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 June 30, 1999
[ ] 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 July 12, 1999.
Class Outstanding at August 9, 1999
Common Stock, voting, $5.00 par value 1,234,002
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...............................1-5
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998.......................1-2
Consolidated Statements of Earnings
Three months ended June 30, 1999............................3
Consolidated Statements of Earnings
Six months ended June 30, 1999..............................4
Consolidated Statements of Cash Flows
Six months ended June 30, 1999..............................5
Consolidated Statement of Changes in
Stockholder's Equity Six months ended June 30, 1999.........6
Consolidated Statement of Changes in Stockholder's Equity
Six months ended June 30, 1998..............................7
Notes to Consolidated Financial Statements..................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................9-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.....................................14
Item 2. Changes in Securities.................................14
Item 3. Defaults Upon Senior Securities.......................14
Item 4. Submission of Matters to a Vote of Security Holders...14
Item 5. Other Information.....................................14
Item 6. Exhibits and Reports on Form 8-K......................15
Signatures......................................................16
Page I
PART I. Item 1. - FINANCIAL INFORMATION
Chesapeake Financial Shares, Inc. June 30, December 31,
Consolidated Balance Sheets 1999 1998
ASSETS (Unaudited)
Cash and due from banks....................... $7,278,516 $5,937,686
Federal funds sold............................ 0 7,000,000
Securities available for sale
U.S. Treasury securities (book value of
$0-1999 and $500,187-1998.................... 0 501,406
U.S. Government agencies (book value of
$29,866,999-1999 and $29,256,182-1998)....... 29,614,483 28,200,031
Obligations of state and political subdivisions
(book value of $12,635,208-1999 and
$12,329,705-1998)............................ 12,831,483 12,932,429
Other Securities (book value $888,900-1999 and
$834,300-1998................................ 888,900 841,050
Loans......................................... 121,639,696 111,445,793
Less: Reserve for loan loss................... (2,154,409) (2,023,752)
------------ -----------
Net loans.................................. 119,485,287 109,422,041
Bank premises and equipment, net.............. 5,818,073 5,247,605
Accrued interest receivable................... 1,324,150 1,346,616
Business Manager Assets....................... 6,943,174 7,131,665
Other assets.................................. 2,631,656 3,300,746
----------- -----------
Total assets...............................$186,815,722 $181,861,275
=========== ============
See accompanying notes to consolidated financial statements. Page: 1
PART I. Item 1. - FINANCIAL INFORMATION
Chesapeake Financial Shares, Inc. June 30, December 31,
Consolidated Balance Sheets 1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Deposits
Noninterest bearing deposits.............. $ 23,513,604 $ 23,830,189
Savings and interest bearing deposits..... 65,415,822 55,718,469
Certificates of deposit................... 75,766,202 85,090,543
------------- ------------
Total deposits........................ 164,695,628 164,639,201
Federal funds purchased.................... 4,450,000 0
Accrued interest payable................... 276,975 303,269
Other liabilities.......................... 1,160,971 1,115,825
Note payable............................... 861,328 874,574
------------- ------------
Total liabilities..................... 171,444,902 166,932,869
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, par value $1 per share;
authorized 50,000 shares; none outstanding 0 0
Common stock, voting...................... 6,170,010 6,147,995
Common stock, non-voting.................. 0 0
voting non-voting
6/30/99 12/31/98 6/30/99 12/31/98
-------- -------- ------- --------
Shares auth 2,400,000 2,400,000 635,000 635,000
Shares o/s 1,234,002 1,229,599 0 0
Paid in capital............................ 442,073 523,795
Accumulated other comprehensive income..... (37,119) 174,267
Retained earnings.......................... 8,795,856 8,082,349
----------- -----------
Total shareholders' equity................ 15,370,820 14,928,406
----------- -----------
Total liabilities and Shareholders' equity $186,815,722 $181,861,275
============ ============
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 June 30,
1999 1998
Interest Income
(Unaudited)
Interest and fees on loans................ $ 2,723,893 $ 2,569,022
Interest on federal funds sold............ 18,922 12,215
Interest on time deposits with banks...... 3,482 3,950
Interest on U.S. Treasury securities...... 0 22,441
