Note 2 – Significant Event

On March 11, 2020, the World Health Organization declared a pandemic as a result of the global spread of the coronavirus, commonly referred to as COVID-19. The spread of the disease quickly accelerated in the United States and to date, all 50 states have reported cases. The U.S. and state governments reacted to the pandemic by issuing shelter at home orders and requiring that non-essential businesses be closed to prevent spread of the virus. The health crisis quickly turned into a financial crisis resulting in guidance and mandates regarding foreclosures and repossessions and accounting and regulatory changes designed to encourage banks to work with customers suffering detrimental financial impact.

As a result of the pandemic effecting the states and local markets in which it operates, the Corporation successfully implemented its Business Continuity Plan with the goal of protecting the health, safety and financial well-being of its associates and customers. As part of its plan to protect the financial well-being of its customers, the Corporation chose to participate and educate its customers on the government sponsored plans established to provide financial assistance to businesses.

The U.S. Government’s Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) established the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) which provides small businesses with resources to maintain payroll, hire back employees who may have been laid off, and to cover applicable overhead expenses. We acted expeditiously to prepare our associates so they could guide our customers on the proper procedures necessary to enable them to take advantage of this program. We developed an SBA PPP specific information site within our website that provided detailed information, links and materials for eligible customers to access. Internally, we reallocated resources to review, process and enter customer applications, working tirelessly over extended hours to provide access to as many local business owners as possible. We were able to fund 428 loan applications for approximately $111.0 million from the first tranche of PPP designated funds. Congress allocated additional funding to the PPP on April 23, 2020. Due to our advance preparation and software implementation, we were able to quickly gain approval for an additional 492 loan applications for approximately $29.0 million thru May 1, 2020. In total, we have gained approval for over $140 million dollars to 920 small businesses. Approximately 73% of the loans were under $100,000 in size and approximately 65% of the businesses receiving the loans employed less than 10 employees. We will continue to provide access to the PPP and process applications, for as long as the PPP is open and funds are available, so that we can assist as many small business owners in our markets as possible. These loans are 100% guaranteed by the SBA, have up to a two-year maturity, provide for a six-month deferral period, and have an interest rate of 1%. These loans may be forgiven by the SBA if the borrower meets certain conditions, including by using at least 75% of the loan proceeds for payroll costs. The SBA also established processing fees from 1% to 5%, depending on the loan amount. We anticipate to receive approximately $3.5 million in fees.

In April 2020, the Bank established eligibility to participate in the Paycheck Protection Program Liquidity Facility (“PPPLF”) which was established by Congress and administered by the Federal Reserve Bank. This facility uses the SBA guaranteed PPP loans as collateral, offering 100% collateral coverage with no recourse to the Bank. The majority of the PPP loan disbursements, which were all subsequent to quarter end, have been to internal, non-interest-bearing accounts awaiting use by borrowers. As a result, we have not yet accessed the PPPLF, but are prepared to utilize the fund when management determines the timing is appropriate.

The Corporation’s allowance for loan losses increased $2.5 million to $15.0 million at March 31, 2020 compared to $12.5 million at December 31, 2019. The allowance for loan losses (the “ALL”) to total loans was 1.42% and 1.19% at March 31, 2020 and December 31, 2019, respectively. This increase was driven by the increased provision expense which was adjusted for qualitative factors related to the economic uncertainty and increased unemployment rates related to the COVID-19 pandemic.

While the pandemic has had an impact on most industries, some have been more impacted than others. The following chart includes data on our consumer and commercial loan portfolios, including a breakdown by industry, the percentage of the portfolio that has been modified through May 6, 2020 as a result of COVID-19 and the corresponding allowance for loan losses for each category as of March 31, 2020. Modifications include either deferrals of principal and interest or interest only periods of three months. Residential mortgage deferrals result in extensions of the maturity date of the loans and commercial modifications result in either an extension of the maturity payment or a balloon payment at maturity.


	Total Loans at 3/31/20				COVID Modifications through May 6, 2020
Industry Category	# of Loans		Balance (000s)	Balance as % of Total Portfolio	# of Loans		Balance (000s)	Balance as % of Category
RE/Rental/Leasing - Non-Owner Occupied	84	$	119,047	11.3%	14	$	31,069	26.1%
RE/Rental/Leasing - All Other	289		92,908	8.8%	32		15,934	17.2%
Construction - Developers	21		57,171	5.4%	-		—	0.0%
Accommodations	24		47,169	4.5%	10		22,050	46.7%
Services	186		44,185	4.2%	21		11,187	25.3%
Health Care/Social Assistance	94		32,663	3.1%	25		11,598	35.5%
RE/Rental/Leasing - Multifamily	50		30,770	2.9%	10		4,652	15.1%
RE/Rental/Leasing - Developers	21		27,760	2.6%	1		18	0.1%
Manufacturing	46		26,080	2.5%	5		4,394	16.8%
Construction - All Other	228		22,739	2.2%	20		2,841	12.5%
Prof/Scientific/Technical	90		19,871	1.9%	9		5,863	29.5%
Trade	255		17,376	1.6%	5		1,036	6.0%
Transportation/Warehousing	94		15,175	1.4%	5		194	1.3%
Food Service	39		9,350	0.9%	11		2,943	31.5%
Public Administration	26		9,258	0.9%	-		—	0.0%
Entertainment/Recreation	21		5,217	0.5%	3		983	18.8%
Agriculture	43		4,111	0.4%	2		508	12.4%
Energy	10		1,681	0.2%	-		—	0.0%
Total Commercial	1,621	$	582,532	55.3%	173	$	115,270	19.8%
Total Mortgage and Consumer	7,447		471,200	44.7%	335		45,955	9.8%
Total Loans at March 31, 2020	9,068	$	1,053,732	100.0%	508	$	161,225	15.3%