Press Releases

Chesapeake Financial Shares Annual Shareholders Meeting

For additional information please contact
Jeffrey M. Szyperski
804-435-1181; 1-800-434-1181

On Friday, April 6, 2007, Chesapeake Financial Shares held its Annual Shareholders Meeting at Rappahannock Westminster-Canterbury. The meeting, followed by a reception in the Rappahannock Room, was attended by over 125 people. Over 82% of the shares were voted in person or were voted by proxy. Douglas D. Monroe, Jr., Chairman of the Board & Chief Executive Officer, called the meeting to order, reporting that Chesapeake Financial Shares had once again completed a record-breaking year for earnings. He noted that the purpose of the meeting was not only to report on the results of Chesapeake Financial Shares for the year, but also give the stockholders a good sense of the overall climate of the financial services industry as well as how Chesapeake Financial Shares is poised to continue to increase earnings through strategic lines of business that they are currently involved in. Mr. Monroe next turned the meeting over to Jeffrey M. Szyperski, President of Chesapeake Financial Shares, for an overall review of the banking industry as well as Chesapeake’s financial results for 2006.

Mr. Szyperski began his presentation giving a review of the state of the financial services industry. Mr. Szyperski noted that the number of Virginia based FDIC insured financial institutions has declined steadily since a high in 1998 of 184 institutions to 111 institutions at the end of 2006. The largest external influence; however, on the financial services industry is the vast proliferation of credit unions in Virginia. The number of members in Virginia credit unions has gone from approximately 1 million members in 1975 to over 5.3 million members at the end of 2005. Mr. Szyperski noted that the reason this large increase in credit unions was of particular concern to the banking industry was because credit unions are tax-exempt entities at both the state and federal levels. This “subsidy” to the credit unions eliminates the level playing field between banks and the credit union industry. As shareholders of Chesapeake Financial Shares, Mr. Szyperski thought each should be aware of the competitive inequality that exists.

Mr. Szyperski reiterated Mr. Monroe’s statement that 2006 has been a record year for Chesapeake Financial Shares. Assets ended at over $418 million, up from $383 million from the end of 2005. This growth was supported by both loan and deposit growth in the Northern Neck, Middle Peninsula, and Williamsburg/James City County markets. Within the loan category, Mr. Szyperski noted loans in past due status were at 2/3 of the statewide average for Virginia banks, while maintaining a loan loss reserve 32% higher than the like statewide average. Net income for the year ended up at $3,951,000, up 7.6% over the prior year’s net income of $3,673,000. Chesapeake Financial Shares completed the year with a return on average equity of 13.58%. Mr. Szyperski also reported an increase in earnings per share to $1.61 per share. This represents an 83% increase in earnings per share since 2000. Likewise, dividends per share finished 2006 at $0.385 per share. This represents a 92% increase in dividends since the year 2000.

Mr. Szyperski noted that Chesapeake Financial Shares has been very deliberate over the last several years in diversifying its source of income away from margin income earned from investments and loans to alternative sources of income. He noted that this is an industry-wide trend that all financial institutions must conquer. Mr. Szyperski then turned the meeting over to Executive Vice President Marshall N. Warner for a review of some of the significant innovations that have been made as well as targeted lines of business that Chesapeake Financial Shares is currently emphasizing.

Mr. Warner reviewed the bank’s current commitment to electronic services or “e-services.” Mr. Warner noted that within the community bank environment, Chesapeake has been a leader in this regard and continues to be so. Mr. Warner reviewed with the shareholders the bank’s current new e-services investment, “Remote Deposit.” Remote Deposit products enable business banking customers to scan their deposits directly into their accounts without having to deliver deposits to the bank. Mr. Warner noted that this will be transformational within the financial services industry, and Chesapeake intends to be on the forefront of this technology. This new service will be available to business banking customers by the first week in May.

Mr. Warner next reviewed Chesapeake Bank’s merchant services program, which has been recently re-branded as Chesapeake Payment Systems. Mr. Warner stated that Chesapeake is currently the largest merchant card payment processor domiciled in the State of Virginia and processed over $88 million in transactions in 2006. The number of merchants that use Chesapeake Payment Systems’ services was 615 at the end of 2006. This is a 99% increase over the number of merchants at the end of year 2000. Mr. Warner noted that the success of Chesapeake Payment Systems’ program is due to the personal service that is afforded to each of the merchant services customers. Like other aspects of Chesapeake Bank and Chesapeake Investment Group, Chesapeake Payment Systems is committed to a high level of service to accompany the technological solutions that they offer.