Interest on U.S. Agency Obligations....... 400,563 464,501
Interest on obligations of state and
political subs........................... 181,822 167,653
Total interest income 3,328,682 3,239,782
Interest Expense
Interest on savings and interest bearing
deposits................................. 495,571 270,917
Interest on certificates of deposit....... 1,009,935 1,242,761
Interest on federal funds purchased....... 10,640 7,673
Other interest expense.................... 15,893 10,297
----------- -----------
Total interest expense 1,532,039 1,531,648
----------- -----------
Net interest income....................... 1,796,643 1,708,134
Provision for loan losses................. 58,013 0
----------- -----------
Net interest income after provision for
loan losses.............................. 1,738,630 1,708,134
Noninterest Income
Income from fiduciary activities.......... 224,876 214,713
Service charges on deposit accounts....... 158,678 131,426
Merchant card income...................... 176,718 147,319
ATM income................................ 61,875 50,292
Business manager income................... 272,762 193,762
Other income.............................. 141,283 130,526
--------- ---------
Total noninterest income 1,036,192 868,038
--------- ---------
Noninterest Expense
Salaries.................................. 801,157 662,464
Employee benefits......................... 144,773 144,569
Occupancy expenses........................ 419,149 337,356
Merchant card expense..................... 202,138 168,173
ATM expense............................... 76,591 55,149
Business manager expense.................. 75,654 101,414
Other expenses............................ 407,618 468,340
--------- ---------
Total noninterestexpense............. 2,127,080 1,937,465
--------- ---------
Income before income taxes................ 647,742 638,707
Income taxes.............................. 157,544 157,396
--------- ---------
Net income............................ $ 490,198 $ 481,311
========== ==========
Earnings per share, basic................. $0.40 $0.40
Earnings per share, assuming dilution..... $0.38 $0.38
See accompanying notes to consolidated financial statements. Page: 3
PART I. Item 1. - FINANCIAL INFORMATION (cont'd.)
Chesapeake Financial Shares, Inc. Six Months Ended
Consolidated Statements of Earnings June 30,
1999 1998
Interest Income (Unaudited)
Interest and fees on loans................ $ 5,319,300 $ 5,071,475
Interest on federal funds sold............ 53,882 38,033
Interest on time deposits with banks...... 7,495 8,061
Interest on U.S. Treasury securities...... 1,025 44,578
Interest on U.S. Agency Obligations....... 743,573 947,028
Interest on obligations of state and
political subs........................... 360,783 332,811
----------- -----------
Total interest income 6,486,058 6,441,986
Interest Expense
Interest on savings and interest bearing
deposits................................. 941,615 538,256
Interest on certificates of deposit....... 2,084,883 2,505,954
Interest on federal funds purchased....... 13,880 21,290
Other interest expense.................... 23,900 22,644
----------- -----------
Total interest expense 3,064,278 3,088,144
----------- -----------
Net interest income....................... 3,421,780 3,353,842
Provision for loan losses................. 114,688 54,000
----------- -----------
Net interest income after provision for
loan losses.............................. 3,307,092 3,299,842
----------- -----------
Noninterest Income
Income from fiduciary activities.......... 449,434 446,354
Service charges on deposit accounts....... 299,570 263,567
Merchant card income...................... 318,485 252,612
ATM income................................ 110,102 94,070
Business manager income................... 535,500 364,747
Other income.............................. 257,054 249,706
---------- ---------
Total noninterest income 1,970,145 1,671,056
---------- ---------
Noninterest Expense
Salaries.................................. 1,553,142 1,350,915
Employee benefits......................... 294,618 302,571
Occupancy expenses........................ 796,668 690,204
Merchant card expense..................... 338,459 258,452
ATM expense............................... 138,919 117,088
Business manager expense.................. 164,789 168,581
Other expenses............................ 775,440 867,077
--------- ---------
Total noninterest expense.............. 4,062,035 3,754,888
--------- ---------
Income before income taxes................ 1,215,202 1,216,010
Income taxes.............................. 303,800 319,588
--------- ---------
Net income........................... $ 911,402 $ 896,422
========== =========
Earnings per share, basic................. $0.74 $0.74
Earnings per share, assuming dilution..... $0.71 $0.70
See accompanying notes to consolidated financial statements. Page: 4
PART I. - FINANCIAL INFORMATION (cont'd.)
