I would hope that in

10 years we’re providing

a number of community
inputs to nonprofits in the
community for those truly
in need, which we do now.
I think that will make
a strong bank and a
strong community.
Douglas D. Monroe, Jr.
August 18, 1933 - August 31, 2023

2 0 2 3 A n n u a l R e p o r t
 In M em o ry o f
Douglas D. Monroe, Jr.
2020
Chesapeake
2015 Bank Celebrated
Expanded into 120 years!
Richmond with
branch on
Patterson Avenue
1965 in Westhampton
Hired as EVP of August 18, 1933 - August 31, 2023
Chesapeake Bank, Doug Monroe was a driving
formerly Lancaster 1965 – 1977
National Bank force for the betterment of
& 1999 – 2005 our community and our
Chesapeake 2001 – 2023
Academy, Founding community bank for the Chesapeake
Board Member & entire 59 years he lived Bank, Chairman
Chairman of the in the Northern Neck. In Emeritus 1996 – 2008
Board addition to all he did to Virginia Quality
Life, Inc.,
make Chesapeake Financial Founding Board
1968 Shares what it is today, as Member, Board
Opened first the surrounding timeline of Directors and
Boat ‘N’ Bank President
shows, he was instrumental
in the nation!
in starting Chesapeake
Academy, Rappahannock
General Hospital,
Rappahannock Westminster-
Canterbury and Virginia
Quality Life.

1968 – 1998 All of these organizations 1991 – 1992

Chesapeake Bank live on helping to make our President of
1969 – 1971 Virginia Bankers
Federal Reserve President & CEO community richer.
Association 1988 – 1999
Bank of Richmond ABA Corporation
Board of Directors for American
1973 Banking Board
Founded 1983 – 2007 of Directors
Chesapeake Trust Chairman of the
Department (now Board of Directors &
CWM) alongside CEO of Chesapeake
Thomas Denegre Financial Shares, Inc.

1979 – 1998 1980 – 1995

Rappahannock General Hospital, Rappahannock Westminster-
Board of Directors, Finance Canterbury, Founding Board
Chair, Executive Committee, Member, Board of Directors,
Chair of the Board Secretary of Corporation
 DEAR SHAREHOLDERDEAR SHAREHOLDER

W
e have traditionally used part of our “Dear Shareholder” letter to highlight the
passing of people who have made significant contributions during their time on this
Earth. This year there were several – Sandra Day O’Connor, Henry Kissinger, Tina
Turner and Jimmy Buffett, to name a few. Most importantly, however, our former CEO and
Chairman Douglas D. Monroe, Jr. passed away. Doug had such a profound effect on the
trajectory of not only Chesapeake Financial Shares but even more so on our community.
The facing page highlights just a few of the ways Doug made our bank thrive and our
community become a much better place. These are just the tip of the iceberg!
Chesapeake Financial Shares weathered a tumultuous 2023 following a turbulent 2022.
The Federal Reserve continued to raise rates rapidly to stave off inflation and we responded
accordingly. We strongly feel we remain well-positioned as we anticipate interest rates to
normalize.
Our net income was $10,119,738 representing a 43% decrease from our 2022 record year. We
used the year to continually reposition our balance sheet for greater long-term shareholder value
realizing $2,884,185 in losses as part of that repositioning. Our net interest margin decrease of
$2,470,815 was the largest contributor to our decrease – a direct function of the long-term
inversion of the yield curve. Total assets increased to $1,471,046,795 representing a 10.6%
increase from 2022. Loans had their second straight year of 10+% net growth. All three
specialty lines of business, Chesapeake Payment Systems, Flexent and Chesapeake Wealth
Management, collectively accounted for over 40% of our net income. A diversified income
stream serves us well!
Thank you for being a shareholder and participating in our profits as well as building the
communities in which we serve. Doug Monroe set a very high bar for this dual mandate,
and we intend to carry on his legacy.
Please join us Friday, April 5th, for our Annual Shareholders Meeting.
I look forward to seeing you there.
Sincerely,

Jeffrey M. Szyperski
Chairman, CEO & President
Chesapeake Financial Shares, Inc.

1
2023 ANNUAL REPORT
SELECTED FINANCIAL INFORMATION

2023 2022 2021 2020 2019

(Dollars in thousands except ratios and per share amounts)
Results of Operations
Interest income $ 59,947 $ 47,276 $ 44,901 $ 38,563 $ 37,673
Interest expense 18,334 3,191 3,346 5,051 8,140
Net interest income 41,613 44,085 41,555 33,512 29,533
Provision for
(reversal of ) credit losses 790 700 (400) 1,950 525
Net interest income after
provision for credit losses 40,823 43,385 41,955 31,562 29,008
Noninterest income 22,773 22,192 19,312 19,624 20,584
Noninterest expense 51,253 45,124 43,954 37,391 36,288
Income before income taxes 12,343 20,453 17,313 13,795 13,304
Income tax expense 2,224 2,824 2,303 2,046 1,905
Net income $ 10,119 $ 17,629 $ 15,010 $ 11,749 $ 11,399

Financial Condition
Total assets $ 1,471,047 $ 1,328,997 $ 1,385,816 $ 1,204,733 $ 958,306
Total deposits 1,265,977 1,166,240 1,124,972 1,019,501 839,116
Net loans 813,147 733,300 656,786 544,439 531,113
Subordinated notes 20,000 20,000 20,000 — —
Short-term debt 62,429 45,979 99,046 50,000 —
Trust preferred capital notes 5,155 5,155 5,155 5,155 5,155
Shareholders’ equity 98,543 79,067 126,137 122,666 105,443
Average assets 1,384,857 1,337,782 1,311,403 1,112,051 932,397
Average shareholders’ equity 91,083 84,377 126,454 114,443 102,821

Key Financial Ratios

Return on average assets 0.73% 1.32% 1.14% 1.06% 1.22%
Return on average equity 11.04% 20.89% 11.87% 10.27% 11.09%
Cash dividends paid as a
percent of net income 28.13% 15.52% 16.99% 20.77% 21.09%

Per Share Data**

Net income, diluted $ 2.15 $ 3.73 $ 3.11 $ 2.40 $ 2.29
Cash dividends declared $ 0.61 $ 0.58 $ 0.53 $ 0.50 $ 0.49
Book value $ 20.88 $ 16.78 $ 26.66 $ 25.40 $ 21.36

**On July 19, 2019, the Board of Directors approved a 6-for-5 stock dividend of CFS’s common stock paid on October 15,
2019. All per share information for all periods presented has been retroactively restated to reflect the stock dividend.

2
CHESAPEAKE FINANCIAL SHARES, INC.
 INDEPENDENT
CONSOLIDATED BALANCE SHEETS AUDITOR’S REPORT

To the Board of Directors and Shareholders

Chesapeake Financial Shares, Inc.

Opinion
We have audited the consolidated financial statements of Chesapeake Financial Shares, Inc. and Subsidiaries (the “Company”),
which comprise the consolidated balance sheets as of December 31, 2023 and 2022, the related consolidated statements of income,
comprehensive income (loss), changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the
consolidated financial statements (collectively, the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with auditing standards generally accepted in the United States of America (GAAS), the
Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations or the Treadway Commission in 2013, and our report
dated February 16, 2024, expressed an unmodified opinion on the effectiveness of the Company’s internal control over financial
reporting.

Basis for Opinion

We conducted our audits in accordance with GAAS. Our responsibilities under those standards are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the
Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter
As discussed in Note 3 to the financial statements, the Company has changed its method of accounting for credit losses effective
January 1, 2023 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification No. 326, Financial
Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method
such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally
accepted accounting principles. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting
principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in
the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date
that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when
applicable).

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will
always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they
would influence the judgment made by a reasonable user based on the financial statements.

3
2023 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and
perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about
the Company’s ability to continue as a going concern for a reasonable period of time.

Other Information Included in the Annual Report

Management is responsible for the other information included in the annual report. The other information comprises the
information included in the annual report but does not include the financial statements and our auditor’s report thereon. Our opinion
on the financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and consider whether
a material inconsistency exists between the other information and the financial statements, or the other information otherwise appears
to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other
information exists, we are required to describe it in our report.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Raleigh, North Carolina

February 16, 2024

4
CHESAPEAKE FINANCIAL SHARES, INC.
 CONSOLIDATED BALANCE SHEETS

December 31,
2023 2022
Assets
Cash and due from banks $ 34,417,374 $ 24,843,967
Interest-bearing deposits in banks and federal funds sold 1,823,700 1,551,378
Securities available for sale, at fair value 482,917,831 446,449,281
Other investments, at cost 3,788,000 3,222,100
Loans, net of allowance for credit losses of $7,881,960 in 2023
and $7,512,577 in 2022 813,146,533 733,306,830
Cash management accounts, net of allowance of $1,526,018 in 2023
and $1,898,616 in 2022 32,940,108 27,243,315
Commercial mortgage loan repurchasing facilities 8,899,365 8,128,060
Premises and equipment, net 22,009,342 23,863,901
Accrued interest receivable 6,505,311 5,856,331
Bank-owned life insurance 14,772,117 17,751,505
Bank-owned annuity contract 3,545,225 3,592,671
Foreclosed assets 839,212 970,812
Goodwill 5,292,000 —
Other assets 40,150,677 32,217,031
Total assets $ 1,471,046,795 $ 1,328,997,182

Liabilities and Shareholders’ Equity

Deposits:
Demand accounts $ 275,582,472 $ 343,930,336
Savings and interest-bearing demand deposits 663,803,703 702,647,684
Certificates of deposit
Denominations less than $250,000 268,495,463 97,887,337
Denominations of $250,000 or more 58,095,588 21,774,631
Total deposits 1,265,977,226 1,166,239,988

Trust preferred capital notes 5,155,000 5,155,000

Short-term debt 62,429,000 45,979,000
Subordinated notes 20,000,000 20,000,000
Accrued interest payable 734,460 144,003
Accrued expenses and other liabilities 18,208,107 12,412,042
Total liabilities $ 1,372,503,793 $ 1,249,930,033
Shareholders’ equity:
Preferred stock, par value $1 per share; authorized
50,000 shares; no shares outstanding $ — $ —
Common stock, voting, par value $5 per share; authorized
5,760,000 shares; 4,718,467 and 4,713,265 issued and
outstanding at December 31, 2023 and 2022, respectively 23,388,505 23,417,910
Common stock, nonvoting, par value $5 per share; authorized
635,000 shares; no shares outstanding — —
Additional paid-in capital 14,068,151 14,072,355
Retained earnings 98,580,674 91,707,848
Accumulated other comprehensive loss (37,494,328) (50,130,964)
Total shareholders’ equity 98,543,002 79,067,149
Total liabilities and shareholders’ equity $ 1,471,046,795 $ 1,328,997,182

The accompanying notes are an integral part of these consolidated financial statements.
5
2023 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,

2023 2022
Interest and Dividend Income
Interest and fees on loans $ 41,236,087 $ 33,175,365
Interest on interest-bearing deposits and federal funds sold 228,506 66,225
Interest and dividends on securities available for sale:
Taxable 14,982,449 8,960,471
Nontaxable 2,322,695 4,837,281
Dividends 1,177,750 237,015
Total interest and dividend income 59,947,487 47,276,357
Interest Expense
Savings and interest-bearing demand deposits 7,521,641 1,037,977
Certificates of deposit 7,729,582 708,573
Short-term debt 2,085,057 608,522
Subordinated notes and trust preferred capital notes 997,271 836,534
Total interest expense 18,333,551 3,191,606
Net interest income 41,613,936 44,084,751
Provision for credit losses 699,996 699,996
Provision for unfunded commitments 90,000 —
Total provision for credit losses 789,996 699,996
Net interest income after provision for credit losses 40,823,940 43,384,755
Noninterest Income
Trust and wealth management income 3,983,834 4,074,761
Service charges 1,015,833 972,320
Net loss on sales of securities available for sale (2,884,185) (3,303,287)
Mortgage banking income 874,437 1,678,833
Merchant services income, net 5,190,703 4,934,928
Cash management fee income 5,233,108 3,196,595
Other income 8,876,433 10,637,771
Total noninterest income 22,290,163 22,191,921
Noninterest Expenses
Salaries and benefits 28,408,158 25,627,048
Occupancy expenses 3,406,420 2,903,669
Net loss on foreclosed assets 29,066 69,778
Provision for cash management account losses 240,000 240,000
Amortization on intangible assets 146,667 —
FDIC insurance 624,719 369,568
Technology expense 6,171,384 5,385,785
Professional fees 2,754,900 2,371,634
Other expenses 8,989,122 8,157,003
Total noninterest expenses 50,770,436 45,124,485
Income before income taxes 12,343,667 20,452,191
Income tax expense 2,223,929 2,823,604
Net income $ 10,119,738 $ 17,628,587
Earnings per common share, basic $ 2.15 $ 3.74
Earnings per common share, diluted $ 2.15 $ 3.73
The accompanying notes are an integral part of these consolidated financial statements.
6
CHESAPEAKE FINANCIAL SHARES, INC.
 CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,

2023 2022
Net income $ 10,119,738 $ 17,628,587
Other comprehensive income:
Gross unrealized gains (losses) on securities available for sale 14,192,272 (75,798,041)
Deferred tax (expense) benefit (2,980,377) 15,917,589
11,211,895 (59,880,452)
Unrealized losses on cash flow hedge (1,080,714) (4,924,882)
Deferred tax benefit 226,950 1,034,225
(853,764) (3,890,657)
Less:
Reclassification of losses recognized in net income 2,884,185 3,303,287
Deferred tax benefit (605,679) (693,690)
2,278,506 2,609,597
Total other comprehensive income (loss), net of tax 12,636,637 (61,161,512)
Comprehensive income (loss) $ 22,756,375 $ (43,532,925)

The accompanying notes are an integral part of these consolidated financial statements.

7
2023 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS ’ EQUITY

Years Ended December 31, 2023 and 2022

Accumulated
Common Additional Other
Stock, Paid-In Retained Comprehensive
Voting Capital Earnings Income (Loss) Total
Balance, December 31, 2021 $ 23,484,300 $ 14,806,975 $ 76,815,064 $ 11,030,548 $126,136,887
Net income — — 17,628,587 — 17,628,587
Other comprehensive loss — — — (61,161,512) (61,161,512)
Exercise of stock options 84,960 77,290 — — 162,250
Issuance of restricted stock 94,410 (94,410) — — —
Stock awards surrendered in cashless exercise (49,900) (237,626) — — (287,526)
Issuance of common stock for services 34,215 167,654 — — 201,869
Repurchase of common stock (230,075) (1,059,158) — — (1,289,233)
Stock-based compensation — 411,630 — — 411,630
Cash dividends ($0.58 per share) — — (2,735,803) — (2,735,803)
Balance, December 31, 2022 $ 23,417,910 $ 14,072,355 $ 91,707,848 $ (50,130,964) $ 79,067,149
Cumulative effect adjustment due to adoption
of accounting standard, net of income taxes — — (400,170) — (400,170)
Net income — — 10,119,738 — 10,119,738
Other comprehensive income — — — 12,636,636 12,636,636
Issuance of restricted stock 71,165 (71,165) — — —
Stock awards surrendered in cashless exercise (22,820) (74,850) — — (97,670)
Issuance of common stock for services 55,845 186,076 — — 241,921
Repurchase of common stock (133,595) (409,071) — — (542,666)
Stock-based compensation — 364,806 — — 364,806
Cash dividends ($0.61 per share) — — (2,846,742) — (2,846,742)
Balance, December 31, 2023 $ 23,388,505 $ 14,068,151 $ 98,580,674 $ (37,494,328) $ 98,543,002

The accompanying notes are an integral part of these consolidated financial statements.

