UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

~~Washington,~~(Mark ~~DC 20549~~One)

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

For the quarterly period ended ~~June~~December 3031, 2012

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

For the transition period from to

Commission File No. 001-34889

Charter Financial Corporation

(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 Number)

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

(706) 645-1391

(Registrant’s telephone number)

N/A

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

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

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

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

Large accelerated filer	¨	Accelerated filer	¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x The number of shares of the registrant’s common stock outstanding as of August 13, 2012 was 18,337,040, including 11,457,924 shares (or 62.5%) held by First Charter, MHC, the registrant’s mutual holding company and an affiliate of the registrant.

The number of shares of the registrant’s common stock outstanding as of February 7, 2013 was 18,277,540.

CHARTER FINANCIAL CORPORATION

Table of Contents

		Page No.
Part I.	Financial Information
Part I. Financial Information
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Financial Condition at June 30, 2012 and September 30, 2011	3
	Condensed Consolidated Statements of Financial Condition at December 31, 2012 and September 30, 2012	3
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2012 and 2011	4
	Unaudited Condensed Consolidated Statements of Income for the Three Months Ended December 31, 2012 and 2011	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2012 and 2011	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2012 and 2011	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended June 30, 2012 and Year Ended September 30, 2011	6
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended December 31, 2012 and Year Ended September 30, 2012	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2012 and 2011	7
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2012 and 2011	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3837
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5350
Item 4.	Controls and Procedures	5451
Part II.	Other Information
Part II. Other Information
Item 1.	Legal Proceedings	5452
Item 1A.	Risk Factors	5452
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5452
Item 6.	Exhibits	5552
	Signatures	5653

Part I. Financial Information

Item 1. Financial Statements

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY ~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION~~

	June 30, 2012			September 30, 2011
Assets
Cash and amounts due from depository institutions	$	13,676,944		$	8,868,824
Interest-bearing deposits in other financial institutions		62,810,598			139,981,062
Cash and cash equivalents		76,487,542			148,849,886
Loans held for sale, fair value of $1,556,978 and $299,744		1,533,413			291,367
Securities available for sale		199,139,523			158,736,574
Federal Home Loan Bank stock		6,159,500			10,590,900
Loans receivable:
Not covered under FDIC loss sharing agreements		439,943,462			430,359,086
Covered under FDIC loss sharing agreements, net		186,544,613			235,049,585
Unamortized loan origination fees, net (non-covered loans)		(1,105,594	)		(1,010,480	)
Allowance for loan losses (non-covered loans)		(8,545,540	)		(9,369,837	)
Loans receivable, net		616,836,941			655,028,354
Other real estate owned:
Not covered under FDIC loss sharing agreements		3,437,107			4,093,214
Covered under FDIC loss sharing agreements		20,927,641			24,671,626
Accrued interest and dividends receivable		3,689,921			3,690,433
Premises and equipment, net		23,353,735			21,765,298
Goodwill		4,325,282			4,325,282
Other intangible assets, net of amortization		1,411,837			1,827,462
Cash surrender value of bank owned life insurance		33,570,777			32,774,523
FDIC receivable for loss sharing agreements		50,638,675			96,777,791
Deferred income taxes		5,047,410			4,557,858
Other assets		2,876,830			3,729,682
Total assets	$	1,049,436,134		$	1,171,710,250
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	821,532,335		$	911,093,806
FHLB advances and other borrowings		80,000,000			110,000,000
Other liabilities		8,336,017			11,200,744
Total liabilities		909,868,352			1,032,294,550
Stockholders’ equity:
Common stock, $0.01 par value; 19,859,219 shares issued at June 30, 2012 and September 30, 2011, respectively; 18,274,168 shares outstanding at June 30, 2012 and 18,603,889 shares outstanding at September 30, 2011		198,592			198,592
Preferred stock, no par value; 10,000,000 shares authorized		-			-
Additional paid-in capital		73,152,408			73,083,363
Treasury stock, at cost; 1,585,051 shares at June 30, 2012 and 1,255,330 shares at September 30, 2011		(39,069,114	)		(36,127,940	)
Unearned compensation – ESOP		(3,571,121	)		(3,729,390	)
Retained earnings		109,818,195			107,962,533
Accumulated other comprehensive loss – net unrealized holding losses on securities available for sale, net of tax		(961,178	)		(1,971,458	)
Total stockholders’ equity		139,567,782			139,415,700
Commitments and contingencies
Total liabilities and stockholders’ equity	$	1,049,436,134		$	1,171,710,250

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	(Unaudited)
	December 31,			September 30,
	2012			2012
Assets
Cash and amounts due from depository institutions	$	12,101,276		$	13,221,291
Interest-bearing deposits in other financial institutions		118,146,324			95,606,929
Cash and cash equivalents		130,247,600			108,828,220

Loans held for sale, fair value of $5,034,155 and $2,741,672		4,923,431			2,691,508
Securities available for sale		179,246,182			189,379,333
Federal Home Loan Bank stock		5,273,200			5,318,200
Loans receivable:
Not covered under FDIC loss sharing agreements		435,810,568			436,966,775
Covered under FDIC loss sharing agreements, net		149,268,548			166,228,316
Unamortized loan origination fees, net (non-covered loans)		(1,058,414	)		(1,101,481	)
Allowance for loan losses (non-covered loans)		(8,382,355	)		(8,189,895	)
Loans receivable, net		575,638,347			593,903,715
Other real estate owned:
Not covered under FDIC loss sharing agreements		1,414,421			2,106,757
Covered under FDIC loss sharing agreements		21,029,944			21,903,204
Accrued interest and dividends receivable		2,880,248			3,241,320
Premises and equipment, net		23,404,360			23,610,642
Goodwill		4,325,282			4,325,282
Other intangible assets, net of amortization		1,152,644			1,280,309
Cash surrender value of life insurance		34,087,206			33,831,920
FDIC receivable for loss sharing agreements		42,821,370			35,135,533
Deferred income taxes		6,469,026			6,176,199
Other assets		1,161,106			487,954
Total assets	$	1,034,074,367		$	1,032,220,096

Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	806,117,639		$	800,261,546
FHLB advances and other borrowings		80,000,000			81,000,000
Advance payments by borrowers for taxes and insurance		116,056			651,520
Other liabilities		3,852,050			7,786,262
Total liabilities		890,085,745			889,699,328
Stockholders’ equity:
Common stock, $0.01 par value; 19,859,219 shares issued at December 31, 2012 and September 30, 2012, respectively; 18,220,260 shares outstanding at December 31, 2012 and 18,229,760 shares outstanding at September 30, 2012		198,592			198,592
Preferred stock, no par value; 10,000,000 shares authorized		-			-
Additional paid-in capital		73,529,645			73,483,605
Treasury stock, at cost; 1,638,959 shares at December 31, 2012 and 1,629,459 shares at September 30, 2012		(39,706,730	)		(39,362,686	)
Unearned compensation – ESOP		(3,571,121	)		(3,571,121	)
Retained earnings		113,903,285			111,568,998
Accumulated other comprehensive gain (loss) – net of unrealized holding gains (losses) on securities available for sale		(365,049	)		203,380
Total stockholders’ equity		143,988,622			142,520,768
Commitments and contingencies
Total liabilities and stockholders’ equity	$	1,034,074,367		$	1,032,220,096

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30,						Nine Months Ended June 30,
	Three Months Ended December 31,
	2012			2011			~~2012~~			~~2011~~
Interest and dividend income:
Loans receivable	$	10,~~782~~179,~~937~~929		$	1011,~~244~~548,~~668~~614		$	~~33,975,869~~		$	~~31,776,177~~
Mortgage-backed securities and collateralized mortgage obligations		~~882~~730,~~524~~255			1800,~~029,635~~234			~~2,554,712~~			~~2,947,190~~
Federal Home Loan Bank Stock		34,~~749~~899			2723,~~047~~006			~~88,564~~			~~68,713~~
Other investment securities available for sale		6655,~~920~~141			4559,~~575~~599			~~195,294~~			~~102,750~~
Interest-bearing deposits in other financial institutions		3751,~~999~~686			5068,~~247~~019			~~132,172~~			~~199,156~~
Total interest and dividend income		11,~~805~~051,~~129~~910			1112,~~397~~499,~~172~~472			~~36,946,611~~			~~35,093,986~~
Interest expense:
Deposits		1,~~442~~217,~~978~~460			2,~~066~~142,~~119~~180			~~5,297,957~~			~~7,431,550~~
Borrowings		~~828~~837,~~533~~469			1,~~177~~190,~~651~~592			~~3,157,175~~			~~4,640,874~~
Total interest expense		2,~~271~~054,~~511~~929			3,~~243~~332,~~770~~772			~~8,455,132~~			~~12,072,424~~
Net interest income		98,~~533~~996,~~618~~981			89,~~153~~166,~~402~~700			~~28,491,479~~			~~23,021,562~~
Provision for loan losses, not covered under FDIC loss sharing agreements		300,000			~~300~~1,500,000			~~2,100,000~~			~~1,400,000~~
Provision for covered loan losses		7594,~~000~~750			-600,000			~~965,000~~			~~400,000~~
Net interest income after provision for loan losses		98,~~158~~602,~~618~~231			7,~~853~~066,~~402~~700			~~25,426,479~~			~~21,221,562~~
Noninterest income:
Service charges on deposit accounts		1,~~713~~949,~~046~~171			1,~~448~~723,~~212~~957			~~5,054,942~~			~~4,241,780~~
Gain on securities available for sale		~~360~~219,913			~~425~~632,~~532~~593			~~632,953~~			~~596,377~~
Total impairment losses on securities		-			(1304,~~119,913~~094	)		~~(273,259~~	)		~~(1,671,270~~	)
Portion of losses recognized in other comprehensive income		-			~~819~~204,~~913~~094			-			~~1,148,270~~
Net impairment losses recognized in earnings		-			(~~300~~100,000	)		~~(273,259~~	)		~~(523,000~~	)
Bank owned life insurance		~~263~~255,~~981~~287			~~255~~272,~~310~~199			~~935,366~~			~~826,386~~
Gain on sale of loans and loan servicing release fees		~~261~~349,~~479~~973			~~126~~185,~~591~~390			~~608,192~~			~~505,931~~
Loan servicing fees		6982,~~418~~470			9890,~~748~~513			~~279,216~~			~~290,295~~
Brokerage commissions		~~222~~140,~~002~~694			~~155~~126,~~979~~061			~~487,988~~			~~525,054~~
FDIC receivable for loss sharing agreements accretion		~~250~~147,~~691~~674			~~180~~570,~~904~~129			~~1,276,114~~			~~777,562~~
Other		~~148~~62,~~542~~457			57315,~~496~~174			~~376,150~~			~~333,104~~
Total noninterest income		23,~~929~~207,~~519~~639			23,~~448~~816,~~772~~016			~~9,377,662~~			~~7,573,489~~
Noninterest expenses:
Salaries and employee benefits		54,~~270~~675,~~062~~942			34,~~922~~688,~~733~~047			~~14,575,886~~			~~11,555,529~~
Occupancy		1,~~896~~759,~~536~~710			12,~~472~~035,~~005~~807			~~5,944,422~~			~~4,715,627~~
FHLB advance prepayment penalty		-			-			-			809,558
Legal and professional		323,206			497,045
Legal and professional		341,135			408,108			1,285,512			1,302,725
Marketing		268,017			470,123
Marketing		526,925			335,072			1,491,142			1,150,630
Federal insurance premiums and other regulatory fees		245,125			343,560
Federal insurance premiums and other regulatory fees		389,738			293,414			1,098,704			1,011,916
Net (benefit) cost of operations of real estate owned		(192,326	)		739,991
Net cost of operations of real estate owned		730,730			117,114			2,097,455			1,742,181
Furniture and equipment		201,946			205,018
Furniture and equipment		245,956			185,205			710,201			581,281
Postage, office supplies and printing		246,761			279,359
Postage, office supplies and printing		280,478			203,710			812,054			698,065
Core deposit intangible amortization expense		127,665			140,442
Core deposit intangible amortization expense		141,905			53,542			415,625			164,444
Other		665,298			864,560
Other		1,682,852			977,185			3,364,037			2,271,790
Total noninterest expenses		8,321,344			10,263,952
Total noninterest expenses		11,506,317			7,968,088			31,795,038			26,003,746
Income before income taxes		3,488,526			618,764
Income before income taxes		581,820			2,334,086			3,009,103			2,791,305
Income tax expense		1,154,239			130,371
Income tax (benefit) expense		(897,015	)		785,245			(218,786	)		715,172
Net income	$	2,334,287		$	488,393
Net income	$	1,478,835		$	1,548,841		$	3,227,889		$	2,076,133
Basic net income per share	$	0.13		$	0.03
Basic net income per share	$	0.08		$	0.09		$	0.18		$	0.11
Diluted net income per share	$	0.13		$	0.03
Diluted net income per share	$	0.08		$	0.09		$	0.18		$	0.11
Weighted average number of common shares outstanding		17,806,739			18,036,619
Weighted average number of common shares outstanding		17,853,432			18,152,156			17,932,227			18,140,655
Weighted average number of common and potential common shares outstanding		17,846,627			18,070,041
Weighted average number of common and potential common shares outstanding		17,887,621			18,199,430			17,966,416			18,187,929

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Three Months Ended June 30,							Nine Months Ended June 30,
		Three Months Ended
	2012			2011				2012			2011
		December 31,
Net income	$	1,478,835		$	1,548,841			$	3,227,889		$	2,076,133
		2012				2011
Less reclassification adjustment for net gains realized in net income, net of taxes of $139, $164,255, $244,320 and $230,202, respectively		(221	)		(261,277	)			(388,633	)		(366,176	)
Net income		$	2,334,287			$	488,393
Net unrealized holding gains on investment and mortgage securities available for sale arising during the year, net of taxes of $(871,989), $(565,626), $(773,970) and $(679,096), respectively		1,387,050			899,726				1,231,133			1,080,220
Less reclassification adjustment for net gains realized in net income, net of taxes of $84,887 and $244,181, respectively			(135,026	)			(388,412	)
Other-than-temporary impairment losses recognized in earnings, net of taxes of $0, $(115,800), $(105,478) and $(201,878), respectively		-			184,200				167,781			321,122
Net unrealized holding losses on investment and mortgage securities available for sale arising during the period, net of taxes of $(272,465) and $(377,614), respectively			(433,403	)			(600,662	)
Comprehensive income	$	2,865,664		$	2,371,490			$	4,238,170		$	3,111,299
Other-than-temporary impairment losses recognized in earnings, net of taxes of $(38,600)			-				61,400
Comprehensive income (loss)		$	1,765,858			$	(439,281	)

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY ~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

	Common stock
	Number of shares		Amount		Additional paid-in capital			Treasury stock			Unearned compensation ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders' equity
Balance at September 30, 2010		19,859,219	$	198,592	$	73,073,216		$	(36,614,648	)	$	(3,880,990	)	$	107,598,080		$	(3,497,883	)	$	136,876,367
Net income		—		—		—			—			—			2,305,352			—			2,305,352
Change in unrealized loss on securities		—		—		—			—			—			—			1,526,425			1,526,425
Dividends paid, $0.20 per share		—		—		—			—			—			(1,940,899	)		—			(1,940,899	)
Allocation of ESOP common stock		—		—		—			—			151,600			—			—			151,600
Vesting of restricted shares		—		—		(94,944	)		486,708			—			—			—			391,764
Stock based compensation expense		—		—		105,091			—			—			-			—			105,091
Balance at September 30, 2011		19,859,219	$	198,592	$	73,083,363		$	(36,127,940	)	$	(3,729,390	)	$	107,962,533		$	(1,971,458	)	$	139,415,700
Net income		—		—		—			—			—			3,227,889			—			3,227,889
Change in unrealized loss on securities		—		—		—			—			—			—			1,010,280			1,010,280
Dividends paid, $0.10 per share		—		—		—			—			—			(1,372,227	)		—			(1,372,227	)
Allocation of ESOP common stock		—		—		—			—			158,269			—			—			158,269
Vesting of restricted shares		—		—		(1,445	)		176,840			—			—			—			175,395
Stock based compensation expense		—		—		70,490			—			—			—			—			70,490
Repurchase of Shares		—		—		—			(3,118,014	)		—			—			—			(3,118,014	)
Balance at June 30, 2012		19,859,219	$	198,592	$	73,152,408		$	(39,069,114	)	$	(3,571,121	)	$	109,818,195		$	(961,178	)	$	139,567,782

