CHARTER FINANCIAL INC, DEF 14A, 1996-12-10

CHARTER FINANCIAL INC
DEF 14A, 1996-12-10
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)

Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ X ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x/] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12

Charter Financial, Inc.
-----------------------------------------------------

(Name of Registrant as Specified in its Charter)

Alan Schick, Esq.
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W., Suite 400
--------------------------------------------------------------

(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2) [ ]
$500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other identifying value of transaction computed
pursuant to Exchange Act Rule 0-11:

4) Proposed maximum aggregate value of transaction:

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offset fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Number:

3) Filing Party:

4) Date Filed:
<PAGE>

December 10, 1996

Dear Stockholder:

You are cordially invited to attend the first Annual Meeting of Stockholders of
Charter Financial, Inc. (the "Company"). The Annual Meeting will be held at
Charter Bank S.B.'s (the "Bank") Main Office, 114 West Broadway, Sparta,
Illinois at 1:30 p.m. (local time) on January 16, 1997.

The enclosed Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted. During the meeting we will also report on the
operations of the Company and the Bank, the Company's wholly-owned savings bank
subsidiary. Directors and officers of the Company, as well as a representative
of our independent auditors, will be present to respond to any questions that
stockholders may have.

The Annual Meeting is being held so that stockholders may consider the election
of directors, the approval of the Company's 1997 Stock Option Plan, the approval
of the Company's 1997 Recognition and Retention Plan and the ratification of the
appointment of KPMG Peat Marwick LLP, as auditors for the Company's 1997 fiscal
year.

The Board of Directors of the Bank has determined that the matters to be
considered at the Annual Meeting are in the best interest of the Company and its
stockholders. For the reasons set forth in the proxy statement, the Board of
Directors unanimously recommends a vote "FOR" each matter to be considered.

Also enclosed for your review is our 1996 Annual Report to Stockholders, which
contains detailed information concerning the activities and operating
performance of the Company and the Bank.

On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible even if you currently plan to attend the
Annual Meeting. Your vote is important, regardless of the number of shares that
you own. This will not prevent you from voting in person, but will assure that
your vote is counted if you are unable to attend the meeting.

Sincerely,

/s/John A. Becker
- -----------------
John A. Becker
President and Chief Executive Officer
<PAGE>
Charter Financial, Inc.
114 West Broadway
Sparta, Illinois 62286
(618) 443-2166

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On January 16, 1997

Notice is hereby given that the Annual Meeting of Charter Financial, Inc.
(the "Company") will be held at the Main Office of Charter Bank, S.B., 114 West
Broadway, Sparta, Illinois, on Thursday, January 16, 1997 at 1:30 p.m. , local
time.

A Proxy Card and a Proxy Statement for the Annual Meeting are enclosed.

The Annual Meeting is for the purpose of considering and acting upon:

1. The election of five directors of the Company;
2. The approval of the Charter Financial, Inc. 1997 Stock Option
Plan;
3. The approval of the Charter Financial, Inc. 1997 Recognition and
Retention Plan;
4. The ratification of the appointment of KPMG Peat Marwick LLP, as
auditors for the Company for the fiscal year ended September 30,
1997; and

such other matters as may properly come before the Annual Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Annual Meeting.

Any action may be taken on the foregoing proposals at the Annual Meeting on
the date specified above, or on any date or dates to which by original or later
adjournment the Annual Meeting may be adjourned. Stockholders of record at the
close of business on December 1, 1996 are the stockholders entitled to vote at
the Annual Meeting, and any adjournments thereof.

EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR
HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE
PERSONALLY AT THE MEETING.

By Order of the Board of Directors

/s/Linda M. Johnson
----------------
Linda M. Johnson
Secretary
Sparta, Illinois
December 10, 1996

IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE ANNUAL MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED WITHIN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
of
CHARTER FINANCIAL, INC.
114 West Broadway
Sparta, Illinois 62286
(618) 443-2166

ANNUAL MEETING OF STOCKHOLDERS
January 16, 1997

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Charter Financial, Inc. (the
"Company") to be used at the Annual Meeting of stockholders of the Company (the
"Meeting"), which will be held at the Main Office of Charter Bank, S.B., 114
West Broadway, Sparta, Illinois, on Thursday, January 16, 1997 at 1:30 p.m.,
local time, and all adjournments thereof. The accompanying Notice of Annual
Meeting of Stockholders and this Proxy Statement are first being mailed to
stockholders on or about December 10, 1996.

Revocation of Proxies

Stockholders who execute proxies in the form solicited hereby retain the
right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
the Company will be voted in accordance with the directions given thereon. Where
no instructions are indicated, proxies will be voted "FOR" the proposals set
forth in this Proxy Statement for consideration at the Meeting.

Proxies may be revoked by sending written notice of revocation to the
Secretary of the Company at the address shown above. The presence at the Meeting
of any stockholder who had given a proxy shall not revoke such proxy unless the
stockholder delivers his or her ballot in person at the Meeting or delivers a
written revocation to the Secretary of the Company prior to the voting of such
proxy.

Voting Securities and Principal Holders Thereof

Holders of record of the Company's common stock, par value $.10 per share
(the "Common Stock") as of the close of business on December 1, 1996 are
entitled to one vote for each share then held. As of December 1, 1996, the
Company had 4,253,459 shares of Common Stock issued and outstanding. On December
28, 1995, the Company issued 2,919,414 shares of Common Stock in connection with
the mutual-to-stock conversion of Charter Bancorp, M.H.C., the Company's mutual
holding company predecessor (the "Conversion"). In the Conversion, 2.0839 shares
of Common Stock were issued in exchange for each share of Charter Bank, S.B.
(the "Bank"). Information herein regarding issuance of shares of the Bank's
Common Stock has been restated to give retroactive effect to such exchange. The
presence in person or by proxy of a majority of the outstanding shares of Common
Stock entitled to vote is necessary to constitute a quorum at the Meeting.
<PAGE>
As provided in the Company's Certificate of Incorporation, record holders of
Common Stock who beneficially own in excess of 10% of the outstanding shares of
Common Stock (the "Limit") are not entitled to vote any shares held in excess of
the Limit. A person or entity is deemed to own beneficially shares owned by an
affiliate of, as well as persons acting in concert with, such person or entity.

As to the election of directors, the proxy card being provided by the Board
of Directors enables a stockholder to vote FOR the election of the nominees
proposed by the Board, or to WITHHOLD AUTHORITY to vote for one or more of the
nominees being proposed. Under Delaware law and the Company's Certificate of
Incorporation and Bylaws, directors are elected by a plurality of votes cast,
without regard to broker non-votes. As to the approvals of the Company's 1997
Stock Option Plan and 1997 Recognition and Retention Plan, and the ratification
of the appointment of KPMG Peat Marwick LLP as independent auditor of the
Company, a stockholder may vote FOR the items, AGAINST the items or ABSTAIN from
voting. The approval of these matters requires the affirmative vote of a
majority of the votes present at the Meeting and entitled to be cast, without
regard to broker non-votes. Proxies marked ABSTAIN shall have the effect of a
vote against the proposals.

Persons and groups who beneficially own in excess of five percent of the
Common Stock are required to file certain reports with the Securities and
Exchange Commission (the "SEC") regarding such ownership pursuant to the
Securities Exchange Act of 1934 (the "1934 Act"). The following table sets
forth, as of the record date, the shares of Common Stock beneficially owned by
directors individually, by executive officers individually, by executive
officers and directors as a group and by each person who was the beneficial
owner of more than five percent of the Company's outstanding shares of Common
Stock on December 1, 1996.
<TABLE>
<CAPTION>
Amount of Shares
Owned and Nature Percent of Shares
Name and Address of Beneficial of Common Stock
of Beneficial Owner Ownership (1) Outstanding
------------------- ------------- -----------
<S> <C> <C>
Directors and Officers:
John A. Becker 182,616 (2) 4.29%
Truman D. Cashman 4,155 *
James H. Clutts 68,726 1.62
Michael R. Howell 136,725 (3) 3.21
Linda M. Johnson 84,187 (4) 1.98
William A. Norton 37,842 (5) *
John Petkas, Jr. 28,830 (6) *
Klondis T. Pirtle 30,124 (7) *
Carl S. Schlageter, M.D. 39,217 (8) *
Dennis F. Doelitzsch 97,783 2.30
Ralph Eugene Watson 46,381 1.09

All Directors and Executive Officers 756,586 (9) 17.79%
as a Group (11 persons)

Principal Stockholders:

Charter Bank, S.B. Employee
Stock Ownership Plan 216,937 (10) 5.10%
114 West Broadway
Sparta, Illinois 62286
- -------------------------------
</TABLE>
<PAGE>
* Less than 1%.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to be the beneficial owner for purposes of this table, of any
shares of Common Stock if he has shared voting or investing power with
respect to such security, or has a right to acquire beneficial
ownership at any time within 60 days of December 1, 1996. As used
herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares. Includes all shares held directly as well as by
spouses and minor children, in trust and other indirect ownership, over
which shares the named individuals effectively exercise sole or shared
voting and investment power.

(2) Includes 63,975 options exercisable pursuant to the 1993 Incentive
Stock Option Plan.

(3) Includes 22,656 options exercisable pursuant to the 1993 Incentive
Stock Option Plan.

(4) Includes 26,040 options exercisable pursuant to the 1993 Incentive
Stock Option Plan.

(5) Includes 12,003 shares awarded, subject to options granted, pursuant to
the 1993 Directors' Option Plan.

(6) Includes 9,919 shares subject to options granted pursuant to the 1993
Directors' Plan.

(7) Includes 10,802 shares subject to options granted pursuant to the 1993
Directors' Plan.

(8) Includes 12,003 shares subject to options granted pursuant to the 1993
Directors' Plan.

(9) The Company's executive officers and directors are also executive
officers and directors of the Bank.

(10) Does not include 180,048 shares which have been allocated to individual
participants of the ESOP who possess sole voting and investment power
of the shares. These shares are reflected as shares beneficially owned
by the individual participants.
<PAGE>
PROPOSAL I--ELECTION OF DIRECTORS

The Company's Board of Directors is currently composed of eleven
members. The Company's bylaws provide that approximately one-third of the
directors are to be elected annually. Directors of the Company are generally
elected to serve for a three year period or until their respective successors
shall have been elected and shall qualify. Messrs. Becker, Howell, Norton and
Doelitzsch have been nominated to serve as directors for a three-year period and
until their respective successors have been elected and qualified. Mr. Watson
has been nominated to serve as a director for a two year term and until his
successor has been elected and qualified. All of the Company's nominees are
currently members of the Board of Directors.

The table below sets forth certain information regarding the
composition of the Company's Board of Directors, including the terms of office
of Board members. It is intended that the proxies solicited on behalf of the
Board of Directors (other than proxies in which the vote is withheld as to one
or more nominees) will be voted at the Meeting for the election of the nominees
identified below. If any nominee is unable to serve, the shares represented by
all such proxies will be voted for the election of such substitute as the Board
of Directors may recommend. At this time, the Board of Directors knows of no
reason why any of the nominees might be unable to serve, if elected. Except as
indicated herein, there are no arrangements or understandings between any
nominee and any other person pursuant to which such nominee was selected.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Age At Positions Held Director Current Term Owned on the Percent
Name Record Date in the Bank Since (1) to Expire Record Date (2) Of Class
---- ----------- ----------- --------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
NOMINEES

John A. Becker 64 President, Chief Executive 1964 1997 182,616 (3) 4.29%
Officer and Chairman of
the Board
Michael R. Howell 38 Executive Vice President, 1991 1997 136,725 (4) 3.21
Treasurer and Director
William A. Norton 70 Director 1973 1997 37,842 (5) *
Dennis F. Doelitzsch 49 Director 1996 1997 97,783 2.30
Ralph Eugene Watson 56 Director 1996 1997 46,381 1.09

DIRECTORS CONTINUING IN OFFICE

Truman D. Cashman 72 Director 1972 1998 4,155 *
Linda M. Johnson 47 Senior Vice President, 1991 1998 84,187 (6) 1.98
Secretary and Director
Carl S. Schlageter, M.D. 59 Director 1976 1998 39,217 (7) *
James H. Clutts 51 Director 1994 1998 68,726 1.62
John Petkas, Jr. 53 Director 1991 1999 28,830 (8) *
Klondis T. Pirtle 57 Director 1975 1999 30,124 (9) *

- ------------------------------------
* Less than 1%.
</TABLE>
<PAGE>
(1) Where applicable reflects initial appointment to the Board of Directors of
the Bank's mutual predecessor.
(2) Include shares subject to options granted under Charter Bank, S.B. 1993
Incentive Stock Option Plan (the "1993 Incentive Stock Option Plan"), which
options are exercisable within 60 days from the Record Date. Includes
shares subject to options granted under Charter Bank, S.B. 1993 Stock
Option Plan for Outside Directors (the "Directors' Plan") for each outside
director. Directors Clutts, Doelitzsch and Watson have not been granted any
options.
(3) Includes 63,975 options exercisable pursuant to the 1993 Incentive Stock
Option Plan.
(4) Includes 22,656 options exercisable pursuant to the 1993 Incentive Stock
Option Plan.
(5) Includes 12,003 shares subject to options granted pursuant to the 1993
Directors' Plan.
(6) Includes 26,040 options exercisable pursuant to the 1993 Incentive Stock
Option Plan.
(7) Includes 12,003 shares subject to options granted pursuant to the 1993
Directors' Plan.
(8) Includes 9,919 shares subject to options granted pursuant to the 1993
Directors' Plan.
(9) Includes 10,802 shares subject to options granted pursuant to the 1993
Directors' Plan.

The principal occupation during the past five years of each director
and executive officer of the Company is set forth below. All directors and
executive officers have held their present positions for five years unless
otherwise stated.

John A. Becker has been the Bank's President and Chief Executive
Officer since 1976 and the Chairman of the Board of Directors since 1980. Mr.
Becker has been affiliated with the Bank for 41 years. Mr. Becker holds
directorships with the Federal Home Loan Bank of Chicago.

Michael R. Howell has been Executive Vice President and Treasurer of
the Bank since 1989. The Bank hired Mr. Howell as its Vice President and
Treasurer in 1985. Mr. Howell is responsible for the Bank's lending and
investment activities.

William A. Norton is retired. Prior to his retirement, Mr. Norton was
Treasurer and Vice President of the Bank.

Dennis F. Doelitzsch is the President, General Manager and owner of 3-D
Communications Corporation in Marion, Illinois. Mr. Doelitzsch became a director
in July 1996.

Ralph Eugene Watson is President of Marion Dairy Queen, Inc. and
President of Harrisburg Dairy Queen, Inc. Mr. Watson became a director in July
1996.

Truman D. Cashman is retired. Prior to his retirement, he was a Vice
President of the Bank.

Linda M. Johnson has been Senior Vice President of the Bank since 1983
and Secretary since 1976. Ms. Johnson is responsible for retail operations and
marketing. Ms. Johnson has been employed by the Bank since 1974.
<PAGE>
Carl S. Schlageter, M.D. is a family physician and President of the
Family Health Care Centre located in Sparta, Illinois.

James H. Clutts is President of Cherry Insurance Services, Inc.

John Petkas, Jr. is a Manager with the Illinois Power Company.

Klondis T. Pirtle is President of Lynn Furniture Company located in
Sparta, Illinois.

Ownership Reports by Officers and Directors

The Common Stock of the Company is registered pursuant to Section 12(g)
of the 1934 Act. The officers and directors of the Company and beneficial owners
of greater than 10% of the Company's Common Stock ("10% beneficial owners") are
required to file reports on Forms 3, 4, or 5 with the SEC disclosing changes in
beneficial ownership of the Common Stock. SEC rules require disclosure in the
Company's Proxy Statement and Annual Report on Form 10-K of the failure of an
officer, director or 10% beneficial owner of the Company's Common Stock to file
a Form 3, 4, or 5 on a timely basis. Based on the Company's review of such
ownership reports, no officer, director or 10% beneficial owner of the Company
failed to file ownership reports on a timely basis for the fiscal year ended
September 30, 1996.
<PAGE>
Meetings and Committees of the Board of Directors

The primary business of the Company is to hold the common stock of its
wholly-owned subsidiary, the Bank. The business of the Bank's Board of Directors
is conducted through meetings and activities of the Board and its committees.
During the year ended September 30, 1996, the Board of Directors of the Company
and the Bank held 12 regular meetings and 11 special meetings, which include the
Annual Meeting and Executive Committee meetings. During the year ended September
30, 1996, no director attended fewer than 75% of the total meetings of the Board
of Directors of the Bank and committees on which such director served. The Board
of Directors of the Company and the Bank have established various committees to
which certain responsibilities have been delegated. The committees include the
following:

The Board of Directors of the Company as a whole acts as the Nominating
Committee. The Nominating Committee met once in fiscal year 1996.

The full Board of Directors of the Bank performs the functions of an
audit committee, although it does not formally act as such. The Board meets as
needed in order to examine and approve the audit report prepared by its
independent auditors.

The full Board of Directors of the Bank acts as the Bank's Compensation
Committee. The Company does not separately compensate senior officers and
employees of the Bank. The Compensation Committee reviews the salary and
benefits provided to the Bank's officers and employees. During the year ended
September 30, 1996, the Board of Directors of the Bank met in its capacity of
Compensation Committee one time.

In addition to the committees described above, the Bank has also
established various other committees which consist of members of the Board of
Directors, Officers of the Company and Bank and outside counsel to the Board of
Directors.

Executive Compensation

The Company has not paid any compensation to its executive officers
since its formation. The following table sets forth for the fiscal years ended
September 30, 1996, 1995, and 1994, certain information as to the total
remuneration paid by the Bank to the Chief Executive Officer and the other
executive officers who received total cash compensation in excess of $100,000
during the year ended September 30, 1996 for service in all capacities to the
Company.
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Other Restricted
Annual Stock Options/ All Other
Name and Salary Bonus Compensation Award(s) SARs Compensation
Principal Position Year ($) ($) ($) ($)(1) ($)(2) Payouts ($)(3)
------------------ ---- --- --- --- ------ ------ ------- ------
<S> <C> <C> <C> <C>
John A. Becker 1996 $157,913 $18,999 -- -- -- -- $53,837
President and Chief 1995 151,973 27,595 -- -- -- -- 64,088
Executive Officer 1994 147,143 39,807 -- -- $24,750 -- 54,018

Michael R. Howell 1996 87,241 8,244 -- -- -- -- 34,417
Executive Vice 1995 82,441 11,826 -- -- -- -- 32,368
President and 1994 78,841 14,971 -- -- 16,308 -- 29,287
Treasurer

Linda M. Johnson 1996 84,696 7,990 -- -- -- -- 35,019
Senior Vice 1995 79,896 16,444(4) -- -- -- -- 33,053
President and 1994 76,376 14,483 -- -- 11,000 -- 29,530
Secretary
- ---------------
</TABLE>
(1) Shares were awarded to Messrs. Becker, Howell and Ms. Johnson on October
15, 1993. Messrs. Becker, Howell and Ms. Johnson were awarded 32,717,
15,004 and 15,004 shares of the Bank's stock. Shares vested ratably over a
three year period beginning October 15, 1994.

(2) Options were granted to Messrs. Becker, Howell and Ms. Johnson on October
15, 1993. Mr. Becker exercised 9,377 options on August 13, 1994. Mr. Howell
exercised 7,552 options on August 2, 1994. Ms. Johnson exercised 4,167
options on August 15, 1994.

(3) Includes amounts paid under the Bank's automobile allowance, director's
fees, and allocations to the Bank's ESOP (such allocations are valued at
cost and were $27,729, $17,774 and $17,380 representing allocations of
5,777, 3,703 and 3,621 shares for Mr. Becker, Mr. Howell and Ms. Johnson,
respectively). Club dues and the use of an automobile owned by the Bank are
provided to certain executive officers primarily for business-related
purposes. The value of the personal use of such benefits is included in the
total cash compensation amount, but was not in excess of 10% of the cash
compensation for such officers.

(4) Includes a special $5,000 bonus in connection with data processing
conversion.
<PAGE>
Bonus Plan

The Bank offers a bonus plan to all full- and part-time employees.
Employees are assigned to various bonus groups which are determined based upon
the employee's level of authority with the Bank. Bonuses under the Bonus Plan
are determined based upon the net income of the Company at year-end relative to
the financial performance goals established by the Board of Directors at the
beginning of the fiscal year, the bonus group that the employee is a part of,
the employee's salary, a determination by the Bank's chief executive officer of
the employee's performance, and the Bank's capital adequacy. During the year
ended September 30, 1996, the Bank paid Becker, Howell and Johnson, $18,999,
$8,244, and $7,990, respectively.

Employment and Severance Arrangements

Employment Agreements. The Bank has entered into employment agreements
with John A. Becker, President and Chief Executive Officer, Michael R. Howell,
Executive Vice President and Treasurer and Linda M. Johnson, Senior Vice
President and Secretary. The employment agreements are intended to ensure that
the Bank and the Company maintain a stable and competent management. The
continued success of the Bank and the Company depends to a significant degree on
the skill and competence of Messrs. Becker, Howell and Ms. Johnson.

The employment agreements each provides for a three-year term for Mr.
Becker, Mr. Howell and Ms. Johnson. Commencing on the first anniversary date and
continuing each anniversary date thereafter, the Board of Directors may extend
the employment agreements for an additional year such that the remaining term
shall be three years unless written notice of nonrenewal is given by the Board
of Directors after conducting a performance evaluation of the executive. The
agreement provides that the base salary of each executive will be reviewed
annually. Mr. Becker's current base salary is $181,668. Mr. Howell's and Ms.
Johnson's current base salaries are $100,327 and $97,400, respectively. In
addition to the base salary, the employment agreements provide that the
executive is to receive all benefits provided to permanent full-time employees
of the Bank, including among other things, participation in stock benefit plans
and other fringe benefits applicable to executive personnel. The employment
agreements provide for termination by the Bank for "just cause" at any time. In
the event the Bank chooses to terminate the executive's employment for reasons
other than for "just cause," or upon the termination of the executive's
employment for reasons other than a change in control, as defined, or in the
event of the executive's resignation from the Bank upon (i) failure to re-elect
him to his current office, (ii) a material change in his functions, duties or
responsibilities, (iii) relocation of the executive's principal place of
employment, (iv) the liquidation or dissolution of the Bank, or (v) a breach of
the employment agreement by the Bank, the executive, or in the event of death,
the executive's beneficiary, would be entitled to receive an amount equal to the
greater of the remaining payments, including base salary, bonuses and other
payments due under the remaining term of the employment agreement or three times
the average of the executive's base salary, including bonuses and other cash
compensation paid, and the amount of any benefits received pursuant to any
employee benefit plans maintained by the Bank.
<PAGE>
If termination, whether voluntary or involuntary, follows a change in
control of the Bank, as defined in the employment agreement, the executive or,
in the event of death, the executive's beneficiary, would be entitled to a
payment equal to the greater of (i) the payments due under the remaining term of
the employment agreement or (ii) 2.99 times his average annual compensation over
the five years preceding termination. The Bank would also continue the
executive's life, health, and disability coverage for the remaining unexpired
term of the employment agreement to the extent allowed by the plan or policies
maintained by the Bank from time to time.

The employment agreements provide that for a period of one year
following termination the executive agrees not to compete with the Bank in any
city, town or county in which the Bank maintains an office or has filed an
application to establish an office.

Compensation Committee Interlocks and Insider Participation

The Bank's full Board of Directors acts as the Bank's Compensation
Committee. The Compensation Committee met once in fiscal 1996. The Compensation
Committee functions as the salary committee and reviews the salaries and
benefits provided to the Bank's employees.

Report of the Compensation Committee on Executive Compensation

Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to its Chief Executive Officer and other executive officers. The disclosure
requirements for the Chief Executive Officer and other executive officers
include the use of tables and a report explaining the rationale and
considerations that led to fundamental executive compensations decisions
affecting those individuals. The Chief Executive Officer of the Company did not
receive compensation from the Company. Consequently, in fulfillment of this
requirement, the Compensation Committee of the Bank's Board of Directors, has
prepared the following report for inclusion in this proxy statement.

The Compensation Committee annually reviews the performance of the
Chief Executive Officer and other executive officers and approves changes to
base compensation as well as the level of bonus, if any, to be awarded. In
determining whether the base salary of the Chief Executive Officer and other
executive officers should be increased, the Compensation Committee takes into
account individual performance, performance of the Bank, the size of the Bank
and the complexity of its operations.

While the Compensation Committee does not use strict numerical formulas
to determine changes in compensation for the Chief Executive Officer, Executive
Vice President and Senior Vice President; and while it weighs a variety of
different factors in its deliberations, it has emphasized and will continue to
emphasize earnings, profitability, capital position and income level, and return
on average assets as factors in setting the compensation of the Chief Executive
Officer, Executive Vice President and Senior Vice President. Other
non-quantitative factors considered by the Compensation Committee in fiscal 1996
<PAGE>
included general management oversight of the Bank, the quality of communication
with the Board of Directors, and the productivity of employees. Finally, the
Compensation Committee considered the standing of the Bank with customers and
the community, as evidenced by the level of customer/community complaints and
compliments. While each of the quantitative and non-quantitative factors
described above was considered by the Compensation Committee, such factors were
not assigned a specific weight in evaluating the performance of the Chief
Executive Officer, Executive Vice President and Senior Vice President. Rather,
all factors were considered, and based upon the effectiveness of such officers
in addressing each of the factors, and the range of compensation paid to
officers of peer institutions, the Compensation Committee approved an increase
in the base salary of the Chief Executive Officer, Executive Vice President and
Senior Vice President. In addition, the Compensation Committee approved salary
increases totalling $57,934 for the Bank's 23 officers, bringing fiscal 1996
total base compensation for all officers to $895,179 from $837,245 in 1995.

This report has been provided by the Compensation Committee consisting
of Directors: John A. Becker, Truman D. Cashman, Michael R. Howell, Linda M.
Johnson, James H. Clutts, William A. Norton, John Petkas, Jr., Klondis T. Pirtle
and Carl S. Schlageter.

Performance Graph

Set forth hereunder is a performance graph comparing (a) the total
return on the Company's Common Stock for the period beginning on December 29,
1996 (the date at which the Company's common stock commenced trading on the
Nasdaq National Market) through September 30, 1996, (b) the cumulative total
return on stocks included in the Nasdaq Composite Index over such period, and
(c) the yearly cumulative total return on stocks included in the Nasdaq Bank
Index over such period. The cumulative total return on the Company's Common
Stock was computed assuming the reinvestment of cash dividends.

