CPKF: Fourth Quarter Hit by Higher Loss Provision and Noninterest Expense

Zacks Small Cap Research

By Ann Heffron, CPA, CFA

Chesapeake Financial Shares, Inc.’s (CPKF) fourth quarter net earnings fell 9% to $1.2 million, while 2013’s fourth quarter diluted EPS slumped by $0.03, or 9%, to $0.36 from $0.39 posted in 2012’s fourth quarter. We had been expecting a better quarter and had estimated that the Company would earn $0.47 per diluted share, roughly on par with the third quarter’s $0.45, but $0.11 more than CPKF actually posted.

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While our net revenue estimate was right on target at $9.7 million, we were wrong in a number of areas.

First, the provision for loan losses was $283,000, about $183,000 more than the $100,000 we had anticipated.

Second, total noninterest expense was $8.2 million, about $0.6 million higher than our $7.6 million projection, with total compensation coming in $0.5 million lower and other expense coming in $0.9 million higher than we had expected.

Finally, on the positive side, CPKF posted a $19,000 income tax credit versus our estimate of $438,000 in income tax expense.

In 2013, CPKF hiked its quarterly dividend by 13% to $0.135 per share from $0.12 per share, following two dividend increases in 2012 totalling 20%. The total 2013 dividend payment of $0.51 represents a 13% rise over 2012’s payment of $0.45. Notably, CPKF has increased the annual dividend payment every year for the past twenty-three years since 1991.

This feat was recently recognized by SNL Financial in a report that cited CPKF as one of only 20 banks in the country (and only two in Virginia) to increase dividends by at least 2% per year and at least a cumulative 30% over the past five years. The company recorded cumulative dividend growth of 51.1% over the 2008-2013 period.

Chesapeake Financial Shares, Inc. is a financial holding company headquartered in Kilmarnock, Virginia, with $662 million in total assets at December 31, 2013. CPKF is predominantly a small business lender with 12 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 five 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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