CHARTER FINANCIAL CORP Value Stock - Dividend - Research Selection
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Description of the company
Charter Financial Corporation (the “Company”) is a savings and loan holding company that was incorporated under the laws of the State of Maryland in April 2013 to serve as the holding company for CharterBank (the “Bank”). The Bank is a federally-chartered savings bank that was originally founded in 1954 as a federally-chartered mutual savings and loan association. As of September 30, 2017, our total assets were approximately $1.6 billion, total loans receivable were approximately $1.1 billion and our deposits were approximately $1.3 billion. We have total stockholders’ equity of $214.2 million.
On April 8, 2013, the Company completed its conversion and reorganization pursuant to which it converted from the mutual holding company form of organization to the stock holding company form of organization. The Company sold 14.3 million shares of common stock for gross offering proceeds of $142.9 million in the offering. Following the conversion and reorganization, the Bank became 100% owned by the Company, which became 100% owned by public shareholders. This conversion process included raising capital that increased capital to 25.13% of assets, or tangible capital to 24.78% of tangible assets, a non-GAAP measure (see Non-GAAP Financial Measures for further information). As is typical with overcapitalized converted thrifts, the company's stock traded based on book value. With additional capital leverage and resulting improved earnings in fiscal 2017 the Company is now trading primarily on earnings.
The Company's stockholder value strategy focuses on creating earnings and stockholder value through increasing capital leverage, operating leverage, and expanding into more dynamic markets. In recent years, through acquisitions and strategic de novo branching, the Company has expanded further into the Atlanta Metropolitan Statistical Area ("MSA"). This growth was the result of the following:
• Acquired all assets and assumed all liabilities of Resurgens Bancorp ("Resurgens"), the parent company of Resurgens Bank, a full-service commercial bank headquartered in Tucker, Georgia, as part of a purchase agreement in September 2017;
• Acquired all assets and assumed all liabilities of CBS Financial Corporation ("CBS"), the parent company of Community Bank of the South, a full-service commercial bank headquartered in Smyrna, Georgia, as part of a purchase agreement in April 2016;
• Completed a lift out of a seasoned relationship team in the attractive Buckhead community of Atlanta in October 2015 to operate a new branch that opened in February 2017;
• Acquired certain assets and assumed all deposits of The First National Bank of Florida (“FNB”), a full-service commercial bank headquartered in Milton, Florida, as a part of a loss-sharing agreement with the FDIC in September 2011;
• Acquired certain assets and assumed all deposits of McIntosh Commercial Bank (“MCB”), a full-service commercial bank headquartered in Carrollton, Georgia, as a part of a loss-sharing agreement with the FDIC in March 2010;
• Acquired certain assets and assumed all deposits of Neighborhood Community Bank (“NCB”), a full-service commercial bank headquartered in Newnan, Georgia, as a part of a loss-sharing agreement with the FDIC in June 2009;
• Opened branch in Norcross, Georgia and staffed with lift out of the area's foremost construction and commercial real estate lenders;
• Opened de novo branches in LaGrange, Georgia in March 2007 and May 2005;
• Acquired EBA Bancshares and its subsidiary, Eagle Bank of Alabama, in February 2003.
The Bank’s principal business consists of attracting retail deposits, focusing on transaction accounts, from the general public. We then invest those deposits, 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 loans, home equity loans and lines of credit and other consumer loans. We offer a variety of community banking services to our customers, including online banking and bill payment services, mobile banking, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs. We operate 22 branch offices in Metro Atlanta, the I-85 corridor outh to Auburn, Alabama, and the Florida Gulf Coast. The Bank'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.
We conduct operations primarily in three metropolitan areas, along with our legacy market in Troup County, Georgia and Chambers County, Alabama. We currently have 11 branches in the Atlanta MSA, three branches in the Auburn-Opelika, Alabama MSA, and three branches in the Pensacola, Florida MSA, along with five branches in our legacy market. FDIC-assisted acquisitions have complemented the corporate expansion we have achieved in recent years both through de novo branching and acquisitions. Our expansion into the Atlanta market has been a key component of implementing our strategic plan, as all 11 branches in the Atlanta MSA have been added in the last 10 years either through acquisitions or lift outs of lending and customer relationship personnel. We also added the Pensacola MSA through acquisitions. As indicated in the population growth map below, all but one of our branches are in counties projected to experience strong population growth over the next five years.
In the Atlanta MSA, we have locations in Carroll, Cobb, Coweta, DeKalb, Fulton and Gwinnett Counties. As of September 30, 2017, the unemployment rate in the MSA was at 4.0%, below the national and statewide levels. According to the 2010 U.S. Census, population in the MSA grew 28.1% between 2000 and 2010. As of 2015, median household income in the MSA was approximately $57,000, above both the national and state levels.
In the Auburn-Opelika MSA, we conduct business in Lee County in Alabama. As of September 30, 2017, the unemployment rate in the MSA was at 2.9%, below both the statewide and national levels. According to the 2010 Census, population in the MSA grew 21.9% between 2000 and 2010. Median household income in the MSA was approximately $45,000 as of 2015, above the statewide but below national levels.
In the Pensacola MSA, we conduct business in Escambia and Santa Rosa Counties in Florida. As of September 30, 2017, the unemployment rate in the MSA was at 3.3%, below the statewide and national levels. According to the 2010 Census, population in the MSA grew 8.9% between 2000 and 2010. As of 2015, median household income in the MSA was approximately $50,000, below the national level but above the state level.
