Our president and CEO, Jeff Szyperski, spoke with Christine Corrado on Proactive NY about Chesapeake Financial Shares first-quarter performance.
CHRISTINE CORRADO
Hello and welcome back to Proactive New York. Joining me today from Chesapeake Financial Shares is CEO Jeff Szyperski. Jeff, good to see you! How are you?
JEFF SZYPERSKI
Good to see you Christine. Thanks for having me.
CHRISTINE CORRADO
Of course. Jeff, the group posted its first quarter earnings last week. $4.27 million… how did it compare to Q1 of last year?
JEFF SZYPERSKI
At its face value, it was slightly less than last year. But last year in the first quarter we had a bunch of PPP fees that we took. So, when you normalize it year over year, it was a 13.6% increase over the first quarter of 2021. So we were very pleased with that.
CHRISTINE CORRADO
Can you shed some light on how asset quality is performing for you?
JEFF SZYPERSKI
Yeah that’s … our asset quality is as best as it’s been since in over a decade. So, it’s extremely strong. Loan demand, believe it or not, has remained strong. Even in the last quarter as rates have crept up. It’s a little bit less hectic than it was from a new loan demand from last year, especially in the mortgage market. But it still remains strong, and asset quality remains very strong.
CHRISTINE CORRADO
So, you’re not seeing any kind of slowdown in borrowing?
JEFF SZYPERSKI
We’ve seen some slowdown, especially on the mortgage side. It’s really coupled with higher rates, but in our market, and I think nationally there’s just no inventory to sell. Real estate agents are complaining that homes come on the market and they are snatched up right away. So, it’s really a supply of homes that’s slowing our mortgage market somewhat. In addition to the rate increases. But we still have a good pipeline. It’s just not the crazy, scary pipeline that we had through early 2020 and early 2021.
CHRISTINE CORRADO
And in terms of other factors that stand out. The bank unwound a hedge… It chose a $3 million loss on your income statement. Can you explain that for us?
JEFF SZYPERSKI
There’s a line item on the financials… it’s about a $3.4 million loss. But it’s also matched against a $3.4 or $3.5 million gain. So they net basically to zero. But it was a $50 million hedge on our balance sheet that we put on during the early part of the pandemic that served us well during the really low interest rate environment. Now that rates are starting to creep up, the utility of that hedge has gone away somewhat, so we unwound it. And took the commensurate gains and losses. And so they offset each other. So you’ll see it in our financial statement it sticks out as a big loss and a big gain. But they are basically a one-for-one match.
CHRISTINE CORRADO
Before we talk about expectations for Q2, is there anything else that stands out for this particular quarter?
JEFF SZYPERSKI
No, we’re really paying a lot of attention to our net interest margin. As rates have come up and the prognostications at the Fed … Some predictions say they’re going to raise six more times and go 50 basis points at their next meeting… We’re really paying attention to our margin both on the loan rate side… we’ve increased our loan rates as much as the market will bear. But also, paying attention to our deposit rates.
We have tons of deposits — as do all banks in the United States — between PPP funds as well as stimulus checks to individuals. So our loan to deposit ratio right now is right around 60% … we would love for that to be up in the 70 to 80% range. Which is a lot of excess liquidity, so, we feel we can sort of sit tight on the deposit side as rates are starting to go up. And be very measured in the way we increase those rates while preserving our margin.
CHRISTINE CORRADO
So how are you feeling right now about the second quarter?
JEFF SZYPERSKI
I’m feeling good. Our specialty lines of business have come out of the gates — starting in the last quarter of last year — they started ramping up and hit the first quarter in strong fashion. The margin will be the … I described it to our Board of Directors as to sort of separate the wheat from the chaff year as far as banks go.
Because protecting the margin is where the big dollars are Non-interest income is important and expense control is important. But, in a year where rates appear to be going up dramatically it’s really important that we do not take our eye off the margin ball. I feel good about it, especially given our excess liquidity and having a really strong balance sheet — but it’s going to take a lot of … a lot of “watchfulness” I guess is the best way to put it.
CHRISTINE CORRADO
Alright. OK. We will continue to follow progress here. Jeff, thanks so much. Appreciate it.
JEFF SZYPERSKI
Christine thank you. Have a good day.