NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,
2017
AND
2016
|
|
NOTE 1.
|
DESCRIPTION OF THE PLAN
|
The following description of the CharterBank 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General
The Plan, which commenced on April 1, 1995 and was last amended December 21, 2015, is a defined contribution plan covering all eligible employees of CharterBank (the “Sponsor”). Full-time employees become eligible to participate after the attainment of 20½ years of age. Participants must also complete three months of service with the Sponsor to be eligible to participate in the Plan. The Plan is subject to certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Nationwide Trust Company, FSB is the trustee of the Plan. Nationwide Life Insurance Company is the custodian of the Plan’s investments in the Nationwide Funds and self-directed accounts through a partnership with Nationwide Trust Company, FSB.
Contributions
Participants may contribute up to 100% of their pretax earnings, subject to certain limitations. Any excess contributions are required to be refunded to participants. Rollover contributions from other qualified plans are permitted. Under the Plan, the Sponsor may contribute an amount equal to a discretionary percentage (determined annually by the Sponsor) of each participant’s annual compensation. The Sponsor did not elect to make discretionary contributions in
2017
or
2016
.
Participant Accounts
Each participant’s account is credited with the participant’s contributions and allocations of (a) the Sponsor's contributions and (b) Plan earnings (losses). Participant contributions may be invested in one or more of the investment funds available under the Plan or the self-directed brokerage account at the direction of the participant. The Sponsor’s contributions are allocated to investment funds in the same manner as participant contributions. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Participants are immediately vested in their contributions and earnings thereon. Participants are 100% vested in the Sponsor’s contributions and earnings thereon after completing three years of service, as defined by the Plan.
Benefits
Participants who separate from service with the Sponsor for any reason will have the value of their contributions and earnings thereon and their vested portion of the Sponsor’s elective contributions and earnings thereon, distributed to them in a lump sum or in the form of a direct rollover. If a participant dies before receiving distribution of his or her account, the full amount of his or her account will be paid to the designated beneficiary.
Withdrawals of participants’ deferral contributions are permitted upon the attainment of age 59½ or in the event of severe hardship situations as permitted by Internal Revenue Service (IRS) regulations.
Forfeited Accounts
Amounts forfeited by participants who terminate from the Plan prior to being 100% vested may be used to reduce employer contributions to the Plan. There were
no
unvested forfeited accounts as of
December 31, 2017
and
2016
.
|
|
NOTE 2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
The financial statements of the Plan are maintained on the accrual basis and have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
Investment Valuation and Income Recognition
The Plan's investment in Charter Financial Corporation common stock (included in the self-directed brokerage account) represented approximately
15%
and
17%
of total investments at
December 31, 2017
and
2016
, respectively. Also, the Nationwide Fixed Fund (reported as Synthetic guaranteed investment contract), the Vanguard 500 Index Fund, the Vanguard Growth Index Fund Admiral Class, the Vanguard Value Index Fund Admiral Class, the Vanguard Balanced Index Fund, and the Vanguard Developed Markets Index Fund represented
12%
,
10%
,
15%
,
5%
,
6%
, and
5%
respectively, of total investments at
December 31, 2017
. The Nationwide Fixed Fund (reported as Synthetic guaranteed investment contract), the Vanguard 500 Index Fund, the Vanguard Balanced Index Fund, the Vanguard Developed Markets Index Fund, and the Vanguard Growth Index Fund represented
13%
,
10%
,
6%
,
5%
, and
14%
, respectively, of total investments at December 31,
2016
. Accordingly, the Plan has a concentration of risk regarding the stock performance of Charter Financial Corporation and the stock performance of the companies comprising the funds referenced above.
Investments are generally reported at fair value with the exception of fully benefit-responsive investment contracts, which are stated at contract value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 7 for discussion of fair value measurement.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Benefit Payments
Benefits are recorded when paid.
Operating Expenses
All expenses of maintaining the Plan are paid by the Sponsor.
Reclassifications
Certain amounts from the prior year have been reclassified to conform to the current-year financial statements.
|
|
NOTE 3.
|
PARTY-IN-INTEREST TRANSACTIONS
|
Certain Plan investments include shares of mutual funds and a synthetic guaranteed investment contract made available by Nationwide Life Insurance Company, of which Nationwide Trust Company, FSB, trustee as defined by the Plan, is an affiliate. Investments of the Plan also include Charter Financial Corporation common stock. Charter Financial Corporation is the parent company of the Plan Sponsor. Therefore, these transactions qualify as party-in-interest transactions.
|
|
NOTE 4.
|
INCOME TAX STATUS
|
The IRS has informed the Plan, by an opinion letter dated April 2, 2012, that the Plan is designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although the Plan has been amended since receiving the opinion letter, the Sponsor believes that the Plan is designed and is currently operating in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
U.S. GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain tax position that more likely than not would not be sustained upon examination by the taxing authorities. The Plan administrator has analyzed the tax positions taken by the Plan and has concluded that, as of
December 31, 2017
, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. With few exceptions, the Plan is no longer subject to tax examinations by tax authorities for years before 2015.
