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CPKF: Higher Growth in Second Half to Offset Shortfall in the Second Quarter

09/18/2017
By Ann Heffron, CFA, CPA

OTC:CPKF

CPKF’s (OTC:CPKF) second quarter net earnings rose $0.1 million year over year, or 5%, to $2.0 million, while 2017’s second quarter diluted EPS increased by $0.02, or 4%, to $0.48 from $0.46 posted a year ago. 

This was worse than our estimate, which had called for a $0.4 million gain in net earnings to $2.3 million (off by $0.3 million) and a $0.10 advance in diluted EPS to $0.56 (off by $0.08).

The primary factors behind the difference between reported results and our estimate were:  (1) merchant card income was $0.3 million higher than our estimate; (2) cash flow income was $0.2 million better than we had expected; and (3) other miscellaneous income was $0.3 million more than our projection. This was partly offset by higher compensation costs that were $0.7 million more than anticipated due to an extra payroll in the second quarter and merchant card expense that was $0.3 million worse than our estimate. 

The major reasons for the second quarter’s $0.1 million increase in net earnings versus the prior-year quarter were a $2.1 million, or 18%, advance in net revenues due to higher net interest income (up $0.4 million) and larger noninterest income (up $1.7 million due to income derived from  merchant card and cash flow activities, as well as other miscellaneous income), partly offset by a $1.9 million, or 22%, rise in total noninterest expense, mostly from greater compensation costs and merchant card expense.

We are maintaining our 2017 diluted EPS estimate at $1.95, as well as our 2018 estimate at $2.07. Our 2017 EPS estimate represents a $0.24, or 14%, increase over 2016’s diluted EPS of $1.71, while our EPS estimate for 2018 is a $0.12, or 6%, increase over our 2017 estimate. We expect strong loan growth and robust advances in merchant card income from higher volumes to drive these gains and to offset the shortfall from our estimate during the second quarter.

In 2017 for the tenth consecutive year, Chesapeake Financial Shares, Inc. has been included in the American Banker magazine listing of the “Top 200 Community Banks” in the United States. The bank ranked at #123 in the nation out of approximately 669 publicly traded banks and thrifts with less than $2 billion in assets in the study, up from #148, when CPKF first broke into the rankings in 2008. The ranking is based on a three-year average of return on average equity (ROAE), which for CPKF was 9.94%.  
 
Chesapeake Bank also recently garnered a top ranking in the American Banker’s list of “Best Banks to Work for” in 2017, earning a #34 spot out of the 75 banks listed.

CPKF is opening a new branch in a retirement community in mid-October in Richmond, VA. It is CPKF’s fifth venture into the retirement center market, which it finds attractive due to opportunities to grow both the deposit gathering and investment management businesses.

In other news, the ABA (American Bankers Association) Nominating Committee has selected a slate of candidates for officer positions, including Jeffrey M. Szyperski as Chairman-Elect. The election will be held during the ABA Annual Convention, Oct. 15-17 in Chicago.

On July 21, 2017, Chesapeake Financial Shares, Inc. approved a 4% increase in the quarterly dividend rate to $0.13 per share from $0.125 per share, paid on or about September 15, 2017. Notably, CPKF has increased the annual dividend payment every year for the past twenty-six years since 1991.

Chesapeake Financial Shares, Inc. (CPKF or the Company) is a financial holding company headquartered in Kilmarnock, Virginia, with $785 million in total assets at June 30, 2017. CPKF is predominantly a small business lender with 14 branch offices and one loan production office that serve customers in the eastern region of Virginia between the Potomac and James Rivers. CPKF, which began as Lancaster National Bank on April 13, 1900, has a long history and strong ties with the communities it serves.

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