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common stock
	Number of shares		Amount		Additional paid-in capital		Treasury stock			Unearned compensation ESOP			Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders' equity
Balance at September 30, 2011		19,859,219	$	198,592	$	73,083,363	$	(36,127,940	)	$	(3,729,390	)	$	107,962,533		$	(1,971,458	)	$	139,415,700
Net income		—		—		—		—			—			4,978,692			—			4,978,692
Change in unrealized loss on securities		—		—		—		—			—			—			2,174,838			2,174,838
Dividends paid, $0.10 per share		—		—		—		—			—			(1,372,227	)		—			(1,372,227	)
Allocation of ESOP common stock		—		—		—		—			158,269			—			—			158,269
Effect of restricted stock awards		—		—		306,366		353,267			—			—			—			659,633
Stock option expense						93,876														93,876
Repurchase of shares		—		—		—		(3,588,013	)		—			-			—			(3,588,013	)
Balance at September 30, 2012		19,859,219	$	198,592	$	73,483,605	$	(39,362,686	)	$	(3,571,121	)	$	111,568,998		$	203,380		$	142,520,768
Net income		—		—		—		—			—			2,334,287			—			2,334,287
Change in unrealized loss on securities		—		—		—		—			—			—			(568,429	)		(568,429	)
Effect of restricted stock awards		—		—		13,957		—			—			—			—			13,957
Stock option expense		—		—		32,083		—			—			—			—			32,083
Repurchase of shares and conversion expenses		—		—		—		(344,044	)		—			—			—			(344,044	)
Balance at December 31, 2012		19,859,219	$	198,592	$	73,529,645	$	(39,706,730	)	$	(3,571,121	)	$	113,903,285		$	(365,049	)	$	143,988,622

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended June 30,
	Three Months Ended December 31,
	2012			2011
Cash flows from operating activities:
Net Income	$	3,227,889		$	2,076,133
Net income	$	2,334,287		$	488,393
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses, not covered under FDIC loss sharing agreements		2300,~~100,~~000			1,~~400~~500,000
Provision for covered loan losses		~~965~~94,~~000~~750			~~400~~600,000
Depreciation and amortization		1411,~~368,799~~150			~~980~~419,~~490~~996
Deferred income tax expense (benefit)		(1,010,000	)		(1,717,737	)
Accretion and amortization of premiums and discounts, net		789,290			771,804
Accretion and amortization of premiums and discounts, net		2,201,088			1,426,593
Accretion of fair value discounts related to covered loans		(2,282,333	)		(2,434,999	)
Accretion of fair value discounts related to covered loans		(6,714,011	)		(6,656,094	)
Accretion of fair value discounts related to FDIC receivable		(147,674	)		(570,129	)
Accretion of fair value discounts related to FDIC receivable		(1,276,114	)		(777,562	)
Gain on sale of loans and loan servicing release fees		(349,973	)		(185,390	)
Write down of asset held for sale		442,000			-
Proceeds from sale of loans		13,141,669			5,833,816
Gain on sale of loans and loan servicing release fees		(608,192	)		(505,931	)
Originations and purchases of loans held for sale		(15,023,619	)		(6,212,346	)
Proceeds from sale of loans		24,481,797			17,825,404
Gain on sale of mortgage-backed securities, collateralized mortgage obligations and other investments		(219,913	)		(632,593	)
Originations and purchases of loans held for sale		(25,115,651	)		(15,967,284	)
Other-than-temporary impairment-securities		-			100,000
Gain on sale of securities		(632,953	)		(596,377	)
Write down of real estate owned		236,434			507,724
Other-than-temporary impairment-securities		273,259			523,000
Gain on sale of real estate owned		(140,244	)		(25,292	)
Write down of real estate owned		1,416,126			579,618
Restricted stock award expense		-			33,677
Loss on sale of real estate owned		12,923			470
Stock option expense		32,083			23,717
Recovery payable to FDIC on other real estate owned gains		-			(617,730	)
Increase in cash surrender value on bank owned life insurance		(255,287	)		(272,199	)
Restricted stock award expense		89,093			173,062
Stock option expense		70,490			81,939
Increase in cash surrender value on bank owned life insurance		(935,366	)		(826,386	)
Changes in assets and liabilities:
Decrease in accrued interest and dividends receivable		~~512~~361,071			2575,~~417~~187
Decrease (increase) in other assets		549,965			(359,268	)
Increase in other assets		(673,150	)		(431,848	)
Decrease in other liabilities		(2,620,156	)		(2,358,851	)
(Decrease) increase in other liabilities		(3,920,255	)		749,332
Net cash used in operating activities		(1,713,502	)		(4,891,094	)
Net cash (used in) provided by operating activities		(5,311,714	)		338,850
Cash flows from investing activities:
Proceeds from sales of securities available for sale		2813,~~810~~952,~~067~~478			2127,~~784~~413,~~842~~474
Principal collections on securities available for sale		4314,~~687~~073,~~949~~340			3715,~~973~~913,~~575~~513
Purchase of securities available for sale		(~~118~~26,~~435~~389,~~981~~800	)		(9373,~~500~~601,~~592~~451	)
Proceeds from calls of securities available for sale		5,224,350			2,495,600
Proceeds from maturities or calls of securities available for sale		7,066,500			1,036,000
Proceeds from redemption of FHLB stock		445,~~431,400~~000			21,~~928~~335,~~900~~400
Net decrease in loans receivable		1716,~~146~~050,~~786~~825			34885,~~882,538~~095
Net decrease in FDIC receivable		62,386,076			29,390,710
Net decrease (increase) in FDIC receivable		(8,324,986	)		6,828,107
Proceeds from sale of real estate owned		126,~~693~~358,~~834~~354			294,~~877~~404,~~372~~233
Purchases of premises and equipment		(277,~~541,611~~203	)		(15162,~~018~~540	)
Net cash provided by investing activities		53,402,870			65,817,927
Net cash (used in) provided by investing activities		22,754,508			(15,948,169	)

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

	Three Months Ended December 31,
	2012			2011
Cash flows from financing activities:
Purchase of treasury stock		(344,044	)		(2,197,243	)
Dividends paid		-			(900,861	)
Increase (decrease) in deposits		5,856,093			(51,589,968	)
Principal payments on Federal Home Loan Bank advances		(1,000,000	)		-
Net decrease in advance payments by borrowers for taxes and insurance		(535,463	)		(648,867	)
Net cash (used in) provided by financing activities		3,976,586			(55,336,939	)
Net increase (decrease) in cash and cash equivalents		21,419,380			(70,946,258	)
Cash and cash equivalents at beginning of period		108,828,220			149,761,646
Cash and cash equivalents at end of period	$	130,247,600		$	78,815,388
Supplemental disclosures of cash flow information:
Interest paid	$	2,091,569		$	3,547,078
Income taxes paid	$	2,650,110		$	205,000
Supplemental disclosure of noncash activities:
Real estate acquired through foreclosure of collateral on loans receivable	$	4,102,125		$	3,747,265
Write down of real estate owned reimbursed by the FDIC	$	307,402		$	1,150,000
Issuance of common stock under stock benefit plan	$	-		$	148,875
Unrealized loss on securities available for sale, net	$	(568,429	)	$	(927,674	)

	Nine Months Ended June 30,
	2012			2011
Cash flows from financing activities:
Dividends on restricted stock awards		-			(36,542	)
Purchase of treasury stock		(3,118,014	)		-
Dividends paid		(1,372,227	)		(1,417,281	)
Decrease in deposits		(89,561,471	)		(127,316,303	)
Principal payments on Federal Home Loan Bank advances		(30,000,000	)		(102,000,000	)
Net decrease in advance payments by borrowers for taxes and insurance		-			(476,858	)
Net cash used in financing activities		(124,051,712	)		(231,246,984	)
Net decrease in cash and cash equivalents		(72,362,344	)		(170,320,151	)
Cash and cash equivalents at beginning of period		148,849,886			235,638,582
Cash and cash equivalents at end of period	$	76,487,542		$	65,318,431
Supplemental disclosures of cash flow information:
Interest paid	$	8,858,122		$	10,589,854
Income taxes paid	$	2,639,000		$	1,025,641
Supplemental disclosure of noncash activities:
Real estate acquired through foreclosure of collateral on loans receivable	$	18,912,791		$	14,893,789
Write down of real estate owned reimbursed by the FDIC	$	9,190,000		$	-
Provision for covered loan losses reimbursed by the FDIC	$	5,780,846		$	-
Issuance of common stock under stock benefit plan	$	158,269		$	151,600
Unrealized gain on securities available for sale, net	$	1,530,728		$	1,035,166

See accompanying notes to unaudited condensed consolidated financial statements.

CHARTER FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Nature of Operations

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

In January 2007, Charter Financial repurchased 508,842 shares of its common stock at $52.00 per share through a self-tender offer. Following the stock repurchase, Charter Financial delisted its common stock from the NASDAQ Global Market and deregistered its common stock with the Securities and Exchange Commission. Between January 2007 and September 2009 Charter Financial repurchased 1,186,858 additional shares of its common stock. In September 2010, through an incremental offering, the Company issued 4,400,000 shares with net proceeds of $26.6 million, and First Charter, MHC canceled 4,400,000 shares of Company stock that it held. On September 27, 2011, Charter Financial announced a 5% stock repurchase plan with repurchased shares being held in treasury and available for general corporate purposes. For the ~~nine~~three months ended ~~June~~December 3031, 2012, ~~335~~9,~~321~~500 shares have been repurchased at a cost of $388,~~118,014~~838.

As of ~~June~~December 3031, 2012, First Charter, MHC owned 11,457,924 shares of the Company’s common stock, representing approximately 62.57% of the Company’s 18,~~337~~277,~~040~~540 outstanding shares of common stock at that date. The remaining 6,~~879~~819,~~116~~616 shares of common stock, or approximately 37.53% of the outstanding shares of common stock, were held by the public.

The Company's decision to pay dividends and the amount of such dividends is affected by the election of First Charter, MHC to waive the receipt of dividends declared by Charter Financial. First Charter, MHC has historically waived its right to receive most dividends on its shares of Charter Financial common stock, which means that Charter Financial has had more cash resources to pay dividends to its public stockholders than if First Charter, MHC had accepted such dividends. The Federal Reserve Board (FRB) now requires federally chartered mutual holding companies to conduct a vote of its members and then give the FRB notice before waiving the receipt of dividends. In the past, the FRB generally has not allowed dividend waivers by mutual holding companies, and 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.

Note 2: Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Charter Financial Corporation and subsidiary include the accounts of the Company and the Bank as of ~~June~~December 3031, 2012 and September 30, ~~2011~~2012 (derived from audited financial statements), and for the three ~~and nine~~-month ~~periods~~period ended ~~June~~December 3031, 2012 and 2011. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements include all necessary adjustments, consisting of normal recurring accruals, necessary for a fair presentation for the periods presented. The results of operations for the three ~~and nine~~- month ~~periods~~period ended ~~June~~December 3031, 2012 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the estimates used for fair value acquisition accounting and the Federal Deposit Insurance Corporation receivable for loss sharing agreements, estimate of expected cash flows on purchased impaired and other acquired loans, and the assessment for other-than-temporary impairment of investment securities, mortgage-backed securities, and collateralized mortgage obligations. Certain reclassifications of 2011 balances have been made to conform to classifications used in 2012. These reclassifications did not change net income.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the estimates used for fair value acquisition accounting and the Federal Deposit Insurance Corporation receivable for loss sharing agreements, estimate of expected cash flows on purchased impaired and other acquired loans, and the assessment for other-than-temporary impairment of investment securities, mortgage-backed securities, and collateralized mortgage obligations. Certain reclassifications of 2011 balances have been made. These reclassifications did not change net income.

Note 3: Recent Accounting Pronouncements

In ~~May~~September 2011, the Financial Accounting Standards Board (“"FASB”") issued an update to the accounting standards ~~for~~relating ~~amendments~~ to ~~achieve~~testing ~~common~~goodwill ~~fair~~for ~~value measurements and disclosure requirements in U~~impairment.S. ~~generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRS”).~~ This ~~update,~~guidance ~~which~~allows iscompanies ato ~~joint~~waive ~~effort~~comparing ~~between~~ the ~~FASB and the International Accounting Standards Board (“IASB”), amends existing~~ fair value ~~measurement~~of ~~guidance~~a toreporting ~~converge~~unit ~~the~~to ~~fair~~its ~~value~~carrying ~~measurement~~amount ~~guidance~~ in ~~U.S.~~assessing ~~GAAP and IFRS. This update clarifies~~ the ~~application~~recoverability of ~~existing~~goodwill ~~fair~~if, ~~value~~based ~~measurement~~on ~~requirements~~qualitative factors, ~~changes~~it ~~certain~~is ~~principles~~not inmore ~~existing~~likely ~~guidance~~than ~~and~~not ~~requires~~that ~~additional~~the fair value ~~disclosures.~~of ~~The update permits measuring financial assets and liabilities on~~ a ~~net~~reporting ~~credit~~unit ~~risk~~is ~~basis,~~less ifthan ~~certain~~its ~~criteria~~carrying ~~are~~amount. This ~~met,~~update is ~~increases~~effective ~~disclosure~~for ~~surrounding~~annual ~~company determined market prices (Level 3) financial instruments,~~ and ~~also~~interim ~~requires~~goodwill ~~the~~impairment ~~fair~~tests ~~value~~performed ~~hierarchy~~for ~~disclosure~~fiscal ofyears ~~financial~~beginning ~~assets~~after ~~and~~December ~~liabilities that are not recognized at fair value in the financial statements~~15, ~~but are included in disclosures at fair value~~2011. The adoption of this update as of ~~January~~October 1, 2012, did not have a material impact on the Company’'s financial statements.

In ~~June~~October ~~2011~~2012, the FASB issued an update to the accounting standards ~~relating~~ to provide guidance on the ~~presentation~~subsequent accounting treatment for an indemnification asset recognized at the acquisition date as a result of ~~comprehensive~~a ~~income. This~~government-assisted ~~update~~acquisition ~~amends~~of ~~current~~a ~~accounting~~financial ~~standards~~institution. toThe amendments in this update require entities that ~~all~~recognize ~~nonowner~~an ~~changes~~indemnification asset (in ~~stockholders’~~accordance ~~equity~~with beSubtopic ~~presented~~805-20) inas ~~either~~ a ~~single~~result ~~continuous~~of ~~statement~~a ofgovernment-assisted ~~comprehensive~~acquisition ~~income~~of ora infinancial ~~two~~institution ~~separate~~and ~~but~~subsequently ~~consecutive~~a ~~statements.~~change ~~Additionally,~~in the ~~update~~cash ~~requires~~flows ~~entities~~expected to ~~present,~~be collected on the ~~face~~indemnification asset occurs (as a result of ~~the~~a ~~financial~~change ~~statements,~~in ~~reclassification~~cash ~~adjustments~~flows ~~for~~expected ~~items~~to ~~that~~be ~~are~~collected ~~reclassified~~on ~~from~~the ~~other~~assets ~~comprehensive~~subject ~~income~~to indemnification) to ~~net~~subsequently ~~income~~account for the change in the ~~statement~~measurement orof ~~statements~~the ~~where~~indemnification asset on the ~~components~~same ofbasis ~~net~~as ~~income~~the ~~and~~change in the ~~components~~assets ofsubject ~~other~~to ~~comprehensive~~indemnification. ~~income~~Any ~~are~~amortization ~~presented;~~of ~~however,~~changes in ~~December~~value ~~2011,~~should ~~FASB~~be ~~deferred~~limited ~~this~~to ~~requirement~~the ~~until~~contractual aterm ~~later~~of ~~date~~the ~~yet~~indemnification toagreement be(that ~~determined.~~is, ~~The~~the ~~option~~lesser toof ~~present~~the ~~components~~term of ~~other~~the ~~comprehensive~~indemnification ~~income~~agreement asand ~~part~~the remaining life of the ~~statement~~indemnified ofassets). ~~changes~~The amendments in ~~stockholders’~~this ~~equity~~guidance ~~was~~are ~~eliminated. The~~effective ~~adoption~~for ofthe ~~this~~Company ~~update~~for asfiscal ofyears, ~~January~~and 1interim periods within those years, beginning on or after December 15, 2012. ~~did~~Early ~~not~~adoption ~~have~~is apermitted. ~~material~~The adoption of this update has no impact on the ~~Company’s~~consolidated financial statements because the Company's accounting procedures for the indemnification asset is in compliance with this amendment.