In the event the Plan is terminated, the accounts of all participants become fully vested, and the net assets of the Plan are either administered and paid under the benefit provisions of the Plan or liquidated and distributed in accordance with procedures prescribed in the Plan.
|
|
NOTE 6.
|
INVESTMENT IN COMMON STOCK OF CHARTER FINANCIAL CORPORATION
|
During 2001, the participants in the Plan were allowed to purchase common stock of Charter Financial Corporation, the parent company of CharterBank, in conjunction with the initial public offering of Charter Financial Corporation with a portion of their account balance in the Plan. In 2003, a self-directed brokerage option was added to the Nationwide contract. Participants may purchase or sell shares of common stock of Charter Financial Corporation through their self-directed brokerage account with T D Ameritrade offered through Nationwide, the custodian of the Plan’s assets. During 2013, Charter Financial Corporation completed its conversion and reorganization pursuant to which First Charter, MHC, a federally chartered mutual holding company, was converted to the stock holding company form of organization. After this conversion, Plan participants were again given the opportunity to purchase common stock of Charter Financial Corporation. As of
December 31, 2017
and
2016
, the value of Charter Financial Corporation common stock held by the Plan was
$1,967,065
and
$1,939,009
, respectively.
|
|
NOTE 7.
|
FAIR VALUE MEASUREMENT
|
FASB ASC 820,
Fair Value Measurement
, provides a framework for measuring fair value. That framework
provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
Level 1
- Inputs to the valuation methodology are unadjusted quoted market prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2
- Inputs to the valuation methodology include:
|
|
•
|
quoted prices for similar assets or liabilities in active markets;
|
|
|
•
|
quoted prices for identical or similar assets or liabilities in inactive markets;
|
|
|
•
|
inputs other than quoted prices that are observable for the asset or liability; and
|
|
|
•
|
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
- Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value.
Mutual funds and money market fund
: Valued at the closing price reported in the active market in which the individual mutual funds and money market fund are traded.
Self-directed brokerage account
: Valued at the market value of shares held by the Plan at year end.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of
December 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Mutual funds
|
$
|
8,866,950
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,866,950
|
|
Self-directed brokerage account
|
|
|
|
|
|
|
|
Charter Financial Corporation common stock
|
1,967,065
|
|
|
—
|
|
|
—
|
|
|
1,967,065
|
|
Stocks
|
331,805
|
|
|
—
|
|
|
—
|
|
|
331,805
|
|
Money market fund
|
326,409
|
|
|
—
|
|
|
—
|
|
|
326,409
|
|
Mutual funds
|
57,603
|
|
|
—
|
|
|
—
|
|
|
57,603
|
|
Total self-directed brokerage account
|
2,682,882
|
|
|
—
|
|
|
—
|
|
|
2,682,882
|
|
Money market fund
|
357,910
|
|
|
—
|
|
|
—
|
|
|
357,910
|
|
Total investments at fair value
|
$
|
11,907,742
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,907,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Mutual funds
|
$
|
7,017,803
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,017,803
|
|
Self-directed brokerage account
|
|
|
|
|
|
|
|
|
Charter Financial Corporation common stock
|
1,939,009
|
|
|
—
|
|
|
—
|
|
|
1,939,009
|
|
Stocks
|
266,350
|
|
|
—
|
|
|
—
|
|
|
266,350
|
|
Money market fund
|
265,935
|
|
|
—
|
|
|
—
|
|
|
265,935
|
|
Mutual funds
|
35,666
|
|
|
—
|
|
|
—
|
|
|
35,666
|
|
Total self-directed brokerage account
|
2,506,960
|
|
|
—
|
|
|
—
|
|
|
2,506,960
|
|
Money market fund
|
416,506
|
|
|
—
|
|
|
—
|
|
|
416,506
|
|
Total investments at fair value
|
$
|
9,941,269
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,941,269
|
|
|
|
NOTE 8.
|
GUARANTEED INVESTMENT CONTRACTS
|
The Plan holds a synthetic investment contract. This contract meets the fully benefit-responsive investment contract criteria and therefore is reported at contract value. Contract value is the relevant measure for fully benefit-responsive investment contracts because this is the amount received by participants if they were to initiate permitted transactions under the terms of the Plan. Contract value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses.
With a synthetic investment contract, the Plan owns the underlying assets of the synthetic investment contract. A synthetic investment contract includes a wrapper contract, which is an agreement for the wrap issuer, such as a bank or insurance company, to make payments to the Plan in certain circumstances. The wrapper contract typically includes certain conditions and limitations on the underlying assets owned by the Plan. Synthetic investment contracts are designed to accrue interest based on crediting rates established by the contract issuers.
The synthetic investment contract held by the Plan includes a wrapper contract that provides a guarantee that the credit rate will not fall below zero percent. Cash flow volatility (for example, timing of benefit payments) as well as asset underperformance can be passed through to the Plan through adjustments to future contract crediting rates. Formulas are provided in the contract that adjusts renewal crediting rates to recognize the difference between the fair value and the book value of the underlying assets. Crediting
rates are reviewed monthly for resetting.