8
CHESAPEAKE FINANCIAL SHARES, INC.
 CONSOLIDATED CONSOLIDATED
STATEMENTS OFSTATEMENTS
INCOME OF CASH FLOWS

Years Ended December 31,

2023 2022
Cash Flows from Operating Activities
Net income $ 10,119,738 $ 17,628,587
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,122,528 1,876,243
Amortization of intangible assets 146,667 —
Provision for credit losses 699,996 699,996
Provision for unfunded commitments 90,000 —
Provision for cash management account losses 240,000 240,000
Deferred income tax expense (benefit) 139,688 (387,678)
Amortization of investment securities, net 2,103,378 3,921,017
Net loss on sales of securities available for sale 2,884,185 3,303,287
Net loss on foreclosed assets 29,066 69,778
Stock-based compensation 364,806 411,630
Origination of loans held for sale (8,262,032) (35,189,753)
Proceeds from sale of loans 8,391,468 36,723,501
Gain on sale of loans (129,436) (915,748)
Gain on sale of VISA Class B stock (2,241,178) —
Decrease (increase) in bank-owned life insurance 2,979,388 (420,296)
Decrease in bank-owned annuities 47,446 24,319
Changes in other assets and liabilities:
(Increase) decrease in accrued interest receivable (648,980) 397,514
(Increase) decrease in other assets (10,169,360) 1,396,497
Increase in accrued interest payable 590,457 31,185
Increase (decrease) in accrued expenses and other liabilities 2,729,011 (1,670,709)
Net cash provided by operating activities $ 12,226,836 $ 28,139,370

Cash Flows from Investing Activities

Purchases of securities available for sale $ (127,358,123) $ (56,719,813)
Proceeds from sales and calls of securities available for sale 64,287,308 83,181,399
Proceeds from maturities and paydowns of securities available for sale 38,691,158 48,011,205
Proceeds from sale of VISA Class B stock 2,241,178 —
(Purchase) redemption of other investments, net (565,900) 2,325,500
Proceeds from sale of foreclosed assets 102,534 237,472
Net increase in loans (80,441,528) (74,578,450)
Net decrease (increase) in cash management accounts 2,933,414 (1,105,937)
Acquisition of business, net of cash (12,013,219) —
Capital calls of small business investment company funds and
other investments (2,047,495) (2,003,813)
Net increase of commercial mortgage loan repurchase facility (771,305) (3,043,755)
Purchase of premises and equipment (139,289) (2,888,742)
Net cash used in investing activities $ (115,081,267) $ (6,584,934)

The accompanying notes are an integral part of these consolidated financial statements.

9
2023 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

2023 2022
Cash Flows from Financing Activities
Net (decrease) increase in demand accounts, interest-bearing
demand accounts and savings accounts $ (107,191,845) $ 60,915,617
Net increase (decrease) in certificates of deposits 206,929,083 (19,647,136)
Exercise of stock options — 162,250
Repurchase/surrender of common stock (640,336) (1,576,759)
Cash dividends (2,846,742) (2,735,803)
Purchase of federal funds 4,450,000 13,933,000
Increase (decrease) in short-term debt 12,000,000 (67,000,000)
Net cash provided by (used in) financing activities $ 112,700,160 $ (15,948,831)

Net increase in cash and cash equivalents $ 9,845,729 $ 5,605,605

Cash and cash equivalents at beginning of year 26,395,345 20,789,740

Cash and cash equivalents at end of year $ 36,241,074 $ 26,395,345

Supplemental Disclosures of Cash Flow Information

Cash paid during the year for:
Interest $ 17,743,094 $ 2,794,092
Income taxes $ 1,625,000 $ 2,885,000

Supplemental Schedule of Noncash Investing and Financing Activities

Unrealized gain (loss) on securities available for sale $ 17,076,457 $ (72,494,754)
Unrealized loss on cash flow hedge $ (1,080,714) $ (4,924,882)
Issuance of common stock for services $ 241,921 $ 201,869
Assets acquired in acquisition $ 10,910,000 $ —
Liabilities assumed in acquisition $ 1,697,000 $ —
Change in goodwill $ 5,292,000 $ —
Cumulative effect adjustment due to adoption of accounting
standard, net of income taxes $ (400,170) $ —

The accompanying notes are an integral part of these consolidated financial statements.

10
CHESAPEAKE FINANCIAL SHARES, INC.
 CONSOLIDATED NOTES TO CONSOLIDATED
STATEMENTS FINANCIAL STATEMENTS
OF CASH FLOWS

Note 1. Summary of Significant Accounting Policies

General
Chesapeake Financial Shares, Inc. (“CFS” or “Company”) is a bank holding company whose principal business activity
consists of ownership in Chesapeake Bank (the “Bank”) and Chesapeake Wealth Management, Inc. (“CWM”). The
consolidated financial statements include the accounts of CFS and its wholly-owned subsidiaries, except for CFS Capital
Trust II (the “Trust”), which is not a consolidated subsidiary of the Company. The subordinated debt payable to the Trust by
the Company is reported as a liability of the Company. All significant intercompany accounts have been eliminated.
Subsequent Events
Subsequent events have been considered through February 16, 2024, the same date on which these consolidated
financial statements were issued.
Significant Accounting Policies
The accounting and reporting policies of CFS are in accordance with accounting principles generally accepted in the
United States of America and conform to general practices within the banking industry. The more significant of these
policies are summarized below.
Securities
Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to
maturity” and recorded at amortized cost. The Company currently does not have any securities classified as held to maturity.
Debt securities not classified as held to maturity or trading are classified as “available for sale” (AFS) and recorded at fair value,
with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums
and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses
on the sale of securities are recorded on the trade date and are determined using the specific identification method. CFS
classifies all debt securities as available for sale.
Equity securities are reported at cost. These securities do not have a readily determinable fair value and lack a market.
Securities in this category consist mainly of Federal Reserve Bank and Federal Home Loan Bank stock.
The Company evaluates the fair value and credit quality of its AFS securities portfolio on a quarterly basis. If the
Company has the intent to sell the security, or it is more likely than not that the Company will be required to sell the
security, the security is written down to fair value, and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit
losses or other factors. In making the assessment, the Company may consider various factors including the extent to which
fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a
rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically
related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be
collected is compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss,
limited to the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not
been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are
charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be
uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2023, there was
no allowance for credit loss related to the available-for-sale portfolio.
Accrued interest receivable on available-for-sale debt securities totaled $2,840,068 at December 31, 2023 and was
excluded from the estimate of credit losses.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are
reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and

11
2023 ANNUAL REPORT
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

deferred fees and costs. Accrued interest receivable related to loans totaled $2,997,150 at December 31, 2023 and was
reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal
balance.
The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and
in the process of collection, or when management believes, after considering economic and business conditions and collection
efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on
contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days
after the contractual due date.
All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on
such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery
method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when
all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment
performance, and future payments are reasonably assured.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the
net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously
charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the
balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from
both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The
Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a
discounted cash flow methodology:
• Commercial & industrial – Include both secured and unsecured loans for working capital, expansion, and other
business purposes.
• Commercial real estate – Loans secured by commercial property both owner and non-owner occupied.
• Construction, land development & other land loans – Loans granted for residential and commercial construction along
with land.
• Residential (1-4 family) first mortgages – Loans collateralized with 1-4 family single family homes.
• Home equity loans/lines of credit – Equity loans and lines of credit granted based on equity on 1-4 family properties.
• Consumer loans – Loans secured and unsecured to consumer customers.
The Company has elected to use the discounted cash flow methodology which estimates the lifetime credit loss of the
portfolio. Discounted cash flow models, being periodic in nature, allow for effective incorporation of a reasonable and
supportable forecast in a directionally consistent and objective manner. In an effort to aggregate the portfolio with similar
risk characteristics, the Company has elected to use the Federal Call Code for segmentation. The company has also utilized
top-down data from prior cycles, both the institution’s own data and peer institution data from FFIEC Call Report filings.
This data has been used to inform regression analysis designed to quantify the impact of reasonable and supportable forecasts
in the model. To obtain a reasonable and supportable forecast, the Company has elected to forecast the first four quarters of
the credit loss estimate and revert to a long-run average of each considered economic factor. Based on the final values in the
forecast, management has elected to revert over four quarters.
Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are
likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce
reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results,
asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external
factors and economic conditions not already captured.

12
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTES
CONSOLIDATED TO CONSOLIDATED
STATEMENTS FINANCIAL STATEMENTS
OF CHANGES

Loans that do not share risk characteristics are evaluated on an individual basis. When the borrower is experiencing
financial difficulty and repayment is expected to be provided through operation or sale of the collateral, the expected credit
losses are based on the fair value of collateral at the reporting date, adjusted for selling costs as appropriate.
Modified Loans
ASU 2022-22 Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures which
eliminated the concept of troubled debt restructurings (“TDRs”) from the accounting standards for companies that have
adopted ASC 326. ASU 2022-02 requires additional disclosures for certain loan modifications and disclosures of gross
charge-offs by year of origination. Specifically, loan modification disclosures in periods subsequent to the adoption of ASC
326 must be made for modifications of existing loans to borrowers who were experiencing financial difficulties at the time of
the modification. The modification type must include a direct change in the timing or amount of a loan’s contractual cash
flows. The additional disclosures are applicable to situations where there is: principal forgiveness, an interest rate reduction,
an other-than-insignificant payment delay, a term extension, or any combination thereof.
Allowance for Credit Losses – Unfunded Commitments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial
letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the
contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to
extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s
income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each
balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into
consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded
commitments is included in other liabilities on the Company’s consolidated balance sheets.
Cash Management Accounts
CFS purchases trade accounts receivable from customers. These receivables are stated at face value, net of discounts and
an allowance for losses. CFS retains reserves against these customer balances in a separate liability account to cover unpaid
receivables, returns, allowances and other adjustments.
Commercial Mortgage Loan Repurchase Facilities
Commercial mortgage loan repurchase facilities are accounted for as collateralized financing transactions as the terms of
purchase agreements do not qualify for sale accounting and are therefore recorded at the amount of cash advanced. Interest
earned is recorded in interest income. Commercial mortgage loan repurchase facilities are collateralized by commercial
mortgage loans. The fair value of collateral is monitored daily and additional collateral is obtained or excess collateral is
returned for margin maintenance purposes. Collateral accepted under commercial mortgage loan repurchase facilities
transactions is not permitted by contract to be sold or repledged.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using both straight-line and accelerated methods over the assets' estimated useful lives. Estimated useful lives range
from 10 to 39 years for buildings and leasehold improvements and 3 to 7 years for furniture, fixtures, and equipment.
The Company determines if an arrangement is a lease at inception. Finance leases are included in premises and
equipment and other liabilities on our consolidated balance sheets. The amortization of the finance leases are included in
occupancy expense on the consolidated income statement. The interest expense on finance leases is included in short-term
debt on the consolidated income statement
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments over the lease term. Most of the Company’s
leases do not provide an implicit rate, as such an incremental borrowing rate is developed based on the information available

13
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

at commencement date in determining the present value of lease payments has been used. The operating lease ROU asset
also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or
terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for lease payments is
recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.
For certain leases, the lease and non-lease components are accounted for as a single lease component. Additionally, for certain
equipment leases, a portfolio approach is applied to effectively account for the operating lease ROU assets and liabilities.
Foreclosed Assets
Foreclosed assets are recorded at the time of foreclosure at their fair value, net of estimated costs to sell. At foreclosure,
any excess of the loan balance over the fair value of the property, less cost to sell, is charged to the allowance for credit losses.
Such carrying value is periodically reevaluated and written down as a direct expense if there is an indicated decline in the net
realizable value. Costs to bring a property to salable condition are capitalized up to the fair value of the property, while costs
to maintain a property in salable condition are expensed as incurred.
Goodwill and Other Intangible Assets
Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is not amortized but is
evaluated at least annually for impairment by comparing its fair value with its carrying amount. Impairment is indicated
when the carrying amount of a reporting unit exceeds its estimated fair value.
Goodwill arises from business combinations and is generally determined as the excess of the fair value of the
consideration transferred, plus the fair value of any noncontrolling interest in the acquiree, over the fair value of the net assets
acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a business combination
and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more
frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The
Company performs the impairment test annually during the fourth quarter. Goodwill is the only intangible asset with an
indefinite life on the Company’s balance sheet.
Intangible assets with definite useful lives are amortized over their estimated useful lives and tested for impairment if
events and circumstances exist that might indicate impairment may have occurred. The Company’s intangible assets with
definite useful is related to customer relationships acquired as part of the PDM Financial, LLC acquisition.
No impairment was recorded for goodwill and other intangible assets in 2023.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (a) the assets have been isolated from CFS – put presumptively beyond
the reach of the transferor and its creditors, even in bankruptcy or other receivership, (b) the transferee obtains the right (free
of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (c) CFS
does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity
or the ability to unilaterally cause the holder to return specific assets.
Derivative Instruments and Hedging Activities
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest
rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows,
or other types of forecasted transactions, are considered cash flow hedges.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially
reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged
transaction affects earnings, and the ineffective portion of the change in the fair value of the derivative is recognized directly
in earnings. The Company assesses the effectiveness of the hedging relationship by comparing the changes in cash flows of
the derivative hedging instrument with the changes in cash flows of the designated hedged transactions.

