OTC:CPKF
READ THE FULL CPKF RESEARCH REPORT
Chesapeake Financial Shares, Inc.’s (OTC:CPKF) fourth quarter net earnings increased $2.1 million, or 236%, to $3.0 million year over year, while 2024’s fourth quarter diluted EPS rose $0.45, or 235%, to $0.64.
This was better than our estimate, which had called for a $1.6 million increase in net earnings to $2.5 (off by $0.5 million), and a $0.35 increase in diluted EPS to $0.54 (off by $0.10).
The primary reasons for the difference between reported results and our estimate were that total noninterest expense of $14.1 million was $0.2 million less than we had projected, primarily reflecting professional fees that were $0.4 million lower than anticipated, as well as occupancy expense that was $0.1 million less, partly offset by total compensation costs that were $0.3 million more than our projections. In addition, income tax expense was $0.4 million less than our estimate due to an effective tax rate that was 13.8 points lower than our 21.2% esimate.
Furthermore, net revenues were $0.1 million less than the $17.8 million we had anticipated, largely consisting of net interest income that was $0.2 million higher than our estimate, more than offset by noninterest income that was $0.4 million lower than our projection due to revenue shortfalls relative to our estimate of $0.2 million each in merchant services, cash mangement, and other miscellaneous income, partly offset by trust and wealth management income that was $0.2 million higher. The provision for credit losses was $0.1 million below our $0.3 million estimate, another positive.
The major reasons for the fourth quarter’s $2.1 million increase in net earnings versus the prior-year quarter were a $1.2 million, or 11%, increase in net interest income and a $1.0 million, or 22%, rise in total noninterest income, partly offset by $0.1 million growth in total noninterest expense.
For the year, CPKF posted net income of $11.4 million, or $2.42 per diluted share, up $1.3 million, or 13%, from the $10.1 million, or $2.15 per diluted share, posted in 2023.
Primary contributors to this result were a $4.4 million, or 11%, gain in net interest income on growth in average interest-earning assets (the net interest margin was stable at 3.50%), a $0.4 million, or 2%, gain in noninterest income as all business lines posted notable revenue improvement (though these were offset by a decline in other miscellaneous income), and $0.3 million lower taxes on a 3.4-point reduction in the effective tax rate to 14.6%. These positives were partly offset by a $3.7 million, or 7%, increase in noninterest expense, largely due to higher compensation costs (up $3.7 million, or 13%), and a $0.1 million rise in the provision for credit losses to $0.9 million.
As to quarterly results, net interest income rose $1.2 million, or 11%, year over year in the fourth quarter to $12.1 million ($0.2 million above our $11.9 million estimate). An estimated 11% increase in average interest-earning assets was aided slightly by a net interest margin of 3.55% that was 5 basis points better than our 3.50% estimate and 1 basis point higher than the 3.54% earned in the year-ago quarter.
Noninterest income increased $1.0 million, or 22%, year over year to $5.6 million ($0.4 million below our estimate), as most business lines posted revenue improvement (with the exception of cash management, hurt by a $10.1 million drop in outstanding receivables), as well as the absence of securities losses as occurred in 2023’s fourth quarter. These positives partly offset a $0.3 million decline in other miscellaneous income.
Noninterest expense advanced $0.1 million, or 1%, to $14.2 million ($0.2 million below our estimate) from the prior-year quarter, largely reflecting greater compensation costs (up $0.6 million), partly offset by a reduction of $0.5 million in total noncompensation costs, primarily due to declines in professional fees ($0.3 million) and occupancy expense ($0.2 million).
The loan loss provision was basically flat at $0.18 million compared to the year-ago quarter and was $0.1 million lower than our estimate. Loan loss reserves were flat at $8.5 million (0.96% of loans) compared with the third quarter (0.97% of loans) and were $0.6 million above the $7.8 million (0.95% of loans) in the year-ago quarter. As to other asset quality measures, CPKF recorded net charge-offs of $198,000 in the fourth quarter. This compares to net charge-offs of $137,000 in the year-ago quarter and net charge-offs of $235,000 for the full year in 2023.
CEO Jeffrey M. Szyperski noted that CPKF’s total nonperforming assets to total assets rose 7 basis points to 0.33% of total loans at December 31, 2024 from 0.26% at December 31, 2023.
At the October 18, 2024 Chesapeake Financial Shares Board of Directors meeting, the Board raised the quarterly dividend to $0.16 per share from $0.155 per share (a 3% increase), paid on December 15, 2024. Notably, CPKF has increased the annual dividend payment every year for the past thirty-two years since 1991.
On January 13, 2025, CPKF announced the appointment of Dede Ramoneda to its Board of Directors. Ramoneda’s career spans multiple industries, including financial services, energy, and consulting, with her most recent postion Chief Information Officer and Executive Vice President at First Citizens Bank.
On October 3, 2024, Chesapeake Bank announed a new partnership with Silverflow, an innovative cloud-native payment processing company. Chesapeake Bank through its division, Chesapeake Payment Systems, will significantly enhance its service offerings, adding the capabilities of a more advanced infrastructure. This partnership not only improves the bank’s processing capabilities but also positions it as an early adopter of new technology.
On October 18, 2024, Chesapeake Bank announced the addition of Ron Andrews to the Bank’s Board of Directors. Mr. Andrews is an experienced senior bank operations leader who has built and led banking businesses and operations in the United States and the United Kingdom during the course of his 37-year career. Mr. Andrews has served on Chesapeake Bank’s Technology Advisory Board since 2016.
In 2024 for the seventeenth consecutive year, Chesapeake Financial Shares, Inc. has been included in the American Banker magazine listing of the “Top 100 Community Banks” in the United States. The bank ranked at #54 in the nation out of approximately 361 community banks with total assets under $2 billion in the study, up from #58 last year and #148 when CPKF first broke into the rankings in 2008, when it was the “Top 200 Community Banks” and there were many more community banks. The ranking is based on a three-year average of return on average equity (ROAE), which for CPKF was 14.73%. Chesapeake Bank again garnered a top ranking for the twelfth consecutive year in the American Banker’s list of “Best Banks to Work for”, and had a #41 spot in 2024, out of the 90 banks listed.
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 $1,525 million in total assets at December 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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