U. S. Securities and Exchange commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from to
Commission file number 0-18543
CHESAPEAKE FINANCIAL SHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-
1210845
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification No.)
97 N. Main St., Kilmarnock, VA 22482
(Address of principal executive offices) (Zip Code)
(804) 435-1181
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period
that the registrant was required to file such reports),
and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of
the issuer's classes of common stock as of April 15, 1997.
Class Outstanding at April 15, 1997
Common Stock, voting, $5.00 par value 839,209
Common Stock, non-voting, $5.00 par value 0
CHESAPEAKE FINANCIAL SHARES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements...................1-4
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996...........1-2
Consolidated Statements of Earnings
Three months ended March 31, 1997 and 1996.......3
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996.......4
Notes to Consolidated Financial Statements.....5-6
Item 2. Management's Discussion and Analysis of
Financial Condition Results of Operations.....7-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................13
Item 2. Changes in Securities..................13
Item 3. Defaults Upon Senior Securities........13
Item 4. Submission of Matters to a Vote of
Security Holders.......................13
Item 5. Other Information......................13
Item 6. Exhibits and Reports on Form 8-K.......14
Signatures......................................15
Page I
PART I. Item 1. - FINANCIAL INFORMATION
Chesapeake Financial Shares, Inc. March 31, December 31,
Consolidated Balance Sheets 1997 1996
ASSETS (Unaudited)
Cash and due from banks................. $4,749,751 $5,896,836
Federal funds sold...................... 0 0
Time deposits with banks................ 0 0
Securities available for sale
U.S. Treasury securities (book value of
$1,956,438-1997 and $3,058,460-1996).. 1,928,219 3,042,469
U.S. Government agencies (book value of
$22,033,868-1997 and $23,488,966-1996) 21,841,576 23,400,043
Obligations of state and political
subdivisions (book value of
$11,211,830-1997 and $10,539,035-1996) 11,069,928 10,528,470
Other Securities (book value of
$743,400-1997 and $711,500-1996)...... 743,400 711,500
Loans................................... 94,400,277 92,078,667
Less: Unearned discount................. 0 0
Less: Reserve for loan loss............. (1,663,608) (1,652,843)
------------------------
Net loans............................ 92,736,669 90,425,824
Bank premises and equipment, net........ 3,236,667 3,284,063
Accrued interest receivable............. 1,017,660 1,088,201
Intangible assets, net.................. 63,000 84,000
Other assets............................ 3,972,900 4,414,212
------------------------
Total assets.........................$141,359,770 $142,875,618
==========================
See accompanying notes to consolidated financial statements. Page: 1
PART I. Item 1. - FINANCIAL INFORMATION
Chesapeake Financial Shares, Inc. March 31, December 31,
Consolidated Balance Sheets 1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Deposits
Noninterest bearing deposits......... $ 15,470,594 $ 16,646,453
Savings and interest bearing deposits 37,835,458 37,273,969
Certificates of deposit............. 73,997,729 73,709,143
--------------------------
Total deposits.................... 127,303,781 127,629,565
Federal funds purchased................ 600,000 2,000,000
Accrued interest payable............... 264,465 272,546
Other liabilities...................... 1,063,073 964,536
Note payable........................... 0 0
--------------------------
Total liabilities................. 129,231,319 130,866,647
Commitments
Shareholders' equity
Preferred stock, par value $1 per
share; authorized 50,000
shares; none outstanding............. 0 0
Common stock, voting................ 4,196,045 4,198,435
Common stock, non-voting............ 0 0
voting non-voting
3/31/97 12/31/96 3/31/97 12/31/96
-------- -------- ------- --------
Shares auth.2,000,000 2,000,000 635,000 635,000
Shares o/s.. 839,209 839,687 0 0
Paid in capital........................ 464,043 468,493
Unrealized gains (losses) on securities
available for sale.................. (235,569) (76,216)
Retained earnings...................... 7,703,932 7,418,259
--------------------------
Total shareholders' equity........ 12,128,451 12,008,971
--------------------------
Total liabilities and Shareholders'
equity............................ $141,359,770 $142,875,618
==========================
See accompanying notes to consolidated financial statements. Page: 2
PART I. Item 1. - FINANCIAL INFORMATION (cont'd.)
