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 September 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 November 10, 1999.
Class Outstanding at November 10, 1999
Common Stock, voting, $5.00 par value 1,226,047
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
September 30, 1999 and December 31, 1998......................1-2
Consolidated Statements of Earnings
Three months ended September 30, 1999...........................3
Consolidated Statements of Earnings
Nine months ended September 30, 1999............................4
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999............................5
Consolidated Statement of Changes in Stockholder's Equity
Nine months ended September 30, 1999............................6
Consolidated Statement of Changes in Stockholder's Equity
Nine months ended September 30, 1999............................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. September 30, December 31,
Consolidated Balance Sheets 1999 1998
ASSETS (Unaudited)
Cash and due from banks................. $7,924,634 $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
$25,333,259-1999 and $28,546,182-1998) 24,983,551 28,200,031
Obligations of state and political
subdivisions (book value of
$13,491,531-1999 and $12,329,705-1998) 13,461,662 12,932,429
Other Securities (book value
$988,900-1999 and $834,800-1998...... 988,900 841,050
Loans................................... 125,425,807 111,445,793
Less: Reserve for loan loss............. (2,196,445) (2,023,752)
------------------------------
Net loans............................ 123,229,362 109,422,041
Bank premises and equipment, net........ 5,623,486 5,247,605
Accrued interest receivable............. 1,368,598 1,346,616
Business Manager Assets................. 7,863,052 7,131,665
Other assets............................ 2,862,936 3,300,746
------------------------------
Total assets......................... $188,306,181 $181,861,275
==============================
See accompanying notes to consolidated financial statements. Page: 1
PART I. Item 1. - FINANCIAL INFORMATION
Chesapeake Financial Shares, Inc. September 30, December 31,
Consolidated Balance Sheets 1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Deposits
Noninterest bearing deposits.......... $ 25,186,118 $ 23,830,189
Savings and interest bearing deposits. 69,025,927 55,718,469
Certificates of deposit............... 71,120,790 85,090,543
------------------------------
Total deposits....................... 165,332,835 164,639,201
Federal funds purchased................. 5,000,000 0
Accrued interest payable................ 257,785 303,269
Other liabilities....................... 1,335,580 1,115,825
Note payable............................ 856,830 874,574
------------------------------
Total liabilities.................... 172,783,030 166,932,869
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, par value $1 per share;
authorized 50,000 shares; none outstanding 0 0
Common stock, voting.................... 6,134,735 6,147,995
Common stock, non-voting................ 0 0
voting non-voting
9/30/99 12/31/98 9/30/99 12/31/98
-------- --------- ------- --------
Shares auth 2,400,000 2,400,000 635,000 635,000
Shares o/s 1,226,947 1,229,599 0 0
Paid in capital.......................... 332,821 523,795
Accumulated other comprehensive income... (246,725) 174,267
Retained earnings........................ 9,302,320 8,082,349
-----------------------------
Total shareholders' equity............. 15,523,151 14,928,406
-----------------------------
Total liabilities and Shareholders' equity $188,306,181 $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 September 30,
1999 1998
Interest Income (Unaudited)
Interest and fees on loans............... $ 2,768,335 $ 2,480,640
Interest on federal funds sold........... 108 15,881
Interest on time deposits with banks..... 1,734 3,963
Interest on U.S. Treasury securities..... 0 18,185
Interest on U.S. Agency Obligations...... 434,658 435,055
Interest on obligations of state and
political subs.......................... 203,291 162,827
--------------------------
Total interest income 3,408,126 3,116,551
Interest Expense
Interest on savings and interest bearing
deposits.................... 558,433 313,789
Interest on certificates of deposit...... 911,350 1,178,128
Interest on federal funds purchased...... 45,205 12,260
Other interest expense................... 7,885 14,136
--------------------------
Total interest expense 1,522,873 1,518,313
--------------------------
Net interest income...................... 1,885,253 1,598,238
Provision for loan losses................ 48,012 0
--------------------------
Net interest income after provision for
loan losses............................. 1,837,241 1,598,238
--------------------------
Noninterest Income
Income from fiduciary activities......... 369,299 363,590
Service charges on deposit accounts...... 163,204 133,802
Securities gains (losses)................ (96,661) 0
Merchant card income..................... 304,763 233,423
ATM income............................... 65,515 44,126
Business manager income.................. 310,221 307,857
Other income............................. 234,519 131,454
--------------------------
Total noninterest income 1,350,860 1,214,252
--------------------------
Noninterest Expense
Salaries................................. 836,839 874,669
Employee benefits........................ 238,586 144,842
Occupancy expenses....................... 382,649 374,866
Merchant card expense.................... 283,285 226,489
ATM expense.............................. 74,061 50,601
Business manager expense................. 88,257 205,012
Other expenses........................... 440,995 553,920
--------------------------
Total noninterest expense........... 2,344,672 2,430,399
--------------------------
Income before income taxes............... 843,429 382,091
Income taxes............................. 238,426 95,918
--------------------------
Net income.......................... $ 605,003 $ 286,173
==========================
Earnings per share, basic................ $0.49 $0.23
Earnings per share, assuming dilution.... $0.47 $0.23
See accompanying notes to consolidated financial statements. Page: 3
PART I. Item 1. - FINANCIAL INFORMATION (cont'd.)