In ~~September~~February ~~2011~~2013, the FASB issued an update to the accounting standards ~~relating~~ to ~~testing~~improve ~~goodwill~~the ~~for~~reporting ~~impairment~~of reclassifications out of accumulated other comprehensive income. The ~~This~~amendments ~~guidance~~in ~~allows~~this ~~companies~~update require an entity to ~~waive~~provide ~~comparing~~information about the ~~fair~~amounts ~~value~~reclassified out of aaccumulated ~~reporting~~other ~~unit~~comprehensive toincome ~~its~~by ~~carrying~~component. In ~~amount~~addition, inan ~~assessing~~entity is required to present, either on the ~~recoverability~~face of ~~goodwill~~the ~~if,~~statement ~~based~~where onnet ~~qualitative~~income ~~factors~~is presented or in the notes, itsignificant isamounts ~~not~~reclassified ~~more~~out ~~likely~~of ~~than~~accumulated ~~not~~other ~~that~~comprehensive income by the ~~fair~~respective ~~value~~line items of anet ~~reporting~~income ~~unit~~but only if the amount reclassified is ~~less~~required ~~than~~under U.S. GAAP to be reclassified to net income in its ~~carrying~~entirety ~~amount~~in the same reporting period. ~~This~~For ~~update~~other ~~will~~amounts that are not required under U.S. GAAP to be ~~effective~~reclassified ~~for~~in ~~annual~~their ~~and~~entirety ~~interim~~to ~~goodwill~~net ~~impairment~~income, ~~tests~~an ~~performed~~entity ~~for~~is ~~fiscal~~required ~~years~~to ~~beginning~~cross-reference ~~after~~to ~~December~~other ~~15,~~disclosures ~~2011~~required under U.S. ~~Management~~GAAP isthat ~~evaluating~~provide ~~the~~additional ~~impact~~detail ofabout ~~this~~those amounts. This update onis ~~the~~effective ~~Company’s~~prospectively ~~consolidated~~for ~~financial~~reporting ~~statements~~periods beginning after December 15, 2012.

Note 4: Federally Assisted Acquisition of The First National Bank of Florida

On September 9, 2011, the Bank purchased substantially all of the assets and assumed substantially all the liabilities of The First National Bank of Florida (FNB) from the FDIC, as Receiver of FNB. FNB operated eight commercial banking branches and was headquartered in Milton, Florida. The FDIC took FNB under receivership upon its closure by the Office of Controller of Currency. The Bank’s bid to purchase FNB included the purchase of substantially all FNB’s assets at a discount of $28,000,000 in exchange for assuming all FNB deposits and certain other liabilities. No cash, deposit premium or other consideration was paid by the Bank. The Bank and the FDIC entered into loss sharing agreements regarding future losses incurred on loans and other real estate acquired through foreclosure existing at the acquisition date. Under the terms of the loss sharing agreements, the FDIC will reimburse the Bank for 80 percent of net losses on covered assets. The term for loss sharing on residential real estate loans is ten years, while the term for loss sharing on non-residential real estate loans is five years in respect to losses and eight years in respect to loss recoveries. As a result of the loss sharing agreements with the FDIC, the Bank recorded a receivable of $51,555,999 at the time of acquisition.

The loss share agreements include a true-up payment in the event FNB’s losses do not reach the FDIC’s total intrinsic loss estimate, as defined in the loss sharing agreement, of $59,483,125. On September 9, 2021, the true-up measurement date, CharterBank is required to make a true-up payment to the FDIC equal to 50 percent of the excess, if any, of the following calculation: A-(B+C+D), where (A) equals 20 percent of the Total Intrinsic Loss Estimate, or $11,896,625; (B) equals 20 percent of the Net Loss Amount; (C) equals 25 percent of the asset (discount) bid, or ($7,000,000); and (D) equals 3.5 percent of total Shared Loss Assets at Bank Closing or $7,380,467. Current loss estimates indicate that no true-up payment will be payable to the FDIC.

~~Our~~Note ~~FDIC~~4: ~~assisted~~Securities ~~acquisitions~~Available offor ~~Neighborhood Community Bank (“NCB’) and McIntosh Commercial Bank (“MCB”) are not subject to true-up payments.~~Sale

The acquisition of FNB was accounted for under the acquisition method of accounting. The statement of net assets acquired and the resulting acquisition date purchase gain is presented in the following table. As explained in the explanatory notes that accompany the following table, the purchased assets, assumed liabilities and identifiable intangible assets were recorded at the acquisition date fair value. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values become available.

Noninterest income includes a pre-tax gain on acquisition of $1,095,003. The amount of the gain is equal to the excess of the fair value of the recorded assets over the fair value of liabilities assumed.

The 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) – Adjustment reflects the initial wire received from the FDIC adjusted for overpayment by the FDIC on the acquisition date.

(b) – Adjustment reflects fair value adjustments based on the Bank’s evaluation of the acquired investment securities portfolio.

(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.

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

(e) – Adjustment reflects the estimated fair value of payments the Bank will receive from the FDIC under loss sharing agreements. The receivable was recorded at present value of the estimated cash flows using an average discount rate of approximately two percent.

(f) – Adjustment reflects fair value adjustments to record the estimated core deposit intangible.

(g) – Adjustment reflects fair value adjustments to record certain other assets acquired in this transaction.

(h) – Amount represents the excess of assets acquired over liabilities assumed and since 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.

(i) – Adjustment reflects fair value adjustments to record certain other liabilities in this transaction.

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

Note 5: Securities Available for Sale

Securities available for sale are summarized as follows:

June 30, 2012

December 31, 2012

Amortized Cost

Gross unrealized gains

Gross unrealized losses

Estimated fair value

Other investment securities:

Other Investment Securities:

Tax-free municipals

812,~~794~~122,~~957~~631

23,~~563~~682

(31,~~231)~~458

)

812,~~815~~144,~~289~~855

U.S. government sponsored entities

1710,~~846~~123,~~965~~015

~~132~~81,~~779~~163

—-

1710,~~979~~204,~~744~~178

Mortgage-backed securities:

FNMA certificates

9188,~~261~~075,~~030~~657

1,~~251~~163,~~869~~277

—-

9289,~~512~~238,~~899~~934

GNMA certificates

4,~~870~~257,~~426~~863

~~381~~335,~~727~~957

—-

54,~~252~~593,~~153~~820

FHLMC certificates

4841,~~739~~715,~~905~~064

~~839~~736,~~630~~557

(437,~~639)~~410

)

4942,~~535~~444,~~896~~211

Collateralized mortgage obligations:

FNMA

95,~~078~~993,~~957~~604

~~371~~193,~~845~~206

—-

96,~~450~~186,~~802~~810

GNMA

~~690~~323,~~944~~861

62,~~785~~978

~~(590)~~-

~~697~~326,~~139~~839

FHLMC

~~555~~493,~~566~~861

4953,~~676~~573

—-

~~605~~547,~~242~~434

Private-label mortgage securities:

Private-label mortgage securities: [2]

Investment grade

2,~~607~~271,~~359~~612

2025,~~139~~238

(~~515~~222,~~402~~462

)

2,~~112~~074,~~096~~388

Split Rating [1]

7,210,164

—

(1,225,325

)

5,984,839

Split rating [1]

1,435,267

50,661

1,485,928

Non investment grade

812,~~939~~986,~~580~~851

~~171,587~~-

(2,~~917~~988,~~743~~066

)

69,~~193~~998,~~424~~785

Total

~~200~~179,~~595~~799,~~853~~286

32,~~249~~666,~~600~~292

(43,~~705~~219,~~930~~396

)

~~199~~179,~~139~~246,~~523~~182

	September 30, 2011
	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Other investment securities:
Tax-free municipals	$	10,618,273	$	21,404	$	(13,452)		$	10,626,225
U.S. government sponsored entities		17,414,309		95,567		—			17,509,876
Mortgage-backed securities:
FNMA certificates		62,750,950		856,995		—			63,607,945
GNMA certificates		5,841,685		246,044		—			6,087,729
FHLMC certificates		20,634,103		657,084		—			21,291,187
Collateralized mortgage obligations:
FNMA		16,682,474		451,103		—			17,133,577
GNMA		3,648,357		29,348		(1,130	)		3,676,575
FHLMC		870,973		72,653		—			943,626
Private-label mortgage securities:
Investment grade		3,212,607		35,163		(424,674	)		2,823,096
Split Rating [1]		9,041,253		6,335		(995,327	)		8,052,261
Non investment grade		11,008,649		—		(4,024,172	)		6,984,477
Total	$	161,723,633	$	2,471,696	$	(5,458,755	)	$	158,736,574

[1] Bonds with split ratings represent securities with separate investment and non investment grades.

[2] Credit ratings are current as of December 31, 2012.

	September 30, 2012
	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Other investment securities:
Tax-free municipals	$	11,555,068	$	25,004	$	(1,571	)	$	11,578,501
U.S. government sponsored entities		16,519,624		107,431		—			16,627,055
Mortgage-backed securities:
FNMA certificates		84,836,714		1,748,088		—			86,584,802
GNMA certificates		4,568,181		377,231		—			4,945,412
FHLMC certificates		45,178,602		1,065,844		—			46,244,446
Collateralized mortgage obligations:
FNMA		7,712,770		314,386		—			8,027,156
GNMA		499,503		3,960		(152	)		503,311
FHLMC		533,379		46,710		—			580,089
Private-label mortgage securities:
Investment grade		2,480,412		32,214		(155,882	)		2,356,744
Split Rating [1]		6,922,884		—		(676,581	)		6,246,303
Non investment grade		8,264,044		—		(2,578,530	)		5,685,514
Total	$	189,071,181	$	3,720,867	$	(3,412,716	)	$	189,379,333

[1] Bonds with split ratings represent securities with separate investment and non investment grades.

The amortized cost and estimated fair value of investment securities available for sale as of December 31, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of the municipal bonds in the table below are pre-funded and are expected to be prepaid before contractual maturity.

	Amortized cost		Estimated fair value
Less than 1 year	$	5,123,015	$	5,142,638
1-5 years		8,252,737		8,317,669
Greater than 5 years		8,869,894		8,888,727
Mortgage-backed securities		157,553,640		156,897,148

	$	179,799,286	$	179,246,182

Proceeds from called or matured securities available for sale during the three months ended December 31, 2012 and 2011 were $7,066,500 and $1,036,000, respectively. Proceeds from sales for the three months ended December 31, 2012 and 2011 were $13,952,478 and $27,413,474, respectively. Gross realized gains on the sale of these securities were $219,913 and $634,791 for the three months ended December 31, 2012 and 2011, respectively. Gross realized losses on the sale of these securities were $0 and $2,198 for the three months ended December 31, 2012 and 2011, respectively.

Securities available for sale with an aggregate carrying amount of $114,602,149 and $127,617,291 at December 31, 2012 and September 30, 2012, respectively, were pledged to secure FHLB advances.

Securities available for sale that had been in a continuous unrealized loss position for less than 12 months at December 31, 2012 are as follows:

	December 31, 2012
	Amortized cost		Gross unrealized losses			Estimated fair value
Mortgage-backed securities:
FHLMC certificates		8,290,299		(7,410	)		8,282,889

	$	8,290,299	$	(7,410	)	$	8,282,889

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

~~The~~Securities ~~amortized cost and estimated fair value of investment securities~~ available for sale asthat ofhad ~~June~~been ~~30,~~in ~~2012,~~a bycontinuous ~~contractual~~unrealized ~~maturity,~~loss ~~are~~position ~~shown~~for ~~below.~~greater ~~Expected~~than ~~maturities~~12 ~~may~~months ~~differ~~at ~~from~~December ~~contractual~~31, ~~maturities~~2012 ~~because~~and ~~borrowers~~September 30, ~~may~~2012 ~~have the right to call or prepay obligations with or without call or prepayment penalties. All of the municipal bonds in the table below~~ are ~~pre-funded~~as ~~and are expected to be prepaid before contractual maturity.~~ follows:

	Amortized cost		Estimated fair value
	December 31, 2012
Less than 1 year	$	2,916,391	$	2,937,652
			Gross
1-5 years		17,095,716		17,210,113
	Amortized		unrealized			Estimated
Greater than 5 years		6,629,815		6,647,268
	cost		losses			fair value
Mortgage-backed securities		173,953,931		172,344,490
Other investment securities:
	$	200,595,853	$	199,139,523
Tax-free municipals		260,264		(1,458	)		258,806
Collateralized mortgage obligations:
Private-label mortgage securities		14,256,142		(3,210,528	)		11,045,614
	$	14,516,406	$	(3,211,986	)	$	11,304,420

Proceeds from called or matured securities available for sale during the nine months ended June 30, 2012 and 2011 were $5,224,350 and $2,495,600, respectively. Proceeds from sales for the nine months ended June 30, 2012 and 2011 were $28,810,067 and $21,784,842, respectively. Gross realized gains on the sale of these securities were $643,699 and $596,377 for the nine months ended June 30, 2012 and 2011, respectively. Gross realized losses on the sale of these securities were $10,746 and $0 for the nine months ended June 30, 2012 and 2011, respectively.

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

	$	16,882,081	$	(3,412,716	)	$	13,469,365

~~Proceeds~~At ~~from~~December ~~called or matured securities available for sale during the three months ended June 30~~31, 2012 ~~and~~the ~~2011~~Company ~~were~~had ~~$3,008,350~~approximately ~~and~~ $~~1,715,300, respectively~~3.2 ~~Proceeds~~million ~~from~~of ~~sales~~gross ~~for~~unrealized ~~the~~losses ~~three~~on ~~months~~non-GSE ~~ended~~collateralized ~~June~~mortgage ~~30,~~obligations ~~2012~~with ~~and~~aggregate ~~2011~~amortized ~~were~~cost ~~$1,396,591~~of ~~and~~approximately $~~11,907,616~~14.3 ~~respectively~~million. ~~Gross~~ During ~~realized gains on~~ the ~~sales~~quarter ofended ~~these~~December ~~securities~~31, ~~were~~2012 ~~$8,908~~the ~~and~~Company ~~$425,532~~did ~~for~~not ~~the~~record ~~three~~any ~~months~~other ~~ended~~than ~~June~~temporary ~~30,~~impairment ~~2012~~charges. Other ~~and~~than ~~2011~~previously stated, ~~respectively. Gross~~the ~~realized~~Company ~~losses~~is onprojecting ~~the~~that ~~sale~~it ofwill ~~these~~receive ~~securities~~essentially ~~were~~all ~~$8,548~~contractual ~~and~~cash $0flows ~~for~~so ~~the~~there ~~three~~is ~~months~~no ~~ended~~break ~~June~~in ~~30,~~yield ~~2012~~or additional ~~and~~other ~~2011,~~than ~~respectively~~temporary impairment.

Securities available for sale with an aggregate carrying amount of $142,441,564 and $56,190,496 at June 30, 2012 and September 30, 2011, respectively, were pledged to secure FHLB advances.

