~~based~~the onBank satisfied the ~~savings~~QTL ~~association’s~~test. ~~capital:~~

●Capital ~~well-capitalized~~Distributions. ~~(at~~Federal ~~least~~regulations 5%govern ~~leverage~~ capital, 6%distributions ~~Tier~~by 1a ~~risk-based~~federal ~~capital~~savings ~~and~~association, ~~10%~~which include ~~total~~cash ~~risk-based capital~~dividends, stock repurchases and isother ~~not~~transactions ~~subject~~charged to ~~any~~the ~~written~~capital ~~agreement,~~account ~~order,~~of ~~capital~~a ~~directive,~~savings orassociation. ~~prompt~~A ~~corrective~~federal ~~action~~savings ~~directive~~association ~~issued~~must byfile ~~the~~an ~~OCC~~application orwith the ~~OTS~~OCC ~~under~~for ~~certain~~approval ~~statutes~~of ~~and regulations, to meet and maintain~~ a ~~specific~~ capital ~~level~~distribution ~~for~~if: ~~any capital measure);~~

●• ~~adequately~~the ~~capitalized~~total ~~(at~~capital ~~least~~distributions 4%for ~~leverage~~the ~~capital~~applicable ~~(3%~~calendar year exceed the sum of the savings association’s net income for ~~associations~~that ~~with~~year ato ~~composite~~date ~~CAMELS~~plus ~~rating~~the ofsavings ~~1),~~association’s 4%retained ~~Tier~~net 1income ~~risk-based~~for ~~capital~~the ~~and~~preceding 8%two ~~total~~years ~~risk-based~~that ~~capital)~~is still available for dividends;

●• ~~undercapitalized (less than 4% leverage capital (except as noted in~~ the ~~bullet~~savings ~~point~~association ~~above),~~would 4%not ~~Tier~~be 1at ~~risk-based~~least ~~capital~~adequately orcapitalized 8%following ~~total~~the ~~risk-based capital)~~distribution;

●• ~~significantly~~the ~~undercapitalized~~distribution ~~(less~~would ~~than~~violate 3%any ~~leverage~~applicable ~~capital~~statute, 3%regulation, ~~Tier~~agreement ~~1 risk-based capital~~ or 6%condition ~~total~~imposed ~~risk-based~~by ~~capital)~~a regulator; ~~and~~or

●• ~~critically~~the ~~undercapitalized~~savings ~~(less~~association ~~than~~is 2%not ~~tangible~~eligible ~~capital)~~for expedited treatment of its filings.

~~Generally,~~Even ~~the~~if ~~banking~~an ~~regulator~~application is ~~required~~not tootherwise ~~appoint~~required, aevery ~~receiver or conservator for a~~ savings association that is ~~“critically undercapitalized” within specific time frames. The regulations also provide that~~ a ~~capital~~subsidiary ~~restoration plan must be filed with the OCC within 45 days~~ of ~~the date~~ a savings association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and ~~assumptions~~loan for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings association will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the savings association. Any holding company must ~~for~~still afile ~~savings association required to submit~~ a ~~capital~~notice ~~restoration~~with ~~plan must guarantee~~ the ~~lesser~~FRB ~~of an amount equal to 5% of the savings association’s assets~~ at ~~the~~least ~~time~~30 itdays ~~was~~before ~~notified or deemed to be undercapitalized by~~ the ~~OCC,~~board or the amount necessary to restore the savings association to adequately capitalized status. This guarantee remains in place until the OCC notifies the savings association that it has maintained adequately capitalized status for each of ~~four~~directors ~~consecutive~~declares ~~calendar quarters, and the OCC has the authority to require payment and collect payment under the guarantee. Failure by~~ a ~~holding~~dividend company to provide the required guarantee will result in certain operating restrictions on the savings association, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or ~~expand~~approves ~~operations. The OCC may also take any one of~~ a ~~number of discretionary supervisory actions against undercapitalized associations, including the issuance of a~~ capital ~~directive and the replacement of senior executive officers and directors~~distribution.

13The OCC and the FRB have established similar criteria for approving an application or a notice and may disapprove a notice or application if:

At• ~~September 30, 2011,~~ the ~~Bank~~savings ~~met~~association ~~the~~would ~~criteria~~be ~~for~~undercapitalized ~~being~~following ~~considered~~the ~~“well-capitalized.”~~distribution;

~~Insurance~~13 of Deposit Accounts. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008. Also, under the Dodd-Frank Act, noninterest-bearing checking accounts have unlimited deposit insurance through December 31, 2012.

OnTable November 12, 2009, the FDIC approved a final rule requiring insured depository institutions to prepay, on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. Estimated assessments for the fourth quarter of 2009 and for all of 2010 were based upon the assessment rate in effect on September 30, 2009, with three basis points added for the 2011 and 2012 assessment rates. In addition, a 5% annual growth in the assessment base was assumed. Prepaid assessments are to be applied against the actual quarterly assessments until exhausted, and may not be applied to any special assessments that may occur in the future. Any unused prepayments will be returned to the institution on June 30, 2013. On December 30, 2009, the Bank prepaid $3.5 million in estimated assessment fees for the fourth quarter of 2009 through 2012.Contents

~~Effective~~• ~~April 1, 2011,~~ the ~~FDIC~~proposed ~~implemented a requirement of the Dodd-Frank Act to revise its assessment system to base it on each institution’s total assets less tangible~~ capital ofdistribution ~~each~~raises ~~institution~~safety ~~instead~~and ofsoundness ~~deposits. The~~concerns; ~~FDIC also revised its assessment schedule so that it ranges from 2.5 basis points for the least risky institutions to 45 basis points for the riskiest.~~or

~~Insurance~~• ~~of deposits may be terminated by~~ the ~~Federal~~capital ~~Deposit~~distribution ~~Insurance~~would ~~Corporation~~violate ~~upon~~ a ~~finding~~prohibition ~~that~~contained ~~an institution has engaged~~ in ~~unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated~~ any ~~applicable law~~statute, regulation, ~~rule, order~~ or ~~condition imposed by the Federal Deposit Insurance Corporation~~agreement. ~~The Bank does not believe that it is taking or is subject to any action, condition or violation that could lead to termination of its deposit insurance.~~

~~All~~In ~~FDIC-insured institutions are required to pay a pro rata portion of the interest due on obligations issued by the Financing Corporation (“FICO”) for anticipated payments~~addition, ~~issuance costs and custodial fees on bonds issued by~~ the ~~FICO in the 1980s to recapitalize the~~ Federal ~~Savings~~Deposit ~~and Loan~~ Insurance ~~Corporation. The~~Act ~~bonds~~provides ~~issued~~that byan ~~the~~insured ~~FICO~~depository ~~are~~institution ~~due~~may tonot ~~mature~~make inany ~~2017~~capital ~~through 2019. For the quarter ended September 30~~distribution, ~~2011,~~ if the ~~annualized FICO assessment was equal to 1.00 cents for each $100 in domestic deposits maintained at an~~ institution~~. Assessments~~ ~~related~~would tobe ~~the~~undercapitalized ~~FICO~~after ~~bond obligations were not subject to~~ the ~~December 30, 2009 prepayment~~distribution.

~~For~~Liquidity. ~~the~~A ~~fiscal~~federal ~~year~~savings ~~ended~~association ~~September~~is required ~~30,~~to ~~2011,~~maintain ~~the~~a ~~Bank~~sufficient ~~paid~~amount ~~$80,000~~of ~~related~~liquid assets to ~~the~~ensure ~~FICO~~its ~~bonds~~safe and ~~$729,000 pertaining~~sound ~~to deposit insurance assessments~~operation. ~~Deposit~~ ~~insurance assessments were prepaid in December 2009, for calendar years 2010 through 2012, while FICO bond payments were prepaid, one quarter in advance.~~

~~Prohibitions~~Community Reinvestment ~~Against~~Act ~~Tying~~and ~~Arrangements~~Fair Lending Laws. ~~Federal~~ All savings associations ~~are~~have ~~prohibited,~~a ~~subject~~responsibility tounder ~~some~~the ~~exceptions,~~Community ~~from~~Reinvestment ~~extending~~Act ~~credit~~and federal regulations to orhelp ~~offering~~meet ~~any~~the ~~other~~credit ~~service~~needs of their communities, orincluding ~~fixing~~low- orand ~~varying~~moderate-income neighborhoods. ~~the~~In ~~consideration~~connection ~~for~~with ~~such~~its ~~extension~~examination of ~~credit~~a orfederal ~~service~~savings association, onthe OCC is required to assess the ~~condition~~savings ~~that~~association’s record of compliance with the ~~customer~~Community ~~obtain~~Reinvestment ~~some~~Act. ~~additional~~In ~~service~~addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the ~~institution~~basis orof ~~its~~characteristics ~~affiliates~~specified orin ~~not~~those ~~obtain~~statutes. ~~services~~A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a ~~competitor~~minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The failure to comply with the ~~institution~~Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.

~~Federal Home Loan Bank System.~~ The Bank is received a ~~member~~satisfactory ofCommunity ~~the~~Reinvestment ~~Federal~~Act ~~Home~~rating Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the FHLB of Atlanta, the Bank is required to acquire and hold shares of capital stock in ~~the~~its ~~Federal~~most ~~Home~~recent ~~Loan~~federal ~~Bank~~examination.

AsTransactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by FRB regulations and by Sections 23A and 23B of ~~September~~the 30Federal Reserve Act and its implementing Regulation W. An affiliate is a company that controls, ~~2011~~is controlled by, ~~outstanding~~or ~~borrowings~~is ~~from~~under common control with an insured depository institution such as the ~~FHLB~~Bank. First Charter, MHC and Charter Financial are affiliates of ~~Atlanta~~the ~~were~~Bank. ~~$110~~In general, loan transactions between an insured depository institution and its affiliates are subject to certain quantitative and collateral requirements.0 ~~million~~In this regard, transactions between an insured depository institution and its affiliates are limited to 10% of the ~~Bank~~institution’s unimpaired ~~was~~capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in ~~compliance~~the aggregate with all affiliates. Collateral in specified amounts ranging from 100% to 130% of the ~~stock~~amount ~~investment~~of ~~requirement~~the transaction must usually be provided by affiliates in order to receive loans from the savings association. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. Savings associations are required to maintain detailed records of all transactions with affiliates.

~~Other~~The ~~Regulations~~Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FRB. Among other things, these provisions require that extensions of credit to insiders:

~~Interest~~• ~~and~~subject ~~other~~to ~~charges~~certain ~~collected~~exceptions ~~or contracted~~ for byloan ~~CharterBank~~law ~~are~~programs ~~subject~~made available to ~~state~~all ~~usury~~employees, ~~laws~~be ~~and~~made ~~federal~~on ~~laws~~terms ~~concerning~~that ~~interest~~are ~~rates. In~~substantially ~~addition~~the same as, ~~CharterBank’s~~and ~~operations~~follow credit underwriting procedures that are ~~subject~~not toless ~~federal~~stringent ~~laws~~than, those prevailing for comparable transactions with unaffiliated persons and ~~regulations~~that ~~applicable~~do tonot ~~credit~~involve ~~transactions,~~more ~~financial~~than ~~privacy,~~the ~~money~~normal ~~laundering~~risk ~~and~~of ~~electronic~~repayment ~~fund~~or ~~transfers.~~present other unfavorable features, and

14• not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital.

~~Holding~~14 ~~Company Regulation~~

General. TheTable MHC and Charter Financial are non-diversified savings and loan holding companies within the meaning of the Home Owners’ Loan Act. As such, the MHC and Charter Financial are registered with the FRB and subject to FRB regulations, examinations, supervision and reporting requirements. In addition, the FRB has enforcement authority over the MHC, Charter Financial and, in some instances, the Bank. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the Bank. As federal corporations, the MHC and Charter Financial are generally not subject to state business organization laws.Contents

~~Permitted~~In ~~Activities. Pursuant~~addition, toextensions ~~Section 10(o)~~ of ~~the~~credit ~~Home~~in ~~Owners’~~excess ~~Loan~~of ~~Act~~certain ~~and~~limits ~~FRB~~must ~~regulations,~~be aapproved ~~mutual~~by ~~holding~~the Bank’s ~~company,~~board ~~such~~of asdirectors. ~~First Charter, MHC and its mid-tier companies, such as Charter Financial, may engage in the following activities:~~

~~(i) investing~~Enforcement. The OCC has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all “institution-affiliated parties,” including shareholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the ~~stock~~OCC may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or to recommend to the OCC that enforcement action be taken with respect to a particular savings ~~association;~~institution. If action is not taken by the OCC, the FDIC has authority to take action under specified circumstances.

~~(ii) acquiring~~Standards afor ~~mutual~~Safety ~~association~~and ~~through~~Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the ~~merger~~agency ofdeems ~~such~~appropriate. ~~association~~The ~~into~~federal abanking ~~savings~~agencies ~~association~~adopted ~~subsidiary~~Interagency ofGuidelines ~~such~~Prescribing ~~holding~~Standards ~~company~~for orSafety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an ~~interim~~institution ~~savings~~fails ~~association~~to ~~subsidiary~~meet ofany ~~such~~standard ~~holding~~prescribed ~~company;~~by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

~~(iii) merging~~Prompt ~~with~~Corrective orAction ~~acquiring~~Regulations. ~~another~~Under ~~holding~~the ~~company~~prompt corrective action regulations, the OCC is required and authorized to take supervisory actions against undercapitalized savings associations. For this purpose, a savings association is placed in one of ~~whose~~the ~~subsidiaries~~following isfive acategories based on the savings association;’s capital:

• well-capitalized (~~iv) investing~~at inleast a5% ~~corporation~~leverage capital, ~~the~~6% Tier 1 risk-based capital ~~stock~~and of10% ~~which~~total risk-based capital, and is ~~available~~not ~~for~~subject ~~purchase~~to byany awritten ~~savings~~agreement, ~~association~~order, ~~under~~capital ~~federal~~directive, ~~law~~or prompt corrective action directive issued by the OCC or the OTS under ~~the~~certain ~~law~~statutes ofand ~~any~~regulations, ~~state~~to ~~where~~meet ~~the~~and ~~subsidiary~~maintain ~~savings~~a ~~association~~specific ~~has~~capital ~~its~~level ~~home~~for ~~offices~~any capital measure);

• adequately capitalized (~~v) furnishing~~at orleast ~~performing~~4% ~~management~~leverage ~~services~~capital (3% for associations with a ~~savings~~composite ~~association~~CAMELS ~~subsidiary~~rating of ~~such~~1), ~~company~~4% Tier 1 risk-based capital and 8% total risk-based capital);

• undercapitalized (~~vi) holding,~~less ~~managing~~than or4% ~~liquidating~~leverage ~~assets~~capital ~~owned~~(except oras ~~acquired~~noted ~~from~~in athe ~~savings~~bullet ~~association~~point ~~subsidiary~~above), of4% ~~such~~Tier ~~company~~1 risk-based capital or 8% total risk-based capital);

• significantly undercapitalized (~~vii) holding~~less orthan ~~managing~~3% ~~properties~~leverage ~~used~~capital, or3% ~~occupied~~Tier by1 arisk-based ~~savings~~capital ~~association~~or ~~subsidiary~~6% oftotal ~~such~~risk-based ~~company~~capital); and

~~(viii) acting~~• ascritically ~~trustee~~undercapitalized ~~under~~(less ~~deeds~~than of2% ~~trust;~~tangible capital).

~~(ix) any~~Generally, the banking regulator is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the OCC within 45 days of the date a savings association receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other ~~activity:~~things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings association will engage in while the capital restoration plan is in effect, and assurances that the capital restoration

~~(A) that~~15 the FRB by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the Director, by regulation, prohibits or limits any such activity for savings and loan holding companies; or

(B) inTable whichof multiple savings and loan holding companies were authorized (by regulation) to directly engage on March 5, 1987;Contents

~~(x) if~~ plan will not appreciably increase the current risk profile of the savings ~~and~~association. ~~loan~~Any holding company ~~meets~~for a savings association required to submit a capital restoration plan must guarantee the ~~criteria~~lesser of an amount equal to ~~qualify~~5% asof athe ~~financial~~savings ~~holding~~association’s ~~company,~~assets at the time it ~~may~~was ~~engage~~notified or deemed to be undercapitalized by the OCC, or the amount necessary to restore the savings association to adequately capitalized status. This guarantee remains in ~~any~~place ~~activity~~until ~~permissible~~the OCC notifies the savings association that it has maintained adequately capitalized status for ~~financial~~each ~~holding~~of ~~companies~~four consecutive calendar quarters, and the OCC has the authority to require payment and collect payment under the ~~Section~~guarantee. ~~4(k)~~Failure ofby a holding company to provide the ~~Bank~~required ~~Holding~~guarantee ~~Company~~will ~~Act~~result in certain operating restrictions on the savings association, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations. The OCC may also take any one of a number of discretionary supervisory actions against undercapitalized associations, including ~~securities~~the issuance of a capital directive and ~~insurance~~the ~~underwriting;~~replacement of senior executive officers and directors.

~~(xi) purchasing,~~At ~~holding~~September 30, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such savings and loan holding company is approved by the Director. If a mutual holding company acquires or merges with another holding company2012, the ~~holding~~Bank ~~company~~met ~~acquired or~~ the ~~holding~~criteria ~~company~~for ~~resulting~~being from such merger or acquisition may only invest in assets and engage in activities listed in (i) through (x) above, and has a period of two years to cease any nonconforming activities and divest any nonconforming investmentsconsidered “well-capitalized.”

The ~~Home~~recently ~~Owners’~~proposed ~~Loan~~rules Act prohibits a savings and loan holding company, including Charter Financial, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or holding company thereof, without prior written approval of the FRB. It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a non-subsidiary company engaged in activities other than those permitted by the Home Owners’ Loan Act or acquiring or retaining control of an institution that iswould ~~not~~increase ~~federally~~regulatory ~~insured. In~~capital ~~evaluating~~requirements ~~applications~~would ~~by holding companies to acquire savings institutions,~~ adjust the ~~FRB~~prompt ~~must~~corrective ~~consider~~categories the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factorsaccordingly.

15Insurance of Deposit Accounts. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor. Also, under the Dodd-Frank Act, noninterest-bearing checking accounts have unlimited deposit insurance through December 31, 2012.

The ~~FRB~~FDIC isassesses ~~prohibited~~deposit ~~from~~insurance ~~approving~~premiums ~~any~~on ~~acquisition~~all ~~that~~insured ~~would~~depository institutions. ~~result~~Under inthe aFDIC’s ~~multiple~~risk-based ~~savings~~assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and ~~loan~~certain ~~holding~~other ~~company~~factors. ~~controlling~~An ~~savings~~institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by FDIC regulations, with institutions indeemed less risky to the deposit insurance fund paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2 1/2 to 45 basis points of each institution’s total assets less tangible capital. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than ~~one~~two basis ~~state~~points from the base assessment rate without notice and comment rulemaking. The FDIC’s current system represents a change, ~~subject~~required toby ~~two~~the ~~exceptions:~~Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s aggregate deposits.

~~(i)~~The Dodd-Frank Act increased the ~~approval~~minimum target ratio for the Deposit Insurance Fund from 1.15% of ~~interstate~~estimated insured ~~supervisory~~deposits ~~acquisitions~~to by1.35% ~~savings~~of estimated insured deposits, and ~~loan~~the ~~holding~~FDIC ~~companies;~~must achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are required to fund the increase. The Dodd-Frank Act also eliminated the 1.5% maximum fund ratio, and instead gives the discretion of the FDIC the discretion to determine the maximum fund ratio. The FDIC has exercised that discretion by establishing a long-term fund ratio of 2%.

~~(ii)~~Insurance of deposits may be terminated by the ~~acquisition~~FDIC ofupon a ~~savings~~finding that an institution has engaged in ~~another~~unsafe ~~state~~or ifunsound ~~the~~practices, ~~laws~~is ofin an ~~the~~unsafe ~~state~~or ofunsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the ~~target~~FDIC. ~~savings~~The ~~institution~~Bank ~~specifically~~does ~~permit~~not ~~such~~believe ~~acquisition~~that it is taking or is subject to any action, condition or violation that could lead to termination of its deposit insurance.

~~The~~On ~~states~~November 12, ~~vary~~2009, the FDIC approved a final rule requiring insured depository institutions to prepay, on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012. Estimated assessments for the fourth quarter of 2009 and for all of 2010 were based upon the assessment rate in effect on September 30, 2009, with three basis points added for the ~~extent~~2011 and 2012 assessment rates. In addition, a 5% annual growth in the assessment base was assumed. Prepaid assessments are to ~~which~~be ~~they~~applied ~~permit~~against ~~interstate~~the ~~savings~~actual quarterly assessments until exhausted, and ~~loan~~may ~~holding~~not ~~company~~be ~~acquisitions~~applied to any special assessments that may occur in the future. Any unused prepayments will be returned to the institution on June 30, 2013. On December 30, 2009, the Bank prepaid $3.5 million in estimated assessment fees for the fourth quarter of 2009 through 2012.

~~Capital. Savings~~All ~~and~~FDIC-insured ~~loan~~institutions ~~holding companies~~ are ~~not~~required ~~currently subject~~ to ~~specific~~pay ~~regulatory~~a ~~capital~~pro ~~requirements. The~~rata ~~Dodd-Frank~~portion ~~Act,~~of ~~however, requires~~ the ~~FRB~~interest todue ~~promulgate~~on ~~consolidated~~obligations ~~capital~~issued ~~requirements~~by ~~for~~the ~~depository~~Financing Corporation ~~institution~~(“FICO”) ~~holding~~for ~~companies~~anticipated ~~that are no less stringent~~payments, ~~both~~issuance ~~quantitatively~~costs and incustodial ~~terms~~fees ofon ~~components~~bonds of capital, than those applicable to depository institutions themselves. Instruments such as cumulative preferred stock and trust preferred securities will no longer be includable as Tier 1 capital, as is currently permitted for bank holding companies. Instruments issued ~~prior~~by ~~to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. There is a five-year transition period (from~~ the ~~July~~FICO ~~21,~~in ~~2010 effective date of~~ the ~~Dodd-Frank~~1980s ~~Act)~~to ~~before~~recapitalize the ~~capital~~Federal ~~requirements~~Savings ~~will~~and ~~apply~~Loan toInsurance ~~savings~~Corporation. ~~and~~The ~~loan~~bonds ~~holding~~issued ~~companies.~~by

~~Dividends. The~~16 FRB has issued a policy guidance regarding the payment of dividends by bank holding companies that it has made applicable to savings and loan holding companies as well. In general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. FRB guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of Charter Financial to pay dividends or otherwise engage in capital distributions.

SourceTable of Strength. The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.Contents

~~Waivers~~ the ofFICO ~~Dividends~~are bydue ~~First Charter, MHC. The Dodd-Frank Act requires federally-chartered mutual holding companies~~ to ~~give~~mature ~~the FRB notice before waiving the receipt of dividends, and provides that~~ in ~~the~~2017 ~~case~~through of “grandfathered” mutual holding companies, like First Charter, MHC, the FRB “may not object” to a dividend waiver if the board of directors of the mutual holding company waiving dividends determines that the waiver: (i) would not be detrimental to the safe and sound operation of the subsidiary savings bank; and (ii) is consistent with the board’s fiduciary duties to members of the mutual holding company2019. To ~~qualify~~For ~~as a grandfathered mutual holding company, a mutual holding company must have been formed, issued stock and waived dividends prior to December 1, 2009. The Dodd-Frank Act further provides that~~ the ~~FRB~~quarter ~~may~~ended ~~not consider waived dividends in determining an appropriate exchange ratio upon the conversion of a grandfathered mutual holding company to stock form. In~~ September ~~2011~~ 30, ~~however~~2012, the ~~FRB~~annualized ~~issued~~Financing anCorporation ~~interim~~assessment ~~final~~was ~~rule~~equal ~~that also requires as a condition~~ to ~~waiving~~0.66 ~~dividends,~~basis ~~that~~points ~~each mutual holding company obtain the approval~~ of atotal ~~majority~~assets ofless tangible ~~the eligible votes of its members within 12 months prior to the declaration of the dividend being waived~~capital. ~~The~~ ~~FRB~~Assessments ~~has~~related ~~requested comments on the interim final rule, and there can be no assurance that the rule will be amended~~ to ~~eliminate or modify~~ the ~~member~~FICO ~~vote~~bond ~~requirement~~obligations ~~for~~were ~~dividend waivers by grandfathered mutual holding companies, such as First Charter, MHC. In the past, the FRB generally has~~ not ~~allowed~~subject dividend waivers by mutual bank holding companies and, therefore, there can be no assurance that the FRB will approve dividend waivers by First Charter, MHC in the future, or what conditions the FRB may place on any dividend waivers. In early 2011, First charter, MHC received permission from the OTS to ~~waive dividends in calendar 2011, including~~ the ~~dividend that is payable on~~ December 29 30, ~~2011~~2009 prepayment.

16For the fiscal year ended September 30, 2012, the Bank paid $59,000 related to the FICO bonds and was assessed $743,000 pertaining to deposit insurance assessments. Deposit insurance assessments were prepaid in December 2009, for calendar years 2010 through 2012, while FICO bond payments were prepaid, one quarter in advance.

~~Conversion~~Prohibitions ofAgainst ~~First~~Tying ~~Charter, MHC to Stock Form~~Arrangements. Federal ~~regulations~~savings ~~permit~~associations ~~First~~are ~~Charter~~prohibited, ~~MHC~~subject to ~~convert~~some exceptions, from ~~the~~extending ~~mutual~~credit ~~form of organization~~ to ~~the~~or ~~capital~~offering ~~stock~~any ~~form~~other ~~of organization (a “Conversion Transaction”). There can be no assurance when~~service, ifor ~~ever,~~fixing ~~a Conversion Transaction will occur, and the Board of Directors has no current intention~~ or ~~plan~~varying ~~to undertake a Conversion Transaction. In a Conversion Transaction a new stock holding company would be formed as~~ the ~~successor~~consideration ~~to Charter Financial, First Charter, MHC’s corporate existence would end, and certain depositors of the Bank would receive the right to subscribe~~ for ~~additional~~such ~~shares~~extension of ~~the~~credit ~~new~~or ~~holding company. In a Conversion Transaction~~service, ~~each~~on ~~share of common stock held by stockholders other than First Charter, MHC (“Minority Stockholders”) would be automatically converted into a number of shares of common stock of~~ the ~~new~~condition ~~holding company determined pursuant to an exchange ratio~~ that ~~ensures that Minority Stockholders own~~ the ~~same~~customer ~~percentage~~obtain ofsome ~~common~~additional ~~stock~~service infrom the ~~new~~institution ~~holding~~or ~~company~~its asaffiliates ~~they~~or ~~owned~~not obtain inservices ~~Charter~~of ~~Financial immediately prior to the Conversion Transaction. Under~~ a ~~provision~~competitor of the Dodd-Frank Act applicable to First Charter, MHC, Minority Stockholders should not be diluted because of any dividends waived by First Charter, MHC (and waived dividends should not be considered in determining an appropriate exchange ratio), in the event First Charter, MHC converts to stock forminstitution. ~~Any~~ ~~such Conversion Transaction would require various member and stockholder approvals, as well as regulatory approval.~~

Federal ~~Securities~~Home ~~Laws~~Loan Bank System. The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the FHLB of Atlanta, the Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank.

~~Charter Financial’s common stock is registered with the Securities and Exchange Commission.~~ As aof ~~result~~September 30, ~~Charter~~2012, ~~Financial~~outstanding isborrowings from ~~subject to~~ the ~~information,~~FHLB ~~proxy~~of ~~solicitation,~~Atlanta ~~insider~~were ~~trading~~$81.0 ~~restrictions~~million and ~~other~~the ~~requirements~~Bank ~~under~~was ~~the~~in ~~Securities~~compliance ~~Exchange~~with ~~Act~~the ofstock ~~1934~~investment requirement.

~~ITEM~~Other ~~1A. RISK FACTORS~~Regulations

~~Historically~~Interest ~~low~~and other charges collected or contracted for by CharterBank are subject to state usury laws and federal laws concerning interest rates. ~~may~~In ~~adversely~~addition, ~~affect~~CharterBank’s ~~our~~operations ~~net~~are ~~interest~~subject ~~income~~to federal laws and ~~profitability~~regulations applicable to credit transactions, financial privacy, money laundering and electronic fund transfers.

~~During~~Holding ~~the~~Company ~~past~~Regulation three years it has been the policy of the Board of Governors of the Federal Reserve System (“FRB”) to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. Historically, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets. As a result, rates paid on our interest-bearing liabilities have decreased more quickly than the rates we pay on the loans we have originated and the securities we have purchased. Consequently, our interest rate spreads have increased in the short term. However, our ability to lower our interest expense is now highly limited compared to the ability for average yields on our interest-earning assets to continue to decrease. The FRB has indicated its intention to maintain low interest rates in the near future. Accordingly, our interest rate spreads and our net interest income (the difference between interest income earned on assets and interest expense paid on liabilities) may decrease, which may have an adverse affect on our profitability.

~~Changes~~General. inThe ~~interest~~MHC ~~rates~~and ~~could~~Charter ~~adversely~~Financial ~~affect~~are ~~our~~non-diversified ~~results~~savings and loan holding companies within the meaning of ~~operations~~the Home Owners’ Loan Act. As such, the MHC and ~~financial~~Charter ~~condition~~Financial are registered with the FRB and subject to FRB regulations, examinations, supervision and reporting requirements. In addition, the FRB has enforcement authority over the MHC, Charter Financial and, in some instances, the Bank. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the Bank. As federal corporations, the MHC and Charter Financial are generally not subject to state business organization laws.