There can be no assurance that the Company's stock performance will
continue in the future with the same or similar trend depicted in the graph. The
Company will not make or endorse any predictions as to future stock performance.

[GRAPHIC OMITTED]

<PAGE>
Directors' Compensation

During the year ended September 30, 1996, the Company paid directors'
fees of $9,490 per year to each of the nine persons who served as directors for
the entire fiscal year. Director Watson and Doelitzsch received $2,190 each for
their service on the Board during the fiscal year 1996. Directors' fees paid
during fiscal year 1996 aggregated $92,020. Members of the Board of Directors
are not compensated for serving on committees.

Benefits

Medical and Life Insurance and Educational Assistance. The Bank
provides full-time employees with medical, life and accidental death and
dismemberment insurance. In addition, the Bank offers educational assistance to
full-time employees who have worked for the Bank for one year and desire to take
courses at accredited colleges, universities and secretarial trade schools.

Retirement Plan. The Bank maintains a tax-qualified, non-contributory,
defined benefit retirement plan for its employees. Generally, all full-time
employees of the Bank upon attaining age 21 and completing one year of service
are eligible to participate in the retirement plan.

The retirement plan provides for normal retirement at age 65. The
retirement plan requires five years of service for a non-forfeitable right to
retirement benefits. Employees earn one benefit year for each year during which
they complete at least 1,000 hours of service. The benefit formula provides for
an accrual for each benefit year of 2.0% of final average earnings up to the
average salary received during the employee's five highest years of
compensation. Employees may elect to receive reduced retirement benefits
commencing at age 45. Employees who choose to defer receipt of their retirement
benefits until age 70 will be entitled to have their normal retirement benefits
increased by .8% for each month of deferment (up to 9.6% per annum, with a
maximum increase in benefits of 48%). The retirement plan provides for
disability and death benefits. The retirement plan is funded by the Bank. During
the year ended September 30, 1996, the Bank's contributions to the retirement
plan aggregated $113,424.

The following table indicates the annual retirement benefit that would
be payable under the retirement plan upon retirement at age 65 to a participant
electing to receive retirement benefits in the standard form of benefit,
assuming various specified levels of plan compensation and various specified
years of credited service.
<TABLE>
<CAPTION>
High-5 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
Average Benefit Benefit Benefit Benefit Benefit Benefit
Compensation Service Service Service Service Service Service
------------ ---------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 $ 2,500 $ 5,000 $ 7,500 $ 10,000 $ 12,500 $ 15,000
50,000 5,000 10,000 15,000 20,000 25,000 30,000
75,000 7,500 15,000 22,500 30,000 37,500 45,000
100,000 10,000 20,000 30,000 40,000 50,000 60,000
125,000 12,500 25,000 37,500 50,000 62,500 75,000
150,000 15,000 30,000 45,000 60,000 75,000 90,000
175,000 17,500 35,000 52,500 70,000 87,500 105,000
200,000 20,000 40,000 60,000 80,000 100,000 113,636*
- ------------------------------------
</TABLE>
* Maximum benefit allowable in 1997.
<PAGE>
Supplemental Executive Retirement Plan. The Bank maintains a
non-qualified supplemental executive retirement plan ("SERP") for certain
executives of the Bank to compensate those executive participants in the Bank's
tax-qualified benefit plans whose benefits are limited by Section 415 or Section
401(a)(17) of the Code. As of September 30, 1996, Mr. Becker was participating
in the SERP. The SERP provides participants with retirement benefits generally
equal to the difference between the annual benefit the participant would have
received under the Bank's Retirement Plan if such benefits were computed without
giving effect to the limitations on benefits imposed by application of Section
401(a)(17) and Section 415 of the Internal Revenue Code and the amounts actually
payable to the Participant under the terms of the Retirement Plan. In addition,
the Participant is entitled to an ESOP benefit in a dollar amount equal to the
difference between the fair market value of the number of shares of common stock
of the Company that would have been allocated to the account of the Participant
had the limitations of Section 401(a)(17) and 415 of the Internal Revenue Code
not been applicable and the fair market value of the number of shares of common
stock actually allocated to the account of the Participant. Benefits are payable
in the same form as benefits in the Retirement Plan and the ESOP. See
description of Retirement Plan and Employee Stock Ownership Plan and Trust for
timing and form of payment for benefits under the Retirement Plan and ESOP.

The SERP is considered an unfunded plan for tax and ERISA purposes. All
obligations arising under the SERP are payable from the general assets of the
Bank, however, the Bank has set up a trust to ensure that sufficient assets will
be available to pay the benefits under the SERP. The Bank's pension cost
attributable to the SERP was $11,866 for the year ended September 30, 1996.

1993 Stock Option Plan. The Board of Directors of the Bank adopted the
Charter Bank, S.B. 1993 Incentive Stock Option Plan ("1993 Stock Option Plan")
for its officers and employees. All employees of the Bank were eligible to
participate in the 1993 Stock Plan. The 1993 Stock Plan authorizes the grant of
(i) options to purchase the equivalent of 240,065 shares of Common Stock as
adjusted, intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986 (the "Code"), (ii) options that do not so
qualify ("non-statutory options") and (iii) Limited Rights (discussed below)
which are exercisable only upon a change in control of the Bank. Approximately
nine employees, other than executive officers, are participating in the 1993
Stock Option Plan.

In connection with the Bank's stock offering, the Board of Directors
granted options (with Limited Rights) under the 1993 Stock Option Plan at an
exercise price equal to $4.80 per share, as adjusted. No options were granted
during fiscal year 1996. Set forth below is information related to options
granted under the 1993 Stock Option Plan.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at The-Money Options at
Shares Acquired Value Fiscal Year-End Fiscal Year-End (2)
Name Upon Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
John A. Becker N/A N/A 63,975/18,339 $492,608/$141,210
Michael R. Howell N/A N/A 22,656/7,552 $174,451/$58,150
Linda M. Johnson N/A N/A 26,040/7,552 $200,508/$58,150
</TABLE>
<PAGE>
(1) Equals the difference between the aggregate exercise price of the options
exercised and the aggregate fair market value of the shares of Common Stock
received upon exercise computed using the price of the Common Stock as
quoted on the Nasdaq National Market at the time of exercise.
(2) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of Common Stock that
would be received upon exercise, assuming such exercise occurred on
September 30, 1996, at which date the closing price of the Common Stock as
quoted on the Nasdaq National Market was at $12.50.

All options granted thus far are intended to be Incentive Stock Options
to the extent permitted under Section 422 of the Code. Options become
exercisable as determined by the stock option committee and may provide that the
options are exercisable in installments. Options will be 100% exercisable in the
event the optionee terminates his employment due to death, disability or
retirement or in the event of a change in control of the Company or the Bank.
Except as noted below, the exercise price at the time of the grant will be at
least 100% of the fair market value of the underlying Common Stock. The exercise
price may be paid in cash or Common Stock. Under the Stock Plan, the Bank may
issue replacement options in exchange for previously granted non-statutory
options at exercise prices that may be less than the previous exercise price,
but may not be less than 100% of the fair market value of the Common Stock on
the date such replacement options are granted.

No incentive stock option granted in connection with the Stock Plan
will be exercisable more than three months after the date on which the optionee
ceases to perform services for the Company or the Bank, except that in the event
of death, disability, retirement or a change in control of the Company or the
Bank, incentive stock options may be exercisable for up to one year thereafter
or such longer period as determined by the Bank; provided, however, that if an
optionee ceases to perform services for the Company or the Bank due to
retirement or following a change in control, any incentive stock options
exercised more than three months following the date the optionee ceases to
perform services shall be treated as a non-statutory stock option as described
above. Non-statutory options may be exercised up to one year following cessation
of employment. A change in control is defined in the Stock Plan generally to
occur when a person or group of persons acting in concert acquires beneficial
ownership of 20% or more of any class of equity security, such as the Common
Stock, of the Company or in the event of a tender offer or exchange offer,
merger or other form of business combination, sale of assets or contested
election of directors which result in a change of control of a majority of the
Board of Directors.

Upon the exercise of "Limited Rights" in the event of a change in
control, the optionee will be entitled to receive a lump sum cash payment equal
to the difference between the exercise price of the related option and the fair
market value of the shares of Common Stock subject to the option on the date of
exercise of the right in lieu of purchasing the Common Stock underlying the
option.

Stock Option Plan For Outside Directors. The Board of Directors of the
Bank adopted the Charter Bank, S.B. 1993 Stock Option Plan for Outside Directors
for directors who are not employees of the Bank ("1993 Directors Plan").
<PAGE>
The 1993 Directors' Plan is a self-administering plan and provides for
the granting of nonstatutory options to directors who are not officers or
employees of the Bank to acquire 60,016 shares of Common Stock as adjusted. The
exercise price per share of each option is $4.80 per share as adjusted. All
options granted under the 1993 Directors' Plan expire upon the earlier of 10
years following the date of grant or one year following the date the optionee
ceases to be a director. Options for 12,003 shares of Common Stock (as adjusted)
were awarded to each of Directors Norton, Petkas, Pirtle and Schlageter.
Presently, there are no options reserved for future grant. The unrealized value
of the shares subject to options for each of Directors Norton, Petkas, Pirtle
and Schlageter was $92,423, $76,376, $83,175 and $92,423, respectively, assuming
such options were exercised on September 30, 1996, at which date the closing
price of the Common Stock as quoted on the Nasdaq National Market was $12.50.

Transactions With Certain Related Persons

The Bank makes loans to its directors and executive officers in the
ordinary course of business, on substantially the same terms, including fees,
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and such loans do not involve more than the
normal risk of collectability or present other unfavorable features.

The Bank intends that all transactions between the Bank and its
executive officers, directors, holders of 10% or more of the shares of any class
of the Company's Common Stock and affiliates thereof, will contain terms no less
favorable to the Bank than could have been obtained by it in arm's-length
negotiations with unaffiliated persons and will be approved by a majority of
independent directors of the Bank not having any interest in the transactions.

As of September 30, 1996, the aggregate principal balance of loans
outstanding for: (i) all non-employee directors was $781,618; (ii) the 3
officers whose annual compensation exceeded $100,000 during fiscal year 1996 was
$128,149; and (iii) all such directors, executive officers, and family members
was $1,186,789.
<PAGE>
PROPOSAL II--APPROVAL OF THE
CHARTER FINANCIAL, INC.
1997 STOCK OPTION PLAN

The Board of Directors of the Company has adopted the Charter
Financial, Inc. 1997 Stock Option Plan (the "Stock Option Plan"), subject to
stockholder approval of the Stock Option Plan at the Meeting. The following
discussion is qualified in its entirety by reference to the Stock Option Plan, a
copy of which is attached hereto as Appendix A.

Certain directors, officers and employees of the Bank and the Company
will be eligible to participate in the Stock Option Plan. The Stock Option Plan
authorizes the grant of stock options and limited rights to purchase 233,553
shares, or 8% of the number of shares of Common Stock issued in connection with
the Conversion of the Bank's mutual holding company in December 1995. Pursuant
to the Stock Option Plan, grants may be made of (i) options to purchase Common
Stock intended to qualify as incentive stock options under Section 422 of the
Code, (ii) options that do not so qualify ("nonstatutory options") and (iii)
limited rights (described below) that are exercisable only upon a change in
control of the Bank or the Company. Nonemployee directors are eligible to
receive only nonstatutory options.

Upon approval of the Stock Option Plan, it is expected that the Stock
Benefits Committee, consisting of at least two non-employee members of the Board
of Directors of the Company or all members of the Board of Directors of the
Company, will grant options (with limited rights in the case of options granted
to employees) to purchase the following number of shares to Named Executive
Officers, executive officers as a group, non-employee directors, and employees
as a group.
<TABLE>
<CAPTION>
Number of Shares
Name and to be Received Upon
Principal Position Exercise of Options (1)
------------------ -----------------------
<S> <C>
John A. Becker, Chairman of the Board, 45,000
President and Chief Executive Officer
Michael R. Howell, Executive Vice President 26,000
and Director
Linda M. Johnson, Senior Vice President and 26,000
Director
All executive officers as a group (3 persons) 97,000
Truman Cashman, Director (2) 8,000
James H. Clutts, Director (2) 8,000
William A. Norton, Director (2) 8,000
John Petkas, Jr., Director (2) 8,000
Klondis T. Pirtle, Director (2) 8,000
Carl S. Schlageter, M.D., Director (2) 8,000
Dennis F. Doelitzsch, Director (2) 8,000
Ralph Eugene Watson, Director (2) 8,000
All non-employee directors
as a group (8 persons) (2) 64,000
All employees, not including
executive officers, as a
group (19 persons) 63,500
- -----------------------------
</TABLE>
<PAGE>
(1) The value of the stock options is not determinable because the exercise
price will be equal to the fair market value of the Company's Common Stock
at the effective time of the award.
(2) All options granted to non-employee directors will be nonstatutory stock
options.
(3) 9,053 options remain unallocated.

In granting options, the Stock Benefits Committee considers factors
such as salary, length of employment with the Company and the Bank, and the
employee's overall performance. All stock options will be exercisable in five
equal annual installments of 20% commencing with the vesting of the first
installment one year from the date of grant, and succeeding installments on each
anniversary of the date of grant; provided, however, that all options will be
100% exercisable in the event the optionee terminates his service due to normal
retirement, death or disability, or in the event of a change in control of the
Company or the Bank. Options must be exercised within 10 years from the date of
grant. Stock options may be exercised up to one year following termination of
service or such later period as determined by the Stock Benefits Committee. The
exercise price of the options will be at least 100% of the fair market value of
the underlying Common Stock at the time of the grant. The last sale price of the
Company's Common Stock on November 29, the last trading day prior to the Record
Date, as quoted on the Nasdaq National Market was $13.00 per share. The exercise
price may be paid in cash or Common Stock. Common Stock issued in connection
with the exercises of options may be Treasury Shares, shares obtained from
open-market purchases or authorized but unissued shares. The issuance of
authorized but unissued shares of Common Stock or Treasury shares will have a
dilutive effect on the Common Stock holdings of existing stockholders.

Incentive stock options will only be granted to employees of the Bank
or the Company. Nonemployee directors will be granted nonstatutory stock
options. No stock option granted in connection with the Stock Option Plan will
be eligible to be treated as an incentive stock option if it is exercised more
than three months after the date on which the optionee ceases to perform
services for the Bank or the Company, except that in the event of death or
disability, a stock option may be eligible to be treated as an incentive stock
option if it is exercised within one year; provided, however, that if an
optionee ceases to perform services for the Bank or the Company due to normal
retirement or following a change in control (as defined in the Stock Option
Plan), any incentive stock options exercised more than three months following
the date the optionee ceases to perform services shall be treated as a
nonstatutory stock option as described above.

Upon the exercise of "limited rights" in the event of a change in
control, the optionee will be entitled to receive a lump sum cash payment (or in
certain cases, shares of Common Stock) equal to the difference between the
exercise price of the option and the fair market value of the shares of Common
Stock subject to the option on the date of exercise of the right in lieu of
purchasing the stock underlying the option. In the event of death or disability,
the Bank or the Company, if requested by the optionee or beneficiary, may elect,
in exchange for the option, to pay the optionee, or beneficiary in the event of
death, the amount by which the fair market value of the Common Stock exceeds the
exercise price of the option on the date of the optionee's termination of
service for death or Disability.
<PAGE>
Simultaneously with the grant of any stock option, the Committee may
grant a Dividend Equivalent Right with respect to all or some of the shares
covered by such stock option. The Dividend Equivalent Right provides the grantee
with a separate cash benefit equal to 100% of the amount of any extraordinary
dividend declared by the Company on shares of Common Stock subject to a stock
option. Under the terms of the Stock Option Plan, an extraordinary dividend is
any dividend paid on shares of Common Stock where the rate of the dividend
exceeds the Bank's weighted average cost of funds on interest bearing
liabilities for the current and preceding three quarters. Upon the payment of an
extraordinary dividend, the holder of a Dividend Equivalent Right will receive,
at the time of vesting of the related stock option, an amount of cash or some
other payment as determined under the Stock Option Plan, equal to 100% of the
extraordinary dividend paid on shares of Common Stock, multiplied by the number
of shares subject to the underlying stock option plus any earnings thereon minus
any tax withholding amounts. Payments shall be decreased by the amount of any
applicable tax withholding prior to distribution in accordance with the Stock
Option Plan. The Dividend Equivalent Right is transferrable only when the
underlying stock option is transferable and under the same conditions.

The purpose of stockholder approval for the Stock Option Plan will be
to qualify the Stock Option Plan for the granting of incentive stock options and
to satisfy the listing requirements for the Common Stock on the Nasdaq National
Market.

The Board of Directors may amend, suspend or terminate the Stock Option
Plan except that such amendments may not impair awards previously granted.

The exercise of options will have a dilutive effect on the ownership
interests of existing stockholders. Further, the exercise of options may render
more difficult or discourage, a merger, tender offer or other takeover attempt
even if such transaction would be beneficial to stockholders generally, the
assumption of control by a holder of a large block of the Company's securities,
a proxy contest or the removal of incumbent management.

Federal Income Tax Consequences

Under present Federal tax laws, options granted and exercised under the
Stock Option Plan will result in the following tax consequences:

1. The grant of an option will not by itself result in the recognition
of taxable income to the participant or entitle the Company to a deduction at
the time of such grant.

2. The exercise of an option which is an "Incentive Stock Option"
within the meaning of Section 422 of the Internal Revenue Code generally will
not, by itself, result in the recognition of taxable income to the participant
or entitle the Company to a deduction at the time of such exercise. However, the
difference between the exercise price and the fair market value of the option
shares on the date of exercise is an item of tax preference which may, in
certain situations, trigger the alternative minimum tax. The alternative minimum
tax is incurred only when it exceeds the regular income tax. The participant
will recognize capital gain or loss upon resale of the shares received upon such
exercise, provided that such shares are held for at least one year after the
transfer of shares to the participant or two years after the grant of the
option, which is later. Generally, if the shares are not held for that period,
the participant will recognize ordinary income upon disposition in an amount
equal to the difference between the exercise price and the fair market value on
the date of exercise, or, if less, the sale proceeds of the shares acquired
pursuant to the option.
<PAGE>
3. The exercise of a nonstatutory stock option will result in the
recognition of ordinary income by the participant on the date of exercise in an
amount equal to the difference between the exercise price and the fair market
value on the date of exercise of the Common Stock acquired pursuant to the
option.

4. The Company will be allowed a tax deduction equal to the amount of
taxable ordinary income recognized by the participant at the time the
participant recognizes such ordinary income.

ALL PROXIES MUST BE SIGNED AND RETURNED TO THE COMPANY IN ORDER FOR A
STOCKHOLDER'S VOTE TO BE COUNTED. UNLESS MARKED TO THE CONTRARY, THE SHARES
REPRESENTED BY THE ENCLOSED, SIGNED PROXY WILL BE VOTED FOR THE APPROVAL OF THE
1997 STOCK OPTION PLAN.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1997
STOCK OPTION PLAN.
<PAGE>
PROPOSAL III--APPROVAL OF THE
CHARTER FINANCIAL, INC.
1997 RECOGNITION AND RETENTION PLAN

Subject to stockholder approval at the Annual Meeting, the Bank and the
Company have established the 1997 Recognition and Retention Plan (the
"Recognition Plan") as a method of providing certain employees and non-employee
directors of the Bank or the Company with a proprietary interest in the Company
in a manner designed to encourage such persons to remain with the Bank and the
Company. The following discussion is qualified in its entirety by reference to
the Recognition Plan, which is attached hereto as Appendix B.

The Bank or the Company intend to contribute sufficient funds for the
Recognition Plan to acquire authorized but unissued shares of Common Stock of
the Company or purchase Common Stock in the open market in an aggregate amount
of 116,776 shares of Common Stock, or 4% of the shares issued in connection with
the conversion of the Bank's mutual holding company in December 1995. In the
event that the Recognition Plan acquires shares of Common Stock from authorized
but unissued shares or treasury shares, existing stockholders will
experience dilution of their ownership interest. Shares of Common Stock
restricted by the terms of the Recognition Plan will be awarded in the following
amounts to Named Executive Officers, executive officers as a group, non-employee
directors, and employees as a group.
<TABLE>
<CAPTION>

Awards to Officers, Employees and Non-Employee Directors

Name and
Principal Position Dollar Value (1) Number of Shares
------------------ ---------------- ----------------
<S> <C> <C>
John A. Becker, Chairman $ 364,000 28,000
of the Board, President and
Chief Executive Officer
Michael R. Howell, Executive 234,000 18,000
Vice President and Director
Linda M. Johnson, Senior Vice 234,000 18,000
President and Director
All executive officers as a group 832,000 64,000
(3 persons)
Truman D. Cashman, Director 52,000 4,000
James H. Clutts, Director 52,000 4,000
William A. Norton, Director 52,000 4,000
John Petkas, Jr., Director 52,000 4,000
Klondis T. Pirtle, Director 52,000 4,000
Carl S. Schlageter, M.D., Director 52,000 4,000
Dennis F. Doelitzsch, Director 52,000 4,000
Ralph Eugene Watson, Director 52,000 4,000
All non-employee directors 416,000 32,000
as a group (8 persons)
All employees, not including 270,088 20,776
executive officers, as a
group (6 persons)
- -----------------------------
</TABLE>
<PAGE>
(1) Based on the last sale price on November 29, the last trading day prior to
the Record Date, as quoted on the Nasdaq National Market.

The Stock Benefits Committee, composed of the non-employee directors of
the Bank and the Company, will administer the Recognition Plan, and make awards
to officers and employees pursuant to the Recognition Plan. However, awards to
outside directors will be fixed by the terms of the Recognition Plan. Awards of
Common Stock that are restricted by the Recognition Plan ("Restricted Stock")
are nontransferable and nonassignable. Participants in the Recognition Plan will
earn (become vested in) shares of Restricted Stock covered by an award and all
restrictions will lapse at a rate of 20% per year commencing with the first
lapse of restrictions on the first trading day of 1998, and succeeding
installments being earned on the first trading day of the following year;
provided, however, that the Stock Benefits Committee may accelerate or extend
the earnings rate on any awards made to officers and employees after the
effective date of the Recognition Plan. Awards to executive officers and outside
directors become fully vested upon termination of employment or service due to
normal retirement, death or disability, or following a termination of employment
or service in connection with a change in control (as defined therein) of the
Bank or the Company. Upon termination of employment or service for any other
reason, unvested shares are forfeited. When a participant's shares become vested
in accordance with the Recognition Plan, the participant will recognize income
equal to the fair market value of the Restricted Stock so vested at that time,
unless the participant has made an irrevocable election to be taxed on the
shares of Restricted Stock awarded to him in the year of the award. The amount
of income recognized by a participant will be a deductible expense of the
Company for Federal income tax purposes. After Restricted Stock has been
granted, but before the Restricted Stock has vested, the recipient shall receive
any cash dividends paid with respect to such shares. Stock dividends declared by
the Company and paid on shares that have not been earned shall be subject to the
same restrictions as the Restricted Stock until such shares are earned. Prior to
vesting, recipients of awards under the Recognition Plans may vote the shares of
Restricted Stock allocated to them.

Restricted Stock awarded under the Recognition Plan will qualify for
certain exemptive treatment from the short-swing profit provisions of Section
16(b) of the Exchange Act.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
RECOGNITION PLAN.
<PAGE>
PROPOSAL IV--RATIFICATION OF APPOINTMENT OF AUDITORS

The Board of Directors of the Company has approved the engagement of
KPMG Peat Marwick LLP, to be the Company's auditors for the 1997 fiscal year,
subject to the ratification of the engagement by the Company's stockholders. At
the Meeting, stockholders will consider and vote on the ratification of the
engagement of KPMG Peat Marwick LLP, for the Company's fiscal year ending
September 30, 1997. A representative of KPMG Peat Marwick LLP, is expected to
attend the Meeting to respond to appropriate questions and to make a statement
if he so desires.

In order to ratify the selection of KPMG Peat Marwick LLP, as the
auditors for the 1997 fiscal year, the proposal must receive at least a majority
of the votes cast, either in person or by proxy, in favor of such ratification.
The Board of Directors recommends a vote "FOR" the ratification of KPMG Peat
Marwick LLP, as auditors for the 1997 fiscal year.

STOCKHOLDER PROPOSALS

In order to be eligible for inclusion in the Company's proxy materials
for next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive office, 114
West Broadway, Sparta, Illinois 62286, no later than August 13, 1997. Any such
proposals shall be subject to the requirements of the proxy rules adopted under
the Securities Exchange Act of 1934.

MISCELLANEOUS

The Board of Directors is not aware of any business to come before the
Meeting other than the matters described above in the Proxy Statement. However,
if any matters should properly come before the Meeting, it is intended that
holders of the proxies will act as directed by a majority of the Board of
Directors, except for matters related to the conduct of the Meeting, as to which
they shall act in accordance with their best judgment.

The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company and Bank may solicit
proxies personally or by telegraph or telephone without additional compensation.

BY ORDER OF THE BOARD OF DIRECTORS

/s/Linda M. Johnson
----------------
Linda M. Johnson
Secretary
Sparta, Illinois
December 10, 1996
<PAGE>
APPENDIX A

CHARTER FINANCIAL, INC.

1997 STOCK OPTION PLAN

1. Establishment of the Plan

Charter Financial, Inc. (the "Company") hereby establishes the Charter
Financial, Inc. 1997 Stock Option Plan (the "Plan") upon the terms and
conditions hereinafter stated in the Plan.

2. Purpose

The purpose of the Plan is to advance the interests of the Company and
its stockholders by providing Key Employees and Outside Directors of the Company
and its Affiliates, including Charter Bank, S.B., upon whose judgment,
initiative and efforts the successful conduct of the business of the Company and
its Affiliates largely depends, with an additional incentive to perform in a
superior manner as well as to attract people of experience and ability.

3. Definitions

"Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Company or the Bank, as such terms are defined in Section 424(e) or
424(f), respectively, of the Code, or a successor to a parent corporation or
subsidiary corporation.

"Award" means an Award of Non-Statutory Stock Options, Incentive Stock
Options, Limited Rights, and/or Dividend Equivalent Rights granted under the
provisions of the Plan.

"Bank" means Charter Bank, S.B., or a successor corporation.

"Beneficiary" means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.