14
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

The Company’s objective in using derivatives is to add stability to net interest income and to manage its exposure to
adverse changes in interest rates.
Accounting for Business Combinations
Business combinations are accounted for under the acquisition method of accounting in accordance with Accounting
Standards Codification (“ASC”) 805. ASC 805 requires that the assets acquired and liabilities assumed in a business
combination be recorded based on their estimated fair values at the date of acquisition. The excess of the cost of an acquired
entity over the net of the amounts assigned to assets acquired and liabilities assumed, including identifiable intangibles, is
recorded as goodwill. The determination of fair values requires management to make estimates about future expected cash
flows, market conditions, and other future events that are highly subjective in nature and subject to actual results that may
differ materially from the estimates made.
Income Taxes
The income tax accounting guidance results in two components of income tax expense: current and deferred. Current
income tax expense reflects taxes to be paid or refunded for the current period by applying provisions of the enacted tax law
to the taxable income or excess deductions over revenues. CFS determines deferred income taxes using the liability (or
balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences
between book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in
which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax
assets are recognized if it is more-likely-than-not, based on the technical merits, that the tax position will be realized or
sustained under examination. The term more-likely-than-not means a likelihood of more than 50 percent; the terms
examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position
that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax
benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full
knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not
threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s
judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of the evidence available, it is
more-likely-than-not that some portion or all of a deferred tax asset will not be realized.
CFS accounts for income taxes in accordance with the accounting guidance related to uncertainty in income taxes,
which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax
positions.
Consolidated Statements of Cash Flows
For purposes of the consolidated statement of cash flows, CFS considers cash equivalents to include cash on hand,
amounts due from banks, interest-bearing deposits, and federal funds sold.
Advertising Costs
CFS follows the policy of charging the production costs of advertising to expense as incurred.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for credit losses, the valuation of deferred tax assets, unrealized
losses on securities, and the valuation of foreclosed assets.
Earnings Per Common Share
Basic earnings per common share represents income available to common shareholders divided by the weighted-average
number of common shares outstanding during the period. Diluted earnings per common share reflects additional common

15
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to
income that would result from the assumed issuance. Potential common shares that may be issued by CFS related solely to
outstanding stock options and restricted stock, are determined using the treasury stock method.
Stock-Based Compensation
Stock-based compensation accounting requires that the compensation cost relating to stock-based payment transactions
be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability
instruments issued. The stock compensation accounting guidance covers a wide range of stock-based compensation
arrangements including stock options, restricted share plans, and performance-based awards.
The stock-based compensation accounting guidance requires that compensation cost for all stock awards be calculated
and recognized over the employees’ service periods, generally defined as the vesting period. Compensation cost is recognized
on a straight-line basis over the requisite service period for the award. A Black-Scholes model is used to estimate the fair value
of stock options, while the fair value of the Company’s common stock at the date of grant is used for restricted awards. See
Note 11 for additional details on grants awarded.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully
discussed in Note 21. Fair value estimates involve uncertainties and matters of significant judgment. Changes in
assumptions or in market conditions significantly affect the estimates.
Assets Under Management
Securities and other property held by Chesapeake Wealth Management in a fiduciary or agency capacity are not assets of
CFS and are not included in the accompanying consolidated financial statements.
Recent Accounting Pronouncements
ASU 2022-06:
In December 2022, the FASB issued amendments to defer the sunset date of the Reference Rate Reform Topic of the
Accounting Standards Codification from December 31, 2022, to December 31, 2024, because the current relief in Reference
Rate Reform Topic may not cover a period of time during which a significant number of modifications may take place. The
amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its
financial statements.
ASU 2023-09:
In December 2023, the FASB amended the Income Taxes topic in the Accounting Standards Codification to improve
the transparency of income tax disclosures. The amendments are effective for annual periods beginning after December 15,
2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for
issuance. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-sitting bodies are not
expected to have a material impact on the Company’s final position, results of operations or cash flows.
Reclassification
Certain items for prior years have been reclassified to conform to the current year presentation. Such reclassifications had
no effect on net income, total assets or shareholders’ equity as previously reported.

16
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

Note 2. Securities
Amortized cost and fair values of securities available for sale as of December 31, 2023 and 2022, are as follows:
2023
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
US Treasury $ 490,514 $ — $ (46,451) $ 444,063
Securities of state and
political subdivisions 212,794,313 — (31,803,200) 180,991,113
SBA loan pooled securities 2,646,296 22,691 (4,133) 2,664,854
Mortgage-backed securities
Agency 57,813,638 28,157 (3,415,711) 54,426,084
Non-agency 191,897,344 1,314,366 (6,756,569) 186,455,141
Other debt securities 60,738,968 41,101 (2,843,493) 57,936,576
Total $ 526,381,073 $ 1,406,315 $ (44,869,557) $ 482,917,831

2022
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
US Treasury $ 488,714 $ — $ (56,507) $ 432,207
Securities of state and
political subdivisions 283,305,105 95,285 (45,795,490) 237,604,900
SBA loan pooled securities 2,295,558 6,107 — 2,301,665
Mortgage-backed securities
Agency 54,097,779 18,591 (3,860,091) 50,256,279
Non-agency 119,737,078 21,851 (8,190,604) 111,568,325
Other debt securities 47,064,746 2,541 (2,781,382) 44,285,905
Total $ 506,988,980 $ 144,375 $ (60,684,074) $ 446,449,281

The amortized cost and fair value of securities available for sale as of December 31, 2023, by contractual maturity are
shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or
prepay obligations without penalties.
Amortized Fair
Cost Value
Due in one year or less $ 25,191,616 $ 24,702,755
Due after one year through five years 170,655,214 166,203,398
Due after five years through ten years 209,622,294 186,669,591
Due after ten years 120,911,949 105,342,087
Total $ 526,381,073 $ 482,917,831

Proceeds from sales of securities available for sale during 2023 and 2022 were $64,287,308 and $83,181,399,
respectively. Gross realized gains amounted to $162,074 and $409,140 in 2023 and 2022, respectively. Gross realized
losses amounted to $3,046,259 and $3,712,427 in 2023 and 2022, respectively.
The amortized cost of securities pledged to secure public deposits, borrowings from the Federal Home Loan Bank,
fiduciary powers and for other purposes required or permitted by law amounted to $293,150,925 and $308,763,670 at
December 31, 2023 and 2022, respectively.

17
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unrealized Losses

The following tables present fair value and gross unrealized losses, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss position as of December 31, 2023 and 2022:
2023
Less Than 12 Months 12 Months or More Total
Number Gross
of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Loss Value Loss Value Losses
US Treasury 1 $ — $ — $ 444,063 $ 46,451 $ 444,063 $ 46,451
Securities of state and
political subdivisions 200 — — 180,991,113 31,803,200 180,991,113 31,803,200
SBA loan pooled securities 3 1,683,054 4,133 — — 1,683,054 4,133
Mortgage-backed securities
Agency 95 10,199,603 118,061 41,849,849 3,297,650 52,049,452 3,415,711
Non-agency 165 49,375,862 424,134 83,900,857 6,332,435 133,276,719 6,756,569
Other debt securities 73 15,366,921 102,777 33,544,529 2,740,716 48,911,450 2,843,493
537 $ 76,625,440 $ 649,105 $ 340,730,411 $ 44,220,452 $ 417,355,851 $ 44,869,557

2022
Less Than 12 Months 12 Months or More Total
Number Gross
of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Loss Value Loss Value Losses
US Treasury 1 $ 432,207 $ 56,507 $ — $ — $ 432,207 $ 56,507
Securities of state and
political subdivisions 114 109,190,002 12,407,454 120,949,242 33,388,036 230,139,244 45,795,490
Mortgage-backed securities
Agency 95 27,075,590 1,148,776 22,620,808 2,711,315 49,696,398 3,860,091
Non-agency 146 62,470,676 3,216,781 43,334,723 4,973,823 105,805,399 8,190,604
Other debt securities 67 18,829,691 829,148 23,983,364 1,952,234 42,813,055 2,781,382
423 $ 217,998,166 $ 17,658,666 $ 210,888,137 $ 43,025,408 $ 428,886,303 $ 60,684,074

The Company reviews its AFS securities portfolio for potential credit losses no less than quarterly. As of December
31, 2023, there was no allowance for credit losses for the Company’s AFS securities portfolio.

Note 3. Adoption of New Accounting Standard

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology
with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL
requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience,
current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at
amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance-sheet credit
exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented
at the net amount expected to be collected by using an allowance for credit losses.
In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to
require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if
management does not intend to sell and does not believe that it is more likely than not they will be required to sell.
The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023, using the
modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.
The transition adjustment of the adoption of CECL included a decrease in the allowance for credit losses on loans of $98
thousand, which is presented as an increase to net loans outstanding, and an increase in the allowance for credit losses on
unfunded loan commitments of $470 thousand, which is recorded within Other Liabilities. The Company recorded an
increase in the allowance for credit losses for cash management accounts of $135 thousand, which is presented as a

18
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

reduction to net cash management accounts outstanding. The Company recorded a net decrease to retained earnings of
$400 thousand as of January 1, 2023, for the cumulative effect of adopting CECL, which reflects the transition
adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after
January 1, 2023, are presented under CECL while prior period amounts continue to be reported in accordance with
previously applicable accounting standards (“Incurred Loss”).
The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-
temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not
have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company
determined that an allowance for credit losses on available-for-sale securities was not deemed material.
January 1,2023 December 31, 2022 Impact of
As Reported Under Pre-ASC 326 ASC 326
(dollars in thousands) ASC 326 Adoption Adoption
Assets:
Allowance for credit losses on loans:
Commercial & industrial $ 3,694 $ 2,898 $ 796
Commercial real estate 2,175 3,051 (876)
Construction, land development & other land loans 586 377 209
Residential (1-4 family) first mortgages 189 428 (239)
Home equity loans/lines of credit 306 333 (27)
Consumer loans 130 91 39
Allowance for credit losses on cash management $ 1,807 $ 1,672 $ 135
Liabilities:
Allowance for credit losses for unfunded commitments $ 470 $ — $ 470

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected
to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the
instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has
concluded that this policy results in the timely reversal of uncollectible interest.

Note 4. Loans and Allowance for Credit Losses

Loans by Major Category
The following is a summary of the major categories of total loans outstanding:
December 31,
2023 2022
Commercial & industrial $ 143,076,930 $ 145,295,992
Commercial real estate 369,584,496 329,103,834
Construction, land development & other land loans 76,500,917 69,628,394
Residential (1-4 family) first mortgages 165,377,862 147,084,928
Home equity loans/lines of credit 53,806,198 40,332,136
Consumer loans 12,682,090 9,367,673
Gross loans $ 821,028,493 $ 740,812,957
Less: allowance for credit losses (7,881,960) (7,512,577)
Loans, net $ 813,146,533 $ 733,300,380

Overdrafts totaling $89,083 and $122,007 at December 31, 2023 and 2022, respectively, were reclassified from
deposits to consumer loans.

19
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Delinquencies
The following table represents an analysis of past-due loans as of December 31, 2023:
Loans 90 Days
or More Past
Loans 30-59 Loans 60-89 Due & Still Nonaccrual
Days Past Due Days Past Due Accruing Loans Current Loans Total Loans
Commercial & industrial $ — $ 10,000 $ — $ 546,429 $ 142,520,501 $ 143,076,930
Commercial real estate 547,588 142,078 — 432,064 368,462,766 369,584,496
Construction, land
development &
other land loans — — — — 76,500,917 76,500,917
Residential (1-4 family)
first mortgages 10,705 — — 273,988 165,093,169 165,377,862
Home equity loans/lines
of credit 262,025 — — — 53,544,173 53,806,198
Consumer loans 15,830 522 — 22,865 12,642,873 12,682,090
Total loans $ 836,148 $ 152,600 $ — $ 1,275,346 $ 818,764,399 $ 821,028,493

Credit Quality
The Bank’s internal risk rating definitions are:
Pass: These are considered satisfactory loans which do not require additional monitoring and show no heightened
risk of weakness.
Watch: These include satisfactory loans which may have elements of risk that the Bank has chosen to monitor
formally. The objective of monitoring is to assure that no weaknesses develop in these loans.
Special Mention: These loans have a potential weakness that requires management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the
Bank’s credit position at some future date. These credits do not expose the Bank to sufficient risk to warrant further
adverse classification.
Substandard: A substandard asset is inadequately protected by the current sound worth and paying capacity of the
obligor or of the collateral pledged, if any. Loans classified as such must have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some
loss if the deficiencies are not corrected.
Doubtful: Loans classified doubtful have all the weaknesses inherent in a substandard asset with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions,
and values, highly questionable and improbable.
Loss: Loans classified loss are considered uncollectible and of such little value that their continuance as a bankable
asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but
rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be
received in the future.

20
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of
origination as of December 31, 2023:
Term Loans by Year of Origination
2023 2022 2021 2020 2019 Prior Revolving Total
Commercial & industrial
Pass $ 25,224 $ 36,564 $ 15,629 $ 14,480 $ 12,907 $ 29,295 $ — $ 134,099
Watch — — — 311 3 94 — 408
Special mention — 493 — — 6,430 1,200 — 8,123
Substandard — — — — 81 336 — 417
Doubtful — — — — — 30 — 30
Total commercial &
industrial loans $ 25,224 $ 37,057 $ 15,629 $ 14,791 $ 19,421 $ 30,955 $ — $ 143,077
Current period gross write-offs — — — — — — — —
Commercial real estate
Pass $ 46,681 $ 62,544 $ 83,803 $ 27,193 $ 24,455 $ 115,998 $ — $ 360,674
Watch — — — — 190 6,828 — 7,018
Special mention — — — — — — — —
Substandard 357 — — — 506 1,029 — 1,892
Total commercial real estate $ 47,038 $ 62,544 $ 83,803 $ 27,193 $ 25,151 $ 123,855 $ — $ 369,584
Current period gross write-offs — — — — — — — —
Construction, land development
& other land loans
Pass $ 22,504 $ 18,032 $ 20,819 $ 2,524 $ 749 $ 9,407 $ — $ 74,035
Watch — 2,378 — — — — — 2,378
Special mention — — 88 — — — — 88
Substandard — — — — — — — —
Total construction, land
development & other
land loans $ 22,504 $ 20,410 $ 20,907 $ 2,524 $ 749 $ 9,407 $ — $ 76,501
Current period gross write-offs — — 86 — — — — 86
Residential (1-4 family) first
mortgages
Pass $ 36,902 $ 42,612 $ 32,157 $ 17,275 $ 5,923 $ 28,073 $ — $ 162,942
Watch — — — — 386 388 — 774
Special mention — 505 363 — 57 639 — 1,564
Substandard — — — — — 98 — 98
Total residential (1-4 family)
first mortgages $ 36,902 $ 43,117 $ 32,520 $ 17,275 $ 6,366 $ 29,198 $ — $ 165,378
Current period gross write-offs — — — — — — — —
Home equity loans/lines of credit
Pass $ 13,224 $ 10,385 $ 9,440 $ 5,397 $ 3,264 $ 10,953 $ — $ 52,663
Watch — 63 — — 60 — — 123
Special mention — — — — 235 618 — 853
Substandard — 167 — — — — — 167
Total home equity loans/lines
of credit $ 13,224 $ 10,615 $ 9,440 $ 5,397 $ 3,559 $ 11,571 $ — $ 53,806
Current period gross write-offs — — — — — — — —
Consumer loans
Pass $ 7,173 $ 1,935 $ 1,324 $ 669 $ 401 $ 1,154 — $ 12,656
Watch — 3 — — — — — 3
Special mention — — — — — 4 — 4
Substandard — — — 19 — — — 19
Total Consumer loans $ 7,173 $ 1,938 $ 1,324 $ 688 $ 401 $ 1,158 $ — $ 12,682
Current period gross write-offs 183 14 — — — 2 — 199

21
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Company’s recorded investment in loans by credit quality indicators as of
December 31, 2022:
Pass Watch Special Mention Substandard Total
Commercial & industrial $ 144,312,919 $ 537,311 $ 7,300 $ 438,462 $ 145,295,992
Commercial real estate 320,655,552 6,131,561 — 2,316,721 329,103,834
Construction, land development &
other land loans 68,865,714 762,680 — — 69,628,394
Residential (1-4 family) first mortgages 146,372,698 372,799 281,131 58,300 147,084,928
Home equity loans/lines of credit 40,081,836 150,010 100,290 — 40,332,136
Consumer loans 9,345,574 — — 22,099 9,367,673
Total loans $ 729,634,293 $ 7,954,361 $ 388,721 $ 2,835,582 $ 740,812,957

Nonaccrual
The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated:
CECL Incurred Loss
December 31, 2023 December 31, 2022
Nonaccrual Nonaccrual Total
Loans with Loans with Nonaccrual Nonaccrual
No Allowance an Allowance Loans Loans
Commercial & industrial $ 546,429 $ — $ 546,429 $ 438,462
Commercial real estate 432,064 — 432,064 2,316,721
Construction, land development & other land loans — — — —
Residential (1-4 family) first mortgages 273,988 — 273,988 234,856
Home equity loans/lines of credit — — — 65,381
Consumer loans 4,220 18,645 22,865 22,481
Total loans $ 1,256,701 $ 18,645 $ 1,275,346 $ 3,077,901

The following table represents the accrued interest receivables written off by reversing interest income during the year ended
December 31, 2023:
For the Year Ended
December 31, 2023
Commercial & industrial $ 3,810
Consumer loans 125
Total loans $ 3,935

Collateral Dependent
The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the
borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following
provides more detail about the types of collateral that secure collateral-dependent loans:
• Commercial real estate loans can be secured by either owner-occupied commercial real estate or non-owner-occupied
investment commercial real estate. Typically, owner-occupied commercial real estate loans are secured by office
buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating
companies. Non-owner-occupied commercial real estate loans are generally secured by office buildings and complexes,
retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or
industrial real estate.
• Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second
mortgage.
• Home equity lines of credit are generally secured by second mortgages on residential real estate property.
• Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property.
Some consumer loans are unsecured and have no underlying collateral.