~~Our~~Permitted ~~results~~Activities. ofPursuant ~~operations~~to ~~and~~Section 10(o) ~~financial condition are significantly affected by changes in interest rates. Our results~~ of ~~operations~~the ~~depend~~Home ~~substantially~~Owners’ onLoan ~~our~~Act ~~net~~and ~~interest~~FRB ~~income~~regulations, ~~which~~a ismutual holding ~~the difference between the interest income we earn on our interest-earning assets~~company, such as ~~loans~~First ~~and securities~~Charter, MHC and ~~the~~its ~~interest expense we pay on our interest~~mid-~~bearing~~tier ~~liabilities~~company, such as ~~deposits~~Charter ~~and borrowings. Because our interest-bearing liabilities generally reprice or mature more quickly than our interest-earning assets~~Financial, amay ~~sustained~~engage ~~increase~~ in ~~interest~~the ~~rates~~following ~~generally~~activities: ~~would tend to result in a decrease in net interest income.~~

~~Changes~~(i) ininvesting ~~interest rates may also affect the average life of loans and mortgage-related securities. Decreases~~ in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk to the ~~extent~~stock that we are unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable rate loans. Also, increases in interest rates may extend the life of fixed-rate assets, which would restrict our ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so long as the early withdrawal penalty is less than the interest they could receive on a ~~new~~savings ~~investment.~~association;

17(ii) acquiring a mutual association through the merger of such association into a savings association subsidiary of such holding company or an interim savings association subsidiary of such holding company;

~~Changes~~(iii) inmerging ~~interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of securities moves inversely~~ with ~~changes~~or inacquiring ~~interest~~another ~~rates. At~~holding ~~September 30~~company, ~~2011,~~one ~~the fair value~~ of ~~our~~whose ~~portfolio~~subsidiaries ofis ~~investment~~a ~~securities,~~savings ~~mortgage-backed~~association; ~~securities and collateralized mortgage obligations totaled $158.7 million. Net unrealized losses on these securities totaled $3.0 million at September 30, 2011.~~

At(iv) ~~September~~investing ~~30,~~in ~~2011~~a corporation, ~~our~~the ~~simulation~~capital ~~model~~stock ~~indicated~~of ~~that~~which ~~our~~is ~~net~~available ~~portfolio~~for ~~value~~purchase ~~would decrease~~ by ~~(1.0%)~~a ifsavings ~~there~~association ~~was~~under federal anlaw ~~instantaneous~~or ~~parallel~~under ~~100~~the ~~basis~~law ~~point~~of ~~decrease~~any instate ~~market~~where ~~interest~~the ~~rates. See~~subsidiary ~~“Management’s~~savings ~~Discussion~~association ~~and~~has ~~Analysis~~its ofhome ~~Financial~~offices; ~~Condition and Results of Operations—Management of Market Risk.”~~

~~Additionally,~~(v) furnishing aor ~~majority~~performing ofmanagement ~~our~~services ~~single-family~~for ~~mortgage~~a ~~loan~~savings ~~portfolio~~association issubsidiary ~~comprised~~ of ~~adjustable-rate~~such ~~loans. Any~~company; ~~rise in market interest rates may result in increased payments for borrowers who have adjustable rate mortgage loans, increasing the possibility of default.~~

~~Our~~17 ~~non-covered non-residential loans increase our exposure to credit risks.~~

OverTable the last several years, we have increased our non-residential lending in order to improve the yield and reduce the average duration of our assets. At September 30, 2011, our portfolio of non-covered commercial real estate, real estate construction, commercial business, and other non-covered non-residential loans totaled $311.4 million, or 72.4% of total non-covered loans, compared to $218.6 million, or 57.3% of total loans (all of which were non-covered) at September 30, 2006. At September 30, 2011, the amount of non-covered non-performing non-residential loans was $5.8 million. At September 30, 2011, our largest non-covered real estate borrowing relationships consisted of a borrower whose collateral consisted of development land, single family construction and multi-family income producing property. Our second largest is income producing industrial/office real estate. Our third largest has land as collateral with a portion of the land developed for retail . These loans may expose us to a greater risk of non-payment and loss than residential real estate loans because, in the case of commercial loans, repayment often depends on the successful operations and earnings of the borrowers and, in the case of consumer loans, the applicable collateral is subject to rapid depreciation. Additionally, commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. If loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest due on the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.Contents

If(vi) ~~the~~holding, ~~allowance~~managing ~~for~~or ~~loan~~liquidating ~~losses~~assets isowned ~~not~~or ~~sufficient~~acquired tofrom ~~cover~~a savings ~~actual~~association ~~loan~~subsidiary ~~losses,~~of ~~our~~such ~~earnings~~company; ~~could decrease.~~

~~Our~~(vii) ~~customers~~holding may not repay their loans according to the original terms, and the collateral, if any, securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which may have a material adverse effect on our operating results. We make various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. If our assumptions are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to the allowance. Additions to the allowance would decrease our net income. At September 30, 2011, our allowance for loan losses for non-covered loans was $9.4 million, or ~~2.19%~~managing ofproperties ~~total~~used ~~non-covered loans and 80.13% of non-covered non-performing loans, compared to $9.8 million,~~ or ~~2.12%~~occupied ofby ~~total~~a savings ~~non-covered~~association ~~loans~~subsidiary ~~and 84.0%~~ of ~~non-covered~~such ~~non-performing~~company; ~~loans at September 30, 2010. At September 30, 2011 there were $11.7 million in nonperforming loans that were not covered by loss sharing.~~

~~Our~~(viii) ~~level~~acting ofas ~~commercial~~trustee ~~real~~under ~~estate,~~deeds ~~real estate construction and commercial business loans is one~~ of ~~the~~trust; ~~more significant factors in evaluating the allowance for loan losses. These loans may require increased provisions for loan losses in the future, which would decrease our earnings.~~

~~Bank~~(ix) ~~regulators~~any ~~periodically~~other ~~review~~activity: our allowance for loan losses and may require an increase to the provision for loan losses or further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our results of operations or financial condition.

18(A) that the FRB by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the FRB, by regulation, prohibits or limits any such activity for savings and loan holding companies; or

We(B) ~~could~~in ~~record~~which ~~future~~multiple ~~losses~~savings and loan holding companies were authorized (by regulation) to directly engage on ~~our~~March 5, ~~securities~~1987; ~~portfolio.~~

~~For~~(x) if the ~~years ended September 30, 2011~~ savings and ~~2010,~~loan weholding ~~have~~company ~~recorded~~meets ~~$2.3~~the ~~million~~criteria and $2.5 million, respectively, in other than temporary impairment charges on non-government agency collateralized mortgage obligations. At September 30, 2011, our securities portfolio totaled $158.7 million, which included $17.9 million of non-government agency collateralized mortgage obligations with net unrealized losses of $5.4 million. A number of factors or combinations of factors could require us to ~~conclude~~qualify inas ~~one~~a orfinancial ~~more~~holding ~~future reporting periods that an unrealized loss that exists with respect to these securities constitutes an impairment that is other than temporary~~company, ~~which~~it ~~would~~may ~~result~~engage in ~~additional~~any ~~losses~~activity ~~that~~permissible ~~could~~for befinancial ~~material. These~~holding ~~factors~~companies ~~include,~~under ~~but~~Section 4(k) ~~are not limited to, a continued failure by the issuer to make scheduled interest payments, an increase in the severity~~ of the ~~unrealized~~Bank ~~loss~~Holding onCompany ~~a particular security~~Act, anincluding increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. In addition, the fair values of securities ~~could decline if the overall economy~~ and insurance ~~the~~underwriting; ~~financial condition of some of the underlying borrowers deteriorate. There remains limited liquidity for these securities~~ and ~~additional impairment charges may be required in future periods.~~

~~See~~(xi) ~~“Management’s~~purchasing, ~~Discussion~~holding, ~~and~~or ~~Analysis~~disposing of ~~Financial~~stock ~~Condition~~acquired ~~and~~in ~~Results~~connection ofwith ~~Operations—Balance~~a qualified ~~Sheet~~stock ~~Analysis—Securities”~~issuance ~~for~~if athe ~~discussion~~purchase of ~~our~~such ~~securities~~stock ~~portfolio~~by such savings and loan holding company is approved by the ~~unrealized~~FRB. ~~losses~~If ~~related~~a tomutual holding company acquires or merges with another holding company, the ~~portfolio~~holding company acquired or the holding company resulting from such merger or acquisition may only invest in assets and engage in activities listed in (i) through (x) above, and has a period of two years to cease any nonconforming activities and divest any nonconforming investments.

~~Our~~The ~~business~~Home ~~may~~Owners’ ~~continue~~Loan toAct beprohibits ~~adversely~~a ~~affected~~savings byand ~~downturns~~loan holding company, including Charter Financial, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or holding company thereof, without prior written approval of the FRB. It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a non-subsidiary company engaged in ~~our~~activities ~~national~~other than those permitted by the Home Owners’ Loan Act or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the FRB must consider the financial and ~~local~~managerial ~~economies~~resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

~~Our~~The ~~operations~~FRB ~~are~~is ~~significantly~~prohibited ~~affected~~from byapproving ~~national~~any acquisition ~~and~~that ~~local~~would ~~economic~~result ~~conditions. Substantially all of our loans are to businesses and individuals~~ in ~~west-central~~a ~~Georgia,~~multiple ~~east-central~~savings ~~Alabama~~ and ~~the~~loan ~~Florida~~holding ~~panhandle.~~company ~~All~~controlling ofsavings ~~our~~institutions ~~branches and most of our deposit customers are also located~~ in ~~these~~more ~~states.~~than Aone ~~continuing decline in the economies in which we operate could have a material adverse effect on our business~~state, ~~financial~~subject ~~condition~~to ~~and~~two ~~results~~exceptions: ~~of operations. In particular, Georgia, Alabama and Florida have experienced home price declines, increased foreclosures and high unemployment rates.~~

A(i) ~~further deterioration in economic conditions in~~ the ~~market~~approval ~~areas we serve could result in the following consequences, any~~ of ~~which~~interstate ~~could~~supervisory ~~have~~acquisitions aby ~~material~~savings ~~adverse~~and ~~effect~~loan onholding ~~our~~companies; ~~business, financial condition~~ and ~~results of operations:~~

·(ii) ~~demand~~the ~~for~~acquisition ~~our~~of ~~loans,~~a ~~deposits~~savings ~~and~~institution ~~services~~in ~~may~~another ~~decline;~~state if the laws of the state of the target savings institution specifically permit such acquisition.

·The ~~loan~~states ~~delinquencies,~~vary ~~problem~~in ~~assets~~the extent to which they permit interstate savings and ~~foreclosures~~loan ~~may~~holding ~~increase;~~company acquisitions.

·Capital. ~~weak~~Savings ~~economic~~and ~~conditions~~loan ~~may~~holding ~~continue~~companies are not currently subject to ~~limit~~specific regulatory capital requirements. The Dodd-Frank Act, however, requires the ~~demand~~FRB to promulgate consolidated capital requirements for ~~loans~~depository byinstitution ~~creditworthy~~holding ~~borrowers~~companies that are no less stringent, ~~limiting~~both ~~our~~quantitatively ~~capacity~~and in terms of components of capital, than those applicable to ~~leverage~~depository ~~our~~institutions ~~retail~~themselves. ~~deposits~~Instruments such as cumulative preferred stock and ~~maintain~~trust ~~our~~preferred ~~net~~securities ~~interest~~will ~~income;~~no longer be includable as Tier 1 capital, as is currently permitted for bank holding companies. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. There is a five-year transition period (from the July 21, 2010 effective date of the Dodd-Frank

·18 ~~collateral for our loans may decline further in value; and~~

·Table the amount of our low-cost or non-interest bearing deposits may decrease.Contents

If Act) ~~our~~before ~~non~~the capital requirements should apply to savings and loan holding companies. However, the recent proposed rule that would establish such regulatory capital requirements for savings and loan holding companies failed to acknowledge either the grandfather for trust preferred securities or the five-~~performing~~year ~~assets~~transition ~~increase~~period for application of the capital requirements to savings and loan holding companies. It is, ~~our~~therefore, ~~earnings~~uncertain whether the FRB will ~~decrease~~implement the statutory grandfather and transitional period.

AtDividends ~~September~~and ~~30,~~Repurchases. The ~~2011,~~FRB ~~our~~has ~~non-performing~~issued ~~assets~~guidance ~~(which~~regarding ~~consist~~the payment of ~~non-accrual~~dividends ~~loans,~~and ~~loans~~the 90repurchase ~~days~~of orshares ~~more~~of ~~delinquent,~~common ~~and~~stock ~~foreclosed~~by ~~real~~bank ~~estate~~holding ~~assets)~~companies ~~not~~that ~~covered~~it byhas ~~loss~~made ~~sharing~~applicable ~~agreements~~to ~~totaled~~savings ~~$15.8~~and ~~million~~loan holding companies as well. ~~Our~~ ~~non-performing~~In ~~assets~~general, ~~adversely~~the ~~affect~~guidance ~~our~~provides ~~net~~that dividends ~~income~~should inbe ~~various~~paid ~~ways.~~only Weout doof ~~not~~current ~~record~~earnings ~~interest~~and ~~income~~only onif ~~non-accrual~~the ~~loans~~prospective orrate ~~real~~of ~~estate~~earnings ~~owned~~retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. ~~Based~~ onThe guidance ~~our~~provides ~~estimate~~for prior regulatory review of capital distributions in certain circumstances, such as where the ~~level~~company’s ofnet ~~allowance~~income for ~~loan~~the ~~losses~~past ~~required~~four quarters, wenet ~~record~~of adividends ~~provision~~previously ~~for~~paid ~~loan~~over ~~losses~~that asperiod, ais ~~charge~~insufficient to ~~earnings~~fully tofund the ~~maintain~~dividend or the ~~allowance~~company’s ~~for~~overall ~~loan~~rate ~~losses~~of atearnings anretention ~~appropriate~~is ~~level~~inconsistent with the company’s capital needs and overall financial condition. ~~From~~ ~~time~~The ability of a holding company to ~~time,~~pay wedividends ~~also~~may ~~write~~be ~~down~~restricted ~~the~~if ~~value~~a ofsubsidiary ~~properties~~bank becomes inundercapitalized. ~~our~~The ~~other~~guidance ~~real~~also ~~estate~~provides ~~owned~~for ~~portfolio~~regulatory consultation prior to ~~reflect~~a ~~changing~~holding ~~market~~company ~~values. Additionally,~~redeeming ~~there~~or ~~are~~repurchasing ~~legal~~regulatory ~~fees~~capital ~~associated~~instruments ~~with~~when the ~~resolution~~holding ofcompany ~~problem~~is ~~assets~~experiencing asfinancial ~~well~~weaknesses asor ~~carrying~~redeeming ~~costs~~or repurchasing ~~such~~common asstock ~~taxes,~~or ~~insurance~~perpetual ~~and~~preferred ~~maintenance~~stock ~~related~~that towould ~~our~~result ~~other~~in ~~real~~a ~~estate~~net ~~owned. Further,~~reduction as of the ~~resolution~~end of ~~non-performing~~a ~~assets~~quarter ~~requires~~in the ~~active~~amount ~~involvement~~ of ~~management,~~such ~~which~~equity ~~could~~instruments ~~detract~~outstanding ~~from~~compared with the ~~overall~~beginning ~~supervision~~ of ~~our~~the ~~operations~~quarter in which the redemption or repurchase occurred. ~~Finally,~~ ifThese ~~our~~regulatory ~~estimate~~policies ofcould affect the ~~allowance~~ability ~~for~~of ~~loan~~the ~~losses~~Company isto ~~inadequate~~pay dividends, werepurchase ~~will~~shares ~~have~~of tocommon ~~increase~~stock ~~the~~or ~~allowance~~otherwise ~~accordingly~~engage in capital distributions.

WeSource ~~may~~of ~~incur~~Strength. ~~additional~~The ~~losses~~Dodd-Frank ~~due~~Act toextended ~~downward~~the ~~revisions~~“source toof ~~our~~strength” ~~preliminary~~doctrine ~~estimates~~to ofsavings ~~the~~and ~~value~~loan ofholding companies. ~~assets~~The ~~acquired~~regulatory inagencies ~~the~~must ~~Neighborhood~~issue ~~Community~~regulations ~~Bank,~~requiring ~~McIntosh~~that ~~Commercial~~all ~~Bank~~bank and ~~The~~savings ~~First~~and ~~National~~loan ~~Bank~~holding ofcompanies ~~Florida~~serve ~~acquisitions~~as ora ~~due~~source toof ~~higher~~strength ~~than~~to ~~expected~~their ~~charge-offs~~subsidiary ~~with~~depository ~~respect~~institutions toby ~~the~~providing ~~assets acquired~~capital, ~~all~~liquidity ofand ~~which~~other ~~may~~support ~~not~~in times beof ~~supported~~financial ~~by our loss-sharing agreements with the FDIC~~stress.

WeWaivers ~~acquired~~of ~~approximately~~Dividends ~~$202.8~~by ~~million~~First Charter, ~~$322~~MHC.6 ~~million~~The ~~and~~Dodd-Frank ~~$251.8~~Act ~~million~~requires federally-chartered mutual holding companies to give the FRB notice before waiving the receipt of ~~assets~~dividends, and provides that in ~~connection~~the case of “grandfathered” mutual holding companies, like First Charter, MHC, the FRB “may not object” to a dividend waiver if the board of directors of the mutual holding company waiving dividends determines that the waiver: (i) would not be detrimental to the safe and sound operation of the subsidiary savings bank; and (ii) is consistent with the ~~NCB~~board’s fiduciary duties to members of the mutual holding company. To qualify as a grandfathered mutual holding company, ~~MCB~~a mutual holding company must have been formed, issued stock and ~~FNB~~waived ~~acquisitions~~dividends prior to December 1, ~~respectively~~2009. WeThe ~~marked~~Dodd-Frank ~~down~~Act ~~these~~further ~~assets~~provides tothat ~~fair~~the ~~value~~FRB atmay not consider waived dividends in determining an appropriate exchange ratio upon the ~~date~~conversion of a grandfathered mutual holding company to stock form. In September 2011, however, the FRB issued an interim final rule that also requires as a condition to waiving dividends, that each ~~acquisition~~mutual ~~based~~holding oncompany ~~preliminary~~obtain ~~estimates~~the approval of a majority of the eligible votes of its members within 12 months prior to the declaration of the dividend being waived, which makes dividend waivers more difficult to obtain. Charter Financial ceased paying cash dividends to its stockholders following the cash dividend paid in May 2012.

19Conversion of First Charter, MHC to Stock Form. Federal regulations permit First Charter, MHC to convert from the mutual form of organization to the capital stock form of organization (a “Conversion Transaction”). In a Conversion Transaction a new stock holding company would be formed as the successor to Charter Financial, First Charter, MHC’s corporate existence would end, and certain depositors of the Bank would receive the right to subscribe for additional shares of the new holding company. In a Conversion Transaction, each share of common stock held by stockholders other than First Charter, MHC (“Minority Stockholders”) would be automatically converted into a number of shares of common stock of the new holding company determined pursuant to an exchange ratio that ensures that Minority Stockholders own the same percentage of common stock in the new holding company as they owned in Charter Financial immediately prior to the Conversion Transaction. Under a provision of the Dodd-Frank Act applicable to First Charter, MHC, Minority Stockholders should not be diluted because of any dividends waived by First Charter, MHC (and waived dividends should not be considered in determining an appropriate exchange ratio), in the event First Charter, MHC converts to stock form. Any such Conversion Transaction would require various member and stockholder approvals, as well as regulatory approval.

~~There is no assurance that the assets acquired in the NCB, MCB and FNB acquisitions will not suffer further deterioration in value after the date of acquisition, which would require additional charge~~Sarbanes-~~offs.~~Oxley WeAct ~~entered into loss sharing agreements with the FDIC that provide that 80%~~ of ~~losses~~2002 related to the acquired loans and other real estate owned (“covered assets”), up to $82 million in losses with respect to the $177.6 million of NCB covered assets, up to $106 million in losses with respect to the $262.9 million of MCB covered assets, will be borne by the FDIC and thereafter the FDIC will bear 95% of losses on NCB and MCB covered assets. We also entered into a loss sharing agreement with the FDIC that provides that 80% of losses related to the covered assets of $210.0 million acquired in the FNB transaction will be borne by the FDIC. However, we are not protected from all losses resulting from charge-offs with respect to such covered assets. Further, the loss sharing agreements have limited terms ranging from five years for commercial loans to ten years for residential mortgage loans. Therefore, any charge-offs or related losses that we experience after the expiration of the loss sharing agreements will not be reimbursed by the FDIC and would reduce our net income. Finally, if we fail to comply with the terms of the loss sharing agreements, we could lose the right to receive payments on a covered asset from the FDIC under the agreements. See “—Our ability to continue to receive benefits of our loss share arrangements with the FDIC is conditioned upon our compliance with certain requirements under the agreements,” below.

~~Our~~The ~~ability~~Sarbanes-Oxley toAct ~~continue~~of to2002 ~~receive~~addresses, ~~the~~among ~~benefits~~other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of ~~our~~corporate ~~loss~~information. ~~share~~We ~~arrangements~~have ~~with~~existing ~~the~~policies, ~~FDIC~~procedures isand ~~conditioned~~systems ~~upon~~designed ~~our~~to ~~compliance~~comply with ~~certain~~these ~~requirements~~regulations, ~~under~~and ~~the~~we ~~agreements~~review and document such policies, procedures and systems to ensure continued compliance with these regulations.

~~Our~~19 ability to recover a portion of our losses and retain the loss share protection is subject to our compliance with certain requirements imposed on us in the loss share agreements with the FDIC. These requirements relate primarily to our administration of the assets covered by the agreements, as well as our obtaining the consent of the FDIC to engage in certain corporate transactions that may be deemed under the agreements to constitute a transfer of the loss share benefits. For example, any merger or consolidation of CharterBank with another financial institution would require the consent of the FDIC under the loss share agreements relating to the NCB, MCB and FNB transactions. In addition, certain public or private offerings of common stock by us that would increase our outstanding shares by more than 9% would require the consent of the FDIC under the MCB loss share agreements.

InTable instances where the FDIC’s consent is required under the loss share agreements, the FDIC may withhold its consent to such transactions or may condition its consent on terms that we do not find acceptable. While we obtained the FDIC’s consent in connection with our September 2010 offering of our common stock in September 2010, without paying a consent fee, there can be no assurance that in the future the FDIC will grant its consent or condition its consent on terms that we find acceptable. If the FDIC does not grant its consent to a transaction we would like to pursue, or conditions its consent on terms that we do not find acceptable, this may cause us not to engage in a corporate transaction that might otherwise benefit our shareholders or we may elect to pursue such a transaction without obtaining the FDIC’s consent, which could result in termination of our loss share agreements with the FDIC.Contents

WeChange in Control Regulations. Under the Change in Bank Control Act, no person may ~~fail~~acquire tocontrol ~~realize~~of ~~any~~a ~~benefits~~savings and ~~may~~loan ~~incur~~holding ~~unanticipated~~company ~~losses~~such ~~related~~as tothe MHC or Charter Financial unless the ~~assets~~FRB wehas ~~acquired~~been given 60 days’ prior written notice and ~~liabilities~~has wenot ~~assumed~~issued ~~from~~a ~~Neighborhood~~notice ~~Community~~disapproving ~~Bank~~the proposed acquisition, ~~McIntosh~~taking ~~Commercial~~into consideration ~~Bank~~certain factors, including the financial and ~~The~~managerial ~~First~~resources ~~National~~of ~~Bank~~the acquirer and the competitive effects of ~~Florida~~the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquiror has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances, including where the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.

~~The~~In ~~success of the NCB~~addition, ~~MCB~~federal ~~and~~regulations ~~FNB~~provide acquisitions will depend, in part, on our ability to successfully combine the businesses and assets we acquired with our business, and our ability to successfully manage the significant loan portfolios that ~~were~~no ~~acquired.~~company It may ~~take~~acquire ~~longer~~control toof ~~successfully liquidate the nonperforming assets that were acquired in the NCB, MCB and FNB transactions. As with any acquisition involving~~ a ~~financial~~savings ~~institution, there may also be business~~ and ~~service~~loan ~~changes~~holding ~~and~~company ~~disruptions~~without ~~that result in~~ the ~~loss~~prior approval of ~~customers~~the ~~or cause customers to close their accounts and move their business to competing financial institutions~~FRB. It isAny ~~possible~~company that ~~the~~acquires ~~integration~~such ~~process~~control ~~could~~becomes ~~result~~a “savings ~~in the loss of key employees, the disruption of ongoing business, or inconsistencies in standards, controls, procedures~~ and ~~policies~~loan ~~that~~holding ~~adversely~~company” ~~affect~~subject ~~our ability~~ to ~~maintain relationships with clients~~registration, ~~customers,~~examination ~~depositors~~ and ~~employees,~~regulation ~~or to achieve the anticipated benefits of the transactions. Successful integration may also be hampered~~ by ~~differences between our organization and~~ the ~~NCB, MCB and FNB organizations~~FRB. ~~The~~ loss of key employees of NCB, MCB and/or FNB could adversely affect our ability to successfully conduct business in the markets in which NCB, MCB and FNB operated, which could adversely affect our financial results. Integration efforts will also divert attention and resources from our management. In addition, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit our ability to successfully integrate these operations. If we experience difficulties with the integration process, the anticipated benefits of the transactions may not be realized fully, or at all, or may take longer to realize than expected. Finally, any cost savings that are realized may be offset by losses in revenues or other charges to earnings.

20Federal Securities Laws

~~Additional~~Charter ~~FDIC-assisted~~Financial’s ~~acquisition~~common ~~opportunities~~stock ~~may~~is ~~not~~registered ~~become~~with ~~available~~the Securities and ~~increased~~Exchange ~~competition~~Commission. ~~may~~As ~~make~~a itresult, ~~more~~Charter Financial ~~difficult~~is ~~for~~subject us to ~~successfully~~the ~~bid~~information, onproxy ~~failed~~solicitation, ~~bank~~insider ~~transactions~~trading onrestrictions ~~terms~~and weother ~~consider~~requirements ~~acceptable~~under the Securities Exchange Act of 1934.

~~Our~~ITEM ~~near-term business strategy includes the pursuit of potential acquisitions of failing banks that the FDIC plans to place in receivership~~1A. ~~The~~RISK FDIC may not place banks that meet our strategic objectives into receivership. Failed bank transactions are attractive opportunities in part because of loss-sharing arrangements with the FDIC that limit the acquirer’s risk of loss on the purchased loan portfolio and, apart from our assumption of deposit liabilities, we have significant discretion as to the nondeposit liabilities that we assume. In addition, assets purchased from the FDIC are marked to their fair value and in many cases there is little or no addition to goodwill arising from an FDIC-assisted transaction. The bidding process for failing banks could become more competitive, and the increased competition may make it more difficult for us to bid on terms we consider to be acceptable. We expect increased competition from private equity groups and foreign banks, among others. Many of these competing bidders will have more capital and other resources than CharterBank.FACTORS

~~The~~If, ~~FDIC~~over orthe next two to three years, we are unable to replace the ~~Office~~revenue ofwe expect to derive from the ~~Comptroller~~interest income and continued realization of ~~the~~accretable ~~Currency(“OCC”),~~discounts on our ~~primary~~acquired ~~federal~~loans ~~regulator,~~and ~~could~~the ~~condition~~FDIC ~~our~~receivable ~~ability~~with tonew ~~acquire~~loans aand ~~failed~~other ~~depository~~interest ~~institution~~earning onassets, ~~compliance~~our financial bycondition usand ~~with~~earnings ~~additional~~may ~~requirements~~be adversely affected.

WeAs ~~may~~a ~~seek~~result toof ~~acquire~~the ~~one~~three orFDIC-assisted ~~more~~acquisitions ~~additional~~that ~~failed~~we have ~~depository~~made ~~institutions~~and ~~from~~ the ~~FDIC. As~~asset ~~the~~discount ~~agency~~bids ~~responsible~~associated ~~for~~with ~~resolving~~each ~~failed depository institutions~~acquisition, ~~the~~we ~~FDIC~~anticipate ~~has~~that ~~the~~a ~~discretion~~significant toportion ~~determine~~of ~~whether~~our aincome ~~party~~over isthe ~~qualified~~next two to ~~bid~~three onyears awill ~~failed~~be ~~institution. On~~derived ~~August~~from ~~26, 2009,~~ the ~~FDIC~~interest ~~adopted~~income aand ~~Statement~~continued realization of ~~Policy~~accretable discounts on ~~Qualifications~~the ~~for~~loans ~~Failed Bank Acquisitions~~ that ~~sets~~we ~~forth~~purchased ain ~~number~~our ofFDIC-assisted ~~significant~~acquisitions ~~restrictions~~ and ~~requirements~~from asthe aFDIC ~~condition~~receivable. toFor the ~~participation~~year byended ~~certain~~September 30, ~~“private~~2012, ~~investors”~~we ~~and~~recognized ~~institutions~~$18.4 inmillion ~~the~~of ~~acquisition~~interest ofincome ~~failed~~on ~~depository~~covered ~~institutions~~loans. ~~from~~The ~~the~~accretable ~~FDIC. Among~~discount on the acquired ~~requirements~~loans ~~would~~will be ~~that~~recognized ~~CharterBank~~into ~~maintain~~interest ~~higher~~income ~~capital~~over ~~ratios~~the ~~for~~estimated alife ~~three-year~~of ~~period following~~ the ~~acquisition~~covered ofloan aportfolio. ~~failed~~Furthermore, ~~depository~~the ~~institution~~discount ~~from~~recorded on the FDIC, ~~which~~receivable ~~would~~will ~~impair~~be ~~our~~accreted ~~ability~~into tononinterest ~~grow~~income inusing the ~~future~~level ~~without~~yield ~~obtaining~~method ~~additional~~over ~~capital. Based~~the estimated onlife ~~our interpretation~~ of the ~~Statement~~receivable. ofDuring ~~Policy~~the period, if we doare ~~not~~unable ~~believe~~to ~~the~~replace ~~provisions~~our ofacquired ~~the~~loans ~~Statement~~and ofthe ~~Policy~~related ~~would~~accretion ~~apply~~with tonew ~~us. However,~~performing ifloans ~~the~~at ~~FDIC~~a ~~were~~similar toyield ~~adopt~~and ~~similar~~other ~~provisions~~interest ~~that~~earning ~~would~~assets ~~apply~~due to ~~us,~~such ~~and~~reasons weas ~~were~~a ~~unwilling~~decline toin ~~comply~~loan demand ~~with~~or ~~such~~competition ~~conditions~~from other financial institutions in our markets, ~~then~~our wefinancial ~~would~~condition ~~not~~and beearnings, ~~permitted~~including toour ~~acquire~~interest ~~failed~~rate ~~institutions~~spread, ~~from~~may ~~the~~be ~~FDIC~~adversely affected.