Chesapeake Financial Shares, Inc. Nine Months Ended
Consolidated Statements of Earnings September 30,
1999 1998
Interest Income (Unaudited)
Interest and fees on loans.............. $ 8,087,635 $ 7,552,115
Interest on federal funds sold.......... 53,990 53,914
Interest on time deposits with banks.... 9,229 12,024
Interest on U.S. Treasury securities.... 1,025 62,763
Interest on U.S. Agency Obligations..... 1,178,231 1,382,083
Interest on obligations of state and
political subs......................... 564,074 495,638
------------------------
Total interest income 9,894,184 9,558,537
Interest Expense
Interest on savings and interest bearing
deposits............................... 1,500,048 852,045
Interest on certificates of deposit..... 2,996,233 3,684,082
Interest on federal funds purchased..... 59,085 33,550
Other interest expense.................. 31,785 36,780
------------------------
Total interest expense 4,587,151 4,606,457
------------------------
Net interest income..................... 5,307,033 4,952,080
Provision for loan losses............... 162,700 54,000
------------------------
Net interest income after provision for
loan losses............................ 5,144,333 4,898,080
------------------------
Noninterest Income
Income from fiduciary activities........ 818,733 809,944
Service charges on deposit accounts..... 462,774 397,369
Securities gains (losses)- net.......... (96,661) 0
Merchant card income.................... 623,248 486,035
ATM income.............................. 175,617 138,196
Business manager income................. 845,721 672,604
Other income............................ 491,573 381,160
-----------------------
Total noninterest income 3,321,005 2,885,308
-----------------------
Noninterest Expense
Salaries................................ 2,389,981 2,225,584
Employee benefits....................... 533,204 447,413
Occupancy expenses...................... 1,158,207 1,065,070
Merchant card expense................... 621,744 484,941
ATM expense............................. 212,980 167,689
Business manager expense................ 253,046 373,593
Other expenses.......................... 1,237,545 1,420,997
-----------------------
Total noninterest expense.......... 6,406,707 6,185,287
-----------------------
Income before income taxes.............. 2,058,631 1,598,101
Income taxes............................ 542,226 415,506
-----------------------
Net income......................... $ 1,516,405 $ 1,182,595
=======================
Earnings per share, basic............... $1.23 $0.97
Earnings per share, assuming dilution... $1.18 $0.92
See accompanying notes to consolidated financial statements. Page: 4
PART I. - FINANCIAL INFORMATION (cont'd.)