Chesapeake Financial Shares, Inc. Six Months Ended
Consolidated Statements of Cash Flows June 30,
1999 1998
(Unaudited)
Cash flows from operating activities:
Net income.................................. $421,402 $ 896,422
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization.............. 320,108 259,119
Provision for loan losses.................. 114,688 54,000
(Accretion) of discount and amortization of
premiums, net............................. 380,376 315,309
Changes in assets and liabilities:
Decrease (increase) in accr. interest
receivable............................... 22,466 22,631
Decrease (increase) in other assets...... 966,477 (1,891,560)
Increase (decrease) in accrued interest
payable................................. (26,294) (49,541)
Increase (decrease) in other liabilities. 45,146 660,254
--------- ----------
Net cash provided by (used for) operating
activities................................. 2,734,369 266,634
--------- ----------
Cash flows from investing activities:
Purchases of securities available for sale.. (11,268,912) (10,541,891)
Proceeds from maturities of securities
available for sale......................... 9,708,304 6,363,509
Origination of loans available for sale..... (2,951,750) (4,077,850)
Proceeds from sale of loans available for
sale....................................... 2,951,750 4,077,850
Net (increase) decrease in loans
outstanding................................ (10,177,934) (623,188)
Other capital expenditures.................. (890,576) (1,072,688)
---------- ----------
Net cash provided by (used for) investing
activities................................. (12,629,118) (5,874,258)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in demand accounts,
interest bearing demand deposit accounts
and savings deposits........................ 9,380,768 7,940,270
Net increase (decrease) in certificates of
deposit..................................... (9,324,341) (629,878)
Net increase (decrease) in federal funds
purchased................................... 4,450,000 (1,250,000)
Cash dividends............................... (197,895) (161,702)
Proceeds from issuance of voting common stock 77,000 28,500
Acquisition of voting common stock........... (136,707) (60,893)
Increase in long-term borrowings............. 0 900,000
Curtailment of long-term borrowings.......... (13,246) (14,502)
---------- ----------
Net cash provided by (used for) financing
activities.................................. 4,235,579 6,751,795
Net (decrease) increase in cash and federal
funds sold.................................. (5,659,170) 1,144,171
Cash and federal funds sold at beginning of
period...................................... 12,937,686 7,023,586
---------- ----------
Cash and federal funds sold at end of period. $7,278,516 $ 8,167,757
========== ===========
See accompanying notes to consolidated financial statements. Page: 5
<TABLE>
Statement of changes in Stockholder's Equity
Chesapeake Financial Shares, Inc.
Six Months Ended June 30, 1999
(Unaudited)
<CAPTION>
Accumulated Additional
Comprehensive Retained Other Compr. Common Paid-In
Total Income Earnings Income Stock Capital
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $14,928,406 $8,082,349 $174,267 $6,147,995 $523,795
Comprehensive Income:
Net Income 911,402 $ 911,402 911,402
Other comprehensive
income, net of tax:
Unrealized gain on
securities available
for sale: (211,386) (211,386) (211,386)
-------
Total comprehensive
income, net of tax: $ 700,016
=========
Acquisition of common
stock (136,707) (33,425) (103,282)
Issuance of common stock 77,000 55,440 21,560
Dividends declared (197,895) (197,895)
-------- ------- ------- -------- -------
Ending balance $15,370,820 $8,795,856 $ (37,119) $6,170,010 $442,073
========== ========= ====== ========= ========
</TABLE>
Page 6
<TABLE>
Statement of Changes in Stockholder's Equity
Chesapeake Financial Shares, Inc.
Six Months Ended June 30, 1998
(Unaudited)
<CAPTION>
Accumulated Additional
Comprehensive Retained Other Compr. Common Paid-In
Total Income Earnings Income Stock Capital
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $13,914,675 $ $8,047,310 $ 328,577 $5,054,440 $484,348
Comprehensive Income:
Net Income 896,422 896,422 896,422
Other comprehensive
income, net of tax:
Unrealized (loss) on
securities available
for sale: (121,461) (121,461) (121,461)
------- -------
Total comprehensive
income, net of tax: $ 774,961
=======
Acquisition of common
stock (60,893) (14,925) (45,968)
Issuance of common
stock 28,500 16,400 12,100
Dividends declared (161,702) (161,702)
-------- ------- ------- ------- -------
Ending balance $14,495,541 $8,782,030 $ 207,116 $5,055,915 $450,480
========== ========= ======= ========= =======
</TABLE>
Page 7
PART I. Item 1. - FINANCIAL INFORMATION (cont'd.)6/99-10QSB
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. (t/a Chesapeake
Investment Services) are wholly owned subsidiaries of
CFS and the Bank, respectively. The Bank also is the
100% owner of CNB Properties, Inc. CFS chartered
Chesapeake Financial Group, Inc. (CFG) on August 31,
1998. The purpose of CFG is to provide investment
advice and management to the upscale customer. 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 1998 Annual
Report to Shareholders.
3. The following data shows the amounts used in
computing earnings per share and the effect on the
weighted average number of shares of potential dilutive
common stock. The potential common stock will not have
a significant impact on net income. The number of
shares used in the calculation for June 30, 1998
reflects a 20% stock dividend paid on October 15, 1998.