Chesapeake Financial Shares, Inc. Three Months Ended
Consolidated Statements of Earnings March 31,
1997 1996
Interest Income (Unaudited)
Interest and fees on loans................ $2,164,039 1,932,024
Interest on federal funds sold............ 511 8,753
Interest on time deposits with banks...... 2,019 7,792
Interest on U.S. Treasury securities...... 35,768 61,556
Interest on obligations of U.S. Agency
Obligations............................. 338,266 308,642
Interest on obligations of state and
political subs.......................... 143,608 125,967
---------------------
Total interest income 2,684,211 2,444,734
Interest Expense
Interest on savings and interest bearing
deposits................................ 238,905 252,688
Interest on certificates of deposit....... 999,147 929,922
Interest on federal funds purchased....... 24,558 1,012
Other interest expense.................... 0 8,261
---------------------
Total interest expense 1,262,610 1,191,883
---------------------
Net interest income....................... 1,421,603 1,252,851
Provision for loan losses................. 0 37,500
---------------------
Net interest income after provision for
loan losses............................. 1,421,603 1,215,351
---------------------
Noninterest Income
Income from fiduciary activities.......... 189,428 172,761
Service charges on deposit accounts....... 132,429 121,878
Securities gains (losses) -net............ (2,749) (4,958)
Merchant card income...................... 47,865 21,967
ATM income................................ 43,344 16,847
Business manager income................... 88,216 73,147
Other income.............................. 88,277 86,164
---------------------
Total noninterest income 586,810 487,806
---------------------
Noninterest Expense
Salaries.................................. 565,288 550,321
Employee benefits......................... 169,831 129,407
Occupancy expenses........................ 260,473 242,429
Amortization expense...................... 21,000 21,000
Merchant card expense..................... 50,489 20,755
ATM expense............................... 66,133 39,281
Business manager expense.................. 55,881 12,782
Other expenses............................ 342,550 278,372
---------------------
Total noninterest expense............ 1,531,645 1,294,347
---------------------
Income before income taxes................ 476,768 408,810
Income taxes.............................. 123,960 105,000
---------------------
Net income........................... $ 352,808 $ 303,810
=====================
Earnings per share........................ $0.41 $0.35
See accompanying notes to consolidated financial statements. Page: 3
PART I. - FINANCIAL INFORMATION (cont'd.)
Chesapeake Financial Shares, Inc. Three Months Ended
Consolidated Statements of Cash Flows March 31,
1997 1996
(Unaudited)
Cash flows from operating activities:
Net income.................................... $ 352,808 $ 303,810
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization................ 152,661 120,465
Provision for loan losses.................... 0 37,500
(Accretion) of discount and amortization of
premiums, net............................... 51,142 (3,359)
Net (gain) loss on sale of securities........ 2,749 4,958
Changes in assets and liabilities:
Decrease in accr. interest receivable........ 70,541 67,952
Decrease in other assets..................... 497,856 380,018
(Decrease) in accrued interest payable....... (8,081) (5,218)
Increase in other liabilities................ 98,537 215,754
--------------------
Net cash provided by (used for) operating
activities................................... 1,218,213 1,121,880
--------------------
Cash flows from investing activities:
Net (increase) decrease in time deposits
with banks................................... 0 2,717
Purchases of securities available for sale.... (5,465,563) (5,862,276)
Proceeds from sale or call of securities
available for sale........................... 6,187,073 4,722,035
Proceeds from maturities of securities
available for sale........................... 1,129,226 2,410,045
Origination of loans available for sale....... (537,850) (863,150)
Proceeds from sale of loans available for sale 537,850 485,000
Net (increase) decrease in loans outstanding.. (2,321,610) (1,811,869)
Other capital expenditures.................... (94,663) (35,814)
---------------------
Net cash provided by (used for) investing
activities.................................... (565,537) (953,312)
---------------------
Cash flows from financing activities:
Net increase (decrease) in demand accounts,
interest bearing demand deposit accounts
and savings deposits......................... (614,370) 1,426,997
Net increase (decrease) in certificates of
deposit...................................... 288,586 (1,347,560)
Net decrease in federal funds purchased....... (1,400,000) (115,000)
