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CPKF: Maintaining 2014 EPS Estimate with Initial 2015 Estimate up 6%

By Ann Heffron, CFA, CPA


We are maintaining our 2014 diluted EPS estimate for Chesapeake Financial Shares, Inc. (CPKF) at $1.70, even though first quarter results were a few cents shy of our estimate, as we expect this shortfall to be made up in the succeeding quarters for 2014.

Click here to download a free copy of the CPKF research report: CPKF 7-2-14

Our initial estimate for 2015 calls for a 6% gain to $1.80 per diluted share. Results will be supported by 4 ½% growth in noninterest income spurred by moderate improvement in most line items as well as an expected $0.2 million reduction in loss on securities sales, a one-third decrease in the loss provision, and estimated 3% loan growth.

This will be partially offset by an estimated 5 basis-point reduction in the net interest margin to a still-healthy 4.35% and a 6% rise in compensation costs as the Company anticipates adding new positions.

Non-compensation costs are estimated to be flat in 2015, as expense growth in most line items will be offset by an estimated 33% decrease in cash flow expenses as the Company reduces the loss provision in the cash flow lending program.

To review the first quarter, CPKF’s net earnings fell $0.8 million, or 38%, to $1.3 million, while 2014’s first quarter diluted EPS slumped by $0.24, or 39%, to $0.39 from $0.63 posted a year ago. This was only slightly worse than our estimate, which had called for a $0.7 million decline in net earnings to $1.4 million (off by $0.1 million) and a $0.21 drop in diluted EPS to $0.42 (off by $0.03).

The primary reason for the difference between reported results and our estimate was that noninterest income fell about $0.1 million short of our projection due to a sharper-than-expected decline in other income (off by about $0.1 million).

SNL Financial 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 $669 million in total assets at March 31, 2014. 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. In addition, CPKF opened a commercial loan production office in Richmond, Virginia in mid-August 2011. 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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