NOTE E: LOANS

The segments of the Company's loan portfolio are disaggregated into levels that allow management to monitor risk and performance. Consumer mortgages consist primarily of fixed rate residential instruments, typically 15 – 30 years in contractual term, secured by first liens on real property. Business lending is comprised of general purpose commercial and industrial loans including agricultural-related and dealer floor plans, as well as mortgages on commercial property. Consumer installment – indirect consists primarily of loans originated through selected dealerships and are secured by automobiles, marine and other recreational vehicles. Home equity products are consumer purpose installment loans or lines of credit most often secured by a first or second lien position on residential real estate with terms of 15 years or less. Consumer installment – direct are all other loans to consumers such as personal installment loans and lines of credit. Loans are summarized as follows:

	September 30,	December 31,
(000's omitted)	2011	2010
Consumer mortgage	$1,167,781	$1,057,332
Business lending	1,261,125	1,023,286
Consumer installment - indirect	564,423	494,813
Home equity	328,468	305,936
Consumer installment - direct	154,672	144,996
Gross loans, including deferred origination costs	3,476,469	3,026,363
Allowance for loan losses	(42,463)	(42,510)
Loans, net of allowance for loan losses	$3,434,006	$2,983,853

The changes in the accretable discount related to the credit impaired acquired loans are as follows:

Balance at December 31, 2010	$0
Wilber acquisition	2,509
Accretion recognized, to-date	(507)
Net reclassification from accretable to nonaccretable	(52)
Balance at September 30, 2011	$1,950

Credit Quality

Management monitors the credit quality of its loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan. Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. The following is an aged analysis of the Company's past due loans, by class as of September 30, 2011:

(000's omitted)	30 - 89 Days	90+ Days Past Due and Still Accruing	Nonaccrual	Total Past Due	Purchased Impaired	Current	Total Loans
Consumer mortgage	$16,861	$1,769	$5,696	$24,326	$0	$1,143,455	$1,167,781
Business lending	5,551	246	9,793	15,590	17,969	1,227,566	1,261,125
Consumer installment - indirect	7,538	43	3	7,584	0	556,839	564,423
Home equity	3,506	173	1,010	4,689	0	323,779	328,468
Consumer installment – direct	2,029	88	0	2,117	0	152,555	154,672
Total	$35,485	$2,319	$16,502	$54,306	$17,969	$3,404,194	$3,476,469

The following is an aged analysis of the Company's past due loans by class as of December 31, 2010:

(000's omitted)	30 - 89 Days	90+ Days Past Due and Still Accruing	Nonaccrual	Total Past Due	Current	Total Loans
Consumer mortgage	$16,614	$2,308	$4,737	$23,659	$1,033,673	$1,057,332
Business lending	5,965	247	9,715	15,927	1,007,359	1,023,286
Consumer installment – indirect	10,246	131	0	10,377	484,436	494,813
Home equity	3,960	309	926	5,195	300,741	305,936
Consumer installment – direct	2,514	96	0	2,610	142,386	144,996
Total	$39,299	$3,091	$15,378	$57,768	$2,968,595	$3,026,363

The Company uses several credit quality indicators to assess credit risk in an ongoing manner. The Company's primary credit quality indicator for its business lending portfolio is an internal credit risk rating system that categorizes loans as “pass”, “special mention”, or “classified”. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. The following are the definitions of the Company's credit quality indicators:

Pass	In general, the condition of the borrower and the performance of the loans are satisfactory or better.

Special Mention	In general, the condition of the borrower has deteriorated although the loan performs as agreed.

Classified	In general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected.

The following table shows the amount of business lending loans by credit quality category:

(000's omitted)	September 30, 2011	December 31, 2010
Pass	$932,504	$753,252
Special mention	160,202	159,906
Classified	150,450	110,128
Purchased impaired	17,969	0
Total	$1,261,125	$1,023,286

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or nonperforming. Performing loans include current, 30 – 89 days past due and purchased impaired loans. Nonperforming loans include 90+ days past due and still accruing and non-accrual loans.