Cash dividends................................ (67,137) (59,642)
Acquisition of voting common stock............ (6,840) (53,930)
Curtailment of long-term borrowings........... 0 (37,500)
---------------------
Net cash provided by (used for) financing
activities.................................... (1,799,761) (186,635)
Net (decrease) increase in cash and federal
funds sold................................... (1,147,085) (18,067)
Cash and federal funds sold at beginning of
period....................................... 5,896,836 4,906,634
---------------------
Cash and federal funds sold at end of period.. $4,749,751 $4,888,567
=====================
See accompanying notes to consolidated financial statements. Page: 4
PART I. Item 1. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Notes to Consolidated Financial Statements
1. Chesapeake Financial Shares, Inc. ("CFS) owns 100%
of Chesapeake Bank (the "Bank"). Two additional
subsidiaries, Chesapeake Mortgage Company, Inc. and
Chesapeake Insurance Agency, Inc. are wholly-owned
subsidiaries of CFS and the Bank, respectively. The
consolidated financial statements include the accounts
of CFS and its wholly-owned subsidiaries. All
significant intercompany accounts have been eliminated.
2. The accounting and reporting policies of the
registrant conform to generally accepted accounting
principles and to the general practices within the
banking industry. The interim financial statements
have not been audited; however, in the opinion of
management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair
presentation of the consolidated financial statements
have been included.
These financial statements should be read in
conjunction with the financial statements and the
footnotes included in the registrant's 1996 Annual
Report to Shareholders.
3. Earnings per share are based on the weighted
average number of common shares and common stock
equivalents outstanding during the year. The number of
common shares and common stock equivalents used for
March 31, 1997 and December 31, 1996 were 858,425 and
860,062, respectively.
4. CFS adopted FASB No. 115, "Accounting for Certain
Investment in Debt and Equity Securities" effective
beginning January l, 1994. This statement addresses
the accounting and reporting for investments in equity
securities that have readily determinable fair market
values and for all investment in debt securities.
Those investments are classified in three categories
and accounted for as follows:
a. Securities Held to Maturity- Securities
classified as held to maturity are those debt
securities CFS has both the intent and the ability to
hold to maturity regardless of changes in general
economic conditions. These securities are carried at
cost, adjusted for amortization of premium and
accretion of discount, computed by the interest method
over their contractual lives. CFS held no assets
classified as Held to Maturity at December 31, 1996 or
March 31, 1997.
b. Securities Available for Sale- Securities
classified as available for sale are those debt and
equity securities that CFS intends to hold for an
indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified
as available for sale would be based on various
factors, including significant movements in interest
rates, changes in the maturity mix of CFS's assets and
liabilities, liquidity needs, regulatory capital
considerations, and other factors. Securities
available for sale are carried at fair market value.
Unrealized gains or losses are reported as increases or
decreases in shareholder's equity, net of the related
deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific
securities sold, are included in earnings.
c. Trading Securities- Trading securities, which
are generally held for short term in anticipation of
market gains, are carried at fair market value.
Realized and unrealized gains and losses on trading
account assets are included in interest income on
trading account securities. The Corporation held no
assets classified as Trading Securities at December 31,
1996 or March 31, 1997.
Page: 5
PART I. Item 1. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Notes to Consolidated Financial Statements
5. Loans are stated at face value, net of unearned
discount and the reserve for loan losses. Interest is
computed by methods which result in level rates of
return on principal. Generally, interest is not
accrued on loans over ninety days past due. Interest
on loans that are placed on nonaccrual status and which
management considers to be uncollectible is charged
off. Nonrefundable loan fees and direct loan
origination costs are recognized in operations when
received and incurred, respectively. The impact of
this methodology is not significantly different from
recognizing the net of these fees and costs over the
contractual life of the related loan.
