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. In response, President Trump declared a public health emergency and issued two related national emergency declarations on March 13, 2020. In addition, 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 continued to provide access to the PPP and process applications until the window closed on August 8, 2020. These loans are 100% guaranteed by the SBA, have up to a two year or five year maturity, provide for the earlier of when the Bank received forgiveness payment from the SBA or 10 months after the end of the covered payroll period, and have an interest rate of 1%. These loans may be forgiven, in whole or in part, by the SBA if the borrower meets certain conditions, including by using at least 60% of the loan proceeds for payroll costs. The SBA also established processing fees from 1% to 5%, depending on the loan amount, which resulted in $3.7 million of deferred loan fees. Of the $3.7 million in deferred fees, we recognized approximately $2.0 million in 2020.

In January 2021, President Trump signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“CARES II”) into law. CARES II provides an extension of stimulus package benefits and unemployment through March 14, 2021 as well as funding for additional PPP loans. PPP loans made under CARES II have the same general loan terms as PPP loans made under the CARES Act. These loans have a maturity of five years and processing fees of the lessor of 0.50% or $2,500 up to 5.0%, depending on the loan amount.

During 2020, we processed 1,174 loan applications totaling $148.9 million and have received forgiveness of $34.5 million. Thus far in 2021, we have processed 561 PPP2 loan applications totaling $56.4 million.

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 have been to internal, non-interest-bearing accounts awaiting use by borrowers. During 2020, we did not access this facility. We will continue to monitor our liquidity position and determine appropriate timing to utilize these funds.

During 2020, the Bank was approved to participate in the Main Street Lending Program established by the Federal Reserve. This program supports lending to small and medium-sized businesses and non-profit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

Section 4013 of the CARES Act allows financial institutions to suspend application of certain current TDR accounting guidance under ASC Subtopic 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the date that is 60 days after the end of the COVID-19 national emergency, provided that certain criteria are met. This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that defer or delay the payment of principal or interest, or that change the interest rate on the loan. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (i.e., six months or less) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty as determined under ASC Subtopic 310-40. In response to the COVID-19 pandemic, the Corporation developed a set of guidelines to provide relief to qualified commercial, mortgage and consumer loans customers, including the deferment of certain loan payments on these loans of up to 180 days. Initial deferrals of 90 days were granted to qualified customers with the option to request a second deferral for an additional 90 days. Of the 19 commercial loans in modification status at December 31, 2020, there were seven classified loans. In accommodations, three were on their third deferral with one on its fourth deferral; two loans in owner occupied rentals on their third deferral period and one loan in food service in its third deferral period.

We have not characterized as TDRs any modified loans that met the criteria established pursuant to Section 4013 of the CARES Act, nor have we designated them as past due or nonaccrual. The following table includes data on our consumer, residential mortgage and commercial loan portfolios, including a breakdown by industry, the percentage of the portfolio that has been modified through February 28, 2021, as well as loans still subject to modifications at February 28, 2021 as a result of COVID-19. For comparative purposes, total modifications for 2020 are included.


	Total Loans at 12/31/20 (*)				COVID Modifications at 02/28/21				All COVID Modifications
Industry Category	# of Loans (**)		Balance (000s)	Balance as % of Total Portfolio	# of Loans		Balance (000s)	Balance as % of Total Portfolio	# of Loans		Balance (000s)	Balance as % of Category
RE/Rental/Leasing - NOO	89	$	135,665	12.9%	—	$	—	0.0%	25	$	55,293	40.8%
RE/Rental/Leasing - OO, C&I	319		99,029	9.4%	3		2,610	2.6%	41		27,994	28.3%
Construction - Developers	20		53,867	5.1%	—		—	0.0%	1		2,922	5.4%
Services	220		52,370	5.0%	—		—	0.0%	17		11,129	21.2%
Accommodations	32		50,819	4.8%	4		6,854	13.5%	15		38,660	76.1%
RE/Rental/Leasing - Multifamily	64		35,759	3.4%	2		576	1.6%	15		7,308	20.4%
Trade	711		34,030	3.2%	—		—	0.0%	4		1,003	2.9%
Health Care/Social Assistance	107		31,734	3.0%	—		—	0.0%	22		11,166	35.2%
Manufacturing	49		25,268	2.4%	—		—	0.0%	6		10,485	41.5%
Prof/Scientific/Technical	109		22,065	2.1%	-		—	0.0%	23		7,207	32.7%
Construction - All Other	263		20,117	1.9%	6		442	2.2%	25		3,412	17.0%
RE/Rental/Leasing - Developers	44		20,093	1.9%	—		—	0.0%	2		210	1.0%
Transportation/Warehousing	115		18,502	1.8%	1		15	0.1%	5		172	0.9%
Public Administration	36		12,773	1.2%	—		—	0.0%	—		—	0.0%
Food Service	47		11,456	1.1%	1		197	1.7%	11		3,092	27.0%
Entertainment/Recreation	24		7,869	0.7%	2		4,884	62.1%	7		7,183	91.3%
Agriculture	53		4,456	0.4%	—		—	0.0%	2		476	10.7%
Energy	12		1,620	0.2%	—		—	0.0%	—		—	0.0%
Total Commercial	2,314	$	637,492	58.2%	19	$	15,576	2.4%	221	$	187,712	29.4%
Total Residential Mortgage	2,055		314,349	32.0%	9		2,240	0.7%	160		37,642	12.0%
Total Consumer	6,522		101,980	9.8%	12		424	0.4%	181		5,260	5.2%
Total Loans	10,891	$	1,053,821	100.0%	40	$	18,240	1.7%	562	$	230,614	21.9%

(*) Excluding 884 PPP loans totaling $114.0 million, 1.6% including PPP loans
(**) Including active loans/lines with no outstanding balance