"Board" or "Board of Directors" means the board of directors of the
Company or its Affiliate, as applicable.

"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
<PAGE>
"Change in Control" of the Bank or the Company means a change in
control of a nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners' Loan Act ("HOLA"), and applicable
rules and regulations promulgated thereunder, as in effect at the time of the
Change in Control; or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means a Committee of the Board consisting of either (i) at
least two Non-Employee Directors of the Company, or (ii) the entire Board of the
Company.

"Common Stock" means shares of the common stock of the Company, par
value $.10 per share.

"Company" means Charter Financial, Inc., or a successor corporation.

"Continuous Service" means employment as a Key Employee and/or service
as an Outside Director without any interruption or termination of such
employment and/or service. Continuous Service shall also mean a continuation as
a member of the Board of Directors following a cessation of employment as a Key
Employee. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or in the case of transfers between payroll
locations of the Bank or between the Bank, its parent, its subsidiaries or its
successor.
<PAGE>
"Conversion" means the December 28, 1995, conversion of Charter
Bancorp, M.H.C. from the mutual to stock form of organization.

"Date of Grant" means the actual date on which an Award is granted by
the Committee.

"Director" means a member of the Board.

"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him, or of a Director to serve as such. Additionally, in
the case of an employee, a medical doctor selected or approved by the Board must
advise the Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such Disability will
be permanent during the remainder of said employee's lifetime.

"Dividend Equivalent Rights" means the right to receive an amount of
cash based upon the terms set forth in Section 10 hereof.

"Effective Date" means the date of, or a date determined by the Board
of Directors following, approval of the Plan by the Company's stockholders.

"Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the reported closing price of the Common Stock as
reported by the Nasdaq stock market (as published by the Wall Street Journal, if
published) on such date, or if the Common Stock was not traded on the day prior
to such date, on the next preceding day on which the Common Stock was traded;
provided, however, that if the Common Stock is not reported on the Nasdaq stock
market, Fair Market Value shall mean the average sale price of all shares of
Common Stock sold during the 30-day period immediately preceding the date on
which such stock option was granted, and if no shares of stock have been sold
within such 30-day period, the average sale price of the last three sales of
Common Stock sold during the 90-day period immediately preceding the date on
which such stock option was granted. In the event Fair Market Value cannot be
determined in the manner described above, then Fair Market Value shall be
determined by the Committee. The Committee is authorized, but is not required,
to obtain an independent appraisal to determine the Fair Market Value of the
Common Stock.

"Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated as an Incentive Stock Option pursuant to
Section 9.

"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in the
Plan.

"Limited Right" means the right to receive an amount of cash based upon
the terms set forth in Section 10.

"Non-Statutory Stock Option" means an Option granted by the Committee
to (i) an Outside Director or (ii) to any other Participant and such Option is
either (A) not designated by the Committee as an Incentive Stock Option, or (B)
fails to satisfy the requirements of an Incentive Stock Option as set forth in
Section 422 of the Code and the regulations thereunder.
<PAGE>
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.

"Normal Retirement" means for a Key Employee, retirement at the normal
or early retirement date set forth in the Bank's Employee Stock Ownership Plan,
or any successor plan. Normal Retirement for an Outside Director means a
cessation of service on the Board of Directors for any reason other than removal
for Cause, after reaching 60 years of age and maintaining at least 10 years of
Continuous Service.

"Offering" means the December 28, 1995 offering of the Common Stock of
the Company.

"Outside Director" means a Director of the Company or an Affiliate who
is not an employee of the Company or an Affiliate.

"Option" means an Award granted under Section 8 or Section 9.

"Participant" means a Key Employee or Outside Director of the Company
or its Affiliates who receives or has received an award under the Plan.

"Termination for Cause" means the termination of employment or
termination of service on the Board caused by the individual's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or the willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses), or a final cease-and-desist order, any of which results in material
loss to the Company or one of its Affiliates.

4. Plan Administration Restrictions

The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it deems necessary or advisable. All determinations and interpretations made by
the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.

All transactions involving a grant, award or other acquisition from the
Company shall:

(a) be approved by the Company's full Board or by the Committee;

(b) be approved, or ratified, in compliance with Section 15 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the securities present, or represented and entitled to vote at a meeting duly
held in accordance with the laws of the state in which the Company is
incorporated; or the written consent of the holders of a majority of the
securities of the issuer entitled to vote provided that such ratification occurs
no later than the date of the next annual meeting of shareholders; or
<PAGE>
(c) result in the acquisition of an Option or Limited Right that is
held by the Participant for a period of six months following the date of such
acquisition.

5. Types of Awards

Awards under the Plan may be granted in any one or a combination of:
(a) Incentive Stock Options; (b) Non-Statutory Stock Options; (c) Limited
Rights; and (d) Dividend Equivalent Rights.

6. Stock Subject to the Plan

Subject to adjustment as provided in Section 15, the maximum number of
shares reserved for issuance under the Plan is 233,553 shares. To the extent
that Options or rights granted under the Plan are exercised, the shares covered
will be unavailable for future grants under the Plan; to the extent that Options
together with any related rights granted under the Plan terminate, expire or are
canceled without having been exercised or, in the case of Limited Rights
exercised for cash, new Awards may be made with respect to these shares.

7. Eligibility

Key Employees of the Company and its Affiliates shall be eligible to
receive Incentive Stock Options, Non-Statutory Stock Options, Limited Rights
and/or Dividend Equivalent Rights under the Plan. Outside Directors shall be
eligible to receive Non-Statutory Stock Options and Dividend Equivalent Rights
under the Plan.

8. Non-Statutory Stock Options

8.1 Grant of Non-Statutory Stock Options

(a) Grants to Outside Directors and Key Employees. The Committee may,
from time to time, grant Non-Statutory Stock Options to eligible Key Employees
and Outside Directors, and, upon such terms and conditions as the Committee may
determine, grant Non-Statutory Stock Options in exchange for and upon surrender
of previously granted Awards under the Plan. Non-Statutory Stock Options granted
under the Plan, including Non-Statutory Stock Options granted in exchange for
and upon surrender of previously granted Awards, are subject to the terms and
conditions set forth in this Section 8. The maximum number of shares subject to
a Non-Statutory Option that may be awarded under the Plan to any Key Employee
shall be 75,000.

(b) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Participant specifying the number
of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions that are not inconsistent with the
terms of the Plan.

(c) Price. The purchase price per share of Common Stock deliverable
upon the exercise of each Non-Statutory Stock Option shall be the Fair Market
Value of the Common Stock of the Company on the date the Option is granted.
Shares may be purchased only upon full payment of the purchase price in one or
more of the manners set forth in Section 13 hereof, as determined by the
Committee.
<PAGE>
(d) Manner of Exercise and Vesting. A Non-Statutory Stock Option
granted under the Plan shall vest in a Participant at the rate or rates
determined by the Committee. A vested Option may be exercised from time to time,
in whole or in part, by delivering a written notice of exercise to the President
or Chief Executive Officer of the Company, or his designee. Such notice shall be
irrevocable and must be accompanied by full payment of the purchase price in
cash or shares of Common Stock at the Fair Market Value of such shares,
determined on the exercise date in the manner described in Section 3 hereof. If
previously acquired shares of Common Stock are tendered in payment of all or
part of the exercise price, the value of such shares shall be determined as of
the date of such exercise.

(e) Terms of Options. The term during which each Non-Statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-Statutory Stock Option be exercisable in whole or in part more than
10 years and one day from the Date of Grant. No Options shall be earned by a
Participant unless the Participant maintains Continuous Service until the
vesting date of such Option, except as set forth herein. The shares comprising
each installment may be purchased in whole or in part at any time after such
installment becomes purchasable. The Committee may, in its sole discretion,
accelerate the time at which any Non-Statutory Stock Option may be exercised in
whole or in part by Key Employees and/or Outside Directors. Notwithstanding any
other provision of this Plan, in the event of a Change in Control of the Company
or the Bank, all Non-Statutory Stock Options that have been awarded shall become
immediately exercisable for three years following such Change in Control.

(f) Termination of Employment or Service. Upon the termination of a Key
Employee's employment or upon termination of an Outside Director's service for
any reason other than, Normal Retirement, death, Disability, Change in Control
or Termination for Cause, the Participant's Non-Statutory Stock Options shall be
exercisable only as to those shares that were immediately purchasable on the
date of termination and only for one year following termination. In the event of
Termination for Cause, all rights under a Participant's Non-Statutory Stock
Options shall expire upon termination. In the event of the Normal Retirement,
death or Disability of any Participant, all Non-Statutory Stock Options held by
the Participant, whether or not exercisable at such time, shall be exercisable
by the Participant or his legal representative or beneficiaries for five years
following the date of his Normal Retirement, death or cessation of employment
due to Disability, provided that in no event shall the period extend beyond the
expiration of the Non-Statutory Stock Option term.

(g) Transferability. In the discretion of the Board, all or any
Non-Statutory Stock Option granted hereunder may be transferable by the
Participant once the Option has vested in the Participant, provided, however,
that the Board may limit the transferability of such Option or Options to a
designated class or classes of persons.

9. Incentive Stock Options

9.1 Grant of Incentive Stock Options

The Committee may, from time to time, grant Incentive Stock Options to
Key Employees. Incentive Stock Options granted pursuant to the Plan shall be
subject to the following terms and conditions:
<PAGE>
(a) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Key Employee specifying the number
of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions that are not inconsistent with the
terms of the Plan.

(b) Price. Subject to Section 15 of the Plan and Section 422 of the
Code, the purchase price per share of Common Stock deliverable upon the exercise
of each Incentive Stock Option shall be not less than 100% of the Fair Market
Value of the Company's Common Stock on the date the Incentive Stock Option is
granted. However, if a Key Employee owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
Affiliates (or under Section 424(d) of the Code is deemed to own stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or its Affiliates by reason of the ownership of such
classes of stock, directly or indirectly, by or for any brother, sister, spouse,
ancestor or lineal descendent of such Key Employee, or by or for any
corporation, partnership, estate or trust of which such Key Employee is a
shareholder, partner or Beneficiary), the purchase price per share of Common
Stock deliverable upon the exercise of each Incentive Stock Option shall not be
less than 110% of the Fair Market Value of the Company's Common Stock on the
date the Incentive Stock Option is granted. Shares may be purchased only upon
payment of the full purchase price in one or more of the manners set forth in
Section 13 hereof, as determined by the Committee.

(c) Manner of Exercise. Incentive Stock Options granted under the Plan
shall vest in a Participant at the rate or rates determined by the Committee.
The vested Options may be exercised from time to time, in whole or in part, by
delivering a written notice of exercise to the President or Chief Executive
Officer of the Company or his designee. Such notice is irrevocable and must be
accompanied by full payment of the purchase price in cash or shares of Common
Stock at the Fair Market Value of such shares determined on the exercise date by
the manner described in Section 3.

(d) Amounts of Options. Incentive Stock Options may be granted to any
eligible Key Employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with the terms of Section 422 of the Code.
Notwithstanding the above, the maximum number of shares that may be subject to
an Incentive Stock Option awarded under the Plan to any Key Employee shall be
75,000. In granting Incentive Stock Options, the Committee shall consider such
factors as it deems relevant, which factors may include, among others, the
position and responsibilities of the Key Employee, the length and value of his
or her service to the Bank, the Company, or the Affiliate, the compensation paid
to the Key Employee and the Committee's evaluation of the performance of the
Bank, the Company, or the Affiliate, according to measurements that may include,
among others, key financial ratios, levels of classified assets, and independent
audit findings. In the case of an Option intended to qualify as an Incentive
Stock Option, the aggregate Fair Market Value (determined as of the time the
Option is granted) of the Common Stock with respect to which Incentive Stock
Options granted are exercisable for the first time by the Participant during any
calendar year (under all plans of the Company and its Affiliates) shall not
exceed $100,000. The provisions of this Section 9.1(d) shall be construed and
applied in accordance with Section 422(d) of the Code and the regulations, if
any, promulgated thereunder.
<PAGE>
(e) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If any Key Employee, at the time an Incentive Stock
Option is granted to him, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or its Affiliate
(or, under Section 424(d) of the Code, is deemed to own stock representing more
than 10% of the total combined voting power of all classes of stock, by reason
of the ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Key Employee, or
by or for any corporation, partnership, estate or trust of which such Key
Employee is a shareholder, partner or Beneficiary), the Incentive Stock Option
granted to him shall not be exercisable after the expiration of five years from
the Date of Grant.

The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable and may provide that an Incentive Stock Option
shall become exercisable in installments. The Committee may also determine as of
the Date of Grant any other specific conditions or specific performance goals
which must be satisfied prior to the Incentive Stock Option becoming
exercisable. The shares comprising each installment may be purchased in whole or
in part at any time after such installment becomes purchasable, provided that
the amount able to be first exercised in a given year is consistent with the
terms of Section 422 of the Code. To the extent required by Section 422 of the
Code, the aggregate Fair Market Value (determined at the time the option is
granted) of the Common Stock for which Incentive Stock Options are exercisable
for the first time by a Participant during any calendar year (under all plans of
the Company and its Affiliates) shall not exceed $100,000.

The Committee may, in its sole discretion, accelerate the time at which
any Incentive Stock Option may be exercised in whole or in part, provided that
it is consistent with the terms of Section 422 of the Code. Notwithstanding the
above, in the event of a Change in Control of the Company, all Incentive Stock
Options that have been awarded shall become immediately exercisable, unless the
Fair Market Value of the amount exercisable as a result of a Change in Control
shall exceed $100,000 (determined as of the Date of Grant). In such event, the
first $100,000 of Incentive Stock Options (determined as of the Date of Grant)
shall be exercisable as Incentive Stock Options and any excess shall be
exercisable as Non-Statutory Stock Options.

(f) Termination of Employment. Upon the termination of a Key Employee's
service for any reason other than Disability, Normal Retirement, Change in
Control, death or Termination for Cause, the Key Employee's Incentive Stock
Options shall be exercisable only as to those shares that were immediately
purchasable by such Key Employee at the date of termination and only for a
period of three months following termination. In the event of Termination for
Cause all rights under the Incentive Stock Options shall expire upon
termination.

Upon termination of a Key Employee's employment due to Normal
Retirement, death, Disability, or following a Change in Control, all Incentive
Stock Options held by such Key Employee, whether or not exercisable at such
time, shall be exercisable for a period of five years following the date of his
cessation of employment, provided however, that any such Option shall not be
eligible for treatment as an Incentive Stock Option in the event such Option is
<PAGE>
exercised more than three months following the date of his Normal Retirement or
termination of employment following a Change in Control; and provided further,
that no Option shall be eligible for treatment as an Incentive Stock Option in
the event such Option is exercised more than one year following termination of
employment due to Disability and provided further, in order to obtain Incentive
Stock Option treatment for Options exercised by heirs or devisees of an
Optionee, the Optionee's death must have occurred while employed or within three
(3) months of termination of employment. In no event shall the exercise period
extend beyond the expiration of the Incentive Stock Option term.

(g) Transferability. No Incentive Stock Option granted under the Plan
is transferable except by will or the laws of descent and distribution and is
exercisable during his lifetime only by the Key Employee to which it is granted.

(h) Compliance with Code. The options granted under this Section 9 are
intended to qualify as Incentive Stock Options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
Option as an Incentive Stock Option within the meaning of Section 422 of the
Code. If an Option granted hereunder fails for whatever reason to comply with
the provisions of Section 422 of the Code, and such failure is not or cannot be
cured, such Option shall be a Non-Statutory Stock Option.

10. Limited Rights

10.1 Grant of Limited Rights

The Committee may grant a Limited Right simultaneously with the grant
of any Option to any Key Employee of the Bank, with respect to all or some of
the shares covered by such Option. Limited Rights granted under the Plan are
subject to the following terms and conditions:

(a) Terms of Rights. In no event shall a Limited Right be exercisable
in whole or in part before the expiration of six months from the date of grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Company.

The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, provided that the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
Option.

Upon exercise of a Limited Right, the related Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying Option. The Limited Right is transferable only
when the underlying Option is transferable and under the same conditions.

(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Company an amount of cash equal to the difference
between the Fair Market Value on the Date of Grant of the related Option and the
Fair Market Value of the underlying shares on the date the Limited Right is
exercised, multiplied by the number of shares with respect to which such Limited
Right is being exercised. In the event of a Change in Control in which pooling
<PAGE>
accounting treatment is a condition to the transaction, the Limited Right shall
be exercisable solely for shares of stock of the Company, or in the event of a
merger transaction, for shares of the acquiring corporation or its parent, as
applicable. The number of shares to be received on the exercise of such Limited
Right shall be determined by dividing the amount of cash that would have been
available under the first sentence above by the Fair Market Value at the time of
exercise of the shares underlying the Option subject to the Limited Right.

11. Dividend Equivalent Rights

Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Dividend Equivalent Right with respect to all or some of
the shares covered by such Option. Dividend Equivalent Rights granted under this
Plan are subject to the following terms and conditions:

(a) Terms of Rights. The Dividend Equivalent Right provides the
Participant with a cash benefit per share for each share underlying the
unexercised portion of the related Option equal to the amount of any
extraordinary dividend (as defined in Section 11(c)) per share of Common Stock
declared by the Company. The terms and conditions of any Dividend Equivalent
Right shall be evidenced in the Option agreement entered into with the
Participant and shall be subject to the terms and conditions of the Plan. The
Dividend Equivalent Right is transferable only when the related Option is
transferable and under the same conditions.

(b) Payment. Upon the payment of an extraordinary dividend, the
Participant holding a Dividend Equivalent Right with respect to Options or
portions thereof which have vested shall promptly receive from the Company the
amount of cash equal to the amount of the extraordinary dividend per share of
Common Stock, multiplied by the number of shares of Common Stock underlying the
unexercised portion of the related Option. With respect to options or portions
thereof which have not vested, the amount that would have been received pursuant
to the Dividend Equivalent Right with respect to the shares underlying such
unvested Option or portion thereof shall be paid to the Participant holding such
Dividend Equivalent Right together with earnings thereon, on such date as the
Option or portion thereof becomes vested. Payments shall be decreased by the
amount of any applicable tax withholding prior to distribution to the
Participant as set forth in Section 19.

(c) Extraordinary Dividend. For purposes of this Section 11, an
extraordinary dividend is any dividend paid on shares of Common Stock where the
rate of the dividend exceeds the Bank's weighted average cost of funds on
interest-bearing liabilities for the current and preceding three quarters.

12. Surrender of Option

In the event of a Participant's termination of employment or
termination of service as a result of death, Disability or Normal Retirement,
the Participant (or his or her personal representative(s), heir(s), or
devisee(s)) may, in a form acceptable to the Committee make application to
surrender all or part of the Options held by such Participant in exchange for a
cash payment from the Company of an amount equal to the difference between the
Fair Market Value of the Common Stock on the date of termination of employment
or the date of termination of service on the Board and the exercise price per
<PAGE>
share of the Option. Whether the Company accepts such application or determines
to make payment, in whole or part, is within its absolute and sole discretion,
it being expressly understood that the Company is under no obligation to any
Participant whatsoever to make such payments. In the event that the Company
accepts such application and determines to make payment, such payment shall be
in lieu of the exercise of the underlying Option and such Option shall cease to
be exercisable.

No award under the Plan shall be transferable by the optionee other
than by will or the laws of descent and distribution and may only be exercised
during his or her lifetime by the Participant, or by a guardian or legal
representative of the Participant.

13. Alternate Option Payment Mechanism

The Committee has sole discretion to determine what form of payment it
will accept for the exercise of an Option. The Committee may indicate acceptable
forms in the agreement with the Participant covering such Options or may reserve
its decision to the time of exercise. No Option is to be considered exercised
until payment in full is accepted by the Committee or its agent.

(a) Cash Payment. The exercise price may be paid in cash or by
certified check. To the extent permitted by law, the Committee may permit all or
a portion of the exercise price of an Option to be paid through borrowed funds.

(b) Cashless Exercise. Subject to vesting requirements, if applicable,
a Participant may engage in a "cashless exercise" of the Option. Upon a cashless
exercise, the Participant shall give the Company written notice of the exercise
of the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Common Stock subject to the Option and
to deliver enough of the proceeds to the Company to pay the Option exercise
price and any applicable withholding taxes. If the Participant does not sell the
Common Stock subject to the Option through a registered broker-dealer or
equivalent third party, the Optionee can give the Company written notice of the
exercise of the Option and the third party purchaser of the Common Stock subject
to the Option shall pay the Option exercise price plus applicable withholding
taxes to the Company.

(c) Exchange of Common Stock. The Committee may permit payment of the
Option exercise price by the tendering of previously acquired shares of Common
Stock. All shares of Common Stock tendered in payment of the exercise price of
an Option shall be valued at the Fair Market Value of the Common Stock on the
date prior to the date of exercise.

14. Rights of a Stockholder

A Participant shall have no rights as a stockholder with respect to any
shares covered by a Non-Statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in the Plan or in
any Award granted confers on any person any right to continue in the employ of
the Company or its Affiliates or to continue to perform services for the Company
or its Affiliates or interferes in any way with the right of the Company or its
Affiliates to terminate his services as an officer, director or employee at any
time.
<PAGE>
15. Agreement with Participants

Each Award of Options, and/or Limited Rights will be evidenced by a
written agreement, executed by the Participant and the Company or its Affiliates
that describes the conditions for receiving the Awards including the date of
Award, the purchase price, applicable periods, and any other terms and
conditions as may be required by the Board or applicable securities law.

16. Designation of Beneficiary

A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option or Limited
Rights Award to which he would then be entitled. Such designation will be made
upon forms supplied by and delivered to the Company and may be revoked in
writing. If a Participant fails effectively to designate a Beneficiary, then his
estate will be deemed to be the Beneficiary.

17. Dilution and Other Adjustments

In the event of any change in the outstanding shares of Common Stock of
the Company by reason of any stock dividend or split, pro rata return of capital
to all shareholders, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares without receipt or payment
of consideration by the Company, the Committee will make such adjustments to
previously granted Awards, to prevent dilution or enlargement of the rights of
the Participant, including any or all of the following:

(a) adjustments in the aggregate number or kind of shares of Common
Stock that may be awarded under the Plan;

(b) adjustments in the aggregate number or kind of shares of Common
Stock covered by Awards already made under the Plan; or

(c) adjustments in the purchase price of outstanding Incentive and/or
Non-Statutory Stock Options, or any Limited Rights attached to
such Options.

No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award. With
respect to Incentive Stock Options, no such adjustment shall be made if it would
be deemed a "modification" of the Award under Section 424 of the Code.

18. Effect of a Change in Control on Option Awards

In the event of a Change in Control, the Committee and the Board of
Directors will take one or more of the following actions to be effective as of
the date of such Change in Control:

(a) provide that such Options shall be assumed, or equivalent options
shall be substituted, ("Substitute Options") by the acquiring or succeeding
corporation (or an affiliate thereof), provided that: (A) any such Substitute
Options exchanged for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, and (B) the shares of stock issuable upon the
exercise of such Substitute Options shall constitute securities registered in
<PAGE>
accordance with the Securities Act of 1933, as amended ("1933 Act") or such
securities shall be exempt from such registration in accordance with Sections
3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or
in the alternative, if the securities issuable upon the exercise of such
Substitute Options shall not constitute Registered Securities, then the
Participant will receive upon consummation of the Change in Control a cash
payment for each Option surrendered equal to the difference between the (1) Fair
Market Value of the consideration to be received for each share of Common Stock
in the Change in Control times the number of shares of Common Stock subject to
such surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options, or

(b) in the event of a transaction under the terms of which the holders
of Common Stock of the Company will receive upon consummation thereof a cash
payment (the "Merger Price") for each share of Common Stock exchanged in the
Change in Control transaction, to make or to provide for a cash payment to the
Participants equal to the difference between (A) the Merger Price times the
number of shares of Common Stock subject to such Options held by each Optionee
(to the extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such surrendered Options in exchange for
such surrendered Options.

19. Withholding

There may be deducted from each distribution of cash and/or Common
Stock under the Plan the amount of tax required by any governmental authority to
be withheld.

20. Amendment of the Plan

The Board may at any time, and from time to time, modify or amend the
Plan in any respect, or modify or amend an Award received by Key Employees
and/or Outside Directors; provided, however, that no such termination,
modification or amendment may affect the rights of a Participant, without his
consent, under an outstanding Award. Any amendment or modification of the Plan
or an outstanding Award under the Plan, including but not limited to the
acceleration of vesting of an outstanding Award for reasons other than the
death, Disability, Normal Retirement, or a Change in Control, shall be approved
by the Committee or the full Board of the Company.

21. Effective Date of Plan

The Plan shall become effective upon the date of, or a date determined
by the Board of Directors following, approval of the Plan by the Company's
stockholders.

22. Termination of the Plan

The right to grant Awards under the Plan will terminate upon the
earlier of (i) 10 years after the Effective Date, or (ii) the date on which the
exercise of Options or related rights equaling the maximum number of shares
reserved under the Plan occurs, as set forth in Section 6. The Board may suspend
or terminate the Plan at any time, provided that no such action will, without
the consent of a Participant, adversely affect his rights under a previously
granted Award.
<PAGE>
23. Limitation on Liability

No member of the Board or the Committee shall be liable for any
determination made in good faith with respect to the Plan or any Awards granted
under it. If a member of the Board or the Committee is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of anything done or not done by him in such capacity under or with respect to
the Plan, the Bank or the Company shall indemnify such member against expense
(including attorneys' fees) judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in the best interests of the Bank and the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.

24. Applicable Law

The Plan will be administered in accordance with the laws of the State
of Illinois.

IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officers and the corporate seal to be affixed and duly
attested, as of the ____ day of ________, 1997.

Date Approved by Stockholders: __________

Effective Date: _____________

ATTEST: CHARTER FINANCIAL, INC.

Secretary President and Chief Executive Officer

<PAGE>
APPENDIX B

CHARTER FINANCIAL, INC.

1997 RECOGNITION AND RETENTION PLAN

1. Establishment of the Plan

Charter Financial, Inc. (the "Company") hereby establishes the Company
Recognition and Retention Plan (the "Plan") upon the terms and conditions
hereinafter stated in the Plan.