Mortgage loans held for resale are stated at the
lower of cost or market on an individual basis. Loan
discounts and origination fees received on loans held
for resale are deferred until the related loans are
sold to third party investors. Gains are recognized at
the time of sale.
6. Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of,"
establishes standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles
to be disposed of. This statement requires that long-
lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable. The Statement was effective for fiscal
years beginning after December 31, 1995. The Statement
does not have a material impact on CFS.
Statement of Financial Accounting Standards No.
122, "Accounting for Mortgaging Servicing Rights,"
amends FASB No. 65, "Accounting for Certain Mortgage
Banking Activities," to require that a mortgage banking
enterprise recognize as separate assets rights to
servicing mortgage loans for others, however those servicing
rights are acquired. A mortgage banking enterprise
that acquires mortgage servicing rights through either
the purchase or origination of mortgage loans and sells
or securitizes those loans with servicing rights should
allocate the total cost of the mortgage loans to the
servicing rights and the loans (without the mortgage
servicing rights) based on their fair values if it is
practicable to estimate those fair values. If it is
not practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans
(without the mortgage servicing rights), the entire
cost of purchasing or originating the loans should be
allocated to the mortgage loans (without the servicing
rights) and no cost should be allocated to the mortgage
servicing rights. The statement was effective for
transactions in the fiscal years beginning after
December 31, 1995. The statement does not have a
material impact on CFS.
Page: 6
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
A. Summary - liquidity and capital resources
Sufficient short-term assets are maintained at
Chesapeake Financial Shares to meet cash needs
anticipated by management. The CFS's primary sources
of liquidity continue to be federal funds sold, time
deposits with banks and securities maturing within one
year. The repayment and sale of loans also provides
liquidity. The total of federal funds sold, time
deposits with banks and securities maturing within one
year at March 31, 1997 was approximately $5,603,000,
compared to $7,915,000 one year ago and $6,388,000 at
December 31, 1996.
The liquidity ratio at March 31, 1997 was 27.6%,
compared with 31% one year ago. This ratio is arrived
at by dividing net liquid assets (sum of total Cash and
Due from Banks, including Federal Reserve, unpledged
and over pledged portions of Investment Securities at
market value, and federal funds sold less reserves
required at the Federal Reserve Bank) by net
liabilities (total liabilities excluding valuation
reserves and capital). Management has found in the
past that 18% represents a sufficient level of
liquidity to meet cash needs.
Management believes capital is adequate to meet
current needs. Since Chesapeake Financial Shares has
total assets of less than $150 million, the capital
requirements of only the subsidiary, Chesapeake Bank
are used for regulatory purposes. Unencumbered capital
(total capital net of unrealized securities
gains/losses less intangibles plus reserves) as a
percent of total adjusted assets (total assets less
intangibles plus reserves) was 9.8% at March 31, 1997
and 9.5% at December 31, 1996, for CFS.
Chesapeake Bank must have a ratio of Tier 1
capital (common equity, retained earnings less certain
goodwill) to risk-adjusted assets of at least 4.0%. At
March 31, 1997 and December 31, 1996 the Bank's ratio
of Tier 1 risk based capital to risk-adjusted assets
was 11.1% and 11.3%, respectively. Total risked based
capital to risk weighted assets was 12.3% and 12.5% at
March 31, 1997 and December 31, 1996, respectively.
Tier one leverage capital was 7.7% and 7.7% at March
31, 1997 and December 31, 1996, respectively.
Page: 7
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
B. Results of operations:
Earnings Summary:
Net income was $352,808 for the three months ended
March 31, 1997, compared with income of $303,810 for
the same period in 1996. On a per share basis, the net
profit was $0.41 for the first three months, compared
with $0.35 per share for the same period in the prior
year. The increase in earnings resulted primarily from
a $206,252 or 17.0% increase in net interest income
after provision and a $99,004 or 20.3% increase in
noninterest income. The Company experienced a net
increase in noninterest expense of $237,298 or 18.3%.