InOur ~~addition,~~business we must receive the approval of our new primary federal regulator, the OCC, prior to bidding on the acquisition of a failed depository institution from the FDIC. As with the FDIC, the OCC could condition approval of our acquisition of a failed depository institution upon provisions that we are unable, or unwilling, to comply with. The risk that we may becontinue ~~unable~~ to ~~receive approval from the OCC on terms acceptable to us may~~ be ~~increased~~adversely byaffected ~~the fact that we have not yet been examined~~ by ~~the~~downturns ~~OCC~~in ~~since they replaced the Office of Thrift Supervision as~~ our ~~primary~~national ~~federal regulator,~~ and ~~our~~local ~~first examination by the OCC is not scheduled to begin until January 2012~~economies.

~~Acquisitions,~~Our ~~including~~operations ~~any~~are ~~additional~~significantly ~~FDIC~~affected by national and local economic conditions. Substantially all of our loans are to businesses and individuals in west-~~assisted~~central ~~acquisitions~~Georgia, ~~could~~east-central ~~disrupt~~Alabama and the Florida Panhandle. All of our ~~business~~branches and ~~adversely~~most ~~affect~~of our ~~operating~~deposit customers are also located in these areas. A continuing decline in the economies in which we operate could have a material adverse effect on our business, financial condition and results of operations. In particular, Georgia, Alabama and Florida have experienced home price declines, increased foreclosures and high unemployment rates.

OnA ~~June~~further ~~26,~~deterioration ~~2009~~or weminimal ~~entered~~improvement into an agreement with the FDIC to acquire assets with a fair value of approximately $196.7 million and assume liabilities with a fair value of approximately $196.7 million from Neighborhood Community Bank. We also acquired four branches of NCB in ~~the~~economic ~~transaction,~~conditions one of which has been closed. On March 26, 2010, we entered into an agreement with the FDIC to acquire assets with a fair value of approximately $316.2 million and assume liabilities with a fair value of approximately $310.6 million from McIntosh Commercial Bank. We also acquired four branches of MCB in the ~~transaction,~~market ~~one~~areas ~~of which has been closed. On September 9, 2011,~~ we ~~entered~~serve ~~into~~could anresult agreement with the FDIC to acquire assets with a fair value of approximately $249.0 million and assume liabilities with a fair value of approximately $248.3 million from The First National Bank of Florida. We also acquired eight branches of FNB in the ~~transaction,~~following ~~four of which have been closed. We expect to continue to grow by acquiring other financial institutions~~consequences, ~~related~~any ~~businesses or branches~~ of other financial institutions that we believe provide a strategic fit with our business. To the extent that we grow through acquisitions, we may not be able to adequately or profitably manage this growth. In addition, such acquisitions may involve the issuance of securities, which ~~may~~could have a ~~dilutive~~material adverse effect on ~~earnings per share. Acquiring banks~~our business, ~~bank~~financial ~~branches~~condition orand ~~businesses~~results ~~involves~~of ~~risks commonly associated with acquisitions, including~~operations:

21• demand for our loans, deposits and services may decline;

·20 ~~Potential exposure to unknown or contingent liabilities we acquire;~~

·Table Exposure to potential asset quality problems of the acquired financial institutions, businesses or branches;Contents

·• ~~Difficulty~~loan ~~and~~delinquencies, ~~expense~~problem ofassets ~~integrating the operations~~ and ~~personnel~~foreclosures ofmay ~~financial institutions, businesses or branches we acquire~~increase;

·• ~~Potential~~weak ~~diversion~~economic ofconditions may continue to limit the demand for loans by creditworthy borrowers, limiting our ~~management’s~~capacity ~~time~~to leverage our retail deposits and ~~attention~~maintain our net interest income;

·• ~~The~~collateral ~~possible~~for ~~loss~~our ofloans ~~key~~may ~~employees~~decline ~~and~~further ~~customers~~in ~~of financial institutions, businesses or branches we acquire~~value; and

·• ~~Difficulty~~the inamount ~~safely~~of ~~investing~~our ~~any~~low-cost ~~cash~~or ~~generated~~non-interest bybearing ~~the~~deposits ~~acquisition;~~may decrease.

·We ~~Difficulty~~may inincur ~~estimating~~additional losses due to downward revisions to our preliminary estimates of the value of ~~the~~assets ~~financial~~acquired ~~institutions~~in our FDIC-assisted acquisitions, ~~businesses~~the expiration of the loss sharing agreements or due ~~branches~~to higher than expected charge-offs with respect to bethe assets acquired;, ~~and~~which may not be supported by our loss-sharing agreements with the FDIC.

·We ~~Potential~~acquired ~~changes~~approximately in$202.8 ~~banking~~million, or$322.6 ~~tax~~million ~~laws~~and or$251.8 ~~regulations~~million ~~that~~of ~~may~~assets ~~affect~~in connection with the ~~financial~~NCB, ~~institutions~~MCB orand ~~businesses~~FNB acquisitions, respectively. We marked down these assets to befair ~~acquired~~value at the date of each acquisition based on preliminary estimates.

~~Our~~There ~~continued~~is ~~growth~~no ~~through~~assurance that the assets acquired in the NCB, MCB and FNB acquisitions ~~may~~will not suffer further deterioration in value after the date of acquisition, which would require usadditional charge-offs. We entered into loss sharing agreements with the FDIC that provide that 80% of losses related to ~~raise~~the acquired ~~additional~~loans ~~capital~~and other real estate owned (“covered assets”), up to $82.0 million in losses with respect to the ~~future~~$177.6 million of NCB covered assets, ~~but~~up to $106.0 million in losses with respect to the $262.9 million of MCB covered assets, will be borne by the FDIC and thereafter the FDIC will bear 95% of losses on NCB and MCB covered assets. We also entered into a loss sharing agreement with the FDIC that ~~capital~~provides ~~may~~that 80% of losses related to the covered assets of $210.9 million acquired in the FNB transaction will be borne by the FDIC. However, we are not protected from all losses resulting from charge-offs with respect to such covered assets. Internal costs incurred to collect and otherwise resolve covered assets are borne by us and not subject to loss sharing reimbursement. Further, the loss sharing agreements have limited terms ranging from five years for commercial loans to ten years for residential mortgage loans. Therefore, any charge-offs or related losses that we experience after the expiration of the loss sharing agreements will not be ~~available~~reimbursed ~~when~~by itthe FDIC, including the write down of the FDIC indemnification asset, and would reduce our net income. Finally, if we fail to comply with the terms of the loss sharing agreements, we could lose the right to receive payments on a covered asset from the FDIC under the agreements. See “—Our ability to continue to receive benefits of our loss share arrangements with the FDIC is ~~needed~~conditioned upon our compliance with certain requirements under the agreements,” below.

WeOur ~~are~~non-covered ~~required~~commercial byreal ~~federal~~estate, ~~regulatory~~real estate ~~authorities~~construction, toand ~~maintain~~commercial ~~adequate~~business ~~levels~~loans ofincrease ~~capital to support~~ our ~~operations.~~exposure ~~We anticipate that our existing capital resources will satisfy our capital requirements for the foreseeable future. However, we may at some point need~~ to ~~raise~~credit ~~additional capital to support continued growth, both internally and through acquisitions~~risks.

~~Our~~Over ~~ability~~the last several years, we have increased our non-residential lending in order to ~~raise~~improve ~~additional~~the ~~capital~~yield and reduce the average duration of our assets. At September 30, if2012, ~~needed~~our portfolio of non-covered commercial real estate, ~~will~~real ~~depend~~estate onconstruction, ~~conditions~~and incommercial business ~~the~~loans ~~capital~~totaled ~~markets~~$313.3 atmillion, ~~that~~or ~~time~~71.7% of total non-covered loans, compared to $222.0 million, or 50.8% of total loans (all of which ~~are~~were ~~outside~~non-covered) ~~our~~at ~~control~~September 30, ~~and~~2008. onAt September 30, 2012, the amount of non-covered non-performing non-residential loans was $772,000. At September 30, 2012, our ~~financial~~largest ~~performance~~non-covered non-residential real estate borrowing relationship was $13.4 ~~Accordingly~~million, weconsisting ~~cannot~~of ~~assure~~a ~~you~~borrower whose collateral was a real estate construction loan. These loans may expose us to a greater risk of ~~our~~non-payment ~~ability~~and loss than residential real estate loans because, in the case of commercial loans, repayment often depends on the successful operation and earnings of the borrowers and, in the case of consumer loans, the applicable collateral is subject to ~~raise~~rapid ~~additional~~depreciation. ~~capital~~Additionally, ifcommercial ~~needed~~real estate loans typically involve larger loan balances to single borrowers or ongroups ~~terms~~of ~~acceptable~~related borrowers compared to usresidential real estate loans. If weloans ~~cannot~~that ~~raise~~are ~~additional~~collateralized ~~capital~~by ~~when~~real ~~needed~~estate become troubled and the value of the real estate has been significantly impaired, ~~our~~then ~~ability~~we may not be able to ~~further~~recover ~~expand~~the ~~our~~full ~~operations~~contractual ~~through~~amount ~~internal~~of ~~growth~~principal and ~~acquisitions~~interest due on the loan, which could because ~~materially~~us ~~impaired~~to increase our provision for loan losses and adversely affect our financial condition and operating results.

~~Strong~~21 ~~competition may limit growth and profitability.~~

CompetitionTable in the banking and financial services industry is intense. We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors (whether regional or national institutions) have substantially greater resources and lending limits than we have and may offer certain services that we do not or cannot provide. Our profitability depends upon our ability to successfully compete in our market areas.Contents

~~The~~If ~~Dodd-Frank Act’s elimination of~~ the ~~OTS~~allowance ~~may~~for ~~adversely~~loan ~~affect~~losses ~~First~~is ~~Charter,~~not ~~MHC’s~~sufficient ~~ability~~ to ~~waive~~cover ~~dividends,~~actual ~~which~~loan ~~would~~losses, ~~adversely affect~~ our ~~ability~~earnings ~~to pay dividends and the value of our common stock~~could decrease.

~~The~~Our ~~value~~customers ofmay ~~Charter~~not ~~Financial’s~~repay ~~common~~their ~~stock~~loans isaccording ~~significantly~~to ~~affected~~the byoriginal ~~our~~terms, ~~ability~~and the collateral, if any, securing the payment of these loans may be insufficient to pay ~~dividends~~any toremaining ~~our~~loan ~~public~~balance. ~~shareholders~~We may experience significant loan losses, which ismay ~~affected~~have bya material adverse effect on our ~~earnings~~operating ~~and~~results. ~~cash~~We ~~resources~~make atvarious assumptions and judgments about the collectability ~~holding~~of ~~company~~the ~~level~~loan ~~and~~portfolio, byincluding the ~~ability~~creditworthiness of ~~CharterBank~~borrowers toand ~~make~~the ~~capital~~value ~~distributions~~of tothe ~~Charter~~real ~~Financial. Moreover,~~estate ~~our~~and ~~ability~~other toassets ~~pay~~serving ~~dividends~~as ~~and~~collateral for the ~~amount~~repayment of ~~such~~loans. ~~dividends~~If isour ~~affected~~assumptions byare incorrect, the ~~ability~~allowance offor ~~First~~loan ~~Charter,~~losses ~~MHC,~~may not ~~our~~be ~~mutual~~sufficient ~~holding~~to ~~company~~cover losses inherent in our loan portfolio, towhich ~~waive~~would require additions to the ~~receipt~~allowance. ofAdditions ~~dividends~~to ~~declared~~the byallowance ~~Charter~~would ~~Financial~~decrease our net income. ~~First~~ ~~Charter~~At September 30, ~~MHC~~2012, ~~has~~our ~~historically~~allowance ~~waived~~for ~~its~~loan ~~right~~losses tofor ~~receive~~non-covered loans ~~most~~was ~~dividends~~$8.2 onmillion, ~~its~~or ~~shares~~1.87% of ~~Charter~~total ~~Financial~~non-covered ~~common~~loans ~~stock~~and 237.69% of non-covered non-performing loans, ~~which~~compared ~~means~~to ~~that~~$9.4 ~~Charter~~million, ~~Financial~~or ~~has~~2.19% ~~had~~of ~~more~~total ~~cash~~non-covered ~~resources~~loans toand ~~pay~~80.13% ~~dividends~~of tonon-covered ~~our~~non-performing ~~public~~loans ~~stockholders~~at ~~than~~September 30, if2011. ~~First~~At September 30, ~~Charter~~2012, ~~MHC~~$3.4 ~~had~~million ~~accepted~~of ~~such~~nonperforming ~~dividends~~loans were not covered by loss sharing.

22Our level of commercial real estate, real estate construction and commercial business loans is one of the more significant factors in evaluating the allowance for loan losses. These loans may require increased provisions for loan losses in the future, which would decrease our earnings.

~~The~~Bank ~~Dodd-Frank~~regulators ~~Act~~periodically ~~requires~~review ~~federally-chartered~~our ~~mutual~~allowance ~~holding~~for ~~companies~~loan tolosses ~~give the FRB notice before waiving the receipt of dividends,~~ and ~~provides that in the case of “grandfathered” mutual holding companies, like First Charter, MHC, the FRB “~~may ~~not~~require ~~object”~~an toincrease ~~a dividend waiver if the board of directors of the mutual holding company waiving dividends determines that the waiver: (i) would not be detrimental~~ to the ~~safe~~provision ~~and~~for loan ~~sound~~losses ~~operation~~or offurther ~~the~~loan ~~subsidiary savings bank; and (ii) is consistent with the board’s fiduciary duties to members of the mutual holding company~~charge-offs. To ~~qualify~~Any asincrease a grandfathered mutual holding company, a mutual holding company must have been formed, issued stock and waived dividends prior to December 1, 2009. The Dodd-Frank Act further provides that the FRB may not consider waived dividends in ~~determining~~our anallowance ~~appropriate~~for ~~exchange~~loan ~~ratio~~losses upon the conversion of a grandfathered mutual holding company to stock form. In September 2011, however, the FRB issued an interim final rule that also requires as a condition to waiving dividends, that each mutual holding company obtain the approval of a majority of the eligible votes of its members within 12 months prior to the declaration of the dividend being waived. The FRB has requested comments on the interim final rule, and there can be no assurance that the rule will be amended to eliminate or ~~modify~~loan ~~the~~charge-offs ~~member~~would ~~vote~~decrease ~~requirement~~our ~~for~~earnings ~~dividend waivers by grandfathered mutual holding companies, such as First Charter, MHC. In the past, the FRB generally has not allowed dividend waivers by mutual bank holding companies~~ and, ~~therefore,~~adversely ~~there~~affect ~~can~~our befinancial ~~no assurance that the FRB will approve dividend waivers by First Charter, MHC in the future, or what conditions the FRB may place on any dividend waivers~~condition. In ~~early 2011, First charter, MHC received permission from the OTS to waive dividends in calendar 2011, including the dividend that is payable on December 29, 2011.~~

~~Government~~We ~~responses~~could torecord ~~economic~~future ~~conditions~~losses ~~may~~on ~~adversely affect~~ our ~~operations,~~securities ~~financial condition and earnings~~portfolio.

~~The~~For ~~Dodd-Frank~~the ~~Act~~years ended ~~has~~September 30, ~~changed~~2012 ~~the~~and ~~bank~~2011, ~~regulatory~~we ~~framework~~have recorded $273,000 ~~created~~and an$2.3 ~~independent~~million, ~~consumer~~respectively, ~~protection~~in ~~bureau~~other-than-temporary ~~that~~impairment ~~has~~charges ~~assumed~~on ~~the~~non-government ~~consumer~~agency ~~protection~~collateralized ~~responsibilities~~mortgage ofobligations. ~~the~~At ~~various~~September 30, ~~federal~~2012, ~~banking~~our ~~agencies~~securities portfolio totaled $189.4 million, ~~and~~which ~~established~~included ~~more~~$14.3 ~~stringent~~million ~~capital~~of ~~standards~~non-government ~~for~~agency ~~banks~~collateralized ~~and~~mortgage ~~bank~~obligations ~~holding~~with ~~companies~~net unrealized losses of $3. ~~Bank~~4 ~~regulatory~~million. ~~agencies~~A ~~also~~number ~~have~~of ~~been~~factors ~~responding~~or ~~aggressively~~combinations of factors could require us to ~~concerns~~conclude ~~and~~in one ~~adverse~~or ~~trends~~more ~~identified~~future reporting periods that an unrealized loss that exists with respect to these securities constitutes an impairment that is other-than-temporary, which would result in ~~examinations~~additional losses that could be material. ~~Ongoing~~ ~~uncertainty~~These ~~and~~factors ~~adverse~~include, but ~~developments~~are innot ~~the~~limited ~~financial~~to, ~~services~~a ~~industry~~continued ~~and~~failure by the ~~domestic~~issuer ~~and~~to ~~international~~make ~~credit~~scheduled ~~markets~~interest payments, ~~and~~an increase in the ~~effect~~severity of the ~~Dodd-Frank~~unrealized ~~Act~~loss ~~and~~on ~~regulatory~~a ~~actions~~particular security, ~~may~~an ~~adversely~~increase ~~affect~~in ~~our~~the ~~operations~~continuous byduration ~~restricting~~of ~~our~~the ~~business~~unrealized ~~activities,~~loss ~~including~~without ~~our~~an improvement ~~ability~~in tovalue ~~originate~~ or ~~sell~~changes ~~loans,~~in ~~modify~~market ~~loan~~conditions ~~terms,~~and/or industry or ~~foreclose~~issuer onspecific ~~property~~factors ~~securing~~that ~~loans~~would render us unable to forecast a full recovery in value. ~~These~~ ~~risks~~In addition, the fair values of securities could ~~affect~~decline if the ~~performance~~overall economy and ~~value~~the financial condition of ~~our~~some ~~loan~~of the underlying borrowers deteriorate. These securities have limited liquidity and ~~investment~~additional impairment charges may be required in future periods. Deterioration in private label securities ~~portfolios,~~or ~~which~~changes ~~also~~in ~~would~~regulatory capital ~~negatively~~requirements ~~affect~~may reduce our ~~financial~~regulatory ~~performance~~capital or increase classified assets.

If the FRB increases the federal funds rate, overall interest rates will likely rise, which may negatively impact the housing markets and the U.S. economic recovery. In addition, deflationary pressures, while possibly lowering our ~~operating~~problem ~~costs,~~assets ~~could have a significant negative effect on our borrowers~~increase, ~~especially~~ our ~~business~~earnings ~~borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance~~will decrease.

~~Changes~~At inSeptember 30, ~~laws~~2012, our non-performing assets (which consist of non-accrual loans, loans 90 days or more delinquent, and ~~regulations~~foreclosed real estate assets) not covered by loss sharing agreements consisted of $3.5 million of loans and ~~the~~$2.1 ~~cost~~million of ~~regulatory~~foreclosed ~~compliance~~real ~~with~~estate. ~~new~~As ~~laws~~of September 30, 2012, we also had covered foreclosed real estate of $21.0 million. In addition, our non-covered classified assets (consisting of substandard loans and ~~regulations~~securities, ~~may~~doubtful loans and loss assets) totaled $39.5 million at September 30, 2012. Our problem assets adversely affect our ~~operations~~net income in various ways. We do not record interest income on non-accrual loans or real estate owned. Based on our estimate of the level of allowance for loan losses required, we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level. From time to time, we also write down the value of properties in our real estate owned portfolio to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to our ~~income~~real estate owned. Further, the resolution of problem assets requires the active involvement of management, which could detract from the overall supervision of our operations. Finally, if our estimate of the allowance for loan losses is inadequate, we will have to increase the allowance accordingly.

In22 response to the financial crisis of 2008 and early 2009, Congress has taken actions that are intended to strengthen confidence and encourage liquidity in financial institutions, and the FDIC has taken actions to increase insurance coverage on deposit accounts. In addition, there have been proposals made by members of Congress and others that would reduce the amount delinquent borrowers are otherwise contractually obligated to pay on their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral.

Moreover,Table bank regulatory agencies have responded aggressively to concerns and trends identified in examinations, and have issued many formal enforcement orders requiring capital ratios in excess of regulatory requirements. Bank regulatory agencies, such as the Office of Thrift Supervision and the FDIC, govern the activities in which we may engage, primarily for the protection of depositors, and not for the protection or benefit of potential investors. In addition, new laws and regulations are likely to increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge, and our ongoing operations, costs and profitability. For example, recent legislative proposals would require changes to our overdraft protection programs that could decrease the amount of fees we receive for these services. For the years ended September 30, 2011 and 2010, overdraft protection fees totaled $3.4 million and $3.5 million, respectively. Further, legislative proposals limiting our rights as a creditor could result in credit losses or increased expense in pursuing our remedies as a creditor. Regulations limit interchange fees for banks over $10 billion and it remains to be seen how much this limitation migrates to smaller banks such as CharterBank.Contents

23Our ability to continue to receive the benefits of our loss share arrangements with the FDIC is conditioned upon our compliance with certain requirements under the agreements.

WeOur ~~hold~~ability to recover a portion of our losses and retain the loss share protection is subject to our compliance with certain ~~intangible~~requirements ~~assets~~imposed ~~that~~on us in the ~~future~~loss ~~could~~share beagreements ~~classified~~with asthe ~~either~~FDIC. ~~partially~~These orrequirements ~~fully~~relate ~~impaired~~primarily to our administration of the assets covered by the agreements, ~~which~~as ~~would~~well ~~reduce~~as our ~~earnings~~obtaining ~~and~~the consent of the ~~book~~FDIC ~~values~~to engage in certain corporate transactions that may be deemed under the agreements to constitute a transfer of ~~these~~the ~~assets~~loss share benefits. For example, any merger or consolidation of CharterBank with another financial institution would require the consent of the FDIC under the loss share agreements relating to the NCB, MCB and FNB transactions.

~~Pursuant~~In toinstances ~~applicable~~where ~~accounting~~the ~~requirements,~~FDIC’s weconsent ~~are~~is required tounder ~~periodically~~the ~~test~~loss ~~our~~share ~~goodwill and core deposit intangible assets for impairment. The impairment testing process considers a variety of factors~~agreements, ~~including~~ the ~~current~~FDIC ~~market~~may ~~price~~withhold ofits ~~our~~consent ~~common~~to ~~shares,~~such ~~the~~transactions ~~estimated~~or ~~net~~may ~~present~~condition ~~value~~its ofconsent ~~our~~on ~~assets~~terms ~~and~~that ~~liabilities~~we ~~and~~do ~~information~~not ~~concerning~~find acceptable. If the ~~terminal~~FDIC ~~valuation~~does ofnot ~~similarly~~grant ~~situated~~its ~~insured~~consent ~~depository~~to ~~institutions. Future~~a ~~impairment~~transaction ~~testing~~we ~~may~~would ~~result~~like into apursue, ~~partial~~ or ~~full~~conditions ~~impairment~~its ofconsent ~~the~~on ~~value~~terms ofthat ~~our~~we ~~goodwill~~do ornot ~~core~~find ~~deposit intangible assets~~acceptable, orthis ~~both. If~~may ancause ~~impairment~~us ~~determination~~not isto ~~made~~engage in a ~~future~~corporate ~~reporting~~transaction ~~period,~~that ~~our~~might ~~earnings~~otherwise benefit ~~and~~our ~~the~~stockholders ~~book~~or ~~value~~we ofmay ~~these~~elect ~~intangible~~to ~~assets~~pursue ~~will~~such bea ~~reduced~~transaction bywithout ~~the~~obtaining ~~amount of~~ the ~~impairment. If~~FDIC’s ~~an impairment loss is recorded~~consent, itwhich ~~will~~could ~~have~~result ~~little~~in ortermination ~~no impact on the tangible book value~~ of our ~~shares~~loss ofshare ~~common~~agreements ~~stock,~~with ~~our~~the ~~liquidity or our regulatory capital levels~~FDIC.

~~Because~~We ~~the~~may ~~nature~~fail ofto realize any benefits and may incur unanticipated losses related to the ~~financial~~assets ~~services~~we ~~business~~acquired ~~involves~~and aliabilities ~~high~~we ~~volume~~assumed from ofNeighborhood ~~transactions~~Community Bank, weMcIntosh ~~face~~Commercial ~~significant~~Bank ~~operational~~and ~~risks~~The First National Bank of Florida.

WeThe ~~operate~~success inof ~~diverse~~the ~~markets~~NCB, MCB and ~~rely~~FNB acquisitions will depend, in part, on ~~the~~our ability ofto successfully combine the businesses and assets we acquired with our ~~employees~~business, and ~~systems~~our ability to ~~process~~successfully amanage ~~high~~the ~~number~~significant ofloan ~~transactions~~portfolios that were acquired. ~~Operational~~It ~~risk~~may istake longer to successfully liquidate the ~~risk~~nonperforming ofassets ~~loss~~that ~~resulting~~were ~~from~~acquired ~~our~~in ~~operations~~the NCB, ~~including~~MCB ~~but~~and ~~not~~FNB ~~limited~~transactions. toAs with any acquisition involving a financial institution, there may also be business and service changes and disruptions that result in the ~~risk~~loss of ~~fraud~~customers byor ~~employees~~cause orcustomers ~~persons~~to ~~outside~~close ~~our~~their ~~company~~accounts and move their business to competing financial institutions. It is possible that the integration process could result in the loss of key employees, the ~~execution~~disruption of ~~unauthorized~~ongoing business, ~~transactions~~or byinconsistencies ~~employees~~in standards, ~~errors~~controls, ~~relating~~procedures and policies that adversely affect our ability to ~~transaction~~maintain ~~processing~~relationships with clients, customers, depositors and ~~technology~~employees, ~~breaches~~or to achieve the anticipated benefits of the ~~internal~~transactions. Successful ~~control~~integration ~~system~~may ~~and~~also ~~compliance~~be ~~requirements,~~hampered ~~and~~by ~~business~~differences ~~continuation~~between our organization and ~~disaster~~the ~~recovery.~~NCB, ~~Insurance~~MCB ~~coverage~~and ~~may~~FNB ~~not~~organizations. beThe ~~available~~loss ~~for~~of ~~such~~key ~~losses~~employees of NCB, MCB and/or ~~where~~FNB ~~available,~~could ~~such~~adversely ~~losses~~affect ~~may~~our ~~exceed~~ability ~~insurance~~to ~~limits.~~successfully ~~This~~conduct ~~risk~~business ofin ~~loss~~the markets ~~also~~in ~~includes~~which ~~the~~NCB, ~~potential~~MCB ~~legal~~and ~~actions~~FNB ~~that~~operated, which could ~~arise~~adversely asaffect aour ~~result~~financial ofresults. anIntegration ~~operational~~efforts ~~deficiency~~will oralso asdivert aattention ~~result~~and ofresources ~~noncompliance~~from ~~with~~our ~~applicable~~management. ~~regulatory~~In ~~standards~~addition, ~~adverse~~general ~~business~~market ~~decisions~~and economic conditions or ~~their~~governmental actions ~~implementation,~~affecting ~~and~~the ~~customer~~financial ~~attrition~~industry ~~due~~generally may inhibit our ability to ~~potential~~successfully ~~negative~~integrate ~~publicity~~these operations. InIf we experience difficulties with the ~~event~~integration ofprocess, athe ~~breakdown~~anticipated inbenefits of the ~~internal~~transactions ~~control~~may ~~system,~~not ~~improper~~be ~~operation~~realized fully, ofor ~~systems~~at all, or ~~improper~~may ~~employee~~take ~~actions,~~longer weto ~~could~~realize ~~suffer~~than ~~financial~~expected. ~~loss~~Finally, ~~face~~any ~~regulatory~~cost ~~action,~~savings ~~and~~that ~~suffer~~are ~~damage~~realized tomay ~~our~~be ~~reputation~~offset by losses in revenues or other charges to earnings.

~~ITEM~~Additional ~~1B. UNRESOLVED~~FDIC-assisted ~~STAFF~~acquisition ~~COMMENTS~~opportunities may not become available and competition from other bidders may make it more difficult for us to successfully bid on failed bank transactions on terms we consider acceptable.

~~None~~Our near-term business strategy includes the pursuit of potential acquisitions of failing banks that the FDIC plans to place in receivership. Many of the banks placed in receivership do not meet our strategic objectives. Failed bank transactions are attractive opportunities in part because of loss-sharing arrangements with the FDIC that limit the acquirer’s risk of loss on the purchased loan portfolio and, apart from our assumption of deposit liabilities, we have significant discretion as to the nondeposit liabilities that we assume. In addition, assets purchased from the FDIC are marked to their fair value and in many cases there is little or no addition to goodwill arising from an FDIC-assisted transaction. The bidding process for failing banks is competitive, and the competition may make it more difficult for us to bid on terms we consider to be acceptable. Many of these competing bidders will have more capital and other resources than CharterBank.

~~ITEM~~The 2FDIC or the Office of the Comptroller of the Currency, our primary federal regulator, could condition our ability to acquire a failed depository institution on our compliance with additional requirements. ~~PROPERTIES~~

We ~~currently~~may ~~conduct~~seek ~~business~~to ~~through~~acquire ~~our~~one ~~administrative~~or ~~office~~more inadditional ~~West~~failed ~~Point,~~depository ~~Georgia,~~institutions ~~our~~from ~~branch offices in west-central Georgia, East-central Alabama,~~ the ~~Florida Panhandle and our cashless branch office in Norcross, Georgia~~FDIC. ~~Our~~ ~~Georgia~~As ~~branch~~the ~~offices~~agency ~~are~~responsible ~~located~~for inresolving ~~Bremen,~~failed depository ~~Carrollton~~institutions, ~~LaGrange~~the ~~(three~~FDIC ~~offices),~~has Newnan (two offices), Peachtree City and West Point, and our Alabama branches are located in Auburn (two offices), Opelika and Valley. Our Florida Branch offices are in Milton, Pace, Pensacola, and Navarre. The net book value of the ~~land,~~discretion ~~buildings,~~to ~~furniture,~~determine ~~fixtures~~whether ~~and~~a ~~equipment owned by us was $21.8 million at September 30, 2011.~~

~~ITEM~~23 ~~3. LEGAL PROCEEDINGS~~

AsTable of the date of filing of this Annual Report on Form 10-K, we were not involved in any legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which, in the aggregate, involve amounts that we believe are immaterial to our consolidated financial condition, results of operations and cash flows.Contents

24 party is qualified to bid on a failed institution. On August 26, 2009, the FDIC adopted a Statement of Policy on Qualifications for Failed Bank Acquisitions that sets forth a number of significant restrictions and requirements as a condition to the participation by certain “private investors” and institutions in the acquisition of failed depository institutions from the FDIC. Among the requirements would be that CharterBank maintain higher capital ratios for a three-year period following the acquisition of a failed depository institution from the FDIC, which would impair our ability to grow in the future without obtaining additional capital. Based on our interpretation of the Statement of Policy, we do not believe the provisions of the Statement of Policy would apply to us. However, if the FDIC were to adopt similar provisions that would apply to us, and we were unwilling to comply with such conditions, then we would not be permitted to acquire failed institutions from the FDIC. Additionally, we must obtain permission from the Office of the Comptroller of the Currency to bid on failed depository institutions and such permission may be withheld under certain circumstances.

