Business Impact Of Covid-19

6 Months Ended

Jun. 30, 2020

Text Block [Abstract]

Business Impact Of Covid-19

7. BUSINESS IMPACT OF COVID-19

In December 2019, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China. The COVID-19 virus continues to aggressively spread globally and has spread to over 185 countries, including all 50 states in the United States. A prolonged COVID-19 outbreak, or any other epidemic that harms the global economy, U.S. economy, or the economies in which we operate could adversely affect our operations. While the spread of the COVID-19 virus has minimally impacted our operations as of June 30, 2020, it has caused significant economic disruption throughout the United States as state and local governments issued “shelter at home” orders along with the closing of non-essential businesses. The potential financial impact is unknown at this time. However, if these actions are sustained, it may adversely impact several industries within our geographic footprint and impair the ability of our customers to fulfill their contractual obligations to the Company. This could result in a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include all or a combination of valuation impairments for investments, loans, and intangible assets.

Investments

Management has analyzed the investment portfolio and determined that any impairment would be temporary based on the type of investments the company holds.

As part of the Company’s assessment of other-than-temporary-impairment (OTTI), management considered coronavirus COVID-19 and determined that the significant change in the general economic environment and financial markets represents an interim impairment indicator that will require continued evaluation. As a result, there is a reasonable possibility that OTTI could occur in the near term.

Loan Portfolio

The Company has taken measures to both support customers affected by the pandemic and to maintain strong asset quality, including implementing a broad-based risk management strategy to manage credit segments on a real-time basis, and monitoring portfolio risk and related mitigation strategies also by segment.

In conjunction with the passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as well as the revised interagency guidance issued in April 2020, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)”, banks have been provided the option to temporarily suspend certain requirements under GAAP related to Troubled Debt Restructurings (“TDRs”) for a limited time to account for the effects of COVID-19. As a result, the Company will not be recognizing eligible COVID-19 loan modifications as TDRs. Additionally, loans qualifying for these modifications will not be required to be reported as delinquent, nonaccrual, impaired or criticized solely as a result of a COVID-19 loan modification. Through the date of this filing, the Company has not experienced any loan charge-offs caused by the economic impact from COVID-19. Management has evaluated events related to COVID-19 that have occurred subsequent to June 30, 2020 and has concluded there are no matters that would require recognition in the accompanying unaudited consolidated financial statements.

Proactive Deferral Program:

As a result of the novel coronavirus COVID-19, the Company has granted payment deferments through the date of this filing on approximately 385 loans with an aggregate outstanding balance of approximately $323.9 million and aggregate monthly principal and interest payments of approximately $3.7 million. The payment deferments were granted initially for up to 90 days, and the Company will consider an additional 90 days based on the circumstances on both a macro and micro level at the time. As of the date of this filing, the Company has received payments on approximately 255 of the deferred loans, representing an aggregate outstanding principal balance of $216.6 million as they came off of deferral status.

Paycheck Protection Program (PPP):

The Company is also participating in the SBA Paycheck Protection Program (PPP). Key Features of the PPP include:

• 24-month term

• Interest-rate of 1%, deferred payments for the first 6-months

• The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). No collateral or personal guarantees are required. Neither the government nor lenders will charge any fees.

• Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

• Loans are guaranteed by the United States Treasury Department

The Company processed 100% of the approximately 720 applications received and all of the eligible applications that were submitted to the SBA received approval. At June 30, 2020, the balance of the loans funded under the PPP was $361.6 million.

The following table reflects the concentration of loans funded through the Paycheck Protection Program Liquidity Facility (PPPLF) as of June 30, 2020.

	Number of		Principal		Number of Loans as a % of						Principal Balance as a % of
(Dollars in millions)	Loans		Balance		PPP Loans			Gross Loans			PPP Loans			Gross Loans
Dental services		282	$	42.8		39	%		14	%		12	%		3	%
Contractors		113		136.8		16	%		6	%		38	%		11	%
Other		325		182.0		45	%		15	%		50	%		14	%
Total		720	$	361.6		100	%		35	%		100	%		28	%

The PPP loans categorized above as “other” are comprised of multiple sectors, including professional/scientific services, retail, manufacturing, finance, wholesale, and real estate.

Impact of Response to COVID-19 Pandemic

Specific impacts of the Covid-19 macroeconomic environment on our operating results for the second quarter of 2020 include the following:

• Funding of loans under the PPP and related borrowing under the Paycheck Protection Program Liquidity Facility (PPPLF) provided net benefit to net interest income of $1.3 million during the second quarter, including the impact of amortization of deferred fees and origination costs.

• The Company received $9.1 million in fees related to the origination of PPP loans. Recognition of the fees was deferred at origination and will be recognized over the 24 month term of the loans. 

• Operating expenses were reduced by approximately $4.2 million of deferred loan origination costs. Of this amount, $2.5 million related to PPP loans and is being amortized over the remaining term of the PPP loans and $1.7 million related to loan modifications and is being amortized over the remaining term of the modified loans.

• The continued uncertainty regarding the severity and duration of the pandemic and related economic effects considered in our qualitative assessment of the allowance for loan losses resulted in an increase in provision of approximately $1.9 million.

Goodwill

The Company completed an impairment analysis of goodwill as of June 30, 2020 and determined there was no impairment.

Goodwill impairment exists when a reporting unit’s carrying value exceeds its fair value, which is determined through a qualitative assessment whether it is more likely than not that the fair value of equity of the reporting unit exceeds the carrying value (“Step Zero”).

As part of the Company’s qualitative assessment of goodwill impairment, management considered the triggering event of coronavirus COVID-19 and determined that the significant change in the general economic environment and financial markets, including our market capitalization, represents an interim impairment indicator that will require continued evaluation. However, we do not believe that it is more likely than not that a goodwill impairment exists as of June 30, 2020.