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Chesapeake Financial (OTCQX: CPKF) produced another strong quarter with 2026 second quarter net earnings surging $2.3 million, or 74%, to $5.5 million year over year, while 2026’s second quarter diluted EPS rose $0.50, or 75%, to $1.17. Results exclude a gain on the sale of CPKF’s interest in Bearing Insurance of $3.75 million pretax, $2.7 million aftertax, and $0.57 per diluted share.
This was much better than our estimate, which had called for a $0.9 million increase in net earnings to $4.1 million (off by $1.4 million) and a $0.19 increase in diluted EPS to $0.86 (off by $0.31).
The primary reasons for the difference between reported results and our estimate were that net revenues grew $1.5 million more than the $21.6 million we had anticipated, consisting of noninterest income that was $1.2 million above our projection largely on the strength of cash management ($0.8 million above our estimate) and a $0.7 million pretax gain on the sale of available-for-sale securities (none in our estimate), as well as $0.4 million greater net interest income reflecting a better net interest margin than expected due to stellar growth in the higher margin cash mamagement business (3.92% versus our 3.80% estimate). This was partially offset by a $0.1 million larger loan loss provision than estimated.
Furthermore, total noninterest expense of $16.2 million was $0.1 million below what we had projected, primarily reflecting professional fees that were lower than expected.
The major reasons for the second quarter’s $2.3 million increase in net earnings versus the prior-year quarter were a $1.7 million, or 13%, increase in net interest income plus a $1.9 million, or 30%, rise in total noninterest income, as most business lines posted strong improvement led by cash management that surged $1.2 million (up 89% year over year) as receivables outstanding more than doubled, as well as a $0.7 million gain on the sale of available-for-sale securities. Exceptions to this were merchant services (down $0.1 million to $1.9 million) and mortgage banking (essentially flat). This was partly offset by $1.0 million (up 7%) growth in total noninterest expense primarily from higher compensation costs, a $0.2 million larger credit loss provision, and $0.1 million less income taxes as the effective tax rate of 14.4% was almost 10 points lower than the 24.0% posted in the year-ago quarter.
We are increasing our diluted EPS estimate for 2026 by $0.30 from $4.00 to $4.30, representing a 20% gain over 2025’s actual EPS of $3.58, excluding nonrecurring items. Our 2026 estimate excludes a $2.7 million aftertax gain ($0.57 per diluted share) on the sale of CPKF’s interest in Bearing Insurance on May 1, 2026, during the second quarter. We are raising our 2027 diluted EPS estimate by $0.10 from $4.20 to $4.30, or flat with our 2026 estimate.
We expect good gains in net interest income as solid loan growth, estimated at 12% in 2026 (up from 11% previously, reflecting stronger loan demand in the first and second quarters) and 8% in 2027, will be aided by decent prospects for CPKF’s net interest margin (estimated at 3.90% in 2026 and 3.80% in 2027), reflecting higher loan pricing as loan rates reset, gains in investment income from the restructured securities portfolio, and continued contribution from swaps income, partly offset by funding cost pressures from expected higher deposit rates. We note that CPKF is strategically using brokered deposits and large time deposits (greater than $250,000) to invest in its available-for-sale securities portfolio to earn money on the spread, as well as derivatives, to supplement interest income. Moreover, loan growth will be supplemented by new lending initiatives. Moreover, loan growth will be supplemented by new lending initiatives in newer markets such as Midlothian and Newport News, Virginia.
We also expect continuing growth in the contribution to revenues and earnings of CPKF’s specialty lines of business. Merchant services income should benefit as CPKF expands its footprint in this business by adding several new ISOs (independent sales organizations), processors, and merchant services relationships in the next year or so. Just as important, cash management should profit from the addition of a new sales manager, who is expected to generate new receivables growth in the factoring business.
We are increasing our estimate for the loan loss provision in 2026 by $0.2 million to $1.5 million, with this falling slightly by $0.1 million to $1.4 million in 2027. This compares to $1.1 million actual in 2025.
The provision for cash management losses, a separate line item listed under other noninterest expense, is expected to be about $500,000 in 2026 (up from $450,000 previously) and $400,000 in 2027 (down from $500,000 previously) and compares to $40,000 reported in 2025. These large increases reflect strong growth in receivables outstanding, which more than doubled in 2026’s second quarter.
On the expense side, higher compensation costs due to the increases in full-time equivalent employees from new hires and replacement staffing will be a headwind. However, we expect non-compensation costs to be well controlled and to provide a partial offset to this.
CPKF raised the dividend again, representing the second dividend increase in the last six months. At the April 17, 2026 Chesapeake Financial Shares Board of Directors meeting, the Board raised the quarterly dividend to $0.18 per share from $0.17 per share (a 6% increase), to be paid on or before June 15, 2026. Notably, CPKF has increased the annual dividend payment every year for the past thirty-four years since 1991.
On March 3, 2025, CPKF completed a private placement of $25 million of fixed-to-floating rate subordinated notes. The notes have been structured to qualify as Tier 2 capital for the Company under regulatory capital guidelines. Of the total $25 million issued, $18 million has been contributed to the Bank as Tier 1 capital, $4 million has been retained at the holding company for share buybacks, and another $3 million has been designated for future interest payments on the subordinated notes. The offering size was increased due to significant investor demand at favorable pricing. The notes will initially bear interest at 8.00% per year, from and including February 28, 2025, to but excluding March 1, 2030, payable semi-annually in arrears, and mature on March 1, 2035.
In 2025, for the eighteenth consecutive year, Chesapeake Financial Shares, Inc. has been included in the American Banker magazine listing of the “Top 100 Community Banks” in the United States. The bank ranked at #60 in the nation out of approximately 348 community banks with total assets under $2 billion in the study, up from #148 when CPKF first broke into the rankings in 2008, when it was the “Top 200 Community Banks” and there were many more community banks. The ranking is based on a three-year return on average equity (ROAE). Chesapeake Bank again garnered a top ranking for the thirteenth consecutive year in the American Banker’s list of “Best Banks to Work for: Less than $3 Billion of Assets,” and had a #32 spot in 2025, out of the 51 banks listed.
Chesapeake Financial Shares, Inc. (CPKF or the Company) is a financial holding company headquartered in Kilmarnock, Virginia, with $1,731 million in total assets at June 30, 2026. CPKF is predominantly a small business lender with 17 branch offices and two loan production offices that serve customers in the eastern region of Virginia between the Potomac and James Rivers. CPKF, which began as Lancaster National Bank on April 13, 1900, has a long history and strong ties with the communities it serves.
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