22
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

The following table details the amortized cost of collateral dependent loans:
December 31, 2023
Commercial & industrial $ 417,102
Commercial real estate 1,839,364
Construction, land development & other land loans —
Residential (1-4 family) first mortgages —
Home equity loans/lines of credit 166,702
Consumer loans 18,645
Total loans $ 2,441,813

Allowance for Credit Losses

The following table summarizes the activity related to the allowance for credit losses for the year ended December
31, 2023 under the CECL methodology:
Construction,
Land Residential Home
Development (1-4 family) Equity
Commercial Commercial & Other First Loans/Lines Consumer Total
& Industrial Real Estate Land Loans Mortgages of Credit Loans Unallocated Loans
Balance, December 31, 2022 $1,397,202 $3,421,950 $ 673,109 $1,426,724 $ 391,221 $ 99,927 $ 102,444 $ 7,512,577
Adjustment to allowance for
adoption of ASU 2016-13 796,169 (876,074) 208,847 (239,450) (26,968) 39,305 — (98,171)
Charge-offs — (85,512) — — — (199,119) — (284,631)
Recoveries 5,100 — — — 6,000 41,089 — 52,189
Provision for credit losses (15,427) 164,153 23,883 167,483 90,303 232,796 36,805 699,996
Balance, December 31, 2023 $2,183,044 $2,624,517 $ 905,839 $1,354,757 $ 460,556 $ 213,998 $ 139,249 $ 7,881,960

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under
the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior
periods:
Construction,
Land Residential Home
Development (1-4 family) Equity
Commercial Commercial & Other First Loans/Lines Consumer Total
& Industrial Real Estate Land Loans Mortgages of Credit Loans Unallocated Loans
For the Year Ended December 31, 2022: Allowance for Loan Losses
Balance, December 31, 2021 $ 1,359,473 $ 3,106,503 $ 696,264 $ 1,163,897 $ 360,878 $ 80,530 $ 25,855 $ 6,793,400
Provision for loan losses 60,638 216,681 (23,155) 262,827 20,943 85,473 76,589 699,996
Charge-offs (24,958) — — — — (131,459) — (156,417)
Recoveries 2,049 98,766 — — 9,400 65,383 — 175,598
Balance, December 31, 2022 $ 1,397,202 $ 3,421,950 $ 673,109 $ 1,426,724 $ 391,221 $ 99,927 $ 102,444 $ 7,512,577

Allowance for Loan Losses Allocation as of December 31, 2022

Individually evaluated for impairment $ — $ 218,546 $ 4,057 $ — $ — $ 9,271 $ — $ 231,874
Collectively evaluated for impairment 1,397,202 3,203,404 669,052 1,426,724 391,221 90,656 102,444 7,280,703
Total allowance for credit losses $ 1,397,202 $ 3,421,950 $ 673,109 $ 1,426,724 $ 391,221 $ 99,927 $ 102,444 $ 7,512,577

Loan Balances as of December 31, 2022

Individually evaluated for impairment $ 1,254,565 $ 2,247,548 $ 653,950 $ — $ — $ 21,671 $ — $ 4,177,734
Collectively evaluated for impairment 144,041,427 326,856,286 68,974,444 147,084,928 40,332,136 9,346,002 — 736,635,223
Total loans $ 145,295,992 $ 329,103,834 $ 69,628,394 $ 147,084,928 $ 40,332,136 $ 9,367,673 $ — $ 740,812,957

Impaired Loans (Prior Periods)

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and
events, it was probable the Company would be unable to collect all amounts due in accordance with the original
contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt
restructurings. When determining if the Company would be unable to collect all principal and interest payments due in
accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay,

23
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay
all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value.
The Company individually assessed for impairment all nonaccrual loans greater than $100 thousand and all troubled debt
restructurings (including all troubled debt restructurings, whether or not currently classified as such). The tables below
include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a
specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated
future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the
collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal
amount was reasonably assured, in which case interest was recognized on a cash basis.
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022:
Unpaid Average
Recorded Principal Related Recorded
Investment Balance Allowance Investment
Impaired loans with no related allowance recorded
Commercial & industrial $ 1,254,565 $ 1,254,565 $ — $ 817,277
Commercial real estate 1,089,003 1,089,003 — 837,383
Construction, land development,
& other land loans — — — —
Residential (1-4 family) first mortgages — — — —
Home equity loans/lines of credit — — — —
Consumer loans — — — —
Total impaired loans with no allowance $ 2,343,568 $ 2,343,568 $ — $ 1,654,660

Impaired loans with an allowance recorded

Commercial & industrial $ — $ — $ — $ —
Commercial real estate 1,158,545 1,158,545 218,546 1,172,330
Construction, land development,
& other land loans 653,950 653,950 4,057 905,117
Residential (1-4 family) first mortgages — — — —
Home equity loans/lines of credit — — — —
Consumer loans 21,671 21,671 9,271 11,012
Total impaired loans with allowance $ 1,834,166 $ 1,834,166 $ 231,874 $ 2,088,459

Unfunded Commitments
The Company maintains an allowance for off-balance-sheet credit exposures such as unfunded balances for existing
lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is
a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., the
commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a
provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is
based on a historical funding study derived from internal information, and an estimate of expected credit losses on
commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the
allowance for credit losses on loans, and are discussed in Note 3. The allowance for credit losses for unfunded loan
commitments of $560 thousand at December 31, 2023 is separately classified on the balance sheet within Other
Liabilities.

24
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

The following table presents the balance and activity in the allowance for credit losses for unfunded loan
commitments for the year ended December 31, 2023:
Total Allowance
for Credit Losses -
Unfunded
Commitments
Balance, December 31, 2022 $ —
Adjustment to allowance for unfunded commitments
for adoption of ASU 2016-13 469,789
Provision for unfunded commitments 90,000
Balance, December 31, 2023 $ 559,789

Note 5. Premises and Equipment

A summary of the cost and accumulated depreciation of premises and equipment follows:
December 31,
2023 2022
Land $ 4,630,245 $ 4,917,999
Buildings 26,777,757 27,863,990
Furniture, fixtures and improvements 3,423,241 3,164,035
Equipment 6,512,416 6,025,144
Leasehold improvements 4,332,466 4,353,380
$ 45,676,125 $ 46,324,548
Less accumulated depreciation (24,243,897) (23,123,129)
Total $ 21,432,228 $ 23,201,419

For the years ended December 31, 2023 and 2022, depreciation expense was $1,603,875 and $1,719,184,
respectively.
Included in the consolidated balance sheet presentation of these financial statements, premises and equipment also
includes the right-of-use asset for leases totaling $577,114 and $662,482 as of December 31, 2023 and 2022, respectively.
Refer to Note 13 for additional disclosure on the right-of-use asset.

Note 6. Time Deposits

Remaining maturities on certificates of deposit are as follows:
2024 $ 219,544,599
2025 12,259,752
2026 4,336,721
2027 516,531
2028 89,933,448
Thereafter —
Total $ 326,591,051

The Bank obtains certain deposits through the efforts of third-party brokers. At December 31, 2023 and 2022,
brokered deposits totaled $89,800,000 and $0, respectively, and were included in certificates of deposit on the
consolidated balance sheets.
As of December 31, 2023, there was one deposit relationship that exceeded 5% of total deposits.

25
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Trust Preferred Capital Notes

On July 2, 2007, CFS Capital Trust II was formed by the Company for the purpose of issuing redeemable capital
securities. Trust II is not a consolidated subsidiary of the Company. On July 5, 2007, $15.5 million of trust preferred
securities which have a SOFR-indexed floating rate of interest were issued. The weighted-average interest rate for the year
ended December 31, 2023 was 6.65%. The interest rate as of December 31, 2023 was 7.04%. The securities have a
mandatory redemption date of October 1, 2037, and became subject to varying call provisions beginning on September
6, 2012.
In August 2014, CFS was notified that $5.0 million of the $15.0 million in trust preferred securities of Trust II would
be auctioned off as part of a larger pooled collateralized debt obligation liquidation. CFS placed a bid of $3.9 million for
the securities which was accepted by the trustee and the transaction closed on September 5, 2014. In January 2015, CFS
was notified that $5.0 million of the $10.0 million remaining in trust preferred securities of Trust II would be auctioned
off as part of a larger pooled collateralized debt obligation liquidation. CFS placed bids totaling $3.9 million for the
securities which were accepted by the trustee and the transactions closed on February 5, 2015 and February 13, 2015.
As of December 31, 2023, $5.0 million in preferred stock and $155,000 in common stock of Trust II were still
outstanding.
The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy determination purposes
up to 25% of Tier 1 capital after its inclusion. The portion of the trust preferred not considered as Tier 1 capital may be
included in Tier 2 capital.
The obligations of CFS with respect to the issuance of the capital securities constitute a full and unconditional
guarantee by CFS of the Trust’s obligations with respect to the capital securities.
Subject to certain exceptions and limitations, CFS may elect from time to time to defer interest payments on the
junior subordinated debt securities, which would result in a deferral of distribution payments on the related capital
securities.

Note 8. Borrowings
FHLB Borrowings
The Bank has lines of credit with the FHLB that can equal up to 25% of total assets of the Bank. As of December
31, 2023, loans with a carrying value of $174,666,226 and securities with an amortized cost of $126,388,418 were
pledged to the FHLB as collateral for borrowings. The FHLB lines of credit totaled $159.8 million with an outstanding
balance of $32 million as of December 31, 2023. At December 31, 2022 the FHLB line of credit totaled $116.3 million
with an outstanding balance of $20 million. Additional loans are available that can be pledged as collateral for future
borrowings from the FHLB above the current lendable collateral value.
FRB Borrowings
Advances under the Bank Term Funding Program (“BTFP”) with the Federal Reserve are up to a one-year term and
are priced at the one-year overnight index swap rate plus 10 basis points, which is fixed for the term on the advance date.
Advances can be repaid at any time without penalty. As of December 31, 2023, the Company had an immediately
available line through the BTFP of $37.2 million, of which the Company had an outstanding balance of $30.0 million.
The maturity of the BTFP borrowings are $10 million maturing April 2024 and $20 million maturing December 2024.
The BTFP plan is due to expire in March 2024 at which time, no further advancements will be made. At that time, the
Company will utilize other forms of borrowing including FHLB.
As of December 31, 2023, availability through the FRB Discount Window was $10.5 million, of which the
Company had no outstanding balance.
Other Borrowings
The Bank also maintains an additional secured line of credit with another correspondent bank totaling $20 million,
which had no outstanding balance as of December 31, 2023 and $11 million as of December 31, 2022. In addition to
the available credit from the FHLB, the Bank also has unsecured lines of credit with correspondent banks totaling $82.1
million available for overnight borrowings, which had an outstanding balance of $429 thousand as of December 31, 2023

26
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

and $15 million as of December 31, 2022. The Company has a line of credit secured by 400,000 shares of Chesapeake
Bank common stock with a correspondent bank totaling $10.0 million available for borrowing as of December 31, 2023.
There was no outstanding balance as of December 31, 2023 and 2022.
On June 15, 2021, the Company entered into a Subordinated Note Purchase Agreement with 32 institutional
accredited investors under which the Company issued an aggregate of $20 million of subordinated notes (the “2021
Notes”) to institutional accredited investors. The 2021 Notes have a maturity date of June 15, 2031. The 2021 Notes bear
interest, payable on the 15th of June and December of each year, commencing December 15, 2021, at a fixed rate of
3.25% per year for the first 5 years, and thereafter will bear a floating interest rate of 3-Month Term SOFR plus 260 basis
points. The 2021 Notes are not convertible into common stock or preferred stock and are not callable by the holders. The
Company has the right to redeem the 2021 Notes, in whole or in part, without premium or penalty, at any interest
payment date on or after December 15, 2026 and prior to the maturity date, but in all cases in a principal amount with
integral multiples of $1,000, plus interest accrued and unpaid through the date of redemption. If an event of default
occurs, such as the bankruptcy of the Company, the holder of a 2021 Note may declare the principal amount of the note
to be due and immediately payable. The 2021 Notes are unsecured, subordinated obligations of the Company, and rank
junior in right of payment to the Company’s existing and future senior indebtedness. The 2021 Notes qualify as Tier 2
capital for regulatory reporting; though, Tier 2 capital treatment is reduced by 20% in each year subsequent to the first
date of the redemption right.