2. Purpose of the Plan

The purpose of the Plan is to advance the interests of the Company and
its stockholders by providing Key Employees and Outside Directors of the Company
and its Affiliates, including Charter Bank, S.B. (the "Bank"), upon whose
judgment, initiative and efforts the successful conduct of the business of the
Company and its Affiliates largely depends, with compensation for their
contributions to the Company and its Affiliates and an additional incentive to
perform in a superior manner, as well as to attract people of experience and
ability.

3. Definitions

The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:

"Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Company or the Bank, as such terms are defined in Section 424(e) and (f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.

"Award" means the grant by the Committee of Restricted Stock, as
provided in the Plan.

"Bank" means Charter Bank, S.B., or a successor corporation.

"Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.

"Board" or "Board of Directors" means the Board of Directors of the
Company or an Affiliate, as applicable. For purposes of Section 4 of the Plan,
"Board" shall refer solely to the Board of the Company.

"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
<PAGE>
"Change in Control" of the Company means a change in control of a
nature that: (i) would be required to be reported in response to Item 1(a) of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Company within the meaning of the
Home Owners' Loan Act ("HOLA"), and applicable rules and regulations promulgated
thereunder, as in effect at the time of the Change in Control; or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan or trust; or (b) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Company or similar transaction in
which the Company is not the surviving institution occurs; or (d) a proxy
statement soliciting proxies from stockholders of the Company, by someone other
than the current management of the Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Company or similar
transaction with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to the Plan are to be exchanged
for or converted into cash or property or securities not issued by the Company;
or (e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means a Committee of the Board consisting of either (i) at
least two Non-Employee Directors of the Company, or (ii) the entire Board of the
Company.

"Common Stock" means shares of the common stock of the Company, par
value $.10 per share.

"Company" means Charter Financial, Inc., the stock holding company of
the Bank, or a successor corporation.

"Director" means a member of the Board.

"Effective Date" means the date of, or a date determined by the Board
of Directors following, approval of the Plan by the Company's stockholders.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in the
Plan.

"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.

"Offering" means the December 28, 1995 subscription offering of the
Common Stock of the Company.

"Outside Director" means a Director of the Company or an Affiliate who
is not an employee of the Company or an Affiliate.

"Recipient" means a Key Employee or Outside Director of the Company or
its Affiliates who receives or has received an Award under the Plan.

"Restricted Period" means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 6
with respect to Restricted Stock awarded under the Plan.

"Restricted Stock" means shares of Common Stock that have been
contingently awarded to a Recipient by the Committee subject to the restrictions
referred to in Section 6, so long as such restrictions are in effect.
<PAGE>
4. Administration of the Plan.

4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall have all of the powers allocated to it
in the Plan. The interpretation and construction by the Committee of any
provisions of the Plan or of any Award granted hereunder shall be final and
binding. The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year.

4.02 Role of the Board. The members of the Committee shall be appointed
or approved by, and will serve at the pleasure of, the Board. The Board may in
its discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in the Plan,
may take any action under or with respect to the Plan that the Committee is
authorized to take, and may reverse or override any action taken or decision
made by the Committee under or with respect to the Plan, provided, however, that
except as provided in Section 6.02, the Board may not revoke any Award except in
the event of revocation for Cause or with respect to unearned Awards in the
event the Recipient of an Award voluntarily terminates employment with the Bank
prior to Normal Retirement.

4.03 Plan Administration Restrictions. All transactions involving a
grant, award or other acquisitions from the Company shall:

(a) be approved by the Company's full Board or by the Committee;

(b) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the shares present, or represented and entitled to vote at a meeting duly held
in accordance with the laws under which the Company is incorporated; or the
written consent of the holders of a majority of the securities of the issuer
entitled to vote provided that such ratification occurs no later than the date
of the next annual meeting of shareholders; or

(c) result in the acquisition of common stock that is held by the
Recipient for a period of six months following the date of such acquisition.

4.04 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Awards granted under it. If a member of the Board or the Committee
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Bank or the Company shall indemnify such
member against expense (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Bank and the Company and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
<PAGE>
5. Eligibility; Awards

5.01 Eligibility. Key Employees and Outside Directors are eligible to
receive Awards.

5.02 Awards to Key Employees and Outside Directors. The Committee may
determine which of the Key Employees and Outside Directors referenced in Section
5.01 will be granted Awards and the number of shares covered by each Award;
provided, however, that in no event shall any Awards be made that will violate
the Bank's Charter and Bylaws, the Company's Articles of Incorporation and
Bylaws, or any applicable federal or state law or regulation. Shares of
Restricted Stock that are awarded by the Committee shall, on the date of the
Award, be registered in the name of the Recipient and transferred to the
Recipient, in accordance with the terms and conditions established under the
Plan. The aggregate number of shares that shall be issued under the Plan is
116,776.

In the event Restricted Stock is forfeited for any reason, the
Committee, from time to time, may determine which of the Key Employees and
Outside Directors will be granted additional Awards to be awarded from forfeited
Restricted Stock.

In selecting those Key Employees and Outside Directors to whom Awards
will be granted and the amount of Restricted Stock covered by such Awards, the
Committee shall consider such factors as it deems relevant, which factors may
include, among others, the position and responsibilities of the Key Employees
and Outside Directors, the length and value of their services to the Bank and
its Affiliates, the compensation paid to the Key Employees or fees paid to the
Outside Directors, and the Committee may request the written recommendation of
the Chief Executive Officer and other senior executive officers of the Bank, the
Company and its Affiliates or the recommendation of the full Board. All
allocations by the Committee shall be subject to review, and approval or
rejection, by the Board.

No Restricted Stock shall be earned unless the Recipient maintains
Continuous Service with the Bank or an Affiliate until the restrictions lapse.

5.03 Manner of Award. As promptly as practicable after a determination
is made pursuant to Section 5.02 to grant an Award, the Committee shall notify
the Recipient in writing of the grant of the Award, the number of shares of
Restricted Stock covered by the Award, and the terms upon which the Restricted
Stock subject to the Award may be earned. Upon notification of an Award of
Restricted Stock, the Recipient shall execute and return to the Company a
restricted stock agreement (the "Restricted Stock Agreement") setting forth the
terms and conditions under which the Recipient shall earn the Restricted Stock,
together with a stock power or stock powers endorsed in blank. Thereafter, the
Recipient's Restricted Stock and stock power shall be deposited with an escrow
agent specified by the Company who shall hold such Restricted Stock under the
terms and conditions set forth in the Restricted Stock Agreement. Each
certificate in respect of shares of Restricted Stock Awarded under the Plan
shall be registered in the name of the Recipient.

5.04 Treatment of Forfeited Shares. In the event shares of Restricted
Stock are forfeited by a Recipient, such shares shall be returned to the Company
and shall be held and accounted for pursuant to the terms of the Plan until such
time as the Restricted Stock is re-awarded to another Recipient, in accordance
with the terms of the Plan and the applicable state and federal laws, rules and
regulations.
<PAGE>
6. Terms and Conditions of Restricted Stock

The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock to Key Employees
and Outside Directors and, in addition to the terms and conditions contained in
Sections 6.01 through 6.08, to provide such other terms and conditions (which
need not be identical among Recipients) in respect of such Awards, and the
vesting thereof, as the Committee shall determine.

6.01 General Rules. Subject to any such other terms and conditions as
the Committee shall provide with respect to Awards, shares of Restricted Stock
may not be sold, assigned, transferred (within the meaning of Code Section 83),
pledged or otherwise encumbered by the Recipient, except as hereinafter
provided, during the Restricted Period. The Committee shall have the authority,
in its discretion, to accelerate the time at which any or all of the
restrictions shall lapse with respect to a Restricted Stock Award, or to remove
any or all of such restrictions. No shares shall be earned for any year in which
the Bank is not meeting all of its fully phased-in capital requirements.

6.02 Continuous Service; Forfeiture. Except as provided in Section
6.03, a Recipient must maintain Continuous Service throughout the vesting period
of the award in order to vest in all shares of Restricted Stock awarded
hereunder. If a Recipient ceases to maintain Continuous Service for any reason
(other than death, Disability, Change in Control or Normal Retirement), unless
the Committee shall otherwise determine, all shares of Restricted Stock
theretofore awarded to such Recipient and which at the time of such termination
of Continuous Service are subject to the restrictions imposed by Section 6.01
shall, upon such termination of Continuous Service, be forfeited. Any stock
dividends or declared but unpaid cash dividends attributable to such shares of
Restricted Stock shall also be forfeited.

6.03 Exception for Termination Due to Death, Disability, Normal
Retirement or Following a Change in Control Notwithstanding the general rule
contained in Section 6.01, Restricted Stock awarded to a Recipient whose
employment with or service on the Board of the Bank or an Affiliate terminates
due to death, Disability, Normal Retirement or following a Change in Control
shall be deemed earned as of the Recipient's last day of employment with the
Company or an Affiliate, or last day of service on the Board of the Company or
an Affiliate; provided that Restricted Stock awarded to a Key Employee who at
any time also serves as a Director, shall not be deemed earned until both
employment and service as a Director have been terminated.

6.04 Revocation for Cause. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Award, or portion thereof, previously awarded under the Plan, to the extent
Restricted Stock has not been redelivered by the Escrow Agent to the Recipient,
whether or not yet earned, in the case of a Key Employee whose employment is
terminated by the Company or an Affiliate or an Outside Director whose service
is terminated by the Company or an Affiliate for Cause or who is discovered
after termination of employment or service on the Board to have engaged in
conduct that would have justified termination for Cause.

6.05 Restricted Stock Legend. Each certificate in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Recipient and deposited by the Recipient, together with a stock power endorsed
in blank, with the Escrow Agent and shall bear the following (or a similar)
legend:
<PAGE>

"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) contained in the Charter Financial, Inc.
1997 Recognition and Retention Plan. Copies of such Plan are on
file in the offices of the Secretary of Charter Financial, Inc.,
114 West Broadway, Sparta, Illinois 62286."

6.06 Payment of Dividends and Return of Capital. After an Award has
been granted but before such Award has been earned, the Recipient shall receive
any cash dividends paid with respect to such shares, or shall share in any
pro-rata return of capital to all shareholders with respect to the Common Stock.
Stock dividends declared by the Company and paid on Awards that have not yet
been earned shall be subject to the same restrictions as the Restricted Stock
and the certificate(s) or other instruments representing or evidencing such
shares shall be legended in the manner provided in Section 6.05 and shall be
delivered to the Escrow Agent for distribution to the Recipient when the
Restricted Stock upon which such dividends were paid are earned. Unless the
Recipient has made an election under Section 83(b) of the Code, cash dividends
or other amounts so paid on shares that have not yet been earned by the
Recipient shall be treated as compensation income to the Recipient when paid. If
dividends are paid with respect to shares of Restricted Stock under the Plan
that have been issued but not awarded, or that have been forfeited and returned
to the Company or to a trust established to hold issued and unawarded or
forfeited shares, the Committee can determine to award such dividends to any
Recipient or Recipients under the Plan, to any other employee or director of the
Company or the Bank, or can return such dividends to the Company.

6.07 Voting of Restricted Shares. After an Award has been granted, the
Recipient as conditional owner of the Restricted Stock shall have the right to
vote such shares.

6.08 Delivery of Earned Shares. At the expiration of the restrictions
imposed by Section 6.01, the Escrow Agent shall redeliver to the Recipient (or
where the relevant provision of Section 6.02 applies in the case of a deceased
Recipient, to his Beneficiary) the certificate(s) and any remaining stock power
deposited with it pursuant to Section 5.03 and the shares represented by such
certificate(s) shall be free of the restrictions referred to Section 6.01.

7. Adjustments upon Changes in Capitalization

In the event of any change in the outstanding shares subsequent to the
Effective Date by reason of any reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger, consolidation or any
change in the corporate structure or shares of the Company, the maximum
aggregate number and class of shares as to which Awards may be granted under the
Plan shall be appropriately adjusted by the Committee, whose determination shall
be conclusive. Any shares of stock or other securities received, as a result of
any of the foregoing, by a Recipient with respect to Restricted Stock shall be
subject to the same restrictions and the certificate(s) or other instruments
representing or evidencing such shares or securities shall be legended and
deposited with the Escrow Agent in the manner provided in Section 6.05.
<PAGE>
8. Assignments and Transfers

No Award nor any right or interest of a Recipient under the Plan in any
instrument evidencing any Award under the Plan may be assigned, encumbered or
transferred (within the meaning of Code Section 83) except, in the event of the
death of a Recipient, by will or the laws of descent and distribution until such
Award is earned.

9. Key Employee Rights under the Plan

No Key Employee shall have a right to be selected as a Recipient nor,
having been so selected, to be selected again as a Recipient and no Key Employee
or other person shall have any claim or right to be granted an Award under the
Plan or under any other incentive or similar plan of the Bank or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any Key Employee any right to be retained in the employ of the Bank or any
Affiliate.

10. Outside Director Rights under the Plan

Neither the Plan nor any action taken thereunder shall be construed as
giving any Outside Director any right to be retained in the service of the Bank
or any Affiliate.

11. Withholding Tax

Upon the termination of the Restricted Period with respect to any
shares of Restricted Stock (or at any such earlier time, if any, that an
election is made by the Recipient under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Bank or the Company shall have the right to require the Recipient
or other person receiving such shares to pay the Bank or the Company the amount
of any taxes that the Bank or the Company is required to withhold with respect
to such shares, or, in lieu thereof, to retain or sell without notice, a
sufficient number of shares held by it to cover the amount required to be
withheld. The Bank or the Company shall have the right to deduct from all
dividends paid with respect to shares of Restricted Stock the amount of any
taxes which the Bank or the Company is required to withhold with respect to such
dividend payments.

12. Amendment or Termination

The Board of the Company may amend, suspend or terminate the Plan or
any portion thereof at any time, provided, however, that no such amendment,
suspension or termination shall impair the rights of any Recipient, without his
consent, in any Award theretofore made pursuant to the Plan. Any amendment or
modification of the Plan or an outstanding Award under the Plan, including but
not limited to the acceleration of vesting of an outstanding Award for reasons
other than death, Disability, Normal Retirement or termination following a
Change in Control, shall be approved by the Committee, or the full Board of the
Company.

13. Governing Law

The Plan shall be governed by the laws of the State of Illinois.
<PAGE>
14. Term of Plan

The Plan shall become effective on the date of, or a date determined by
the Board of Directors following, approval of the Plan by the Company's
stockholders. It shall continue in effect until the earlier of (i) fifteen years
from the Effective Date unless sooner terminated under Section 12 hereof, or
(ii) the date on which all shares of Common Stock available for award hereunder,
have vested in the Recipients of such Awards.

IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officers and the corporate seal to be affixed and duly
attested, as of the ____ day of _________, 1997.

Date Approved by Shareholders: __________

Effective Date: __________

ATTEST: CHARTER FINANCIAL, INC.

Secretary President and Chief Executive Officer

<PAGE>
REVOCABLE PROXY
CHARTER FINANCIAL, INC.

[ X ] PLEASE MARK VOTES AS IN THIS EXAMPLE

ANNUAL MEETING OF STOCKHOLDERS
JANUARY 16, 1997

The undersigned hereby appoints the full Board of Directors, with full powers
of substitution to act as attorneys and proxies for the undersigned to vote all
shares of Common Stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Stockholders ("Meeting") to be held at the Main Office
of Charter Bank, S.B., 114 West Broadway, Sparta, Illinois, at 1:30 p.m. (local
time) on Thursday, January 16, 1997. The official proxy committee is authorized
to cast all votes which the undersigned is entitled as follows:

1. The election as directors of all nominees listed
(except as marked to the contrary below):
For a three year term:
John A. Becker, Michael R. Howell, William A. Norton,
Dennis Doelitzsch
For a two year term:
Ralph Eugene Watson

[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT

INSTRUCTION:To withhold authority to vote for any individual nominee, mark "For
All Except"and write that nominee's name in the space provided below.

____________________________________________

2. The approval of the Charter Financial, Inc. 1997 Stock Option Plan.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. The approval of the Charter Financial, Inc. 1997 Recognition and Retention
Plan.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. The ratification of the appointment of KPMGPeat Marwick LLP, as auditors for
the fiscal year ending September 30, 1997.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

<PAGE>

PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE MEETING. [ ]

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.

Please be sure to sign and date
this Proxy in the box below.

Please be sure to sign and date this Proxy in the box below.

__________________________________
Date
__________________________________
Stockholder sign above
__________________________________
Co-holder (if any) sign above
<PAGE>

Detach above card, sign, date and mail in postage paid envelope provided.

CHARTER FINANCIAL, INC.

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.

Should the above signed be present and elect to vote at the Meeting or at any
adjournment thereof and after notification to the Secretary of the Company at
the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect. This proxy may also be revoked by sending written notice to
the Secretary of the Company at the address set forth on the Notice of Annual
Meeting of Stockholders, or by the filing of a later proxy statement prior to a
vote being taken on a particular proposal at the Meeting.

The above signed acknowledges receipt from the Company prior to the execution
of this proxy of a Notice of the Meeting and a proxy statement dated December
10, 1996.

Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.

PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY

<PAGE>

1996 ANNUAL REPORT TO STOCKHOLDERS

CHARTER FINANCIAL, INC.

- --------------------------------------------------------------------------------

Table of Contents

Message from the Chairman
Common Stock and Related Matters
Selected Consolidated Financial Information
Management's Discussion and Analysis
Independent Auditors' Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Stockholder Information

<PAGE>

MESSAGE FROM THE CHAIRMAN

- --------------------------------------------------------------------------------

To Our Valued Stockholders:

The reorganization of Charter Bancorp M.H.C. to Charter Financial, Inc. on
December 28, 1995, charted the course for a successful year for Charter Bank,
S.B. During 1996 the acquisition of the $ 58.9 million Community Savings Bank at
Marion, Illinois, was completed. In addition our intent to acquire $30.7 million
Home Federal Savings in Carbondale, Illinois, has been announced and is expected
to close in January, 1997. As acquisition targets become available, the Board
will selectively seek to expand our franchise and build stockholder value.

In 1997, the Bank will pursue continued market share growth in the seven
communities in which our branches are located. Market share growth will be
achieved by Charter Bank's continued commitment to innovation. Whether it be
through new deposit product offerings, alternative delivery channels, additional
convenient locations or new technology, we will focus our efforts to provide the
best financial services available. The commitment to innovation coupled with
knowledgeable employees and superior customer service will keep Charter Bank a
leader in each of the market areas it serves.

Charter Financial's commitment to its new shareholders was evidenced by the 5%
repurchase of outstanding stock during June and July, 1996, and a 10% repurchase
of outstanding stock in September, 1996. Shares totaling 721,285 were
repurchased. We are pleased to have the financial strength to undertake the
stock repurchases.

We wish to extend our appreciation to our shareholders, customers, and staff for
their continued support.

Sincerely,

John A. Becker
President and Chief Executive Officer

<PAGE>

COMMON STOCK AND RELATED MATTERS

- --------------------------------------------------------------------------------

The common stock of Charter Financial, Inc. is traded in the over-the-counter
market and is listed for quotation in the NASDAQ National Market under the
symbol "CBSB." The stock was issued on December 28, 1995 at $10.00 per share. As
of December 1, 1996, there were 896 stockholders of record and 4,253,459
outstanding shares of common stock.

The following table sets forth the high and low closing bid prices as reported
by NASDAQ and dividends paid per share of common stock for the periods
indicated.

<TABLE>
<CAPTION>
Dividends
Quarter ended High Low paid
------------- ---- --- ----
<S> <C> <C> <C>
December 31, 1995 $ 10.8125 $ 10.8125 $ .15*
March 31, 1996 10.8125 12.2500 .06
June 30, 1996 12.0000 11.2500 .06
September 30, 1996 13.0000 10.8750 .06

</TABLE>
Payment of dividends on the common stock is subject to determination and
declaration by the Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, Charter Financial's results of operations and financial condition,
tax considerations, and general economic conditions. No assurance can be given
that dividends will be declared or, if declared, what the amount of dividends
will be, or whether such dividends, once declared, will continue.

* Represents dividends paid by Charter Bank, S.B., to its stockholders other
than its mutual holding company prior to the reorganization of Charter
Bancorp, M.H.C. to Charter Financial, Inc.

<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following tables set forth certain historical information concerning the
financial position and results of operations of the Company at the dates
indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets .................. $388,431 $293,135 $261,297 $259,042 $229,410
Loans receivable, net ......... 275,487 206,074 178,058 157,342 134,788
Investments, net (1) .......... 77,999 60,174 58,798 68,957 67,067
Mortgage-backed securities, net 16,632 16,670 16,071 20,950 19,366
Deposits (2) .................. 248,723 197,103 189,947 198,183 200,495
Borrowed money ................ 76,354 57,080 35,566 27,095 7,110
Stockholders' equity (3) ...... 56,394 35,622 31,581 22,016 18,943
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income .................. $ 24,819 $ 20,009 $ 18,233 $ 18,391 $ 19,772
Interest expense ................. 12,426 10,309 8,387 8,730 11,274
-------- -------- -------- -------- --------
Net interest income ........... 12,393 9,700 9,846 9,661 8,498
Provision for losses on loans .... 170 360 140 1,004 653
-------- -------- -------- -------- --------
Net interest income after
provision for losses on loans 12,223 9,340 9,706 8,657 7,845
-------- -------- -------- -------- --------
Noninterest income:
Late charges and other loan fees 391 241 266 173 149
Gain (loss) on sale of
invesment securities, net ...... (29) (14) 121 8 131
Loss on sale of mortgage-backed.
securities, net ............. (9) -- -- -- --
Deposit account fees .......... 797 677 603 530 446
Other ......................... 691 506 454 458 426
-------- -------- -------- -------- --------
Total noninterest income .... 1,841 1,410 1,444 1,169 1,152
-------- -------- -------- -------- --------
Noninterest expense:
Compensation and employee ..... 3,661 3,025 2,778 2,106 1,997
benefits
Office buildings and equipment
and data processing ......... 1,083 835 825 836 809
Advertising ................... 237 148 196 152 138
Deposit insurance premiums .... 458 438 461 380 447
SAIF special assessment ....... 1,479 -- -- -- --
Other ......................... 1,641 1,306 1,199 880 889
Provision for losses and
expenses on real estate
acquired by foreclosure ..... 81 4 184 84 156
Amortization of cost in
excess of fair value of net
assets acquired ........... 211 136 142 142 362
-------- -------- -------- -------- --------
Total noninterest expense ... 8,851 5,892 5,785 4,580 4,798
-------- -------- -------- -------- --------
<PAGE>
<CAPTION>
Year ended September 30,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>

Income before income tax
expense and cumulative
effect of change in
accounting principle....... 5,213 4,858 5,365 5,246 4,199
Income tax expense ............... 2,155 1,874 2,054 2,173 1,757
-------- -------- -------- -------- --------
Income before cumulative effect in
accounting principle ........ 3,058 2,984 3,311 3,073 2,442
Cumulative effect of change in
accounting principle ........ -- -- 786 -- --
-------- -------- -------- -------- --------
Net income ....................... $ 3,058 $ 2,984 $ 4,097 $ 3,073 $ 2,442
======== ======== ======== ======== ========
Earnings per share:
Income before cumulative
effect of change in
accounting principle....... $ 0.67 $ 0.69 0.78 N/A N/A
Cumulative effect of change in
accounting principle ........ -- -- 0.19 N/A N/A
-------- -------- -------- -------- --------
Net Income ....................... $ 0.67 $ 0.69 $ 0.97 $ N/A $ N/A
======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION, Cont.

At or for the year ended
September 30,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data:
Performance ratios:
Return on average assets(4) ......... 0.93% 1.09% 1.27%(5) 1.26% 1.08%
Return on average stockholders'
equity (4) ....................... 5.57 8.92 15.29 15.10 13.79
Stockholders' equity as a
percent of average assets ......... 17.18 12.97 12.14 9.02 8.35
Stockholders' equity to total
assets (end of period) ............ 14.52 12.15 12.09 8.50 8.26
Interest rate spread (6) ............ 3.27 3.25 3.48 3.86 3.53
Net interest margin (7) ............. 3.95 3.68 3.85 4.12 3.87
Average interest-earning assets as a
percent of average interest-bearing
liabilities (8) .................. 117.30 110.80 111.17 107.06 106.64
Asset quality ratios:
Nonperforming loans as a percent
of loans receivable, net(9) ...... 0.78 0.32 0.23 1.40 0.95
Nonperforming assets as a percent
of nonperforming total assets(10) 0.67 0.27 0.24 0.94 0.76
Allowance for loan losses as a
percent of nonperforming loans(9) 111.89 336.65 528.29 100.09 102.26
Number of full-service offices ......... 7 6 5 5 5

</TABLE>
(1) Includes Federal Home Loan Bank stock and
interest-bearing deposits.
(2) During the years ended September 30, 1994, 1993, and 1992, $1.8 million,
$7.6 million, and the $6.3 million, respectively, in certificates of
deposit were converted into reverse repurchase agreements and, therefore,
are not reflected in deposit totals.
(3) Reflects only retained earnings for years prior to 1994, the fiscal year
in which Charter Bank converted to stock form.
(4) Averages are computed on a simple average basis using
period-end balances.
(5) Does not include cumulative effect of change in accounting
principle of $786,053. Return
on average assets was 1.57% including such amount at
September 30, 1994.
(6) Represents the difference between the yield on average interest-earning
assets and the cost of average interest-bearing liabilities.
(7) Represents net interest income as a percent of
average interest-earning assets.
(8) Averages are computed based upon
month-end balances.
(9) Includes nonaccruing loans 90 days or
more delinquent.
(10) Includes nonaccruing loans 90 days or more delinquent and real estate
acquired through foreclosure.
<PAGE>
Average Balance Sheet

The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of |liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Average balances are derived from
utilizing month-end balances. Management does not believe that the use of
month-end balances instead of daily balances has caused any material differences
in the information presented.
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------------------------------------------
1996 1995
---------------------------------- ---------------------------------
Average Average Average Average
balance Interest yield/cost balance Interest yield/cost
------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) $ 230,765 $ 19,439 8.42% $ 188,897 $ 15,462 8.19%
Investments, net (2) 62,243 3,937 6.33 54,036 3,308 6.12
Mortgage-backed securities, net 16,353 1,173 7.17 17,510 1,087 6.21
Interest-bearing deposits 4,563 270 5.92 3,477 152 4.37
--------- -------- --------- --------
Total interest-earning assets $ 313,924 24,819 7.91 $ 263,920 20,009 7.58
========= -------- ======== --------
Interest-bearing liabilities:
Deposits $ 219,092 9,793 4.47 $ 189,309 7,567 4.00
Borrowed money 48,544 2,633 5.42 48,882 2,742 5.61
--------- -------- --------- --------
Total interest-bearing liabilities $ 267,636 12,426 4.64 $ 238,191 10,309 4.33
========= -------- ========= --------
Net interest income $ 12,393 $ 9,700
======== ========
Net interest rate spread (3) 3.27% 3.25%
==== ====
Net interest margin (4) 3.95% 3.68%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 117.30% 110.80%
====== ======
<PAGE>
<CAPTION>
Year ended September 30,
------------------------------
1994
----------------------------
Average Average
balance Interest yield/cost
-------- ------- ---------

Interest-earning assets:
Loans receivable, net (1) $ 168,391 $ 13,256 7.87 %
Investments, net (2) 64,977 3,754 5.78
Mortgage-backed securities, net 17,673 1,082 6.12
Interest-bearing deposits 4,731 141 2.98
--------- --------
Total interest-earning assets $ 255,772 18,233 7.13
========= --------
Interest-bearing liabilities:
Deposits $ 195,142 6,859 3.51
Borrowed money 34,940 1,528 4.37
--------- --------
Total interest-bearing liabilities $ 230,082 8,387 3.65
======== --------
Net interest income $ 9,846
========
Net interest rate spread (3) 3.48%
====
Net interest margin (4) 3.85%
====
Ratio of average interest-earning assets
to average interest-bearing liabilities 111.17%
======

</TABLE>
<PAGE>
Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average (changes in average volume multiplied by prior rate); (ii)
changes in rates (change in rate multiplied by prior average volume); (iii)
changes in rate-volume (changes in rate multiplied by the change in average
volume); and (iv) the net change.
<TABLE>
<CAPTION>
Year ended
September 30,
-----------------------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
------------------------------------------ ---------------------------------------- --------
Increase (decrease) Increase (decrease)
due to due to
------------------------------------------ ---------------------------------------- --------
Rate/ Increase Rate/ Increase
Volume Rate volume (Decrease) Volume Rate volume (Decrease)
------ ---- ------ ---------- ------ ---- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, net (1) ..... $ 3,429 $ 434 $ 114 $ 3,977 $ 1,614 $ 526 $ 66 $ 2,206
Investments, net (2) .......... 502 113 14 629 (632) 223 (37) (446)
Mortgage-backed securities, net (72) 168 (10) 86 (10) 15 0 5
Interest-bearing deposits ..... 47 54 17 118 (37) 65 (17) 11
------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets . 3,906 769 135 4,810 935 829 12 1,776
------- ------- ------- ------- ------- ------- ------- -------
Interest expense:
Deposits ...................... 1,191 890 145 2,226 (205) 942 (29) 708
Borrowed money ................ (19) (93) 3 (109) 609 432 173 1,214
------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities ................ 1,172 797 148 2,117 404 1,374 144 1,922
------- ------- ------- ------- ------- ------- ------- -------
Change in net interest income $ 2,734 $ (28) $ (13) $ 2,693 $ 531 $ (545) $ (132) $ (146)
======= ======= ======= ======= ======= ======= ======= =======

(1) Average balance includes nonaccrual loans.

