CPKF Chesapeake Financial Shares Inc (QX)

CPKF: Fourth Quarter EPS Dragged Down by Nonoperating Items

By Ann Heffron, CFA

CPKF (OTC Markets:CPKF) reported fourth quarter diluted EPS of $0.39 that was $0.10, or 20%, lower than our $0.49 estimate as nonoperating items dragged down results.

Specifically, net losses from sales of securities and OREO plus other noninterest expense were larger than we had expected, though this was partly offset by other noninterest income, loan growth, and an effective tax rate that were better than anticipated.

Relative to the year-ago quarter, net earnings slid 17% to $1.3 million, while 2012’s fourth quarter diluted EPS fell 20% from the $0.49 posted in 2011’s fourth quarter due to a greater number of shares outstanding.

For the year, CPKF earned $7.7 million, or $2.32 per diluted share, up 10% from the $7.0 million, or $2.16 per diluted share, posted in 2011. Primary contributors to this growth were a 10% gain in noninterest income on the back of higher merchant card revenues, a 50% reduction in the loan loss provision, and continuing strong control over operating expenses.

CPKF recently hiked its quarterly dividend by 9% to $0.12, following a 10% increase earlier in 2012. Notably, CPKF has increased the annual dividend payment every year for the past twenty years since 1991.

In December, CPKF completed a tender offer to repurchase $1.5 million of company stock (about 2% of outstanding shares) at $18.50 per share.

We note that American Banker recently ranked CPKF 16^th (up from 20^th a year ago) out of all banks nationally with less than $2 billion in total assets, which includes approximately 6,000 banks, and #1 of all banks in Virginia for the second year in a row. This ranking was based upon three-year average returns on equity, which for Chesapeake Financial was 14.00%. The Company has steadily risen through the rankings in the past five years, reflecting its solid financial performance during this difficult banking environment.

We are reviewing our estimates and will issue a more comprehensive report when detailed financial information becomes available within the next few weeks.

Chesapeake Financial Shares, Inc. is a bank holding company headquartered in Kilmarnock, Virginia, with $668 million in total assets at December 31, 2012. CPKF is predominantly a small business lender with 11 branch offices that serve customers in the eastern region of Virginia between the Potomac and James Rivers. These offices are located in Kilmarnock, Lively, Irvington, Mathews, Hayes, and Gloucester, with four branches in Williamsburg. CPKF, which began as Lancaster National Bank on April 13, 1900, has a long history and strong ties with the communities it serves. In addition, CPKF opened a commercial loan production office in Richmond, Virginia in mid-August 2011. 
 

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