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CPKF: Another Record-Breaking Quarter and a Dividend Increase!

06/15/2018
By Ann Heffron, CFA, CPA

OTC:CPKF

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Chesapeake Financial (OTC:CPKF) first quarter net earnings rose $0.3 million year over year, or 12%, to $2.9 million, while 2018’s first quarter diluted EPS increased by $0.07, or 11%, to $0.70 from $0.63 posted a year ago.

This was much better than our estimate, which had called for a decline in net earnings to $2.1 million (off by $0.8 million) and diluted EPS to $0.51 (off by $0.19).

The primary factors behind the difference between reported results and our estimate were: (1) net interest income was $0.3 million greater than our estimate; (2) merchant card income was $0.3 million higher than we anticipated, though this was offset by a similar increase in merchant card expense; (3) compensation costs were $0.6 million less than anticipated; and (4) an effective tax rate of 12% was 9 points below our 21% estimate, adding $0.3 million to the bottom line. This was partly offset by other miscellaneous expense that came in $0.2 million more than we had expected and other miscellaneous income that was $0.1 million less than our estimate.

The major reasons for the first quarter’s $0.3 million increase in net earnings versus the prior-year quarter were a 9-point decline in the effective tax rate due to tax reform to 12% from 21% (adding $0.3 million to the bottom line) and a $1.6 million, or 13%, advance in net revenues due to higher net interest income (up $0.5 million) and larger noninterest income (up $1.1 million due to from merchant card activities), partly offset by a $1.6 million, or 17%, rise in total noninterest expense, mostly from greater compensation, merchant card costs, and other miscellaneous expense.

We are maintaining our 2018 diluted EPS estimate at $2.30, and initiating our 2019 estimate at $2.45 per share. Our 2018 EPS estimate represents a 6% advance over 2017’s diluted EPS of $2.17, while our 2019 estimate represents a 7% gain. We have moderated our expectations of loan growth to 5% from 8% in 2018 due to softening loan demand, though robust advances in merchant card income from higher volumes will offset this.

On April 20, 2018, Chesapeake Financial Shares, Inc. approved an 8% quarterly dividend increase to $0.14 per share from $0.13 per share, payable on or about June 15, 2018 to shareholders of record June 1, 2018. Notably, CPKF has increased the annual dividend payment every year for the past twenty-seven years since 1991.

In 2018 for the eleventh 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 #97 in the nation out of approximately 633 publicly traded banks and thrifts with less than $2 billion in assets in the study, up from #123 last year and #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 10.08%.

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 opened a new branch in a retirement community in November 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) elected Jeffrey M. Szyperski as Chairman Elect during the ABA Annual Convention, held October 15-17 in Chicago.

Chesapeake Financial Shares, Inc. (CPKF or the Company) is a financial holding company headquartered in Kilmarnock, Virginia, with $797 million in total assets at March 31, 2018. CPKF is predominantly a small business lender with 15 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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