In our legacy market, we conduct business in Troup County, Georgia and Chambers County, Alabama. As of September 30, 2017, the unemployment rate in the area was at 3.8%, below nationwide and state levels. According to the 2010 Census, population in the area grew 6.2% between 2000 and 2010. As of 2015, median household income in the area was approximately $39,000, below nationwide and state levels.
Our acquisitions of CBS and Resurgens have added to our Atlanta market presence, which in management’s view is a key area for potential growth of the Company. The Atlanta market area comprises the eighth-largest economy in the country and 17th-largest in the world. Key components of the market area’s economy include corporate operations, as the area has the third-largest concentration of Fortune 500 companies in the United States. Other key factors in the area’s economy include media and film entertainment, logistics and transportation, and information technology. The market area was disproportionately impacted by the 2008 financial crisis in unemployment rate, declining real income levels and a depressed housing market. The outlook for the Atlanta market is for above-average growth.
In the Auburn-Opelika MSA, the economy is heavily dependent on higher education, retail, industry and textiles. Auburn was ranked the sixth-best performing city for economic growth in the United States by the Milken Institute in 2016. This market area is forecasted for modest growth over the next five years.
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, and Pensacola has been ranked in the top quintile of United States metro areas in population growth. The outlook for our Florida Panhandle market is affected by the heavy influences of military bases and tourism.
Our legacy market's economy was previously heavily dependent on the textile industry, but has shifted to an automotive employment base because of the Kia plant, which opened 10 years ago and which estimates show created more than 12,000 jobs. The area is also influenced by higher education with LaGrange College and Point University, which moved to West Point in 2012. Our legacy market is projected to see modest growth over the next five years.
Competition We face intense competition both in making loans and attracting deposits. Metro Atlanta, the I-85 corridor south to Auburn, 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 Georgia, Alabama, and Florida. Many of these competitors have greater resources than we do and may offer services that we do not provide.
Our competition for loans comes from commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, credit card banks, insurance companies, and brokerage and investment banking firms. Our most direct competition for deposits historically has come from commercial banks, savings banks, savings and loan associations, credit unions, and mutual funds. We face additional competition for deposits from short-term money market funds and other corporate and government securities funds as well as from brokerage firms, insurance companies and non-traditional financial institutions, including non-depository financial services providers.
Metro Atlanta Expansion
On September 1, 2017, the Company completed its acquisition of Resurgens Bancorp and its subsidiary, Resurgens Bank, for cash consideration of $25.8 million. The purchase of Resurgens continued the Company's strategy of leveraging its capital to expand in the Atlanta metropolitan area. Resurgens operated two branches in DeKalb County. We acquired $177.5 million of assets, including $128.8 million of net loans receivable, and assumed $151.7 million of liabilities, including $138.0 million of deposits. See Note 2: Business Combinations for more information regarding the acquisition.
On April 15, 2016, the Company completed its acquisition of CBS Financial Corporation and its subsidiary, Community Bank of the South, for cash consideration of $55.9 million. The purchase of CBS expanded the Company's presence in Metro Atlanta with four branches in the attractive Cobb County market. As part of the purchase, we acquired $401.9 million of assets, including $300.8 million of net loans receivable, and assumed $345.9 million of liabilities, including $333.7 million of deposits. See Note 2: Business Combinations for more information regarding the acquisition.
On June 26, 2009, the Bank entered into a purchase and assumption agreement with the FDIC to acquire $202.8 million of assets and assume $195.3 million of liabilities of NCB, a full-service commercial bank headquartered in Newnan, Georgia. Subsequently, on March 26, 2010, the Bank entered into an acquisition agreement with the FDIC to acquire $322.6 million of assets and assume $306.2 million of liabilities of MCB, a full-service commercial bank headquartered in Carrollton, Georgia. The retention of NCB's four full-service branches (one of which was closed in 2014) and one of MCB's full-service branches expanded our market presence in west-central Georgia within the I-85 corridor region. Both the NCB and MCB acquisition agreements with the FDIC included loss-sharing agreements pursuant to which the FDIC assumed between 80% and 95% of losses and shared between 80% and 95% of loss recoveries on acquired loans and other real estate owned (“OREO”).
On September 9, 2011, the Bank entered into an acquisition agreement with the FDIC to acquire $251.8 million of assets and assume $247.5 million of liabilities of FNB, a full-service commercial bank headquartered in Milton, Florida. The retention of three of FNB’s full-service branches expanded our market presence to the Florida Panhandle. The purchase and assumption agreement with the FDIC included loss-sharing agreements pursuant to which the FDIC assumed 80% of losses and shared 80% of loss recoveries on acquired loans and other real estate owned.
The three FDIC-assisted acquisitions between 2009 and 2011 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. We refer to each of the three financial institutions we acquired in conjunction with FDIC loss share agreements collectively as the “Acquired Banks - FDIC” and we refer to the indemnification assets and other receivables associated with the FDIC loss share agreements related to the Acquired Banks - FDIC as the “FDIC receivable.” Additionally, we refer to loans subject to loss share agreements with the FDIC in periods prior to the termination of all agreements with the FDIC in the fourth quarter of fiscal 2015, as “covered loans” and loans that were not subject to loss share agreements with the FDIC as “non-covered loans.” For more information regarding the Bank's FDIC-assisted acquisitions and subsequent loss share resolution, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — FDIC Loss-Share Resolution”.