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CPKF: Another Home Run!

By Ann Heffron, CFA, CPA



Chesapeake Financial Shares, Inc.'s (OTC:CPKF) third quarter net earnings rose $0.7 million year over year, or 26%, to $3.2 million, while 2018’s third quarter diluted EPS increased by $0.16, or 26%, to $0.77 from $0.61 posted a year ago.

This was much better than our estimate, which had called for flat net earnings at $2.5 million (off by $0.7 million) and diluted EPS of $0.60 (off by $0.17).

The primary factors behind the difference between reported results and our estimate were: (1) compensation costs were $0.3 million less than expected; (2) securities gains of $0.3 million were reported (we had not projected any securities gains); (3) net interest income was $0.2 million more than we had estimated; and (4) merchant card income was $0.1 million higher than we anticipated, though this was offset by a $0.2 million increase in merchant card expense.

The major reasons for the third quarter’s $0.7 million increase in net earnings versus the prior-year quarter were a $1.0 million, or 7%, advance in net revenues due to higher net interest income (up $0.4 million) and larger noninterest income (up $0.6 million, mainly due to merchant card activities), partly offset by a $0.5 million, or 5%, rise in total noninterest expense, primarily from greater merchant card costs. In addition, the effective tax rate fell 750 basis points to 13.1% from 20.6% in the year-ago quarter, adding $0.2 million to the bottom line, and the provision for credit losses dropped by $50,000 to $125,000.

We are increasing our diluted EPS estimates again— this time by $0.15 to $2.70 from $2.55 for 2018 and by $0.15 to $2.80 from $2.65 for 2019. Our 2018 EPS estimate represents a 24% advance over 2017’s diluted EPS of $2.17, while our 2019 estimate represents a 4% gain.

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 again garnered a top ranking in the American Banker’s list of “Best Banks to Work for”, moving up to a #25 spot in 2018, out of the 85 banks listed, from a #34 place in 2017.

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 $823 million in total assets at September 30, 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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