Net Interest Income:
Chesapeake Financial Shares' results of operation
are significantly affected by its ability to manage
effectively the interest rate sensitivity and maturity
of its interest-earning assets and interest-bearing
liabilities. At March 31, 1997, the Company's interest-
earning assets exceeded its interest-bearing
liabilities by approximately $16.4 million, compared
with a $15.4 million excess one year ago.
Net interest margins are 4.57% at March 31, 1997
compared to 4.40% at March 31, 1996. Chesapeake Bank
maintained competitive rates throughout the first nine
months of last year without being aggressive. During
the fourth quarter of 1996 a deposit offering generated
approximately $7 million dollars in new money The
March 97 increase in the New York prime rate will have
a positive impact on margins during the next several
quarters as prime-adjusted loans reprice. Margins have
improved as our loan to deposit ratio has risen from
71.2% at March 31, 1996, to over 74% at March 31, 1997.
The securities portfolio has been repositioned for
improved yields with no significant increases in risk.
This has improved the overall contribution from the
investment portfolio.
Provision for Loan Losses:
The loan loss provision is a charge against
earnings necessary to maintain the reserve for loan
losses at a level consistent with management's
evaluation of the credit quality and risk adverseness
of the portfolio. Management makes a quarterly
evaluation as to the adequacy of the current loan loss
reserve. Management's detailed analysis as of March
31, 1997 supports the adequacy of the current loan loss
level of $1.7 million.
Chesapeake Bank's management maintains a reserve
for loan loss which they feel represents a conservative
estimate of potential losses in the Bank's loan
portfolio. The methodology incorporates subjective
factors into the evaluation of the adequacy of the ALLL
such as:
Page: 8
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
o The effect of volume and trends indelinquencies and nonaccruals.
o The effect of trends in portfolio volume, maturity, and composition.
o An estimate of future loss on all significantloans and assessment
of underwriting and lending policies and proceduresincluding those
for charge off, collection and recovery.
o Experience, ability and depth of lending management and staff.
o The effect of national and local economic conditions and downturns
in specific industries.
o Concentrations of credit that might affect loss experience across
one or more components of the portfolio.
o Taking into account results of anyindependent reviews of the
portfolio.
The loan loss reserve is 1.8% and 1.8% of gross
loans as of March 31, 1997 and December 31, 1996
respectively. The loan portfolio is reviewed on an
annual basis by outside parties.
Noninterest Income:
Noninterest income is up 20.3% or $99,003 from the
same period last year. Trust income is up 9.6%, or
$16,667, from March 31, 1996. This increase was due to
volume increases in total managed assets this quarter
and the general level of business. Service charges on
deposit accounts were up $10,551 or 8.7% from March 31,
1996.
Bank management has changed the merchant card
program to a principal member of the VISA/MASTERCARD
Network and completed the second year on the program as
of March this year. This has generated approximately
$25,898 or 117.9% more in gross revenue than in the
same period last year. The ATM fee income to date is
$43,344, up 157.3%. The Bank had only $16,847 from ATM
fee income as of March 31, 1996. The Bank has 17 ATMs
operational as of the end of March 31, 1997. The Bank
charges a nominal fee for use of its ATMs by non-
customers. This practice started in July of 1996 and
covers most of the ATMs.
Chesapeake Bank's Business Manager product
generated $88,216 in gross revenue for the first three
months ended March 31, 1997, compared to the same
period last year of $73,147.
Page: 9
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
Noninterest Expenses:
Employee salaries expenses amounted to $565,288
and $550,321 as of March 31, 1997 and 1996,
respectively. We opened a new branch in Williamsburg
in July of 1996 and additional staff was added during
the second quarter of last year. Benefits expense is
up 31.2% or $40,424 over March 31, 1996 due primarily
to deferred compensation expenses and incentive
accruals.
Occupancy expenses are up 7.4% or $18,044 from
March 31, 1996 primarily due to leasehold improvement
expenses at the new branch in Williamsburg and some one-
time maintenance expenses at other branches. There are
additional expenses associated with renovations to the
Operations Center.