Securities available for sale that had been in a continuous unrealized loss position for less than 12 months at June 30, 2012 and September 30, 2011 are as follows:

	June 30, 2012
	Amortized cost		Gross unrealized losses			Estimated fair value
Mortgage-backed securities:
FHLMC certificates	$	9,954,954	$	(43,638)		$	9,911,316
Collateralized mortgage obligations:
Private-label mortgage securities		1,692,462		(57,642)			1,634,820
	$	11,647,416	$	(101,280	)	$	11,546,136

	September 30, 2011
	Amortized cost		Gross unrealized losses			Estimated fair value
Other investment securities:
Tax-free municipals	$	1,339,585	$	(13,452	)	$	1,326,133
Collateralized mortgage obligations:
Private-label mortgage securities		1,782,525		(110,599	)		1,671,926
	$	3,122,110	$	(124,051	)	$	2,998,059

Securities available for sale that had been in a continuous unrealized loss position for greater than 12 months at June 30, 2012 and September 30, 2011 are as follows:

	June 30, 2012
	Amortized cost		Gross unrealized losses		Estimated fair value
Other investment securities:
Tax-free municipals	$	530,983	$	(3,231)	$	527,752
Collateralized mortgage obligations:
GNMA		186,293		(590)		185,703
Private-label mortgage securities		15,388,747		(4,600,829)		10,787,918
	$	16,106,023	$	(4,604,650)	$	11,501,373

	September 30, 2011
	Amortized cost		Gross unrealized losses			Estimated fair value
Collateralized mortgage obligations:
GNMA	$	346,140	$	(1,130	)	$	345,010
Private-label mortgage securities		18,833,695		(5,333,574	)		13,500,121
	$	19,179,835	$	(5,334,704	)	$	13,845,131

At June 30, 2012 the Company had approximately $4.7 million in unrealized losses on non-GSE collateralized mortgage obligations with aggregate amortized cost of approximately $17.1 million. During the quarters ended March 31, 2012 and December 31, 2011 the Company recorded $173,259 and $100,000, respectively, in other than temporary impairment on one security with this security being written off during the quarter ending March 31, 2012 bringing the cumulative other than temporary impairment on three securities to $5.1 million at June 30, 2012. The cumulative other than temporary impairment on the security written off in the quarter ended March 31, 2012 was $2.3 million. Other than previously stated, the Company is projecting that it will receive essentially all contractual cash flows so there is no break in yield or additional other than temporary impairment. The remaining decline in fair value of the mortgage securities resulted from illiquidity and other concerns in the market place.

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

The following table summarizes the changes in the amount of credit losses on the Company’s investment securities recognized in earnings for the three months ended December 31, 2012 and 2011:

	Three Months Ended December 31
	2012		2011

Beginning balance of credit losses previously recognized in earnings	$	380,446	$	4,822,916
Amount related to credit losses for securities for which an other-than-temporary impairment was not previously recognized in earnings		-		-
Amount related to credit losses for securities for which an other-than-temporary impairment was recognized in earnings		-		100,000
Ending balance of cumulative credit losses recognized in earnings	$	380,446	$	4,922,916

The following table shows issuer-specific information, including current par value, book value, fair value, credit rating and unrealized gain (loss) for the Company's portfolio of non-agency collateralized mortgage obligations as of December 31, 2012:

Cusip	Description	Credit Rating [1]			Cumulative Net Impairment Losses Recognized in Earnings		Current Par Value		Book Value		Market Value		Unrealized Gain (Loss)
		Moody	S&P	Fitch					(Dollars in thousands)
Investment Grade
36228FQF6	GSR 2003-4F 1A2	n/a	AA+	AA	$	-	$	296	$	296	$	301	$	5
55265KL80	MASTR 2003-8 4A1	n/a	A+	AAA		-		711		706		726		20
86359BVF5	SARM 2004-6 3A3	n/a	A+	n/a		-		1,269		1,269		1,047		(222	)
	Total				$	-	$	2,277	$	2,271	$	2,074	$	(197	)

Split Rating
17307GDL9	CMLTI 2004-HYB1 A31	B1	n/a	BBB	$	-	$	1,435	$	1,435	$	1,486	$	51
	Total				$	-	$	1,435	$	1,435	$	1,486	$	51

Non Investment Grade
576433QD1	MARM 2004-7 5A1	Ba3	BB	n/a		-		5,136		5,136		4,503		(633	)
576433UQ7	MARM 2004-13 B1	NR	CCC	n/a	$	380	$	5,561	$	5,181	$	3,052	$	(2,129	)
576433VN3	MARM 2004-15 4A1	B3	n/a	B		-		2,670		2,670		2,444		(226	)
	Total				$	380	$	13,367	$	12,987	$	9,999	$	(2,988	)

	Grand Total				$	380	$	17,079	$	16,693	$	13,559	$	(3,134	)

[1] Credit ratings are current as of December 31, 2012.

The Bank’s investment in the MARM 2004-13 B1 security represents the largest unrealized loss position in the investment portfolio at $2.1 million. Based on assessments of expected cash flows no additional other than temporary impairment exists on this security at December 31, 2012. This bond has previously taken a total of $380,000 in OTTI. The favorable cash flow profile is attributable to a number of pertinent factors, including the relatively low levels of delinquency and the stable levels of default, foreclosure, and severities upon foreclosure. The security has a housing price index adjusted weighted average loan-to-value ratio of 53% on the underlying mortgages, average credit scores of 737 and its 2004 origination indicates its seasoning. Furthermore, 90% of the underlying mortgages have been timely payers for the past 24 months. We believe the unrealized loss position is attributed to liquidity risk.

~~The~~Note ~~following~~5: ~~table~~Loans ~~summarizes the changes in the amount of credit losses on the Company’s investment securities recognized in earnings for the three and nine months ended June 30, 2012 and 2011:~~Receivable

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Beginning balance of credit losses previously recognized in earnings		$	5,096,175		$	2,749,674		$	4,822,916	$	2,526,674
Amount related to credit losses for securities for which an other-than-temporary impairment was not previously recognized in earnings			-			-			-		-
Amount related to credit losses for securities for which an other-than-temporary impairment was recognized in earnings			-			300,000			273,259		523,000
Ending balance of cumulative credit losses recognized in earnings		$	5,096,175		$	3,049,674		$	5,096,175	$	3,049,674

The following table shows issuer-specific information, book value, fair value, credit rating and unrealized gain (loss) for the Company's portfolio of non-agency collateralized mortgage obligations as of June 30, 2012.

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)
Investment Grade
36228FQF6	GSR 2003-4F 1A2		n/a		AAA		AAA	$	-	$	419	$	419	$	427	$	8
55265KL80	MASTR 2003-8 4A1		n/a		AAA		AAA		-		871		865		877		12
86359BVF5	SARM 2004-6 3A3		n/a		AAA		n/a		-		1,323		1,323		808		(515	)
	Total							$	-	$	2,613	$	2,607	$	2,112	$	(495	)
Split Rating
17307GDL9	CMLTI 2004-HYB1 A31		B1		n/a		AA	$	-	$	1,541	$	1,541	$	1,484	$	(57	)
36242DXZ1	GSR 2005-2F 1A2		n/a		B		AA		-		151		151		151		-
576433QD1	MARM 2004-7 5A1		Ba3		BBB-		n/a		-		5,518		5,518		4,350		(1,168	)
	Total							$	-	$	7,210	$	7,210	$	5,985	$	(1,225	)
Non Investment Grade
576433UQ7	MARM 2004-13 B1		NR		B-		n/a	$	380	$	6,141	$	5,761	$	3,355	$	(2,406	)
576433VN3	MARM 2004-15 4A1		B3		n/a		B		-		2,787		2,787		2,274		(512	)
863579UR7	SARM 2005-15 2A2		NR		CC		n/a		2,436		2,828		392		564		172
	Total							$	2,816	$	11,756	$	8,940	$	6,193	$	(2,746	)
	Grand Total							$	2,816	$	21,579	$	18,757	$	14,290	$	(4,466	)

During the quarter ended June 30, 2012, one of the Bank’s private-label mortgage securities experienced a slight rating downgrade while two experienced a slight rating upgrade. The MARM 2004-15 4A1 was downgraded by Moody’s from Ba3- to B3. The downgraded instrument has a book value of $2.8 million. This instrument continues to maintain a favorable credit support level and Bloomberg coverage ratio. The credit support and Bloomberg coverage ratio for the MARM 2004-15 4A1 was reported at 13.64 and 3.4, respectively, for the quarter ended June 30, 2012. The Bank is projecting no break in yield or other than temporary impairment on this instrument.

The CMLTI 2004-HYB1 A31 was upgraded by Moody’s from B3+ to B1 during the quarter. This split rated bond maintains a book value of $1.5 million. The credit support on the CMLTI 2004-HYB1 A31 is 17.68 which is an increase from the original structure of 4.3. The Bloomberg coverage ratio was reported at 3.3.

The MARM 2004-7 5A1 was upgraded slightly during the quarter from Ba3- to Ba3. This split rated bond maintains a book value of $5.5 million. It also maintains a 12.09 credit support, a Bloomberg coverage ratio of 2.7 and shows no losses under shows no losses under the Bloomberg credit model. This tranche has a total of 15 loans of which 13 or 85% are timely payers for the past 24 months. One loan is a modification and the other is in bankruptcy. The HALTV on the modified loan is 53% and the bankruptcy loan is reported at 45%. The housing price index adjusted weighted average loan-to-value ratio on the entire loan pool is 54% with the highest HALTV reported at 70%.

The investment in the MARM 2004-13 B1 security represents the largest unrealized loss position in the investment portfolio at $2.4 million. Based on assessments of expected cash flows, it has been concluded that no additional other than temporary impairment exists on this security at June 30, 2012. This bond has previously taken a total of $380 thousand in OTTI. The favorable cash flow profile is attributable to a number of pertinent factors, including the relatively low levels of delinquency and the stable levels of default, foreclosure, and severities upon foreclosure. The security has a housing price index adjusted weighted average loan-to-value ratio of 55% on the underlying mortgages, average credit scores of 737 and its 2004 origination indicates its seasoning. Furthermore, underlying mortgages have sustained a 24 month timely payer rate of at least 90%. The unrealized loss position is attributed to liquidity risk.

Note 6: Loans Receivable

Loans receivable are summarized as follows:

	June 30, 2012		September 30, 2011
	December 31, 2012		September 30, 2012
Loans not covered by loss sharing agreements:
1-4 family residential real estate	$	104,640,216	$	98,844,828
1-4 family residential real estate mortgage	$	103,707,236	$	105,514,544
Commercial real estate		~~255~~249,~~170~~612,~~238~~987		~~252~~251,~~037~~379,~~202~~010
Commercial		1517,~~908~~820,~~312~~303		1716,~~612~~596,~~661~~833
Real estate construction		4546,~~704~~772,~~031~~520		4145,~~726~~369,~~520~~190
Consumer and other		1817,~~520~~897,~~665~~522		2018,~~137~~107,~~875~~198
Loans receivable, net of undisbursed proceeds of loans in process		~~439~~435,~~943~~810,~~462~~568		~~430~~436,~~359~~966,~~086~~775
Less:
Unamortized loan origination fees, net		1,~~105~~058,~~594~~414		1,~~010~~101,~~480~~481
Allowance for loan losses		8,~~545~~382,~~540~~355		98,~~369~~189,~~837~~895
Total loans not covered, net	$	~~430~~426,~~292~~369,~~328~~799	$	~~419~~427,~~978~~675,~~769~~399

The carrying amount of covered loans at ~~June~~December 3031, 2012 and September 30, ~~2011~~2012, consisted of impaired loans at acquisition date and all other acquired loans and are presented in the following tables.

	December 31, 2012
	Impaired Loans at Acquisition		All Other Acquired Loans		Total Covered Loans
Loans covered by loss sharing agreements
1-4 family residential real estate	$	4,691,507	$	8,977,666	$	13,669,173
Commercial real estate		65,219,748		78,715,378		143,935,126
Commercial		10,969,916		10,264,766		21,234,682
Real estate construction		1,304,345		130,000		1,434,345
Consumer and other		628,066		4,824,710		5,452,776
Loans receivable, gross		82,813,582		102,912,520		185,726,102
Less:
Non-accretable difference		11,931,593		4,501,132		16,432,725
Allowance for covered loan losses		1,210,566		7,748,436		8,959,002
Accretable discount		8,225,435		2,542,181		10,767,616
Discount on acquired performing loans		-		269,409		269,409
Unamortized loan origination fees, net		-		28,802		28,802
Total loans covered, net	$	61,445,988	$	87,822,560	$	149,268,548

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

Total loans covered, net	$	65,590,059	$	100,638,257	$	166,228,316

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

	Impaired Loans At Acquisition			All Other Acquired Loans			Total Covered Loans
Balance, September 30, 2011	$	16,893,100		$	4,705,432		$	21,598,532
Loan accretion		(7,023,803	)		(1,650,382	)		(8,674,185	)
Balance, September 30, 2012		9,869,297			3,055,050			12,924,347
Loan accretion		(1,730,145	)		(512,869	)		(2,243,014	)
Transfer from non-accretable difference		86,283			—			86,283

Balance, December 31, 2012	$	8,225,435		$	2,542,181		$	10,767,616

The following is a summary of transactions during the three months ended December 31, 2012 and 2011 in the allowance for loan losses on loans covered by loss sharing:

	Three Months Ended December 31,
	2012			2011
Balance, beginning of period	$	10,340,815		$	6,892,425
Loans charged-off (gross)		(2,717,463	)		(4,020,868	)
Recoveries on loans previously charged-off		10,650			-
Provision for loan losses charged to FDIC receivable		1,230,250			2,400,000
Provision for loan losses charged to operations		94,750			600,000
Balance, end of period	$	8,959,002		$	5,871,557

	June 30, 2012
	Impaired Loans at Acquisition		All Other Acquired Loans		Total Covered Loans
Loans covered by loss sharing agreements
1-4 family residential real state	$	5,911,461	$	9,723,254	$	15,634,715
Commercial real estate		82,441,098		92,247,947		174,689,045
Commercial		13,395,588		16,717,095		30,112,683
Real estate construction		5,200,793		559,675		5,760,468
Consumer and other		749,581		6,036,765		6,786,346
Loans receivable, gross		107,698,521		125,284,736		232,983,257
Less:
Non-accretable difference		19,343,824		5,248,473		24,592,297
Allowance for covered loan losses		-		6,307,379		6,307,379
Accretable discount		11,703,542		3,447,530		15,151,072
Discount on acquired performing loans		-		355,707		355,707
Unamortized loan origination fees, net		-		32,189		32,189
Total loans covered, net	$	76,651,155	$	109,893,458	$	186,544,613

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

	September 30, 2011
	Three Months Ended December 31, 2012			Year Ended September 30, 2012
	Impaired Loans at Acquisition			All Other Acquired Loans			Total Covered Loans
Balance, beginning of period	$	35,135,533		$	96,777,791
Loans covered by loss sharing agreements:
Payments made to (received from) FDIC		7,836,747			(80,528,485	)
1-4 family residential real estate	$	8,662,904		$	11,261,058		$	19,923,962
Accretion of fair value adjustment		147,674			1,461,779
Commercial real estate		142,358,465			120,903,232			263,261,697
Recovery of previous loss reimbursements		(3,082,024	)		(3,252,736	)
Commercial		10,263,020			22,478,750			32,741,770
Provision for estimated losses on covered assets recognized in noninterest expense		1,425,814			15,976,659
Real estate construction		8,059,927			778,764			8,838,691
External expenses qualifying under loss sharing agreements		1,357,626			4,700,525
Consumer and other		866,166			7,715,276			8,581,442
Balance, end of period	$	42,821,370		$	35,135,533
Loans receivable, gross		170,210,482			163,137,080			333,347,562
Less:
Non-accretable difference		61,346,002			7,799,285			69,145,287
Allowance for covered loan losses		—			6,892,425			6,892,425
Accretable discount		16,893,100			4,705,432			21,598,532
Discount on acquired performing loans		—			622,258			622,258
Unamortized loan origination fees, net		—			39,475			39,475
Total loans covered, net	$	91,971,380		$	143,078,205		$	235,049,585

The following table documents changes in the accretable discount on acquired loans during the nine months ended June 30, 2012 and the year ended September 30, 2011:

	Impaired Loans at Acquisition			All Other Acquired Loans			Total Covered Loans
Balance, September 30, 2010	$	10,166,664		$	8,476,672		$	18,643,336
Accretable yield acquired		11,203,405			—			11,203,405
Loan accretion		(4,476,969	)		(3,771,240	)		(8,248,209	)
Balance, September 30, 2011		16,893,100			4,705,432			21,598,532
Loan accretion		(5,189,558	)		(1,257,902	)		(6,447,460	)
Balance, June 30, 2012	$	11,703,542		$	3,447,530		$	15,151,072

The following is a summary of transactions in the allowance for loan losses on loans covered by loss sharing:

	Three Months Ended June 30,								Nine Months Ended June 30,
	2012				2011				2012			2011
Balance, beginning of period		$	8,126,364			$	8,059,467		$	6,892,425		$	15,553,536
Loans charged off (net)			(2,193,985	)			(1,055,432	)		(7,330,892	)		(10,549,501	)
Provision for loan losses charged to FDIC receivable			300,000				-			5,780,846			1,600,000
Provision for loan losses charged to operations			75,000				-			965,000			400,000
Balance, end of period		$	6,307,379			$	7,004,035		$	6,307,379		$	7,004,035

The following table documents changes in the carrying value of the FDIC receivable for loss sharing agreements relating to covered loans and other real estate owned during the nine months ended June 30, 2012 and the year ended September 30, 2011:

	Nine Months Ended June 30, 2012			Year Ended September 30, 2011
Balance, beginning of period	$	96,777,791		$	89,824,798
Fair value of FDIC receivable for loss sharing agreements at acquisition		-			51,555,999
Receipt of payments from FDIC		(63,452,602	)		(53,615,832	)
Accretion of fair value adjustment		1,276,114			1,035,125
Recovery of previous loss reimbursements		(3,254,696	)		(3,617,003	)
Provisions for estimated losses on covered assets		14,970,846			4,800,000
External expenses qualifying under loss sharing agreements		4,321,222			6,794,704
Balance, end of period	$	50,638,675		$	96,777,791

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

Commercial real estate loans are generally made by the Company to Georgia, Alabama or Florida panhandle entities and are secured by properties in these states. Commercial real estate lending involves additional risks compared to one- to four-family residential lending. Repayment of commercial real estate loans often depends on the successful operations and income stream of the borrowers, and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. The Company’s underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios, secondary sources of repayment, guarantor requirements, net worth requirements and quality of cash flow. As part of the loan approval and underwriting of commercial real estate loans, management undertakes a cash flow analysis, and ~~generally~~ requires a debt-service coverage ratio of at least 1.15 times. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At ~~June~~December 3031, 2012, approximately 3831.0% of the outstanding principal balance of the Company’s commercial real estate loans ~~were~~was secured by owner-occupied properties.