(2) Includes Federal Home Loan Bank stock and investment securities.

(3) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.

(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended
September 30,
-------------------------------------------
1994 vs. 1993
-------------------------------------------
Increase (decrease)
due to
-------------------------------------------
Rate/ Increase
Volume Rate volume (Decrease)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable, net (1) ..... $ 2,061 $(1,321) $ (214) $ 526
Investments, net (2) .......... 329 (389) (33) (93)
Mortgage-backed securities, net (98) (247) 17 (328)
Interest-bearing deposits ..... (226) (81) 45 (262)
------- ------- ------- -------
Total interest-earning assets . 2,066 (2,038) (185) (157)
------- ------- ------- -------
Interest expense:
Deposits ...................... (190) (1,023) 24 (1,189)
Borrowed money ................ 557 159 130 846
------- ------- ------- -------
Total interest-bearing
liabilities ................ 367 (864) 154 (343)
------- ------- ------- -------
Change in net interest income $ 1,699 $(1,174) $ (339) $ 186
======= ======= ======= =======

(1) Average balance includes nonaccrual loans.

(2) Includes Federal Home Loan Bank stock and investment securities.

(3) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.

(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS

General

Net income of Charter Financial, Inc. and its subsidiary ("the Company") is
primarily dependent on the interest income earned on its loans receivable,
mortgage-backed securities, and investments, and the interest expense on its
deposits and borrowings. The Company's net income is also affected by its
noninterest income, consisting primarily of late charges and other loan fees,
deposit account fees, brokerage commissions and fees, as well as its provision
for losses on loans, and noninterest expense, such as compensation and employee
benefits, deposit insurance premiums, occupancy and equipment costs, and income
taxes.

Additionally, earnings of the Company are affected significantly by general
economic and competitive conditions, particularly changes in market interest
rates, government policies, and actions of regulatory authorities.

On December 28, 1995, the Company completed its conversion from an
Illinois-charted mutual holding company to a Delaware stock corporation (the
Conversion). At the date of the Conversion, the Company completed the sale of
2,919,414 shares of common stock, $.10 par value, at a price of $10 per share to
Charter Bank, S.B.'s ("the Bank") depositors, ESOP, and minority stockholders in
a subscription offering and to certain members of the general public in a
community offering. Net proceeds from the sale of common stock were $27,051,859,
after deducting approximately $1.2 million of offering expenses and $969,030
related to the sale of 96,903 shares to the Bank's ESOP.

In conjunction with the subscription and community offering, an additional
2,054,832 shares of common stock were issued by the Company to convert 986,051
shares of the Bank's common stock held by minority stockholders into common
stock of the Company. Each share of the Bank's common stock in the above
transaction was converted into the right to receive 2.0839 shares of the
Company's common stock (the Exchange Ratio).

Business Strategy

The Company's current business strategy is to operate as a well-capitalized,
profitable, and independent community savings bank dedicated to financing home
ownership and consumer needs in its market area and to providing quality service
to its customers. The Company has implemented this strategy by: (I) closely
monitoring needs of customers and providing quality service; (ii) emphasizing
consumer banking by originating residential mortgage loans and consumer loans,
and by offering checking accounts and other financial services and products;
(iii) maintaining asset quality; (iv) maintaining capital in excess of
regulatory requirements and growing moderately in a manner consistent with the
Company's strategy of maintaining high capital levels; (v) increasing earnings;
and (vi) managing interest rate risk by better matching asset and liability
maturities and rates.

On May 15, 1996, the Company completed its acquisition of Community Savings
Bank, Marion, Illinois ("Community Savings") in exchange for cash of $7.5
million. Community Savings' assets consisted primarily of loans receivable of
$45.4 million and investment securities of $6.3 million, while liabilities
consisted primarily of savings deposits of $49.7 million. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the
operating results of Community Savings have been included in the Company's
results of operations since the date of the acquisition. The excess of the cost
over fair value of the net assets acquired was approximately $2.9 million.
<PAGE>
On May 12, 1995, the Company acquired the savings deposit liabilities of the
branch office of another financial institution totaling approximately $21.1
million. The acquisition was accounted for under the purchase method and
resulted in the recording of a core deposit intangible totaling approximately
$1.2 million.

Results of Operations

The earnings of the Company depend primarily on its level of net interest
income, which is the difference between interest earned on the Company's
interest-earning assets and the interest paid on interest-bearing liabilities.
Net interest income is a function of the Company's interest rate spread which is
the difference between the yield earned on interest-earning assets and the rate
paid on interest-bearing liabilities, as well as a function of the average
balance of interest-earning assets as compared to the average balance of
interest-bearing liabilities. The Company had net income of $3.1 million, $3.0
million, and $4.1 million for the fiscal years ended September 30, 1996, 1995,
and 1994, respectively.

Comparison of Operating Results for the Fiscal Years ended September 30, 1996
and 1995

Interest Income. Interest income totaled $24.8 million for the fiscal year ended
September 30, 1996 compared to $20.0 million for the fiscal year ended September
30, 1995, an increase of $4.8 million, or 24.0%. This increase resulted
primarily from an increase in the average yield on interest-earning assets to
7.91% in fiscal year 1996 from 7.58% in fiscal year 1995, which increase
reflected the general increase in market interest rates, which existed for most
of fiscal year 1996, as well as changes in the composition and amount of
interest-earning assets. Average interest-earning assets increased to $313.9
million for fiscal year 1996 compared to $263.9 million for fiscal year 1995.
The increase in average interest-earning assets resulted from the impact of
$27.1 million of net proceeds from the sale of common stock and the acquisition
of Community Savings.

Interest income earned on loans receivable increased $4.0 million, or 25.7%,
reflecting an increase in average loans outstanding of $41.9 million , or 22.2%,
to $230.8 million in fiscal year 1996, as well as an increase in the average
yield on loans receivable to 8.42% from 8.19%. The general increase in market
rates resulted in higher yields on new consumer loan originations, as well as
adjustable rate mortgages which repriced at higher levels. The increase in
average loans outstanding consisted substantially of $45.8 million in loans
acquired from Community Savings Bank, and the purchase of $37.4 million in ARM
loans.

Interest received from investments increased $629,000, or 19.0%, to $3.9 million
for the fiscal year ended September 30, 1996 compared to $3.3 million for the
fiscal year ended September 30, 1995. This increase reflects the increase of
$8.2 million, or 15.2%, in the average balance of investments to $62.2 million
in fiscal year 1996 from $54.0 million in fiscal year 1995 as well as an
increase in the average yield on investments to 6.33% from 6.12%. The increase
in the average balance of investment securities resulted from the $6.3 million
of investments acquired from Community Savings coupled with the increased
purchase activity of investment securities by the Company in 1996 compared to
1995.
<PAGE>
Interest received from mortgage-backed securities remained stable at $1.2
million and $1.1 million for the fiscal years ended September 30, 1996 and 1995,
respectively. The average yield on mortgage-backed securities increased to 7.17%
for fiscal year 1996 from 6.21% for fiscal year 1995 which increase was
partially offset by the decrease in the average balance on mortgage-backed
securities of $1.2 million, or 6.6%, to $16.4 million in fiscal year 1996 from
$17.5 million in fiscal year 1995.

Interest income from interest-bearing deposits increased $118,000, or 77.2%,
reflecting an increase in the average yield on interest-bearing deposits to
5.92% for fiscal year 1996 from 4.37% for fiscal year 1995 as well as an
increase in the average balance of $1.1 million, or 31.2%.

Interest Expense. Interest expense increased by $2.1 million, or 20.5%, to $12.4
million for the fiscal year ended September 30, 1996 from $10.3 million for the
fiscal year ended September 30, 1995. This increase resulted primarily from an
increase in the average cost on interest-bearing liabilities to 4.64% in fiscal
year 1996 from 4.33% in fiscal year 1995, as well as an increase in average
interest-bearing liabilities of $29.4 million, or 12.4%, to $267.6 million in
fiscal year 1996 compared to $238.2 million in fiscal year 1995.

Interest expense on deposits increased $2.2 million, or 29.4%, reflecting an
increase in the average cost of deposits to 4.47% from 4.00% as well as an
increase of $29.8 million, or 15.7%, in average deposits to $219.1 million from
$189.3 million. The increase in the average balance of deposits resulted from
the $49.7 million of deposits acquired from Community Savings in May 1996 and
the full years impact of the $21.1 million of deposits acquired in the May 1995
branch acquisition. The increase in the cost of deposits reflected the higher
cost of time deposits acquired from Community Savings.

Interest expense on borrowed money decreased $109,000, or 4.0%, reflecting a
decrease in average borrowed money of $338,000, or 0.7%, to $48.5 million in
fiscal year 1996 from $48.9 million in fiscal year 1995 and a decrease in the
cost of borrowed money to 5.42% from 5.61%. Borrowed money resulted from the
continued utilization of Federal Home Loan Bank line of credit advances to fund
the origination and purchase of mortgage loans and the acquisition of Community
Savings.

Net Interest Income. Net interest income totaled $12.4 million and $9.7 million
for the fiscal years ended September 30, 1996 and 1995, respectively. This
increase in net interest income primarily resulted from an increase to 117.30%
in the ratio of average interest-earning assets to average interest-bearing
liabilities in fiscal year 1996 compared to 110.80% in fiscal year 1995, as well
as an increase in the Company's interest margin to 3.95% in fiscal year 1996
from 3.68% in fiscal year 1995.

Provision for Losses on Loans. The allowance for loss is established through a
provision for losses on loans based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio composition, prior loss experience, the review of delinquencies and
loan portfolio quality, the estimated fair value of the underlying collateral,
and other factors that warrant recognition in providing for an adequate loan
loss allowance.
<PAGE>
The provision for losses on loans for the fiscal year ended September 30, 1996
was $170,000 compared to $360,000 for the fiscal year ended September 30, 1995.
The higher provision in fiscal year 1995 was necessary to establish loan loss
reserves to cover the credit risk associated with one large commercial loan and
the collateralization of a commercial real estate project based on management's
current estimate of the value of the underlying collateral.

The Company's allowance for losses on loans was $2.4 million, or 0.86%, of loans
receivable at September 30, 1996 compared to $2.2 million, or 1.05%, of loans
receivable at September 30, 1995. The reduced allowance as a percentage of loans
receivable resulted primarily from an increased level of residential real estate
loans. This increase was attributable to the higher concentration of residential
real estate loans which comprised the Community Savings portfolio acquired by
the Company. Residential real estate loan charge-offs for the Company and
Community Savings have been minimal over the past five years. Overall, the
Company's level of net loans charged off as a percentage of average net loans
receivable outstanding was 0.11% and 0.14% for fiscal years 1996 and 1995,
respectively. Additionally, the Company's nonperforming loans as a percentage of
loans receivable, net, increased to 0.78% from 0.32% at September 30, 1996 and
1995, respectively. Based on current levels in the allowance for losses on loans
in relation to total loans receivable and delinquent loans, management's ability
to resolve problem loan situations, and the low level of charge-offs in recent
years, management believes the allowance is adequate at September 30, 1996.

The breakdown of general loan loss allowances and specific loan loss allowances
is only made for regulatory accounting purposes. General loan loss allowances
are added back to capital to the extent permitted in computing risk-based
capital. Both general and specific loan loss provisions are charged to expense.

Noninterest Expense. Noninterest expense increased $3.0 million, or 50.2%, for
the fiscal year ended September 30, 1996 to $8.9 million from $5.9 million for
the fiscal year ended September 30, 1995. The increase in noninterest expense
resulted primarily from the SAIF special assessment of $1.5 million.
Additionally, the increase in noninterest expense was the result of an increase
in compensation and employee benefits expense of $636,000, or 21.0%, to $3.7
million for fiscal year 1996 compared to $3.0 million for fiscal year 1995. The
primary reason for the increase in compensation and employee benefits expense is
due to additional compensation expense related the acquisition of the DuQuoin
branch in fiscal year 1995 and Community Savings in fiscal year 1996 as well as
the cost of certain stock benefit plans.
<PAGE>
Primarily as a result of the acquisition of the DuQuoin branch office in May
1995 and the acquisition of Community Savings in May 1996, office buildings and
equipment expense increased $186,000, or 38.9%, to $663,000 for fiscal year 1996
compared to $477,000 for fiscal year 1995, data processing increased $62,000, or
17.3%, to $420,000 for fiscal year 1996 compared to $358,000 for fiscal year
1995, and amortization of cost in excess of fair value of net assets acquired
increased $75,000, or 54.9%, to $211,000 for fiscal year 1996 from $136,000 for
fiscal year 1995.

Other noninterest expense increased $335,000, or 25.6%, to $1.6 million for the
fiscal year ended September 30, 1996 compared to $1.3 million for the fiscal
year ended September 30, 1995. This increase resulted primarily from additional
losses on the disposition of repossessed collateral. The provision for losses
and expenses on real estate acquired by foreclosure increased $78,000 to $81,000
for the fiscal year ended September 30, 1996 compared to $4,000 for the fiscal
year ended September 30, 1995, due to increased losses on the sale of real
estate acquired by foreclosure.

Income Taxes. The provision for income taxes totaled $2.2 million and $1.9
million for the fiscal years ended September 30, 1996 and 1995, respectively.
The Company's effective income tax rates were 41.3% and 38.6% for the fiscal
years ended September 30, 1996 and 1995, respectively. The increase in the
effective tax rate is primarily the result of increases in nondeductible
expenses.

Net Income. Net income totaled $3.1 million for the fiscal year ended September
30 1996 compared to $3.0 million for the fiscal year ended September 30, 1995.
The increase in net income reflects the increase of $2.7 million, or 27.8%, in
net interest income, the increase of $431,000, or 30.6%, in noninterest income,
and the decrease in provision for losses on loans of $190,000, or 52.8%, which
increases were partially offset by an increase in noninterest expense of $3.0
million, or 50.2%, and the increase in income taxes of $281,000, or 15.0%.

Comparison of Operating Results for the Fiscal Years ended September 30, 1995
and 1994

Interest Income. Interest income totaled $20.0 million for the fiscal year ended
September 30, 1995 compared to $18.2 million for the fiscal year ended September
30, 1994, an increase of $1.8 million, or 9.7%. This increase resulted primarily
from an increase in the average yield on interest-earning assets to 7.58% in
fiscal year 1995 from 7.13% in fiscal year 1994, which increase reflected the
general increase in market interest rates, which existed for most of fiscal year
1995, as well as changes in the composition and amount of interest-earning
assets.

Interest income earned on loans receivable increased $2.2 million, or 16.6%,
reflecting an increase in average loans outstanding of $20.5 million to $188.9
million in fiscal year 1995, as well as an increase in the average yield on
loans receivable to 8.19% from 7.87%. The general increase in market interest
rates that began in fiscal year 1994 and continued for most of fiscal year 1995
resulted in higher yields on new loan originations and loans purchased as well
as on adjustable rate mortgage (ARM) loans which repriced during the year. The
increase in average loans outstanding consisted substantially of the purchase of
ARM loans as well as increased automobile loan originations, as the Company
continued to expand its market for these loans.
<PAGE>
Interest received from investments decreased $446,000, or 11.9%, to $3.3 million
for the fiscal year ended September 30, 1995 compared to $3.8 million for the
fiscal year ended September 30, 1994. This decrease reflects the decrease of
$10.9 million, or 16.8%, in the average balance of investments to $54.0 million
in fiscal year 1995 from $65.0 million in fiscal year 1994, which decrease was
partially offset by an increase in the average yield on investments to 6.12%
from 5.78%. The decrease in the average balance of investment securities is the
result of funds from maturities and principal repayments on securities being
utilized to fund the purchase of loans as well as other loan originations such
as automobile loans. The average yield on investments increased due to maturity
and principal repayment of lower yielding securities as well as interest rates
on adjustable securities increasing due to the general increase in market
interest rates which existed for most of fiscal 1995.

Interest received from mortgage-backed securities remained stable at $1.1
million for fiscal years ended September 30, 1995 and 1994. The average balance
on mortgage-backed securities decreased $163,000, or 0.9%, to $17.5 million in
fiscal year 1995 from $17.7 million in fiscal year 1994, although the average
yield increased to 6.21% from 6.12%.

Interest income from interest-bearing deposits increased $11,000, or 8.0%,
reflecting an increase in the average yield on interest-bearing deposits to
4.37% for fiscal year 1995 from 2.98% for fiscal year 1994, which increase was
partially offset by a decrease in the average balance of $1.3 million, or 26.5%.

Interest Expense. Interest expense increased by $1.9 million, or 22.9%, to $10.3
million for the fiscal year ended September 30, 1995 from $8.4 million for the
fiscal year ended September 30, 1994. This increase resulted primarily from an
increase in the average cost on interest-bearing liabilities to 4.33% in fiscal
year 1995 from 3.65% in fiscal year 1994, as well as an increase in average
interest-bearing liabilities of $8.1 million to $238.2 million in fiscal year
1995 compared to $230.1 million in fiscal year 1994.

Interest expense on deposits increased $708,000, or 10.3%, reflecting an
increase in the average cost of deposits to 4.00% from 3.51% which was partially
offset by a decrease of $5.8 million, or 3.0%, in average deposits to $189.3
million from $195.1 million. The increase in the cost of average deposits is
consistent with the increase in general market interest rates that existed for
most of fiscal year 1995 and reflects the higher cost of deposits which were
acquired in the DuQuoin branch acquisition. Average deposits continue to
decrease as depositors shift funds to alternative investments to seek higher
yields elsewhere.

Interest expense on average borrowed money increased $1.2 million, or 79.5%,
reflecting an increase in average borrowed money of $13.9 million, or 39.9%, to
$48.9 million in fiscal year 1995 from $34.9 million in fiscal year 1994 and an
increase in the cost of average borrowed money to 5.61% from 4.37%. Average
borrowed money increased predominately from the utilization of Federal Home Loan
Company line of credit advances to fund the purchase of mortgage loans, the
origination of automobile loans, and the withdrawal of deposits.

Net Interest Income. Net interest income totaled $9.7 million and $9.8 million
for the fiscal years ended September 30, 1995 and 1994, respectively. This
decline in net interest income primarily resulted from a decrease to 110.80% in
the ratio of average interest-earning assets to average interest-bearing
liabilities in fiscal year 1995 compared to 111.17% in fiscal year 1994, as well
as a decrease in the Company's interest rate spread to 3.25% in fiscal year 1995
from 3.48% in fiscal year 1994.
<PAGE>
Provision for Losses on Loans. The allowance for loss is established through a
provision for losses on loans based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio composition, prior loss experience, the review of delinquencies and
loan portfolio quality, the estimated fair value of the underlying collateral,
and other factors that warrant recognition in providing for an adequate loan
loss allowance.

The provision for losses on loans for the fiscal year ended September 30, 1995
was $360,000 compared to $140,000 for the fiscal year ended September 30, 1994.
The increased provision in fiscal year 1995 was necessary to establish loan loss
reserves to cover the credit risk associated with one commercial loan and the
collateralization of a commercial real estate project based on management's
current estimate of the value of the underlying collateral. The decreased
provisions in fiscal year 1994 reflected, among other factors, the termination
of the selective strike of area coal miners by the United Mine Workers of
America which began in May 1993 and reached settlement in December 1993, the
continued low level of delinquencies relative to other savings institutions, and
management's effort to closely monitor the level of delinquencies.

The Company's allowance for losses on loans was $2.2 million, or 1.05%, of loans
receivable at September 30, 1995 compared to $2.1 million, or 1.15%, of loans
receivable at September 30, 1994. The Company's level of net loans charged off
as a percentage of average net loans receivable outstanding was 0.14% and 0.13%
for fiscal years 1995 and 1994, respectively. Additionally, the Company's
nonperforming loans as a percentage of loans receivable increased to 0.32% from
0.23% at September 30, 1995 and 1994, respectively. Based on current levels in
the allowance for losses on loans in relation to total loans receivable and
delinquent loans, management's effort to resolve problem loan situations, and
the low level of charge-offs in recent years, management believes the allowance
is adequate at September 30, 1995.

Noninterest Income. The Company's principal sources of noninterest income
include late charges and other loan fees, deposit account fees, and commissions
and fees from brokerage activities. Noninterest income decreased slightly by
$34,000, or 2.3%, for the fiscal year ended September 30, 1995 to $1.4 million.
This decrease resulted primarily from a decrease in the gain on sale of
investment securities and a decrease in late charges and other loan fees, which
decreases were partially offset by an increase in deposit account fees and other
noninterest income. The $135,000 decrease in the gain on sale of investment
securities resulted from the decline in sales activity from $21.2 million in
fiscal year 1994 to $40,000 in fiscal year 1995. The significant level of sales
activity in fiscal year 1994 was designed to reposition the investment
securities portfolio in anticipation of adopting Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, at September 30, 1994. Late charges and other loan fees
decreased $25,000, or 9.3%, for the fiscal year ended September 30, 1995 to
$241,000 as compared to $266,000 in the fiscal year ended September 30, 1994.
Deposit account fees increased $74,000, or 12.3%, for the fiscal year ended
September 30, 1995 to $677,000 compared to $603,000 for the fiscal year ended
September 30, 1994.
<PAGE>
Noninterest Expense. Noninterest expense increased $107,000 for the fiscal year
ended September 30, 1995 to $5.9 million from $5.8 million for the fiscal year
ended September 30, 1994. One reason for the increase in noninterest expense was
that compensation and employee benefits expense increased $247,000 to $3.0
million for fiscal year 1995 compared to $2.8 million for fiscal year 1994. The
primary reason for the increase in compensation and employee benefits expense is
due to additional compensation expense related to the conversion to an in-house
data processing system as well as the cost of certain stock benefit plans. Other
noninterest expense increased $107,000, or 8.9%, to $1.3 million for the fiscal
year ended September 30, 1995 compared to $1.2 million for the fiscal year ended
September 30, 1994 primarily due to higher professional fees as a result of
being a public company. The provision for losses and expenses on real estate
acquired by foreclosure decreased $181,000, or 98.1%, to $4,000 for the fiscal
year ended September 30, 1995 compared to $184,000 for the fiscal year ended
September 30, 1994, due to decreased losses on the sale of real estate acquired
by foreclosure. Deposit insurance premiums decreased $23,000, or 5.1%, to
$438,000 for the fiscal year ended September 30, 1995 compared to $461,000 for
the fiscal year ended September 30, 1994.

Income Taxes and Cumulative Effect of Change in Accounting Principle. The
provision for income taxes totaled $1.9 million and $2.1 million for the fiscal
years ended September 30, 1995 and 1994, respectively. The Company's effective
income tax rates were 38.6% and 38.3% for the fiscal years ended September 30,
1995 and 1994, respectively.

In 1994, the Company adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS No. 109), which resulted in an increase
in income for the cumulative effect of a change of accounting principle of
$786,000. The net deferred tax asset that was recognized as a result of the
adoption of SFAS No. 109 represents future tax benefits derived from temporary
differences between the carrying value and tax basis of assets and liabilities
and bad debt deductions which had not been recognized and are, in substance, tax
loss carryforwards.

Net Income. Net income totaled $3.0 million for the fiscal year ended September
30 1995 compared to $4.1 million for the fiscal year ended September 30, 1994.
The net income for the fiscal year ended September 30, 1994, includes the effect
of the adoption of SFAS No. 109 as discussed above. The decrease in net income
also reflects the decrease of $147,000, or 1.5%, in net interest income, the
decrease of $34,000, or 2.3%, in noninterest income, the increase in provision
for losses on loans of $220,000, or 157.1%, and the increase of $107,000, or
1.9%, in noninterest expense, which was partially offset by a decrease in income
taxes of $180,000, or 8.8%.