Mr. Warner next showed the new Lafayette Street Financial Services Center that had opened just that past week. The new 8,000 square foot building was built to accommodate the expansion in Williamsburg of both the commercial lending as well as the Chesapeake Payment Systems. The new facility is next to the current Lafayette Street branch and will afford continued further growth within the Williamsburg/James City County market.

Mr. Warner next reviewed the bank’s niche accounts receivable product, Cash Flow. Coming off of conversion in 2005, the Cash Flow product remained roughly level for 2006, but has shown rapid growth in early 2007. Mr. Warner noted that he estimated that the Cash Flow ending balances would be $26 million by the end of 2007, or a 45% increase of where the program ended in 2006. Mr. Warner next turned the podium back to Mr. Szyperski to talk about Chesapeake Investment Group.

Mr. Szyperski noted that the last two years had shown heavy investment in the level of depth and expertise within Chesapeake Investment Group. He next reported that this investment had indeed paid off. The Investment Group had finished 2006 with over $200 million in assets under management, up 24% over 2005. He further noted that 2005 had represented a 30% increase over year-end 2004. During the period from 2004 to 2007, the size of the average account relationship had increased 55%. Due to the fact that the Investment Group currently has four certified financial planners, two chartered financial analysts, one attorney, one CPA, two CFP candidates and one CFA level three candidate, the level of expertise that was maintained “in-house” within Chesapeake Investment Group was rivaled by none locally. “We recognize that our high-end wealth management customers want to know that they are speaking with a decision maker face-to-face who knows what they’re doing with their money.” Mr. Szyperski noted that the Investment Group had a like budgetary increase for year-end 2007 and was currently making solid progress toward that goal.

The major initiative Mr. Szyperski wanted to note in 2007 was that both the Investment Group and the bank were re-looking at each of their key processes “through the lens of the customer” in an effort to make both the bank and Investment Group as customer-friendly as possible. “Though we currently have a high level of customer satisfaction scores, we have to be our own best critics in this area and work for continual improvement,” Mr. Szyperski stated. “With the bank’s current positioning in growing markets, investments and technology, and the overall emphasis on trying to make Chesapeake a ‘great place to work‘ for each of its employees,” Mr. Szyperski noted that, “the fundamentals are in place for Chesapeake Financial Shares’ continued growth.”

Mr. Szyperski next turned the meeting back to Mr. Monroe for the introductions and elections of directors. Mr. Monroe noted that the Chesapeake Bank Board of Directors would be elected by the Chesapeake Financial Shares Board. The bank Board members were David E. Bush, Thomas E. Kellum, Charles C. Chase, II, E. S. “Bud” Hudnall, Jr., James M. Holmes, Jr., Albert C. Pollard, Jeffrey M. Szyperski, Thomas G. Tingle, Harry M. Ward and Douglas D. Monroe, Jr., Chairman Emeritus. Additionally, those to be elected to the Chesapeake Investment Group Board of Directors are Leland T. James, Marshall N. Warner, William F. Shumadine, Jr., Douglas D. Monroe, Jr. and Jeffrey M. Szyperski.

Prior to the election of Chesapeake Financial Shares Directors, Mr. Monroe did a presentation to recognize the achievements of a retiring director of Chesapeake Financial Shares, T. Nash Broaddus. Mr. Monroe stated that when Mr. Broaddus became a director of Chesapeake Financial Shares, total assets were $68 million. Today those assets are over $420 million. Likewise, when Mr. Broaddus became a director, total earnings were at record levels of $623,000. Today earnings completed 2006 at $3.95 million. Mr. Broaddus has been a significant contributor to Chesapeake Financial Shares since serving as a director from 1988 through this past year. Mr. Monroe thanked him for his years of service and the critical guidance and direction he has given Chesapeake through this period of time.

Mr. Monroe next reviewed the proposals that were sent out via the proxy statement several weeks ago. The first was to elect the nine directors to serve for the ensuing year until next year’s annual meeting. The directors elected were: E. S. “Bud” Hudnall, Jr., Thomas E. Kellum, Douglas D. Monroe, Jr., Katherine W. Monroe, Bruce P. Robertson, William F. Shumadine, Jr., Robert J. Singley, Jeffrey M. Szyperski and Thomas G. Tingle. After the election of directors, Mr. Monroe thanked each of the shareholders for their attendance at this meeting and requested a motion for adjournment to go upstairs to the reception.


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