Merchant Card expenses are up 143.3% due to
increased volume in the program. Profit margins are
expected to improve in 1997. ATM expenses are up due
to the depreciation expenses associated with the
expansion of the Bank's ATM network and volumes are
still below break even targets. The ATM program was
expected to break even by the end of 1996. However,
expected operational expense reductions will not be
realized in the ATM program until the third quarter of
1997 when we will change our ATM processing vendor.
As of this report date the Bank has 17 ATM/cash
dispensers in operation. Three were completed by
December 31, 1994 in the Hayes office, the Gloucester
Winn-Dixie Office and a cash dispenser at Cobbs Creek,
in a convenience store. During 1995 Chesapeake Bank
installed ATMs at the Kilmarnock office, James City
County Winn-Dixie office, in front the Best Value
department store in Mathews, in a convenience store at
Glenns, in the lobby of the Rappahannock General
Hospital, and two ATMs were installed at the
Williamsburg Pottery facility.
The Bank also has ATM machines at Fredericksburg,
Disputania, Ashland, and in the East Coast Convenience
Store, Route 17, and the Zooms Convenience Store on
Route 5 in Williamsburg. Additional ATMs were opened
during the summer at the new Williamsburg Office at
Route 5 and Ironbround Road, and in Opal, Virginia. The
Bank has made arrangements to relocate or remove from
service up to five remote ATMs. This is part of the
program to ensure profitability during 1997.
Other expenses were $342,550 for the three month
period, compared with $278,372 for the same period one
year ago. Increases in this area are primarily related
to increases in delivery and transportation,
miscellaneous professional fees, and advertising
expenses related to a new product, Colonial Education
Trust (CET). CET is a college tuition trust product.
Page: 10
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
Assets and Loans:
At March 31, 1997, Chesapeake Financial Shares had
total assets of $141.4 million, down 1.1% from $142.9
million at December 31, 1996 and up 7.7% from $131.4
million of one year ago. Management has budgeted a
6.5% growth in total assets for 1997. Growth
objectives have been set in loan growth, funded in part
by the securities portfolio and by deposit growth.
Total loans (gross) at March 31, 1997 were $94.4
million, representing an increase of 2.7% from December
31, 1996, when loans were $92.1 million. Chesapeake
Bank's loan quality is exceptionally good as the
following table shows. While the absolute numbers are
up from December 31, 1996, they are nominal as a per
cent of loans or capital compared to peer group.
Management is confident that no delinquency trends are
developing.
3/31/97 12/31/96
Nonaccrual loans $ 431,855 $ 142,944
90 days past due 9,711 8,850
Restructured loans 0 0
________ ________
Totals $ 441,566 $ 151,794
Management is confident there will be no loss
incurred as the Bank is well secured on these assets.
There are no troubled debt restructurings outstanding
at the end of either period.
Chesapeake Bank has experienced greatly reduced
loan charge offs and increased recoveries as the credit
quality has improved and effective collection
techniques are used. Year to date charge offs through
March 31, 1997 where $4,406 as compared to $115,194 as
of March 31, 1996. Recoveries through March 31, 1997
were $15,171 as compared to $177,533 as of March 31,
1996. The recovery trend is not expected to continue.
Page: 11
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 3/97-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
Concentrations of credit in loans are compiled
quarterly by management and reviewed with the Board of
Director's Loan Review Committee. There have been no
material changes in the concentrations of credit within
the past nine months which would warrant above average
additions to the reserve. The Bank's only
concentrations of credit greater than 70% of capital
are in residential real estate (212% of total capital),
the hospitality sector (90% of total capital),
individual consumer (71% of capital), and the retail
sector (74% of total capital). Bank management feels
that the current levels are consistent with the
objectives of the Bank and do not represent unwarranted
risk.
The Bank's Other Real Estate Owned (OREO)
portfolio currently has two properties with a total
written down value of $245,000. Bank management is
aggressively marketing these properties.
Deposits:
Deposits are flat with total deposits amounting to
$127.3 million, compared with $127.6 million at
December 31, 1996. Deposits were $118.8 million at
March 31, 1996. Competition for deposit dollars is
keen with the past year's run up in interest rates and
the volatility in the bond and equity markets.