Note 9. Income Taxes

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax
rate to pretax income for the years ended December 31, 2023 and 2022, due to the following:
2023 2022
Income tax at federal statutory rate $ 2,592,170 $ 4,294,960
Increase (decrease) in income taxes resulting from:
State and local taxes 2,374 5,146
Tax exempt income (575,092) (1,128,793)
Other 204,477 (347,709)
Total $ 2,223,929 $ 2,823,604

The provision for income taxes charged to operations for the years ended December 31, 2023 and 2022, consists of
the following:
2023 2022
Current tax expense
Federal $ 2,081,236 $ 3,204,768
State 3,005 6,514
Deferred tax expense (benefit) 139,688 (387,678)
Total $ 2,223,929 $ 2,823,604

27
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of the net deferred tax asset, included in other assets, are as follows:
December 31,
2023 2022
Deferred tax assets:
Allowance for credit and cash management account losses $ 2,015,192 $ 1,976,350
Foreclosed assets 55,385 63,380
Deferred compensation 398,338 403,935
Premises and equipment (399,000) (237,229)
Restricted stock (99,523) (113,881)
Unrealized loss on securities 9,127,281 12,713,336
Other 387,352 404,877
Total deferred tax assets $ 11,485,025 $ 15,210,768
Deferred tax liabilities:
Securities available for sale — —
Net deferred tax assets $ 11,485,025 $ 15,210,768

CFS, on a consolidated basis, files income tax returns in the U.S. federal jurisdiction, the Commonwealth of Virginia
and other states where income is generated. With few exceptions, CFS is no longer subject to U.S. federal or state income
tax examinations by tax authorities for years before 2020.
The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no
liability related to uncertain tax positions.

Note 10. Employee Benefit Plans

Employee Stock Ownership Plan
CFS sponsors an employee stock ownership plan (ESOP) that generally covers full-time employees who have
completed one calendar year of service. CFS makes annual contributions to the ESOP at the discretion of the Board of
Directors. ESOP compensation expense was $550,000 and $500,000 for the years ended December 31, 2023 and 2022,
respectively.
401(k) Plan
CFS has adopted a contributory 401(k) plan that covers substantially all employees. Under the plan, employees may
elect to defer up to 100% of their salary, subject to Internal Revenue Service limits. CFS will make a matching
contribution of 100% of the first 3% and 50% of the second 3% of the employee’s salary deferred. CFS may also make a
discretionary contribution to the plan. Total expense related to the plan was $863,043 and $758,473 for 2023 and 2022,
respectively.
Post-retirement benefits
The Company has entered into deferred compensation arrangements with certain key personnel, which call for the
payment of benefits upon the retirement or death of the individuals. The agreements provide that a retirement benefit is
payable upon a defined normal retirement age while in service to the Company and a lesser benefit is payable upon early
retirement. Other benefits are payable upon disability, death or change in control.
These agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and
comply with Section 409A of the Internal Revenue Code.
The Company has elected to finance the retirement benefits by purchasing annuities that have been designed to
provide a future source of funds for the lifetime retirement benefits of the agreements. The liabilities associated with these
deferred compensation arrangements were $1,912,431 and $1,627,929 for the years ended December 31, 2023 and
2022, respectively. The annuity had a balance of $3,545,225 and $3,592,671 as of December 31, 2023 and 2022,
respectively, and is recorded at amortized cost. Salaries and employee benefits expense included $284,502 and $419,758
of expense related to these arrangements for 2023 and 2022, respectively.

28
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

Note 11. Stock Option Plans

On April 4, 2014, CFS’s shareholders approved a stock incentive plan under which options or restricted stock may be
granted to certain key employees. The plan reserved 504,000 shares of voting common stock for issuance and expires on
January 16, 2024. There was no compensation cost charged to income for those plans related to stock options for 2023.
Incentive Stock
The incentive stock option plans require that options be granted at an exercise price equal to at least 100% of the fair
market value of the common stock on the date of the grant; however, for those individuals who own more than 10% of
the stock of CFS, the option price must be at least 110% of the fair market value on the date of grant. Such options are
generally not exercisable until 3 years from the date of issuance and require continuous employment during the period
prior to exercise. The options will expire in no more than 10 years after the date of grant. The fair value of each option
grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Expected volatility is based on
the historic volatility of CFS’s stock price over the expected life of the options. The expected term is estimated as the
average of the contractual life and vesting schedule for the respective options. The risk-free interest rate is the U.S.
Treasury zero-coupon issue with a remaining term equal to the expected term of the options granted. The dividend yield
is estimated as the ratio of CFS’s historical dividends paid per share of common stock to the stock price on the date of
grant. There were no options granted or outstanding during the years ended December 31, 2023 and 2022.
Aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the amount by which the current
market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option
holders had all the option holders exercised their options on December 31, 2023. This amount changes based on changes
in the market value of CFS’s stock.
The total intrinsic value of options exercised during the year ended December 31, 2023 and 2022 was $0 and
$348,271, respectively. As of December 31, 2023 and December 31, 2022 there are no unrecognized compensation costs
related to nonvested stock options granted under the plans.
Restricted Stock
The Company grants shares of restricted stock to key employees. These awards help align the interests of these
employees with the interests of the shareholders of the Company by providing economic value directly related to increases
in the value of the Company’s common stock. The value of the stock awarded is established as the fair market value of
the stock at the time of grant. The Company recognizes expense, equal to the total value of such awards, ratably over the
vesting period of the stock grants. Restricted stock vests over 36 months based on the term of the award.
Nonvested restricted stock activity for the year ended December 31, 2023 is summarized in the following table:
Weighted
Average Grant
Shares Date Value
Nonvested at December 31, 2022 29,683 $ 26.19
Granted 25,900 19.50
Vested (14,233) 24.54
Forfeited (1,234) 26.99
Nonvested at December 31, 2023 40,116 $ 22.43

Weighted
Average Grant
Shares Date Value
Nonvested at December 31, 2021 32,615 $ 22.96
Granted 15,950 28.75
Vested (18,882) 22.61
Forfeited — —
Nonvested at December 31, 2022 29,683 $ 26.19

29
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2023, there was $648,625 in unrecognized compensation cost related to nonvested restricted stock
granted under the 2014 Plan. This cost is expected to be recognized over the next 31 months. Stock based compensation
expense for nonvested restricted stock totaled $364,806 and $411,630 during 2023 and 2022, respectively.

Note 12. Shareholders' Equity

During 2023 and 2022, CFS issued 11,169 and 6,843 shares, respectively, of common stock to its directors for partial
compensation. Also, during 2023 and 2022, the Company purchased and retired 26,719 and 46,015 shares, respectively
of common stock.

Note 13. Leases

The Company’s long-term lease agreements are classified as finance leases. These leases offer the option to extend the
lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are
reasonably assured of being exercised.
The components of lease expense are as follows:
2023 2022
Finance lease expense
Amortization of right-of-use asset $ 85,368 $ 85,371
Interest on lease liabilities 31,304 32,064
Total finance lease expense $ 116,672 $ 117,435

Cash paid for amounts included in the measurement of lease liabilities are as follows:
2023 2022
Operating cash flows from finance leases $ 115,489 $ 112,156

Supplemental balance sheet information related to leases are as follows:

2023 2022
Finance Leases:
Premises and equipment $ 662,482 $ 747,853
Accumulated depreciation 85,368 85,371
Premises and equipment, net $ 577,114 $ 662,482
Other long-term liabilities 766,904 853,272
Total finance lease liabilities $ 766,904 $ 853,272
Weighted average remaining lease term: 6 Years 8 Years
Weighted average discount rate: 3.6% 3.6%

Maturities of lease liabilities are as follows:

For the year ending December 31, 2023
2024 118,920
2025 122,452
2026 126,090
2027 129,835
2028 133,691
Thereafter 237,072
Lease payments $ 868,060
Amounts representing interest (101,156)
Present value of net future minimum lease payments $ 766,904

Rent expense under operating leases totaled $86,374 and $80,093 for the years ended December 31, 2023 and 2022,
respectively.

30
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

Note 14. Related Party Transactions

Officers, directors and their affiliates had loans of $19,016,544 and $17,751,998 at December 31, 2023 and 2022,
respectively, with the Bank.
Changes in related party loans during 2023 were as follows:
Balance, December 31, 2022 $ 17,751,998
Additions 2,465,615
Payments (1,201,069)
Balance, December 31, 2023 $ 19,016,544

These transactions occurred in the ordinary course of business on substantially the same terms as those prevailing at
the time for comparable transactions with unrelated persons.
Related parties had deposits of $10,965,157 and $12,095,550 as of December 31, 2023 and 2022, respectively.

Note 15. Other Income and Expenses

The principal components of "Other income" in the consolidated statements of income are:
2023 2022
ATM fee income $ 2,511,453 $ 2,396,683
Gain on termination of interest rate cap — 3,468,395
Gain on investment buyback — 2,163,342
Gain on sale of VISA B stock 2,241,178 —
Gain on life insurance 482,899 —
K-1 adjustments in SBIC funds 873,004 949,920
Gain on sale of properties 574,518 —
Increase in cash value of BOLI 409,023 420,296
Other 1,784,358 1,239,135
Total $ 8,876,433 $ 10,637,771

The principal components of "Other expenses" in the consolidated statements of income are:
2023 2022
Advertising $ 1,738,506 $ 1,881,565
Debit card expense 1,061,530 947,279
Franchise tax 907,112 1,072,053
Charitable contributions 500,036 461,016
Exam and audit 348,900 273,741
Delivery and transportation 358,592 319,108
Stationery and supplies 314,967 292,292
Other 3,759,479 2,909,949
Total $ 8,989,122 $ 8,157,003

Note 16. Revenue from Contracts with Customers

During the years ended December 31, 2023 and 2022, the Company recognized revenues from contracts with
customers totaling $19,442,910 and $17,804,976, respectively. There were no impairment losses recognized on any
receivables or contract assets arising from the Company’s contracts with customers during the years ended December 31,
2023 and 2022. While the Company does have noninterest income related to changes in cash surrender value of life
insurance, sales of investments, and income from government sponsored entities, these are not within the scope of
ASC 606.

31
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within
noninterest income. The following table represents the Company’s sources of noninterest income for the years ended
December 31, 2023 and 2022. Items outside the scope of ASC 606 are noted as such.
2023 2022
Noninterest income
Service charges $ 1,015,833 $ 972,320
ATM fee income 2,511,453 2,396,683
Trust and wealth management income 3,983,834 4,074,761
Merchant services income, net 5,190,703 4,934,928
Cash management fee income 5,233,108 3,196,595
Mortgage banking income 874,437 1,678,833
Other(a) 3,963,699 4,937,801
Total $ 22,773,067 $ 22,191,921
(a) The Other category includes $628,524 and $500,551 of income sources that are within the scope of ASC 606 but determined immaterial as
of December 31, 2023 and 2022, respectively; the remaining balance of $3,335,175 and $4,437,250 is outside of the scope of ASC 606 as of
December 31, 2023 and 2022, respectively.

A description of the Company’s revenue streams accounted for under ASC 606 follows:
Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based,
account maintenance, and overdraft services. Transaction-based fees are recognized at the time the transaction is
executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees are
earned over the course of a month, representing the period over which the Company satisfies the performance
obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits
are withdrawn from the customer’s account balance.
ATM Fee Income: The Company earns interchange fees from debit cardholder transactions conducted through
the VISA payment network. Interchange fees from cardholder transactions represent a percentage of the underlying
transaction value and are recognized daily, concurrently with the transaction processing services provided to the
cardholder.
Merchant Services: The Company earns interchange fees from customer debit and credit card transactions that are
earned at the time a cardholder engages in a transaction with a merchant as well as fees charged to merchants for
providing them the ability to accept and process the debit and credit card transactions. Revenue is recognized when
the performance obligation has been met as it is satisfied upon the completion of the card transaction. Additionally,
revenue recognition guidance requires costs associated with cardholder and merchant services transactions to be netted
against the fee income from such transactions when an entity is acting as an agent in providing services to customer.
Wealth Management Services: The Company earns wealth management fees from its contracts with trust and
brokerage customers to manage assets for investment, and/or to transact on their accounts. These fees are earned as
the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale
of the market value of assets under management at month-end. Fees that are transaction based, including trade
execution services, are recognized at the point in time that the transaction is executed, i.e. the “trade date”. Other
related services provided include financial planning services, which are based on a fixed fee schedule, and are
recognized when the services are rendered.
Cash Management: The Company earns fee income on accounts receivable financing relationships. The
Company recognizes the fee income when the invoices are funded.
Mortgage Banking Income: The Company earns revenues from both selling and servicing of consumer 1-4 family
mortgages sold to Freddie Mac. The origination revenues are recognized when the loan is sold and funded by Freddie
Mac. Servicing revenues are earned for maintaining the payment processing of the loan and are recognized each
month when the loan payment is processed.
Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the
property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances

32
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations
under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the
OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to
the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain
(loss) on sale if a significant financing component is present.
Based on the Company’s analysis, none of the contracts discussed above required a material cost to obtain or fulfill the
contract, which resulted in no capitalized assets associated with these contracts as of December 31, 2023 and 2022.

Note 17. Earnings Per Common Share

The following data shows the amounts used in computing earnings per common share and the effect on the weighted
average number of shares of dilutive potential common stock. The potential common stock did not have an impact on
net income. Shares related to unvested restricted stock grants are included in the weighted average number of common
shares outstanding because the holders participate in non-refundable dividends and have voting rights during the vesting
period.
2023 2022
Weighted average number of common shares, basic 4,705,673 4,717,918
Effect of dilutive stock options — 8,412
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS 4,705,673 4,726,330

There were no antidilutive options for the years ended December 31, 2023 and 2022.

Note 18. Financial Instruments with Off-Balance-Sheet Risk

The Bank is a party to credit related financial instruments with off-balance-sheet risk in the normal course of business
to meet the financial needs of its customers. These financial instruments include commitments to extend credit, standby
letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows
the same credit policies in making commitments as it does for on-balance-sheet instruments.
At December 31, 2023 and 2022, the following financial instruments were outstanding whose contract amounts
represent credit risk:
Contract Amount
(dollars in thousands) 2023 2022
Commitments to grant loans $ 10,998 $ 8,836
Unfunded commitments under lines of credit 188,125 196,747
Commercial and standby letters of credit 3,860 5,325
Cash management unfunded commitments 68,017 35,383

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the
total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it
is deemed necessary by the Bank, is based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements
are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not
contain a specified maturity date and may not be drawn upon to the total extent to which the Bank is committed. The
amount of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the
customer.

33
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private
borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The
Bank generally holds collateral supporting those commitments, if deemed necessary.
The Company’s reserve for unfunded commitments totaled $559,789 and $0 at December 31, 2023 and 2022,
respectively. (See Notes 3 & 4 for additional information.)
The Company has invested in several funds primarily consisting of Small Business Investment Companies (SBIC)
and housing equity funds. The unfunded commitment remaining on these funds totaled $6,074,813 and $4,927,400 as
of December 31, 2023 and 2022, respectively. In 2022, the Company invested in two Fintech investments which are
included in other assets at cost on the consolidated balance sheet. The balance of these investments total $1,148,326 and
$643,813 as of December 31, 2023 and 2022, respectively. The unfunded commitment remaining on these funds totaled
$2,614,745 and $3,296,684 as of December 31, 2023 and 2022, respectively.
CFS maintains its cash accounts in several correspondent banks. The total amount by which cash on deposit in those
banks exceeded the federally insured limits was $2,401,983 at December 31, 2023.