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

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

The Company originates consumer loans that consist of loans on deposits, second mortgage loans, home equity lines of credit, auto loans and various other installment loans. The Company primarily offers consumer loans (excluding second mortgage loans and home equity lines of credit) as an accommodation to customers. Consumer loans tend to have a higher credit risk than residential mortgage loans because they may be secured by rapidly depreciable assets, or may be unsecured. The Company’s consumer lending generally follows accepted industry standards for non sub-prime lending, including credit scores and debt to income ratios. The Company also offers home equity lines of credit as a complement to one- to four-family residential mortgage lending. The underwriting standards applicable to home equity credit lines are similar to those for one- to four-family residential mortgage loans, except for slightly more stringent credit-to-income and credit score requirements. Home equity loans are generally limited to 80% of the value of the underlying property unless the loan is covered by private mortgage insurance or a loss sharing agreement. At June 30, 2012, the Company had $14.3 million of home equity lines of credit and second mortgage loans not covered by FDIC loss sharing agreements (“loss sharing”).17

The majority of the Company’s ~~commercial~~non-mortgage ~~business~~ loans ~~are~~consist ~~generally limited to terms~~ of ~~five~~consumer ~~years~~loans, orincluding ~~less.~~loans ~~Management~~on ~~typically~~deposits, ~~collateralizes~~second ~~these~~mortgage loans, ~~with~~home aequity ~~lien~~lines onof ~~commercial~~credit, ~~real~~auto ~~estate~~loans ~~or,~~and ~~rarely,~~various ~~with~~other ainstallment ~~lien~~loans. onThe ~~business~~Company ~~assets~~primarily ~~and~~offers ~~equipment.~~consumer ~~Management~~loans ~~also~~(excluding ~~generally~~second ~~requires~~mortgage ~~the~~loans ~~personal~~and ~~guarantee~~home ofequity ~~the~~lines ~~business~~of ~~owner.~~credit) ~~Interest~~as ~~rates~~an onaccommodation ~~commercial~~to ~~business~~customers. Consumer loans ~~are~~tend ~~generally~~to ~~higher~~have ~~than~~a ~~interest~~higher ~~rates~~credit onrisk than residential ormortgage ~~commercial~~loans ~~real~~because ~~estate~~they ~~loans~~may ~~due~~be tosecured ~~the~~by ~~risk~~rapidly ~~inherent~~depreciable inassets, ~~this~~or ~~type~~may ofbe ~~loan~~unsecured. ~~Commercial~~The ~~business~~Company’s ~~loans~~consumer ~~are~~lending generally ~~considered~~follows toaccepted ~~have~~industry ~~more~~standards ~~risk~~for ~~than~~non ~~residential~~sub-prime ~~mortgage~~lending, ~~loans~~including orcredit ~~commercial~~scores ~~real~~and ~~estate~~debt ~~loans~~to ~~because~~income ~~the~~ratios. ~~collateral~~The ~~may~~Company bealso inoffers ~~the~~home ~~form~~equity lines of ~~intangible~~credit ~~assets~~as ~~and/or~~a ~~readily~~complement ~~depreciable~~to ~~inventory~~one- to four-family residential mortgage lending. ~~Commercial~~The ~~business~~underwriting ~~loans~~standards ~~may~~applicable ~~also~~to ~~involve~~home ~~relatively~~equity ~~large~~credit ~~loan~~lines ~~balances~~are similar to ~~single~~those ~~borrowers~~for orone- ~~groups~~to offour-family ~~related~~residential ~~borrowers~~mortgage loans, ~~with~~except ~~the~~for ~~repayment~~slightly ofmore ~~such~~stringent ~~loans~~credit-to-income ~~typically~~and ~~dependent~~credit onscore ~~the~~requirements. ~~successful~~Home ~~operation~~equity ~~and~~loans ~~income~~are ~~stream~~generally limited to 80% of the ~~borrower.~~value ~~Such~~of ~~risks~~the ~~can~~underlying beproperty ~~significantly~~unless ~~affected~~the loan is covered by ~~economic~~private ~~conditions~~mortgage insurance or a loss sharing agreement. At InDecember ~~addition~~31, ~~commercial~~2012, ~~business~~the ~~lending~~Company ~~generally~~had ~~requires~~$14.6 ~~substantially~~million ~~greater~~of ~~supervision~~home ~~efforts~~equity bylines ~~Management~~of ~~compared~~credit toand ~~residential~~second mortgage orloans ~~commercial~~not ~~real~~covered ~~estate~~by ~~lending~~FDIC loss sharing agreements (“loss sharing”).

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

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

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

	June 30, 2012		September 30, 2011
	December 31, 2012		September 30, 2012
1-4 family residential real estate	$	2,~~603~~103,~~761~~104	$	52,~~793~~038,~~073~~340
Commercial real estate		2780,~~330,615~~987		5771,~~339,730~~711
Commercial		~~201~~184,~~358~~851		~~438~~191,~~161~~499
Real estate construction		—		~~26,291~~—
Consumer and other		4641,~~263~~856		9642,~~954~~363
Total	$	53,~~181~~110,~~997~~798	$	113,~~694~~043,~~209~~913

19An age analysis of past due loans not covered by loss sharing, segregated by class of loans at December 31, 2012 and September 30, 2012 were as follows:

AnDecember ~~age analysis of past due loans not covered by loss sharing~~31, ~~segregated by class of loans were as follows:~~2012

June 30, 2012

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days Accruing
1-4 family residential real estate	$	2,257,882	$	218,323	$	2,476,205	$	101,231,031	$	103,707,236	$	80,786
Commercial real estate		1,111,549		-		1,111,549		248,501,438		249,612,987		-
Commercial		175,418		-		175,418		17,644,885		17,820,303		-
Real estate construction		-		-		-		46,772,520		46,772,520		-
Consumer and other		172,986		13,564		186,550		17,710,972		17,897,522		-
	$	3,717,835	$	231,887	$	3,949,722	$	431,860,846	$	435,810,568	$	80,786

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Loans > 90 Days Accruing
1-4 family residential real estate	$	2,353,086	$	1,095,227	$	3,448,313	$	101,191,903	$	104,640,216	$	705,670
Commercial real estate		2,737,072		293,897		3,030,969		252,139,269		255,170,238		25,440
Commercial		136,143		21,446		157,589		15,750,723		15,908,312		-
Real estate construction		-		-		-		45,704,031		45,704,031		-
Consumer and other		87,006		58,854		145,860		18,374,805		18,520,665		57,050
	$	5,313,307	$	1,469,424	$	6,782,731	$	433,160,731	$	439,943,462	$	788,160

September 30, ~~2011~~2012

30-89 Days Past Due

Greater than 90 Days Past Due

Total Past Due

Current

Total Loans

Loans > 90 Days ~~and~~ Accruing

1-4 family residential real estate

1,~~261~~460,~~293~~017

2621,~~434,213~~257

32,~~695~~081,~~506~~274

95103,~~149~~433,~~322~~270

98105,~~844~~514,~~828~~544

-401,726

Commercial real estate

31,~~073~~459,~~129~~472

~~1,671,035~~-

41,~~744~~459,~~164~~472

~~247~~249,~~293~~919,~~038~~538

~~252~~251,~~037~~379,~~202~~010

Commercial

~~315~~145,~~882~~001

~~160,558~~-

~~476~~145,~~440~~001

1716,~~136~~451,~~221~~832

1716,~~612~~596,~~661~~833

Real estate construction

~~26,291~~-

4145,~~700~~369,~~229~~190

4145,~~726~~369,~~520~~190

Consumer and other

~~197,~~125,054

1917,~~940~~982,~~750~~144

2018,~~137~~107,~~875~~198

43,~~847~~189,~~429~~544

4621,~~292,097~~257

93,~~139~~810,~~526~~801

~~421~~433,~~219~~155,~~560~~974

~~430~~436,~~359~~966,~~086~~775

-401,726

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

~~June~~December 3031, 2012

30-89 Days Past Due

Greater than 90 Days Past Due

Total Past Due

Current

Total Loans [1]

Loans > 90 Days and Accruing [2]

1-4 family residential real estate

~~594~~685,~~854~~776

~~655~~861,~~586~~847

1,~~250~~547,~~440~~623

1210,~~394~~600,~~283~~542

1312,~~644~~148,~~723~~165

~~655~~861,~~586~~847

Commercial real estate

83,~~481~~534,~~897~~577

2517,~~458~~935,~~872~~968

3321,~~940~~470,~~769~~545

~~121~~106,~~237~~358,~~309~~618

~~155~~127,~~178~~829,~~078~~163

2517,~~458~~935,~~872~~968

Commercial

3391,~~657,982~~024

32,~~446~~291,~~193~~399

72,~~104~~682,~~175~~423

1512,~~759~~076,~~816~~792

2214,~~863~~759,~~991~~215

32,~~446~~291,~~193~~399

Real estate construction

~~3,719,928~~-

1,~~233~~430,~~955~~861

41,~~953~~430,~~883~~861

~~3,719,928~~-

Consumer and other

~~652~~43,~~548~~684

43160,~~573~~577

~~696~~204,~~121~~261

43,~~746~~962,~~785~~710

54,~~442~~166,~~906~~971

43160,~~573~~577

134,~~387~~655,~~281~~061

3321,~~324~~249,~~152~~791

4625,~~711~~904,~~433~~852

~~155~~134,~~372~~429,~~148~~523

~~202~~160,~~083~~334,~~581~~375

3321,~~324~~249,~~152~~791

[1] Covered loan balances are net of non-accretable differences and allowance for covered loan losses and have not been reduced by $1511,~~506~~037,~~779~~025 of accretable discounts and discounts on acquired performing loans.

[2]

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

20September 30, 2012

September 30, 2011

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans [1]		Loans > 90 Days Accruing [2]
1-4 family residential real estate	$	734,789	$	834,569	$	1,569,358	$	11,460,232	$	13,029,590	$	834,570
Commercial real estate		6,546,132		20,588,187		27,134,319		115,540,726		142,675,045		20,588,187
Commercial		917,019		2,984,197		3,901,216		13,723,435		17,624,651		2,984,197
Real estate construction		-		-		-		1,343,072		1,343,072		-
Consumer and other		55,441		391,755		447,196		4,373,983		4,821,179		391,754
	$	8,253,381	$	24,798,708	$	33,052,089	$	146,441,448	$	179,493,537	$	24,798,708

	30-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans [1]		Loans > 90 Days and Accruing [2]
1-4 family residential real estate	$	1,263,640	$	1,852,536	$	3,116,176	$	13,377,864	$	16,494,040	$	1,852,536
Commercial real estate		6,890,156		19,890,694		26,780,850		175,314,919		202,095,769		19,890,694
Commercial		1,840,322		4,854,955		6,695,277		18,340,062		25,035,339		4,854,955
Real estate construction		-		3,617,000		3,617,000		2,251,184		5,868,184		3,617,000
Consumer and other		233,527		142,184		375,711		7,440,807		7,816,518		142,184
	$	10,227,645	$	30,357,369	$	40,585,014	$	216,724,836	$	257,309,850	$	30,357,369

[1]

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

[1] Covered loan balances are net of non-accretable differences and allowance for covered loan losses and have not been reduced by $22,220,790 of accretable discounts.

[2]

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

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

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

~~June~~December 3031, 2012

							Three Months Ended June 30, 2012				Nine Months Ended June 30, 2012
							Three Months Ended December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized		~~Average Investment in Impaired Loans~~		~~Interest Income Recognized~~
With no related allowance recorded:
1-4 family residential real estate	$	2,~~603~~244,~~761~~408	$	2,~~603~~599,~~761~~030	$	-	$	2,~~630~~603,~~055~~030	$	-3,219	$	~~2,668,791~~	$	-
Commercial real estate		18,~~702~~159,~~216~~971		29,~~527~~257,~~303~~345		-		19,~~791~~442,~~985~~893		3102,~~914~~471		~~1,974,278~~		~~32,099~~
Commercial		~~201~~184,~~358~~851		~~201~~200,~~358~~831		-		203,~~214~~097		-		~~204,744~~		~~2,979~~
Real estate construction		-5,825		-34,744		-		-34,779		-101		-		-
Subtotal:		410,~~507~~595,~~335~~056		512,~~332~~091,~~422~~950		-		412,~~625~~283,~~254~~799		3105,~~914~~791		~~4,847,813~~		~~35,078~~
With an allowance recorded:
1-4 family residential real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate		~~628~~3,~~398~~850,467		~~905~~3,~~402~~850,466		~~228~~23,~~398~~092		~~630~~4,~~898~~176,352		-10,623		~~684,026~~		~~6,557~~
Commercial		-2,522,943		-2,522,943		-14,923		-2,608,525		-5,172		-		-
Real estate construction		-		-		-		-		-		-		-
Subtotal:		~~628~~6,~~398~~373,409		~~905~~6,~~402~~373,409		~~228~~38,~~398~~015		~~630~~6,~~898~~784,877		-15,795		~~684,026~~		~~6,557~~
Totals:
1-4 family residential real estate	$	2,~~603~~244,~~761~~408	$	2,~~603~~599,~~761~~030	$	-	$	2,~~630~~603,~~055~~030	$	-3,219	$	~~2,668,791~~	$	-
Commercial real estate		212,~~330~~010,~~614~~438		313,~~432~~107,~~705~~811		~~228~~23,~~398~~092		213,~~422~~619,~~883~~245		3113,~~914~~094		~~2,658,304~~		~~38,656~~
Commercial		~~201~~2,~~358~~707,794		~~201~~2,~~358~~723,774		-14,923		~~203~~2,~~214~~811,622		-5,172		~~204,744~~		~~2,979~~
Real estate construction		-5,825		-34,744		-		-34,779		-101		-		-
Grand Total:	$	516,~~135~~968,~~733~~465	$	618,~~237~~465,~~824~~359	$	~~228~~38,~~398~~015	$	519,~~256~~068,~~152~~676	$	3121,~~914~~586	$	~~5,531,839~~	$	~~41,635~~

21The recorded investment in accruing troubled debt restructured loans at December 31, 2012 totaled $13,818,737 and is included in the impaired loan table above.

