CPKF: Maintain Neutral
Chesapeake Financial Shares, Inc. ([stock]CPKF.PK[/stock]) reported 2010 fourth quarter net earnings of $ 1.0 million, down 20% from the $ 1.3 million reported in the year-ago quarter, while diluted EPS decreased 17% to $ 0.38 from $ 0.45, with the better EPS performance reflecting share buybacks. This compares to our fourth quarter estimate of $ 0.49.
There was a reclassification from the financial statements released in January to the annual report after it was issued in March. This adjustment moved OREO expense of $ 0.4 million to a separate line item in the noninterest income portion of the income statement from other noninterest expense. We note this change had no impact on net income or earnings per share.
Following this reclassification, there were five main reasons for the variance from our estimate. On the negative side, the loan loss provision was $ 0.9 million, higher than our estimate of $ 0.6 million, OREO expense was $ 0.4 million versus our estimate of zero, and other noninterest expense was $ 2.0 million compared to our estimate of $ 1.4 million. This was partially offset by a $ 0.1 million income tax credit compared to our estimate of $ 0.5 million in income taxes, as CPKF reversed previous income tax overaccruals in the prior three quarters, and cash flow loss provision of zero versus our estimate of $ 0.5 million, as asset quality stabilized in this portfolio.
For the year, CPKF earned $ 5.4 million, or $ 2.03 per diluted share, up 13% from the $ 4.8 million, or $ 1.77 per diluted share, posted in 2009. This year-over-year gain primarily stemmed from a 15% rise in net interest income to $ 21.8 million due to a 30 basis-point increase in the net interest margin to 4.40% (average outstandings were flat) and modest 1% growth in noninterest expense, largely due to a sharply lower cash flow loss provision, which fell $ 0.7 million, or 74%, to $ 0.3 million. This was partly offset by a 178% increase in the loan loss provision to $ 2.5 million.
CPKF recently raised its quarterly dividend by 4.5% to $ 0.115 from $ 0.11, paid on March 15, 2011 to shareholders of record on March 1, 2011. This means CPKF has increased its annual dividend payment every year since 1992.
Chesapeake Financial Shares, Inc. (CPKF or the Company) is a bank holding company headquartered in Kilmarnock, Virginia, with $ 608 million in total assets at December 31, 2010. CPKF is predominantly a small business lender with 11 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 four 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.
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