Our president and CEO, Jeff Szyperski, spoke with Stephen Gunnion from Proactive NY about Chesapeake Financial Shares second-quarter performance.
STEPHEN GUNNION
Hello, and thanks for watching Proactiv, Chesapeake Financial Shares. The parent company of Chesapeake Bank and Chesapeake Wealth Management has reported second-quarter results this week. Joining me with all the details is CEO Jeff Szyperski. Jeff, very good to speak to you today.
JEFF SZYPERSKI
Nice, nice to be seen and speak with you, Stephen.
STEPHEN GUNNION
So, Jeff, you’ve reported an increase in earnings for the three months to in June, which you attribute to strong asset quality. Tell us more about the performance.
JEFF SZYPERSKI
Sure. Going into 2022, we’re concerned about what things would look like with a pandemic lingering. Still, we’ve had a good first two quarters, we’ve had some good asset growth, and then our loan quality is as strong as it’s ever been, you know, with non-performing it .46%. That’s roughly 60% of where it was the same time last year, and last year’s number was low. So we feel good about that, especially with, as I said, tumultuous times looking forward. You know, I think we’re positioned well, going into what could be a difficult time. We’ll get
STEPHEN GUNNION
back to that in just a moment. But looking at the second quarter to June, there wasn’t an increase in earnings, it would have been even stronger because last year, the second quarter performance was secured by a $660,000 non-recurring payment. So really strong growth for the quarter.
JEFF SZYPERSKI
Yeah, it was about a 23% increase quarter over quarter from the second quarter of last year after you take out those PPP fees that we recognized in income. So it was a relatively extremely strong quarter for us. We were pleased with it.
STEPHEN GUNNION
I mean, you talked about moving into tumultuous times, Jeff. And I presume you’ve got slowing growth; we’ve got inflation, which could lead to stagflation. How are you positioned for this? What are the headwinds? And how can you position yourself?
JEFF SZYPERSKI
we have just started to see the slowdown of some of the lending pipeline. We’ve had extremely strong, especially commercial on pipeline, and still do. Still, we see new inputs into that pipeline slowing down as rates have increased. We have three specialty lines of business that are, they’re not entirely counter-cyclical, but they’re largely counter-cyclical. And so, in prior slowdowns, AFL Boost Earnings, even when the growth rate of the bank has slowed somewhat. So we anticipate more of that going into the latter part of 2022 into 2023.
STEPHEN GUNNION
He also points out in the commentary that mortgage originations have been steady. But you see that slowing down in the second half of the year as well.
JEFF SZYPERSKI
Yet we still have some ones that have been in the pipeline mortgage-wise that are starting to close now and tail out, and we’re not seeing new applications. We’re still seeing some construction lending that will go into mortgages for us. But in general, the rate increase has put the brakes on most of that type of lending mortgage rates right now or, from a Freddie Mac perspective, are roughly double where they were this time last year.
STEPHEN GUNNION
Jeff, you mentioned non-performing assets coming down to 0.46%. At the end of June, can you maintain it at that level? What do you think?
JEFF SZYPERSKI
I’d like to think we could. I’m a realist. So Stephen, you know, if there is a recession going into 2023, that number most likely will creep up because … economics is economics. It’s just the way it is. But for it to be so extremely low. Going into that, we think we’re really well positioned for that. And I would also say our business customers are starting to pay a little bit more defensively. Also, we see that with the loan slowdown, they’re not leveraging as much they’re throttling back. So they’re not running wide open into these rate increases in a potential recession, either. They’re being very prudent and how they’re managing their balance sheets.
STEPHEN GUNNION
Jeff, are you also taking a more cautious approach to lending?
JEFF SZYPERSKI
You know, we have never changed our lending standards, Stephen. So we don’t see any need to do that. Right now. We have maybe done a bit more scrutiny on online exceptions, whether their loan to value exceptions or debt service coverage ratio exceptions. We’ve gotten a little bit more conservative, but in general, we pretty much stick with our lending standards and in good times. We don’t liberalize them or in tough times. We don’t make them more conservative where we’re pretty consistent. And it has served us well through the years.
STEPHEN GUNNION
Jeff, you’re also pretty consistent with your dividends because you’ve raised the dividend by 7.1% to 15 cents per share. So good news for shareholders.
JEFF SZYPERSKI
Yep, we’ve raised the 7.1%, up from 14 cents a share to 15%. And this will take us into our 30th year, but we have 29 straight years of dividend increases. And so, through the 2008 recession through the pandemic, we’ve raised our dividends based on our earnings every year. So we were here to serve the shareholder. They are they’re our editors. And so we’re very cognizant of that and our return on equity. How, how good return are we providing them?
STEPHEN GUNNION
Oh, how are you finding the third quarter so far? Jeff, what’s your outlook for the remainder of the year?
JEFF SZYPERSKI
As I mentioned before, we do see that some of our specialty lines of business are trending favorably, so they’re going in the right direction. We feel that will somewhat countervail a slowdown in new lending activity. We see that come and feel like well in 2022 and strong fashion. I think the second half of the year will be very different than the first half of the year, but we’re still optimistic about it. But it’ll be more difficult than the first half of the year has been, would be my estimation, just with the sharp level rate increases that the Fed signaled that they would be laying down.
STEPHEN GUNNION
JEFF SZYPERSKI, I’m sure you’ll keep us updated on any progress. But thank you very much for the update today.
JEFF SZYPERSKI
Stephen, thank you very much. Enjoyed it. Thank you. Have a good day.
STEPHEN GUNNION
That’s Jeff Szyperski, who is the CEO of Chesapeake Financial Shares.