September 30, ~~2011~~2012

							Year Ended September 30, 2011
							Year Ended September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized
With no related allowance recorded:
1-4 family residential real estate	$	52,~~793~~500,~~073~~824	$	52,~~793~~982,~~073~~895	$	-	$	42,~~402~~867,~~390~~188	$	~~107~~31,~~550~~122
Commercial real estate		312,~~419~~469,~~250~~240		314,~~419~~063,~~250~~513		-		313,~~895~~689,~~070~~972		37568,~~634~~615
Commercial		~~438~~2,~~161~~847,862		~~438~~2,~~161~~860,935		-		~~363~~2,~~487~~908,659		495,~~202~~676
Real estate construction		265,~~291~~925		2634,~~291~~844		-		~~139~~32,~~891~~735		-296
Subtotal:		9,676,775		9,676,775		-		8,800,838		149,386
Grand Total:	$	17,823,851	$	19,942,187	$	-	$	19,498,554	$	695,709
With an allowance recorded:
1-4 family residential real estate	$	-	$	-	$	-	$	1,211,961	$	-
Commercial real estate		2,881,355		2,881,355		1,162,795		2,713,337		63,857
Commercial		64,568		64,568		66,818		73,194		-
Real estate construction		-		-		-		6,063		-
Subtotal:		2,945,923		2,945,923		1,229,613		4,004,555		63,857
Totals:
1-4 family residential real estate	$	5,793,073	$	5,793,073	$	-	$	5,614,351	$	107,550
Commercial real estate		6,300,605		6,300,605		1,162,795		6,608,407		101,491
Commercial		502,729		502,729		66,818		436,681		4,202
Real estate construction		26,291		26,291		-		145,954		-
Grand Total:	$	12,622,698	$	12,622,698	$	1,229,613	$	12,805,393	$	213,243

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

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

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the 8 risk grade factors is included in the Company’s September 30, 2011 Form 10-K.20

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

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

~~June~~December 3031, 2012

1-4 family residential real estate

Commercial real estate

Commercial

Real estate construction

Consumer and other

Total

Pass (1-4)

9695,~~026~~446,~~254~~522

~~216~~218,~~331~~417,~~102~~749

1214,~~481~~606,~~993~~118

4246,~~544~~137,~~289~~628

17,~~675~~110,~~581~~480

~~385~~391,~~059~~718,~~219~~497

Special Mention (5)

3,~~893~~257,~~052~~546

196,~~227~~182,~~618~~683

~~193~~87,~~252~~734

134,~~158,843~~424

~~652~~554,~~656~~267

2510,~~125~~116,~~421~~654

Substandard (6)

45,~~720~~003,~~910~~168

1925,~~611~~012,~~518~~555

3,~~233~~126,~~067~~451

2600,~~000,899~~468

~~189~~232,~~696~~775

2933,~~756~~975,~~090~~417

Doubtful (7)

~~2,732~~-

Loss (8)

Total not covered loans

~~104~~103,~~640~~707,~~216~~236

~~255~~249,~~170~~612,~~238~~987

1517,~~908~~820,~~312~~303

4546,~~704~~772,~~031~~520

1817,~~520~~897,~~665~~522

~~439~~435,~~943~~810,~~462~~568

September 30, ~~2011~~2012

1-4 family residential real estate

Commercial real estate

Commercial

Real estate construction

Consumer and other

Total

Pass (1-4)

8997,~~121~~045,~~799~~428

~~210~~217,~~707~~582,~~732~~908

13,~~629~~252,~~735~~993

3344,~~824~~075,~~113~~754

1917,~~539~~357,~~636~~541

~~366~~389,~~823~~314,~~015~~624

Special Mention (5)

3,~~486~~525,~~324~~488

2511,~~456~~396,~~968~~970

~~448~~93,~~711~~033

6286,~~230,194~~505

~~381~~559,~~414~~982

3615,~~003~~861,~~611~~978

Substandard (6)

64,~~236~~943,~~705~~628

1522,~~756~~399,~~651~~132

3,~~373~~250,~~657~~807

1,~~672~~006,~~213~~931

~~212~~189,~~093~~675

2731,~~251~~790,~~319~~173

Doubtful (7)

~~115,851~~-

~~160,558~~-

~~4,732~~-

~~281,141~~-

Loss (8)

Total not covered loans

98105,~~844~~514,~~828~~544

~~252~~251,~~037~~379,~~202~~010

1716,~~612~~596,~~661~~833

4145,~~726~~369,~~520~~190

2018,~~137~~107,~~875~~198

~~430~~436,~~359~~966,~~086~~775

The following table presents the risk grades, ignoring grade enhancement provided by the FDIC loss sharing, of the loan portfolio covered by loss sharing agreements, segregated by class of loans. With respect to regulatory classification assets covered by loss sharing agreements, numerical risk ratings 5-8, for regulatory reporting purposes are done under FDIC guidance reporting 20% or 5%, as appropriate of the book balance of the loan as classified. The remaining 80% to 95 % is classified as pass, numerical risk ratings 1-4.21

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

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and other		Total
Numerical risk rating (1-4)	$	7,587,951	$	62,693,456	$	8,317,470	$	909,281	$	4,330,828	$	83,838,986
Numerical risk rating (5)		2,518,140		28,397,223		6,292,346		324,675		756,690		38,289,074
Numerical risk rating (6)		3,122,549		59,404,272		6,208,515		3,719,928		350,426		72,805,690
Numerical risk rating (7)		416,083		4,683,127		2,045,659		-		4,962		7,149,831
Numerical risk rating (8)		-		-		-		-		-		-
Total covered loans [1]	$	13,644,723	$	155,178,078	$	22,863,990	$	4,953,884	$	5,442,906	$	202,083,581

December 31, 2012

[1] Covered loan balances are net of non-accretable differences and allowances for covered loan losses.

	1-4 family residential real estate		Commercial real estate		Commercial		Real estate construction		Consumer and Other		Total
Numerical risk rating (1-4)	$	6,638,498	$	53,369,622	$	5,526,168	$	126,516	$	3,611,096	$	69,271,900
Numerical risk rating (5)		1,987,139		22,401,745		3,716,210		1,304,345		219,579		29,629,018
Numerical risk rating (6)		3,322,792		49,007,557		4,861,955		-		333,639		57,525,943
Numerical risk rating (7)		199,736		3,050,239		654,882		-		2,657		3,907,514
Numerical risk rating (8)		-		-		-		-		-		-
Total covered loans [1]	$	12,148,165	$	127,829,163	$	14,759,215	$	1,430,861	$	4,166,971	$	160,334,375

[1]	Covered loan balances are net of non-accretable differences and allowances for covered loan losses and have not been reduced by $11,037,025 of accretable discounts and discounts on acquired performing loans.

September 30, 2012

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

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

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

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

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

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

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

Through the FDIC-assisted acquisitions of the loans of Neighborhood Community Bank (“NCB”), McIntosh Commercial Bank (“MCB”) and First National Bank of Florida (“FNB”), management established non-accretable discounts for the acquired impaired loans and also for all other loans of MCB. These non-accretable discounts were based on estimates of future cash flows. Subsequent to the acquisition dates, management continues to assess the experience of actual cash flows compared to estimates. When management determines that non-accretable discounts are insufficient to cover expected losses in the applicable covered loan portfolios, the allowance for covered loans is increased with a corresponding provision for covered loan losses as a charge to earnings and an increase in the applicable FDIC receivable based on loss sharing indemnification. During the quarters ended December 31, 2012 and 2011, the Company increased its allowance for loan losses on loans covered by loss sharing relating to NCB acquired loans by $1.0 million and $3.0 million, respectively, and recorded $52,000 and $600,000, respectively, as a charge to earnings with $993,000 and $2.4 million, respectively, recorded as an increase to the FDIC receivable. Additionally, during the quarter ended December 31, 2012, the Company increased its allowance for loan losses on loans covered by loss sharing relating to FNB acquired loans by $30,000 and recorded $30,000 as a charge to earnings with no effect to the FDIC receivable. There were no such provisions in the quarter ended December 31, 2011. During the quarter ended December 31, 2012, the Company increased its allowance for loan losses on loans covered by loss sharing relating to MCB acquired loans by $250,000 and recorded $13,000 as a charge to earnings with $237,000 recorded as an increase to the FDIC receivable. There were no such provisions in the quarter ended December 31, 2011.The non-accretable discount that was established for a certain loan pool was determined at December 31, 2012 to not be required based on improvements in cash flows; therefore $86,000 was recorded to accretion income with $431,000 being deducted from the FDIC receivable.

The Company maintained its allowance for loan losses for the quarter ended December 31, 2012 in response to continued weak economic conditions, net charge-offs, financial indicators for borrowers in the real estate sectors, continuing low collateral values of commercial and residential real estate, and nonaccrual and impaired loans. The following table details the allowance for loan losses on loans not covered by loss sharing by portfolio segment as of the quarters ended December 31, 2012 and 2011. Allocation of a portion of the allowance to one category of loans does not preclude availability to absorb losses in other categories.

~~September~~The ~~30,~~following ~~2011~~tables are a summary of transactions in the allowance for loan losses on loans not covered by loss sharing by portfolio segment:

	1-4 family residential real estate			Commercial real estate			Commercial			Real estate construction		Consumer and other			Total
	Three months ended December 31, 2012
Numerical risk rating (1-4)	$	10,693,680		$	103,968,632		$	12,378,784		$	2,251,184	$	6,563,123		$	135,855,403
	1-4 Family real estate			Commercial real estate			Commercial			Real Estate construction		Consumer and other			Unallocated			Total
Numerical risk rating (5)		1,266,882			25,350,072			1,773,795			-		292,054			28,682,803
Allowance for loan losses:
Numerical risk rating (6)		4,018,325			63,319,301			5,879,654			3,617,000		913,673			77,747,953
Balance at beginning of period	$	879,854		$	5,480,132		$	711,594		$	287,129	$	79,627		$	751,559		$	8,189,895
Numerical risk rating (7)		515,153			9,457,764			5,003,106			-		47,668			15,023,691
Charge-offs		(46,270	)		(124,365	)		-			-		(7,479	)		-			(178,114	)
Numerical risk rating (8)		-			-			-			-		-			-
Recoveries		7,606			57,856			4,334			-		778			-			70,574
Total covered loans [1]	$	16,494,040		$	202,095,769		$	25,035,339		$	5,868,184	$	7,816,518		$	257,309,850
Provision		137,418			276,825			(355,493	)		192,101		73,478			(24,329	)		300,000
Balance at end of period	$	978,608		$	5,690,448		$	360,435		$	479,230	$	146,404		$	727,230		$	8,382,355
Ending balance: individually evaluated for impairment	$	-		$	23,092		$	14,923		$	-	$	-					$	38,015
Loans:
Ending balance	$	103,707,236		$	249,612,987		$	17,820,303		$	46,772,520	$	17,897,522					$	435,810,568
Ending balance: individually evaluated for impairment	$	2,244,408		$	12,010,438		$	2,707,794		$	5,825	$	-					$	16,968,465

[1] Covered loan balances are net of non-accretable differences and allowances for covered loan losses.

	Three months ended December 31, 2011
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Unallocated			Total
Allowance for loan losses:
Balance at beginning of period	$	633,364		$	5,972,310		$	821,830		$	1,065,512		$	48,276		$	828,545		$	9,369,837
Charge-offs		(161,558	)		(1,786,594	)		(81,574	)		-			(61,591	)		-			(2,091,317	)
Recoveries		3,914			359			34,681			-			2,402			-			41,356
Provision		104,035			2,173,200			(201,891	)		(476,103	)		74,312			(173,553	)		1,500,000
Balance at end of period	$	579,755		$	6,359,275		$	573,046		$	589,409		$	63,399		$	654,992		$	8,819,876
Ending balance: individually evaluated for impairment	$	-		$	617,544		$	66,818		$	-		$	-					$	684,362

Loans:
Ending balance	$	101,560,814		$	254,960,299		$	23,996,617		$	41,423,371		$	19,992,582					$	441,933,683
Ending balance: individually evaluated for impairment	$	5,340,489		$	7,149,582		$	3,092,629		$	-		$	-					$	15,582,700

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

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

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

The allowances for loans rated satisfactory are further subdivided into various types of loans as defined by loan type. Management has developed specific quantitative allowance factors to apply to each individual component of the allowance and 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 the Company’s local markets. These quantitative allowance 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 allowance for loan losses. In addition, some qualitative allowance factors are used that are subjective in nature and require considerable judgment on the part of management. However, it is management’s opinion that these items do represent uncertainties in the Company’s business environment that must be factored into its analysis of the allowance for loan losses.

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. An unallocated allowance is generally maintained in a range of 4% to 12.5% of the total allowance in recognition of the imprecision of the estimates. In times of greater economic downturn and uncertainty, the higher end of this range is provided. Through the FDIC-assisted acquisition of the assets of NCB, management established an allowance for loan losses for non-impaired loans covered by loss-sharing agreements and such allowance for loan losses was $6.3 million and $6.9 million at June 30, 2012 and September 30, 2011, respectively. The NCB acquisition was completed under previously applicable accounting pronouncements related to business combinations.

~~Through~~The ~~the~~following ~~FDIC-assisted~~tables ~~acquisitions~~detail of the ~~loans of NCB, MCB and FNB management established~~ non-accretable ~~discounts~~discount ~~for the acquired impaired loans~~ and ~~also~~allowance for ~~all~~loan ~~other~~losses ~~loans of MCB. These non-accretable discounts were based~~ on ~~estimates~~loans of future cash flows. Subsequent to the acquisition dates, management continues to assess the experience of actual cash flows compared to estimates. When management determines that non-accretable discounts are insufficient to cover expected losses in the applicable covered ~~loan~~by ~~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.~~by portfolio segment:

The Company maintained its allowance for loan losses for the three and nine months ended June 30, 2012 and 2011 in response to continued weak economic conditions, net charge-offs, financial indicators for borrowers in the real estate sectors, continuing low collateral values of commercial and residential real estate, and nonaccrual and impaired loans. The following tables detail the allowance for loan losses on loans not covered by loss sharing by portfolio segment. Allocation of a portion of the allowance to one category of loans does not preclude availability to absorb losses in other categories.

	Three Months Ended December 31, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total
Non-accretable differences [1]:
Balance at beginning of period	$	2,010,709		$	17,485,206		$	8,342,754		$	538,355		$	1,345,963		$	29,722,987
Charge-offs		(541,943	)		(1,913,367	)		(2,775,183	)		(536,407	)		(105,498	)		(5,872,398	)
Recoveries		2,652			207,303			4,629			1,000			554			216,138
Provision for loan losses charged to FDIC receivable		33,250			299,250			855,000			-			42,750			1,230,250
Provision for loan losses charged to operations		16,342			27,689			48,148			536			2,035			94,750
Balance at end of period	$	1,521,010		$	16,106,081		$	6,475,348		$	3,484		$	1,285,804		$	25,391,727


Covered loans:
Ending contractual balance	$	13,669,173		$	143,935,126		$	21,234,682		$	1,434,345		$	5,452,776		$	185,726,102

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

	Three Months Ended June 30, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction		Consumer and Other			Unallocated		Total
Allowance for loan losses:
Balance at beginning of period	$	581,199		$	5,925,050		$	444,763		$	502,534	$	87,303		$	984,474	$	8,525,323
Charge-offs		(73,435	)		(121,999	)		(79,222	)		-		(6,382	)		-		(281,038	)
Recoveries					-			345			-		910			-		1,255
Provision		243,566			(729,299	)		636,146			69,126		10,942			69,519		300,000
Ending balance	$	751,330		$	5,073,752		$	1,002,032		$	571,660	$	92,773		$	1,053,993	$	8,545,540

	Nine Months Ended June 30, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Unallocated		Total
Allowance for loan losses:
Balance at beginning of year	$	633,364		$	5,972,310		$	821,830		$	1,065,512		$	48,276		$	828,545	$	9,369,837
Charge-offs		(632,219	)		(1,859,352	)		(408,314	)		-			(68,102	)		-		(2,967,987	)
Recoveries		3,881			359			35,327			-			4,123			-		43,690
Provision		746,304			960,435			553,189			(493,852	)		108,476			225,448		2,100,000
Ending balance	$	751,330		$	5,073,752		$	1,002,032		$	571,660		$	92,773		$	1,053,993	$	8,545,540
Ending balance: individually evaluated for impairment	$	-		$	228,398		$	-		$	-		$	-				$	228,398
Loans:
Ending balance	$	104,640,216		$	255,170,238		$	15,908,312		$	45,704,031		$	18,520,665				$	439,943,462
Ending balance: individually evaluated for impairment	$	2,603,761		$	2,330,614		$	201,358		$	-		$	-				$	5,135,733

	Three Months Ended June 30, 2011
	1-4 Family Real Estate			Commercial Real Estate		Commercial			Real Estate Construction			Consumer and Other			Unallocated		Total
Allowance for loan losses:
Balance at beginning of period	$	770,917		$	5,584,372	$	578,298		$	1,752,284		$	91,773		$	916,531	$	9,694,175
Charge-offs		(295,158	)		-		(323,471	)		-			(27,843	)		-		(646,472	)
Recoveries		2,061			-		64			-			10,293			-		12,418
Provision		127,082			86,945		478,317			(437,964	)		20,665			24,955		300,000
Ending balance	$	604,902		$	5,671,317	$	733,208		$	1,314,320		$	94,888		$	941,486	$	9,360,121

	Nine Months Ended June 30, 2011
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Unallocated		Total
Allowance for loan losses:
Balance at beginning of year	$	1,023,078		$	6,103,391		$	623,479		$	1,236,169		$	79,149		$	731,829	$	9,797,095
Charge-offs		(460,510	)		(957,064	)		(382,405	)		(21,822	)		(135,186	)		-		(1,956,987	)
Recoveries		63,310			-			36,551			159			19,993			-		120,013
Provision		(20,976	)		524,990			455,583			99,814			130,932			209,657		1,400,000
Ending balance	$	604,902		$	5,671,317		$	733,208		$	1,314,320		$	94,888		$	941,486	$	9,360,121
Ending balance: individually evaluated for impairment	$	65,000		$	952,795		$	76,568		$	-		$	-				$	1,094,363
Loans:
Ending balance	$	101,295,019		$	259,793,426		$	20,994,876		$	42,553,872		$	20,006,034				$	444,643,227
Ending balance: individually evaluated for impairment	$	5,703,098		$	7,254,747		$	456,506		$	-		$	-				$	13,414,351

The following tables detail the nonaccretable discount and allowance for loan losses on loans covered by loss sharing by portfolio segment.

