17. COVID-19

The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide. In the State of Connecticut, our primary market, on March 20, 2020, Governor Ned Lamont issued an executive order requiring all “non-essential” businesses to close effective 8:00 p.m., Monday, March 23, 2020, until further notice. During the second quarter of 2020, the State of Connecticut announced plans to re-open selected businesses pursuant to a three Phase reopening plan for those businesses deemed non-essential and closed due to the March 20, 2020 executive order. On May 20, 2020, Phase 1 of the re-opening plan was put in place, on June 17, 2020 Phase 2 was put into effect and on October 8, 2020 Phase 3 was put into effect. On November 6, 2020, Connecticut rolled back its re-opening plans to Phase 2.1, a slightly modified version of the State’s Phase 2. The rollback was initiated due to a spike in cases statewide.

These actions directly impacted our ability to conduct our business in the usual manner. The compliance requirements were difficult to administer, costly and in many situations not customer friendly. If left in effect for an extended period, they could have had a material adverse impact on our operations, resulting in reductions in revenues, net income, and cash flow. In addition, any disruption to the operations of a borrower could impair its ability to make monthly payments of interest, payments of insurance and/or taxes or to repay the outstanding balances on their loans at maturity. Furthermore, a liquidity crisis, would impair the ability of our borrowers to refinance their loans when due. Moreover, if our borrowers cannot sell their properties or the values of properties securing mortgage loans decline significantly, they would not be able to repay their loans when due. In addition, the filing and preparation of loan documents with the various recording offices were delayed and there was only limited access to the Connecticut court system to process foreclosures and evictions.

To address these concerns, we imposed certain policies and guidelines designed primarily to preserve our liquidity and help our borrowers. In the second quarter of 2020, we agreed to restructure twenty-three loans, having an aggregate balance of $6.5 million at June 30, 2020, pursuant to forbearance requests by borrowers under the program we adopted and implemented. The total amount of interest deferred under these twenty-three loans was approximately $200,000. As of December 31, 2020, all these loans have moved off forbearance and no other loans were added to the forbearance program.

Since December 2020, the U.S. Food and Drug Administration (“FDA”) has issued emergency use authorizations that approved the use of three different Covid-19 vaccines. Since then, over 100 million doses of vaccines have been administered. Although there are concerns regarding mutations of the virus that might not be susceptible to the existing vaccines, the prevailing view among medical experts is that the worst of the pandemic may be over and that states will soon be able to lift many of the restrictions that were imposed to slow the spread of the virus. In fact, many states have already done so.

However, if there is a re-occurrence of the virus in Connecticut or the State mandates further business closures, we may be compelled to take measures to preserve our cash flow, including reducing operating expenses and dividend payments until the consequences of the outbreak subside. There may be other adverse consequences to our business, operations, and financial condition from the spread of COVID-19 that have not been considered.