The following table details the balances in all other loan categories at September 30, 2011:

(000's omitted)	Consumer Mortgage	Indirect Consumer	Home Equity	Direct Consumer	Total
Performing	$1,160,316	$564,377	$327,285	$154,584	$2,206,562
Nonperforming	7,465	46	1,183	88	8,782
Total	$1,167,781	$564,423	$328,468	$154,672	$2,215,344

The following table details the balances in all other loan categories at December 31, 2010:

(000's omitted)	Consumer Mortgage	Indirect Consumer	Home Equity	Direct Consumer	Total
Performing	$1,050,287	$494,682	$304,701	$144,900	$1,994,570
Nonperforming	7,045	131	1,235	96	8,507
Total	$1,057,332	$494,813	$305,936	$144,996	$2,003,077

All loan classes are collectively evaluated for impairment except business lending, as described in Note B. A summary of individually evaluated impaired loans as of September 30, 2011 and December 31, 2010 follows:

	September 30,	December 31,
(000's omitted)	2011	2010
Loans with reserve	$0	$1,465
Loans without reserve	2,379	3,846
Carrying balance	2,379	5,311
Contractual balance	3,399	7,042
Specifically allocated allowance	0	762

Allowance for Loan Losses

The following presents by class the activity in the allowance for loan losses:

	Three Months Ended September 30, 2011
	Consumer	Business	Home	Direct	Indirect		Acquired
(000's omitted)	Mortgage	Lending	Equity	Installment	Installment	Unallocated	Impaired	Total
Beginning balance	$3,286	$20,949	$911	$3,878	$10,277	$3,230	$0	$42,531
Charge-offs	(157)	(249)	(43)	(283)	(1,294)	0	0	(2,026)
Recoveries	2	88	6	151	668	0	0	915
Provision	1,056	105	126	(224)	(210)	(53)	243	1,043
Ending balance	$4,187	$20,893	$1,000	$3,522	$9,441	$3,177	$243	$42,463

	Three Months Ended September 30, 2010
	Consumer	Business	Home	Direct	Indirect		Acquired
(000's omitted)	Mortgage	Lending	Equity	Installment	Installment	Unallocated	Impaired	Total
Beginning balance	$1,654	$23,619	$457	$3,762	$9,796	$3,315	$0	$42,603
Charge-offs	(94)	(869)	(12)	(357)	(819)	0	0	(2,151)
Recoveries	4	86	1	137	530	0	0	758
Provision	442	(375)	110	609	390	224	0	1,400
Ending balance	$2,006	$22,461	$556	$4,151	$9,897	$3,539	$0	$42,610

	Nine months ended September 30, 2011
	Consumer	Business	Home	Direct	Indirect		Acquired
(000's omitted)	Mortgage	Lending	Equity	Installment	Installment	Unallocated	Impaired	Total
Beginning balance	$2,451	$22,326	$689	$3,977	$9,922	$3,145	$0	$42,510
Charge-offs	(501)	(1,819)	(174)	(904)	(3,249)	0	0	(6,647)
Recoveries	28	406	17	545	2,461	0	0	3,457
Provision	2,209	(20)	468	(96)	307	32	243	3,143
Ending balance	$4,187	$20,893	$1,000	$3,522	$9,441	$3,177	$243	$42,463

	Nine months ended September 30, 2010
	Consumer	Business	Home	Direct	Indirect		Acquired
(000's omitted)	Mortgage	Lending	Equity	Installment	Installment	Unallocated	Impaired	Total
Beginning balance	$1,127	$23,577	$374	$3,660	$10,004	$3,168	$0	$41,910
Charge-offs	(503)	(3,007)	(115)	(1,184)	(2,778)	0	0	(7,587)
Recoveries	39	486	5	538	1,949	0	0	3,017
Provision	1,343	1,405	292	1,137	722	371	0	5,270
Ending balance	$2,006	$22,461	$556	$4,151	$9,897	$3,539	$0	$42,610

Despite the above allocation, the allowance for loan losses is general in nature and is available to absorb losses from any loan type.