The Plan's ability to receive amounts due in accordance with this fully benefit-responsive investment contract is dependent on the third-party issuer's ability to meet its financial obligations. The issuer's ability to meet its contractual obligations may be affected by future economic and regulatory developments.
Certain events might limit the ability of the Plan to transact at contract value with the contract issuer. These events may be different under each contract. Examples of such events include the following:
|
|
1.
|
The Plan's failure to qualify under Section 401(a) of the Internal Revenue Code or the failure of the trust to be tax-exempt under Section 501(a) of the Internal Revenue Code
|
|
|
2.
|
Premature termination of the contract
|
|
|
3.
|
Plan termination or merger
|
|
|
4.
|
Changes to the Plan's prohibition on competing investment options
|
|
|
5.
|
Bankruptcy of the plan sponsor or other plan sponsor events (for example, divestitures or spinoffs of a subsidiary) that significantly affect the Plan's normal operations.
|
No events are probable of occurring that might limit the ability of the Plan to transact at contract value with the contract issuer and that also would limit the ability of the Plan to transact at contract value with the participants.
In addition, certain events allow the issuer to terminate the contracts with the Plan and settle at an amount different from contract value. Examples of such events include the following:
1.
An uncured violation of the Plan's investment guidelines
|
|
2.
|
A breach of material obligation under the contract
|
|
|
3.
|
A material misrepresentation
|
|
|
4.
|
A material amendment to the agreements without the consent of the issuer.
|
|
|
NOTE 9.
|
TERMINATED PARTICIPANTS
|
There were no participants who have elected to withdraw from the Plan but have not been paid as of
December 31, 2017
and
2016
.
|
|
NOTE 10.
|
RISKS AND UNCERTAINTIES
|
The Plan’s investments include funds which invest in investment securities and in various companies within several markets. Investment securities are exposed to risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the Plan’s financial statements.
|
|
NOTE 11.
|
EXCESS PARTICIPANTS’ CONTRIBUTIONS
|
The Plan failed the discrimination test for each of the years ended
December 31, 2017
and
2016
. Excess contributions of
$39,085
in
2017
and
$33,968
in
2016
are reported as excess participants’ contributions
in the accompanying statements of net assets available for benefits and as a reduction of participants’ contributions in the statements of changes in net assets available for benefits.
|
|
NOTE 12.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF FORM 5500
|
The following is a reconciliation of net assets available for benefits per the financial statements to Schedule H of Form 5500:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Net assets available for benefits per financial statements
|
$
|
13,510,003
|
|
|
$
|
11,392,063
|
|
Amount payable for excess participants' contributions
|
39,085
|
|
|
33,968
|
|
Net assets available for benefits per Form 5500
|
$
|
13,549,088
|
|
|
$
|
11,426,031
|
|
The following is a reconciliation of net increase in net assets available for benefits per the financial statements to Schedule H of Form 5500:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Net increase per financial statements
|
$
|
2,117,940
|
|
|
$
|
1,881,401
|
|
Prior year amount payable for excess participants' contributions
|
(33,968
|
)
|
|
—
|
|
Amount payable for excess participants' contributions
|
39,085
|
|
|
33,968
|
|
Miscellaneous difference
|
1,254
|
|
|
—
|
|
Net increase per Form 5500
|
$
|
2,124,311
|
|
|
$
|
1,915,369
|
|
|
|
NOTE 13.
|
SUBSEQUENT EVENTS
|
On April 24, 2018, Charter Financial Corporation, parent company of the Sponsor, and CenterState Bank Corporation, a Florida corporation ("CenterState"), entered into an Agreement and Plan of Merger (the "Merger Agreement") whereby Charter Financial Corporation will be merged with and into CenterState (the "Merger"). Pursuant to and simultaneously with entering into the Merger Agreement, the Sponsor and CenterState's wholly owned subsidiary bank, CenterState Bank, N.A. ("CenterState Bank"), entered into a Plan of Merger and Merger Agreement whereby the Sponsor will be merged with and into CenterState Bank immediately following the Merger (the "Bank Merger").
Pursuant to the Merger Agreement, each outstanding share of Charter Financial Corporation common stock issued and outstanding immediately prior to the effective time of the Merger will be entitled to receive 0.738 shares of CenterState common stock and a cash amount equal to $2.30, provided that cash in lieu of any fractional shares of CenterState common stock will be paid. Each outstanding share of CenterState stock shall remain outstanding and be unaffected by the Merger. As of the announcement date on April 24, 2018, based on CenterState's closing stock price of $27.72, the total merger consideration amounted to $360.1 million, or approximately $22.76 per share.
The Sponsor currently expects to terminate the Plan upon consummation of the Merger.
The Merger Agreement has been unanimously approved by the boards of directors of Charter Financial Corporation and CenterState, and is expected to close in the fourth quarter of 2018 subject to customary conditions, including receipt of all applicable regulatory approvals and the approval of the stockholders of Charter Financial Corporation.
SUPPLEMENTAL INFORMATION