~~PART~~Acquisitions, IIincluding any additional FDIC-assisted acquisitions, could disrupt our business and adversely affect our operating results.

~~ITEM~~On 5June 26, 2009 we entered into an agreement with the FDIC to acquire assets from Neighborhood Community Bank with a fair value of approximately $196.7 ~~MARKET~~million ~~FOR~~and ~~REGISTRANT’S~~assume ~~COMMON~~liabilities ~~EQUITY~~from such bank with a fair value of approximately $196.7 million. We also acquired four branches of NCB in the transaction, ~~RELATED~~one ~~STOCKHOLDER~~of ~~MATTERS~~which ~~AND~~has been ~~ISSUER~~closed. ~~PURCHASES~~On OFMarch 26, ~~EQUITY~~2010, ~~SECURITIES~~we entered into an agreement with the FDIC to acquire assets of McIntosh Commercial Bank with a fair value of approximately $316.2 million and assume liabilities from such bank with a fair value of approximately $310.6 million. We also acquired four branches of MCB in the transaction, three of which have been closed. On September 9, 2011, we entered into an agreement with the FDIC to acquire assets of First National Bank of Florida with a fair value of approximately $249.0 million and assume liabilities from such bank with a fair value of approximately $248.3 million. We also acquired eight branches of FNB in the transaction, five of which have been closed. We expect to continue to grow by acquiring other financial institutions, related businesses or branches of other financial institutions that we believe provide a strategic fit with our business, which may or may not include loss sharing transactions. To the extent that we grow through acquisitions, we may not be able to adequately or profitably manage this growth. In addition, such acquisitions may involve the issuance of securities, which may have a dilutive effect on earnings per share. Acquiring banks, bank branches or businesses involves risks commonly associated with acquisitions, including:

~~Market~~• ~~and~~Potential ~~Dividend~~exposure ~~Information.~~to unknown or contingent liabilities we acquire;

On• ~~September~~Exposure ~~29, 2010, our common stock began trading on the Nasdaq Capital Market (“NASDAQ”) under the trading symbol “CHFN.” Prior~~ to ~~that~~potential ~~date,~~asset ~~our~~quality ~~common~~problems ~~stock was quoted on the OTC Bulletin Board. The following table sets forth, for the periods indicated, the high and low sales prices~~ of ~~our common stock on NASDAQ since September 29, 2010, and~~ the ~~high~~acquired ~~and~~financial ~~low bid information for our common stock as quoted on the OTC Bulletin Board prior to September 29~~institutions, ~~2010. Quotations~~businesses ~~on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down~~ or ~~commissions, and may not reflect actual transactions. The table below also sets forth the cash dividends paid per share for the periods indicated.~~branches;

	Price Per Share				Cash
	High		Low		Dividend Declared
Fiscal 2011
Fourth quarter	$	9.70	$	9.12	$	0.05
Third quarter		10.00		9.73		0.05
Second quarter		11.05		10.65		0.05
First quarter		8.99		8.90		0.05
Fiscal 2010
Fourth quarter	$	10.40	$	7.50	$	0.05
Third quarter		11.00		9.62		0.10	*
Second quarter		10.70		9.25		—	*
First quarter		12.30		8.65		0.25
* The $.05 per share cash dividend with respect to the second quarter of fiscal 2010 was delayed until the third fiscal quarter

•

Difficulty and expense of integrating the operations and personnel of financial institutions, businesses or branches we acquire;

~~Holders.~~• Potential diversion of our management’s time and attention;

As• ofThe ~~December~~possible 5,loss ~~2011,~~of ~~there~~key ~~were~~employees ~~approximately~~and ~~472~~customers ~~holders~~ of ~~record~~financial ofinstitutions, ~~our~~businesses ~~common~~or ~~stock.~~branches we acquire;

~~Dividends.~~• Difficulty in safely investing any cash generated by the acquisition;

~~Charter~~• ~~Financial~~Inability ~~has~~to ~~paid~~utilize apotential ~~quarterly~~tax ~~cash~~benefits ~~dividend since September 2002. Beginning with the dividend paid for the quarter ended March 31, 2010, we reduced our quarterly dividend~~ from ~~$0.25 per share to $0.05 per share. The reduction of the dividend reflects our decision to pursue opportunities for deployment of capital in FDIC-assisted transactions~~ such ~~as the Neighborhood Community Bank, McIntosh Commercial Bank and The First National Bank of Florida~~ transactions. The dividend rate and the continued payment of dividends will primarily depend on our earnings, alternative uses for capital, such as FDIC-assisted transactions, capital requirements, acquisition opportunities, our financial condition and results of operations, statutory and regulatory limitations affecting dividends and the policies of the Board of Governors of the Federal Reserve System (“FRB”) regarding dividend waivers by federal mutual holding companies, like First Charter, MHC, that waived dividends prior to December 1, 2009, and, to a lesser extent, tax considerations and general economic conditions.;

~~Under~~• ~~the~~Difficulty ~~rules~~in ofestimating the ~~Office~~fair ofvalue ~~Comptroller~~ of the ~~Currency~~financial ~~and the FRB~~institutions, ~~CharterBank~~businesses isor ~~not~~branches ~~permitted~~ to ~~make a capital distribution if, after making such distribution, it would~~ be ~~undercapitalized. For~~acquired ~~information~~which ~~concerning~~affects ~~additional federal laws and regulations regarding~~ the ~~ability~~profits ofwe ~~CharterBank~~generate tofrom ~~make capital distributions, including~~ the ~~payment~~acquisitions; ~~of dividends to Charter Financial, see “Taxation—Federal Taxation”~~ and ~~“Supervision and Regulation—Federal Banking Regulation.”~~

~~Unlike~~24 CharterBank, Charter Financial is not restricted by Office of the Comptroller of the Currency regulations on the payment of dividends to its shareholders. However, the FRB has issued a policy statement regarding the payment of dividends by bank holding companies that it has also made applicable to savings and loan holding companies as well. In general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. FRB guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of Charter Federal to pay dividends or otherwise engage in capital distributions. In addition, the source of dividends that may be paid by Charter Federal depends on the net proceeds retained by it and earnings thereon, and dividends from CharterBank.

25Table of Contents

~~When~~• ~~Charter~~Potential ~~Financial~~changes pays dividends on its common stock to public shareholders, it is also required to pay dividends to First Charter, MHC, unless First Charter, MHC elects to waive the receipt of dividends. When it was supervised by the Office of Thrift Supervision, First Charter, MHC generally waived its right to dividends on the shares of Charter Financial that it owns, which means that Charter Financial had more cash resources to pay dividends to its public shareholders than if First Charter, MHC accepted such dividends. The Dodd-Frank Act provides that a mutual holding company will be required to give the FRB notice before waiving the receipt of dividends, and sets forth the standards for granting a waiver, including a requirement that waived dividends be considered in ~~determining~~banking anor ~~appropriate~~tax ~~exchange~~laws ~~ratio~~or inregulations ~~the event of a conversion of the mutual holding company to stock form. The Dodd-Frank Act, however, further provides~~ that ~~the FRB~~ may ~~not~~affect consider waived dividends in determining an appropriate exchange ratio in a conversion to stock form by any federal mutual holding company, such as First Charter, MHC, that waived dividends prior to December 1, 2009. The FRB has recently issued an interim final rule providing that, pursuant to the ~~Dodd-Frank~~financial ~~Act~~institutions ~~grandfathering~~or ~~provision,~~businesses ~~it “may not” object~~ to dividend waivers under similar requirements applied by the Office of Thrift Supervision, the previous regulator of federal mutual holding companies, but adding the requirement that a majority of the mutual holding company’s members eligible to vote have approved a waiver of dividends by the company within 12 months prior to the declaration of the dividend being waived. The FRB has typically not allowed dividend waivers by mutual bank holding companies and, therefore, the ability of First Charter, MHC to waive dividends in the future, should any dividends be ~~declared by the Charter Financial, is uncertain~~acquired. See “The Dodd-Frank Act may have an adverse effect on our ability to pay dividends, which would adversely affect the value of our common stock,” under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

InOur ~~addition,~~management ~~pursuant~~team’s tostrategies ~~applicable~~for ~~regulations, during~~ the ~~three-year~~enhancement ~~period~~of ~~following~~stockholder ~~our~~value ~~stock~~may ~~offering in September, 2010, we will~~ not ~~take any action to declare an extraordinary dividend to shareholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes~~succeed.

~~Securities~~Our ~~Authorized~~management team is taking actions to enhance stockholder value, including consolidating branches, reviewing personnel, developing new products, and continuing to review FDIC-assisted acquisition opportunities. In addition, we intend to focus on opportunities for ~~Issuance~~cross ~~under~~selling ~~Equity~~products ~~Compensation~~to ~~Plans~~existing customers in an effort to deepen our “share of wallet.” These actions may not enhance stockholder value.

~~See~~As ~~Part~~a ~~III, Item~~community ~~12(d) Equity Compensation Plan Information~~bank, inour ~~this~~recruitment ~~Annual~~efforts ~~Report on Form 10-K, for the table providing information as of September 30, 2011 about Company common stock that~~ may not be ~~issued~~sufficient ~~upon~~enough ~~the~~to ~~exercise~~implement ofour ~~options~~business strategy ~~under~~and ~~the~~execute ~~Charter~~successful ~~Financial Corporation 2001 Stock Option Plan~~operations.

~~Recent~~As ~~Sales~~we ofcontinue ~~Unregistered~~to ~~Securities;~~grow, ~~Use~~we ofmay ~~Proceeds~~find ~~from~~our ~~Registered~~recruiting ~~Securities~~efforts more challenging. If we do not succeed in attracting, hiring, and integrating experienced or qualified personnel, we may not be able to successfully implement our business strategy. Additionally, we may be unable to grow efficiently and effectively.

~~Not~~We ~~applicable~~are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

26Our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely affected.

~~ITEM~~Historically 6.low ~~SELECTED~~interest ~~FINANCIAL~~rates ~~DATA~~may adversely affect our net interest income and profitability.

~~The~~During ~~summary~~the ~~financial~~past ~~information~~three ~~presented~~years ~~below~~it ishas ~~derived~~been inthe ~~part~~policy ~~from~~of ~~our~~the ~~consolidated~~Board ~~financial~~of ~~statements.~~Governors ~~The~~of ~~following~~the Federal isReserve ~~only~~System ato ~~summary~~maintain interest ~~and~~rates ~~you~~at ~~should~~historically ~~read~~low itlevels inthrough ~~conjunction~~its ~~with~~targeted federal funds rate and the ~~consolidated~~purchase ~~financial~~of ~~statements~~mortgage-backed ~~and~~securities. Historically, ~~notes~~our ~~contained~~interest-bearing inliabilities ~~Item~~reprice 8or ofmature ~~this~~more ~~Annual~~quickly ~~Report~~than our interest-earning assets. As a result, rates paid on ~~Form~~our 10interest-~~K. The~~bearing ~~information~~liabilities athave ~~September~~decreased ~~30,~~more ~~2011~~quickly ~~and~~than ~~2010~~the ~~and~~rates ~~for~~we pay on the ~~years~~loans ~~ended~~we ~~September~~have 30originated and the securities we have purchased. Consequently, ~~2011~~our interest rate spreads have increased in the short term. However, ~~2010~~our ~~and~~ability ~~2009~~to reduce our interest expense is ~~derived~~now inhighly ~~part~~limited ~~from~~compared to the ~~audited~~ability ~~consolidated~~for ~~financial~~average ~~statements~~yields ~~that~~on ~~appear~~our ininterest-earning ~~this~~assets ~~annual~~to ~~report.~~continue to decrease. The ~~information~~Federal ~~presented~~Reserve ~~below~~Board ~~does~~has ~~not~~indicated ~~include~~its intention to maintain low interest rates in the ~~financial~~near ~~condition~~future. Accordingly, ~~results~~our ofinterest ~~operations~~rate orspreads ~~other~~and ~~data~~our ofnet ~~First~~interest ~~Charter~~income (the difference between interest income earned on assets and interest expense paid on liabilities) may decrease, ~~MHC~~which would adversely affect our profitability.

	At September 30,
	2011			2010			2009			2008			2007
	(In thousands)
Selected Financial Condition Data:
Total assets	$	1,171,710		$	1,186,082		$	936,880		$	801,501		$	1,021,856
Non-covered loans receivable, net (1)		419,979			451,231			462,786			428,472			405,553
Covered loans receivable, net (2)		232,046			148,139			89,764			—			—
Investment and mortgage securities available for sale (3)		158,737			133,183			206,061			277,139			295,143
Freddie Mac common stock		—			—			—			—			200,782
Retail deposits (4)		883,389			739,691			463,566			356,237			378,463
Total deposits		911,094			823,134			597,634			420,175			430,683
Deferred income taxes		4,558			3,379			7,289			6,872			72,504
Total borrowings		110,000			212,000			227,000			267,000			272,058
Total retained earnings		107,962			107,598			103,304			103,301			99,926
Accumulated other comprehensive income (loss)		(1,971	)		(3,498	)		(8,277	)		(6,849	)		116,886
Total equity	$	139,416		$	136,876		$	99,345		$	102,302		$	225,072

Changes in interest rates could adversely affect our results of operations and financial condition.

	Years Ended September 30,
	2011		2010		2009		2008		2007
	(In thousands)
Selected Operating Data:
Interest and dividend income	$	45,786	$	49,959	$	40,340	$	46,377	$	54,646
Interest expense		15,228		22,758		22,599		26,771		29,827
Net interest income		30,558		27,201		17,741		19,606		24,819
Provision for loan losses		1,700		5,800		4,550		3,250		—
Provision for loan losses on covered loans		1,200		420		—		—		—
Net interest income after provision for loan losses		27,658		20,981		13,191		16,356		24,819
Total noninterest income		9,283		17,510		12,011		18,950		76,924
Total noninterest expenses		33,942		30,469		22,581		20,284		21,926
Income before provision for income taxes		2,999		8,022		2,621		15,022		79,817
Income tax expense		694		2,087		306		4,491		28,877
Net income	$	2,305	$	5,935	$	2,315	$	10,531	$	50,940
Per Share Data:
Basic earnings per share	$	0.13	$	0.32	$	0.13	$	0.55	$	2.67
Fully diluted earnings per share	$	0.13	$	0.32	$	0.12	$	0.55	$	2.65
Dividends declared per share	$	0.20	$	0.40	$	1.00	$	1.75	$	4.45

Our results of operations and financial condition are significantly affected by changes in interest rates. Our results of operations depend substantially on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. Because our interest-bearing liabilities generally reprice or mature more quickly than our interest-earning assets, a sustained increase in interest rates generally would tend to reduce our interest income.

~~(1)~~Changes ~~Excludes~~in ~~“covered~~interest ~~loans”~~rates ~~acquired~~may ~~from~~also affect the ~~FDIC~~average ~~subject~~life toof ~~loss~~loans and mortgage-~~sharing~~related ~~agreements~~securities. ~~See~~Decreases ~~Note~~in interest 3rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk to the ~~Notes~~extent that we are unable to reinvest ~~our~~the ~~Consolidated~~cash ~~Financial~~received ~~Statements.~~from ~~Loans~~such ~~shown~~prepayments at rates that are ~~net~~comparable ofto ~~deferred~~the ~~loan~~rates ~~(fees)~~on ~~costs~~existing loans and ~~allowance~~securities. ~~for~~Additionally, increases in interest rates may decrease loan ~~losses~~demand and ~~exclude~~make ~~loans~~it ~~held~~more difficult for ~~sale~~borrowers to repay adjustable rate loans. Also, increases in interest rates may extend the life of fixed-rate assets, which would restrict our ability to reinvest in higher yielding alternatives, and may result in customers withdrawing certificates of deposit early so long as the early withdrawal penalty is less than the interest they could receive on a new investment.

~~(2)~~25 ~~Consists of loans acquired from the FDIC subject to loss sharing agreements. See Note 3 to the Notes to our Consolidated Financial Statements.~~

(3)Table Includesof all CharterBank investment and mortgage securities available for sale, excluding Freddie Mac common stock.Contents

~~(4)~~Changes ~~Retail~~in ~~deposits~~interest ~~include~~rates ~~core~~also ~~deposits~~affect ~~and~~the ~~certificates~~current fair value of ~~deposit~~our ~~other~~interest-earning securities ~~than~~portfolio. ~~brokered~~Generally, ~~and~~the ~~wholesale~~value ~~certificates~~of securities moves inversely with changes in interest rates. At September 30, 2012, the fair value of ~~deposit~~our portfolio of investment securities, mortgage-backed securities and collateralized mortgage obligations totaled $189.4 million. Net unrealized gains on these securities totaled $308,000 at September 30, 2012.

27Additionally, a majority of our single-family mortgage loan portfolio is comprised of adjustable-rate loans. Any rise in market interest rates may result in increased payments for borrowers who have adjustable rate mortgage loans, which would increase the possibility of default.

	At or For the Years Ended September 30,
	2011			2010			2009			2008			2007
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (ratio of net income to average total assets)		0.22	%		0.56	%		0.27	%		1.16	%		4.81	%
Return on average equity (ratio of net income to average equity)		1.67	%		5.62	%		2.25	%		6.23	%		20.30	%
Interest rate spread (1)		3.53	%		3.30	%		2.08	%		1.47	%		1.00	%
Net interest margin (2)		3.59	%		3.19	%		2.35	%		2.32	%		2.46	%
Efficiency ratio (3)		85.32	%		79.16	%		75.90	%		52.61	%		21.55	%
Non-interest expense to average total assets		3.34	%		2.89	%		2.68	%		2.23	%		2.07	%
Average interest-earning assets as a ratio of average interest-bearing liabilities		1.04	x		0.89	x		1.09	x		1.27	x		1.50	x
Average equity to average total assets		13.43	%		10.03	%		12.12	%		18.56	%		23.70	%
Dividend payout ratio (5)		83.82	%		27.29	%		153.79	%		66.97	%		27.83	%
Asset Quality Ratios (4):
Non-covered Assets (4):
Non-performing assets to total assets		1.99	%		2.33	%		2.16	%		1.68	%		0.80	%
Non-performing loans to total loans		2.72	%		2.55	%		2.82	%		2.47	%		1.93	%
Allowance for loan losses as a ratio of non-performing loans		0.80	x		0.84	x		0.71	x		0.77	x		0.76	x
Allowance for loan losses to total loans		2.19	%		2.12	%		1.98	%		1.89	%		1.46	%
Net charge-offs as a percentage of average non-covered loans outstanding		0.48	%		0.90	%		0.71	%		0.24	%		0.02	%
Bank Regulatory Capital Ratios:
Total capital (to risk-weighted assets)		24.36	%		21.53	%		15.71	%		18.15	%		24.18	%
Tier I capital (to risk-weighted assets)		23.10	%		20.28	%		14.65	%		16.90	%		12.57	%
Tier I capital (to average assets)		10.68	%		10.21	%		9.30	%		10.51	%		9.43	%
Consolidated Capital Ratios:
Total equity to total assets		11.90	%		11.42	%		10.49	%		12.76	%		22.03	%
Tangible total equity to total assets		11.38	%		10.98	%		9.99	%		12.18	%		21.61	%
Other Data:
Number of full service offices		18			16			14			10			9
Full time equivalent employees		294			260			209			178			173

Strong competition and changing banking environment may limit growth and profitability.

Competition in the banking and financial services industry is intense. We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms operating locally and elsewhere, and non-traditional financial institutions, including non-depository financial services providers. Many of these competitors (1whether regional or national institutions) ~~The~~have ~~interest~~substantially ~~rate~~greater ~~spread~~resources ~~represents~~and lending limits than we have and may offer certain services that we do not or cannot provide. Additionally, non-traditional financial institutions may not have the ~~difference~~same ~~between~~regulatory requirements or burdens as we do even while playing a rapidly increasing role in the ~~weighted-average~~financial ~~yield~~services onindustry, ~~interest-earning~~which ~~assets~~could ultimately limit our growth, profitability and ~~the~~stockholder value. Our ~~weighted~~profitability ~~average~~depends ~~cost~~upon ofour ~~interest-bearing~~ability ~~liabilities~~to ~~for~~successfully compete in our market areas and adapt to the ~~period~~ever changing banking environment.

~~(2)~~Financial ~~The~~reform ~~net~~legislation ~~interest~~has, ~~margin~~among ~~represents~~other ~~net~~things, ~~interest~~eliminated ~~income~~the asOffice of Thrift Supervision, tightened capital standards and created a ~~percent~~new ofConsumer ~~average~~Financial ~~interest-earning~~Protection ~~assets~~Bureau, ~~for~~and ~~the~~will ~~period~~result in new laws and regulations that are expected to increase our costs of operations.

~~(3)~~The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The ~~efficiency~~federal ~~ratio~~agencies ~~represents~~are ~~non-interest~~given ~~expense~~significant ~~divided~~discretion byin drafting the ~~sum~~implementing ofrules ~~net~~and ~~interest~~regulations, and ~~income~~consequently many of the details and ~~non~~much of the impact of the Dodd-~~interest~~Frank ~~income~~Act may not be known for many months or years.

~~(4)~~Among ~~Covered~~other ~~assets consist of assets of Neighborhood Community Bank (“NCB”)~~things, ~~McIntosh~~as ~~Commercial~~a ~~Bank~~result ~~(“MCB”), and The First National Bank~~ of ~~Florida (“FNB”) acquired from~~ the ~~FDIC subject to loss sharing agreements. Non~~Dodd-~~covered~~Frank ~~assets~~Act: ~~consist of assets other than covered assets. See Note 6 to the Notes to our Consolidated Financial Statements.~~

• the Office of the Comptroller of the Currency became the primary federal regulator for federal savings associations such as CharterBank (~~footnotes~~replacing ~~continue~~the onOffice ~~following~~of ~~page~~Thrift Supervision), and the Federal Reserve Board now supervises and regulates all savings and loan holding companies that were formerly regulated by the Office of Thrift Supervision, including Charter Financial and First Charter, MHC;

28• effective July 21, 2011, the federal prohibition on paying interest on demand deposits has been eliminated, thus allowing businesses to have interest bearing checking accounts. This change has increased our interest expense;

~~(continued~~• the Federal Reserve Board is required to set minimum capital levels for depository institution holding companies that are as stringent as those required for their insured depository subsidiaries, and the components of Tier 1 capital are required to be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. There is a five-year transition period (from ~~previous~~the ~~page~~July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements will apply to savings and loan holding companies. However, recently proposed rules would not provide such a transition period for savings and loan holding companies. See “Supervision and Regulation—Capital Requirements;

~~(5)~~• ~~The~~the ~~dividend~~federal ~~payout~~banking ~~ratio~~regulators ~~represents~~are ~~total~~required ~~dividends~~to ~~declared~~implement ~~and~~new ~~not~~leverage ~~waved~~and ~~per~~capital ~~share~~requirements ~~divided~~that bytake ~~total~~into ~~net~~account ~~income.~~off-balance ~~The~~sheet ~~following~~activities ~~table sets forth the aggregate cash dividends paid per period~~ and ~~the~~other ~~amount~~risks, ofincluding ~~dividends~~risks ~~paid~~relating to ~~public~~securitized ~~shareholders~~products and ~~to First Charter, MHC:~~derivatives;

	For the Year Ended September 30,
	2011		2010		2009		2008		2007
Dividends paid to public stockholders	$	1,340,899	$	1,040,926	$	2,651,554	$	5,656,953	$	14,562,112
Dividends paid to First Charter, MHC		600,000		600,000		750,000		1,500,000		—
Total dividends paid	$	1,940,899	$	1,640,926	$	3,401,554	$	7,156,953	$	14,562,112

FirstTable Charter, MHC waived dividends of $1.7 million, $5.7 million, $28.7 million, $26.3 million and $70.6 million during the years ended September 30, 2011, 2010, 2009, 2008 and 2007, respectively.Contents

29• a new Consumer Financial Protection Bureau has been established, which has broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, like CharterBank, will be examined by their applicable bank regulators; and

~~ITEM~~• 7.federal ~~MANAGEMENT’S~~preemption ~~DISCUSSION~~rules ~~AND~~that ~~ANALYSIS~~have OFbeen ~~FINANCIAL~~applicable ~~CONDITION~~for ~~AND~~national ~~RESULTS~~banks OFand ~~OPERATION~~federal savings banks have been weakened, and state attorneys general have the ability to enforce federal consumer protection laws.

~~Overview~~In addition to the risks noted above, we expect that our operating and compliance costs, and possibly our interest expense, could increase as a result of the Dodd-Frank Act and the implementing rules and regulations. The need to comply with additional rules and regulations, as well as state laws and regulations to which we were not previously subject, will also divert management’s time from managing our operations. Higher capital levels would require us to maintain higher levels of assets that earn less interest and dividend income and returns on stockholders’ equity would suffer.

~~Our~~The ~~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~~short-~~earning~~term ~~assets, consisting primarily of loans, investment securities, mortgage-backed securities, collateralized mortgage obligations~~ and ~~other interest~~long-~~earning~~term ~~assets~~impact ~~(primarily~~of ~~cash and cash equivalents), and~~ the ~~interest~~changing weregulatory ~~pay~~capital onrequirements ~~our interest-bearing liabilities, consisting primarily of deposits~~ and anticipated ~~Federal~~new ~~Home~~capital ~~Loan~~rules ~~Bank~~are ~~advances~~uncertain.

AsOn aJune 7, ~~result~~2012, ofthe ~~our~~Federal ~~loan~~Reserve ~~underwriting~~Board ~~policies,~~approved ~~management~~proposed ~~believes~~rules that would wesubstantially ~~have~~amend ~~not~~the ~~suffered~~regulatory ~~the~~risk-based ~~same~~capital ~~level~~rules ofapplicable ~~loan~~to ~~losses~~us. ~~during~~The Office of the ~~current~~Comptroller ~~recession~~of asthe ~~many~~Currency ~~financial~~subsequently ~~institutions~~approved inthese ~~our~~proposed ~~market~~rules ~~area. Consequently~~on June 12, we2012. ~~have~~The ~~recently~~proposed ~~been~~rules ~~able~~implement tothe ~~take~~“Basel III” ~~advantage~~regulatory ofcapital ~~attractive~~reforms ~~low~~and changes required by the Dodd-~~risk~~Frank ~~opportunities~~Act. Basel III was initially intended to ~~enhance~~be ~~our~~implemented ~~banking~~beginning ~~franchise~~January 1, ~~through~~2013, ~~the~~however ~~purchase~~on ofNovember 9, ~~distressed~~2012, the U.S. federal banking ~~franchises~~agencies ~~from~~announced that they do not expect that any of the ~~FDIC~~proposed rules would become effective on January 1, 2013.

~~Business~~Various ~~Strategy~~provisions of the Dodd-Frank Act increase the capital requirements of financial institutions. The proposed rules include new minimum risk-based capital and leverage ratios, which would be phased in during 2013 and 2014, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to CharterBank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions. While the proposed Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied to CharterBank.

~~Our~~In ~~business~~addition, strategy is to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our individual and business customers. We believe that we have a competitive advantage in the ~~markets~~current weeconomic ~~serve because of our knowledge of the local marketplace~~ and ~~our long-standing history of providing superior~~regulatory environment, ~~relationship-based~~bank ~~customer~~regulators ~~service.~~may ~~This~~impose ~~57-year~~capital ~~history~~requirements inthat ~~the~~are ~~community,~~more ~~combined~~stringent ~~with~~than ~~management’s~~those ~~extensive~~required ~~experience~~by ~~and~~applicable ~~adherence~~existing ~~to conservative underwriting standards through numerous business cycles, has enabled us to maintain a strong capital position despite the economic recession~~regulations.