Asset and Liability Management - Interest Rate Sensitivity Analysis

The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
<PAGE>
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to positively affect net interest income. This has not
been the case for the Company. However, no assurance can be given that this
trend will continue.

The Company's policy in recent years has been to reduce it's exposure to
interest rate risk generally by better matching the maturities of its interest
rate sensitive assets and liabilities and by originating or purchasing ARM loans
and other variable rate or short-term loans, as well as by purchasing short-term
investments. The Company seeks to lengthen the maturities of its deposits by
promoting longer-term certificates. The Company has also entered into reverse
repurchase agreements with terms of up to 330 days. The Company does not solicit
negotiated high-rate jumbo certificates of deposit or brokered funds.

The Board of Directors functions as the Asset Liability Management Committee
which is responsible for reviewing the Company's asset and liability policies.
The Committee meets quarterly to discuss interest rate risks and trends, as well
as liquidity and capital ratios and requirements.

Liquidity and Capital Resources

At September 30, 1996, the Company was required to maintain minimum levels of
liquid assets by FDIC regulations. The Company's liquidity policy, which varies
from time to time depending upon economic conditions and deposit flows, is based
upon a percentage of deposits and short-term borrowings and is currently 5.0%.
The Company historically has maintained a level of liquid assets in excess of
requirements, and the Company's liquidity ratio averaged 9.41% during the month
of September 1996 and 9.76% during the fiscal year ended September 30, 1996. The
Company adjusts its liquidity levels in order to meet funding needs for deposit
outflows, payment of real estate taxes on mortgage loan escrow accounts,
repayment of borrowings, when applicable, and loan commitments. The Company also
adjusts liquidity as appropriate to meet its asset/liability objectives.

The Company's primary sources of funds are deposits, borrowed money, repayment
and prepayment of loans and mortgage-backed securities, borrowings, maturities
of investments, and funds provided from operations. While loan and
mortgage-backed securities scheduled repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. The Company
manages the pricing of its deposits to maintain a steady deposit balance. In
addition, the Company invests excess funds in overnight deposits, other
short-term interest-earning investments, and other assets which provide
liquidity to fund lending demand. Assets qualifying for liquidity at September
30, 1996, 1995, and 1994 amounted to $29.6 million, $26.3 million, and $26.4
million, respectively.

A major portion of the Company's liquidity consists of cash and cash equivalents
which are a product of its operating, investing, and financing activities. The
primary sources of cash are derived from operations and financing activities.
Liquidity management is both a daily and long-term function of business
management. If the Company requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB to proved an additional
source of funds. At September 30, 1996, the Company had $61.0 million in
borrowings from the FHLB.
<PAGE>
At September 30, 1996, the Company had outstanding mortgage loan commitments of
$1.7 million. Certificates of deposit scheduled to mature in one year or less at
September 30, 1996 totaled $109.8 million. Management believes, based on past
experience, that a significant portion of such deposits will remain with the
Company.

At September 30, 1996, the Company exceeded all of its regulatory capital
requirements.

Impact of Inflation and Changing Prices

The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Company are monetary. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.

Impact of New Accounting Pronouncements

Accounting for Mortgage Servicing Rights. In May 1995, the FASB issued Statement
of Financial Accounting Standards 122, Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65 (SFAS 122). SFAS 122 amends Statement of
Financial Accounting Standards No. 65, Accounting for Certain Mortgage
Companying Activities, to require that a mortgage Companying enterprise
recognize as separate assets rights to service mortgage loans for others,
however those servicing rights are acquired. A mortgage Companying enterprise
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values, if it is practicable to estimate
those fair values. If it is not practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans (without the mortgage servicing
rights), the entire cost of purchasing or originating the loans should be
allocated to the mortgage loans, and no cost should be allocated to mortgage
servicing rights. SFAS 122 also requires that a mortgage Companying enterprise
assess its capitalized mortgage servicing rights for impairment based on the
fair value of those rights. SFAS 122 must be applied prospectively for fiscal
years beginning after December 15, 1995, with earlier adoption encouraged, to
transactions in which a mortgage Companying enterprise sells or securitizes
mortgage loans with servicing rights retained and to impairment evaluations of
all amounts capitalized as mortgage servicing rights, including those purchased
before the adoption of SFAS 122. Retroactive capitalization of mortgage
servicing rights retained in transactions in which a mortgage Companying
enterprise originates mortgage loans and sells or securitizes those loans before
the adoption of SFAS 122 is prohibited. The Company plans to adopt the
provisions of SFAS 122 effective October 1, 1996. Management does not believe
the adoption of SFAS 122 will have a material effect on the Company's financial
position.
<PAGE>
Accounting for Impairment of Long-Lived Assets. In March 1995, the FASB issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Earlier application is permitted. SFAS 121 will
require, among other things, that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company plans to adopt the provisions of SFAS 121
effective October 1, 1996. Management does not believe that the adoption of SFAS
121 will have a material impact on the Company's financial position.

Disclosures of Certain Significant Risks and Uncertainties. In December 1994,
the AICPA issued SOP 94-6, "Disclosure of Certain Significant Risks and
Uncertainties." SOP 94-6 is effective for fiscal years ending after December 15,
1995. Earlier application is permitted. SOP 94-6 will require, among other
things, that entities include in their financial statements disclosures about
the nature of their operations and the use of estimates in the preparation of
financial statements. In addition, SOP 94-6 requires disclosures about current
vulnerability due to certain concentrations. Management believes that the
adoption of SOP 94-6 in fiscal 1996 did not have a material impact on the
Company's financial position.

During October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which establishes financial accounting and reporting standards
for stock-based employee compensation plans and also applies to transactions in
which an entity issues its equity instruments to acquire goods or services from
nonemployees. SFAS No. 123 defines a fair value-based method of accounting for
an employee stock option or similar equity instruments and encourages all
entities to adopt that method of accounting. However, it also allows an entity
to continue to measure compensation cost for those plans using the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Pro forma
disclosures required for entities that elect to continue to measure compensation
cost using APB 25 must include the effect of all awards granted in fiscal years
that begin after December 15, 1994. The Company plans to continue to measure
compensation cost using APB 25; therefore, the adoption of SFAS No. 123 will not
have any impact on the Company's financial condition or results of operations.

During June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The Statement also
requires that a liability can be derecognized if an only if either (a) the
debtor pays the creditor and is relieved of its obligation for the liability or
(b) the debtor is legally released from the liability either judicially or by
the creditor.

This statement is effective for transactions occurring after December 31, 1996,
and is to be applied prospectively. Earlier or retroactive application is not
permitted. Management does not believe the statement will have a material impact
on the financial position of the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Charter Financial, Inc.
Sparta, Illinois:

We have audited the accompanying consolidated balance sheets of Charter
Financial, Inc. and subsidiary (the Company) as of September 30, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Charter Financial,
Inc. and subsidiary as of September 30, 1996 and 1995, and the results of their
operations and cash flows for each of the years in the three-year period ended
September 30, 1996, in conformity with generally accepted accounting principles.

/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP

St. Louis, Missouri
November 20, 1996
<PAGE>
<TABLE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

Consolidated Balance Sheets
September 30, 1996 and 1995

Assets 1996 1995
---- ----
<S> <C> <C>
Cash ........................................................................... $ 1,492,740 $ 1,097,732
Interest-bearing deposits ...................................................... 7,475,682 5,250,071
Investment securities:
Available for sale, at market value (amortized
cost of $58,924,095 and $29,067,062 at
September 30, 1996 and 1995, respectively) ................................ 58,613,400 29,448,015
Held to maturity, at cost (market value of
$8,819,034 and $23,019,301 at September 30,
1996 and 1995, respectively) .............................................. 8,860,125 23,336,289
Mortgage-backed securities:
Available for sale, at market value (amortized
cost of $15,059,424 and $16,094,896 at
September 30, 1996 and 1995, respectively) ................................ 15,116,592 16,255,110
Held to maturity, at cost (market value of
$1,553,881 and $458,708 at September 30,
1996 and 1995, respectively) .............................................. 1,515,622 414,681
Loans receivable, net .......................................................... 275,486,929 206,073,777
Accrued interest receivable .................................................... 3,098,131 2,112,947
Real estate acquired by foreclosure, net ....................................... 428,279 140,239
Stock in Federal Home Loan Bank, at cost ....................................... 3,049,900 2,140,000
Office properties and equipment, at cost less
accumulated depreciation .................................................... 5,990,392 3,737,740
Prepaid expenses and other assets .............................................. 1,995,423 1,070,713
Deferred tax asset ............................................................. 955,304 266,122
Core deposit intangible ........................................................ 1,031,729 1,173,823
Cost in excess of fair value of net assets acquired ............................ 3,320,843 617,696
------------- -------------
$ 388,431,091 $ 293,134,955
============= =============
<PAGE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

Consolidated Balance Sheets
September 30, 1996 and 1995

Liabilities and Stockholders' Equity 1996 1995
---- ----
<S> <C> <C>
Deposits ....................................................................... $ 248,722,627 $ 197,103,081
Accrued interest on deposits 576,341 ........................................... 513,182
Borrowed money ................................................................. 76,353,783 57,079,749
Advance payments by borrowers for taxes and insurance .......................... 1,084,720 848,082
Income taxes payable ........................................................... 188,097 73,933
Accrued expenses and other liabilities ......................................... 5,111,072 1,894,948
------------- -------------
Total liabilities ................................. 332,036,640 257,512,975
------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value, 8,000,000 shares authorized, 4,253,459 shares
issued and outstanding at September 30, 1996; $1 par value, 20,000,000
shares authorized, 2,171,125 shares issued and
outstanding at September 30, 1995 ......................................... 425,346 2,171,125
Additional paid-in capital .................................................. 28,762,464 7,399,095
Retained earnings, substantially restricted ................................. 28,885,198 26,763,369
Unrealized gain (loss) on securities available
for sale, net of applicable taxes ......................................... (206,204) 301,058
Unamortized restricted stock awards ......................................... -- (148,667)
Unearned ESOP shares ........................................................ (1,472,353) (864,000)
------------- -------------
Total stockholders' equity ........................ 56,394,451 35,621,980
------------- -------------
$ 388,431,091 $ 293,134,955
============= =============

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income

Years ended September 30, 1996, 1995, and 1994

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans receivable .............................. $ 19,439,001 $ 15,461,525 $ 13,255,773
Investment securities ......................... 3,936,589 3,307,960 3,754,393
Mortgage-backed securities .................... 1,173,197 1,086,559 1,081,973
Other ......................................... 270,160 152,449 141,198
------------ ------------ ------------
Total interest income ................. 24,818,947 20,008,493 18,233,337
------------ ------------ ------------
Interest expense:
Deposits ...................................... 9,792,900 7,566,735 6,859,148
Borrowed money ................................ 2,632,822 2,741,838 1,527,716
------------ ------------ ------------
Total interest expense ................ 12,425,722 10,308,573 8,386,864
------------ ------------ ------------
Net interest income ................... 12,393,225 9,699,920 9,846,473
Provision for losses on loans .................... 170,000 360,000 140,000
------------ ------------ ------------
Net interest income after
provision for losses on loans ...... 12,223,225 9,339,920 9,706,473
------------ ------------ ------------
Noninterest income:
Late charges and other loan fees .............. 391,113 241,049 265,678
Gain (loss) on sale of investment
securities, net ............................. (28,806) (13,719) 121,392
Loss on sale of mortgage-backed securities, net (8,916) -- --
Deposit account fees .......................... 797,034 677,134 602,837
Commissions and fees .......................... 274,747 179,851 134,079
Other ......................................... 416,239 326,157 320,003
------------ ------------ ------------
Total noninterest income .............. 1,841,411 1,410,472 1,443,989
------------ ------------ ------------
Noninterest expense:
Compensation and employee benefits ............ 3,660,994 3,025,291 2,778,036
Office buildings and equipment ................ 662,845 477,326 477,763
Data processing ............................... 419,906 357,828 347,677
Advertising ................................... 237,479 147,918 195,629
Deposit insurance premiums .................... 457,818 437,794 461,218
SAIF special assessment ....................... 1,479,021 -- --
Other ......................................... 1,641,149 1,306,395 1,199,143
Provision for losses and expenses on
real estate acquired by foreclosure ......... 81,197 3,531 184,202
Amortization of cost in excess of fair
value of net assets acquired ................ 211,271 136,409 141,507
------------ ------------ ------------
Total noninterest expense ............. 8,851,680 5,892,492 5,785,175
------------ ------------ ------------
Income before income tax expense
and cumulative effect of change
in accounting principle ............ 5,212,956 4,857,900 5,365,287
------------ ------------ ------------
<PAGE>
<CAPTION>
Consolidated Statements of Income

Years ended September 30, 1996, 1995, and 1994
(continued)

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax expense:
Current 2,622,877 ............................. 1,888,164 1,698,936
Deferred ...................................... (467,566) (14,141) 355,128
------------ ------------ ------------
Total income tax expense .............. 2,155,311 1,874,023 2,054,064
------------ ------------ ------------
Income before cumulative effect of
change in accounting principle ..... 3,057,645 2,983,877 3,311,223
Cumulative effect of change in
accounting principle .......................... -- -- 786,053
------------ ------------ ------------
Net income ............................ $ 3,057,645 $ 2,983,877 $ 4,097,276
============ ============ ============

Earnings per share:
Income before cumulative effect of
change in accounting principle .............. $ .67 $ .69 $ .78
Cumulative effect of change in
accounting principle ........................ -- -- .19
------------ ------------ ------------
Net income ............................ $ .67 $ .69 $ .97
============ ============ ============

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity

Years ended September 30, 1996, 1995, and 1994

Unrealized
gain (loss)
on securities
available
Retained for sale,
Additional earnings, net of
Common stock paid-in substantially applicable
Shares Amount capital restricted taxes
------ ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>

Balance, September 30, 1993 ................. -- $ -- $ -- $ 22,016,100 $ --
Net income .................................. -- -- -- 4,097,276 --
Capital contribution to
Charter Bank, M.H.C ..................... -- -- -- (100,000) --
Net proceeds from sale of
common stock ............................. 2,102,000 2,102,000 6,441,329 -- --
Exercise of stock options ................... 20,160 20,160 181,440 -- --
Issuance of restricted
stock awards ............................. 48,000 48,000 432,000 -- --
Amortization of restricted
stock awards ............................. -- -- -- -- --
Amortization of
ESOP awards .............................. -- -- 76,596 -- --
Dividend declared on nonmutual
holding company-owned
common stock at $2.00 per share .......... -- -- -- (1,664,312) --
Unrealized gain (loss) on
securities available for
sale, net of applicable taxes ........... -- -- -- -- (620,508)
------------ ------------ ------------ ------------ ------------

Balance, September 30, 1994 ................. 2,170,160 2,170,160 7,131,365 24,349,064 (620,508)
Net income .................................. -- -- -- 2,983,877 --
Amortization of restricted
stock awards ............................. -- -- -- -- --
Amortization of
ESOP awards .............................. -- -- 259,045 -- --
Exercise of stock options ................... 965 965 8,685 -- --
Dividend declared on nonmutual
holding company-owned
common stock at $.60 per share ........... -- -- -- (569,572) --
Change in unrealized gain (loss) on
securities available for
sale, net of applicable taxes ............ -- -- -- -- 921,566
------------ ------------ ------------ ------------ ------------

Balance, September 30, 1995 ................. 2,171,125 $ 2,171,125 $ 7,399,095 $ 26,763,369 $ 301,058

<PAGE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)

Unamortized Total
restricted Unearned stock-
stock ESOP holders'
awards shares equity
------ ------ ------
<S> <C> <C> <C>
Balance, September 30, 1993 ....... $ -- $ -- $ 22,016,100
Net income ........................ -- -- 4,097,276
Capital contribution to
Charter Bank, M.H.C ........... -- -- (100,000)
Net proceeds from sale of
common stock ................... -- (1,440,000) 7,103,329
Exercise of stock options ......... -- -- 201,600
Issuance of restricted
stock awards ................... (480,000) -- --
Amortization of restricted
stock awards ................... 182,667 -- 182,667
Amortization of
ESOP awards .................... -- 288,000 364,596
Dividend declared on nonmutual
holding company-owned
common stock at $2.00 per share -- -- (1,664,312)
Unrealized gain (loss) on
securities available for
sale, net of applicable taxes . -- -- (620,508)
------------ ------------ ------------

Balance, September 30, 1994 ....... (297,333) (1,152,000) 31,580,748
Net income ........................ -- -- 2,983,877
Amortization of restricted
stock awards ................... 148,666 -- 148,666
Amortization of
ESOP awards .................... -- 288,000 547,045
Exercise of stock options ......... -- -- 9,650
Dividend declared on nonmutual
holding company-owned
common stock at $.60 per share . -- -- (569,572)
Change in unrealized gain (loss) on
securities available for
sale, net of applicable taxes .. -- -- 921,566
------------ ------------ ------------

Balance, September 30, 1995 ....... $ (148,667) $ (864,000) $ 35,621,980
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)
Unrealized
gain (loss)
on securities
available
Retained for sale,
Additional earnings, net of
Common stock paid-in substantially applicable
Shares Amount capital restricted taxes
------ ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 ................ 2,171,125 $ 2,171,125 $ 7,399,095 $ 26,763,369 $ 301,058
Net income ................................. -- -- -- 3,057,645 --
Net proceeds from sale of
common stock of Charter
Financial, Inc. ........................ 2,919,414 291,941 27,728,948 -- --
Cancellation of Charter
Bank, S.B. common
stock owned by Charter
Bancorp, M.H.C .......................... (1,190,000) (1,190,000) 1,190,000 -- --
Cancellation of Charter
Bank, S.B. common
stock owned by
minority stockholders ................... (986,051) (986,051) 986,051 -- --
Issurance of common stock
of Charter Financial,
Inc. to minority
stockholders of
Charter Bank, S.B ....................... 2,054,832 205,483 (205,483) -- --
Capital contribution
from Charter Bancorp, M.H.C ............. -- -- 100,000 -- --
Cash paid to minority
stockholders for
fractional shares ....................... (230) (23) (2,303) -- --
Purchase of treasury
stock and retirement
of shares ............................... (721,285) (72,129) (8,911,580) -- --
Exercise of stock options .................. 6,488 5,834 55,262 -- --
Tax benefit of non-
incentive stock
options exercised ....................... -- -- 27,400 -- --
Cancellation of
restricted stock awards ................. (834) (834) (7,506) -- --
Amortization of restricted
stock awards ............................ -- -- -- -- --
Amortization of ESOP awards ................ -- -- 402,580 -- --
<PAGE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)

Unamortized Total
restricted Unearned stock-
stock ESOP holders'
awards shares equity
------ ------ ------
<S> <C> <C> <C>
Balance, September 30, 1995 .... $ (148,667) $ (864,000) $ 35,621,980
Net income ..................... -- -- 3,057,645
Net proceeds from sale of
common stock of Charter
Financial, Inc. ............ -- (969,030) 27,051,859
Cancellation of Charter
Bank, S.B. common
stock owned by Charter
Bancorp, M.H.C .............. -- -- --
Cancellation of Charter
Bank, S.B. common
stock owned by
minority stockholders ....... -- -- --
Issurance of common stock
of Charter Financial,
Inc. to minority
stockholders of
Charter Bank, S.B ........... -- -- --
Capital contribution
from Charter Bancorp, M.H.C . -- -- 100,000
Cash paid to minority
stockholders for
fractional shares ........... -- -- (2,326)
Purchase of treasury
stock and retirement
of shares ................... -- -- (8,983,709)
Exercise of stock options ...... -- -- 61,096
Tax benefit of non-
incentive stock
options exercised ........... -- -- 27,400
Cancellation of
restricted stock awards ..... 8,340 -- --
Amortization of restricted
stock awards ................ 140,327 -- 140,327
Amortization of ESOP awards .... -- 360,677 763,257
<PAGE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)
Unrealized
gain (loss)
on securities
available
Retained for sale,
Additional earnings, net of
Common stock paid-in substantially applicable
Shares Amount capital restricted taxes
------ ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Dividend declared on nonmutual
holding company-owned
common stock at $.15 per share ............. -- -- -- (132,780) --
Dividends declared on common stock of
Charter Financial,Inc. at
$.18 per share ............................. -- -- -- (803,036) --
Cumulative effect of transfer of
securities toavailable for sale,
net of tax ................................. -- -- -- -- (59,952)
Change in unrealized gain (loss) on
securities available for sale, net of
applicable taxes ........................... -- -- -- -- (447,310)
---------- ------------ ------------ ------------ ------------

Balance, September 30, 1996 ................... 4,253,459 $ 425,346 $ 28,762,464 $ 28,885,198 $ (206,204)
========== ============ ============ ============ ============

Consolidated Statements of Stockholders' Equity (continued)

Unamortized Total
restricted Unearned stock-
stock ESOP holders'
awards shares equity
------ ------ ------
<S> <C> <C> <C>
Dividend declared on nonmutual
holding company-owned
common stock at $.15 per share ...... -- -- (132,780)
Dividends declared on common stock of
Charter Financial,Inc. at
$.18 per share ...................... -- -- (803,036)
Cumulative effect of transfer of
securities toavailable for sale,
net of tax .......................... -- -- (59,952)
Change in unrealized gain (loss) on
securities available for sale, net of
applicable taxes .................... -- -- (447,310)
------ ------------ ------------

Balance, September 30, 1996 ............ $ -- $ (1,472,353) $ 56,394,451
====== ============ ============

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

CHARTER BANK AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years ended September 30, 1992 and 1991

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 3,057,645 $ 2,983,877 $ 4,097,276
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle ........ -- -- (786,053)
Depreciation and amortization:
Office properties and equipment .......................... 507,285 351,612 244,958
Discounts related to purchase accounting ................. (63,272) (28,334) (183,213)
Cost in excess of fair value of net assets acquired ...... 211,271 136,409 141,507
Fees, discounts, and premiums ............................ (1,894,383) (1,717,121) (1,200,626)
Stock plans .............................................. 903,584 695,711 547,263
Decrease (increase) in accrued interest receivable ......... (664,241) (498,481) 387,106
Increase (decrease) in accrued interest on deposits ........ (230,264) 47,005 (26,133)
Provision for losses on loans .............................. 170,000 360,000 140,000
Stock dividend from FHLB ................................... -- (27,000) --
Decrease (increase) in income taxes, net ................... (348,536) 257,939 32,101
(Gain) loss on sale of investment securities, net .......... 28,806 13,719 (121,392)
Loss on sale of mortgage-backed securities, net ............ 8,916 -- --
Net change in other assets and other liabilities ........... 2,169,206 125,068 202,507
------------- ------------- -------------
Net cash provided by operating activities 3,856,017 2,700,404 3,475,301
------------- ------------- -------------
Cash flows from investing activities:
Principal repayments on:
Loans receivable ............................................. 102,481,371 67,036,963 65,948,576
Mortgage-backed securities ................................... 4,224,776 2,442,953 7,564,219
Investment securities ........................................ 2,447,789 2,158,335 3,067,981
Proceeds from sale of:
Loans receivable ............................................. 1,549,116 1,722,721 --
Mortgage-backed securities ................................... 64,471 -- --
Investment securities ........................................ 3,876,723 39,500 21,190,722
FHLB stock ................................................... 656,000 955,000 --
Maturity of investment securities .............................. 17,130,000 7,635,000 19,199,667
Purchase of:
Loans receivable ............................................. (37,362,675) (28,213,309) (2,389,386)
Mortgage-backed securities ................................... (3,095,523) (2,542,936) (3,310,300)
Investment securities ........................................ (32,556,167) (11,988,779) (36,607,060)
FHLB stock ................................................... (1,176,900) (1,505,900) --
Cash invested in loans receivable .............................. (89,278,254) (67,058,169) (83,363,187)
Cash paid for acquisition, net of cash received ................ (6,936,679) -- --
Proceeds from sales of real estate acquired by
foreclosure, net ............................................. 345,722 335,148 951,959
Purchase of office properties and equipment .................... (780,856) (1,507,572) (330,836)
------------- ------------- -------------
Net cash used in investing activities ... (38,411,086) (30,491,045) (8,077,645)
------------- ------------- -------------
<PAGE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

CHARTER BANK AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years ended September 30, 1992 and 1991
(continued)

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Increase (decrease) in deposits ................................ 1,895,605 (13,873,930) (8,236,484)
Deposits acquired, net of premium .............................. -- 19,794,592 --
Repayments of FHLB advances .................................... (2,119,864) (2,010,000) (2,000,000)
Increase (decrease) in securities sold under agreements
to repurchase, net ........................................... 1,365,957 (1,987,822) 1,318,258
Increase in other borrowings, net .............................. 18,800,000 25,800,000 8,000,000
Proceeds from ESOP indebtedness ................................ -- -- 1,440,000
Repayments of ESOP indebtedness ................................ (288,000) (288,000) (288,000)
Increase (decrease) in advance payments by borrowers
for taxes and insurance ...................................... 115,265 39,149 (47,730)
Proceeds from sale of common stock, net ........................ 27,051,859 -- 7,103,329
Cash paid to minority stockholders ............................. (2,326) -- --
Exercise of stock options ...................................... 61,096 9,650 201,600
Dividends paid ................................................. (820,195) (1,773,219) (326,456)
Stock subscriptions ............................................ -- -- (9,127,517)
Purchase of treasury stock and retirement of shares ............ (8,983,709) -- --
Capital contribution (to) from Charter Bancorp, M.H.C .......... 100,000 -- (100,000)
------------- ------------- -------------
Net cash provided by (used in)
financing activities ................. 37,175,688 25,710,420 (2,063,000)
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents ................. 2,620,619 (2,080,221) (6,665,344)
Cash and cash equivalents, beginning of year ...................... 6,347,803 8,428,024 15,093,368
------------- ------------- -------------
Cash and cash equivalents, end of year ............................ $ 8,968,422 $ 6,347,803 $ 8,428,024
============= ============= =============

Supplemental disclosure of cash flow information:
Interest paid .................................................. $ 12,260,869 $ 10,352,617 $ 8,412,997
Taxes paid ..................................................... 2,508,882 1,590,000 2,068,909
Loans transferred to real estate acquired by foreclosure ....... 720,040 258,078 1,142,530
Interest credited to deposits .................................. 6,619,453 5,464,128 5,356,000
Securities transferred to available for sale ................... 5,971,820 -- --
============= ============= =============

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements

September 30, 1996 and 1995

(1) Summary of Significant Accounting Policies

Following are the significant accounting policies which Charter
Financial, Inc. and its subsidiary (the Company) follow in preparing and
presenting their consolidated financial statements:

Reorganization to a Mutual Holding Company

On October 15, 1993, Charter Bank (the Bank) reorganized from an
Illinois-chartered mutual savings bank into a mutual holding company.
The mutual holding company was an Illinois corporation, chartered and
regulated by the Board of Governors of the Federal Reserve System and
the Office of the Illinois Commissioner of Savings and Residential
Finance, and was named Charter Bancorp, M.H.C. (the MHC). As part of the
reorganization, the Bank transferred substantially all of its assets and
all of its liabilities to a new Illinois-chartered savings bank and
retained its same name.

