By Ann Heffron, CFA, CPA
OTCQX:CPKF
READ THE FULL CPKF RESEARCH REPORT
Chesapeake Financial Shares, Inc. (OTCQX:CPKF) produced another outstanding quarter with 2025 fourth quarter net earnings surging, rising $3.4 million, or 112%, to $6.5 million year over year, while 2025’s fourth quarter diluted EPS rose $0.73, or 113%, to $1.37.
This was much better than our estimate, which had called for a $0.8 million increase in net earnings to $3.9 million (off by $2.6 million), and a $0.18 increase in diluted EPS to $0.82 (off by $0.55).
The primary reasons for the difference between reported results and our estimate were net revenues were $1.5 million more than the $20.6 million we had anticipated, largely consisting of net interest income that was $0.7 million higher than our estimate and noninterest income that was $0.8 million better than our projection due to revenue surpluses relative to our estimate of $0.1 million in cash management and of $0.7 million in other miscellaneous income.
Furthermore, total noninterest expense of $14.3 million was $1.2 million below what we had projected, primarily reflecting technology expense that was $0.3 million lower than anticipated, as well as total compensation costs that were $0.4 million less and other miscellaneous expense that was $0.5 million less.
In addition, income tax expense was $0.1 million higher than our estimate, reflecting greater pretax earnings, partially offset by an effective tax rate that was 5.3 points below our 18.0% estimate.
The major reasons for the fourth quarter’s $3.4 million increase in net earnings versus the prior-year quarter were a $2.6 million, or 21%, increase in net interest income plus a $1.8 million, or 33%, rise in total noninterest income, partly offset by $0.2 million growth in total noninterest expense, a $0.1 million larger credit loss provision, and $0.7 million more income taxes.
For the year, CPKF posted 2025 net earnings of $17.7 million, up $6.2 million, or 54%, year over year, while diluted EPS increased $1.33, or 55%, to $3.75. This excludes one-time items totaling a $7.7 million charge, consisting of an aftertax charge from repositioning the investment securities portfolio of $8.0 million or $1.69 per diluted share and a $0.3 million aftertax gain or $0.07 per diluted share on the sale of a building.
Primary contributors to this result were an $8.0 million, or 17%, gain in net interest income on growth in average interest-earning assets and a higher net interest margin of 3.77%, up 27 basis points from 3.50%, as well as a $3.9 million, or 17%, gain in noninterest income as most business lines posted notable revenue improvement (though these were offset by a $0.1 million decline in cash management income). These positives were partly offset by a $4.5 million, or 8%, increase in noninterest expense, largely due to higher compensation costs (up $2.7 million, or 9%) and other miscellaneous expense (up $1.8 million, or 21%), $1.0 million more taxes, reflecting higher pretax earnings (the effective tax rate was flat at about 14 ½%), and a $0.2 million rise in the provision for credit losses to $1.0 million.
As to quarterly results, net interest income rose $2.6 million, or 21%, year over year in the fourth quarter to $14.6 million ($0.7 million above our $13.9 million estimate). An estimated 7% increase in average interest-earning assets was aided by a much improved net interest margin of 3.98% that was 18 basis points better than our 3.80% estimate and 43 basis points higher than the 3.55% earned in the year-ago quarter.
Noninterest income increased $1.8 million, or 33%, year over year to $7.4 million ($0.8 million above our estimate), as most business lines, except mortgage banking, posted significant revenue improvement (particularly merchant services, up 26%, and cash management, up 32%). In addition, other miscellaneous income surged $0.9 million, or 72%.
Noninterest expense advanced $0.2 million, or 1%, to $14.3 million ($1.2 million below our estimate) from the prior-year quarter, largely reflecting higher compensation costs (up $0.2 million).
The loan loss provision rose $0.16 million to $0.34 million compared to the year-ago quarter and was about the same as our estimate. Loan loss reserves rose $0.2 million to $9.3 million (0.97% of loans) compared with the third quarter (0.98% of loans) and were $0.8 million above the $8.5 million (0.96% of loans) in the year-ago quarter. As to other asset quality measures, CPKF recorded net charge-offs of $112,000 in the fourth quarter. This compares to net charge-offs of $198,000 in the year-ago quarter and net charge-offs of $229,000 for the full year in 2025.
CEO Jeffrey M. Szyperski noted that CPKF’s total nonperforming assets to total assets rose 7 basis points to 0.35% of total loans at December 31, 2025, from 0.33% at December 31, 2024.
At the October 17, 2025, Chesapeake Financial Shares Board of Directors meeting, the Board raised the quarterly dividend to $0.17 per share from $0.16 per share (a 6% increase), to be paid on or before December 15, 2025. Notably, CPKF has increased the annual dividend payment every year for the past thirty-three 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.
We are currently reviewing our estimates and will issue a more comprehensive report when detailed financial information becomes available within the next few weeks.
Chesapeake Financial Shares, Inc. (CPKF or the Company) is a financial holding company headquartered in Kilmarnock, Virginia, with $1,670 million in total assets at December 31, 2025. 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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