WeThe ~~believe~~application ~~that~~of ~~the~~more ~~current~~stringent ~~economic~~capital ~~and~~requirements ~~financial services environment presents a significant opportunity~~ for usCharterBank ~~to grow our retail banking operations both organically~~could, asamong ~~many competing financial institutions have scaled back lending and~~ other ~~activities~~things, ~~and~~result ~~through~~in ~~FDIC-assisted~~lower ~~acquisitions~~returns ofon ~~troubled~~invested ~~financial institutions~~capital, ~~such~~require asthe ~~our~~raising ~~acquisition~~ of ~~NCB,~~additional ~~MCB~~capital, and ~~FNB~~result in regulatory ~~June~~actions ~~2009,~~if ~~March~~we ~~2010,~~were ~~and~~to ~~September~~be ~~2011,~~unable ~~respectively. Through~~to ~~the~~comply ~~NCB,~~with ~~MCB,~~such ~~and~~requirements. ~~FNB transactions~~Furthermore, ~~CharterBank~~the ~~acquired~~imposition ~~sixteen full-service branch offices~~ of ~~which~~liquidity ~~ten~~requirements ~~were~~in ~~retained. We~~connection ~~also~~with ~~acquired retail deposits of $582.7 million in~~ the ~~three~~implementation ~~transactions. In each~~ of ~~the~~Basel ~~FDIC-assisted~~III ~~acquisitions,~~could weresult ~~participated~~ in aour ~~competitive~~having ~~bid~~to ~~process~~lengthen inthe ~~which~~term weof ~~offered~~our ~~a negative bid on net assets acquired ($26.9 million in the NCB transaction~~funding, restructure ~~$53.0~~our ~~million~~business ~~in the MCB transaction~~models, and/or ~~$28.0~~increase ~~million~~our inholdings ~~the~~of ~~FNB~~liquid ~~transaction) and no deposit premium~~assets. We ~~also~~Implementation ~~entered~~of ~~into~~changes ~~loss~~to ~~sharing~~asset ~~agreements~~risk ~~with~~weightings ~~the~~for ~~FDIC~~risk ~~which~~based ~~cover~~capital acalculations, ~~majority~~items ofincluded ~~the~~or ~~assets~~deducted ~~acquired~~in ~~(referred~~calculating toregulatory ascapital ~~“covered~~and/or ~~assets”). See~~additional capital ~~“FDIC-Assisted~~conservation ~~Acquisitions”~~buffers, ~~below. We~~could ~~anticipate~~result ~~that~~in ~~the~~management ~~prevailing~~modifying ~~weakness~~its inbusiness ~~the~~strategy ~~banking sector~~ and ~~the~~could ~~potential~~limit ~~weakness~~our ofability ~~any~~to ~~economic~~make ~~recovery~~distributions, ~~will~~including ~~provide~~paying ~~additional~~out ~~opportunities~~dividends ~~for~~or usbuying toback ~~participate in FDIC-assisted transactions~~shares.

~~From~~27 January 1, 2009 through September 30, 2011, 371 banking institutions failed in the United States, including 59 failures that have occurred in the state of Georgia. We believe that purchasing distressed banking assets from the FDIC provides us with a low-risk opportunity to enhance our banking franchise, and we intend to evaluate such opportunities as they arise. We believe that there are numerous banks within or adjacent to our target market areas that are subject to various enforcement actions and that have increasing levels of non-performing assets and declining capital levels. Our knowledge of the marketplace and our experienced management team, together with our experience in managing problem assets acquired from the FDIC in the NCB, MCB, and FNB transactions and our capital level, position us to take advantage of future opportunities to acquire troubled financial institutions in our market area.

30Table of Contents

~~Key~~The ~~aspects~~Federal ofReserve Board may issue final rules that would adversely affect First Charter, MHC’s ability to waive dividends, which would adversely affect our ~~business~~ability ~~strategy~~to ~~include~~pay dividends and the ~~following:~~value of our common stock.

·The ~~Leveraging~~value ~~our~~of ~~capital~~Charter ~~base~~Financial’s ~~and~~common ~~acquisition~~stock ~~experience~~is significantly affected by our ability to ~~pursue~~pay ~~additional~~dividends ~~strategic~~to ~~growth~~our ~~opportunities~~public shareholders, which ~~especially~~is ~~FDIC-assisted~~affected ~~acquisitions,~~by ~~such~~our asearnings ~~NCB,~~and ~~MCB~~cash resources at the holding company level and ~~FNB~~by the ability of CharterBank to make capital distributions to Charter Financial. AsMoreover, aour ~~result~~ability to pay dividends and the amount of any such dividend is affected by the ~~NCB~~ability of First Charter, ~~MCB~~MHC, ~~and~~our ~~FNB~~mutual ~~acquisitions~~holding company, weto ~~have~~waive ~~broader~~the ~~market~~receipt ~~coverage~~of dividends declared by Charter Financial. First Charter, ~~particularly~~MHC inhas ~~west-central~~historically ~~Georgia~~waived ~~and~~its ~~northwest~~right ~~Florida~~to ~~Panhandle.~~receive ~~Moreover~~most dividends on its shares of Charter Financial common stock, wewhich ~~expect~~means that ~~the~~Charter ~~high~~Financial ~~level~~has ofhad ~~service~~more ~~and~~cash ~~expanded~~resources ~~product~~to ~~offerings~~pay wedividends ~~are~~to ~~providing~~our topublic ~~the~~stockholders ~~former~~than ~~NCB,~~if ~~MCB~~First Charter, ~~and~~MHC ~~FNB~~had ~~customers~~accepted ~~will~~such ~~facilitate growth~~dividends.

·The ~~Growing~~Dodd-Frank ~~our~~Act ~~retail~~requires ~~banking~~federally-chartered ~~presence~~mutual ~~throughout~~holding ~~the~~companies ~~markets~~to ingive ~~west-central~~the ~~Georgia,~~FRB ~~east-central~~notice ~~Alabama,~~before ~~and~~waiving the ~~northwest~~receipt ~~Florida~~of ~~Panhandle~~dividends, and ~~including~~provides ~~our~~that ~~expanded~~in ~~retail~~the ~~footprint~~case ~~resulting~~of ~~from~~“grandfathered” ~~the~~mutual ~~NCB~~holding companies, ~~MCB~~like ~~and~~First ~~FNB~~Charter, ~~acquisitions~~MHC, ~~while~~the ~~reducing~~FRB ~~our~~“may ~~emphasis~~not onobject” ~~wholesale~~to ~~banking.~~a Wedividend ~~have~~waiver ~~paid~~if ~~off~~the ~~all~~board ~~borrowings~~of ~~acquired~~directors inof the ~~NCB~~mutual ~~acquisition~~holding ~~and~~company bywaiving ~~March~~dividends determines ~~31,~~that ~~2010,~~the ~~100%~~waiver: (i) would not be detrimental to the safe and sound operation of ~~NCB~~the subsidiary savings bank; and (ii) is consistent with the board’s ~~wholesale~~fiduciary ~~deposits~~duties ~~had~~to ~~been~~members ~~eliminated~~of the mutual holding company. ~~Since~~To ~~acquiring~~qualify ~~MCB,~~as a wegrandfathered ~~have~~mutual ~~paid~~holding ~~off~~company, ~~$9.3~~a ~~million~~mutual ofholding ~~borrowings~~company ~~acquired~~must inhave ~~the~~been ~~MCB~~formed, ~~acquisition~~issued stock and 97waived dividends prior to December 1, 2009.8% ofThe ~~MCB’s~~Dodd-Frank ~~wholesale~~Act ~~deposits~~further ~~have~~provides ~~been~~that ~~eliminated.~~the ~~There~~FRB ~~were~~may nonot ~~borrowing~~consider ~~acquired~~waived dividends in determining ~~the~~an ~~FNB~~appropriate ~~transaction~~exchange ~~and~~ratio ~~essentially~~upon nothe ~~wholesale~~conversion ~~deposits.~~of Wea ~~intend~~grandfathered mutual holding company to ~~build~~stock aform. ~~diversified~~In ~~balance~~September ~~sheet~~2011, ~~positioning~~however, ~~CharterBank~~the FRB issued an interim final rule that also requires as a ~~full-service~~condition ~~community~~to ~~bank~~waiving dividends, that ~~offers~~each mutual ~~both~~holding ~~retail~~company ~~and~~obtain ~~commercial~~the ~~loan~~approval ~~and~~of ~~deposit~~a ~~products~~majority toof ~~all~~the ~~markets~~eligible votes of its members within 12 months prior to the ~~I-85~~declaration ~~corridor~~of ~~and~~the dividend being waived. While the ~~adjacent~~final ~~markets~~rule ~~resulting~~has ~~from~~not ~~our~~been ~~acquisitions~~issued we believe that a depositor vote will be required annually to waive be dividends. This limits the capacity of ~~NCB,~~Charter ~~MCB,~~Financial ~~and~~to ~~FNB~~pay dividends.

·Government ~~Continuing~~responses to ~~emphasize~~economic conditions ~~convenience~~may ~~for~~adversely ~~our~~affect ~~customers by offering extended hours at the majority of~~ our ~~offices~~operations, ~~alternative~~financial ~~banking~~condition ~~delivery systems that allow customers to pay bills, transfer funds~~ and monitor account balances at any time, as well as products and services designed to meet the changing needs of our customers, such as our Rewards checking program discussed under the heading “Business of Charter Financial Corporation and CharterBank—Sources of Fundsearnings.”

·The ~~Reducing~~Dodd-Frank ~~our~~Act ~~nonperforming~~has ~~assets~~changed ~~and~~the ~~classified~~bank regulatory ~~assets~~framework, ~~through~~created ~~diligently~~an ~~monitoring~~independent ~~resolution~~consumer ~~efforts,~~protection ~~including~~bureau ~~problem~~that ~~covered~~has ~~assets~~assumed ofthe ~~NCB,~~consumer ~~MCB~~protection ~~and~~responsibilities ~~FNB.~~of Asthe ofvarious ~~September~~federal ~~30,~~banking ~~2011~~agencies, weand ~~had~~established ~~$75.5~~more ~~million~~stringent ofcapital ~~non-performing~~standards ~~loans~~for asbanks ~~well~~and asbank ~~$31~~holding companies.8 ~~million~~Bank ofregulatory ~~real~~agencies ~~estate~~also ~~owned,~~have ofbeen ~~which~~responding ~~$63.9~~aggressively ~~million~~to concerns and ~~$27.7~~adverse ~~million,~~trends ~~respectively,~~identified ~~related~~in toexaminations. ~~covered~~Ongoing ~~assets~~uncertainty ~~acquired from NCB, MCB~~ and ~~FNB.~~adverse Wedevelopments ~~have~~in ~~established~~the ~~problem~~financial ~~asset~~services ~~resolution~~industry ~~teams~~and tothe ~~resolve~~domestic ~~nonperforming~~and ~~assets~~international credit markets, and ~~classified~~the ~~assets~~effect ~~acquired~~of in the ~~NCB,~~Dodd-Frank ~~MCB~~Act and ~~FNB~~regulatory ~~transactions.~~actions, ~~While~~may ~~the~~adversely ~~majority~~affect ofour ~~these~~operations ~~nonperforming~~by ~~assets~~increasing doongoing ~~not~~compliance ~~pose~~costs aand ~~significant~~restricting ~~credit~~our ~~risk~~business ~~because~~activities, ~~they~~including ~~are~~our ~~covered~~ability ~~under~~to ~~loss~~originate ~~sharing~~or ~~agreements~~sell ~~with~~loans, ~~the~~modify loan ~~FDIC~~terms, ~~reducing~~or ~~the~~foreclose ~~amount~~on ofproperty ~~non-performing~~securing ~~assets~~loans. ~~acquired~~These inrisks ~~the~~could ~~NCB,~~affect ~~MCB~~the performance and ~~FNB~~value ~~acquisitions~~of ~~will~~our ~~reduce~~loan ~~the~~and ~~cost~~investment ofsecurities ~~carrying~~portfolios, ~~these~~which ~~assets.~~also ~~See~~would ~~“Asset~~negatively ~~Quality~~affect our financial performance.”

·If ~~Continuing~~the toFederal ~~integrate~~Reserve ~~the~~Board ~~assets~~increases ~~and~~the ~~liabilities~~federal wefunds ~~acquired~~rate, ~~from~~overall ~~NCB~~interest inrates ~~June~~will ~~2009~~likely rise, ~~MCB~~which inmay ~~March~~negatively ~~2010,~~impact ~~and~~the housing ~~FNB~~markets inand ~~September~~the ~~2011,~~U.S. ~~achieving~~economic ~~operational~~recovery. ~~efficiencies~~In ~~through~~addition, ~~the~~deflationary ~~consolidation~~pressures, orwhile ~~relocation~~possibly oflowering our ~~branches~~operating costs, ~~and~~could ~~building~~have a significant negative effect on ~~the~~our ~~NCB~~borrowers, ~~MCB~~especially our business borrowers, and ~~FNB~~the ~~franchises~~values byof underlying ~~offering~~collateral ~~expanded~~securing ~~products~~loans, ~~and~~which ~~services~~could negatively affect our financial performance.

~~FDIC-Assisted~~Changes ~~Acquisitions~~in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income.

~~Neighborhood~~In response ~~Community~~to ~~Bank.~~the Onfinancial ~~June~~crisis ~~26,~~of ~~2009,~~2008 ~~CharterBank~~and ~~entered~~early ~~into~~2009, anCongress ~~agreement~~has ~~with~~taken ~~the~~actions ~~FDIC,~~that asare ~~receiver,~~intended to ~~acquire~~strengthen ~~certain~~confidence ~~assets~~ and ~~assume~~encourage ~~certain~~liquidity ~~liabilities~~in offinancial ~~Neighborhood Community Bank~~institutions, aand ~~full~~the ~~service~~FDIC ~~commercial~~has ~~bank~~taken ~~headquartered~~actions ~~in Newnan, Georgia. The NCB acquisition extended CharterBank’s retail branch footprint as part of our efforts~~ to increase ~~our~~insurance ~~retail~~coverage ~~deposits and reduce our reliance~~ on deposit ~~brokered~~accounts. ~~deposits~~In ~~and~~addition, ~~borrowings~~there ashave abeen ~~significant~~proposals ~~source~~made ofby ~~funds. The~~members ~~acquisition~~ of ~~NCB’s~~Congress ~~four~~and ~~full-service~~others ~~branches,~~that ~~one~~would ofreduce ~~which~~the ~~has~~amount ~~been~~delinquent ~~closed,~~borrowers ~~has~~are ~~expanded~~otherwise ~~CharterBank’s~~contractually ~~market~~obligated ~~presence~~to inpay ~~west~~on ~~central~~their ~~Georgia~~mortgage ~~within~~loans ~~the~~and ~~I-85~~limit ~~corridor~~an ~~region~~institution’s ability into ~~which~~foreclose ~~CharterBank~~on ismortgage ~~seeking to expand~~collateral.

~~CharterBank~~28 assumed $195.3 million of liabilities, including $137.0 million of retail deposits and $44.0 million of wholesale deposits with no deposit premium paid. The liabilities assumed by CharterBank also included $13.0 million of Federal Home Loan Bank advances and $981,000 of other liabilities. CharterBank acquired approximately $202.8 million of NCB’s assets, including $159.9 million in loans, net of unearned income, and $17.7 million of real estate owned at a discount of $26.9 million of fair value and other adjustments. The assets acquired also included $44.6 million of cash and cash equivalents, securities, Federal Home Loan Bank stock and other assets, including $19.4 million in cash that was received from the FDIC.

31Table of Contents

~~Under~~Moreover, ~~agreements~~bank ~~with~~regulatory ~~the~~agencies ~~FDIC,~~have ~~the~~responded ~~FDIC~~aggressively ~~will~~to ~~assume~~concerns ~~80%~~and oftrends identified ~~losses~~in examinations, and ~~share~~have ~~80%~~issued ofmany ~~loss~~formal ~~recoveries~~enforcement onorders ~~the~~requiring ~~first~~capital ~~$82.0~~ratios ~~million~~in excess of ~~losses~~regulatory onrequirements. ~~the~~Bank ~~acquired~~regulatory ~~loans~~agencies, ~~and~~such ~~other~~as ~~real~~the ~~estate~~Office ~~owned,~~of ~~and~~the ~~assume~~Comptroller ~~95%~~ of ~~losses~~the Currency and ~~share~~the ~~95%~~FDIC, ofgovern ~~loss~~the activities ~~recoveries~~in onwhich ~~losses~~we ~~exceeding~~may ~~$82.0~~engage, ~~million.~~primarily ~~Loans,~~for ~~including~~the ~~commitments~~protection of depositors, and ~~other~~not ~~real~~for ~~estate~~the ~~owned~~protection ~~covered~~or ~~under~~benefit ~~the~~of ~~loss~~potential ~~sharing~~investors. ~~agreements~~In ~~with~~addition, ~~the~~new ~~FDIC~~laws and regulations are ~~referred~~likely to inincrease ~~this~~our ~~Annual~~costs ~~Report~~of onregulatory ~~Form~~compliance ~~10-K~~and ascosts ~~“covered~~of doing ~~loans”~~business, and ~~“covered~~otherwise ~~other~~affect ~~real~~our ~~estate,” respectively~~operations. ~~The~~ ~~loss~~New ~~sharing~~laws ~~agreements~~and ~~cover~~regulations ~~losses~~may onsignificantly ~~single-family~~affect ~~residential~~the ~~mortgage~~markets ~~loans~~in ~~for~~which ~~ten~~we ~~years~~do ~~and~~business, ~~all~~the ~~other~~markets ~~losses~~ for ~~five~~and ~~years.~~value Inof ~~addition~~our toloans and investments, the ~~$26.9~~fees ~~million~~we ofcan ~~fair~~charge, ~~value~~and ~~discounts~~our ongoing operations, costs ~~CharterBank~~and ~~initially~~profitability. ~~recorded~~For anexample, ~~indemnification~~recent ~~asset~~regulatory ~~from~~changes ~~the~~to ~~FDIC~~our inoverdraft protection programs could decrease the amount of ~~$50.0~~fees ~~million~~we asreceive ~~part~~for ofthese services. For the ~~loss~~years ~~sharing~~ended ~~agreements~~September 30, 2012 and 2011, overdraft protection fees totaled $3. An8 ~~additional~~million and $63.54 million, ~~has~~respectively. ~~been~~Further, ~~recorded~~legislative toproposals ~~increase~~limiting ~~the~~our ~~indemnification~~rights ~~asset~~as ~~because~~a ofcreditor ~~increased~~could ~~estimates~~result ofin ~~loss~~credit ~~subsequent~~losses toor ~~the~~increased ~~June~~expense ~~2009~~in ~~acquisition~~pursuing ~~date~~our remedies as a creditor. ~~CharterBank~~ ~~has~~Regulations ~~received~~limit interchange fees for banks with assets of more than $5210.80 ~~million~~billion. inIt ~~cash~~is ~~from~~unclear ~~the~~whether ~~FDIC~~ in ~~loss~~the ~~sharing~~future ~~through~~these ~~September~~limits ~~30,~~will ~~2011~~apply ~~relating~~ to ~~NCB~~smaller ~~agreements~~banks such as CharterBank.

~~CharterBank~~We ~~determined~~hold ~~current~~certain ~~fair~~intangible ~~value accounting estimates of the acquired~~ assets ~~and~~that ~~liabilities~~ in ~~accordance~~the ~~with~~future ~~accounting~~could ~~requirements for acquisition transactions. It is expected that CharterBank now has sufficient nonaccretable discounts (discounts representing amounts that are not expected to~~ be ~~collected~~classified ~~from~~as ~~the~~either ~~customer,~~partially ~~liquidation~~or offully ~~collateral~~impaired, orwhich ~~under~~would ~~the~~reduce ~~FDIC~~our ~~loss~~earnings ~~sharing agreements) to cover losses on the covered loans~~ and ~~other real estate. CharterBank has further recorded a FDIC receivable for losses expected to be indemnified by~~ the ~~FDIC. Furthermore,~~book ~~CharterBank~~values ~~expects to have accretable discounts (discounts representing the excess~~ of athese ~~loan’s cash flows expected to be collected over the initial investment in the loan) to provide for market yields on the covered loans~~assets. No ~~goodwill or bargain purchase gain was recorded in the transaction.~~

~~The~~Pursuant ~~following~~to ~~table~~applicable ~~shows~~accounting ~~adjustments~~requirements, we are required to periodically test our goodwill and core deposit intangible assets for impairment. The impairment testing process considers a variety of factors, including the ~~fair~~current ~~value~~market price of our common shares, the estimated net present value of our assets and liabilities ~~acquired~~ and information ~~other~~concerning ~~acquisition~~the ~~accounting~~terminal ~~adjustments~~valuation of similarly situated insured depository institutions. Future impairment testing may result in a partial or full impairment of the value of our goodwill or core deposit intangible assets, or both. If an impairment determination is made in a future reporting period, our earnings and the ~~resulting~~book ~~gain~~value ~~from~~of these intangible assets will be reduced by the ~~NCB~~amount ~~acquisition~~of asthe impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of ~~June~~our 26shares of common stock, ~~2009~~our liquidity or our regulatory capital levels.

	As Recorded by NCB		Aggregate fair value and other acquisition accounting adjustments					As Recorded by CharterBank
Assets:
Cash and due from banks	$	10,602,482	$	19,415,855		(1	)	$	30,017,337
Securities		12,763,061		(14,395	)	(2	)		12,748,666
FHLB stock		1,157,700		—					1,157,700
Loans, net of unearned income		159,900,960		(65,194,681	)	(3	)		94,706,279
Other real estate owned		17,676,456		(10,240,018	)	(4	)		7,436,438
FDIC receivable for loss sharing agreements		—		49,991,245		(6	)		49,991,245
Other assets		691,601		1,100,000					691,601
		—		(1,100,000	)				—
Total assets acquired	$	202,792,260	$	(6,042,994	)			$	196,749,266	(5	)
Liabilities:
Deposits	$	181,325,925	$	912,499		(7	)	$	182,238,424
FHLB advances		13,000,000		76,665		(8	)		13,076,665
Other liabilities		981,190		452,987		(9	)		1,434,177
Total liabilities assumed		195,307,115		1,442,151					196,749,266
Excess of assets acquired over liabilities assumed	$	7,485,145
Aggregate fair value and other acquisition accounting adjustments			$	(7,485,145	)

Any requested or required changes in how we determine the impact of loss share accounting on our financial statements could have a material or adverse effect on our reported results.

~~(1)~~Our ~~Reflects~~financial results are significantly based on loss share accounting, which is subject to assumptions and judgments made by us. Loss share accounting is a complex accounting methodology. Many of the decisions ~~initial~~management ~~funds~~makes ~~received~~regarding ~~from~~the application of this accounting methodology may be revised at the ~~FDIC~~request onof various regulatory agencies to whom we report. As such, any financial information generated through the ~~acquisition~~use ~~date~~of loss share accounting is subject to change. Any significant change in such information could have a material adverse effect on our results of operations and our previously reported results.

~~(2)~~Because ~~Reflects~~the ~~fair~~nature ~~value~~of ~~adjustments~~the ~~based~~financial onservices ~~CharterBank’s~~business ~~evaluation~~involves a high volume of ~~the~~transactions, ~~acquired~~we ~~investment~~face ~~securities~~significant ~~portfolio~~operational risks.

~~(3)~~We ~~Reflects~~operate ~~fair~~in ~~value~~diverse ~~adjustments~~markets ~~based~~and rely on ~~CharterBank’s~~the ~~evaluation~~ability of our employees and systems to process a high number of transactions. Operational risk is the ~~acquired~~risk ~~loan~~of ~~portfolio~~loss resulting from our operations, including but not limited to, the risk of: fraud by employees or persons outside our company; the execution of unauthorized transactions by employees: errors relating to transaction processing and technology; breaches of the internal control systems and compliance requirements; and business continuation and disaster recovery. ~~The~~Insurance ~~fair~~coverage ~~value~~may ~~adjustment~~not ~~includes~~be ~~adjustments~~available for ~~estimated~~such ~~credit~~losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, ~~liquidity~~adverse business decisions or their implementation, and ~~market~~customer ~~yield~~attrition due to negative publicity. In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and ~~servicing~~suffer ~~costs~~damage to our reputation.

~~(4)~~29 ~~Reflects the estimated other real estate owned losses based on CharterBank’s evaluation of the acquired other real estate owned portfolio.~~

(5)Table The carrying value of certain long-term assets, primarily the estimated fair value of acquired core deposit intangible of $1.1 million, was reduced to zero by the excess of the fair value of net assets acquired over liabilities assumed in the acquisition.Contents

~~(6)~~We ~~Reflects~~may ~~the~~be ~~estimated~~adversely ~~fair~~affected ~~value~~by ~~of payments CharterBank will receive from~~ the ~~FDIC~~soundness ~~under~~of ~~the~~other ~~loss~~financial ~~sharing agreements~~institutions.

~~(7)~~Financial ~~Reflects~~services ~~fair~~institutions ~~value~~are ~~adjustments~~interrelated ~~based~~as ona ~~CharterBank’s~~result ~~evaluation~~of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the ~~acquired~~event ~~time~~of ~~deposit~~a ~~portfolio~~default by a counterparty or client. Any such losses could have a material adverse effect on our financial condition and results of operations.

~~(8)~~System ~~This~~failure ~~adjustment~~or isbreaches ~~required~~of ~~because~~our ~~rates~~network onsecurity ~~Federal~~could ~~Home~~subject ~~Loan~~us ~~Bank~~to ~~advances~~increased ~~were~~operating ~~higher~~costs ~~than~~as ~~rates~~well ~~available on similar borrowings~~ as oflitigation ~~the~~and ~~acquisition~~other ~~date.~~liabilities

~~(9)~~The ~~Adjustments~~computer ~~reflect~~systems ~~estimated~~and ~~qualifying~~network ~~acquisition~~infrastructure ~~costs~~we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in violations of consumer privacy laws including the Gramm-Leach-Bliley Act, cause significant liability to us and give reason for existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage and potential liability, there can be no assurance that these security measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations.

OnHurricanes ~~the~~or ~~June~~other ~~26,~~adverse ~~2009~~weather ~~acquisition~~events ~~date,~~would negatively ~~the~~affect ~~preliminary~~our ~~estimate~~local ofeconomies ~~the~~or ~~contractually~~disrupt ~~required~~our ~~principal payments receivable for all impaired loans acquired from NCB was $51.0 million~~operations, ~~and~~which ~~the~~would estimated fair value of such loans was $20.0 million. The impaired NCB loans were valued based on the liquidation value of the underlying collateral because the timing and amount of the expected cash flows could not be reasonably estimated. As a result, we have no accretable discount on these impaired loans. We established a credit risk discount (nonaccretable) of $31.0 million on the acquisition date relating to these impaired loans, reflected in the recorded net fair value of the impaired loans. Our preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the NCB acquisition was $108.9 million, and the estimated fair value of the loans was $74.7 million. At such date, we established an ~~allowance~~adverse ~~for~~effect ~~loan losses of $23.8 million~~ on ~~these loans representing amounts which are not expected to be collected from the customer nor from liquidation of collateral. In~~ our ~~estimate~~business ofor ~~cash~~results ~~flows for the non-impaired NCB loans, we also recorded an accretable discount~~ of ~~$10~~operations.4 million relating to the loans that will be recognized on a level yield basis over the life of the loans because accretable yield represents the undiscounted cash flows expected to be collected in excess of the estimated fair value of the acquired loans. As of the acquisition date, we also recorded a net FDIC receivable of $50.0 million, representing FDIC indemnification under the loss sharing agreements for covered loans and other real estate. Such receivable has been discounted by $2.0 million for the expected timing and receipt of these cash flows. The ultimate collectability of the FDIC receivable is dependent on the performance of the underlying covered assets, the passage of time and claims paid by FDIC.

32Our market area is located in the southeastern region of the United States and is susceptible to natural disasters, such as hurricanes, tornadoes, tropical storms, other severe weather events and related flooding and wind damage, and man-made disasters. These natural disasters could negatively impact regional economic conditions, cause a decline in the value or destruction of mortgaged properties and an increase in the risk of delinquencies, foreclosures or loss on loans originated by us, damage our banking facilities and offices and negatively impact our growth strategy. Such weather events can disrupt operations, result in damage to properties and negatively affect the local economies in the markets where they operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes or tornadoes will affect our operations or the economies in our current or future market areas, but such weather events could negatively impact economic conditions in these regions and result in a decline in local loan demand and loan originations, a decline in the value or destruction of properties securing our loans and an increase in delinquencies, foreclosures or loan losses. Our business or results of operations may be adversely affected by these and other negative effects of natural or manmade disasters.

~~The~~ITEM ~~loss sharing agreements will likely have a material impact on our cash flows and operating results in both the short term and the long term~~1B. InUNRESOLVED ~~the~~STAFF short term, it is likely that a significant amount of the covered loans will become delinquent or will have inadequate collateral to repay the loans. In such instances, we will stop accruing interest on the loans, which will affect operating results, and we will likely stop recognizing receipt of payments on these loans, which will affect cash flows. However, if a loan is subsequently charged off or written down after we exhaust our best efforts at collection, the loss sharing agreement will cover a substantial portion of the loss associated with the loans. Management believes that it has established sufficient nonaccretable discounts on covered assets compared to their acquired contractual payment amounts. As a result, the Company’s operating results would only be adversely affected by loan losses on covered assets to the extent that such losses exceed the expected losses reflected in the fair value of the covered assets at the acquisition date and ongoing assessments. Nonaccretable discounts were also established within loans for any amounts expected to be recovered from the loss sharing agreements with the FDIC because such amounts are disclosed within the FDIC receivable.COMMENTS

~~Assets covered by loss sharing, reflecting acquisition fair values and related nonaccretable discounts decreased from $102~~None.1 million at acquisition to $69.6 million at September 30, 2011. Loss estimates were increased by $6.0 million and $2.1 million in fiscal 2011 and 2010, respectively . This resulted in expensing provision for losses on covered assets of $1.2 million and $420,635 for fiscal 2011 and 2010. We have received $52.8 million in cash reimbursements from the FDIC and have a remaining FDIC indemnification receivable of $9.4 million. If we incur an additional $5.2 million in losses and/or expenses all additional losses and expenses will be reimbursed at the 95% level.

~~The~~ITEM ~~effects of the loss sharing agreements on cash flows and operating results in the long term will be similar to the short-term effects described above~~2. The long-term effects will depend primarily on the ability of borrowers to make required payments over time. As the loss sharing agreements cover up to a 10-year period (5 years for loans other than single family residential mortgage loans), changing economic conditions will likely affect the timing of future charge-offs and the resulting reimbursements from the FDIC. We believe that any recapture of interest income and recognition of cash flows from borrowers or amounts received from the FDIC (as part of the FDIC indemnification asset) may be recognized unevenly over this period, as we exhaust our collection efforts under our normal practices. In addition, we recorded substantial discounts related to the purchase of covered loans and assets. A portion of these discounts will be accretable to income over the term of the loss sharing agreements and will be dependent upon the timing and success of our collection efforts on the covered loans.PROPERTIES

~~The~~We ~~former~~currently conduct ~~NCB~~business ~~franchise~~through isour ~~currently~~administrative ~~operating~~office ~~under~~in ~~the~~West ~~CharterBank~~Point, ~~name. Since~~Georgia, our branch offices in west-central Georgia, East-central Alabama, the ~~acquisition~~Florida Panhandle and our cashless branch office in Norcross, ~~retail~~Georgia. ~~customer~~Our ~~deposits~~Georgia ~~have~~branch ~~increased~~offices ~~slightly~~are located ~~through~~in ~~September~~Carrollton, 30LaGrange (three offices), ~~2011~~Newnan (two offices), ~~which~~Peachtree ~~significantly~~City ~~exceeds~~and ~~the~~West ~~pre-acquisition~~Point, ~~planning~~and ~~targets~~our Alabama branches are located in Auburn (two offices), Opelika and Valley. ~~CharterBank~~Our ~~converted~~Florida ~~operational~~Branch ~~systems~~offices atare in Milton, Pace, and Pensacola. The net book value of the ~~former~~land, ~~NCB~~buildings, ~~branches~~furniture, infixtures ~~November~~and ~~2009~~equipment owned by us was $23. 6 million at September 30, 2012.