Chesapeake Financial Shares, Inc. Nine Months Ended
Consolidated Statements of Cash Flows September 30,
1999 1998
(Unaudited)
Cash flows from operating activities:
Net income................................. $ 1,516,405 $ 1,182,595
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization............. 484,947 407,935
Provision for loan losses................. 162,700 54,000
(Accretion) of discount and amortization
of premiums, net........................ 475,483 514,376
Net loss on sale of securities........... 96,661 0
Changes in assets and liabilities:
Decrease (increase) in accr. interest
receivable............................. (21,982) 12,226
Decrease (increase) in other assets..... (60,957) (4,600,687)
Increase (decrease) in accrued interest
payable................................ (45,484) (57,789)
Increase (decrease) in other liabilities 219,755 310,087
-----------------------
Net cash provided by (used for) operating
activities................................ 2,827,528 (2,177,257)
Cash flows from investing activities:
Purchases of securities available for sale. (15,255,607) (15,421,892)
Proceeds from sale or call of securities
available for sale........................ 4,746,458 0
Proceeds from maturities of securities
available for sale........................ 12,334,189 12,178,296
Origination of loans available for sale.... (5,619,250) (6,243,550)
Proceeds from sale of loans available for
sale...................................... 5,619,250 6,243,550
Net (increase) decrease in loans outstanding (13,980,014) (1,436,638)
Other capital expenditures................. (860,828) (530,839)
------------------------
Net cash provided by (used for) investing
activities................................ (13,015,802) (5,211,073)
------------------------
Cash flows from financing activities:
Net increase (decrease) in demand accounts,
interest bearing demand deposit accounts
and savings deposits...................... 14,663,387 7,824,270
Net increase (decrease) in certificates of
deposit................................... (13,969,753) (4,671,750)
Net increase (decrease) in federal funds
purchased................................. 5,000,000 2,250,000
Cash dividends............................. (296,434) (242,598)
Proceeds from issuance of voting common
stock..................................... 77,000 28,500
Acquisition of voting common stock......... (281,234) (60,893)
Increase in long-term borrowings........... 0 900,000
Curtailment of long-term borrowings........ (17,744) (18,938)
------------------------
Net cash provided by (used for) financing
activities................................ 5,175,222 6,008,591
Net (decrease) increase in cash and federal
funds sold................................ (5,013,052) (1,379,739)
Cash and federal funds sold at beginning of
period.................................... 12,937,686 7,023,586
------------------------
Cash and federal funds sold at end of period $ 7,924,634 $ 5,643,847
========================
See accompanying notes to consolidated financial statements. Page: 5
<TABLE>
Statement of changes in Stockholder's Equity
Chesapeake Financial Shares, Inc.
Nine Months Ended September 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 1,516,405 $ 1,516,405 1,516,405
Other comprehensive
income, net of tax:
Unrealized gain on
securities available
for sale: (420,992) (420,992) (420,992)
--------- ---------
Total comprehensive
income, net of tax: $ 1,095,413
=========
Acquisition of common
stock (281,234) (68,700) (212,534)
Issuance of common stock 77,000 55,440 21,560
Dividends declared (296,434) (296,434)
--------- --------- --------- --------- --------
Ending balance $15,523,151 $9,302,320 $ (246,725) $6,134,735 $332,821
========== ========= ========= ========= ========
</TABLE>
Page 6
<TABLE>
Statement of Changes in Stockholder's Equity
Chesapeake Financial Shares, Inc.
Nine Months Ended September 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 1,182,595 1,182,595 1,182,595
Other comprehensive
income, net of tax:
Unrealized (loss) on
securities available
for sale: (48,364) (48,364) (48,364)
---------- ---------
Total comprehensive income,
net of tax: $ 1,134,231
=========
Acquisition of common stock (60,893) (14,925) (45,968)
Issuance of common stock 28,500 16,400 12,100
Dividends declared (264,826) (264,826)
---------- --------- -------- --------- --------
Ending balance $14,751,687 $8,965,079 $280,213 $5,055,915 $450,480
========== ========= ======== ========= ========
</TABLE>
Page 7
PART I. Item 1. - FINANCIAL INFORMATION (cont'd.) 9/99-10QSB
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 September 30, 1998
reflects a 20% stock dividend paid on October 15, 1998.
September 30, 1999 September 30, 1998
Weighted average number of common
shares, basic 1,233,598 1,213,332
Effect of dilutive stock options 55,250 70,045
--------- ---------
Weighted number of common shares
and dilutive potential common
stock used in diluted EPS 1,288,848 1,283,377
========= =========
Page: 8
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 9/99-10QSB
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 September
30, 1999 was approximately $8,236,000, compared to
$10,571,000 one year ago and $18,072,000 at December
31,1998.
The liquidity ratio at September 30, 1999 was
25.4%, compared with 30.4% 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 9.3% at September 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 September 30,
1999 and December 31, 1998 the consolidated ratio of
Tier 1 risk-based capital to risk-adjusted assets was
10.9% and 11.3%, respectively. Total risked based
capital to risk weighted assets was 12.2% and 12.6% at
September 30, 1999 and December 31, 1998, respectively.
Tier one leverage capital was 8.4% at both September
30, 1999 and December 31, 1998.