June 30, 1999 June 30, 1998
Weighted average number of common shares, basic 1,234,478 1,213,288
Effect of dilutive stock options 55,713 68,902
--------- ---------
Weighted number of common shares and dilutive
potential common stock used in diluted EPS 1,290,191 1,282,190
========= =========
Page: 8
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 6/99-10QSB
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. Management's primary
sources of liquidity continue to be federal funds sold,
short term borrowing from Federal Home Loan Bank
Atlanta, securities maturing within one year, and
principal payments from mortgage securities. The
repayment and sale of loans also provides liquidity.
The total of federal funds sold, securities maturing
within one year, and estimated principal payments on
mortgage-backed securities within one year at June 30,
1999 was approximately $6,838,000, compared to
$14,800,000 one year ago and $18,072,000 at December
31,1998.
The liquidity ratio at June 30, 1999 was 27.4%,
compared with 33.0% 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. Unencumbered capital (total capital net
of accumulated other comprehensive income less
intangibles plus reserves) as a percent of total
adjusted assets (total assets less intangibles plus
reserves) was 9.4% at June 30, 1999 and 9.1% at
December 31, 1998, for CFS.
Chesapeake Financial Shares and 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 June 30, 1999 and
December 31, 1998 the consolidated ratio of Tier 1 risk-
based capital to risk-adjusted assets was 11.0% and
11.3%, respectively. Total risked based capital to
risk weighted assets was 12.2% and 12.6% at June 30,
1999 and December 31, 1998, respectively. Tier one
leverage capital was 8.3% and 8.4% at June 30, 1999 and
December 31, 1998, respectively.
Page: 9
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.)6/99-10QSB
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 $911,402 for the six months ended
at June 30, 1999, compared with income of $896,422 for
the same period in 1998. On a fully diluted per share
basis, the net profit was $0.71 for the first six
months of 1999. Earnings per share for the second
quarter of 1998 were also $0.38. Net interest income
before provision increased $67,938 or 2.0% and
noninterest income increased $299,089 or 17.9%. The
Company experienced a net increase in noninterest
expense (which includes other expense) of $307,147 or
8.2%.
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 June 30, 1999, the Company's interest-
earning assets exceeded its interest-bearing
liabilities by approximately $17.3 million, compared
with a $20.9 million excess one year ago.
Net interest margins are 4.49% at June 30, 1999
compared to 4.68% at June 30, 1998. Margins have
narrowed since early 1998 as our loan to deposit ratio
dropped from over 76% at June 1997, to lower than 69%
at the end of 1998. Prime also dropped three times in
the last four months of 1998. Management has adjusted
deposit rates on all products during the last twelve
months to match the market for changes in earning asset
returns. These changes have contributed to short term
improvement in margins, but prepayments on mortgage-
backed securities during the first quarter of 1999 had
a negative impact on margins. The record prepayment
period was a direct result of the lower rate
environment during the fourth quarter of 1998. The
second quarter return on the mortgaged-backed portfolio
was well within previous estimates since prepayment
speeds have returned to more normal levels. Management
expects continued improvement in margins and the loan
to deposit ratio is currently 73.9%.
There has been significant growth in deposits in
all of the trade areas of the bank. New product
offerings have been very successful. A significant
portion of this deposit growth has been noninterest
bearing. A large number of interest-bearing deposits
are maturing/repricing at significantly lower rates.
Page: 10
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.)6/99-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
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 June 30,
1999 supports the adequacy of the current loan loss
level of $2.2 million.
Chesapeake Bank's management maintains a reserve
for loan loss that 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:
o The effect of volume and trends in
delinquencies and nonaccrual loans.
o The effect of trends in portfolio volume,
maturity, and composition.
o An estimate of future loss on all significant
loans and assessment of underwriting and lending
policies and procedures including 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 The results of any independent reviews of the portfolio.
The loan loss reserve is 1.8% of gross loans as of June 30, 1999
and December 31, 1998.
Noninterest Income:
Noninterest income is up 17.9% or $299,089 from
the same period last year. Chesapeake Bank's Business
Manager product generated $535,500 in gross revenue for
the first six months ended June 30, 1999, compared to
the same period last year of $364,747. Managed assets
in the business manager program were $6,943,174 at June
30, 1999 and $5,006,000 at June 30, 1998.
The merchant card program has generated $318,485
or 26.1% more in gross revenue through June of this
year than in the same period last year due primarily to
an increased customer base. Service charges on deposit
accounts have increased 13.7% or $36,003 over the same
period last year due to new account growth in new
market areas and additional account openings related to
promotions.
The ATM fee income to date is $110,102, up 17.0%,
or $16,032 from one year ago. The Bank has 14 ATMs
operational as of the end of July 1999. The Bank
charges a nominal fee for use of its ATMs by non-
customers.