~~McIntosh~~30 Commercial Bank. On March 26, 2010, CharterBank entered into a purchase and assumption agreement with the FDIC, as receiver, to acquire certain assets and assume certain liabilities of McIntosh Commercial Bank, a full-service commercial bank headquartered in Carrollton, Georgia. The MCB acquisition extended CharterBank’s retail branch footprint as part of our efforts to increase our retail deposits and reduce our reliance on brokered deposits and borrowings as a significant source of our funds. The retention of two of MCB’s four full-service branches has expanded CharterBank’s market presence in west central Georgia within the I-85 corridor region and adjacent areas in which CharterBank is seeking to expand.

33Table of Contents

~~CharterBank~~ITEM assumed $306.2 million of liabilities, including $198.5 million of retail deposits and $96.8 million of wholesale deposits with no deposit premium paid. The liabilities assumed by CharterBank also included $9.5 million of FHLB advances and other borrowings and $1.4 million of other liabilities. CharterBank acquired approximately $322.6 million of MCB’s assets, including $207.6 million in loans, net of unearned income, and $55.3 ~~million of real estate owned at a discount of $53~~.0 ~~million. The~~LEGAL ~~assets acquired also included $68.9 million of cash and cash equivalents and $27.4 million of securities and other assets.~~PROCEEDINGS

~~Under~~As ~~agreements with the FDIC, the FDIC will assume 80%~~ of ~~losses and share 80% of loss recoveries on~~ the ~~first~~date ~~$106.0 million~~ of ~~losses~~filing ~~on the acquired loans and other real estate owned, and assume 95%~~ of losses and share 95% of loss recoveries on losses exceeding $106.0 million. Loans, including commitments and other real estate owned covered under the loss sharing agreements with the FDIC are referred to in this Annual Report on Form 10-K ~~as “covered loans” and “covered other real estate~~,” ~~respectively. The~~we ~~loss~~were ~~sharing~~not ~~agreements~~involved ~~cover~~in ~~losses~~any onlegal ~~single-family~~proceedings ~~residential~~other ~~mortgage~~than ~~loans~~routine ~~for~~legal ~~ten~~proceedings ~~years~~occurring ~~and~~in ~~all~~the ~~other~~ordinary ~~losses~~course ~~for~~of ~~five~~business, ~~years.~~which, ~~CharterBank~~in ~~initially~~the ~~recorded~~aggregate, aninvolve ~~indemnification~~amounts ~~asset~~that ~~from~~we ~~the~~believe ~~FDIC~~are immaterial into ~~the~~our ~~amount~~consolidated offinancial ~~$108.3~~condition, ~~million~~results ~~as part~~ of ~~the~~operations ~~loss~~and ~~sharing~~cash ~~agreements~~flows.

~~CharterBank~~31 determined current fair value accounting estimates of the acquired assets and liabilities in accordance with new accounting requirements for business combinations under which the assets acquired and liabilities assumed are recorded at their respective acquisition date fair values. It is expected that CharterBank will have sufficient nonaccretable discounts (discounts representing amounts that are not expected to be collected from the customer, liquidation of collateral, or under the FDIC loss sharing agreements) to cover any losses on the covered loans and other real estate. CharterBank has further recorded a FDIC receivable for losses expected to be indemnified by the FDIC and also loan nonaccretable discounts for such credit losses. Furthermore, CharterBank expects to have accretable discounts (discounts representing the excess of a loan’s cash flows expected to be collected over the initial investment in the loan) to provide for market yields on the covered loans. In addition, CharterBank recorded in noninterest income approximately $9.3 million in a pre-tax acquisition gain, or negative goodwill, as a result of the MCB transaction which represents the excess of the estimated fair value of the assets acquired over the fair value of the liabilities assumed.

TheTable following table shows adjustments to the fair value of the assets and liabilities acquired and the resulting gain from the MCB acquisition as of March 26, 2010.Contents

	As Recorded by MCB			Fair Value Adjustments					As Recorded by CharterBank
Assets:
Cash and due from banks	$	32,285,757		$	36,629,236		(1	)	$	68,914,993
FHLB and other bank stock		1,321,710			(200,410	)	(2	)		1,121,300
Investment securities		24,744,318			(75,028	)	(2	)		24,669,290
Loans, net of unearned income		207,644,252			(110,645,341	)	(3	)		96,998,911
Other real estate owned		55,267,968			(40,136,424	)	(4	)		15,131,544
FDIC receivable for loss sharing agreements		—			108,252,007		(5	)		108,252,007
Core deposit intangible		—			258,811		(6	)		258,811
Other assets		1,313,923			(427,702	)	(7	)		886,221
Total assets acquired	$	322,577,928		$	(6,344,851	)			$	316,233,077
Liabilities:
Deposits:
Noninterest-bearing	$	5,443,673		$	—				$	5,443,673
Interest-bearing		289,862,953			683,100		(8	)		290,546,053
Total Deposits		295,306,626			683,100					295,989,726
FHLB advances and other borrowings		9,491,486			—					9,491,486
Deferred tax liability		—			3,737,126		(9	)		3,737,126
Other liabilities		1,409,048			—					1,409,048
Total liabilities assumed		306,207,160			4,420,226				$	310,627,386
Excess of assets acquired over liabilities assumed	$	16,370,768	(10)
Aggregate fair value adjustments				$	(10,765,077	)
Net assets of MCB acquired									$	5,605,691

PART II

~~(1)~~ITEM ~~Reflects~~5. ~~the~~MARKET ~~initial~~FOR ~~funds~~REGISTRANT’S ~~received~~COMMON ~~from~~EQUITY, ~~the~~RELATED ~~FDIC~~STOCKHOLDER onMATTERS ~~the~~AND ~~acquisition~~ISSUER ~~date.~~PURCHASES OF EQUITY SECURITIES

~~(2)~~Market ~~Reflects~~and ~~fair~~Dividend ~~value adjustments based on CharterBank’s evaluation of the acquired investment securities portfolio~~Information.

On September 29, 2010, our common stock began trading on the Nasdaq Capital Market (3“NASDAQ”) ~~Reflects~~under ~~fair~~the ~~value~~trading ~~adjustments~~symbol ~~based~~“CHFN.” onPrior ~~CharterBank’s~~to ~~evaluation~~that ofdate, our common stock was quoted on the ~~acquired~~OTC ~~loan~~Bulletin ~~portfolio~~Board. The ~~fair~~following ~~value~~table ~~adjustment~~sets ~~includes~~forth, ~~adjustments~~for the periods indicated, the high and low sales prices of our common stock on NASDAQ since September 29, 2010, and the high and low bid information for ~~estimated~~our ~~credit~~common ~~losses~~stock as quoted on the OTC Bulletin Board prior to September 29, ~~liquidity~~2010. Quotations on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and ~~servicing~~may ~~costs~~not reflect actual transactions. The table below also sets forth the cash dividends paid per share for the periods indicated.

(4) Reflects the estimated other real estate owned losses based on CharterBank’s evaluation of the acquired other real estate owned portfolio.


	Price Per Share				Cash Dividend Declared
	High		Low		Cash Dividend Declared
Fiscal 2012
Fourth quarter	$	10.00	$	8.79	$	0.00
Third quarter		9.90		8.62		0.05
Second quarter		9.99		8.96		0.00
First quarter		10.36		9.00		0.05

Fiscal 2011
Fourth quarter	$	9.70	$	9.12	$	0.05
Third quarter		10.00		9.73		0.05
Second quarter		11.05		10.65		0.05
First quarter		8.99		8.90		0.05

~~(5) The estimated fair value of payments CharterBank will receive from the FDIC under the loss sharing agreements~~Holders.

~~(6)~~As ~~The~~of ~~estimated~~December 5, ~~fair~~2012, ~~value~~there were approximately 454 holders of ~~acquired~~record ~~core~~of ~~deposit~~our ~~intangible~~common stock.

~~(7) Reflects the estimated fair value adjustment of other assets~~Dividends.

~~(8)~~Charter Financial ~~Reflects~~started ~~fair~~paying ~~value~~a ~~adjustments~~quarterly ~~based~~cash dividend in September 2002. Beginning with the dividend paid for the quarter ended March 31, 2010, we reduced our quarterly dividend from $0.25 per share to $0.05 per share. The reduction of the dividend reflects our decision to pursue opportunities for deployment of capital in FDIC-assisted transactions such as the Neighborhood Community Bank, McIntosh Commercial Bank and The First National Bank of Florida transactions. The dividend rate and the continued payment of dividends will primarily depend on ~~CharterBank’s~~our ~~evaluation~~earnings, alternative uses for capital, such as FDIC-assisted transactions, capital requirements, acquisition opportunities, our financial condition and results of operations, statutory and regulatory limitations affecting dividends and the ~~acquired~~policies ~~time~~of ~~deposit~~the ~~portfolio~~Board of Governors of the Federal Reserve System (“FRB”) regarding dividend waivers by federal mutual holding companies, like First Charter, MHC, that waived dividends prior to December 1, 2009, and, to a lesser extent, tax considerations and general economic conditions. Charter Financial discontinued the quarterly dividend after the dividend paid in May 2012.

~~(9)~~Under ~~Adjustment~~the ~~reflects~~rules ~~differences~~of ~~between~~the Office of Comptroller of the ~~financial~~Currency ~~statement~~and the FRB, CharterBank is not permitted to make a capital distribution if, after making such distribution, it would be undercapitalized. For information concerning additional federal laws and ~~tax~~regulations ~~bases~~regarding the ability of ~~assets~~CharterBank ~~acquired~~to make capital distributions, including the payment of dividends to Charter Financial, see “Taxation—Federal Taxation” and ~~liabilities~~“Supervision ~~assumed~~and Regulation—Federal Banking Regulation.”

~~(10)~~Unlike ~~Represents~~CharterBank, ~~the~~Charter ~~excess~~Financial ofis ~~assets~~not ~~acquired~~restricted ~~over~~by ~~liabilities~~Office ~~assumed;~~of ~~since~~the Comptroller of the ~~asset~~Currency ~~discount~~regulations ~~bid~~on the payment of ~~$53~~dividends ~~million~~to ~~exceeded~~its ~~this~~shareholders. ~~amount~~However, the ~~difference~~FRB ~~resulted~~has inissued a ~~cash~~policy statement ~~settlement~~regarding ~~from~~ the ~~FDIC~~payment onof ~~the~~dividends ~~acquisition~~by ~~date~~bank holding companies that it has also made applicable to savings and loan holding companies as well. In general, the FRB’s policies provide that dividends should be paid only out of current

3432

AccountingTable standards prohibit carrying over an allowance for loan losses for loans purchased in the MCB acquisition as uncertainty regarding collectability of future contractual payments are incorporated into the fair value measurement. On the March 26, 2010 acquisition date, the preliminary estimate of the contractually required principal payments receivable for all impaired loans acquired from MCB was $136.9 million, and the estimated fair value of such loans was $50.4 million. The impaired MCB loans were generally valued based on the liquidation value of the underlying collateral because most of the loans are collateral dependent. We established credit risk related discounts (nonaccretable) of $73.8 million on the acquisition date relating to these impaired loans, reflected in the recorded net fair value of the impaired loans. Our preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the MCB acquisition was $70.8 million, and the estimated fair value of the loans was $46.6 million. We established credit risk related discounts of $18.9 million on these non-impaired loans. In our estimate of cash flows for the MCB loans, we also recorded accretable discounts of $17.9 million relating to the loans that will be recognized on a level yield basis over the life of the loans because accretable yield represents cash flows expected to be collected. As of the acquisition date, we also recorded a net FDIC receivable of $108.3 million, representing FDIC indemnification under the loss sharing agreements for covered loans and other real estate. Such receivable has been discounted by $1.7 million for the expected timing of receipt of these cash flows.Contents

~~Assets~~ earnings ~~covered~~and only if the prospective rate of earnings retention by ~~loss~~the ~~sharing,~~holding ~~reflecting~~company ~~acquisition~~appears ~~fair~~consistent ~~values~~with ~~and~~the ~~related~~organization’s ~~nonaccretable~~capital ~~discounts~~needs, ~~decreased~~asset ~~from~~quality ~~$112~~and overall financial condition.1 ~~million~~FRB atguidance ~~acquisition~~provides tofor ~~$78.3~~prior ~~million~~regulatory atreview ~~September~~of 30capital distributions in certain circumstances such as where the company’s net income for the past four quarters, ~~2011. We~~net ~~have~~of ~~received $79.1~~dividends ~~million~~previously inpaid ~~cash~~over ~~reimbursements~~that ~~from~~period, is insufficient to fully fund the ~~FDIC~~dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and ~~have~~overall financial condition. The ability of a ~~remaining~~holding ~~FDIC~~company ~~indemnification~~to ~~receivable~~pay ofdividends ~~$35~~may be restricted if a subsidiary bank becomes undercapitalized.8 ~~million~~These regulatory policies could affect the ability of Charter Federal to pay dividends or otherwise engage in capital distributions. ~~Any~~ ~~additional~~In ~~losses~~addition, ~~and~~the ~~expenses~~source ~~will~~of dividends that may be ~~reimbursed~~paid atby Charter Federal depends on the ~~95%~~net ~~level~~proceeds retained by it and earnings thereon, and dividends from CharterBank.

~~The~~When ~~effects~~Charter Financial pays dividends on its common stock to public shareholders, it is also required to pay dividends to First Charter, MHC, unless First Charter, MHC elects to waive the receipt of dividends. When it was supervised by the ~~loss~~Office ~~sharing~~of ~~agreements~~Thrift Supervision, First Charter, MHC generally waived its right to dividends on the shares of Charter Financial that it owns, which means that Charter Financial had more cash ~~flows~~resources to pay dividends to its public shareholders than if First Charter, MHC accepted such dividends. The Dodd-Frank Act provides that a mutual holding company is required to give the FRB notice before waiving the receipt of dividends, and ~~operating~~sets ~~results~~forth ~~effects~~the ~~will~~standards ~~depend~~for ~~primarily~~granting ona waiver, including a requirement that waived dividends be considered in determining an appropriate exchange ratio in the ~~ability~~event of ~~borrowers~~a toconversion ~~make~~of ~~expected~~the ~~payments~~mutual ~~over~~holding ~~time~~company to stock form. AsThe Dodd-Frank Act, however, further provides that the ~~loss~~FRB ~~sharing~~may ~~agreements~~not ~~cover~~consider upwaived todividends in determining an appropriate exchange ratio in a 10conversion to stock form by any federal mutual holding company, such as First Charter, MHC, that waived dividends prior to December 1, 2009. The FRB has issued an interim final rule providing that, pursuant to the Dodd-~~year~~Frank ~~period~~Act (5grandfathering ~~years~~provision, ~~for~~it ~~loans~~“may ~~other~~not” ~~than~~object ~~single~~to ~~family~~dividend ~~residential~~waivers ~~mortgage~~under ~~loans)~~similar requirements applied by the Office of Thrift Supervision, ~~changing~~the ~~economic~~previous ~~conditions~~regulator ~~will~~of ~~likely~~federal ~~affect~~mutual holding companies, but adding the requirement ~~timing~~that a majority of ~~future~~the ~~charge-offs~~mutual holding company’s members eligible to vote have approved a waiver of dividends by the company within 12 months prior to the declaration of the dividend being waived. The FRB has typically not allowed dividend waivers by mutual bank holding companies and, therefore, the ~~resulting~~ability ~~reimbursements~~of ~~from~~First Charter, MHC to waive dividends in the ~~FDIC~~future, should any dividends be declared by the Charter Financial, is uncertain. See “The Federal Reserve Board may issue final rules that would adversely affect First Charter, MHC’s ability to pay dividends, which would adversely affect the value of our common stock,” under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

~~The~~In ~~First~~addition, ~~National~~pursuant ~~Bank~~to ofapplicable ~~Florida. On September 9~~regulations, ~~2011,~~during ~~CharterBank entered into a purchase and assumption agreement with~~ the ~~FDIC,~~three-year asperiod ~~receiver,~~following toour ~~acquire~~stock ~~certain~~offering ~~assets and assume certain liabilities of The First National Bank of Florida a full-service commercial bank headquartered~~ in September, ~~Milton~~2010, ~~Florida. The~~we ~~FNB~~will ~~acquisition~~not ~~extended~~take ~~CharterBank’s~~any ~~retail~~action ~~branch~~to ~~footprint~~declare asan ~~part~~extraordinary ofdividend ~~our efforts~~ to ~~increase~~shareholders ~~our~~that ~~retail~~would ~~deposits~~be ~~and~~treated ~~reduce~~by ~~our~~recipients ~~reliance on brokered deposits and borrowings~~ as a ~~significant~~tax-free ~~source~~return of ~~our~~capital ~~funds. The~~for ~~retention~~federal ofincome ~~four~~tax ~~of FNB’s eight full-service branches has expanded CharterBank’s market presence in the northwestern Florida Panhandle region and adjacent areas in which CharterBank is seeking to expand~~purposes.

~~CharterBank~~Securities ~~assumed~~Authorized ~~$247.5~~for ~~million~~Issuance ofunder ~~liabilities,~~Equity ~~including~~Compensation ~~$244~~Plans.7 million of retail deposits. CharterBank acquired approximately $251.8 million of FNB’s assets, including $185.9 million in loans, net of unearned income, and $24.9 million of other real estate owned (“OREO”). The assets acquired also included $49.3 million of cash and cash equivalents and $13.0 million of securities.

~~Under~~See ~~agreements~~Part ~~with the FDIC~~III, asItem 12(d) ~~part~~Equity ofCompensation ~~the~~Plan ~~Purchase and Assumption Agreement~~Information, CharterBank and the FDIC entered into two loss sharing agreements - one for single family loans, and one for all other loans and OREO. Under the loss sharing agreements, the FDIC will cover 80% of covered loan and OREO losses, with the exception of $900,259 (contractual balance) in ~~consumer~~this ~~loans. The~~Annual ~~term~~Report ~~for loss sharing~~ on ~~residential~~Form ~~real estate loans and OREO is ten years~~10-K, ~~while the term~~ for ~~loss sharing on non-residential real estate loans and OREO is five years in respect to losses and eight years for loss recoveries. The reimbursable losses from~~ the ~~FDIC~~table ~~are~~providing ~~based~~information ~~on the book value of the relevant loan~~ as ~~determined by the FDIC at the date~~ of ~~the transaction~~September 30, ~~accrued~~2012 ~~interest~~about onCompany ~~loans~~common ~~for~~stock that upmay tobe 90issued ~~days,~~upon the ~~book~~exercise ~~value~~ of ~~OREO~~options ~~and~~under ~~certain direct costs. New loans made after~~ the ~~date~~Charter ofFinancial ~~the~~Corporation ~~transaction~~2001 ~~are~~Stock ~~not~~Option ~~covered by the loss sharing agreements~~Plan.

~~CharterBank~~Recent ~~determined~~Sales ~~current fair value accounting estimates~~ of Unregistered ~~the~~Securities; ~~acquired~~Use assets and liabilities in accordance with accounting requirements for business combinations under which the assets acquired and liabilities assumed are recorded at their respective acquisition date fair values. The fair value estimates of ~~FNB’s~~Proceeds ~~assets and liabilities acquired~~ from ~~the~~Registered ~~FDIC are preliminary and subject to refinement as additional information becomes available~~Securities. ~~Under~~ current accounting principles, information regarding the Company’s estimates of fair value may be adjusted for a period of up to one year following the acquisition date. It is expected that CharterBank will have sufficient nonaccretable discounts (discounts representing amounts that are not expected to be collected from the customer, liquidation of collateral, or under the FDIC loss sharing agreements) to cover losses on the covered loans and OREO. CharterBank has further recorded a FDIC receivable for losses expected to be indemnified by the FDIC. Furthermore, CharterBank expects to have accretable discounts (discounts representing the excess of a loan’s cash flows expected to be collected over the initial investment in the loan) to provide for market yields on the covered loans. In addition, CharterBank recorded in noninterest income approximately $1.1 million in a pre-tax acquisition gain, or negative goodwill, as a result of the FNB transaction which represents the excess of the estimated fair value of the assets acquired over the fair value of the liabilities assumed.

35Not applicable.

~~The~~33 ~~following table shows adjustments to the fair value of the assets and liabilities acquired and the resulting gain from the FNB acquisition as of September 9, 2011.~~

	As Recorded by FNB			Fair Value Adjustments				As Recorded by CharterBank
Assets:
Cash and due from banks	$	25,689,080		$	23,637,211		(a)	$	49,326,291
FHLB and FRB stock		993,612			—				993,612
Investment securities available for sale		13,002,568			(97,407	)	(b)		12,905,161
Loans, net of unearned income		185,927,300			(64,463,794	)	(c)		121,463,506
Other real estate owned		24,943,178			(14,383,246	)	(d)		10,559,932
FDIC receivable for loss sharing agreements		—			51,555,999		(e)		51,555,999
Core deposit intangible		—			1,134,697		(f)		1,134,697
Other assets		1,291,037			(251,246	)	(g)		1,039,791
Total assets acquired	$	251,846,775		$	(2,867,786	)		$	248,978,989
Liabilities:
Deposits		244,715,032			—				244,715,032
Deferred tax liability		—			420,919		(j)		420,919
Other liabilities		2,768,954			400,000		(i)		3,168,954
Total liabilities assumed		247,483,986			820,919			$	248,304,905
Excess of assets acquired over liabilities assumed	$	4,362,789	(h)
Aggregate fair value adjustments				$	(3,688,705	)
Net assets of FNB acquired								$	674,084

~~(a)~~ITEM –6. ~~Adjustment~~SELECTED ~~reflects~~FINANCIAL ~~the initial wire received from the FDIC adjusted for overpayment by the FDIC on the acquisition date.~~DATA

~~(b)~~The –summary ~~Adjustment~~financial ~~reflects~~information ~~fair~~presented ~~value~~below ~~adjustments~~is ~~based~~derived onin part from our consolidated financial statements. The following is only a summary and you should read it in conjunction with the ~~Bank’s~~consolidated ~~evaluation~~financial statements and notes contained in Item 8 of this Annual Report on Form 10-K. The information at September 30, 2012 and 2011 and for the ~~acquired~~years ~~investment~~ended September 30, ~~securities~~2012, ~~portfolio~~2011 and 2010 is derived in part from the audited consolidated financial statements that appear in this annual report. The information presented below does not include the financial condition, results of operations or other data of First Charter, MHC.

(c) – Adjustment reflects fair value adjustments based on the Bank’s evaluation of the acquired loan portfolio. The fair value adjustment includes adjustments for estimated credit losses, liquidity and servicing costs.


	At September 30,
	2012		2011		2010		2009		2008
	(In thousands)
Selected Financial Condition Data:
Total assets	$	1,032,220	$	1,171,710	$	1,186,082	$	936,880	$	801,501
Non-covered loans receivable, net (1)		472,676		419,979		451,231		462,786		428,472
Covered loans receivable, net (2)		166,228		235,050		148,139		89,764		—
Investment and mortgage securities available for sale (3)		189,379		158,737		133,183		206,061		277,139
Core deposits (4)		456,292		447,176		313,170		216,902		169,499
Retail deposits (5)		779,397		883,389		739,691		463,566		356,237
Total deposits		800,262		911,094		823,134		597,634		420,175
Total borrowings		81,000		110,000		212,000		227,000		267,000
Total equity	$	142,521	$	139,416	$	136,876	$	99,345	$	102,302
Tangible total equity		136,915		133,263		130,532		93,077		96,988

(d) – Adjustment reflects the estimated other real estate owned losses based on the Bank’s evaluation of the acquired other real estate owned portfolio.


	Years Ended September 30,
	2012		2011		2010		2009		2008
	(In thousands)
Selected Operating Data:
Interest and dividend income	$	48,101	$	45,786	$	49,959	$	40,340	$	46,377
Interest expense		10,589		15,228		22,758		22,599		26,771

Net interest income		37,512		30,558		27,201		17,741		19,606
Provision for loan losses		3,300		1,700		5,800		4,550		3,250
Provision for loan losses on covered loans		1,202		1,200		420		—		—

Net interest income after provision for loan losses		33,010		27,658		20,981		13,191		16,356
Total noninterest income		12,915		9,283		17,510		12,011		18,950
Total noninterest expenses		40,307		33,942		30,469		22,581		20,284

Income before provision for income taxes		5,618		2,999		8,022		2,621		15,022
Income tax expense		639		694		2,087		306		4,491

Net income	$	4,979	$	2,305	$	5,935	$	2,315	$	10,531

Per Share Data:
Basic earnings per share	$	0.28	$	0.13	$	0.32	$	0.13	$	0.55
Fully diluted earnings per share	$	0.28	$	0.13	$	0.32	$	0.12	$	0.55
Dividends declared per share	$	0.10	$	0.20	$	0.40	$	1.00	$	1.75

(e1) –Excludes ~~Adjustment~~“covered ~~reflects~~loans” ~~the~~acquired ~~estimated~~from ~~fair~~the ~~value~~FDIC ofsubject ~~payments~~to ~~the~~loss-sharing ~~Bank~~agreements. ~~will~~See ~~receive~~Note ~~from~~5 to the ~~FDIC~~Notes ~~under~~to ~~loss~~our ~~sharing~~Consolidated ~~agreements~~Financial Statements. ~~The~~Loans ~~receivable~~shown ~~was~~are ~~recorded~~net atof ~~present~~deferred ~~value~~loan of(fees) ~~the~~costs ~~estimated~~and ~~cash~~allowance ~~flows~~for ~~using~~loan anlosses ~~average~~and ~~discount~~exclude ~~rate~~loans ofheld ~~approximately~~for ~~two percent~~sale.

(f2) –Consists ~~Adjustment~~of ~~reflects~~loans ~~fair~~acquired ~~value~~from ~~adjustments~~the FDIC subject to ~~record~~loss sharing agreements. See Note 5 to the ~~estimated~~Notes ~~core~~to ~~deposit~~our ~~intangible~~Consolidated Financial Statements.

(g3) –Includes ~~Adjustment~~all ~~reflects~~CharterBank ~~fair~~investment ~~value~~and ~~adjustments~~mortgage tosecurities ~~record~~available ~~certain~~for ~~other assets acquired in this transaction~~sale.

(h4) –Core ~~Amount~~deposits ~~represents~~consist ~~the excess~~ of ~~assets~~transaction ~~acquired~~accounts, ~~over~~money ~~liabilities~~market ~~assumed~~accounts and ~~since~~savings ~~the asset discount bid by CharterBank of $28 million exceeded this amount, the difference resulted in a cash settlement with the FDIC on the acquisition date~~accounts.

(i5) –Retail ~~Adjustment~~deposits ~~reflects~~include ~~fair~~core ~~value~~deposits ~~adjustments~~and tocertificates ~~record~~of ~~certain~~deposit other ~~liabilities~~than inbrokered ~~this~~and ~~transaction~~wholesale certificates of deposit.

~~(j)~~34 ~~– Adjustment reflects differences between the financial statement and tax bases of assets acquired and liabilities assumed.~~

AccountingTable standards prohibit carrying over an allowance for loan losses for loans purchased in the FNB acquisition as uncertainty regarding collectability of future contractual payments are incorporated into the fair value measurement. On the September 9, 2011 acquisition date, the preliminary estimate of the contractually required principal payments receivable for all impaired loans acquired from FNB was $121.6 million, and the estimated fair value of such loans was $57.8 million. The impaired FNB loans were generally valued based on the liquidation value of the underlying collateral because most of the loans are collateral dependent. Our preliminary estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the FNB acquisition and covered by the FDIC was $64.3 million, and the estimated fair value of the loans was $63.6 million. We did not establish any credit risk related discounts on these non-impaired loans. In our estimate of cash flows for the FNB loans, we recorded accretable discounts of $11.8 million relating to the loans that will be recognized on a level yield basis over the life of the loans because accretable yield represents cash flows expected to be collected. As of the acquisition date, we also recorded a net FDIC receivable of $51.6 million, representing FDIC indemnification under the loss sharing agreements for covered loans and other real estate. Such receivable has been discounted by $2.0 million for the expected timing of receipt of these cash flows.Contents


	At or For the Years Ended September 30,
	2012			2011			2010			2009			2008
Selected Financial Ratios and Other Data:

Performance Ratios:
Return on average assets (ratio of net income to average total assets)		0.46	%		0.22	%		0.56	%		0.27	%		1.16	%
Return on average equity (ratio of net income to average equity)		3.58	%		1.67	%		5.62	%		2.25	%		6.23	%
Interest rate spread (1)		4.12	%		3.53	%		3.30	%		2.08	%		1.47	%
Net interest margin (2)		4.17	%		3.59	%		3.19	%		2.35	%		2.32	%
Efficiency ratio (3)		79.93	%		85.32	%		79.16	%		75.90	%		52.61	%
Non-interest expense to average total assets		3.75	%		3.34	%		2.89	%		2.68	%		2.23	%
Average interest-earning assets as a ratio of average interest-bearing liabilities		1.05	x		1.04	x		0.89	x		1.09	x		1.27	x
Average equity to average total assets		12.95	%		13.43	%		10.03	%		12.12	%		18.56	%
Dividend payout ratio (5)		27.50	%		83.82	%		27.29	%		153.79	%		66.97	%

Asset Quality Ratios (4) (6):

Non-covered Assets (4):
Non-performing assets to total assets (6)		0.66	%		1.99	%		2.33	%		2.16	%		1.68	%
Non-performing loans to total loans		0.79	%		2.72	%		2.55	%		2.82	%		2.47	%
Allowance for loan losses as a ratio of non-performing loans		2.38	x		0.80	x		0.84	x		0.71	x		0.77	x
Allowance for loan losses to total loans		1.87	%		2.19	%		2.12	%		1.98	%		1.89	%
Net charge-offs as a percentage of average non-covered loans outstanding		0.86	%		0.48	%		0.90	%		0.71	%		0.24	%

Bank Regulatory Capital Ratios:
Total capital (to risk-weighted assets)		19.22	%		24.36	%		21.53	%		15.71	%		18.15	%
Tier I capital (to risk-weighted assets)		17.97	%		23.10	%		20.28	%		14.65	%		16.90	%
Tier I capital (to average assets)		12.16	%		10.68	%		10.21	%		9.30	%		10.51	%

Consolidated Capital Ratios:
Total equity to total assets		13.81	%		11.90	%		11.42	%		10.49	%		12.76	%
Tangible total equity to total assets		13.26	%		11.38	%		10.98	%		9.99	%		12.18	%

Other Data:
Number of full service offices		16			18			16			14			10
Full time equivalent employees		292			294			260			209			178

~~Critical~~(1) ~~Accounting~~The ~~Policies~~interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities for the year.

