OTC:CPKF
READ THE FULL CPKF RESEARCH REPORT
Chesapeake Financial Shares, Inc.’s (OTC:CPKF) first quarter net earnings rebounded sharply from the fourth quarter (up more than 200%), but fell $0.9 million year over year, or 26%, to $2.8 million, while 2024’s first quarter diluted EPS dropped by $0.20, or 25%, to $0.58 from $0.78 posted a year ago.
This was better than our estimate, which had called for a $1.1 million decrease in net earnings to $2.6 million (off by $0.2 million) and a $0.23 decline in diluted EPS to $0.55 (off by $0.03).
The primary reasons for the difference between reported results and our estimate were that net revenues were $0.4 million less than the $16.3 million we had anticipated, consisting of noninterest income that was $0.8 million lower than our projection, primarily the result of a $0.3 million shortfall in merchant services income ($1.2 million versus our $1.5 million estimate) and a $0.6 million gap in other miscellaneous income ($0.9 million compared to our $1.5 million estimate), partly offset by net interest income of $10.6 million that was $0.4 million higher than our $10.2 million estimate.
In addition, total noninterest expense of $12.3 million was $0.6 million less than the $12.9 million we had projected, reflecting compensation expense that was $0.6 million lower than anticipated. Noncompensation costs of $5.1 million came in on target. We note that in the first quarter CPKF improved disclosure for noninterest expense by separately reporting FDIC insurance, technology expense, and professional fees, all of which had previously been lumped together in other expenses. This change had no impact on the bottom line.
The major reasons for the first quarter’s $0.9 million decrease in net earnings versus the prior-year quarter were a $1.3 million, or 12%, rise in total noninterest expense, mostly from greater compensation costs (up $1.1 million), partly offset a $0.2 million, or 1%, gain in net revenues (split equally between net interest income and noninterest income) and a $0.2 million reduction in income taxes due to lower pretax earnings.
Net interest income rose $0.1 million, or 1%, year over year in the first quarter to $10.6 million ($0.4 million above our $10.2 million estimate), as an estimated 7% increase in average interest-earning assets was offset by a net interest margin of 3.38% that was 20 basis points lower than the 3.58% earned in the year-ago quarter.
Noninterest income increased $0.1 million, or 2%, year over year to $5.1 million, as most business lines showed improvement, except mortgage banking and merchant services, both off slightly from revenues in the prior year. Notably, cash management fee income jumped $0.5 million, or 50%, year over year on the back of last year’s acquisition, while miscellaneous other income declined by $0.7 million, or 43%.
Noninterest expense advanced $1.3 million, or 12%, to $12.3 million ($0.6 million less than the $12.9 million we had projected) from the prior-year quarter, reflecting greater compensation costs (up $1.1 million) and other miscellaneous noninterest expense (up $0.2 million).
The loan loss provision was flat at $175,000 compared to the year-ago quarter and was $25,000 below our $200,000 estimate. Loan loss reserves rose $0.2 million to $8.0 million (0.93% of loans) compared with the fourth quarter (0.95% of loans) and were $0.5 million above the $7.5 million (0.99% of loans) in the year-ago quarter.
As to other asset quality measures, CPKF recorded net charge-offs of $41,000 in the first quarter. This compares to net charge-offs of $38,000 in the year-ago quarter and net charge-offs of $233,000 for the full year in 2023.
CEO Jeffrey M. Szyperski noted that CPKF’s total nonperforming assets to total assets fell 7 basis points to 0.19% at March 31, 2024 from 0.26% at December 31, 2023.
Gross loans increased $100 million, or 13%, year over year, and about $31 million, or 4%, sequentially to $860 million.
CPKF posted a 10.9% ROE and 0.74% ROA for the first quarter of 2024, compared to 17.6% and 1.11%, respectively, in the prior-year quarter.
During 2023’s second quarter, CPKF opened another branch, this time in a retirement community in Richmond, Virginia. It is CPKF’s sixth branch in a retirement community, which is attractive due to its low cost of entry, as well as being a feeder for the Company’s investment management and deposit-gathering activities. In addition, in August CPKF opened a loan production office in Newport News, Virginia.
At the October 27, 2023 Chesapeake Financial Shares Board of Directors meeting, the Board raised the quarterly dividend to $0.155 per share from $0.15 per share (a 3% increase), paid on December 15, 2023. Notably, CPKF has increased the annual dividend payment every year for the past thirty-one years since 1991.
In 2023 for the sixteenth consecutive year, Chesapeake Financial Shares, Inc. has been included in the American Banker magazine listing of the “Top 200 Community Banks” in the United States. The bank ranked at #58 in the nation out of approximately 6,000 community banks in the study, up from #130 last year and #148 when CPKF first broke into the rankings in 2008. The ranking is based on a three-year average of return on average equity (ROAE), which for CPKF was 14.34%.
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. (CPKF or the Company) is a financial holding company headquartered in Kilmarnock, Virginia, with $1,512 million in total assets at March 31, 2024. CPKF is predominantly a small business lender with 17 branch offices and one loan production office that serve customers in the eastern region of Virginia between the Potomac and James Rivers. 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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