Page: 11
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 6/99-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
Noninterest Expenses:
Employee salary expense amounted to $1,553,142 and
$1,350,915 for the six months ended June 30, 1999 and
1998, respectively. Management opened the regional
financial services center in the City of Williamsburg
(the Lafayette Street Office) in June of 1998. This is
the third Chesapeake banking office in the
Williamsburg/James City County area. In addition to the
Chesapeake Investment Services Investment Manager
resident in that office, management employed an
Investment Advisor for the Chesapeake Financial Group.
Benefits expense is down 2.6% or $7,953 from June 30,
1998.
Occupancy expenses are up 15.4% or $106,464 from
June 30, 1998 primarily due to maintenance expenses at
branches, the opening of the Lafayette Street Financial
Center, and the acquisition/development and maintenance
of the School Street property (the Operations Center)
in Kilmarnock. This Operations Center was occupied on
the first of October. The School Street Operations
Center houses the Loan Processing Center,
Administrative Support, and Data Processing/Operations.
Equipment maintenance as well as insurance costs have
also increased.
Page: 12
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 6/99-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
Assets and Loans:
At June 30, 1999, Chesapeake Financial Shares had
total assets of $186.8 million, up 2.7% from $181.9
million at December 31, 1998 and up 8.6% from $172.1
million of one year ago. Management has budgeted for a
2.0% growth in total assets for 1999.
Total loans (gross) at June 30, 1999 were $121.6
million, representing an increase of 9.1% from December
31, 1998, when loans were $111.4 million. Chesapeake
Bank's loan quality is good as the following table
shows. Management is confident that no serious
delinquency trends are developing.
6/30/99 12/31/98
Nonaccrual loans $ 374,386 $ 202,434
90 days past due 629 3,815
Restructured loans 0 0
________ ________
Totals $ 375,015 $ 206,249
Management is also confident there will be no loss
incurred as the Bank is well secured on these assets.
There are no impaired loans outstanding at the end of
either period.
Year to date charge offs through June 30, 1999
were $686 as compared to $6,185 as of June 30, 1998.
Recoveries through June 30, 1999 were $16,656 as
compared to $11,061 as of June 30, 1998.
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 three months that would warrant above average
additions to the reserve. The Bank's only
concentrations of credit greater than 70% of capital
are individual consumer (148% of capital) and
residential real estate (91% 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
carrying value of $185,000. Bank management is
currently marketing these properties. The Bank also has
no repossessed assets.
Deposits:
Deposits are essentially unchanged at $ 164.7
million at June 30, 1999 and $164.6 million at December
31, 1998. Deposits were $164.7 million and $154.8
million at June 30, 1999 and June 30, 1998,
respectively. The Bank's mix of deposit dollars has
changed from one year ago with net increases in
noninterest bearing and lower interest bearing
balances. During the same period total certificates
dollars have decreased. It is management's opinion that
this is due to new product offerings and promotions,
the lower interest rate environment and the over-valued
equity market.
Page: 13
PART II. Item l. - OTHER INFORMATION 6/99-10QSB
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 2, 1999 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 84% of the shareholders were represented
at the meeting in person or by proxy with over 83%
voting in favor of the proposal submitted.
PART II. Item 5. - OTHER INFORMATION
Chesapeake Financial Shares, Inc.
Other Information
As of May 30, 1998, the Bank and Holding Company
completed a safety and soundness examination, an
Information Systems examination, a Phase II Y2K
examination, and a Trust 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 or Holding Company.
For computer systems that it has determined to be
most critical, CFS completed development and testing,
and adopted a business contingency plan prior to June
30, 1999. These plans conform to recently issued
guidance from the FFIEC on business contingency
planning for Year 2000 readiness. Contingency plans
include, among other actions, tested manual workarounds
and identification of resource requirements and
alternative solutions for resuming critical business
processes in the event of a Year 2000 related failure.
While management believes that it has taken the
necessary steps to resolve its Year 2000 issues in a
timely manner, there can be no guarantees that there
will be no Year 2000 problems. At present, management
does not expect that any such problems will have a
material adverse effect on its business.
Page: 14
PART II. Item 6. - OTHER INFORMATION 6/99-10QSB
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: 15
SIGNATURES
Chesapeake Financial Shares, Inc. SEC 10-QSB 6/99
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)
08/9/99
(Date) (Signature)
Douglas D. Monroe, Jr.
Chairman and Chief Executive Officer
08/9/99
(Date) (Signature)
John H. Hunt, II
Secretary and Chief Financial Officer
Page: 16
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<PERIOD-END> JUN-30-1999
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