Business Impact Of Covid-19

12 Months Ended

Dec. 31, 2021

Text Block [Abstract]

Business Impact Of Covid-19

2. BUSINESS IMPACT OF COVID-19

During 2020, the COVID-19 virus aggressively spread globally, including to all 50 states in the United States. The continuing 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 December 31, 2021, 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. Additionally, the global economy is experiencing economic disruption from certain supply chain challenges. The potential financial impact continues to remain 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 the current impact of the COVID-19 pandemic and determined that its impact on the general economic environment and financial markets has improved and stabilized and, as such, does not currently represent an indicator of impairment.

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.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and 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)”, provide banks 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 does not recognize 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. However, management continues to evaluate these loans for performance criteria separate from their respective COVID-19 loan modification status. 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 December 31, 2021 and has concluded there are no matters that would require recognition in the accompanying consolidated financial statements.

Proactive Deferral Program:

As a result of the novel coronavirus COVID-19, during 2020 the Company granted payment deferments on 383 loans with an aggregate outstanding balance of $323.9 million and aggregate monthly principal and interest payments of $3.7 million, none of which are considered to be TDRs, based on the relief provided under the CARES Act described above. The payment deferments were granted initially for up to 90 days, and the Company considered an additional 90 days based on the circumstances on both a macro and micro level at the time. As of December 31, 2021, two loans totaling $3.5 million were on a deferred status or have had a structure modification under the CARES Act guidelines.

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 if originated prior to June 5, 2020; 60-month term for originations subsequent to June 5, 2020

• Interest-rate of 1%

• Deferred payments until such time the SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness period

• Loan forgiveness if the funds are used for payroll costs, interest on mortgages, rent, and utilities (at least 60% 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 dependent 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 guaranteed by the United States Treasury Department

Following the launch of PPP in April 2020, the Company processed 100% of the approximately 730 applications received and all of the eligible applications that were submitted to the SBA received approval, resulting in loans funded of $362.0 million. As of December 31, 2021, loan balances totaling approximately $352.1 million had been approved for forgiveness and the funds remitted to the Company. Additionally, approximately $5.3 million in loan balances had been repaid to the Company directly from our clients. At December 31, 2021, the outstanding balance of the loans funded under the 2020 PPP was $4.4 million.

In January 2021, the SBA relaunched the PPP for both first draw and second draw participants that are eligible for the program. Eligible borrowers that previously received a PPP loan may apply for a second draw with the same general loan terms as their first draw PPP loan. The key features of the relaunched program are similar to the initial PPP. As of December 31, 2021, the Company processed 100% of the approximately 390 applications received and all of the eligible applications that were submitted to the SBA received approval, resulting in loans funded of $129.2 million. As of December 31, 2021, loan balances totaling approximately $61.1 million had been approved for forgiveness and the funds remitted to the Company from this second round pool of funding, resulting in an outstanding balance of loans funded under the 2021 PPP of $68.1 million.

The following table reflects the concentration of PPP loans funded and outstanding through the Paycheck Protection Program Liquidity Facility (PPPLF) as of December 31, 2021.

	Number of Loans		Principal Balance		Number of Loans as a % of						Principal Balance as a % of
(Dollars in millions)					PPP Loans			Gross Loans			PPP Loans			Gross Loans
Dental services		148	$	15.2		54	%		9	%		21	%		1	%
Contractors		24		13.7		9	%		1	%		19	%		1	%
Other		100		43.6		37	%		6	%		60	%		3	%
Total		272	$	72.5		100	%		16	%		100	%		5	%

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

The Company’s participation in the PPP had the following impact on the operating results for the years ended December 31, 2021 and 2020:

• 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 $7.4 million and $5.0 million during the years ended December 31, 2021 and 2020, respectively, including the impact of amortization of deferred fees and origination costs.

• The Company received $9.1 million in fees during 2020 related to the origination of PPP loans and $4.4 million in similar fees during 2021. Recognition of the fees was deferred at origination and is being recognized over the term of the loans. For the years ended December 31, 2021 and 2020, the Company amortized into interest income approximately $7.1 million and $4.3 million, respectively. As clients are accepted for loan forgiveness by the SBA, the remaining fees will be recognized at the time of payoff of the loan.

• The Company deferred loan origination costs of approximately $3.0 million related to PPP loans which are being amortized over the remaining term of the PPP loans. During the years ended December 31, 2021 and 2020, the Company amortized into interest income approximately $1.6 million and $1.0 million, respectively.

• The Company’s provision for credit losses was $4,000 for the year ended December 31, 2021 compared to $4.9 million for the year ended December 31, 2020. The Company continues to assess our qualitative reserves in response to the improving general macroeconomic impacts related to COVID-19. Our overall analysis of the allowance for credit losses considers multiple qualitative factors that may, in part, offset the gross impact on the provision specifically related to COVID-19.

Goodwill

The Company completed an impairment analysis of goodwill as of December 31, 2021 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 COVID-19 and determined that it was no longer a triggering event given that its impact on the general economic environment and financial markets, including our market capitalization, has improved and stabilized and, as such, does not currently represent an indicator of impairment.