Page: 9
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 9/99-10QSB
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 $1,516,405 for the nine months
ended at September 30, 1999, compared with income of
$1,182,595 for the same period in 1998. On a fully
diluted per share basis, the net profit was $1.18 for
the first nine months of 1999, compared to $0.92 for
the same period last year. Net interest income before
provision increased $354,953 or 7.2% and noninterest
income increased $435,697 or 15.1%. The Company
experienced a net increase in noninterest expense
(which includes other expense) of $221,420 or 3.6%.
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 September 30, 1999, the Company's
interest-earning assets exceeded its interest-bearing
liabilities by approximately $17.5 million, compared
with a $15.2 million excess one year ago.
Net interest margins are 4.60% at September 30,
1999 and 4.60% at September 30, 1998. Margins narrowed
during 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, impacting a significant piece of the
bank's prime based loan portfolio. Management has
adjusted deposit rates on all products during the last
twelve months to match the market for changes in
earning asset returns. Margins have improved to near
pre-1998 levels. The loan to deposit ratio is
currently 74.5%.
Page: 10
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 9/99-10QSB
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
September 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 loan
loss reserve such as:
The effect of volume and trends in delinquencies and nonaccrual loans.
The effect of trends in portfolio volume, maturity, and composition.
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.
Experience, ability and depth of lending management and staff.
The effect of national and local economicconditions and downturns in
specific industries.
Concentrations of credit that might affect loss experience across one
or more components of the portfolio.
The results of any independent reviews of the portfolio.
The loan loss reserve is 1.8% of gross loans as of September 30, 1999
and December 31, 1998.
Noninterest Income:
Noninterest income is up 15.1% or $435,697 from
the same period last year. Chesapeake Bank's Business
Manager product generated $845,721 in gross revenue for
the first nine months ended September 30, 1999,
compared to the same period last year of $672,604.
Managed assets in the business manager program were
$7,863,052 at September 30, 1999 and $7,131,665 at
September 30, 1998.
The merchant card program has generated $623,248
or 28.2% more in gross revenue through September of
this year than in the same period last year due
primarily to increased fees and additions to the
customer base. Service charges on deposit accounts
have increased 16.5% or $65,405 over the same period
last year due to new account growth. The ATM fee
income to date is $175,617, up 27.1%, or $37,421 from
one year ago.
Page: 11
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 9/99-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
Noninterest Expenses:
Employee salary expense amounted to $2,389,981 and
$2,225,584 for the nine months ended September 30, 1999
and 1998, respectively. Benefits expense is up 19.2% or
$85,791 from September 30, 1998. 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.
Occupancy expenses are up 8.7% or $93,137 from
September 30, 1998 primarily due to maintenance
expenses at branches 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, 1998. 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.
The Bank sold the old Operations Center building at
1 N. Main Street. The transaction settled during the third
quarter. All undepreciated assets and improvements were
written off during the same period.
Page: 12
PART I. Item 2. - FINANCIAL INFORMATION (cont'd.) 9/99-10QSB
Chesapeake Financial Shares, Inc.
Management's Discussion and Analysis of Financial
Condition or Plan of Operation (Unaudited)
Assets and Loans:
At September 30, 1999, Chesapeake Financial Shares
had total assets of $188.3 million, up 3.5% from $181.9
million at December 31, 1998 and up 9.9% from $171.3
million of one year ago. Management has budgeted for a
2.0% growth in total assets for 1999.
Total loans (gross) at September 30, 1999 were
$125.4 million, representing an increase of 12.5% 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.
9/30/99 12/31/98
------- --------
Nonaccrual loans $190,235 $202,434
90 days past due 926 3,815
Restructured loans 0 0
________ ________
Totals $191,161 $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 September 30,
1999 were $8,962 as compared to $23,467 as of September
30, 1998. Recoveries through September 30, 1999 were
$18,956 as compared to $18,348 as of September 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 (156% of capital) and
residential real estate (87% 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 $ 165.3
million at September 30, 1999 and $164.6 million at
December 31, 1998. Deposits were $165.3 million and
$150.7 million at September 30, 1999 and September 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 savings
balances. During the same period total certificate
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. Since the latest prime increases this
trend is slowing.
Page: 13
PART II. Item l. - OTHER INFORMATION 9/99-10QSB
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
- --------------------------------------------------------------------
None to report.
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 9/99-10QSB
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 9/99
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)
11/9/99
(Date) (Signature)
Douglas D. Monroe, Jr.
Chairman and Chief Executive Officer
11/9/99
(Date) (Signature)
John H. Hunt, II
Secretary and Chief Financial Officer
Page: 16
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