	Three Months Ended June 30, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction		Consumer and Other			Total
Non-accretable differences [1]:
Balance at beginning of period	$	2,535,896		$	34,410,874		$	6,283,472		$	807,107	$	1,494,671		$	45,532,020
Charge-offs		(600,076	)		(11,316,124	)		(3,110,438	)		-		(156,689	)		(15,183,327	)
Recoveries		2,601			141,380			31,138			-		864			175,983
Provision for loan losses charged to FDIC receivable		25,271			243,869			25,371			835		4,654			300,000
Provision for loan losses charged to operations		6,318			60,967			6,343			209		1,163			75,000
Ending balance	$	1,970,010		$	23,540,966		$	3,235,886		$	808,151	$	1,344,663		$	30,899,676

	Nine Months Ended June 30, 2012
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total
Non-accretable differences [1]:
Balance at beginning of year	$	3,429,923		$	61,165,928		$	7,706,431		$	2,970,506		$	764,924		$	76,037,712
Charge-offs		(1,531,718	)		(42,804,638	)		(5,940,441	)		(2,168,263	)		(396,041	)		(52,841,101	)
Recoveries		4,903			732,598			209,572			-			10,146			957,219
Provision for loan losses charged to FDIC receivable		67,859			3,648,075			1,115,088			5,048			944,776			5,780,846
Provision for loan losses charged to operations		(957	)		799,003			145,236			860			20,858			965,000
Ending balance	$	1,970,010		$	23,540,966		$	3,235,886		$	808,151		$	1,344,663		$	30,899,676
Covered loans:
Ending contractual balance	$	15,634,715		$	174,689,045		$	30,112,683		$	5,760,468		$	6,786,346		$	232,983,257

[1]	Amounts include the allowance for covered loan losses.

	Three Months Ended June 30, 2011
	Three months ended December 31, 2011
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total
Non-accretable differences [1]:
Balance at beginning of period	$	23,~~001~~430,~~875~~280		$	2864,~~065~~169,~~003~~400		$	137,~~445~~706,~~799~~431		$	12,~~706~~970,~~918~~506		$	1764,~~488,296~~924		$	4679,~~707~~041,~~891~~541
Charge-offs		(~~249~~296,~~959~~058	)		(37,~~482~~552,~~876~~366	)		(4715,~~309,783~~250	)		(1,~~017~~458,~~190~~408	)		(~~155~~24,~~789~~371	)		(910,~~215~~046,~~597~~453	)
Recoveries		31,~~600~~402			~~853~~537,~~400~~005			~~949~~104,~~126~~351			~~676~~-			19,~~553~~056			1651,~~808,355~~814
Provision for loan losses charged to FDIC receivable		-(81,552	)		-2,259,657			-378,909			-			-(157,014	)		-2,400,000
Provision for loan losses charged to operations		-(20,388	)		-564,915			-94,727			-			-(39,254	)		-600,000
Ending balance	$	1,755,516		$	25,435,527		$	10,085,142		$	690,404		$	1,334,060		$	39,300,649
Balance at end of period	$	3,033,684		$	59,978,611		$	7,569,168		$	1,512,098		$	553,341		$	72,646,902
Covered loans:
Ending contractual balance	$	18,980,760		$	245,975,123		$	27,748,162		$	7,322,825		$	8,061,733		$	308,088,603

	Nine Months Ended June 30, 2011
	1-4 Family Real Estate			Commercial Real Estate			Commercial			Real Estate Construction			Consumer and Other			Total
Non-accretable differences [1]:
Balance at beginning of year	$	1,856,851		$	39,160,920		$	23,266,859		$	2,497,018		$	1,632,467		$	68,414,115
Charge-offs		(438,645	)		(15,692,783	)		(15,956,461	)		(2,132,386	)		(1,063,939	)		(35,284,214	)
Recoveries		65,049			1,215,753			2,774,744			74,875			40,327			4,170,748
Provision for loan losses charged to FDIC receivable		217,809			601,309			-			200,718			580,164			1,600,000
Provision for loan losses charged to operations		54,452			150,328			-			50,179			145,041			400,000
Ending balance	$	1,755,516		$	25,435,527		$	10,085,142		$	690,404		$	1,334,060		$	39,300,649
Covered loans:
Ending contractual balance	$	10,970,728		$	117,284,273		$	33,496,105		$	2,044,871		$	8,366,019		$	172,161,996

[1]	Amounts include the allowance for covered loan losses.

2725

For the ~~nine~~three month ~~period~~periods ended ~~June~~December 3031, 2012, and 2011 the following table presents a breakdown of ~~loans with~~ the types of concessions determined to be troubled debt restructurings (“TDRs”) during the period by loan class.:

	Accruing Loans						Nonaccrual Loans
	Nine Months Ended June 30, 2012						Nine Months Ended June 30, 2012
	Three Months Ended December 31, 2012						Three Months Ended December 31, 2012
	Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Below market interest rate
Commercial Real Estate		9	$	5,035,496	$	4,963,144		-	$	-	$	-
Commercial		1		2,710,914		2,710,914		-		-		-
Total		10	$	7,746,410	$	7,674,058		-	$	-	$	-
Payment structure modification
Commercial Real Estate		-	$	-	$	-		1	$	~~135~~80,~~063~~462	$	~~134~~41,~~244~~080
Total		-	$	-	$	-		1	$	~~135~~80,~~063~~462	$	~~134~~41,~~244~~080
Grand Total		10-	$	~~7,746,410~~-	$	~~7,674,058~~-		1	$	~~135~~80,~~063~~462	$	~~134~~41,~~244~~080

Loans are classified as restructured by the Company when certain modifications are made to the loan terms and concessions are granted to the borrowers due to financial difficulty experienced by those borrowers. The Company only restructures loans for borrowers in financial difficulty that have designed a viable business plan to fully pay off all obligations, including outstanding debt, interest, and fees, either by generating additional income from the business or through liquidation of assets. Generally, these loans are restructured to provide the borrower additional time to execute upon their plans. The concessions granted on TDRs generally include terms to reduce the interest rate or extend the term of the debt obligation. As of June 30, 2012, no concessions had been made to extend payment terms or modify the payment structure.

	Accruing Loans						Nonaccrual Loans
	Three Months Ended December 31, 2011						Three Months Ended December 31, 2011
	Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Below market interest rate
Commercial Real Estate		6	$	835,484	$	819,484		-	$	-	$	-
Total		6	$	835,484	$	819,484		-	$	-	$	-

Grand Total		6	$	835,484	$	819,484		-	$	-	$	-

Loans ~~on nonaccrual status at the date of modification~~ are ~~initially~~ classified as ~~nonaccrual~~restructured ~~TDRs.~~by ~~Loans on accruing status at~~ the ~~date~~Company ofwhen ~~concession~~certain modifications are ~~initially~~made ~~classified~~to ~~as accruing TDRs if~~ the loan isterms ~~reasonably~~and ~~assured~~concessions ofare ~~repayment~~granted ~~and~~to ~~performance~~the isborrowers ~~expected~~due into ~~accordance~~financial ~~with~~difficulty ~~its~~experienced ~~modified~~by ~~terms~~those borrowers. ~~Such~~The ~~loans~~Company ~~may~~only berestructures ~~designated~~loans asfor ~~nonaccrual~~borrowers ~~loans~~in ~~subsequent~~financial todifficulty ~~the~~that ~~concession~~have ~~date~~designed ifa ~~reasonable~~viable ~~doubt~~business ~~exists~~plan as to ~~the~~fully ~~collection~~pay ofoff ~~interest~~all orobligations, ~~principal~~including ~~under~~outstanding ~~the~~debt, ~~restructuring~~interest, ~~agreement.~~and ~~TDRs~~fees, ~~are~~either ~~returned~~by togenerating ~~accruing~~additional ~~status~~income ~~when~~from ~~there~~the isbusiness ~~economic~~or ~~substance~~through toliquidation ~~the~~of ~~restructuring~~assets. Generally, ~~there~~these isloans ~~documented~~are ~~credit~~restructured ~~evaluation~~to ofprovide the borrower's ~~financial~~additional ~~condition,~~time ~~the~~to ~~remaining~~execute ~~balance~~upon istheir ~~reasonably~~plans. ~~assured~~The ofconcessions ~~repayment~~granted inon ~~accordance~~TDRs ~~with~~generally ~~its~~include ~~modified~~ terms, ~~and~~to reduce the ~~borrower~~interest ~~has~~rate ~~demonstrated~~or ~~sustained~~extend ~~repayment performance in accordance with~~ the ~~modified~~term ~~terms for a reasonable period~~ of ~~time~~the ~~(generally~~debt ~~a minimum of nine months)~~obligation.

AsLoans on nonaccrual status at the date of ~~June~~modification 30are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the loan is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. TDRs are returned to accruing status when there is economic substance to the restructuring, ~~2012~~there is documented credit evaluation of the borrower's financial condition, nothe ~~loans~~remaining ~~that~~balance ~~were~~is reasonably assured of repayment in accordance with its modified asterms, ~~troubled~~and ~~debt~~the ~~restructurings~~borrower ~~within~~has demonstrated sustained repayment performance in accordance with the ~~previous~~modified ~~twelve~~terms ~~months~~for ~~defaulted~~a ~~after~~reasonable ~~their~~period ~~restructure~~of time (generally a minimum of six months).

~~Note~~As 7:of ~~Derivative~~December ~~Instruments~~31, 2012 and ~~Hedging~~2011, ~~Activities~~loans with a balance of $42,000 and $0, respectively defaulted within twelve months after their restructure.

~~The~~Note ~~Bank~~6: ~~has~~Derivative ~~entered~~Instruments into an interest rate swap contract in connection with its hedging of a specific loan. As of June 30, 2012, the Bank has entered into an interest rate swap totaling $1.2 million using a receive-variable swap to mitigate the exposure to changes in the fair value attributable to the benchmark interest rate (fixed rate) and ~~the~~Hedging hedged items (loans receivable) from the effective date of the hedged instruments. As structured, the pay-fixed, receive-variable swap is evaluated as a fair value hedge and is considered highly effective. As a highly effective fair value designated hedge, the underlying hedged instrument is recorded on the balance sheet at fair value of $1.2 million with the periodic changes of the fair value reported in the consolidated statements of income.Activities

~~For~~The ~~the~~Bank ~~three~~has ~~months~~entered ~~ended~~into ~~June~~interest 30rate swap contracts in connection with its hedging of specific loans. As of December 31, 2012, the Bank has entered into interest rate ~~swap~~swaps ~~designated~~totaling asapproximately $4.5 million using a ~~fair~~receive-variable ~~value~~swap ~~hedge~~to ~~resulted~~mitigate the exposure to changes in athe ~~reduction~~ fair value attributable to the benchmark interest ~~income~~rate of(fixed ~~$572,~~rate) onand the ~~related~~hedged items (loans receivable.) ~~The~~from ~~fair~~the ~~value~~effective date of the hedged instruments. As structured, the pay-fixed, receive-variable swap atis ~~June~~evaluated 30as a fair value hedge and is considered highly effective. As a highly effective fair value designated hedge, ~~2012~~the ~~was~~underlying hedged instrument is recorded on the ~~consolidated~~balance ~~statements~~sheet at fair value of ~~financial~~$4.6 ~~condition~~million aswith athe ~~liability~~periodic changes of the fair value reported in the ~~amount~~consolidated statements of ~~$12,000~~income.

2826

~~The~~For ~~fixed~~the ~~rate~~three ~~loan~~months ~~being~~ended ~~hedged~~December ~~with~~31, an2012, the interest rate ~~swap~~swaps isdesignated ~~structured~~as toa ~~include~~fair value hedge resulted in a ~~prepayment~~reduction ~~make-whole~~to ~~clause.~~interest ~~The~~income ~~prepayment~~of ~~make-whole~~$13,000 ~~fee~~on ~~represents~~the arelated ~~reasonable~~loans ~~estimate~~receivable. The fair value of the ~~economic~~swaps ~~loss~~at ~~(if~~December ~~any)~~31, ~~from~~2012 was recorded on the ~~early~~consolidated ~~prepayment,~~statements inof ~~part~~financial orcondition inas ~~whole,~~a liability of ~~the loan~~$10,104.

~~Note~~The 8:fixed ~~Income~~rate ~~Per~~loans ~~Share~~being hedged with an interest rate swap are structured to include a prepayment make-whole clause. The prepayment make-whole fee represents a reasonable estimate of the economic loss (if any) from the early prepayment, in part or in whole, of the loan.

Note 7: Income Per Share

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

	Three Months Ended June 30				Nine Months Ended June 30
	Three Months Ended
	2012		2011		2012		2011
	December 31,
Net income	$	1,478,835	$	1,548,841	$	3,227,889	$	2,076,133
	2012		2011
Denominator:
Net income	$	2,334,287	$	488,393
Weighted average common shares outstanding		17,853,432		18,152,156		17,932,227		18,140,655
Denominator:
Common stock equivalents		34,189		47,274		34,189		47,274
Weighted average common shares outstanding		17,806,739		18,036,619
Diluted shares		17,887,621		18,199,430		17,966,416		18,187,929
Common stock equivalents		39,888		33,782
Net income per share:
Diluted shares		17,846,627		18,070,041
Basic	$	0.08	$	0.09	$	0.18	$	0.11
Net income per share:
Diluted	$	0.08	$	0.09	$	0.18	$	0.11
Basic	$	0.13	$	0.03
Diluted	$	0.13	$	0.03

For the three ~~and nine~~ months ended ~~June~~December 3031, 2012 and 2011 there were 415,~~706~~997 and 01,699, respectively, dilutive stock options. For the three ~~and nine~~ months ended ~~June~~December 3031, 2012 and 2011 there were 2923,~~483~~891 and 4732,~~274~~083, respectively, shares of non-vested restricted stock. The Company excluded from the calculations of diluted earnings per share for the three ~~and nine~~ month periods ended ~~June~~December 3031, 2012 and 2011, ~~511~~337,~~275~~525 and ~~567~~514,~~775~~275 shares, respectively, which shares were subject to options issued with ~~exercise~~exercies prices in excess of the average market value per share during those periods.

Basic earnings per share for the three ~~and nine~~ month periods ended ~~June~~December 3031, 2012 and 2011 ~~was~~were computed by dividing net income to common shareholders by the weighted-average number of shares of common stock outstanding, which consists of issued shares less treasury stock.

Diluted earnings per share for the three ~~and nine~~ month periods ended ~~June~~December 3031, 2012 and 2011 ~~was~~were computed by dividing net income to common shareholders by the weighted-average number of shares of common stock outstanding and the dilutive effect of the shares awarded under the Company’s equity compensation plans.