Note 19. Derivatives

To mitigate exposure to interest costs, in May 2020, the Company purchased an interest rate cap with a rate of
0.75% and a 10-year term. The instrument’s hedge was $50 million of FHLB borrowings maturing quarterly with
similar reset dates. These borrowings were expected to be rolled quarterly, with its fixed rate set based on 3-month
LIBOR. In February 2022, the Company terminated this interest rate cap and recognized a gain of $3.5 million, which is
included in other noninterest income on the consolidated statements of income. In connection with the termination of
the interest rate cap, the Company repaid the $50 million of FHLB borrowings that were associated with these hedges.
In March 2022, the Company entered into a receive fixed/pay variable interest rate swap agreement. Also, in June
2023 and November 2023, the Company entered into two receive variable/pay fixed interest rate swap agreements. The
Company mitigates the interest rate risk entering into these swap agreements by entering into equal and offsetting swap
agreements with a highly rated third-party financial institution. These back-to-back swap agreements are freestanding
derivatives and are recorded at fair value in the Company’s consolidated balance sheets (asset positions are included in
other assets and liability positions are included in other liabilities).
The following table presents the notional and fair values of the derivative agreements for December 31, 2023:
December 31, 2023
(dollars in thousands) Notional amount Fair Value
Interest rate swap agreement
Receive fixed/pay variable swap $ 50,000 $ (1,751)
Receive variable/pay fixed swap 177,065 (2,194)

The Company does not use derivatives for trading or speculative purposes.

Note 20. Business Acquisition

On May 1, 2023, the Company acquired 100% of the assets of PDM Financial, LLC. Under the terms of the
acquisition, the Company received $8,870,207 in outstanding receivables which is included in the total assets acquired
amount in the table below. With the acquisition, the Company is expanding its cash management division while also
diversifying the overall concentration by industry. Acquisition-related costs of $58,535 are included in professional fees
on the Company’s income statement for the year ended December 31, 2023.

34
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

Included in the consideration paid amount below is a contingent liability of $2,492,000, in which payments will be
made based on growth of the portfolio. This amount is recorded in other liabilities. An assessment will be performed to
revalue the liability at each reporting period.
The Company recorded $5,292,000 in goodwill as part of the transaction, which represents the excess of purchase
price over the fair value of net assets acquired. The amount of goodwill that is expected to be deductible for income tax
purposes is $4.8 million.
(dollars in thousands)
Consideration paid $ 14,505
Factoring portfolio acquired $ 8,870
Other assets 2,040
Portfolio reserves assumed 1,697
Total identifiable net assets $ 9,213

Goodwill $ 5,292

Assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date, the fair
value adjustments in relation to carrying value were not significant.
The following table presents information on amortizable intangible assets included on the consolidated balance sheet
as of December 31, 2023:
December 31, 2023
(dollars in thousands) Gross Carrying Accumulated Net Carrying
Customer relationships intangible $ 2,200 $ 147 $ 2,053

Intangible amortization expense is included in noninterest expense in the consolidated statements of income.
The following table represents estimated intangible asset amortization expense of the customer relationships
intangibles for the next five years and thereafter from the date stated:
(dollars in thousands) December 31,
2024 $ 220
2025 220
2026 220
2027 220
2028 220
Thereafter 953
Total $ 2,053

Note 21. Fair Value of Assets and Liabilities

Determination of Fair Value
CFS uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair
value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best
determined based upon quoted market prices. However, in many instances, there are not quoted market prices for CFS's
various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument.

35
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current
market conditions. If there has been a significant decrease in volume and level of activity for the asset or liability, a change
in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the
price at which willing market participants would transact at the measurement date under current market conditions
depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point
within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, CFS groups its financial assets and financial liabilities generally measured at fair
value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the
assumptions used to determine fair value.
Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities and generally includes
debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available
pricing sources for market transactions involving identical assets or liabilities.
Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the asset or liability.
Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.
The following methods and assumptions were used by CFS in estimating fair value disclosures for financial
instruments:

Cash and Cash Equivalents and Interest-Bearing Deposits in Banks

The carrying amounts of cash and short-term instruments approximate fair values based on the short-term nature of
the assets.

Securities
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon
quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing
independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily
from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain
securities are unobservable and/or there is little, if any, market activity then the security would fall to the lowest level of
the hierarchy (Level 3).
The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be
Level 2. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities
portfolio. The vendor’s primary source for security valuation is Interactive Data Corporation (“IDC”), which evaluates
securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade,
bid, and other market information. Generally, the methodology includes broker quotes, proprietary modes, vast
descriptive terms and conditions databases, as well as extensive quality control programs.
The vendor utilizes proprietary valuation matrices for valuing all municipal securities. The initial curves for
determining the price, movement, and yield relationships within the municipal matrices are derived from industry
benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer,
credit support, state of issuance and rating to incorporate additional spreads to the industry benchmark curves.

36
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

The Company uses an independent valuation information source that draws on quantitative models and market data
contributed from over 4,000 market participants, to validate third party valuations. Any material differences between
valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source.
Other investments, which include FRB and FHLB stock, are carried at cost.

Loans Held For Sale

Loans held for sale include mortgage loans and are carried at the lower of cost or market value. The fair values of
mortgage loans held for sale are based on current market rates from investors within the secondary market for loans with
similar characteristics. Carrying value approximates fair value.

Loans Receivable
Fair values for loans are estimated using discounted cash flow analyses, using market interest rates for comparable
loans. Also included in the fair values for loans is a credit component adjustment. Fair values for nonperforming loans
are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Cash Management Accounts

The carrying value of cash management accounts approximates their fair value. The future cash flows from these
accounts are short-term in nature (less than 90 days) and the rate of return approximates current market rates.

Commercial Mortgage Loan Repurchase Facilities

The fair value of commercial mortgage loan repurchase facilities was determined using a discount cash flow
technique. Interest rates appropriate to the maturity and underlying collateral are used for discounting the estimated cash
flows. As observable market interest rates are used, the fair value of commercial mortgage loan repurchase facilities was
classified as Level 2.

Deposits
The fair values disclosed for demand deposits (for example, interest and noninterest checking, savings, and certain
types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is,
their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of
deposit, if any, approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a
schedule of aggregated expected monthly maturities on time deposits.

Short-Term Debt
The carrying amounts of short-term debt maturing within 90 days approximate their fair values. Fair values of short-
term debt are estimated using discounted cash flow analyses based on current market rates and similar types of borrowing
arrangements.

Subordinated Notes and Trust Preferred Capital Notes

Current market rates for debt with similar terms and remaining maturities are used to estimate fair value of existing
debt. Fair value of long-term debt is based on quoted market prices or dealer quotes for the identical liability when traded
as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to
estimate fair value.
The fair value of the Company’s subordinated notes is estimated by utilizing recent issuance rates for subordinated
debt offerings of similar issuer size.

Accrued Interest
The carrying amounts of accrued interest approximate fair value.

37
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Off-Balance-Sheet Credit-Related Instruments

Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standings.

Derivative Asset
Derivative instruments held or issued by the Company for risk management purposes are traded in over-the-counter
markets. For those derivatives, the Company measures fair value using models that use primarily market observable
inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk. The
Company classifies derivative instruments held or issued for risk management purposes as Level 2. As of December 31,
2022, the Company’s derivative instrument consists solely of an interest rate swap.

Assets Measured at Fair Value on a Recurring Basis

The following table presents the balances of financial assets measured at fair value on a recurring basis as of December
31, 2023 and 2022:
Fair Value Measurements Using
Quoted Prices Significant
in Active Other Significant
Carrying Markets for Observable Unobservable
(dollars in thousands) Value Identical Assets Inputs Inputs (Level 3)
December 31, 2023
Securitites available-for-sale:
US Treasury $ 444 $ — $ 444 $ —
Securities of state and political subdivisions 180,991 — 180,991 —
SBA loan pooled securities 2,665 — 2,665 —
Mortgage-backed securities
Agency 54,426 — 54,426 —
Non-agency 186,455 — 186,455 —
Other debt securities 57,937 — 57,937 —
Total assets at fair value $ 482,918 $ — $ 482,918 $ —

December 31, 2022

Securitites available-for-sale:
US Treasury $ 432 $ — $ 432 $ —
Securities of state and political subdivisions 237,605 — 237,605 —
SBA loan pooled securities 2,302 — 2,302 —
Mortgage-backed securities
Agency 50,256 — 50,256 —
Non-agency 111,568 — 111,568 —
Other debt securities 44,286 — 44,286 —
Total assets at fair value $ 446,449 $ — $ 446,449 $ —

As of December 31, 2023, there were no assets classified as Level 3 to be measured at fair value on a recurring basis.

38
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

Assets Measured at Fair Value on a Nonrecurring Basis

Under certain circumstances, CFS makes adjustments to the fair value of certain assets and liabilities although they
are not measured at fair value on a recurring basis. The following table presents assets carried on the consolidated balance
sheet by caption and by level in the fair value hierarchy at December 31, 2023 and 2022, for which a nonrecurring
change in fair value has been recorded:
Fair Value Measurements
at December 31, 2023 Using
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(dollars in thousands) (Level 1) (Level 2) (Level 3)
Collateral-dependent loans $ – $ – $ 242
Foreclosed assets – – 839

Fair Value Measurements

at December 31, 2022 Using
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(dollars in thousands) (Level 1) (Level 2) (Level 3)
Impaired loans $ – $ – $ 1,602
Foreclosed assets – – 971

Fair Value Measurements at December 31, 2023

Fair Valuation Weighted
(dollars in thousands) Value Techniques Unobservable Inputs Average
Assets:
Collateral-dependent loans $ 242 Market comparables Discount applied to market comparables (1) 35.6%
Foreclosed assets 839 Market comparables Discount applied to market comparables (1) 55.7%
Total $ 1,081
(1) A discount percentage is applied based on age of independent appraisals, selling costs, current market conditions, and experience within the local market.

Fair Value Measurements at December 31, 2022

Fair Valuation Weighted
(dollars in thousands) Value Techniques Unobservable Inputs Average
Assets:
Impaired loans $ 1,602 Market comparables Discount applied to market comparables (1) 12.6%
Foreclosed assets 971 Market comparables Discount applied to market comparables (1) 41.3%
Total $ 2,573
(1) A discount percentage is applied based on age of independent appraisals, selling costs, current market conditions, and experience within the local market.

Collateral-dependent Loans
Collateral-dependent loans with specific reserves are carried at fair value, which equals the estimated market value of
the collateral less estimated costs to sell. Collateral may be in the form of real estate, securities, or business assets,
including equipment, inventory, and accounts receivable. A loan may have multiple types of collateral; however, the
majority of the Company’s loan collateral is real estate. The value of real estate collateral is generally determined utilizing
a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the

39
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to
differences in the comparable properties or is discounted by the Company because of lack of marketability, then the fair
value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant or
the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for
inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Fair
value adjustments are recorded in the period incurred as provision for credit losses on the consolidated statements of
income.
Foreclosed Assets
Fair values of foreclosed assets are carried at the lower of carrying value or fair value less selling costs. Fair value is
based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the
collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the
Company records the foreclosed asset as Level 2 valuation. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the appraised value and there is no observable market
price, the Company records the foreclosed asset as Level 3 valuation. Any fair value adjustments are recorded in the
period incurred as a foreclosed asset expense on the Consolidated Statements of Income.
The estimated fair values, and related carrying or notional amounts, of CFS’s financial instruments are as follows:
Fair Value Measurements at December 31, 2023
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Carrying Assets Inputs Inputs Total Fair
(dollars in thousands) Value Level 1 Level 2 Level 3 Value
Financial assets:
Cash and cash equivalents $ 36,241 $ 36,241 $ — $ — $ 36,241
Securities available for sale 482,918 — 482,918 — 482,918
Other investments 3,788 — — 3,788 3,788
Loans 821,028 — 795,987 242 796,229
Cash management accounts 34,466 — 35,759 — 35,759
Commercial mortgage loan
repurchasing facilities 8,899 — 8,671 — 8,671
Accrued interest receivable 6,505 — 6,505 — 6,505

Financial liabilities:
Deposits $ 1,265,977 $ — $ 1,163,419 $ — $ 1,163,419
Trust preferred capital notes 5,155 — 3,448 — 3,448
Short-term debt 62,429 — 62,391 — 62,391
Subordinated notes 20,000 — — 19,487 19,487
Accrued interest payable 734 — 734 — 734
Interest rate swap 3,945 — 3,945 — 3,945

40
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTESFINANCIAL
NOTES TO CONSOLIDATED TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS

Fair Value Measurements at December 31, 2022

Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Carrying Assets Inputs Inputs Total Fair
(dollars in thousands) Value Level 1 Level 2 Level 3 Value
Financial assets:
Cash and cash equivalents $ 26,395 $ 26,395 $ — $ — $ 26,395
Securities available for sale 446,449 — 446,449 — 446,449
Other investments 3,322 — — 3,322 3,322
Loans 740,813 — 728,448 1,602 730,050
Cash management accounts 29,142 — 30,055 — 30,055
Commercial mortgage loan
repurchase facilities 8,128 — 8,020 — 8,020
Accrued interest receivable 5,856 — 5,856 — 5,856

Financial liabilities:
Deposits $ 1,166,240 $ — $ 1,007,767 $ — $ 1,007,767
Trust preferred capital notes 5,155 — 4,375 — 4,375
Short-term debt 45,979 — 45,692 — 45,692
Subordinated notes 20,000 — — 19,378 19,378
Accrued interest payable 144 — 144 — 144
Interest rate swap 2,917 — 2,917 — 2,917

CFS assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a
result, the fair values of CFS's financial instruments will change when interest rate levels change and that change may be either
favorable or unfavorable to CFS. Management attempts to match maturities of assets and liabilities to the extent believed
necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate
environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are
more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate
environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by
adjusting terms of new loans and deposits and by investing in securities with terms that mitigate CFS's overall interest rate risk.