~~Critical~~(2) ~~accounting~~The ~~policies~~net ~~are~~interest ~~those~~margin ~~that~~represents ~~involve~~net ~~significant~~interest ~~judgments and assumptions by management and that have, or could have, a material impact on our~~ income oras the carrying value of our assets. They require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The following are the accounting policies that we believe are critical. For a ~~discussion~~percent of ~~recent~~average ~~accounting~~interest-earning ~~pronouncements,~~assets ~~see~~for ~~Note 1 of~~ the ~~Notes to our Financial Statements~~year.

~~Allowance~~(3) ~~for Loan Losses.~~ The ~~allowance~~efficiency ~~for~~ratio ~~loan~~represents ~~losses~~non-interest ~~is established through a provision for loan losses charged to~~ expense. ~~Loans~~divided ~~are~~by ~~charged against~~ the ~~allowance~~sum ~~for loan losses when management believes that the collectability~~ of ~~the~~net ~~principal~~interest isincome unlikely. Subsequent recoveries are added to the allowance. The allowance 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~~non-interest ~~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~~income.

~~Charter Financial 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) anCovered ~~unallocated~~assets ~~amount.~~consist ~~Risk~~of ~~ratings~~assets 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~~Neighborhood ~~and~~Community ~~expected economic conditions. When the evaluation reflects a greater than normal risk associated with the individual loan~~Bank, ~~management~~McIntosh ~~classifies~~Commercial ~~the loan accordingly. If the loan is determined to be impaired~~Bank, ~~management allocates a portion of the allowance for loan losses for that loan based on the fair value of the collateral as the measure for the amount of the impairment. Impaired~~ and ~~Classified/Watch loans are aggressively monitored.~~ The ~~allowances~~First ~~for~~National ~~loans~~Bank ~~rated satisfactory are further subdivided into various types~~ of ~~loans~~Florida asacquired ~~defined~~from ~~by loan type. Charter Financial has developed specific quantitative allowance factors to apply to each individual component of~~ the ~~allowance~~FDIC ~~and~~subject ~~considers loan charge-off experience over the most recent two years. These quantitative allowance factors are based upon economic, market and industry conditions that are specific~~ to ~~Charter~~loss ~~Financial’s~~sharing ~~local markets~~agreements. ~~These~~Non-covered ~~quantitative~~assets ~~allowance~~consist factors consider, but are not limited to, national and local economic conditions, bankruptcy trends, unemployment trends, loan concentrations, dependency upon government installations and facilities, and competitive factors in the local market. These allocations for the quantitative allowance factors are included in the various individual components of ~~the~~assets ~~allowance~~other ~~for~~than ~~loan~~covered ~~losses~~assets. InSee ~~addition,~~Note we3 ~~use~~to ~~some qualitative allowance factors that are subjective in nature and require considerable judgment on~~ the ~~part~~Notes ofto ~~management.~~our ~~However,~~Consolidated itFinancial ~~is management’s opinion that these items do represent uncertainties in CharterBank’s business environment that must be factored into CharterBank’s analysis of the allowance for loan losses~~Statements. ~~The unallocated component of the allowance is established for losses that specifically exist in the remainder of the portfolio, but have yet to be identified.~~

~~While~~(5) ~~management~~The ~~uses~~dividend ~~available~~payout ~~information~~ratio torepresents ~~recognize~~total ~~losses~~dividends ondeclared ~~loans,~~and ~~future~~not ~~additions~~waved orper ~~reductions~~share todivided ~~the~~by ~~allowance~~total ~~may~~net beincome. ~~necessary~~The ~~based~~following ontable ~~changes~~sets inforth ~~economic~~the ~~conditions~~aggregate orcash ~~changes~~dividends inpaid ~~accounting~~per ~~guidance~~period onand ~~reserves.~~the Inamount ~~addition, various regulatory agencies, as an integral part~~ of ~~their~~dividends ~~examination~~paid ~~process, periodically review our allowance for loan losses. Such agencies may require us~~ to ~~recognize~~public ~~additions~~stockholders toand ~~the allowance based on their judgments about information available~~ to ~~them~~First atCharter, ~~the time of their examination.~~MHC:

Management believes that the allowance for loan losses is adequate. At September 30, 2011, Charter Financial had 95.8% of its total non-covered loan portfolio secured by real estate, with one- to four-residential mortgage loans comprising 23.0% of the total non-covered loan portfolio, commercial real estate loans comprising 58.0% of the total non-covered loan portfolio, and construction loans comprising 9.9% of the total non-covered loan portfolio. Charter Financial carefully monitors its commercial real estate loans since the repayment of these loans is generally dependent upon earnings from the collateral real estate or the liquidation of the real estate and is affected by national and local economic conditions. For many owner-occupied commercial real estate loans, debt service may be dependent upon cash flow from business operations. The residential category represents those loans Charter Financial chooses to maintain in its portfolio rather than selling into the secondary market. The residential loans held for sale category comprises loans that are in the process of being sold into the secondary market. The credit has been approved by the investor and the interest rate and purchase price fixed so Charter Financial takes no credit or interest rate risk with respect to these loans.


	For the Year Ended September 30,
	2012		2011		2010		2009		2008
Dividends paid to public stockholders	$	649,331	$	1,340,899	$	1,040,926	$	2,651,554	$	5,656,953
Dividends paid to First Charter, MHC		722,896		600,000		600,000		750,000		1,500,000

Total dividends paid	$	1,372,227	$	1,940,899	$	1,640,926	$	3,401,554	$	7,156,953

37First Charter, MHC waived dividends of $423,000, $1.7 million, $5.7 million, $28.7 million and $26.3 million during the years ended September 30, 2012, 2011, 2010, 2009 and 2008, respectively.

~~Through~~(6) ~~the~~We ~~FDIC-assisted~~also ~~acquisition~~have of$21.9 ~~the~~million ~~assets~~ of ~~NCB,~~covered weother ~~established~~real anestate ~~allowance~~owned, ~~for~~representing ~~loan~~2.1% ~~losses~~of ~~for~~consolidated ~~non-impaired~~assets. ~~loans~~Loss ~~covered by loss-~~sharing agreements ~~and~~cover ~~such~~any ~~allowance~~losses ~~for~~upon ~~loan~~disposition ~~losses~~of ~~was~~such ~~$6.9~~assets ~~million~~ at ~~September~~either ~~30,~~95% ~~2011. Management~~or ~~believes this allowance for non-impaired covered loans is adequate~~80%. ~~The NCB acquisition was completed under previously applicable accounting pronouncements related to business combinations.~~

~~Through~~35 the FDIC-assisted acquisitions of the loans of NCB, MCB, and FNB, we established non-accretable discounts for the acquired impaired loans and we also established non-accretable discounts for all other loans of MCB. 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. During the years ended September 30, 2011 and 2010, we increased non-accretable discounts relating to NCB-acquired loans by $6.0 million and $2.1 million, recorded $1.2 million and $421,000 as a charge to earnings, with $4.8 million and $1.7 million recorded as an increase to the FDIC receivable.

Other-Than-TemporaryTable Impairment of Investment Securities. A decline in the market value of any available for sale security below cost that is deemed other-than-temporary results in a charge to earnings and the establishment of a new cost basis for that security. In connection with the assessment for other than temporary impairment of investment securities, mortgage-backed securities, and collateralized mortgage obligations, management obtains fair value estimates by independent quotations, assesses current credit ratings and related trends, reviews relevant delinquency and default information, assesses expected cash flows and coverage ratios, reviews average credit score data of underlying mortgages, and assesses other current data. The severity and duration of an impairment and the likelihood of potential recovery of an impairment is considered along with the intent and ability to hold any impaired security to maturity or recovery of carrying value.Contents

~~See~~ITEM ~~“Risk~~7. ~~Factors—We~~MANAGEMENT’S ~~could~~DISCUSSION ~~record~~AND ~~future~~ANALYSIS ~~losses~~OF onFINANCIAL ~~our~~CONDITION ~~securities~~AND ~~portfolio.”~~RESULTS OF OPERATION

~~Real~~Overview Estate Owned. Real estate acquired through foreclosure, consisting of properties obtained through foreclosure proceedings or acceptance of a deed in lieu of foreclosure, is reported on an individual asset basis at the lower of cost or fair value, less disposal costs. Fair value is determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. When properties are acquired through foreclosure, any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is recognized and charged to the allowance for loan losses. Subsequent write downs are charged to a separate allowance for losses pertaining to real estate owned, established through provisions for estimated losses on real estate owned which are charged to expense. Based upon management’s evaluation of the real estate acquired through foreclosure, additional expense is recorded when necessary in an amount sufficient to reflect any declines in estimated fair value. Gains and losses recognized on the disposition of the properties are recorded in noninterest expense in the consolidated statements of income.

~~Goodwill~~Our ~~and~~results ~~Other~~of ~~Intangible~~operations ~~Assets.~~depend ~~Intangible~~primarily ~~assets~~on ~~include~~our ~~costs~~net ininterest income. ~~excess~~Net ofinterest ~~net~~income ~~assets~~is ~~acquired~~the ~~and~~difference ~~deposit~~between ~~premiums~~the ~~recorded~~interest inincome ~~connection~~we ~~with~~earn ~~the~~on ~~acquisitions. In~~our ~~accordance~~interest-earning ~~with~~assets, ~~accounting~~consisting ~~requirements~~primarily of loans, weinvestment ~~test~~securities, ~~our~~mortgage-backed ~~goodwill~~securities, ~~for~~collateralized ~~impairment~~mortgage ~~annually~~obligations orand ~~more~~other interest-earning ~~frequently~~assets as(primarily ~~circumstances~~cash and ~~events~~cash ~~may~~equivalents), ~~warrant.~~and Nothe ~~impairment~~interest ~~charges~~we ~~have~~pay ~~been~~on ~~recognized~~our ~~through~~interest-bearing ~~September 30~~liabilities, ~~2011~~consisting primarily of deposits and Federal Home Loan Bank advances.

~~Deferred~~As ~~Income~~a ~~Taxes. Management~~result estimates income tax expense using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for future income tax consequences attributable to differences between the amount of ~~assets~~our ~~and~~loan ~~liabilities~~underwriting ~~reported in the consolidated financial statements and their respective tax bases. In estimating the liabilities and corresponding expense related to income taxes~~policies, management ~~assesses~~believes ~~the~~that ~~relative~~we ~~merits~~have ~~and~~not ~~risks~~suffered ofthe ~~various~~same ~~tax~~level ~~positions considering statutory, judicial and regulatory guidance. Because~~ of ~~the~~loan ~~complexity~~losses ofduring tax laws and regulations, interpretation is difficult and subject to differing judgments. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the current ~~years~~economic indownturn ~~which~~as ~~those~~many ~~temporary~~financial ~~differences~~institutions ~~are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change~~ in ~~tax~~our ~~rates~~market ~~is recognized in income in the period that includes the enactment date~~area. ~~Management’s~~Consequently, ~~determination~~we ofhave ~~the~~recently ~~realization~~been ofable ~~the~~to ~~net~~take ~~deferred~~advantage ~~tax asset is based upon management’s judgment~~ of ~~various~~attractive ~~future~~low-risk ~~events~~opportunities ~~and~~to ~~uncertainties,~~enhance ~~including~~our ~~the~~banking ~~timing~~franchise ~~and~~through ~~amount of future income, reversing temporary differences which may offset, and~~ the ~~implementation~~purchase of ~~various~~distressed ~~tax~~banking franchises ~~plans~~from ~~to maximize realization of~~ the ~~deferred tax asset~~FDIC. ~~Management~~ ~~has determined that no valuation allowances were necessary relating to the realization of its deferred tax assets.~~

38Our net income increased $2.7 million and totaled $5.0 million for the year ended September 30, 2012, from $2.3 million for the year ended September 30, 2011. The increase in net income for fiscal 2012 resulted primarily from increases in net interest income, noninterest income and a reduction in income tax expense, partially offset by an increase in our provision for non-covered loan losses and an increase in noninterest expense. Net interest income increased $7.0 million to $37.5 million for the year ended September 30, 2012 due to the covered loans acquired in the FNB acquisition in September 2011 and a reduction in the cost of funds as a result of the low interest rate environment and a reduction in FHLB borrowings. Noninterest income increased $3.6 million to $13.0 million for the year ended September 30, 2012 due primarily to a $2.0 million reduction in other-than-temporary impairment charges and an increase of $1.2 million in fees on checking accounts. Our provision for non-covered loan losses was $3.3 million for the year ended September 30, 2012 as compared to $1.7 million for the year ended September 30, 2011 as a result of an increase in net charge-offs due in part to $1.2 million in charge-offs of specific allowances of impaired loans as required by Office of the Comptroller of the Currency policy. Noninterest expense increased $6.4 million to $40.3 million for the year ended September 30, 2012 due primarily to the cost of operating, integrating and managing the assets acquired from the FDIC as receiver of FNB in September 2011.

~~Changes~~Our inbusiness ~~the~~is ~~estimate~~affected ofby ~~income~~prevailing ~~tax~~general ~~liabilities~~and ~~occur~~local ~~periodically~~economic ~~due~~conditions, toparticularly market ~~changes~~interest ~~in actual or estimated future tax~~ rates, and ~~projections~~by ofgovernment ~~taxable~~policies ~~income~~concerning, ~~interpretations~~among ofother ~~tax laws~~things, ~~the~~monetary ~~complexities~~and offiscal ~~multi-state~~affairs ~~income~~and ~~tax~~housing. ~~reporting~~In addition, ~~the~~we ~~status~~are ofsubject ~~examinations~~to ~~being~~extensive ~~conducted~~regulations byapplicable ~~various~~to ~~taxing~~financial ~~authorities~~institutions, lending and ~~the~~other ~~impact~~operations, privacy, ofand ~~newly~~consumer ~~enacted legislation or guidance as well as income tax accounting pronouncements~~disclosure.

~~Receivable~~Business ~~from~~Strategy FDIC Under Loss Sharing Agreements. Under loss sharing agreements with the FDIC, we recorded a receivable from the FDIC equal to 80 percent or 95 percent, as applicable, of the estimated losses in the covered loans and other real estate acquired in an FDIC-assisted transaction. The receivable was recorded at the present value of the estimated cash flows at the date of the acquisition and will be reviewed and updated prospectively as loss estimates related to covered loans and other real estate acquired through foreclosure change. Most third party expenses on other acquired real estate and covered impaired loans are covered under the loss sharing agreements and the cash flows from the reimbursable portion are included in the estimate of the FDIC receivable when incurred.

~~Estimation~~Our ofbusiness ~~Fair~~strategy ~~Value. The estimation of fair value~~ is ~~significant~~ to ~~certain~~operate ofas ~~our~~a ~~assets,~~well-capitalized ~~including~~and ~~investment~~profitable ~~securities~~community ~~available~~bank ~~for~~dedicated ~~sale,~~to ~~other~~providing ~~real~~exceptional ~~estate~~personal ~~owned,~~service ~~assets and liabilities subject~~ to ~~acquisition~~our ~~accounting~~individual and ~~the~~business ~~value of loan collateral for impaired loans~~customers. ~~These~~ ~~are~~We ~~all~~believe ~~recorded~~that atwe have ~~either~~a ~~fair~~competitive ~~value~~advantage orin the ~~lower~~markets ofwe ~~cost~~serve orbecause ~~fair~~of ~~value.~~our ~~Fair~~knowledge ~~values are determined based on third party sources, when available. Furthermore, generally accepted accounting principles require disclosure~~ of the ~~fair~~local ~~value~~marketplace ofand ~~financial~~our ~~instruments~~long-standing ashistory ~~a part~~ of ~~the~~providing ~~notes~~superior, torelationship-based ~~the~~customer ~~consolidated financial statements~~service. ~~Fair~~ ~~values~~This ~~may~~58-year behistory ~~influenced~~in bythe ~~a number of factors~~community, ~~including~~combined ~~market~~with management’s ~~interest~~extensive ~~rates,~~experience ~~prepayment~~and ~~speeds,~~adherence ~~liquidity~~to ~~considerations,~~conservative ~~discount~~underwriting ~~rates~~standards ~~and~~through ~~the~~numerous ~~shape~~business ofcycles, ~~yield~~has ~~curves. For~~enabled ~~additional~~us ~~information relating~~ to ~~the~~maintain ~~fair~~a ~~value~~strong ofcapital ~~our~~position ~~financial~~with ~~instruments,~~favorable ~~see~~credit ~~Note~~quality 15metrics todespite the ~~consolidated~~economic ~~financial statements~~downturn.

~~Comparison~~We believe that the current economic and financial services environment presents a significant opportunity for us to grow our retail banking operations, in particular through FDIC-assisted acquisitions of ~~Financial~~troubled ~~Condition~~financial atinstitutions, ~~September~~such 30as our acquisitions of NCB, ~~2011~~MCB, and FNB in June 2009, March 2010, and September 2011, respectively. Through these transactions, we acquired sixteen full-service branch offices, of which seven were retained. We also acquired deposits of $721.0 million in the three transactions. In each of the FDIC-assisted acquisitions, we participated in a competitive bid process in which we offered an asset discount bid on net assets acquired and no deposit premium. We also entered into loss sharing agreements with the FDIC which cover a majority of the assets acquired (referred to as “covered assets”) and provide for substantial protection on losses associated with the covered assets. See “FDIC-Assisted Acquisitions” below. We anticipate that the prevailing weakness in the banking sector and the slow economic recovery in our market area will provide additional opportunities for us to participate in FDIC-assisted transactions and believe that purchasing distressed banking assets from the FDIC provides us with a low-risk opportunity to enhance our banking franchise.

~~Assets.~~36 Total assets decreased by $14.6 million, or 1.2%, to remain at $1.2 billion for both September 30, 2011 and September 30, 2010. Cash and cash equivalents decreased to $149.8 million at September 30, 2011, down from $235.6 million at September 30, 2010. This decrease was planned with the repayment of $102 million of FHLB advances in the first quarter of fiscal 2011.

Loans. AtTable September 30, 2011, total loans were $652.0 million, or 55.7% of total assets. During the year ended September 30, 2011, our loan portfolio increased by $52.7 million, or 8.8%. The increase was due to the acquisition of $121.5 million of loans at fair value in the FNB transaction, which was partially offset by paydowns in both the legacy and acquired loan portfolios. Of the $652.0 million in net loans as of September 30, 2011, $232.0 million were covered by FDIC loss sharing agreements.Contents

	Non-covered		Covered		Total
	(Dollars in Thousands)
Net Loan Receivable Balances:
September 30, 2011	$	419,979	$	232,046	$	652,025
June 30, 2011		434,309		120,140		554,449
March 31, 2011		435,276		124,583		559,859
December 31, 2010		447,621		136,400		584,021
September 30, 2010		451,231		148,139		599,370
June 30, 2010		463,720		201,678		665,398

Based on the persistent challenges presented by the economic and regulatory climate along with increased compliance costs and an accelerated need for economies of scale, we expect there to be a significant amount of unassisted consolidation in our banking markets which we intend to explore as opportunities arise. We believe that our strong financial condition and capital position are desirable traits for smaller community banking institutions seeking a merger partner. As a result, while we will continue to analyze opportunities for FDIC-assisted transactions, these transactions will not be available for an indefinite period of time and therefore we will also look to fill out the franchise through conservatively structured unassisted transactions. Our knowledge of the marketplace and our experienced management team, together with our experience in managing problem assets acquired from the FDIC in the NCB, MCB, and FNB transactions position us to take advantage of future opportunities to acquire troubled and other financial institutions in our market area.

39From January 1, 2009 through September 30, 2012, 432 banking institutions failed in the United States, including 59 failures that have occurred in the state of Georgia. We believe that purchasing distressed banking assets from the FDIC provides us with a low-risk opportunity to enhance our banking franchise, and we intend to evaluate such opportunities as they arise. We believe that there are numerous banks within or adjacent to our target market areas that are subject to various enforcement actions and that have increasing levels of non-performing assets and declining capital levels. Our knowledge of the marketplace and our experienced management team, together with our experience in managing problem assets acquired from the FDIC in the NCB, MCB, and FNB transactions and our capital level, position us to take advantage of future opportunities to acquire troubled financial institutions in our market area.

~~Loan~~Key ~~Portfolio~~aspects ~~Composition. The following table sets forth the composition~~ of our ~~loan~~business ~~portfolio~~strategy atinclude the ~~dates indicated.~~following:

	At September 30,
	2011						2010						2009						2008						2007
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
One- to four-family residential real estate (1)	$	98,845			14.3	%	$	106,041			16.9	%	$	126,097			20.9	%	$	138,205			31.6	%	$	138,528			33.6	%
Commercial real estate		252,037			36.4			267,726			42.6			270,062			44.8			222,056			50.8			181,585			44.0
Real estate construction (2)		41,726			6.0			45,930			7.3			43,965			7.3			39,563			9.0			52,040			12.6
Commercial		17,613			2.6			19,604			3.1			10,466			1.7			15,543			3.6			18,999			4.6
Consumer and other loans (3)		20,138			2.9			22,486			3.6			22,715			3.7			22,154			5.0			21,267			5.2
Covered loans (4)		261,198			37.8			182,335			26.5			122,060			21.6			—			—			—			—
Total loans		691,557			100.0	%		644,122			100.0	%		595,365			100.0	%		437,521			100.0	%		412,419			100.0	%
Other items:
Net deferred loan (fees)		(1,050	)					(758	)					(857	)					(804	)					(852	)
Allowance for loan losses-non-covered loans		(9,370	)					(9,797	)					(9,332	)					(8,244	)					(6,013	)
Allowance for loan losses-covered loans (5)		(6,892	)					(15,554	)					(23,832	)					—						—
Accretable discount (5)		(22,221	)					(18,643	)					(8,794	)					—						—
Loans receivable, net	$	652,024					$	599,370					$	552,550					$	428,473					$	405,554

•

Leverage capital through disciplined acquisitions. The economy and banking industry in our market area of west-central Georgia, east-central Alabama and the Florida Panhandle continue to face significant challenges as many banks have experienced capital constraints and liquidity challenges as a result of incurring significant losses due to credit quality issues. We believe that these challenges create strategic growth opportunities for us, and our discipline and selectivity in identifying target franchises, along with our successful history of working with the FDIC, such as in the NCB, MCB and FNB transactions, and the additional capital raised through this offering will provide us an advantage in pursuing and consummating future acquisitions. We intend to leverage our capital base and acquisition experience to selectively pursue FDIC-assisted acquisitions and conservatively structured unassisted transactions of select franchises that present attractive risk-adjusted returns. In addition, future acquisitions will enable us to further utilize our substantial infrastructure devoted to the workout of special assets and administration of loss share agreements.

~~(1)~~• ~~Excludes~~Expand ~~loans~~our ~~held~~retail ~~for~~banking ~~sale~~franchise. ofOur ~~$291~~focus is on growing our retail banking presence throughout the markets in west-central Georgia, $2east-central Alabama,~~061~~ and the Florida Panhandle, $1including our expanded retail footprint resulting from the NCB,~~123~~ MCB and FNB acquisitions, while reducing reliance on wholesale funding sources. Since September 30, 2010 we have reduced FHLB borrowings by $1131.0 million and certificates of deposit by $166.0 million in our efforts to fund our balance sheet with core deposits (comprised of transaction,~~292~~ savings and money market accounts). Over this same time period we have increased core deposits from $~~921~~313.2 atmillion to $456.3 million while lowering our cost of funds from 2.43% for the year ended September 30, ~~2011,~~ 2010, ~~2009~~to 1.14% for the year ended September 30, ~~2008~~2012. ~~and~~These ~~2007~~deposits provide a low cost source of funds for our lending operations, ~~respectively~~as well as a potential source of fee income.

~~(2)~~We ~~Net~~intend ofto ~~undisbursed~~build ~~proceeds~~a ondiversified ~~loans~~balance sheet, positioning us as a full-inservice community bank that offers both retail and commercial loan and deposit products to all markets within the I-~~process~~85 corridor and the adjacent and other markets resulting from our acquisitions of NCB, MCB, and FNB. Moreover, we expect that the high level of customer service and expanded product offerings we provide, as well as our capital strength and financial position in an otherwise distressed banking market, will also facilitate organic growth and an opportunity to increase market share.

~~(3)~~• ~~Includes~~Quality ~~home~~customer ~~equity~~service ~~loans,~~and ~~lines~~convenience. In order to proactively address the needs of ~~credit~~our clients, we continue to make and ~~second~~build ~~mortgages.~~out investments in infrastructure and technology to

~~(4)~~37 Consists of loans and commitments acquired in the NCB, MCB, and FNB acquisitions that are covered by loss sharing agreements with the FDIC. Such amounts are presented net of non-accretable discounts of $72,149, $52,861 and $7,137 at September 30, 2011, 2010 and 2009, respectively.

(5)Table Seeof Note 6 to the Notes to our Consolidated Financial Statements.Contents

40improve transactional efficiencies and minimize the amount of time required for customers to complete regular banking activities, such as making a deposit at a branch drive-thru. In addition, the customer experience is enhanced for in-branch transactions as unique amenities such as child-friendly play areas, coffee cafes and change counters combine banking activities with everyday realities. To further emphasize convenience for our customers, we offer extended hours at the majority of our offices and alternative banking delivery systems, such as internet banking, that allow customers to pay bills, transfer funds and monitor account balances at any time. Additionally, we strive to create tailored products and services that are designed to meet the changing needs of our customers, such as our Rewards checking program discussed under the heading “Business of Charter Financial Corporation and CharterBank—Sources of Funds.”

~~Loan~~• ~~Portfolio~~Maintain ~~Maturities~~strong asset quality. We emphasize a disciplined credit culture based on intimate market knowledge, close ties to our customers, sound underwriting standards and ~~Yields~~experienced loan officers. ~~The~~ ~~following~~While ~~table~~the ~~summarizes~~challenging operating environment which began a few years ago contributed to an increase in problem assets, management’s primary objective has been to expeditiously reduce the ~~scheduled~~level ~~repayments~~of nonperforming and classified assets through diligent monitoring and aggressive resolution efforts, including problem covered assets of NCB, MCB and FNB. The results of this effort are evidenced by our ~~loan~~asset ~~portfolio~~quality at September 30, ~~2011~~2012, with $5. ~~Demand~~6 ~~loans,~~million ~~loans~~of ~~having~~non-performing noassets ~~stated~~not ~~repayment~~covered ~~schedule~~by orloss ~~maturity~~sharing which represented 0.66% of total non-covered assets, and ~~overdraft~~has ~~loans~~declined ~~are~~$10.2 million from $15.8 million reported asat ~~being~~September ~~due~~30, in2011. ~~one~~Our ~~year~~ratio orof ~~less~~allowance for loan losses to non-covered non-performing loans was 237.69% at September 30, 2012.

	One- to four-family residential real estate (1)					Commercial real estate(2)					Real estate Construction (3)
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Due During the Years Ending September 30,
2012	$	10,990		6.27	%	$	176,146		5.83	%	$	44,630		4.80	%
2013		7,568		6.12			73,575		5.93			2,844		5.37
2014		1,335		7.00			37,358		5.48			-		-
2015 to 2016		1,549		5.67			13,117		5.12			117		7.00
2017 to 2021		11,768		5.51			29,885		5.49			-		-
2022 to 2026		11,423		5.81			49,309		5.55			5		0.25
2027 and beyond		70,705		5.37			71,738		5.78			-		-
Total	$	115,338		5.58	%	$	451,128		5.74	%	$	47,596		4.84	%

We have established dedicated problem asset resolution teams with experienced leadership to resolve nonperforming assets and classified assets acquired in the NCB, MCB and FNB transactions. While the majority of these nonperforming assets do not pose a significant credit risk because they are substantially covered under loss sharing agreements with the FDIC, reducing the amount of contractually non-performing assets acquired in the NCB, MCB and FNB acquisitions will reduce the cost of carrying these assets. Covered loans are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, covered loans that are contractually past due are still considered to be accruing and performing loans. See “—Asset Quality.”

	Commercial (4)					Consumer and other loans (5)					Total (6)
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Due During the Years Ending September 30,
2012	$	24,918		5.86	%	$	3,446		6.04	%	$	260,130		5.68	%
2013		5,388		5.85			1,950		5.41			91,325		5.96
2014		2,970		6.17			2,157		5.74			43,820		5.49
2015 to 2016		3,812		4.20			4,298		5.47			22,893		5.13
2017 to 2021		3,181		4.97			12,010		4.77			56,844		5.34
2022 to 2026		2,196		4.73			3,987		3.80			66,920		5.46
2027 and beyond		183		5.13			107		6.93			142,733		5.57
Total	$	42,648		5.59	%	$	27,955		5.02	%	$	684,665		5.61	%

•

Focus on relationship-driven banking. We are focused on meeting the financial needs of our customer base through offering a full complement of loan, deposit and online banking solutions (i.e. internet banking and mobile banking). Over the years we have introduced new products and services in order to more fully serve and deepen the relationship with customers which has enabled us to grow our core deposit base, which generally represents a customer’s primary banking relationship. Our quality customer relationships and core competencies provide opportunities for cross selling products to existing customers in an effort to deepen our “share of wallet” and we intend to actively develop such opportunities.

