When the coronavirus (COVID-19) pandemic hit and shut down entire industries, many feared that community banks would suffer too — tied as they are to their small-business borrowers.
Yet those ties to local companies seem to have worked to their distinct advantage. The lion’s share of the first wave of Paycheck Protection Program (PPP) loans, around 60%, went through community banks.
“2020 was a surprisingly good year for community banks despite all of the turmoil in getting there,” Chesapeake Bank chairman and CEO Jeff Szyperski told Proactive.
The Paycheck Protection Program, the US government’s small-business bailout, brought community banks like Chesapeake new customers and kept current ones in business. Stimulus and unemployment checks also boosted deposits and kept borrowers from falling behind on their loans.
As 2021 kicks off, Chesapeake Financial Shares Inc (OTCQX:CPKF), which operates as the bank holding company for Chesapeake Bank, is on the growth fast track. Founded in 1900, Chesapeake Bank is a lender to small businesses. Headquartered in Kilmarnock, Virginia, it operates 16 community banks in the Northern Neck, Middle Peninsula, Williamsburg and Richmond region.
Last year, Chesapeake Bank maximized workflow management to process over 900 PPP loans in three weeks, which is more than it did in all the previous calendar year.
Proactive sat down with CEO Jeff Szyperski, a banker for three decades, to learn more about how the bank is gearing up for the next round of PPP loans. The bank has also presided over digital transformation as its customers have come to rely on smartphone apps and digital services.
A thoughtful risk-taker who is bullish on the banking industry, Szyperski has served as a former chairman of the American Bankers Association and the Virginia Bankers Association.
Proactive: Was 2020 surprisingly good to community banks?
Jeff Szyperski: 2020 was a surprisingly good year for community banks despite all of the turmoil in getting there. When the story was written on 2008 banking was pinned as the “villain” in that story, very unfairly I might add. I think the storyline for 2020 is the exact opposite - banking, especially community banking, was one of the heroes by supporting their communities in uncertain times and quickly and efficiently deploying the Paycheck Protection Program funds coming out of the CARES Act.
I have said many times in the past nine months that if you had asked me in March or April if we at Chesapeake as well as the industry in general would have weathered the pandemic so well, I would not have believed it - and that’s coming from someone who is an optimist and bullish on our industry!
How is Chesapeake Bank prepping for the $900 billion pandemic relief bill that was signed into law at the end of 2020?
We are reforming the PPP teams that we pulled together back in the Spring for Round 1 of PPP. We are also updating the internally developed workflow tool we were able to stand up within a few days that allowed us to process over 900 loans in about three weeks. It was an early-pandemic lesson in flexibility, resiliency and teamwork. We’re really proud of our ability to meet our community needs during this time. Our tag line in our advertising is “It’s All About Community” and this is totally consistent with our mission.
What is the volume of loans that your bank processed during the first round of the Payment Protection Program and what is the fee income you have earned from it?
We processed over 900 loans for about $77 million dollars in round 1 producing $3 million in fees. Of that three million, we recognized $777,000 into 2020 income with the rest being deferred into 2021 awaiting forgiveness applications from the borrowers.
Would you say that at many banks, problem loans have remained concentrated in a handful of hard-hit industries: hospitality and tourism; bricks-and-mortar retail; and energy. But dire predictions that the pandemic would devastate a wide swath of businesses have not materialized?
I would agree with this statement through the first nine months of the pandemic. I don’t know of a banker who is still not girding themselves for future weakness given the fact that we are not out of this crisis yet, but as of now, the dire predictions have not materialized. Since our loan portfolio is exclusively small business, our credit quality holding up is a true testament to the resiliency of small businesses everywhere. They all just found a way to adapt.
Despite the coronavirus pandemic has Chesapeake Bank been successful in increasing its assets?
Our total assets increased 27% year-over-year largely due to the pandemic. A lot of the growth can be attributed to Federal funds coming into our community through stimulus payments as well as PPP loans. Some lesser amount we attribute to an overall increase in savings by our customers.
Can you talk about the digital transformation at Chesapeake Bank?
We developed a comprehensive digital strategy in the Fall of 2018 with the help of an outside consultant. This was approved by our Board in January 2019 and we have been executing on it since. With the term “plan your luck” in mind, we were further down the digital path when the pandemic struck than a lot of our peers and we are thankful for that. I have relayed to our employees lyrics from an old Rolling Stones song - “I’m gonna walk before they make me run” - and I feel that’s what we have done.
Last year, Chesapeake Bank was recognized for the 13th-consecutive year by American Banker as a "Top 200 Community Bank" in the US based on a three-year average return on equity. It was recognized for the eighth-consecutive year by the same industry magazine as one of the "Best Banks to Work For." What is the secret behind your success?
We have focused and placed consistent emphasis on our people and culture. I like to think of it as the opposite of “death by a thousand cuts”- it’s more like “personal and corporate growth by a thousand actions!” Success breeds success and we try to cultivate that with every employee. The “Top 200 Community Bank” designation is really a by-product of the emphasis we put on our people and culture. I really wouldn’t call it much of a secret. It’s just an important focus for us through all of the ups and downs of banking.
What makes shares in Chesapeake Financial, which does several things in the financial space, an attractive investment?
Firstly, to mirror my prior comment, the depth and breadth of our employees makes us an attractive investment. Secondly, through our specialty lines of business as well as our strong retail market share in each of our markets, we are well poised for the future even in a low-rate environment. We are earnest in our support of our communities, and we feel a certain amount of reciprocity there. Ultimately, our customers and we are striving for the same thing - the betterment of our communities over the long run. With that as guidepost, we feel confident in our long-term success and thus as a good investment.
Contact the author Uttara Choudhury at firstname.lastname@example.org
Follow her on Twitter: @UttaraProactive