Note 22. Minimum Regulatory Capital Requirements

CFS and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on CFS’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. A financial institution’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions
are not applicable to bank holding companies.
The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III
rules) became effective for the Company on January 1, 2015 with full compliance of all requirements being phased in
over a multi-year schedule, and fully phased in by January 1, 2019. The net unrealized gain or loss on available for sale
securities is not included in computing regulatory capital. Management believes, as of December 31, 2022, the Company
and Bank meet all capital adequacy requirements to which they are subject.
Now fully phased in on January 1, 2019, the Basel III Capital Rules require the Company and the Bank to maintain
(i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital
conservation buffer” (which is added to the 4.5% Common Equity Tier 1 capital ratio as that buffer is phased in,

41
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

effectively resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 7.0% upon full
implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital
conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a
minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital (that is, Tier 1 plus
Tier 2) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total
capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full
implementation) and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average quarterly
assets.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2023:
Total Capital (to Risk-
Weighted Assets):
Company $ 163,661 13.8% $ 95,066 8.0% N/A
Bank $ 156,947 13.2% $ 94,801 8.0% $118,502 10.0%
Tier 1 Capital (to Risk-
Weighted Assets):
Company $ 133,693 11.3% $ 71,300 6.0% N/A
Bank $ 146,979 12.4% $ 71,101 6.0% $ 94,791 8.0%
Tier 1 Capital (to
Average Assets):
Company $ 133,693 9.1% $ 58,921 4.0% N/A
Bank $ 146,979 10.0% $ 58,612 4.0% $ 73,265 5.0%
Common Equity Tier 1
Capital (to Risk-
Weighted Assets)
Company $ 128,693 10.8% $ 53,475 4.5% N/A
Bank $ 146,979 12.4% $ 53,326 4.5% $ 77,017 6.5%

As of December 31, 2022:

Total Capital (to Risk-
Weighted Assets):
Company $ 163,610 15.9% $ 82,361 8.0% N/A
Bank $ 155,764 14.9% $ 83,674 8.0% $104,593 10.0%
Tier 1 Capital (to Risk-
Weighted Assets):
Company $ 134,199 13.0% $ 61,770 6.0% N/A
Bank $ 146,353 14.0% $ 62,756 6.0% $ 83,674 8.0%
Tier 1 Capital (to
Average Assets):
Company $ 134,199 9.6% $ 55,878 4.0% N/A
Bank $ 146,353 10.5% $ 55,537 4.0% $ 69,421 5.0%
Common Equity Tier 1
Capital (to Risk-
Weighted Assets)
Company $ 129,199 12.5% $ 46,328 4.5% N/A
Bank $ 146,353 14.0% $ 47,067 4.5% $ 67,985 6.5%

42
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 23. Accumulated Other Comprehensive Income

Changes in each component of accumulated other comprehensive income for the years ended December 31, 2023
and 2022 were as follows:
Unrealized Gains Unpaid Unrealized
on Available-for- Gains on Cash
Sale Securities Flow Hedges Total
Balance at December 31, 2022 $ (47,826,361) $ (2,304,603) $ (50,130,964)
Other comprehensive income before reclassification 10,606,215 (853,764) 9,752,451
Amounts reclassified from accumulated other
comprehensive income 2,884,185 — 2,884,185
Net current-period other comprehensive income 13,490,400 (853,764) 12,636,636
Balance at December 31, 2023 $ (34,335,961) $ (3,158,367) $ (37,494,328)

Balance at December 31, 2021 $ 9,444,494 $ 1,586,054 $ 11,030,548

Other comprehensive income before reclassification (60,574,142) (3,890,657) (64,464,799)
Amounts reclassified from accumulated other
comprehensive income 3,303,287 — 3,303,287
Net current-period other comprehensive income (57,270,855) (3,890,657) (61,161,512)
Balance at December 31, 2022 $ (47,826,361) $ (2,304,603) $ (50,130,964)

Details regarding reclassifications out of accumulated other comprehensive income for the years ended December 31,
2023 and 2022 were as follows:
Amount
Reclassified Affected Line Item in the
Year Ended December 31, 2023 from AOCI Consolidated Income Statement
Realized loss on sale of securities $ (2,884,185) Net loss on sales of securities available for sale
Income tax benefit 605,679 Income tax benefit
Total reclassifications $ (2,278,506) Net of tax

Amount
Reclassified Affected Line Item in the
Year Ended December 31, 2022 from AOCI Consolidated Income Statement
Realized gain on sale of securities $ (3,303,287) Net gain on sales of securities available for sale
Income tax expense 693,690 Income tax expense
Total reclassifications $ (2,609,597) Net of tax

Note 24. Condensed Parent Company Financial Statements

The following parent company accounting policies should be read in conjunction with the related condensed balance
sheets, statements of income, and statements of cash flows.
Investments in subsidiaries are accounted for using the equity method of accounting. The parent company and its
subsidiaries file a consolidated federal income tax return. The subsidiaries' individual tax provisions and liabilities are
stated as if they filed separate returns and any benefits or detriments of filing the consolidated tax return are absorbed by
the parent company.
The parent company's principal assets are its investments in its wholly-owned subsidiaries. Dividends from the Bank
are the primary source of funds for the parent company. The payment of dividends by the Bank is restricted by various
statutory limitations. Banking regulations also prohibit extensions of credit by the Bank to the parent company unless
appropriately secured by assets. As of December 31, 2023, the amount available for payment of additional dividends
without prior regulatory approval from the Bank to the parent company is $31,651,807 or 40.03% of consolidated net
assets.

43
2023 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheets (Condensed)

December 31,
2023 2022
Assets
Cash $ 589,072 $ 516,121
Investment in subsidiaries 120,146,529 101,218,483
Premises and equipment, net 1,239,294 1,269,486
Other assets 1,904,675 1,730,471
Total assets $ 123,879,570 $ 104,734,561

Liabilities and Shareholders’ Equity

Trust preferred capital notes $ 5,155,000 $ 5,155,000
Subordinated notes 20,000,000 20,000,000
Other liabilities 181,568 512,412
Shareholders’ equity 98,543,002 79,067,149
Total liabilities and shareholders’ equity $ 123,879,570 $ 104,734,561

Statements of Income (Condensed)

2023 2022
Income: Dividends from subsidiaries $ 5,309,684 $ 5,103,615
Gain from sale of VISA Class B stock 2,241,178 —
Other 333,815 406,342
Total income 7,884,677 5,509,957

Expenses: Interest expense 997,271 817,389

Other expenses 1,663,393 1,637,390
Total expenses 2,660,664 2,454,779

Income before income taxes and equity in undistributed

earnings of subsidiaries 5,224,013 3,055,178
Allocated income tax benefit 3,388 434,859
Income before equity in undistributed earnings of subsidiaries 5,227,401 3,490,037
Equity in undistributed earnings of subsidiaries 4,892,337 14,138,550
Net income $ 10,119,738 $ 17,628,587

44
CHESAPEAKE FINANCIAL SHARES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of Cash Flows (Condensed)

2023 2022
Cash Flows from Operating Activities
Net income $ 10,119,738 $ 17,628,587
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 30,192 80,351
Equity in distributed earnings of subsidiaries (4,892,337) (14,138,550)
Gain on sale of VISA Class B stock (2,241,178) —
Stock-based compensation 364,806 411,630
Issuance of common stock for services 241,921 201,869
Changes in other assets and liabilities:
Increase in other assets (173,447) (567,457)
(Decrease) increase in other liabilities (330,844) 102,299
Net cash provided by operating activities $ 3,118,851 $ 3,718,729

Cash Flows from Investing Activities

Proceeds on sale of VISA Class B stock $ 2,241,178 $ —
Capital contribution to the Bank (1,800,000) —
Net cash used in investing activities $ 441,178 $ —

Cash Flows from Financing Activities

Dividends paid $ (2,846,742) $ (2,735,803)
Repurchase of common stock (640,336) (1,576,759)
Exercise of stock options — 162,250
Net cash provided by (used in) financing activities $ (3,487,078) $ (4,150,312)

Net increase (decrease) in cash $ 72,951 $ (431,583)

Cash at beginning of year 516,121 947,704

Cash at end of year $ 589,072 $ 516,121

45
2023 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Overview: Chesapeake Financial Shares, Inc. (CFS or the “Company”) recorded net income of
$10,119,738 for 2023. The return on average equity in 2023 was 11.04% and return on average assets was 0.73%
compared to 20.89% and 1.32%, respectively, in 2022. At December 31, 2023, CFS had total assets of $1.471 billion,
which was an increase of 10.7% when compared to December 31, 2022. The Company ended 2023 with total gross
loans of $821.0 million, and total deposits of $1.27 billion, an increase of 10.8% and 8.6%, respectively.
The current economic environment continued to cause competitive pricing pressures on loans and deposits. Despite
the pressures mentioned, loan volume was up $80.2 million for 2023, which brought the average annual loan growth rate
for the last five years to 10.1%. Total past due and nonaccrual loans decreased by $1.2 million from December 31, 2022
to December 31, 2023. The allowance for credit loss to gross loans less unearned discounts remained at 1.0% as of
December 31, 2023 and December 31, 2022. The deposit increase of 8.6% for 2023 brought the average annual deposit
growth rate for the last 5 years to 11.2%. With the significant rate increases by the Federal Reserve, rising 5.25% over the
last 2 years, CFS had increasing competitive pressures with attracting and retaining deposits during the year. These
pressures have resulted in increasing cost of funds throughout 2023 rising from 0.50% in December 31, 2022 to 1.99%
at December 31, 2023.
Summary of Results of Operations: Net income for 2023 was $10,119,738, or $2.15 per share (fully diluted)
compared to $17,628,587 or $3.73 per share (fully diluted) in 2022, a decrease of $7,508,849. Net interest income
before the provision for loan losses was down 5.9% from 2022. There was a 2.6% or $581,146 increase in noninterest
income, primarily due to the gain on sale of VISA B shares totaling $1,901,178 along with cash management income
increasing from 2022 by $2,036,513, or 63.7%. Merchant services income increased from 2022 by $255,775, or 5.2%
while trust and wealth management remained flat year over year. During 2023, the Company recognized net losses on
sale of securities totaling $2,884,185 due to repositioning of the investment portfolio. Noninterest expense increased by
13.6% or $6,128,855 in 2023 over 2022.
Assets
Loan Portfolio: The loan portfolio is the largest component of earning assets for the Company and accounts for the
greatest portion of total interest income. The gross loan portfolio totaled $821.0 million and $740.8 million as of
December 31, 2023 and 2022, respectively, representing an increase of 10.8% year over year. Commercial loans
(including real estate and non-real estate combined) were up 8.1% or $38.3 million while residential and consumer loan
balances were up 15.0% or $38.6 million and 35.4% or $3.3 million, respectively, at December 31, 2023 compared to
December 31, 2022.
On December 31, 2023, the loan portfolio consisted of 62.4% commercial and commercial real estate loans, 36.0%
single-family residential and construction/land loans, and 1.5% consumer. Commercial loans consisted primarily of
business loans such as owner-occupied commercial development, retail, builders/contractors, medical, service and
professional, hospitality, nonprofits, marine industry, and a small portion of agricultural and seafood loans.
Total nonperforming assets consisted of nonaccrual loans, performing restructured loans, repossessed and foreclosed
properties, and other real estate owned. Nonperforming assets were $2,128,058 at December 31, 2023, which
represented a 61.4% decrease from $5,518,766 at December 31, 2022. Past due loans over 30 days, excluding
nonaccrual, totaled $988,748 and $366,697 as of December 31, 2023 and 2022, respectively. Nonaccrual loans were
$1.3 million or 0.2% of total loans at December 31, 2023. On December 31, 2022, nonaccrual loans totaled $3.1
million or 0.4% of total loans.
Investment Securities: All of CFS's debt securities are classified as securities available for sale and are carried at fair
market value. Debt securities may be classified as investment securities (held to maturity) when management has the
intent and CFS has the ability at the time of purchase to hold the securities to maturity. Securities available for sale
include securities that may be sold in response to changes in market interest rates, changes in the securities option or
credit risk, increases in loan demand, general liquidity needs and other similar factors.
The fair market value of the portfolio was $43,463,242 pre-tax less than amortized cost at December 31, 2023, and
was $60,539,699 less than amortized cost at December 31, 2022. Investments are reviewed quarterly for potential credit
losses and subsequent write-down. As of December 31, 2023, there was no allowance for credit losses recorded for the
Company’s available for sale securities portfolio. All decreases in fair market value were as a result of the current rate and
economic environment.
46
CHESAPEAKE FINANCIAL SHARES, INC.
 MANAGEMENT’S MANAGEMENT’S
DISCUSSION DISCUSSION
AND ANALYSIS OF AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

At December 31, 2023, total securities at fair market value were $482.9 million, up $36.5 million from $446.4
million on December 31, 2022. The below table represents the investment mix for the years ended December 31, 2023
and 2022:
Percent
2023 2022 Change Change
US Treasury $ 444,063 $ 432,207 $ 11,856 2.7%
Securities of state and political
subdivisions 180,991,113 237,604,900 (56,613,787) (23.8%)
SBA loan pooled securities 2,664,854 2,301,665 363,189 15.8%
Mortgage-backed securities 240,881,225 161,824,604 79,056,621 48.9%
Other debt securities 57,936,576 44,285,905 13,650,671 30.8%
$ 482,917,831 $ 446,449,281 $ 36,468,550 8.2%

Asset Quality-Provision/Allowance for Loan Losses: The provision for credit losses is a charge against earnings
necessary to maintain the allowance for loan losses at a level consistent with management's evaluation of the credit quality
and risk adverseness of the loan portfolio. The allowance for credit losses represents management’s estimate of the amount
adequate to provide for potential losses inherent in the loan portfolio. To achieve this goal, the credit loss provision must
be sufficient to cover loans charged off plus any growth in the loan portfolio and recognition of specific loan impairments.
In determining the adequacy of the allowance for credit losses, management uses a methodology which specifically
identifies and reserves for higher risk loans. Loans in a nonaccrual status and over 90 days past due are considered in this
evaluation as well as other loans, which may be a potential loss. The status of nonaccrual and past due loans varies from
quarter to quarter based on seasonality, local economic conditions, and the cash flow of customers. A general reserve is
established for nonspecifically reserved loans.
The allowance for credit losses was $7,881,960, or 1.0%, of gross loans at December 31, 2023. This ratio was 1.0%
on December 31, 2022, and 1.0% at December 31, 2021. The table below represents the provision for credit losses taken
in years 2023 and 2022 as well as loans charged off and subsequent recoveries:

2023 2022
Provision for credit losses $ 699,996 $ 699,996
Loans charged off 284,631 156,417
Recoveries 52,189 175,598

Management and the Board of Directors believe that the total allowance at December 31, 2023 was adequate relative
to current levels of risk in the portfolio. However, continued loan growth or increases in specific problem loans may
warrant additional provisions in the future.
Adoption of Current Expected Credit Loss (CECL): On January 1, 2023, CFS replaced the incurred loss
methodology with the expected loss methodology for estimating credit losses for the remaining estimated life of the
financial asset. The impact of this standard decreased the allowance for credit losses on loans $98 thousand, increased the
allowance for credit losses on unfunded loan commitments $470 thousand (which is recorded within other liabilities on
the financial statements), and increased the allowance for credit losses for cash management $135 thousand. The
cumulative effect of the adoption of CECL, net of deferred tax, totaled a $400 thousand decrease to retained earnings.
Foreclosed Assets: As of December 31, 2023, the Bank held $839,212 in foreclosed assets. These assets are being
actively marketed through real estate channels and represent near term secondary sources of liquidity. The Company was
able to dispose of one other real estate owned property during 2023.
Liabilities
Deposits: CFS depends on deposits to fund most of its lending activities, generate fee income opportunities, and
create a market for other financial service products. Deposits are also the largest component of CFS’s liabilities and
account for the greatest portion of interest expense.