Management has grown the Bank during the third quarter
with specific deposit offerings to offset the loan
demand.
Page: 12
PART II. Item l. - OTHER INFORMATION 3/97-10QSB
Chesapeake Financial Shares, Inc.
Legal Proceedings
None to report
PART II. Item 2. - OTHER INFORMATION
Chesapeake Financial Shares, Inc.
Changes in Securities
None to report.
PART II. Item 3. - OTHER INFORMATION
Chesapeake Financial Shares, Inc.
Default Upon Senior Securities
None to report.
PART II. Item 4. - OTHER INFORMATION
Chesapeake Financial Shares, Inc.
Submission of Matters to a Vote of Security Holders
Chesapeake Financial Shares' annual meeting of
shareholders was held on Friday, April 4, 1997 in
Irvington, Virginia. We have previously forwarded to
the Commission copies of the letter to shareholders,
the notice of the meeting, the proxy statement, and the
proxy. Over 85% of the shareholders were represented
at the meeting in person or by proxy with over 84%
voting in favor of the proposal submitted.
PART II. Item 5. - OTHER INFORMATION
Chesapeake Financial Shares, Inc.
Other Information
The first quarter of 1995 the Company had an
examination of the corporate family by the Bureau of
Financial Institutions, State Corporation Commission,
Commonwealth of Virginia, and the Bank had a similar
examination. Both examinations were as of December 31,
1994. The Bank also had an examination of its Transfer
Agent Function by the Federal Reserve Bank of Richmond.
During the third quarter of 1995, the Bank
satisfactorily completed a Consumer Compliance
Examination and a Community Reinvestment Act
Examination performed by the Federal Reserve Bank of
Richmond.
During the first quarter of 1996 the Bank and CFS
were examined by the Federal Reserve Bank of Richmond.
As a result of all examinations since January of 1995,
management is not aware of any current recommendations
of the regulatory authorities which, if they were
implemented, would have a material effect on liquidity,
capital resources or operations.
During the second quarter of 1996 the Bank was
examined by the Federal Reserve Bank of Richmond Trust
and EDP Examiners. During the first of 1997, the Bank
satisfactorily completed another Consumer Compliance
Examination and a Community Reinvestment Act
Examination performed by the Federal Reserve Bank of
Richmond. As a result of these examinations management
is not aware of any current recommendations of the
regulatory authorities which, if they were implemented,
would have a material effect on liquidity, capital
resources or operations of the Bank.
Page: 13
PART II. Item 6. - OTHER INFORMATION 3/97-10QSB
Chesapeake Financial Shares, Inc.
Exhibits and Reports on Form 8-K
(Unaudited)
(a) Exhibit 2 Plan of acquisition, reorganization,
arrangement, liquidation or succession N/A
Exhibit 4 Instruments defining the rights of security
holders, including indentures N/A
Exhibit 10 Material contracts N/A
Exhibit 11 Statement re: computation of earnings
per share N/A
Exhibit 15 Letter re: unaudited interim financial
information N/A
Exhibit 18 Letter re: change in accounting principles N/A
Exhibit 19 Report furnished to security holders N/A
Exhibit 22 Published report regarding matters
submitted to vote of security holders Previously Filed
Exhibit 23 Consents of experts and counsel N/A
Exhibit 24 Power of attorney N/A
Exhibit 27 Financial Data Schedule Attached
Exhibit 99 Additional exhibits N/A
(b) No filings were made on Form 8-K for the period.
Page: 14
SIGNATURES
Chesapeake Financial Shares, Inc.
SEC 10-QSB 3/97
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chesapeake Financial Shares, Inc.
(Registrant)
5/8/97 s/s Douglas D. Monroe, Jr.
-------- -----------------------------
(Date) (Signature)
Douglas D. Monroe, Jr.
Chairman and Chief Executive Officer
5/8/97 s/s John H. Hunt, II
-------- -----------------------------
(Date) (Signature)
John H. Hunt, II
Secretary and Chief Financial Officer
Page: 15
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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