CPKF: Fourth Quarter EPS Up 57% and Dividend Raised 10% - Outperform
Ann Heffron, CFA
Chesapeake Financial Shares, Inc. (CPKF) reported 2011 fourth quarter net earnings of $1.6 million, or $0.49 per diluted share, up 57% from the $1.0 million, or $0.31 per diluted share, posted in the year-ago quarter, and compares to our $0.33 estimate.
There were a number of variances from our estimate, including a $0.2 million loan loss provision that was $0.3 million better than our estimate of $0.5 million and an 8.9% effective tax rate that was lower than our 24.4% estimate. On the negative side, CPKF recorded a net loss on the sale of securities of $455,000 (compared to our $50,000 estimate), reducing noninterest income to $3.2 million (versus our $3.5 million estimate).
Net interest income rose 9% year over year to $6.0 million, while noninterest expense rose 5% year over year to $7.2 million, largely reflecting a 19% gain in total compensation costs, partly offset by a 14% slide in other noninterest expense. The efficiency ratio was flat at roughly 79%.
For the year, CPKF earned $7.0 million, or $2.16 per diluted share, up 28% from the $5.4 million, or $1.69 per diluted share, posted in 2010. This year-over-year gain primarily stemmed from a 5% rise in net interest income to $22.8 million on a higher net interest margin (average loans were flat) and a 52% decline in the loan loss provision. The effective tax rate in 2011 was 21.4%, a bit lower than 2010’s 22.0%.
CPKF just raised its quarterly dividend by 10% to $0.11 from $0.10 and has increased its dividend payment annually for the past twenty years.
We note that US Banker ranked CPKF 20th (up from 32nd about 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. This ranking was based upon three-year average returns on equity, which for Chesapeake Financial was 13.40%. The Company has steadily risen through the rankings in the past four years, reflecting its solid financial performance during this difficult banking environment.
Chesapeake Financial Shares, Inc. is a bank holding company headquartered in Kilmarnock, Virginia, with $638 million in total assets at December 31, 2011. 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.
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