47
2023 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Deposits totaled $1.3 billion and $1.2 billion, as of December 31, 2023 and 2022, respectively, and represented an
increase of 8.6% for December 31, 2023 over December 31, 2022. The below table represents a breakdown of total
deposits:
Percent
2023 2022 Change Change
Demand accounts $ 275,582,472 $ 343,930,336 $ (68,347,864) (19.9%)
Savings and interest bearing deposits 663,803,703 702,647,684 (38,843,981) (5.5%)
Certificates of deposit 236,791,051 119,661,968 117,129,083 97.9%
Brokered certificates of deposit 89,800,000 — 89,800,000 100.0%
Total deposits $ 1,265,977,226 $ 1,166,239,988 $ 99,737,238 8.6%

Net Interest Income: The principal source of earnings for CFS is net interest income. Net interest income is the
difference between interest plus fees generated by earning assets and interest expense paid to fund those assets. As such,
net interest income represents the gross profit from the Bank's lending, investment, and funding activities.
A large number of variables interact to affect net interest income. Included are variables such as changes in the mix
and volume of earning assets and interest bearing liabilities, market interest rates, and the statutory federal tax rate.
During 2023, CFS had a significant shift in deposit mix, moving from non-maturing deposits to certificates of deposits,
in an effort to remain competitive with competition. It is management's ongoing policy to maximize net interest income
through the development of balance sheet and pricing strategies while maintaining appropriate risk levels as set by the
Board of Directors.
Net interest income totaled $41.6 million and $44.1 million, for 2023 and 2022, respectively, representing a
decrease of 5.9% for 2023 over 2022. Total interest income was $59.9 million and $47.3 million for 2023 and 2022,
respectively. Total interest expense was $18.3 million and $3.2 million for 2023 and 2022, respectively. On a
consolidated tax equivalent annualized basis, the 2023 net interest margin was 3.5%. As the Federal Reserve increased
rates, CFS had increasing pressures to increase deposit rates, however, yields on loans did not move at the same levels
causing increased compression on the net interest margin.
Noninterest Income: Noninterest income represented 27.5% of the total gross revenue for the Company. Sources
of noninterest income include the Company’s merchant processing services (Chesapeake Payment Systems), accounts
receivable financing (Flexent), wealth management and trust services (Chesapeake Wealth Management) and mortgage
banking income.
For the year ended December 31, 2023, noninterest income was $22.8 million. This represents an increase in
noninterest income of $581,146 for the year. A large contributor to the increase in noninterest income included an
increase in cash management of $2,336,513 for 2023. Of that, $1,601,526 is related to the acquisition of a trucking
factoring company in Iowa, PDM Financial, LLC which closed May 1, 2023. This acquisition allows CFS to expand the
cash management division while also diversifying that portfolio of business.

48
CHESAPEAKE FINANCIAL SHARES, INC.
 MANAGEMENT’S
DIRECTORS DISCUSSION AND ANALYSIS OF
AND OFFICERS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Changes in noninterest income categories are highlighted below:

Percent
2023 2022 Change Change
Trust and wealth management income $ 3,983,834 $ 4,074,761 $ (90,927) (2.2%)
Service charge income 1,015,833 972,320 43,513 4.5%
Net loss on sales of securities available for sale (2,884,185) (3,303,287) 419,102 (12.7%)
Mortgage banking income 874,437 1,678,833 (804,396) (47.9%)
Merchant services income, net 5,190,703 4,934,928 255,775 5.2%
Cash management fee income 5,533,108 3,196,595 2,336,513 73.1%
Interchange income 2,511,453 2,396,683 114,770 4.8%
Gain on termination of interest rate cap — 3,468,395 (3,468,395) (100.0%)
Gain on sale of investment held at cost 1,901,178 2,163,342 (262,164) (12.1%)
Gain on life insurance 482,899 — 482,899 100.0%
K-1 adjustments on SBIC funds 873,004 949,920 (76,916) (8.1%)
Gain on sale of real estate 574,518 — 574,518 100.0%
Change in cash value of BOLI 409,023 420,296 (11,273) (2.7%)
Other income 1,824,358 1,239,135 585,223 47.2%
Total noninterest income $ 22,290,163 $ 22,191,921 $ 98,242 0.4%

Noninterest Expenses: Total noninterest expenses increased 13.6%, or $6.1 million in 2023 over 2022.
Comparing 2023 to 2022, technology expenses increased $785,599 due to implementing a multi-year human + digital
strategy, FDIC assessments increased $255,151 and professional fees increased $383,266. Below is a breakdown of other
expenses for 2023 over 2022:
Percent
2023 2022 Change Change
Provision for cash management account losses $ 240,000 $ 240,000 $ — 0.0%
Advertising 1,738,506 1,881,565 (143,059) (7.6%)
Technology expense 6,171,384 5,385,785 785,599 14.6%
Professional fees 2,754,900 2,371,634 383,266 16.2%
Debit card expense 1,061,530 947,279 114,251 12.1%
Franchise tax 907,112 1,072,053 (164,941) (15.4%)
Charitable contributions 500,036 461,016 39,020 8.5%
Exam and audit 348,900 273,741 75,159 27.5%
Amortization on intangible assets 146,667 — 146,667 100.0%
FDIC assessments 624,719 369,568 255,151 69.0%
Delivery and transportation 358,592 319,108 39,484 12.4%
Stationery and supplies 314,967 292,292 22,675 7.8%
Other 3,759,479 2,909,949 849,530 29.2%
Total noninterest expenses $ 18,926,792 $ 16,523,990 $ 2,402,802 14.5%

Liquidity, Interest Rate Sensitivity, and Inflation: The objectives of CFS's liquidity management policy include
providing adequate funds to meet the needs of depositors and borrowers at all times, as well as providing funds to meet
the basic needs for ongoing operations of CFS, and to allow funding of longer-term investment opportunities and
regulatory requirements. The objective of providing adequate funding should be accomplished at reasonable costs and on
a timely basis. At December 31, 2023, management considers CFS's liquidity to be more than adequate.
The Company obtains funding from a variety of sources, including customer deposits and certificates of deposit, and
payments on our loans and investments. In addition, the Company maintains lines of credit with the FHLB of Atlanta
and various other correspondent banks as well as the discount window. Bank management maintains overnight
borrowing relationships with correspondent banks for up to $325.9 million, secured and unsecured. CFS has access to an
additional secured borrowing relationship of $10.0 million. During 2023, CFS utilized the brokered CD market to aid in
liquidity management and to enter into asset-liability management strategies to foster net interest margin.

49
2023 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Since the assets and liabilities of a bank are primarily monetary in nature (payable in fixed, determinable amounts),
the performance of a bank is affected more by changes in interest rates than by inflation. Interest rate sensitivity refers to
the difference between assets and liabilities subject to repricing, maturity, or volatility during a specified period.
Management’s objective in controlling interest rate sensitivity is to reprice loans and deposits and make investments that
will maintain a profitable net interest margin (see “Net Interest Income”). The Company’s Asset-Liability Committee
(“ALCO”) meets regularly and is responsible for reviewing the interest rate sensitivity position and establishing policies
and strategies to monitor and limit exposure. From time to time CFS will enter into derivative contracts to aid in the
asset-liability management of its balance sheet. During 2023, the Company entered into two receive-variable, pay-fixed
interest rate swaps with a combined notional amount of $177.1 million.
While the effect of inflation is normally not as significant as its influence on those businesses that have large
investments in plant and inventories, it does have an effect. There are normally corresponding increases in the money
supply, and banks will normally experience above average growth in assets, loans and deposits. Also, general increases in
the prices of goods and services will result in increased operating expenses.
Shareholders' Equity: Capital represents funds, earned or obtained, over which management can exercise greater
control in comparison with deposits and borrowed funds. Future growth and expansion of CFS is dictated by the ability
to produce capital. The adequacy of CFS's capital is reviewed by management and the Board of Directors on an ongoing
basis with reference to the size, composition and quality of CFS's asset and liability levels and consistent with regulatory
requirements and industry standards. Management seeks to maintain a capital structure that assures an adequate level to
support anticipated asset growth and absorb potential losses.
The Company’s capital position as of December 31, 2023 is consistent with being well-capitalized under the
regulatory framework for prompt corrective action. The table below represents CFS’s capital ratios as of December 31,
2023 and December 31, 2022:
2023 2022
Total capital to risk-weighted assets 13.8% 15.9%
Tier 1 capital to risk-weighted assets 11.3% 13.0%
Tier 1 capital to average assets 9.1% 9.6%
Common equity tier 1 capital to risk-weighted assets 10.8% 12.5%

Dividend and Market Information: The Company’s stock trades on the “OTC” (Over the Counter) market
under the symbol “CPKF”. The Company has increased its dividend payment annually for more than 31 years. The
Company raised its dividend to $0.61 per share in 2023, an increase of $0.03 over 2022. Trades in the Company's
common stock occurred infrequently and generally involved a relatively small number of shares. Based on information
available, the selling price for the Company's common stock during 2023 ranged from $16.51 to $23.95, and during
2022, from $19.15 to $31.00. Such transactions may not be representative of all transactions during the indicated
periods of the fair value of the stock at the time of such transactions due to the infrequency of trades and the limited
market for the stock. At December 31, 2023, there were 4,718,467 shares of the Company’s common stock outstanding
held by approximately 243 holders of record. During 2023 CFS purchased and retired 26,719 shares of CPKF.

50
CHESAPEAKE FINANCIAL SHARES, INC.
 DIRECTORS AND OFFICERS

Chesapeake Financial Shares, Inc. — Directors Chesapeake Bank — Directors

Jeffrey M. Szyperski Jeffrey M. Szyperski
Chairman of the Board, Chairman of the Board,
Chief Executive Officer and President Chief Executive Officer and President
R. Blaine Altaffer David E. Bush, CPA, CFP, PFS
President and Chief Executive Officer Managing Director
GreenTop Sporting Goods PBMares Wealth Management, LLC
Charles C. Chase, II
Earl T. Granger, III President
Chief Development & Impact Officer Chase Properties, Inc.
The Executive Leadership Council
Stephanie S. Chaufournier
Thomas E. Kellum Managing Partner
President Avenir Advisors, LLC
W. Ellery Kellum, Inc. Daniel L. Hargett
Craig J. Kelly Principal
Managing Director Rebkee
Creekside Consultants James M. Holmes, Jr.
Retired Healthcare Executive
Susan P. Quinn
President and Chief Executive Officer Thomas E. Kellum
circle S studio President
President and Chief Executive Officer W. Ellery Kellum, Inc.
worQ Coach Thomas G. Tingle, AIA
Former President
Dee Ann Remo GuernseyTingle
Chief Executive Officer
Heritage Wealth Advisors
William F. Shumadine, Jr.
Former President
Central Fidelity Bank
Robert J. Singley, Sr.
President
RJS & Associates, Inc.
Thomas G. Tingle, AIA
Former President
GuernseyTingle

51
2023 ANNUAL REPORT
CORPORATE OFFICERS

Chesapeake Bank Jamie L. Johnson Chesapeake Investment

Fontaine S. Kamara Services — Directors
Jeffrey M. Szyperski Kyle E. Martin
Rebecca A. Foster Lisa M. McCullen Rebecca A. Foster
Leigh H. Houghland Donna M. Mitchell John K. O’Shaughnessy
Paula A. Milsted Amy E. Mitchem John M. Sadler
Samuel G. Poole Lynnette D. Mitchem Jeffrey M. Szyperski
John K. O’Shaughnessy Johanna M. Northstein
John M. Sadler Caroline T. Olney Chesapeake Bank —
Francis Bell, III Paula F. Owens Business Advisory Boards
Melissa A. Crawford Ariana J. Root
Amanda B. Sumiel Peninsula
Kristi N. Rowe
Tracy R. Pastella Leo H. Aquino
Melissa S. Seabolt
Catherine J. Root Henry S. Branscome, II
Kathryn A. Smith
Thomas H. Richardson Ronald A. Campana, Jr.
Martha K. Tiernan
Donald J. Seeterlin Vernon M. Geddy, III, Esq.
Stephanie G. Tiller
Kevin S. Wood Lawrence A. Gholson, II
Sherry M. VanLandingham
Tracy S. Elliott Timothy G. Harris
Melanie C. Wynkoop
Thomas L. Adams Lee B. MacLeod
David M. Younce
Vinson W. Berry Mark G. Rinaldi
Jason A. Zickefoose
G. Allen Broaddus Gregory T. Storer
Steven D. Callis Marshall N. Warner
Chesapeake Wealth Benming Zhang
Thomas C. Claiborne Management – Officers
A. Starr Eamigh Northern Neck
Robert F. Faucett Jeffrey M. Szyperski Jeffrey A. Bramblet
Eric D. Floyd John M. Sadler Adrianne G. Bugg
Kyle H. Hendricks Elizabeth D. Swartz Stuart A. Bunting
Erin E. Johnston Beth P. Bartlett James N. Carter, Jr.
Matthew W. Keithley Robert G. Castleman Sandra H. Hargett
T. Hurst Kelley R. Stephen Cornwell S. Lynn Haynie
Catherine D. Mise Kemp H. Gaskill William B. Hubbard
Kasey M. Molloy Jean H. Light W. Bruce Sanders
Kenneth O. Moran Brian T. Moore Harold W. Warren
Troy J. Murphy Elizabeth M. Mullins Middle Peninsula
Helena G. Ortiz Christopher M. Sikes Nancy H. Dykeman, CPA
Dianne H. Pillsbury Tammy P. Stone Joseph F. Fary
Anita B. Pritchett Felicia A. Stovall Dianne D. Hall
Ashley L. Robins Norman W. Watters Mitchell W. Kent
Diana N. Rock S. Brian Kirschbaum
Amber K. Saloka Chesapeake Wealth Stacie L. Martin
Ronald D. Simms Management, Inc. Holding David W. Muffelman, M.D.
Sandra L. Smith Company — Directors Kenneth E. Smith
Teresa W. Stewart Martha W. Soles
Matthew S. Suttmiller John M. Sadler, President Gary T. Ward
Sherry T. Williams Craig J. Kelly
Stacey P. Akers William F. Shumadine, Jr. Richmond
Tanja Brown Jeffrey M. Szyperski Ryan M. Andrew
Courtney A. Carlton Marshall N. Warner E. Hatcher Crenshaw, III
Jackie L. Cooper William B. Crenshaw
Kelly D. DeWitt Chesapeake Wealth Jonathan T. Dare
Jessica L. S. Dehoux Management, Inc. — Directors C. Page George
Brittany D. Gawen Nitin M. Patel
Penny D. Gilbert John M. Sadler, President Lisa J. Patten
Virginia B. Hartmann Rebecca A. Foster Jeff D. Smith, III
Melissa A. Hicks Ted M. Kattmann Paul E. Sorensen
Kevin C. Hill John K. O’Shaughnessy Robert W. Thomas
A. Peter Hoffman Jeffrey M. Szyperski

52
CHESAPEAKE FINANCIAL SHARES, INC.
P.O. Box 1419
Kilmarnock, Virginia 22482

804-435-1181
www.chesapeakefinancialshares.com

Ticker Symbol CPKF