The reorganization was accounted for as a change in corporate form with
the historic basis of the Bank's assets, liabilities, and retained
earnings unchanged as a result.

Concurrent with the reorganization, the Bank offered a minority interest
of its common stock to its depositors and to its Employee Stock
Ownership Plan (ESOP). A total of 912,000 shares of newly issued common
stock, $1.00 par value, were sold at $10.00 per share. An additional
48,000 authorized shares of common stock were sold to the Bank's
Recognition and Retention Plan at $10.00 per share. The cost of issuing
the 960,000 shares totaled $577,000, which was deducted from the sales
proceeds.

The Bank was required to be a majority-owned subsidiary of the MHC at
all times as long as the MHC remained in existence. The existing rights
of the Bank's depositors upon liquidation were transferred to the MHC,
and records were maintained to ensure such rights received statutory
priority in the event of a future mutual to stock conversion.

Reorganization to a Stock Corporation

On December 28, 1995, the MHC completed its conversion from an Illinois-
chartered mutual holding company to a Delaware stock corporation (the
Conversion). At the date of the Conversion, the Company completed the
sale of 2,919,414 shares of common stock, $.10 par value, at a price of
$10.00 per share to the Bank's depositors, ESOP, and minority
stockholders in a subscription offering and to certain members of the
general public in a community offering. Net proceeds from the sale of
common stock were $27,051,859, after deducting approximately $1.2
million of offering expenses and $969,030 related to the sale of 96,903
shares to the Bank's ESOP.
<PAGE>
In conjunction with the subscription and community offering, an
additional 2,054,832 shares of common stock were issued by the Company
to convert 986,051 shares of the Bank's common stock held by minority
stockholders into common stock of the Company. Each share of the Bank's
common stock in the above transaction was converted into the right to
receive 2.0839 shares of the Company's common stock (the Exchange
Ratio).

Prior to the Conversion, the Company had not issued any stock, had no
assets or liabilities, and had not engaged in any business activities
other than of an organizational nature. Accordingly, operating
activities prior to December 28, 1995 reflect the operations of the Bank
only.

Business

The Company provides a full range of banking services to individual and
corporate customers through its home office in Sparta, Illinois, and six
branch offices in neighboring cities in Southern Illinois. The Company
is subject to competition from other financial institutions, is subject
to the regulations of certain federal and state agencies, and undergoes
periodic examinations by those regulatory authorities.

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated balance sheet and
revenues and expenses for the period. Actual results could differ
significantly 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. In connection with the determination of the allowance for
loan losses, management obtains independent appraisals for significant
properties.

Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize such losses,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
<PAGE>
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
About Fair Value of Financial Instruments, requires that the estimated
fair value of the Company's financial instruments be disclosed. Fair
value estimates of financial instruments are made at a specific point in
time, based on relevant market information and information about the
financial instruments. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings or a significant portion of a particular financial instrument.
Because no market exists for a significant portion of the Company's
financial instruments, some fair value estimates are subjective in
nature and involve uncertainties and matters of significant judgment.
Changes in assumptions could significantly affect these estimates. Fair
value estimates are presented for existing on-balance-sheet and
off-balance-sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. In addition,
the tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and
have not been considered in any of the estimates (see note 17).

Principles of Consolidation

The consolidated financial statements include the accounts of Charter
Financial, Inc. and its wholly-owned subsidiary, Charter Bank, S.B.
Sparta First Service Corporation, a subsidiary of the Bank, is engaged
primarily in the sale of multiple lines of insurance products to its
customers. All significant intercompany accounts and transactions have
been eliminated in consolidation.

Consolidated Statements of Cash Flows

For purposes of the consolidated statements of cash flows, the Company
considers all interest-bearing deposits (consisting primarily of
interest-bearing demand and time deposits) to be cash equivalents.

Investment Securities and Mortgage-Backed Securities

The Company classifies its debt securities in one of the following
categories: available for sale or held to maturity. Held-to-maturity
securities are those securities in which the Company has the ability and
intent to hold until maturity. All other securities not included in held
to maturity are classified as available for sale.

Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized gains
and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and reported as a separate
component of stockholders' equity until realized.

A decline in the market value of any security below cost that is deemed
other than temporary results in a charge to earnings and the
establishment of a new cost basis for the security.
<PAGE>
Premiums and discounts are amortized or accreted over the lives of the
respective securities as an adjustment to yield using the interest
method. Dividend and interest income are recognized when earned.
Realized gains and losses are included in earnings and are derived using
the specific-identification method for determining the cost of
securities sold.

On November 15, 1995, the Financial Accounting Standards Board (FASB)
issued a special report, A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities (the
Special Report). Due to uncertainties surrounding the regulatory capital
treatment for unrealized gains and losses on available-for-sale
securities at the time SFAS 115 was required to be implemented, the
Special Report was issued to allow all entities a one-time opportunity
to reconsider their ability and intent to hold securities to maturity
and transfer securities from held to maturity without "tainting" the
remainder held-to-maturity securities. Those securities transferred
would be accounted for prospectively under SFAS No. 115. These transfers
were only allowed during the period from the date of issuance of the
Special Report through December 31, 1995.

As a result of the Special Report, management reconsidered the
classification of held-to-maturity securities and transferred $5,971,820
of investment securities to available for sale on December 15, 1995. As
a result of the transfers: a market valuation account was established
for the available-for-sale securities of $96,697 to decrease the
recorded balance of such securities to their fair value; a deferred tax
asset of $36,745 was recorded to reflect the tax effect of the market
valuation account; and the net decrease resulting from the market
valuation adjustment of $59,952 was recorded as a separate component of
stockholders' equity.

Loans Receivable

Loans receivable are carried at cost, net of discounts and deferred loan
fees. Interest is credited to income as earned; however, interest
receivable is accrued only if deemed collectible. Discounts on loans
purchased and certain consumer loans are amortized into income using the
interest method over the estimated lives of the loans.

Loans receivable acquired in a business combination accounted for by the
purchase method are recorded at fair value. The net discounts related to
the fair value adjustment are amortized using the interest method over
the lives of the loans acquired, adjusted for expected prepayments.

Loan origination fees and the related incremental direct costs of
originating loans are amortized over the contractual lives of the
related loans using the interest method.

The allowance for loan losses is maintained at an amount considered
adequate to provide for credit losses. The provision for loan losses is
based on a periodic analysis of the loan portfolio by management. In
this regard, management considers numerous factors, including, but not
necessarily limited to, general economic conditions, loan portfolio
composition, prior loss experience, and independent appraisals of the
underlying collateral. In addition to the allowance for identified
problem loans, the Company also maintains a general allowance for
unidentified credit losses.
<PAGE>
Effective October 1, 1995, the Company adopted SFAS No. 114, Accounting
by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by
Creditors for Impairment of a Loan Income Recognition and Disclosures,
which amends SFAS No. 114. SFAS No. 114, as amended by SFAS No. 118,
defines the recognition criteria for loan impairment and the measurement
methods for certain impaired loans and loans for which terms have been
modified in troubled-debt restructurings (a restructured loan).
Specifically, a loan is considered impaired when it is probable a
creditor will be unable to collect all amounts due - both principal and
interest - according to the contractual terms of the loan agreement.
When measuring impairment, the expected future cash flows of an impaired
loan are required to be discounted at the loan's effective interest
rate. Alternatively, impairment can be measured by reference to an
observable market price, if one exists, or the fair value of the
collateral for a collateral-dependent loan. Regardless of the historical
measurement method used, SFAS No. 114 requires a creditor to measure
impairment based on the fair value of the collateral when the creditor
determines foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future
cash flows at the loan's effective rate of interest as stated in the
original loan agreement.

The Company applies the recognition criteria of SFAS No. 114 to
multi-family residential loans, commercial real estate loans,
agriculture loans, and restructured loans. Smaller balance, homogeneous
loans, including one-to-four family residential loans and consumer
loans, are collectively evaluated for impairment. SFAS No. 118 amends
SFAS No. 114 to allow a creditor to use existing methods for recognizing
interest income on impaired loans. The Company has elected to continue
to use its existing nonaccrual methods for recognizing interest on
impaired loans. The adoption of SFAS No. 114 and SFAS No. 118 resulted
in no prospective adjustment to the allowance for loan losses and did
not affect the Company's policies regarding charge-offs or recoveries.

Real Estate Acquired by Foreclosure

Real estate acquired by foreclosure is initially recorded on an
individual property basis at estimated fair value on the date of
foreclosure, thus establishing a new cost basis. Subsequent to
foreclosure, real estate is periodically evaluated by management and a
valuation allowance is established if the estimated fair value, less
cost to sell, of the property declines. Subsequent increases in fair
value are recorded through a reversal of the valuation allowance, but
not below zero. Costs incurred in maintaining the properties are charged
to expense.

Profit on sales of real estate owned is recognized when title has
passed, minimum down payment requirements have been met, the terms of
any notes received by the Company are such to satisfy continuing payment
requirements, and the Company is relieved of any requirement for
continued involvement in the real estate. Otherwise, recognition of
profit is deferred until such criteria are met.
<PAGE>
Stock in Federal Home Loan Bank

The Company, as a member of the reconstituted Federal Home Loan Bank
System administered by the Federal Housing Finance Board, is required to
maintain an investment in capital stock of the Federal Home Loan Bank of
Chicago (FHLB) in an amount equal to the greater of 1% of the aggregate
outstanding balance of the loans secured by dwelling units at the
beginning of each year, or 5% of advances from the FHLB to the Company.
The stock is recorded at cost, which represents redemption value.

Office Properties and Equipment

Depreciation of office properties and equipment is charged to expense
using the straight-line method over the estimated useful lives of the
related assets. Estimated lives are 3 to 50 years for office buildings
and improvements; 2 to 15 years for furniture, fixtures and equipment;
and 3 years for automobiles.

Cost in Excess of Fair Value of Net Assets Acquired

Cost in excess of fair value of net assets acquired (goodwill) arose
from the acquisitions of Community Savings Bank, Marion, Illinois in
1996 (see note 2) and Carbondale Savings and Loan Association in 1983,
both of which were accounted for by the purchase method of accounting.
Goodwill is being amortized on a straight-line basis over 15 years.

Core Deposit Intangible

A core deposit intangible in the original amount of $1,235,604 resulted
from the May 1995 acquisition of the deposit liabilities of another
financial institution (see note 2). This intangible asset is being
amortized on an accelerated basis over 10 years. The remaining
unamortized intangible totaled $1,031,729 at September 30, 1996. During
June 1995, the Company fully amortized its previous core deposit
intangible resulting from a prior acquisition of deposit liabilities.

Securities Sold Under Agreements to Repurchase

The Company enters into sales of securities under repurchase agreements
(reverse repurchase agreements). Reverse repurchase agreements are
treated as financings, and the obligation to repurchase securities sold
is reflected as a liability in the consolidated balance sheets.

Income Taxes

The Company files a consolidated federal income tax return. Temporary
differences exist between income and expense recognition for financial
reporting and income tax purposes. Deferred income taxes have been
provided for these temporary differences.

Effective October 1, 1993, the Company adopted SFAS No. 109, Accounting
for Income Taxes. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
<PAGE>
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company reported the
cumulative effect of the change in the method of accounting for income
taxes totaling $786,053 in the consolidated statement of income for the
year ended September 30, 1994.

Earnings Per Share

Earnings per share are based upon the weighted average number of common
shares and common stock equivalents, if dilutive, outstanding during the
period. The only common stock equivalents are stock options. The
weighted average number of common stock equivalents is calculated using
the treasury stock method. Only ESOP shares committed to be released are
considered outstanding for purposes of computing earnings per share.

Earnings per share have been calculated based on the weighted average
number of common shares and common stock equivalents outstanding of
4,550,068, 4,314,838, and 4,218,034 for the years ended September 30,
1996, 1995, and 1994, respectively. As a result of the Conversion, the
weighted average number of common shares outstanding for 1995 and 1994
were restated based on the Exchange Ratio.

Reclassification

Certain reclassifications of 1995 and 1994 information have been made to
conform to the 1996 presentation.

(2) Business Combinations

On May 15, 1996, the Company completed its acquisition of Community
Savings Bank, Marion, Illinois (Community Savings) in exchange for cash
of $7.5 million. Community Savings' assets consisted primarily of loans
receivable of $45.4 million and investment securities of $6.3 million,
while liabilities consisted primarily of savings deposits of $49.7
million. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the operating results of Community Savings
have been included in the Company's results of operations since the date
of the acquisition. The excess of the cost over fair value of the net
assets acquired was approximately $2.9 million.

On May 12, 1995, the Bank acquired the savings deposit liabilities of
the branch office of another financial institution totaling
approximately $21.1 million. The acquisition was accounted for under the
purchase method of accounting and resulted in the recording of a core
deposit intangible totaling approximately $1.2 million.
<PAGE>
(3) Investment Securities

The amortized cost and market value of investment securities classified
as available for sale at September 30, 1996 and 1995 follow:

<TABLE>
<CAPTION>
September 30, 1996
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Debt securities:
U.S. government and agencies ....... $ 43,726,735 $ 263,581 $ (196,290) $ 43,794,026
Corporate debentures ............... 2,149,003 -- (32,923) 2,116,080
Collateralized mortgage
obligations ...................... 6,373,165 5,958 (222,024) 6,157,099
Equity securities - mutual funds ...... 6,675,192 -- (128,997) 6,546,195
------------ ------------ ------------ ------------
$ 58,924,095 $ 269,539 $ (580,234) $ 58,613,400
============ ============ ============ ============

</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Debt securities - U.S. government
and agencies $ 22,809,812 $ 521,495 $ (49,846) $ 23,281,461
Equity securities - mutual funds 6,257,250 - (90,696) 6,166,554
------------ ------------ ------------ ------------
$ 29,067,062 $ 521,495 $(140,542) $ 29,448,015
============ ============ ============ ============
</TABLE>
<PAGE>
Gross realized gains, gross realized losses, and gross proceeds from
sales of debt securities follow:

Gross realized gains ........... $ 1,425 $ -- $ 323,060
Gross realized losses .......... (30,231) (13,719) (201,668)
------------ ------------ ------------
Net realized gain (loss) . $ (28,806) $ (13,719) $ 121,392
============ ============ ============

Gross proceeds ................. $ 3,876,723 $ 39,500 $ 21,190,722
============ ============ ============
</TABLE>

The amortized cost and market value of debt securities classified as
available for sale at September 30, 1996, by contractual maturity,
follow:
<TABLE>
<CAPTION>
Amortized Market
cost value
----------- -----------
<S> <C> <C>
Within one year .......................... $ 8,246,912 $ 8,257,242
Between one and five years ............... 24,249,476 24,275,189
Between five and ten years ............... 6,032,803 5,994,751
After ten years .......................... 13,719,712 13,540,023
----------- -----------
$52,248,903 $52,067,205
=========== ===========
</TABLE>
The amortized cost and market values of investment securities classified
as held to maturity at September 30, 1996 and 1995 follows:
<TABLE>
<CAPTION>
September 30, 1996
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Debt securities:
Securities of U.S. government
and agencies $ 1,000,000 $ 8,010 $ - $ 1,008,010
Corporate debentures 3,275,594 2,029 (4,053) 3,273,570
Collateralized mortgage
obligations 2,334,731 - (56,505) 2,278,226
Municipal bonds 2,249,800 10,193 (765) 2,259,228
--------- ------ ------ ---------
$ 8,860,125 $ 20,232 $(61,323) $ 8,819,034
========= ====== ====== =========

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Debt securities:
Securities of U.S. government
and agencies $ 5,000,000 $ 4,600 $ (22,200) $ 4,982,400
Corporate debentures 7,632,573 - (69,501) 7,563,072
Collateralized mortgage
obligations 8,947,913 32,392 (262,477) 8,717,828
Municipal bonds 1,755,803 6,852 (6,654) 1,756,001
---------- ------ ------- ----------
$ 23,336,289 $ 43,844 $(360,832) $ 23,019,301
========== ====== ======= ==========

</TABLE>
Collateralized mortgage obligations with a carrying value at September
30, 1996 of approximately $8.3 million were collateralized by
mortgage-backed securities issued by the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation. A
collateralized mortgage obligation with a carrying value at September
30, 1996 of approximately $177,000 was collateralized by nonagency
mortgage-backed securities.

The amortized cost and market value of debt securities classified as
held to maturity at September 30, 1996, by contractual maturity,
follows:
<TABLE>
<CAPTION>
Amortized Market
cost value
---------- ----------
<S> <C> <C>
Within one year .......................... $2,761,608 $2,763,901
Between one and five years ............... 2,463,644 2,467,990
Between five and ten years ............... 1,195,000 1,203,010
After ten years .......................... 2,439,873 2,384,133
$8,860,125 $8,819,034
========== ==========
</TABLE>
<PAGE>

4) Mortgage-Backed Securities

The amortized cost and market value of mortgage-backed securities
classified as available for sale at September 30, 1996 and 1995 follow:
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
GNMA ......... $ 715,742 $ 73,898 $ -- $ 789,640
FHLMC ........ 9,980,068 172,936 (184,954) 9,968,050
FNMA ......... 4,363,614 54,798 (59,510) 4,358,902
------------ ------------ ------------ ------------
$ 15,059,424 $ 301,632 $ (244,464) $ 15,116,592
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
--------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
GNMA ......... $ 831,425 $ 91,621 $ -- $ 923,046
FHLMC ........ 13,244,118 221,981 (217,843) 13,248,256
FNMA ......... 2,019,353 64,455 -- 2,083,808
------------ ------------ ------------ ------------
$ 16,094,896 $ 378,057 $ (217,843) $ 16,255,110
============ ============ ============ ============

</TABLE>
The amortized cost and market value of mortgage-backed securities
classified as available for sale at September 30, 1996, by contractual
maturity, follow:

<TABLE>
<CAPTION>
Amortized Market
cost value
----------- -----------
<S> <C> <C>
Within one year .......................... $ 2,059,479 $ 2,061,297
Between one and five years ............... 838,790 824,332
After ten years .......................... 12,161,155 12,230,963
----------- -----------
$15,059,424 $15,116,592
=========== ===========
</TABLE>
<PAGE>
Gross realized losses and gross proceeds from sales of mortgage-backed
securities during the year ended September 30, 1996 totaled $8,916 and
$64,471, respectively. There were no sales of mortgage-backed securities
during the years ended September 30, 1995 or 1994.

The amortized cost and market value of mortgage-backed securities
classified as held to maturity at September 30, 1996 and 1995 follow:

<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GNMA .................... $ 612,116 $ 10,526 $ -- $ 622,642
FHLMC ................... 363,470 3,439 -- 366,909
FNMA .................... 171,941 4,992 -- 176,933
Private
pass-throughs ......... 368,095 19,302 -- 387,397
---------- ---------- ---------- ----------
$1,515,622 $ 38,259 $ -- $1,553,881
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Private
pass-throughs $ 414,681 $ 44,027 $ - $ 458,708
========= ======== ======== =========
</TABLE>

The amortized cost and market value of mortgage-backed securities
classified as held to maturity at September 30, 1995, by contractual maturity,
follow:
<TABLE>
<CAPTION>
Amortized Market
cost value
----------- -----------
<S> <C> <C>
After ten years $ 1,515,622 $ 1,553,881
=========== ===========

</TABLE>
<PAGE>
(5) Loans Receivable

A comparative summary of loans receivable follows:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Loans secured by real estate:
Residential:
1-4 family .................................. $193,301,481 $134,639,565
Multifamily ................................. 1,748,587 1,478,790
------------ ------------
Total residential .................... 195,050,068 136,118,355
Land held for development ..................... 1,055,501 2,380,691
Commercial .................................... 11,621,874 6,805,559
------------ ------------
Total loans secured by real estate ... 207,727,443 145,304,605
------------ ------------
Commercial business loans ........................ 7,767,959 6,633,987
Consumer loans:
Automobile loans .............................. 50,292,567 49,917,806
Mobile home loans ............................. 169,808 145,278
Education loans ............................... 1,373,526 2,754,359
Loans secured by deposits ..................... 1,589,568 1,117,259
Other ......................................... 12,119,599 6,311,968
------------ ------------
Total consumer loans ................. 65,545,068 60,246,670
------------ ------------
281,040,470 212,185,262
------------ ------------
Less:
Loans in process .............................. 35,787 36,538
Unearned discount, net ........................ 2,648,056 3,429,088
Deferred loan fees ............................ 205,280 104,953
Allowance for losses .......................... 2,418,800 2,232,016
Purchase accounting discounts ................. 245,618 308,890
------------ ------------
5,553,541 6,111,485
------------ ------------
$275,486,929 $206,073,777
============ ============
</TABLE>
<PAGE>
The weighted average interest rate on loans was 8.48% and 8.60% at
September 30, 1996 and 1995, respectively.

A summary of activity in the allowance for losses for the years ended
September 30, 1996, 1995, and 1994 follows:
<TABLE>
<CAPTION>

1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year ........ $ 2,232,016 $ 2,129,296 $ 2,206,488
Provision charged to expense ...... 170,000 360,000 140,000
Acquisition of Community
Savings Bank ................... 265,000 -- --
Charge-offs ....................... (421,652) (349,839) (275,385)
Recoveries ........................ 173,436 92,559 58,193
----------- ----------- -----------
Balance, end of year .............. $ 2,418,800 $ 2,232,016 $ 2,129,296
=========== =========== ===========
</TABLE>
A summary of loans receivable contractually in arrears three months or
more is as follows:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Residential real estate loans .............. $1,068,570 $ 543,952
Commercial real estate loans ............... 849,529 --
Consumer loans ............................. 243,426 118,954
---------- ----------
$2,161,525 $ 662,906
========== ==========

Percent of loans receivable ................ .78% .32%
========== ==========

Number of loans ............................ 66 36
========== ==========
</TABLE>
A summary of loans on which interest is not being accrued and impaired
loans at September 30, 1996 follows:

<TABLE>
<CAPTION>
September 30,
1996
--------
<S> <C>

Nonaccrual loans ............................................... $765,662
Impaired loans continuing to accrue interest ................... --
--------
Total impaired loans ............... $765,662
========
</TABLE>
<PAGE>
The allowance for losses on impaired loans was $375,000 at September 30,
1996. The average balance of impaired loans during the year ended
September 30, 1996 was $524,403.

A summary of interest income on nonaccrual and other impaired loans for
the year ended September 30, 1996 follows:
<TABLE>
<CAPTION>
September 30,
1996
--------
<S> <C>

Income recognized - nonaccrual loans .......................... $ --
=======

Interest income if interest had accrued -
nonaccrual loans ........................................... $53,681
=======
</TABLE>
(6) Real Estate Acquired by Foreclosure

A comparative summary of real estate acquired by foreclosure is as
follows:
<TABLE>
<CAPTION>

1996 1995
-------- --------
<S> <C> <C>
Foreclosed real estate ................... $385,074 $ 92,068
Deficiency judgments ..................... 43,205 48,171
-------- --------
$428,279 $140,239
======== ========

</TABLE>
(7) Office Properties and Equipment

A comparative summary of office properties and equipment follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land ......................................... $ 855,373 $ 524,818
Office buildings and improvements ............ 5,321,618 3,417,024
Furniture, fixtures and equipment ............ 3,636,287 2,792,233
Automobiles .................................. 102,833 91,672
---------- ----------
9,916,111 6,825,747
Less accumulated depreciation ................ 3,925,719 3,088,007
---------- ----------
$5,990,392 $3,737,740
========== ==========
</TABLE>
<PAGE>
Depreciation expense for the years ended September 30, 1996, 1995, and
1994 amounted to $507,285, $351,612, and $244,958, respectively.

(8) Deposits

A comparative summary of deposits follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ------------------------
Percent Percent
Stated to to
rate Amount total Amount total
---- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Demand deposits:
Checking ......................... 0-2.50% $ 35,809,064 14.4% $ 34,027,636 17.3%
Money market demand .............. 2.50-3.75 17,448,651 7.0 17,222,778 8.7
Passbook ......................... 0-2.75 35,694,715 14.4 26,689,122 13.5
------------ ---- ------------- ----
88,952,430 35.8 77,939,536 39.5
------------ ---- ------------- ----
Certificates of deposit:

Less than 3.00 26,463 -- 23,757 --
3.00-4.99 14,826,775 6.0 42,103,677 21.4
5.00-6.99 141,335,188 56.8 73,668,658 37.4
7.00-8.99 3,086,126 1.2 2,703,808 1.4
9.00-11.00 495,645 .2 663,645 .3
============ ---- ------------- ----
159,770,197 64.2 119,163,545 60.5
------------ ---- -------------- -----
$248,722,627 100.0% $ 197,103,081 100.0%
============ ===== ============= =====
</TABLE>
The weighted average interest rate on deposits was 4.63% and 4.31% at
September 30, 1996 and 1995, respectively.

