CPKF: Second Quarter Shows Good Loan Growth and Asset Quality Improvement
By Ann Heffron, CFA, CPA
Chesapeake Financial Shares, Inc. (CPKF) reported second quarter diluted EPS of $0.76 that was $0.08, or 12%, better than our $0.68 estimate, as the Company recognized $1.06 million in gains from the sale of securities, which was partly offset by a $0.65 million loan loss provision and a higher effective tax rate.
Click here to download a free copy of the CPKF research report: CPKF 9-19-13
Excluding the one-time aftertax gain from the sale of securities of $713,500 ($0.21 per share), CPKF’s diluted EPS was $0.55, $0.13 below our estimate, largely due to a higher-than-expected loan loss provision as the Company beefed up loan loss reserves.
Positively, asset quality measures improved markedly during the quarter following a couple of quarters of weak performance, mainly reflecting a $5.7 million, or 54%, decline in restructured loans to $4.8 million as loans encompassing 2 client lending relationships returned to performing status.
We are cutting our 2013 diluted EPS estimate by $0.14 to $2.36, largely reflecting the shortfall from our second quarter estimate caused by the outsized loan loss provision. In addition, we are tweaking our 2014 diluted EPS estimate and lowering it by $0.03 to $2.52 from $2.55.
On July 19, 2013, CPKF hiked its quarterly dividend by 13% to $0.135 per share from $0.12 per share, payable on September 15, 2013 to shareholders of record on September 1, 2013. CPKF increased the quarterly dividend twice in 2012, by $0.02 or 20%. Notably, CPKF has increased the annual dividend payment every year for the past twenty-one years since 1991.
On October 29, 2012, CPKF announced a tender offer to repurchase up to $1.5 million of company stock at a price of $18.50 per share for shareholders of record (a 12% premium to the $16.50 share price at that time) as of October 25, 2012, with shares tendered by the close of business on December 10, 2012. As the entire $1.5 million was repurchased, this reduced shares outstanding by 2% and increased annual diluted EPS by a penny.
We note that American Banker recently ranked CPKF 17th (down one notch from 16th a year ago) out of all banks nationally with less than $2 billion in total assets, which includes approximately 6,000 banks, and #2 of all banks in Virginia. This ranking was based upon three-year average returns on equity, which for Chesapeake Financial was 14.10%. 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 financial holding company headquartered in Kilmarnock, Virginia, with $643 million in total assets at June 30, 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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