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CPKF: Maintaining 2013 EPS Estimate at $2.45, up 6% from 2012

By Ann Heffron, CFA

Chesapeake Financial Shares Inc. (CPKF) We are maintaining our 2013 diluted EPS estimate at $2.45, up 6% over 2012’s $2.32, following CPKF’s fourth quarter results.

This estimate is supported by projected net interest income expansion of over 3% based upon loan growth of about 4% and a 10 basis-point drop in the net interest margin to 4.50%; an almost 3% increase in noninterest income due to a strong 20% jump in cash flow income, though this will be partly offset by the absence of a couple of items that occurred in 2012, including a one-time accounting adjustment in recognizing merchant card income and higher-than-normal levels of pare-off fees from residential mortgage loans that were originated and closed with FHLMC; and a modest 1 ½% advance in noninterest expense as a 4 ½% rise in compensation costs will be partly offet by a decline in other expense.

Relative to the year-ago quarter,  fourth quarter net earnings slid 17% to $1.3 million, while 2012’s 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 16th (up from 20th 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.

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.

A copy of the full research report can be downloaded here >> Chesapeake Financial Shares Report   

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