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CPKF: Second Quarter Better than Our EPS Estimate

By Ann Heffron, CFA, CPA


Chesapeake Financial Shares, Inc.’s (CPKF) second quarter net earnings rose $0.1 million, or 5%, to $1.9 million, while diluted EPS grew by $0.03, or 5%, to $0.58 from $0.55 posted a year ago. We have excluded a $1.1 million pretax gain ($0.7 million aftertax, or $0.22 per diluted share) on the sale of securities from year-ago results. 

Click here to download a free copy of the CPKF research report: CPKF 8-8-14

This was much better than our estimate, which had called for a $0.4 million decline in net earnings to $1.5 million and an $0.11 drop in diluted EPS to $0.44. The primary reason for the difference between reported results and our estimate was that noninterest income was $0.3 million higher than our projection. 

The major reasons for the second quarter’s gain versus the prior-year quarter were a $0.5 million, or 77%, decline in the provision for loan losses to $150,000 from $650,000 and a 390 basis-point drop in the effective tax rate to 16.4% from 20.3%. These positives were partly offset by a $0.4 million decline in net revenue and a $0.1 million increase in total noninterest expense.

In July, CPKF declared a 6-for-5 stock split, while maintaining the quarterly dividend at $0.135. Notably, CPKF was cited by SNL Financial 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. CPKF recorded cumulative dividend growth of 51.1% over 2008-2013.

In August, CPKF announced that for the seventh consecutive year, Chesapeake Bank had made the American Banker magazine listing of the “Top 200 Community Banks” in the United States. The bank ranked at #28 out of approximately 6,000 community banks in the study (up from #148, when CPKF first broke into the rankings in 2008), based upon its three-year average ROE of 14.07%.

We are currently 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 financial holding company headquartered in Kilmarnock, Virginia, with $655 million in total assets at June 30, 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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