A summary of the maturities of certificates of deposit at September 30,
1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Amount Percent Amount Percent
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Within one year ...... $109,803,423 68.7% $ 73,118,490 61.4%
Second year .......... 32,827,662 20.5 31,892,841 26.8
Third year ........... 10,989,454 6.9 12,460,894 10.4
Fourth year .......... 5,400,553 3.4 1,045,262 .9
Thereafter ........... 749,105 .5 646,058 .5
------------ ----- ------------ -----
$159,770,197 100.0% $119,163,545 100.0%
============ ===== ============ =====
</TABLE>
<PAGE>
Interest expense on deposits, by type, for the years ended September 30,
1996, 1995, and 1994 is summarized as follows:
<TABLE>
<CAPTION>

1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Checking and money market ...... $1,334,117 $1,199,954 $1,307,501
Savings accounts ............... 953,487 898,191 752,121
Certificates of deposit ........ 7,363,202 5,370,258 4,750,790
Amortization of core
deposit intangible .......... 142,094 98,332 48,736
---------- ---------- ----------
$9,792,900 $7,566,735 $6,859,148
========== ========== ==========
</TABLE>
Certificates of deposit of $100,000 or more totaled $11,837,210 and
$5,904,214 at September 30, 1996 and 1995, respectively. Investment
securities and mortgage-backed securities with a carrying value of
approximately $12,207,000 and $18,767,000 at September 30, 1996 and
1995, respectively, were pledged to secure certain of these certificates
of deposit. Investment securities and mortgage-backed securities with a
carrying value of approximately $3,296,000 and $3,610,000 at September
30, 1996 and 1995, respectively, were pledged to secure a commercial
checking account.

(9) Borrowed Money

A summary of borrowed money at September 30, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------------- --------------------------
Weighted Weighted
average average
interest interest
Amount rate Amount rate
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Reverse repurchase agreements $ 14,781,706 5.35% $ 13,415,749 5.75%
Line of credit advances from FHLB 53,600,000 6.22 33,800,000 6.66
Fixed-term advances from FHLB due in:
1996 - - 2,000,000 4.52
1998 7,000,000 5.11 7,000,000 5.11
2001 396,077 8.36 - -
ESOP 576,000 8.00 864,000 8.50
------------ ------------
$ 76,353,783 5.97% $ 57,079,749 6.21%
============ ==== ============ ====
</TABLE>
<PAGE>
Reverse repurchase agreements (the agreements) are treated as
financings, and the obligations to repurchase the securities sold are
reflected as a liability. These agreements mature within one year. All
of the agreements were to repurchase identical securities. The
investment securities underlying the agreements were delivered to a
designated safekeeping agent. These investment securities had an
amortized cost and market value of $16,878,000 and $16,851,000,
respectively, at September 30, 1996. At September 30, 1995, the
investment securities had an amortized cost and market value of
$16,147,000 and $16,348,000, respectively.

The agreements averaged approximately $13,510,000 and $14,242,000 during
1996 and 1995, respectively. The maximum amounts outstanding at any
month-end during 1996 and 1995 were approximately $14,782,000 and
$15,406,000, respectively. Interest expense on reverse repurchase
agreements was approximately $741,000, $803,000, and $531,000 for the
years ended September 30, 1996, 1995, and 1994, respectively.

Line of credit advances bear interest at 1% above the FHLB daily
investment deposit rate. These borrowings are short-term and are
secured. The maximum amount outstanding at any month-end was
approximately $53,600,000 and $33,800,000 during 1996 and 1995,
respectively. Interest expense on line of credit advances was
approximately $1,180,000, $973,000, and $291,000 for the years ended
September 30, 1996, 1995, and 1994, respectively.

Interest expense on fixed-term advances from the FHLB was approximately
$649,000, $878,000, and $625,000 for the years ended September 30, 1996,
1995, and 1994, respectively.

At September 30, 1996 and 1995, total borrowings from the FHLB of
Chicago were $60,996,077 and $42,800,000, respectively. Advances from
the FHLB of Chicago are secured by a blanket lien of qualifying first
mortgage loans equivalent to 165% of outstanding borrowings. As of
September 30, 1996, the Company's available credit from the FHLB cannot
exceed the lesser of 35% of total assets ($136.0 million), or 60% of
one-to-four-family residential mortgages not more than 90 days
delinquent ($116.0 million).

In 1994, the ESOP borrowed $1,440,000 to finance the acquisition of the
stock to be held in trust for future allocation to eligible
participants. The debt of the ESOP is collateralized by the ESOP shares
and is reflected as a liability in the consolidated balance sheet. The
loan is due on September 30, 1998. Principal payments totaling $288,000
in both 1996 and 1995 and interest payments of approximately $63,000 and
$89,000 were made during 1996 and 1995, respectively.

(10) Income Taxes

If certain conditions are met, the Company, in determining taxable
income, is allowed a special bad debt deduction based on specified
experience formulas or on a percentage of taxable income before such
deduction. The Company used the percentage of taxable income method in
1996, 1995, and 1994, since this method resulted in the maximum bad debt
deduction. The bad debt deduction under the percentage method is limited
to 8% of taxable income.
<PAGE>
The composition of income tax expense for the years ended September 30,
1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ............. $ 2,336,702 $ 1,689,259 $ 1,462,353
State ............... 286,175 198,905 236,583
Deferred ............... (467,566) (14,141) 355,128
----------- ----------- -----------
$ 2,155,311 $ 1,874,023 $ 2,054,064
=========== =========== ===========
</TABLE>
The reasons for the difference between expected federal income tax
expense computed at the federal statutory rate of 34% and the actual
amount are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- ------------------------
Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" income tax
expense ..................... $ 1,772,405 34.0% $ 1,651,686 34.0% $ 1,824,198 34.0%
Items affecting federal income
tax rate:
Amortization of ESOP awards 161,587 3.1 72,114 1.5 42,004 .8
Tax-exempt interest ....... (38,824) (.8) (45,269) (.9) (45,240) (.9)
Amortization of cost in
excess of fair value of
net assets acquired ..... 71,832 1.4 46,379 .9 48,112 .9
State income taxes, net of
federal benefit ......... 147,347 2.8 163,020 3.4 180,933 3.4
Other ..................... 40,964 .8 (13,907) (.3) 4,057 .1
----------- ---- ----------- ---- ----------- ----
$ 2,155,311 41.3% $ 1,874,023 38.6% $ 2,054,064 38.3%
=========== ==== ============ ==== =========== ====
</TABLE>
<PAGE>
The components of deferred tax assets and deferred tax liabilities at
September 30, 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
General loan loss allowance ....................... $ 726,528 $ 824,088
SAIF special assessment ........................... 572,973 --
Available-for-sale securities market valuation .... 47,321 --
Discounts and premiums related to purchase
method of accounting ............................ 57,005 78,402
Core deposit intangible ........................... 33,773 10,637
Other, net ........................................ 64,437 67,051
---------- ----------
Total deferred tax assets ........... 1,502,037 980,178
---------- ----------
Deferred tax liabilities:
Available-for-sale securities market valuation .... -- 240,108
Loans, due to bad debts taken in excess of base
year reserve .................................... 217,535 219,957
Restricted stock awards ........................... -- 44,422
Tax depreciation in excess of that recorded
for book purposes ............................... 227,969 128,534
FHLB stock dividends .............................. 39,929 69,500
Other, net ........................................ 61,300 11,535
---------- ----------
Total deferred tax liabilities ...... 546,733 714,056
---------- ----------
Net deferred tax asset .............. $ 955,304 $ 266,122
========== ==========
</TABLE>
The special bad debt deduction accorded thrift institutions is covered
under Section 593 of the Internal Revenue Code. On August 20, 1996, the
Small Business Job Protection Act of 1996 (the Act) was signed into law.
This Act included the repeal of Section 593 effective for tax years
beginning after December 31, 1995. The repeal of the thrift reserve
method generally requires thrift institutions to recapture into income
the portion of bad debt reserves that exceed the base year reserve. The
recapture will generally be taken into income ratably over six tax
years. However, if the Company meets a residential loan requirement for
the tax years beginning in 1996 and 1997, recapture of the reserve can
be deferred until the tax year beginning in 1998. At September 30, 1996,
the Company had bad debts deducted for tax purposes in excess of the
base year reserve of approximately $562,000. The Company has recognized
a deferred income tax liability for this amount.

Certain events covered by IRC Section 593(e), which was not repealed,
will trigger a recapture of the base year reserve. The base year reserve
of thrift institutions would be recaptured if a thrift ceases to qualify
as a bank for federal income tax purposes. The base year reserves of
thrift institutions also remain subject to income tax penalty provisions
which, in general, require recapture upon certain stock redemptions of,
and excess distributions to, stockholders. At September 30, 1996,
retained earnings included approximately $7.8 million of base year
reserves, for which no deferred federal income tax liability has been
recognized.
<PAGE>
(11) Regulatory Matters

The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.

The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To be considered "well capitalized," an
institution must generally have a leverage (core) ratio of at least 5%,
a Tier 1 risk-based capital ratio of at least 6%, and a total risk-based
capital ratio of at least 10%. At September 30, 1996, the Company's
capital levels result in a determination of "well capitalized" under the
regulatory framework for prompt corrective action.

A summary of the Company's compliance with its capital requirements as
of September 30, 1996 follows:
<TABLE>
<CAPTION>
Regulatory Capital
-------------------------------------------------------------------------------
Tier 1 Leverage Tier 1 Risk-based Total Risk-based
--------------- ----------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital $ 52,119 13.57% $ 52,119 24.19% $ 53,994 25.06%
Capital requirement 11,522 3.00 8,619 4.00 17,237 8.00
------ ----- ------ ----- ------ -----
Excess $ 40,597 10.57% $ 43,500 20.19% $ 36,757 17.06%
====== ===== ====== ===== ====== =====
</TABLE>
<PAGE>
(12) Pension Plan

Substantially all employees are included in a trusteed defined benefit
pension plan. The benefits contemplated by the plan are funded through
payments to the Financial Institutions Retirement Fund, which operates
as an industry-wide plan and does not report relative plan assets and
actuarial liabilities of the individual participating associations. The
cost of funding is charged to current operations. There is no unfunded
liability for past service. Expense for the years ended September 30,
1996, 1995, and 1994 was $113,558, $102,304, and $75,703, respectively.

During 1994, the Bank adopted a supplemental executive retirement plan
for certain key executive officers and directors selected by the Board
of Directors. Benefits to be paid under the plan are accrued over the
remaining period to retirement of the covered executives. Expense for
the years ended September 30, 1996 and 1995 was approximately $12,000
and $14,000, respectively.

(13) Employee Stock Ownership Plan, Stock Option
Plan, and Recognition and Retention Plan

During 1994, the Company established a tax-qualified ESOP. The plan
covers substantially all employees who have attained the age of 21 and
completed one year of service. In connection with the mutual holding
company conversion, the ESOP purchased 144,000 shares of the Bank's
common stock at a subscription price of $10.00 per share using funds
loaned by the Bank. As a result of the Conversion, these ESOP shares
were converted into 300,082 shares based on the Exchange Ratio. In
connection with the Conversion, the ESOP purchased an additional 93,903
shares of common stock at a subscription price of $10.00 per share using
funds loaned by the Company. All shares are held in a suspense account
for allocation among the participants as the loans are repaid with level
principal payments over 5 and 10 years, respectively. Shares released
from the suspense account are allocated among the participants based
upon their pro rata annual compensation. The purchases of the shares by
the ESOP were recorded by the Company as unearned ESOP shares in a
contra equity account. As ESOP shares are committed to be released to
compensate employees, the contra equity account is reduced and the
Company recognizes compensation expense equal to the fair market value
of the shares committed to be released. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt or
compensation expense. Compensation expense related to the ESOP was
approximately $763,000, $547,000, and $365,000 for the years ended
September 30, 1996, 1995, and 1994, respectively.
<PAGE>
The ESOP shares as of September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Allocated shares ................................. 180,408 120,033
Committed to be released shares .................. 7,268 --
Unreleased shares ................................ 209,669 180,049
---------- ----------
Total ESOP shares ......... 396,985 300,082
========== ==========

Fair value of unreleased shares .................. $2,620,850 $1,879,200
========== ==========
</TABLE>
In connection with the mutual holding company conversion, the Board of
Directors adopted the Charter Bank, S.B. 1993 Incentive Stock Option
Plan which provided for the granting of options for a maximum of 144,000
shares of common stock at $10.00 per share to directors, key officers,
and employees. As a result of the Conversion, the stock options and the
price per share were converted based on the Exchange Ratio. Activity
within the plan is summarized as follows:
<TABLE>
<CAPTION>
Number of
shares Price
------ -----
<S> <C> <C>
Balance at September 30, 1994 ................. 122,165 $ 10.00
Granted ....................................... -- --
Exercised ..................................... (965) 10.00
Cancelled ..................................... (840) 10.00
--------
Balance at September 30, 1995 ................. 120,360 10.00
Exercised ..................................... (5,760) 10.00
Conversion into common stock
of Charter Financial, Inc. ................. 124,205 4.80
Granted ....................................... -- --
Exercised ..................................... (728) 4.80
Cancelled ..................................... (730) 4.80
--------
Balance at September 30, 1996 ................. 237,347 4.80
======== =========
</TABLE>
<PAGE>
Also, in connection with the mutual holding company conversion, the
Company established the Charter Bank, S.B. 1993 Recognition and
Retention Plan which acquired 48,000 shares (2.2% of total shares
issued) of $1.00 par value stock at a subscription price of $10.00 per
share. The plan provided that such common stock could be issued to
directors and employees in key management positions to encourage such
key directors and employees to remain with the Company. Interest in the
plan for each participant generally vested in three equal installments
beginning September 30, 1994. As of September 30, 1996, participants had
become fully vested and the shares of stock were released to the
appropriate participants. Prior to September 30, 1996, the remaining
portion of the plan which was not vested was presented in the
consolidated balance sheets as a contra equity account at historical
cost. Compensation expense related to vesting in the plan totaled
approximately $140,000, $149,000, and $183,000 during the years ended
September 30, 1996, 1995, and 1994, respectively.

(14) Financial Instruments With Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and financial guarantees.

The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and financial guarantees written is represented by the
contractual amount of these instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since certain of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty.

At September 30, 1996, the Company had outstanding commitments to
originate residential loans of approximately $1,699,000, of which
$1,097,000 were at fixed rates and $602,000 were at adjustable rates. In
addition, the Company had commitments to fund outstanding credit lines
of approximately $7,002,000 at September 30, 1996. Commitments to extend
credit may involve elements of interest rate risk in excess of the
amount recognized in the consolidated balance sheets. Interest rate risk
on commitments to extend credit results from the possibility that
interest rates may have moved unfavorably from the position of the
Company since the time the commitment was made.
<PAGE>
(15) Commitments and Contingencies

As discussed more fully in note 14, the Company has outstanding
commitments to originate loans in the ordinary course of business.

The Company is involved in various litigation arising in the ordinary
course of business. In the opinion of management, at the present time,
disposition of the suits and claims will not have a material effect on
the financial position of the Company.

(16) Liquidation Account

At the time of Conversion, the Bank established a liquidation account
for the benefit of eligible savings account holders who continue to
maintain their savings accounts with the Bank after conversion. In the
event of a complete liquidation of the Bank (and only in such event),
eligible savings account holders who continue to maintain their accounts
with the Bank shall be entitled to receive a distribution from the
liquidation account after payment to all creditors but before any
liquidation distribution with respect to common stock. The initial
liquidation account was established at ap- proximately $22 million. This
account will be proportionately reduced for any subsequent reduction in
the eligible holders' deposit accounts. The creation and maintenance of
the liquidation account will not restrict the use or application of any
of the capital accounts of the Company, except that the Company may not
declare or pay a cash dividend on, or repurchase any of, its capital
stock, if the effect of such dividend or repurchase would be to cause
the Company's net worth to be reduced below the aggregate amount then
required for the liquidation account, or the amount required by federal
or state law.
<PAGE>
(17) Fair Values of Financial Instruments

The estimated fair values of the Company's interest-earning assets and
interest-bearing liabilities at September 30, 1996 are as follows:

<TABLE>
<CAPTION>
Carrying Estimated
value fair value
------------ ------------
<S> <C> <C>
Interest-earning assets:
Cash and cash equivalents ................. $ 8,968,422 $ 8,968,422
Investment securities ..................... 67,473,525 67,432,434
Mortgage-backed securities ................ 16,632,214 16,670,473
Loans receivable .......................... 275,486,929 277,478,000
Stock in Federal Home Loan Bank ........... 3,049,900 3,049,900
------------ ------------
$371,610,990 $373,599,229
============ ============

Interest-bearing liabilities:
Deposits:
Checking, money market demand,
and passbooks ......................... $ 88,952,430 $ 88,952,430
Certificates of deposit ................. 159,770,197 160,203,852
Borrowed money:
Reverse repurchase agreements .......... 14,781,706 14,781,706
Line-of-credit advances from FHLB ...... 53,600,000 53,600,000
Fixed-term advances from FHLB .......... 7,396,077 7,396,000
ESOP ................................... 576,000 576,000
------------ ------------
$325,076,410 $325,509,988
============ ============

</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument listed above:

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and interest-bearing deposits.
The carrying value is considered a reasonable estimate of fair value of
these financial instruments due to their short-term nature.

Investment Securities

Fair values are based on quoted market prices or dealer quotes.

Mortgage-Backed Securities

Fair values are based on quoted market prices or dealer quotes.
<PAGE>
Loans Receivable

Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as residential real
estate, commercial real estate, commercial business, and consumer loans.
Each loan category is further segmented into fixed and adjustable rate
interest terms and by performing and nonperforming categories.

The fair value of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk
inherent in the loan. The estimate of maturity is based on the Company's
historical experience, with repayments for each loan classification
modified, as required, by an estimate of the effect of current economic
and lending conditions.

Fair value for significant nonperforming loans is based on recent
external appraisals. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market
information and specific borrower information.

Stock in Federal Home Loan Bank

Stock in Federal Home Loan Bank is valued at cost, which represents
redemption value and approximates fair value.

Deposits

The fair value of deposits with no stated maturity, such as checking,
money market demand, and passbook, is equal to the amount payable on
demand at September 30, 1996.

The fair value of certificates of deposit, all of which have stated
maturities, is based on the discounted value of contractual cash flows.
The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.

Borrowed Money

The fair value of borrowed money is based on the discounted value of
contractual cash flows. The discount rate is estimated using rates
currently available to the Company for similar terms to maturity.

(18) Recent Regulatory Developments

On September 30, 1996, the Deposit Insurance Funds Act of 1996 (DIFA)
was signed into law. DIFA authorizes the FDIC to impose a one-time
special assessment on SAIF-assessable deposits of depository
institutions. This special assessment, which is based on SAIF-assessable
deposits at March 31, 1995, is intended to recapitalize the SAIF. The
one-time special assessment for the Company totaled approximately $1.5
million and was accrued on September 30, 1996. The actual reduction of
net income was approximately $917,000, after considering the tax
deductibility of the special assessment.
<PAGE>
(19) Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the year ended September 30, 1996
is as follows:
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------------
December 31, March 31, June 30, September 30,
1995 1996 1996 1996
------------ --------- -------- -------------
(thousands of dollars, except per share data)
<S> <C> <C> <C> <C>

Total interest income ................................... $5,690 $5,692 $6,199 $7,238
Total interest expense .................................. 2,970 2,648 3,028 3,780
------ ------ ------ ------
Net interest income .......................... 2,720 3,044 3,171 3,458
Provision for losses on loans ........................... 30 30 50 60
------ ------ ------ ------
Net interest income
after provision
for losses
on loans .................................. 2,690 3,014 3,121 3,398
Noninterest income ...................................... 364 439 547 492
Noninterest expense ..................................... 1,700 1,720 1,891 3,541(1)
------ ------ ------ ------
Income before income
tax expense ............................... 1,354 1,733 1,777 349
Income tax expense ...................................... 561 718 700 176
------ ------ ------ ------
Net income ................................... $ 793 $1,015 $1,077 $ 173
====== ====== ====== ======

Earnings per share ...................................... $ .18 $ .21 $ .22 $ .06
====== ====== ====== ======

(1) Includes SAIF special assessment of $1.5 million.
</TABLE>
<PAGE>
Selected quarterly financial data for the year ended September 30, 1995
is as follows:
<TABLE>
<CAPTION>

Quarter ended
------------------------------------------------------------------
December 31, March 31, June 30, September 30,
1994 1995 1995 1995
------------ --------- -------- -------------
(thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Total interest income ...................................... $4,551 $4,941 $5,002 $5,514
Total interest expense ..................................... 2,217 2,453 2,657 2,981
------ ------ ------ ------
Net interest income ............................... 2,334 2,488 2,345 2,533
Provision for losses on loans .............................. 30 30 -- 300
------ ------ ------ ------
Net interest income after
provision for losses
on loans ....................................... 2,304 2,458 2,345 2,233
Noninterest income ......................................... 382 379 274 375
Noninterest expense ........................................ 1,470 1,439 1,511 1,472
------ ------ ------ ------
Income before income tax
expense ........................................ 1,216 1,398 1,108 1,136
Income tax expense ......................................... 504 545 389 436
------ ------ ------ ------
Net income ........................................ $ 712 $ 853 $ 719 $ 700
====== ====== ====== ======

Earnings per share ......................................... $ .17 $ .19 $ .17 $ .16
====== ====== ====== ======
</TABLE>
(20) Purchase Agreement

On August 13, 1996, the Company and Home Federal Savings Bank,
Carbondale, Illinois (Home Federal) announced the execution of a
definitive agreement under the terms of which the Company intends to
acquire Home Federal at a purchase price of $21.00 per share. The
acquisition price will approximate $6.3 million. The acquisition has
been approved by regulatory authorities and is subject to approval by
stockholders of the Company and Home Federal. The transaction is
expected to close during the first calendar quarter of 1997.
<PAGE>
(21) Parent Company Financial Information

The following are a condensed balance sheet as of September 30, 1996 and
a condensed statement of income and cash flows for the period from
December 28, 1995 to September 30, 1996 for Charter Financial, Inc.
(parent company only):
<TABLE>
<CAPTION>
Condensed Balance Sheet

1996
-------
(in thousands)
<S> <C>
Assets:
Cash ...................................................... $ 268
Repurchase agreements ..................................... 4,401
Investment in subsidiary .................................. 53,404
Other assets .............................................. 275
-------
$58,348
Liabilities and stockholders' equity:
Other liabilities ......................................... 1,954
Stockholders' equity ...................................... 56,394
$58,348

<CAPTION>
Condensed Statement of Income
1996
-------
(in thousands)
<S> <C>
Interest income .............................................. $ 401
Interest expense ............................................. 55
-------
346
Operating expenses ........................................... 43
-------
Income before income taxes and
equity in undistributed
earnings of subsidiary ..................... 303
Income tax expense ........................................... 116
Income before equity in
undistributed earnings
of subsidiary .............................. 187
Equity in undistributed earnings of subsidiary ............... 2,871(1)
-------
Net income .................................... $ 3,058
=======

(1) Includes undistributed earnings of subsidiary for the year ended
September 30, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

Condensed Statement of Cash Flows

1996
-------
(in thousands)
<S> <C>
Operating activities:
Net income .................................................. $ 3,058
Equity in undistributed earnings of
subsidiary ................................................ (2,871)
Other, net .................................................. 2,032
Net cash provided by operating
activities ...................................... 2,219
Investing activities:
Capital contributions to subsidiary ......................... (15,166)
Increase in repurchase agreements ........................... (4,401)
Net cash used in investing activities ........... (19,567)
Financing activities:
Proceeds from issuance of stock ............................. 27,052
Exercise of stock options ................................... 3
Cash paid to minority stockholders .......................... (2)
Dividends paid .............................................. (553)
Retirement of stock ......................................... (8,984)
Capital contribution from Charter
Bancorp, M.H.C ............................................ 100
Net cash provided by financing
activities ...................................... 17,616
Net change in cash and cash
equivalents ..................................... 268
Cash and cash equivalents at beginning of year ................. --
--------
Cash and cash equivalents at end of year ....................... $ 268
========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STOCKHOLDER INFORMATION

BOARD OF DIRECTORS OFFICERS
- ------------------ --------
<S> <C>
John A. Becker, Chairman John A. Becker
Truman D. Cashman Chairman of the Board and President
William A. Norton
Klondis T. Pirtle Michael R. Howell
Carl S. Schlageter, M.D. Executive Vice President and Treasurer
Linda M. Johnson
Michael R. Howell Linda M. Johnson
John Petkas, Jr. Senior Vice President and Secretary
James H. Clutts
Dennis F. Doelitzsch Karen P. Jacobus
Ralph Eugene Watson Vice President and Controller

MURPHYSBORO ADVISORY BOARD Ronald L. Diel
Vice President
James E. McCoskey
Ronald W. Seymour
CORPORATE HEADQUARTERS Vice President

114 West Broadway Klay D. Tiemann
Sparta, IL 62286 Vice President
(618) 443-2166
Jerry K. Thomas
ANNUAL MEETING Vice President

Thursday, January 16, 1997 William H. Gardner
1:30 P.M. Vice President
Charter Financial, Inc.
Corporate Headquarters Cynthia M. Calhoun
114 West Broadway Assistant Vice President
Sparta, IL 62286
J. Doug Baker
STOCK LISTING Assistant Vice President

NASDAQ Bruce N. Uchtman
Symbol: CBSB Assistant Vice President

SPECIAL COUNSEL Larry D. Keller
Assistant Vice President
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue N.W. Sandra J. Kowzan
Suite 400 Assistant Vice President
Washington, DC 20015
Bonnie L. Meacham
INDEPENDENT AUDITORS Assistant Vice President and Assistant
Secretary
KPMG Peat Marwick LLP
1010 Market Street Rosalyn K. Thies
St. Louis, MO 63101 Assistant Vice President and Assistant
Secretary
TRANSFER AGENT
Registrar and Transfer Company Deborah J. Baird
10 Commerce Drive Assistant Vice President and Assistant
Cranford, NJ 07016 Secretary
(800) 368-5948
<PAGE>
<CAPTION>
STOCKHOLDER INFORMATION

BOARD OF DIRECTORS OFFICERS
- ------------------ --------
<S> <C>
Elizabeth H. Gearhart
Assistant Secretary

Marsha A. Pieron
Assistant Secretary

Theresa M. Richter
Assistant Secretary

Mary E. Yeckley
Assistant Secretary

Judith L. Batchelor
Assistant Secretary

Kay L. Morrison
Assistant Secretary

Franny R. Presutti
Assistant Secretary
</TABLE>
GENERAL INQUIRIES AND REPORTS

A copy of the Company's 1996 Annual Report to the Securities and Exchange
Commission, Form 10-K, may be obtained without charge by written request of
shareholders to: Linda M. Johnson, Senior Vice President, Charter Financial,
Inc., 114 West Broadway Sparta, IL 62286

FDIC Disclaimer

This Annual Report has not been reviewed, or confirmed for accuracy or
relevance, by the FDIC.