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CPKF: CPKF is Firing on All Cylinders

03/20/2018
By Ann Heffron, CFA, CPA

OTC:CPKF

Chesapeake Financial Shares Inc.'s (OTC:CPKF) fourth quarter net earnings rose $0.5 million year over year, or 34%, to $1.8 million, while 2017’s fourth quarter diluted EPS increased by $0.11, or 33%, to $0.44 from $0.33 posted a year ago. 

This was much better than our estimate, which had called for flat net earnings to $1.4 million (off by $0.5 million) and flat diluted EPS at $0.33 (off by $0.11).

The primary factors behind the difference between reported results and our estimate were: (1) other miscellaneous income was $0.6 million more than our projection due to a one-time insurance adjustment; (2) merchant card income was $0.1 million higher than our estimate; and (3) compensation costs were $0.5 million less than anticipated. This was partly offset by a $0.3 million loss on securities sales and occupancy expense and merchant card expense that each came in $0.1 million more than we had expected. 

The major reasons for the fourth quarter’s $0.5 million increase in net earnings versus the prior-year quarter were a $2.1 million, or 17%, advance in net revenues due to higher net interest income (up $0.5 million) and larger noninterest income (up $1.5 million due to income derived from merchant card and cash flow activities, as well as other miscellaneous income), partly offset by a $0.8 million, or 8%, rise in total noninterest expense, mostly from greater merchant card, occupancy, and other miscellaneous  expense. 

For the year, CPKF posted record net income of $8.9 million, or $2.17 per diluted share, up 27% from the $7.0 million, or $1.71 per diluted share, posted in 2016. 

Primary contributors to this result were an $8.0 million, or 18%, gain in net revenues from a $1.6 million, or 6%, rise in net interest income, and a $6.4 million, or 31%, advance in noninterest income, primarily the result of higher merchant card ($3.6 million), cash flow ($0.6 million), and other miscellaneous income ($1.7 million). These positives were partly offset by a $4.4 million, or 12%, increase in total noninterest expense, largely stemming from a $0.8 million rise in compensation costs, a $3.0 million increase in merchant card expense, and a $0.4 million advance in other miscellaneous expense. In addition, the loan loss provision jumped $400,000 to $950,000 from $550,000 in the prior year.

We are increasing our 2018 diluted EPS estimates by $0.13, raising our estimate to $2.30 from $2.17. Our 2018 EPS estimate represents a $0.13, or 6%, advance over 2017’s diluted EPS of $2.17. We expect strong loan growth and robust advances in merchant card income from higher volumes to drive this growth.

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 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.

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 December 31, 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.

READ THE FULL RESEARCH REPORT HERE.


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