~~Note 9: Real Estate Owned~~27

Note 8: Real Estate Owned

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

Non-covered real estate owned

	Nine Months Ended June 30, 2012			Year Ended September 30, 2011
	Three Months Ended December 31, 2012			Year Ended September 30, 2012
Balance, beginning of period	$	42,~~093~~106,~~214~~757		$	94,~~641~~093,~~425~~214
Real estate acquired through foreclosure of loans receivable		1194,~~980,648~~815			32,~~760~~577,~~607~~269
Real estate sold		(1827,~~967,706~~534	)		(83,~~203~~453,~~154~~111	)
Write down of real estate owned		(~~656~~124,~~126~~596	)		(~~774~~612,~~616~~541	)
Gain (loss) on sale of real estate owned		~~(12~~64,~~923)~~979			(4424,~~894~~074	)
Real estate transferred to fixed assets		—			(286,154	)
Real estate transferred to premises and equipment		-			(474,000	)
Balance, end of period	$	31,~~437~~414,~~107~~421		$	42,~~093~~106,~~214~~757

29Covered real estate owned:

Covered real estate owned

		Three Months Ended December 31, 2012			Year Ended September 30, 2012
Balance, beginning of period	$	21,903,204		$	24,671,626
Real estate acquired through foreclosure of loans receivable		3,907,310			22,602,951
Real estate sold		(5,530,820	)		(16,911,373	)
Gain (loss) on real estate sold recognized in noninterest expense		75,2651			—
Gain (loss) on real estate sold payable to (receivable from ) the FDIC		982,3871			—
Provision for losses on real estate owned recognized in noninterest expense		(111,8381	)		(685,500	)
Increase of FDIC receivable for loss sharing agreements		(195,564	)		(7,774,500	)
Balance, end of period	$	21,029,944		$	21,903,204

	Nine Months Ended June 30, 2012			Year Ended September 30, 2011
Balance, beginning of period	$	24,671,626		$	29,626,581
Real estate acquired and subject to FDIC loss sharing agreement		—			10,559,932
Real estate acquired through foreclosure of loans receivable		16,932,143			11,070,057
Real estate sold		(10,726,128	)		(26,584,944	)
Provision for losses on other real estate owned recognized in noninterest expense		(760,000	)		—
Increase of FDIC receivable for loss sharing agreements		(9,190,000	)		—
Balance, end of period	$	20,927,641		$	24,671,626

Note 9: Employee Benefits

~~Note~~The Company has a stock option plan which allows for stock option awards of the Company’s common stock to eligible directors and key employees of the Company. The option price is determined by a committee of the board of directors at the time of the grant and may not be less than 100% of the market value of the common stock on the date of the grant. When granted, the options vest over periods up to four or five years from grant date or upon death, disability, or qualified retirement. All options must be exercised within a 10: ~~Employee~~year ~~Benefits~~period from grant date. The Company may grant either incentive stock options, which qualify for special federal income tax treatment, or nonqualified stock options, which do not receive such tax treatment. The Company’s stockholders have authorized 707,943 shares for the plan of which 73,628 have been issued upon the exercise of the option granted under the plan, 559,025 are granted and outstanding with the remaining 75,290 shares available to be granted at December 31, 2012.

~~The~~No Company has a stock option plan which allows for stock option awards of the Company’s common stock to eligible directors and key employees of the Company. The option price is determined by a committee of the board of directors at the time of the grant and may not be less than 100% of the market value of the common stock on the date of the grant. When granted, the options vest over periods up to four or five years from grant date or upon death, disability, or qualified retirement. All options must be exercised within a 10 year period from grant date. The Company may grant either incentive stock options, which qualify for special federal income tax treatment, or nonqualified stock options, which do not receive such tax treatment. The Company’s stockholders have authorized the grant of options exercisable for 707,943 shares ofwere ~~common stock under the plan. At June 30, 2012, 73,628 shares had been issued upon the exercise of options~~ granted ~~under~~during the ~~plan,~~quarter ~~options~~ended ~~exercisable~~December ~~for 566~~31,~~275~~ ~~shares of common stock were granted and outstanding, and options exercisable for 68,040 shares of common stock remained available for grants~~2012.

The fair value of the 13,000 and 4,000 options granted during the nine months ended June 30, 2012 was estimated on the date of grant using the Black-Scholes-Merton model with the following assumptions:28

	13,000 Options			4,000 options
Risk- free interest rate		1.80	%		1.80	%
Dividend yield		2.00	%		2.20	%
Expected life at date of grant (Months)		120			120
Volatility		19.56	%		19.56	%
Weighted average grant-date fair value	$	1.73		$	1.38

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

	Shares		Weighted average exercise price/share		Weighted average remaining life (years)
Options outstanding- September 30, 2011		565,275		10.76		8
Options outstanding- September 30, 2012		559,025	$	10.54		8
Options exercised		—		—		—
Options forfeited		~~(16,000)~~—		~~10.75~~—		7—
Options granted		~~17,000~~—		~~9.28~~—		10—
Options outstanding- June 30, 2012		566,275		10.72		7
Options outstanding- December 31, 2012		559,025	$	10.54		8
Options exercisable – June 30, 2012		5,500		29.26		1
Options exercisable – December 31, 2012		—		—		—

~~Stock~~The ~~option~~stock ~~expense~~price ~~was~~at ~~$70~~December 31,~~490~~ ~~and~~2012 ~~$81,939~~was ~~for~~less than or equal to the ~~nine~~exercise ~~months~~prices ~~ended~~of ~~June~~options ~~30,~~outstanding ~~2012~~and exercisable and ~~2011~~therefore had no intrinsic value except for 221,500 ~~respectively. The~~shares ~~following~~issued ~~table~~in ~~summarizes~~2010 ~~information~~and ~~about~~2011 ~~the~~with ~~options~~an ~~outstanding~~intrinsic atvalue ~~June~~of 30$169, ~~2012:~~570.

Number outstanding at June 30, 2012		Remaining contractual life in years		Exercise price per share
	5,500		0		29.26
	338,775		7		11.00
	150,000		8		10.20
	55,000		8		9.00
	13,000		10		9.15
	4,000		10		9.72
	566,275

Stock option expense was $32,083 and $23,717 for the three months ended December 31, 2012 and 2011, respectively. The following table summarizes information about the options outstanding at December 31, 2012:

The Company has a recognition and retention plan which has been authorized to grant up to 283,177 shares of restricted stock to key employees and directors. The Company has established a grantor trust to purchase these common shares of the Company in the open market or in private transactions. The grantor trust has not purchased previously authorized but unissued shares from the Company. The grantor trust has purchased all of the 283,177 shares that have been authorized. As of June 30, 2012, 62,872 shares remain in the trust and are disclosed as treasury stock in the consolidated statements of financial condition. Of the 62,872 shares remaining in the trust, 29,483 shares have been granted and are not yet vested and 33,389 shares are available for grants.

Number outstanding at December 31, 2012		Weighted average remaining contractual life in years		Exercise price per share
	337,525		6	$	11.00
	150,000		8		10.20
	54,500		8		9.00
	13,000		9		9.15
	4,000		9		9.72

	559,025

	Shares		Weighted average grant date fair value per award
Unvested restricted stock awards-September 30, 2011		35,083		20.84
Granted		—		—
Vested		(5,600)		49.63
Cancelled or expired		—		—
Unvested restricted stock awards-June 30, 2012		29,483		18.14

The Company has a recognition and retention plan which has been authorized to grant up to 283,177 shares of restricted stock to key employees and directors. The Company has established a grantor trust to purchase these common shares of the Company in the open market or in private transactions. The grantor trust has not purchased previously authorized but unissued shares from the Company. The grantor trust has purchased all of the 283,177 shares that have been authorized. As of December 31, 2012, 57,280 shares remain in the trust and are disclosed as treasury stock in the consolidated statements of financial condition. Of the 57,280 shares remaining in the trust, 23,891 shares have been granted and are not yet vested and 33,389 shares are available for grants.

	Shares		Weighted average grant date fair value per award
Unvested restricted stock awards-September 30, 2012		23,891	$	15.53
Granted		—		—
Vested		—		—
Cancelled or expired		—		—
Unvested restricted stock awards-December 31, 2012		23,891	$	15.53

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

3129

Note 1110: Commitments and Contingent Liabilities

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby letters of credit. At ~~June~~December 3031, 2012, commitments to extend credit and standby letters of credit totaled $5150.97 million. The Company does not anticipate any material losses as a result of these transactions.

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

Note 1211: Fair Value of Financial Instruments and Fair Value Measurement

Accounting standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting standards also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The applicable standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. For example, changes in market activity or the addition of new unobservable inputs could, in the Company’s judgment, cause a transfer to either a higher or lower level. For the three ~~and nine~~ months ended ~~June~~December 3031, 2012, there were no transfers between levels.

At ~~June~~December 3031, 2012, the Company holds, as part of its investment portfolio, available for sale securities reported at fair value consisting of municipal securities, U.S government sponsored entities, mortgage-backed securities, and collateralized mortgage obligations. The fair value of the majority of these securities ~~are~~is determined using widely accepted valuation techniques including matrix pricing and broker-quote based applications. Inputs include benchmark yields, reported trades, issuer spreads, prepayment speeds and other relevant items. These are inputs used by a third-party pricing service used by the Company. To validate the appropriateness of the valuations provided by the third party, the Company regularly updates its understanding of the inputs used and compares valuations to an additional third party source.

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

The Company ~~uses~~also ~~interest-rate~~holds ~~swaps~~assets toavailable ~~provide~~for ~~long-term~~sale ~~fixed~~reported ~~rate~~at ~~funding~~fair tovalue ~~its~~consisting ~~customers.~~of ~~The~~a ~~majority~~former ofbranch ~~these~~and ~~derivatives~~a ~~are~~parcel ~~exchange-traded~~of orland ~~traded~~adjacent ~~within~~to ~~highly~~a ~~active~~current ~~dealer markets~~branch. InThe ~~order to determine the~~ fair value of these ~~instruments,~~assests ~~the~~is ~~Company~~determined ~~utilizes~~using ~~the~~current ~~exchange~~appraisals ~~price~~adjusted orat ~~dealer~~management's ~~market~~discretion ~~price~~to ~~for~~reflect ~~the~~any ~~particular~~decline ~~derivative~~in ~~contract.~~the ~~Therefore,~~fair ~~these~~value ~~derivative~~of ~~contracts~~the ~~are~~properties ~~classified~~since asthe ~~Level~~time ~~2. The Company utilizes an independent third party valuation company to validate~~ the ~~dealer~~appraisal ~~prices~~was performed. InAppraisal ~~cases~~values ~~where significant credit valuation adjustments~~ are ~~incorporated~~reviewed ~~into~~and ~~the~~monitored ~~estimation~~internally ofand fair value, ~~reported~~is ~~amounts~~re-assessed ~~are~~at ~~considered~~least toquarterly ~~utilizing~~or ~~Level~~more 3frequently ~~inputs. The~~when ~~Company~~circumstances ~~also~~occur ~~utilizes~~that ~~this~~indicate ~~approach~~a tochange ~~estimate~~in ~~its~~fair ~~own credit risk on derivative liability positions~~value. ToAll ~~date,~~of the Company's ~~has~~assets ~~not~~held ~~realized~~for ~~any~~sale ~~losses~~fall ~~due~~into toLevel 2 aof ~~counterparty's~~the ~~inability~~fair tovalue ~~pay any net uncollateralized position~~hierarchy.

32The Company uses interest-rate swaps to provide long-term fixed rate funding to its customers. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract. Therefore, these derivative contracts are classified as Level 2. The Company utilizes an independent third party valuation company to validate the dealer prices. In cases where significant credit valuation adjustments are incorporated into the estimation of fair value, reported amounts are considered as Level 3 inputs. The Company also utilizes this approach to estimate its own credit risk on derivative liability positions. To date, the Company has not realized any losses due to a counterparty's inability to pay any net uncollateralized position.

Assets and Liabilities Measured on a Recurring Basis:

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

	June 30, 2012
	December 31, 2012
	Estimated fair value		Quoted prices in active markets for identical assets (Level 1 inputs)		Quoted prices for similar assets (Level 2 inputs)		Significant unobservable inputs (Level 3 inputs)
Assets:
Investment securities available for sale:
Tax free municipals	$	812,~~815~~144,~~289~~855	$	—	$	812,~~815~~144,~~289~~855	$	—
U.S. government sponsored entities		1710,~~979~~204,~~744~~178		—		1710,~~979~~204,~~744~~178		—
Mortgage–backed securities:
FNMA certificates		9289,~~512~~238,~~899~~934		—		9289,~~512~~238,~~899~~934		—
GNMA certificates		54,~~252~~593,~~153~~820		—		54,~~252~~593,~~153~~820		—
FHLMC certificates		4942,~~535~~444,~~896~~211		—		4942,~~535~~444,~~896~~211		—
Collateralized mortgage obligations:
FNMA		96,~~450~~186,~~802~~810		—		96,~~450~~186,~~802~~810		—
GNMA		~~697~~326,~~139~~839		—		~~697~~326,~~139~~839		—
FHLMC		~~605~~547,~~242~~434		—		~~605~~547,~~242~~434		—
Private-label mortgage securities:
Investment grade		2,~~112~~074,~~096~~388		—		2,~~112~~074,~~096~~388
Split rating [1]		51,~~984~~485,~~839~~928		—		51,~~984~~485,~~839~~928		—
Non investment grade		69,~~193~~998,~~424~~785		—		69,~~193~~998,~~424~~785		—
Total investment securities available for sale		~~199~~179,~~139~~246,~~523~~182		—		~~199~~179,~~139~~246,~~523~~182		—
Assets held for sale		1,~~438~~054,~~491~~280		—		1,~~438~~054,~~491~~280		—
Derivative instruments - swap asset		5,124		—		5,124		—
Total recurring assets at fair value	$	180,300,462	$	—	$	180,300,462	$	—
Total recurring assets at fair value	$	200,583,138	$	—	$	200,583,138	$	—
Liabilities:
Derivative instruments–swap liability	$	1110,~~918~~104	$	—	$	1110,~~918~~104	$	—
Total recurring liabilities at fair value	$	1110,~~918~~104	$	—	$	1110,~~918~~104	$	—

[1]	Bonds with split ratings represent securities with separate investment and non investment grades.

	September 30, 2011
	Estimated fair value		Quoted prices in active markets for identical assets (Level 1 inputs)		Quoted prices for similar assets (Level 2 inputs)		Significant unobservable inputs (Level 3 inputs)
Investment securities available for sale:
Tax free municipals	$	10,626,225	$	—	$	10,626,225	$	—
U.S. government sponsored entities		17,509,876				17,509,876
Mortgage–backed securities:
FNMA certificates		63,607,945		—		63,607,945		—
GNMA certificates		6,087,729		—		6,087,729		—
FHLMC certificates		21,291,187		—		21,291,187		—
Collateralized mortgage obligations:
FNMA		17,133,577		—		17,133,577		—
GNMA		3,676,575		—		3,676,575		—
FHLMC		943,626		—		943,626		—
Private-label mortgage securities:
Investment grade		2,823,096		—		2,823,096
Split rating [1]		8,052,261		—		8,052,261		—
Non investment grade		6,984,477		—		6,984,477		—
Available for sale securities	$	158,736,574	$	—	$	158,736,574	$	—

	September 30, 2012
	Estimated fair value		Quoted prices in active markets for identical assets (Level 1 inputs)		Quoted prices for similar assets (Level 2 inputs)		Significant unobservable inputs (Level 3 inputs)
Assets:
Investment securities available for sale:
Tax free municipals	$	11,578,501	$	—	$	11,578,501	$	—
U.S. government sponsored entities		16,627,055		—		16,627,055		—
Mortgage–backed securities:
FNMA certificates		86,584,802		—		86,584,802		—
GNMA certificates		4,945,412		—		4,945,412		—
FHLMC certificates		46,244,446		—		46,244,446		—
Collateralized mortgage obligations:
FNMA		8,027,156		—		8,027,156		—
GNMA		503,311		—		503,311		—
FHLMC		580,089		—		580,089		—
Private-label mortgage securities:
Investment grade		2,356,744		—		2,356,744
Split rating [1]		6,246,303		—		6,246,303		—
Non investment grade		5,685,514		—		5,685,514		—
Total investment securities available for sale		189,379,333		—		189,379,333		—

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

Total recurring assets at fair value	$	190,433,613	$	—	$	190,433,613	$	—

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

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