~~(1)~~• ~~Includes~~Scalable ~~$16~~operating platform. We have committed significant resources to establish a scalable platform to accommodate future growth. The investments made thus far in systems and personnel will enable us to achieve improved operational efficiencies,~~494~~ with minimal additional investments, as we continue to integrate the assets and liabilities from recent acquisitions. In particular, our investment in operations required to integrate and manage the assets and liabilities acquired in FDIC-assisted transactions are largely fixed, allowing us to leverage existing systems and personnel to drive a higher return on similar investments in the future. Our acquisitions of ~~covered~~NCB ~~loans~~in June 2009, MCB in March 2010, and FNB in September 2011 highlight our ability to capitalize on opportunities that offer attractive risk-adjusted returns and provide a template for future acquisitions. We have closed 11 branch locations, nine of which were acquired in FDIC acquisitions, since 2009 as part of efforts to improve operational efficiency and will continue to focus our attention on other initiatives to increase franchise value.

~~(2)~~38 ~~Includes $199,092 of covered loans.~~

(3)Table Includes $5,868 of covered loans. Presented net of undisbursed proceeds on loans-in-progress.Contents

~~(4)~~FDIC-Assisted ~~Includes~~Acquisitions ~~$25,035 of covered loans.~~

~~(5)~~Neighborhood ~~Includes~~Community $7Bank. On June 26,~~817~~ 2009, we entered into an agreement with the FDIC, as receiver, to acquire certain assets and assume certain liabilities of ~~covered~~Neighborhood Community ~~loans~~Bank, a full service commercial bank headquartered in Newnan, Georgia. The NCB acquisition extended our retail branch footprint as part of our efforts to increase our retail deposits and reduce our reliance on brokered deposits and borrowings as a significant source of funds. The acquisition of NCB’s four full-service branches, one of which has been closed, has expanded our market presence in west central Georgia within the I-85 corridor region in which we are seeking to expand.

~~(6)~~We ~~Excludes~~assumed ~~nonaccretable~~$195.3 ~~discounts~~million of liabilities, ~~allowance~~including ~~for~~$181.0 ~~loan~~million ~~losses~~of ondeposits ~~covered~~with no deposit premium paid. The liabilities assumed by us also included $13.0 million of Federal Home Loan Bank advances and $981,000 of other liabilities. We acquired approximately $202.8 million of NCB’s assets, including $159.9 million in loans, net of unearned income, and $17.7 ~~net~~million ~~deferred~~of ~~loan~~real ~~fees~~estate owned at a discount of $26.9 million of fair value and other adjustments. The assets acquired also included $43.9 million of cash and cash equivalents, securities, Federal Home Loan Bank stock and other assets, including $19.4 million in cash that was received from the FDIC.

~~The~~Under ~~following~~agreements ~~table~~with ~~sets~~the ~~forth~~FDIC, the ~~scheduled~~FDIC ~~repayments~~will assume 80% of ~~fixed-~~losses and share ~~adjustable-rate~~80% of loss recoveries on the first $82.0 million of losses on the acquired loans atand ~~September~~other 30real estate owned, ~~2011~~and ~~that~~assume 95% of losses and share 95% of loss recoveries on losses exceeding $82.0 million. The loss sharing agreements cover losses on single-family residential mortgage loans for ten years and all other losses for five years and are ~~contractually~~subject ~~due~~to ~~after~~certain ~~September~~servicing procedures as specified in the agreements with the FDIC. In addition to the $26.9 million of fair value discounts, we initially recorded an indemnification asset from the FDIC in the amount of $50.0 million as part of the loss sharing agreements. Subsequent to initial recognition, an additional $20.6 million was recorded to increase the indemnification asset because of increased estimates of expected credit losses on covered assets. We have received $59.7 million in cash from the FDIC in loss sharing through September 30, 2012 relating to NCB agreements.

	Due After September 30, 2012
	Fixed		Adjustable		Total
	(In thousands)
One- to four-family residential real estate	$	32,673	$	71,674	$	104,347
Commercial real estate		55,374		219,610		274,984
Real estate construction		169		2,796		2,965
Commercial		4,935		12,796		17,731
Consumer and other loans		3,652		20,856		24,508
Total loans	$	96,803	$	327,732	$	424,535

We determined current fair value accounting estimates of the acquired assets and liabilities in accordance with accounting requirements for acquisition transactions. We expect that we now have sufficient nonaccretable discounts (discounts representing amounts that are not expected to be collected from the customer, liquidation of collateral, or under the FDIC loss sharing agreements) to cover losses on the covered loans and other real estate. We have further recorded a FDIC receivable for losses expected to be indemnified by the FDIC. Furthermore, we expect to have accretable discounts (discounts representing the excess of a loan’s cash flows expected to be collected over the initial investment in the loan) to provide for market yields on the covered loans. No goodwill or bargain purchase gain was recorded in the transaction.

41Assets covered by loss sharing, at fair value or net of acquisition discounts decreased from $132.0 million at acquisition to $36.9 million at September 30, 2012. Loss estimates were increased by $7.8 million on covered loans and $3.5 million on covered other real estate owned in fiscal 2012 compared to $6.0 million and $0, respectively, in fiscal 2011. This resulted in expensing provisions for losses of $889,000 for covered loans and $210,000 for covered other real estate owned for fiscal 2012 compared to $1.2 and $0, respectively, in fiscal 2011. Cumulatively, we have received $59.7 million in cash reimbursements from the FDIC and have a remaining FDIC indemnification receivable of $11.0 million at September 30, 2012.

~~Investment and Mortgage Securities Portfolio. At September 30, 2011, our investment and mortgage securities portfolio totaled $158.7 million, compared to $133.2 million at September 30, 2010.~~ The ~~increase~~former ~~was~~NCB ~~due~~franchise tois ~~$111.2~~currently ~~million~~operating inunder ~~purchases~~the ~~and~~CharterBank ~~$12~~name.9 ~~million~~Since ~~acquired in~~ the acquisition ~~of FNB~~, ~~offset~~retail bycustomer ~~$41.3~~deposits ~~million~~have inincreased ~~sales,~~slightly ~~$3.6~~through ~~million that were called~~September 30, ~~and $52.5 million in principal paydowns. During 2011~~2012, wewhich ~~also~~significantly exceeded ~~had~~the ~~approximately $2.3 million in other than temporary impairment charges on non~~pre-~~government~~acquisition ~~agency~~planning ~~collateralized mortgage obligations~~targets. ~~During~~ ~~2010, we also had approximately $2.5 million in other than temporary impairment charges on non-government agency collateralized mortgage obligations.~~

WeMcIntosh ~~review~~Commercial ~~our~~Bank. ~~investment~~On ~~portfolio~~March 26, on2010, awe ~~quarterly~~entered into ~~basis~~a ~~for~~purchase ~~indications of impairment. In addition to management’s intent~~ and ~~ability~~assumption toagreement ~~hold~~with the ~~investments~~FDIC, toas ~~maturity or recovery of carrying value~~receiver, ~~the~~to ~~review~~acquire ~~for~~certain ~~impairment~~assets ~~includes~~and ~~analyzing~~assume ~~the~~certain ~~length~~liabilities of ~~time~~McIntosh ~~and~~Commercial ~~the extent to which the fair value has been lower than the cost~~Bank, ~~the~~a ~~financial condition and near~~full-~~term~~service ~~prospects~~commercial ofbank ~~the~~headquartered ~~issuer~~in Carrollton, ~~including~~Georgia. ~~any~~The ~~specific~~MCB ~~events~~acquisition extended ~~which~~our ~~may~~retail ~~influence~~branch ~~the~~footprint ~~operations~~as ofpart ~~the issuer. Our review~~ of ~~mortgage~~our ~~securities~~efforts ~~includes loan geography, loan~~ to ~~value~~increase ~~ratios,~~our ~~credit~~retail ~~scores,~~deposits ~~types~~and ofreduce ~~loans,~~our ~~loan~~reliance ~~vintage,~~on ~~credit~~brokered ~~ratings,~~deposits ~~loss~~and ~~coverage~~borrowings ~~from~~as ~~tranches~~a ~~less~~significant ~~senior~~source ~~than~~of our ~~investment tranche and cash flow analysis~~funds. ~~Our~~The ~~investments~~retention ~~are evaluated using our best estimate~~ of ~~future~~one ~~cash flows. If, based on our estimate~~ of ~~cash~~MCB’s ~~flows,~~four wefull-service branches ~~determine that an adverse change~~ has ~~occurred,~~expanded ~~other-than-temporary~~our ~~impairment~~market ~~would~~presence ~~be recognized for the credit loss. At September 30, 2011, we held no securities~~ in ~~our~~west ~~investment~~central ~~portfolio~~Georgia ~~with~~within ~~other-than-temporary~~the ~~impairment, except for three non~~I-~~agency~~85 ~~collateralized~~corridor ~~mortgage~~region ~~obligations, which are discussed further below. At September 30, 2011, these three non-agency securities had a combined book value of $7.8 million~~ and ~~combined~~adjacent ~~unrecognized~~areas ~~losses~~in ofwhich ~~$3.3~~we ~~million,~~are ~~reflected~~seeking ~~through~~to ~~other comprehensive income~~expand.

4239

TheTable following table sets forth the composition of our investment and mortgage securities portfolio at the dates indicated. At September 30, 2011, all investment and mortgage securities were classified as available for sale. With the exception of obligations of U.S. Government sponsored enterprises (“GSE”s) and GSE mortgage-backed securities and collateralized mortgage obligations, we held no securities at September 30, 2011 with a book value that exceeded 10% of total stockholders’ equity.Contents

	At September 30,
	2011				2010				2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Investment securities:
U.S. Government sponsored entities	$	17,414	$	17,510	$	-	$	-	$	4,157	$	4,435
Municipals		10,618		10,626		100		103		-		-
Total investment securities		28,032		28,136		100		103		4,157		4,435
Mortgage-backed and mortgage-related securities:
Fannie Mae		62,751		63,608		35,164		35,962		53,593		53,975
Ginnie Mae		5,842		6,088		25,437		26,098		5,745		5,979
Freddie Mac		20,634		21,291		7,135		7,614		27,438		27,679
Total mortgage-backed and mortgage related securities		89,227		90,987		67,736		69,674		86,776		87,633
Collateralized mortgage obligations:
Fannie Mae		16,682		17,133		9,605		9,872		37,302		37,706
Ginnie Mae		3,648		3,676		6,131		6,108		—		—
Freddie Mac		871		944		20,516		20,785		19,206		19,380
Other		23,263		17,860		34,395		26,641		71,160		56,908
Total collateralized mortgage obligations		44,464		39,613		70,647		63,406		127,668		113,994
Total mortgage-backed securities and collateralized mortgage obligations		133,691		130,600		138,383		133,080		214,444		201,627
Total	$	161,723	$	158,736	$	138,483	$	133,183	$	218,601	$	206,062

We assumed $306.2 million of liabilities, including $295.3 million of deposits with no deposit premium paid. The liabilities assumed by us also included $9.5 million of FHLB advances and other borrowings and $1.4 million of other liabilities. We acquired approximately $322.6 million of MCB’s assets, including $207.6 million in loans, net of unearned income, and $55.3 million of real estate owned at a discount of $53.0 million. The assets acquired also included $68.9 million of cash and cash equivalents and $27.4 million of securities and other assets.

43Under agreements with the FDIC, the FDIC will assume 80% of losses and share 80% of loss recoveries on the first $106.0 million of losses on the acquired loans and other real estate owned, and assume 95% of losses and share 95% of loss recoveries on losses exceeding $106.0 million. The loss sharing agreements cover losses on single-family residential mortgage loans for ten years and all other losses for five years. We initially recorded an indemnification asset from the FDIC in the amount of $108.3 million as part of the loss sharing agreements which reflected the present value of the expected net cash reimbursement related to the loss sharing agreements.

We ~~analyze~~determined ~~our~~current ~~non-agency~~fair ~~collateralized~~value ~~mortgage~~accounting ~~securities~~estimates of the acquired assets and liabilities in accordance with new accounting requirements for ~~other~~business ~~than~~combinations ~~temporary~~under ~~impairment~~which the assets acquired and liabilities assumed are recorded at ~~least~~their ~~quarterly~~respective acquisition date fair values. We ~~use~~It ais ~~multi-step~~expected ~~approach~~that ~~using~~we ~~Bloomberg~~will ~~analytics~~have ~~considering~~sufficient ~~market~~nonaccretable discounts ~~price,~~(discounts ~~ratings,~~representing ~~ratings~~amounts ~~changes,~~that ~~and~~are ~~underlying~~not ~~mortgage~~expected ~~performance~~to ~~including~~be ~~delinquencies,~~collected ~~foreclosures,~~from ~~deal~~the ~~structure,~~customer ~~underlying~~or liquidation of collateral) to cover any losses, ~~prepayments,~~on ~~loan-to-value~~the ~~ratios,~~covered ~~credit~~loans. ~~scores,~~We ~~and~~have ~~loan~~further ~~structure~~recorded ~~and~~a ~~underwriting,~~FDIC ~~among~~receivable ~~other~~for ~~factors. We~~losses ~~apply~~expected ~~the~~to ~~Bloomberg~~be indemnified ~~default~~by ~~model,~~the FDIC and ifalso ~~the~~loan ~~bond~~nonaccretable ~~shows~~discounts nofor such credit losses. Furthermore, we ~~consider~~expect itto ~~not~~have ~~other~~accretable ~~than~~discounts ~~temporarily~~(discounts ~~impaired. If~~representing the excess of a ~~bond~~loan’s ~~shows~~cash ~~losses~~flows orexpected ato ~~break~~be collected over the initial investment in ~~yield~~the ~~with~~loan) to provide for market yields on the ~~Bloomberg~~covered ~~default~~loans. ~~model~~In addition, we ~~create~~recorded noninterest income of approximately $9.3 million in a ~~probable~~pre-tax ~~vector~~bargain purchase gain as a result of ~~loss~~the ~~severities~~MCB ~~and~~transaction ~~defaults~~which ~~and~~represents ifthe itexcess ~~shows~~of the aestimated ~~loss~~fair wevalue ~~consider~~of itthe ~~other~~assets ~~than~~acquired ~~temporarily~~over ~~impaired~~the fair value of the liabilities assumed.

~~The~~40 following table shows issuer-specific information, book value, fair value and unrealized losses for our portfolio of non-agency collateralized mortgage obligations as of September 30, 2011. As of September 30, 2011, we had cumulatively recorded $2.0 million of other than temporary impairment charges with respect to CWALT 2005-63 2A2, $2.4 million of other than temporary impairment charges with respect to SARM 2005-15 2A2, and $380,000 of other than temporary impairment charges with respect to MARM 2004-13 B1. No other mortgage securities in our investment portfolio were other than temporarily impaired at September 30, 2011.

Cusip	Description	Credit Rating						Cumulative Net Impairment Losses Recognized in Earnings		Current Par Value		Book Value		Market Value		Unrealized Gain (Loss)
		Moody		S&P		Fitch						(Dollars in thousands)
12668AXE0	CWALT 2005-63 2A2		C		D		n/a	$	2,007	$	1,693	$	375	$	209	$	(166	)
172921J74	CMSI 1993-14 A3	WR		BB			n/a		-		127		127		121		(6	)
17307GDL9	CMLTI 2004-HYB1 A31		B3		n/a	AA			-		1,783		1,783		1,672		(111	)
36228FQF6	GSR 2003-4F 1A2		n/a	AAA		AAA			-		507		507		517		10
36242DXZ1	GSR 2005-2F 1A2		n/a		B	AA			-		836		836		842		6
55265KL80	MASTR 2003-8 4A1		n/a	AAA		AAA			-		1,314		1,304		1,328		24
576433QD1	MARM 2004-7 5A1	Ba3		AAA			n/a		-		6,423		6,423		5,538		(885	)
576433UQ7	MARM 2004-13 B1	NR			B-		n/a		380		6,911		6,530		3,473		(3,057	)
576433VN3	MARM 2004-15 4A1	Ba3			n/a		B		-		3,069		3,069		2,354		(715	)
863579UR7	SARM 2005-15 2A2	NR		CC			n/a		2,436		3,343		907		828		(79	)
86359BVF5	SARM 2004-6 3A3		n/a	AAA			n/a		-		1,402		1,402		978		(424	)
								$	4,823	$	27,408	$	23,263	$	17,860	$	(5,403	)

~~Cash~~The ~~flow~~following ~~analysis indicates that the yields on all of the securities listed in the~~ table ~~are~~shows ~~maintained. The~~adjustments ~~unrealized losses shown may relate~~ to ~~general market liquidity and, in~~ the ~~securities~~fair ~~with~~value ~~the~~of ~~larger unrealized losses, weakness in~~ the ~~underlying~~assets ~~collateral, market concerns over foreclosure levels,~~ and ~~geographic~~liabilities acquired ~~concentration. We consider these unrealized losses to be temporary impairment losses primarily because cash flow analysis indicates that there are continued sufficient levels of credit enhancements~~ and ~~credit coverage levels of less senior tranches. As of September 30, 2011,~~ the ~~securities~~resulting ~~above~~gain ~~were~~from ~~classified as available for sale and $4.8 million had been cumulatively recognized as impairment through net income. Based on~~ the ~~analysis~~MCB ~~performed~~acquisition ~~by management~~ as of ~~September 30~~March 26, 2011, the Company deemed it probable that all contractual principal and interest payments on the above securities, other than the three securities identified above as being other than temporarily impaired, will be collected and therefore there is no other than temporary impairment2010.


	As Recorded by MCB			Fair Value Adjustments				As Recorded by CharterBank
Assets:
Cash and due from banks	$	32,285,757		$	36,629,236		(1)	$	68,914,993
FHLB and other bank stock		1,321,710			(200,410	)	(2)		1,121,300
Investment securities		24,744,318			(75,028	)	(3)		24,669,290
Loans, net of unearned income		207,644,252			(110,645,341	)	(4)		96,998,911
Other real estate owned		55,267,968			(40,136,424	)	(5)		15,131,544
FDIC receivable for loss sharing agreements		—			108,252,007		(6)		108,252,007
Core deposit intangible		—			258,811		(7)		258,811
Other assets		1,313,923			(427,702	)	(8)		886,221

Total assets acquired	$	322,577,928		$	(6,344,851	)		$	316,233,077

Liabilities:
Deposits:
Noninterest-bearing	$	5,443,673		$	—			$	5,443,673
Interest-bearing		289,862,953			683,100		(9)		290,546,053

Total Deposits		295,306,626			683,100				295,989,726
FHLB advances and other borrowings		9,491,486			—				9,491,486
Deferred tax liability		—			3,737,126		(10)		3,737,126
Other liabilities		1,409,048			—				1,409,048

Total liabilities assumed		306,207,160			4,420,226			$	310,627,386

Excess of assets acquired over liabilities assumed	$	16,370,768	(11)

Aggregate fair value adjustments				$	(10,765,077	)

Net assets of MCB acquired								$	5,605,691

~~Securities~~(1) ~~Portfolio~~Adjustment ~~Maturities~~reflects ~~and Yields. The composition and maturities of~~ the ~~securities~~initial ~~portfolio~~funds atreceived ~~September~~from ~~30, 2011 are summarized in~~ the ~~following~~FDIC ~~table. Maturities are based~~ on the ~~final~~acquisition ~~contractual payment dates, and do not reflect scheduled amortization or the impact of prepayments or redemptions that may occur~~date.

	Less than One Year					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Investment securities:
U.S. Governmental sponsored entities	$	1,450		4.45	%	$	7,456		3.13	%	$	-		-	%	$	8,508		5.88	%	$	17,414	$	17,510		4.82	%
Municipals		100		3.85			3,063		3.96			4,183		4.53			3,272		5.01			10,618		10,626		4.50
Total investment securities		1,550		4.41			10,519		3.43			4,183		4.53			11,780		5.64			28,032		28,136		4.68
Mortgage-backed securities:
Fannie Mae		-		-			-		-			23,282		3.79			39,469		4.22			62,751		63,608		4.06
Ginnie Mae		-		-			1,145		6.25			2,992		4.67			1,705		6.50			5,842		6,088		5.51
Freddie Mac		-		-			-		-			8,150		4.00			12,484		4.67			20,634		21,291		4.40
Total mortgage-backed and mortgage-related securities		-		-			1,145		6.25			34,424		3.92			53,658		4.40			89,227		90,987		4.23
Collateralized mortgage obligations:
Fannie Mae		-		-			-		-			387		4.50			16,295		4.69			16,682		17,133		4.68
Ginnie Mae		-		-			1,178		4.50			-		-			2,470		5.04			3,648		3,676		4.87
Freddie Mac		-		-			-					-		-			871		5.63			871		944		5.63
Other		-		-			-					1,810		4.64			21,453		2.74			23,263		17,860		3.07
Total collateralized mortgage obligations		-		-			1,178		4.50			2,197		4.62			41,089		4.40			44,464		39,613		3.87
Total	$	1,550		4.41	%	$	12,842		3.99	%	$	40,804		4.02	%	$	106,527		4.02	%	$	161,723	$	158,736		4.21	%

(2)	Adjustment reflects the estimated fair value of other bank stock.

45(3) Adjustment reflects fair value adjustments based on our evaluation of the acquired investment securities portfolio.

~~Bank~~(4) ~~Owned~~Adjustment ~~Life~~reflects ~~Insurance. We~~fair ~~invest~~value inadjustments ~~bank~~based ~~owned~~on ~~life insurance to provide us with a funding source for~~ our ~~benefit~~evaluation ~~plan~~of ~~obligations. Bank~~the ~~owned~~acquired ~~life~~loan ~~insurance also generally provides us non-interest income that is non-taxable~~portfolio. The ~~total~~fair ~~cash~~value ~~surrender~~adjustment ~~values~~includes ofadjustments ~~such~~for ~~policies~~estimated atcredit ~~September 30~~losses, ~~2011~~liquidity and ~~2010~~servicing ~~were $32~~costs.~~8 million and $31.7 million, respectively.~~

~~Deposits. Total~~(5) ~~deposits~~Adjustment ~~increased~~reflects ~~$88.0~~the ~~million,~~estimated orother ~~10.7%,~~real toestate ~~$911.1~~owned ~~million~~losses atbased ~~September~~on ~~30,~~our ~~2011~~evaluation ~~from $823.1 million at September 30, 2010. The increase was caused primarily by the assumption~~ of ~~$244.7 million of deposits in~~ the ~~FNB transaction, partially offset by the payoff of wholesale CDs~~ acquired ~~in the MCB transaction. At September 30, 2011, $883.4 million of deposits were retail deposits and $27.7 million were brokered and~~ other ~~wholesale~~real ~~deposits. Funds~~estate onowned ~~deposit from credit unions and brokered deposits are considered as wholesale deposits~~portfolio.

			Transaction				Money		Total Core		Retail Certificates of		Wholesale Certificates of
	Deposit Fees		Accounts		Savings		Market		Deposits		Deposit		Deposit
	(Dollars in Thousands)
September 30, 2011	$	1,601	$	268,515	$	56,857	$	121,804	$	447,176	$	436,213	$	27,705
June 30, 2011		1,448		211,513		19,438		88,409		319,360		344,474		31,984
March 31, 2011		1,360		214,810		19,329		87,005		321,144		372,160		41,987
December 31, 2010		1,433		202,632		16,850		91,974		311,456		395,744		52,212
September 30, 2010		1,564		206,373		17,409		89,388		313,170		426,521		83,443
June 30, 2010		1,553		190,325		18,613		99,464		308,402		402,218		100,438
March 31, 2010		1,396		180,508		29,725		109,595		319,828		417,961		168,791
December 31, 2009		1,276		143,187		17,256		80,772		241,485		256,666		116,583

(6)	Adjustment reflects the estimated fair value of payments we will receive from the FDIC under the loss sharing agreements.

46(7) Adjustment reflects the estimated fair value of acquired core deposit intangible.

~~The~~(8) ~~following~~Adjustment ~~table~~reflects ~~sets forth~~ the ~~distribution~~estimated offair ~~total~~value ~~deposit~~adjustment ~~accounts,~~of byother ~~account type, for the periods indicated~~assets.

	For the Years Ended September 30,
	2011								2010								2009
	Average Balance		Percent			Weighted Average Rate [1]			Average Balance		Percent			Weighted Average Rate			Average Balance		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Savings accounts	$	20,877		2.8	%		0.18	%	$	17,641		2.4	%		0.39	%	$	12,842		2.7	%		0.25	%
Certificates of deposit		425,168		57.1			1.80			453,142		62.7			2.08			291,760		61.3			2.46
Money market		89,692		12.0			0.47			88,445		12.2			0.74			80,759		17.0			5.55
Demand and NOW		209,437		28.1			0.61			164,073		22.7			1.26			90,445		19.0			0.31
Total deposits	$	745,174		100.0	%		1.26	%	$	723,301		100.0	%		1.69	%	$	475,806		100.0	%		2.55	%

(9)	Adjustment reflects fair value adjustments based on our evaluation of the acquired time deposit portfolio.

~~[1] Subsequent~~(10) toAdjustment ~~September,~~reflects ~~rates~~differences onbetween ~~deposits acquired in~~ the ~~FNB~~financial ~~acquisition~~statement ~~were~~and ~~lowered~~tax ~~based~~bases ~~on terms~~ of ~~Purchase~~assets acquired and ~~Assumption~~liabilities ~~Agreement~~assumed.

~~The~~(11) ~~following~~Represents ~~table sets forth~~ the ~~distribution~~excess of ~~total~~assets ~~deposit~~acquired ~~accounts~~over ~~for~~liabilities ~~the~~assumed; ~~acquisition~~since ofthe ~~FNB,~~asset bydiscount ~~account~~bid ~~type,~~of at$53.0 ~~acquisition~~million ~~date,~~exceeded ~~September~~this 9amount, ~~2011,~~the ~~compared~~difference toresulted ~~most~~in ~~recent~~a ~~deposit~~cash ~~amounts~~settlement atfrom ~~December~~the ~~12,~~FDIC ~~2011. This~~on ~~comparison shows effective rate changes made in~~ the ~~subsequent~~acquisition ~~period~~date.

	As of September 9, 2011								As of December 12, 2011
	Balance		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Savings accounts	$	40,328		16.5	%		0.75	%	$	33,452		16.8	%		0.61	%
Certificates of deposit		113,771		46.5			1.75			75,003		37.7			0.86
Money market		31,604		12.9			0.88			31,700		16.0			0.68
Demand and NOW		59,093		24.1			0.07			58,677		29.5			0.07
Total deposits		244,796		100.0	%		1.07	%		198,832		100.0	%		0.55	%

Accounting standards prohibit carrying over an allowance for loan losses for loans purchased in the MCB acquisition as uncertainty regarding collectability of future contractual payments are incorporated into the fair value measurement. On the March 26, 2010 acquisition date, the estimate of the contractually required principal payments receivable for all impaired loans acquired from MCB was $136.9 million, and the estimated fair value of such loans was $50.4 million. The impaired MCB loans were generally valued based on the liquidation value of the underlying collateral because most of the loans are collateral dependent. We established credit risk related discounts (nonaccretable) of $73.8 million on the acquisition date relating to these impaired loans, reflected in the recorded net fair value of the impaired loans. Our estimate on the acquisition date of the contractually required principal payments receivable for all other loans acquired in the MCB acquisition was $70.8 million, and the estimated fair value of the loans was $46.6 million. We established credit risk related nonaccretable discounts of $18.9 million on these non-impaired loans. In our estimate of cash flows for the MCB loans, we also recorded accretable discounts of $5.3 million relating to the loans that will be recognized on a level yield basis over the life of the loans because accretable yield represents cash flows expected to be collected. As of the acquisition date, we also recorded a net FDIC receivable of $108.3 million, which reflected the present value of the expected net cash reimbursement under the loss sharing agreements for covered loans and other real estate. Such receivable has been discounted by $1.7 million for the expected timing of receipt of these cash flows.

47Assets covered by loss sharing, at fair value or net of nonaccretable discount decreased from $112.1 million at acquisition to $41.9 million at September 30, 2012. Loss estimates were increased by $3.5 million on covered other real estate owned in fiscal 2012 and resulted in expensing provisions for losses on such assets of $175,000 for fiscal 2012. There were no such loss estimate increases or provisions on covered loans in fiscal 2012 or covered assets in fiscal 2011.

~~The~~41 ~~following table sets forth certificates of deposit classified by interest rate as of the dates indicated.~~

	At September 30,
	2011		2010		2009
	(In thousands)
Interest Rate:
Less than 2.00%	$	248,450	$	220,960	$	125,167
2.00% to 2.99%		162,643		210,736		108,007
3.00% to 3.99%		44,890		57,834		85,961
4.00% to 4.99%		4,602		10,569		45,922
5.00% to 5.99%		3,332		9,772		15,675
6.00% to 6.99%		—		93		—
Total	$	463,917	$	509,964	$	380,732

The ~~following~~First ~~table~~National ~~sets~~Bank ~~forth~~of Florida. On September 9, by2011, ~~interest~~we ~~rate~~entered ~~ranges~~into a purchase and assumption agreement with the FDIC, ~~information~~as ~~concerning~~receiver, to acquire certain assets and assume certain liabilities of The First National Bank of Florida a full-service commercial bank headquartered in Milton, Florida. The FNB acquisition extended our ~~certificates~~retail branch footprint as part of ~~deposit~~our efforts to increase our retail deposits and reduce our reliance on brokered deposits and borrowings as a significant source of our funds. The retention of three of FNB’s eight full-service branches has expanded our market presence in the northwestern Florida Panhandle region and adjacent areas in which we are seeking to expand.

	At September 30, 2011
	Period to Maturity
	Less Than or Equal to One Year		More Than One to Two Years		More Than Two to Three Years		More Than Three Years		Total		Percent of Total
	(Dollars in thousands)
Interest Rate Range:
1.99% and below	$	206,724	$	26,066	$	6,349	$	9,311	$	248,450		53.56	%
2.00% to 2.99%		58,628		78,446		6,138		19,431		162,643		35.06
3.00% to 3.99%		10,199		2,927		3,1

Filing Compare · CHARTER FINANCIAL CORP/GA