NOTE E: LOANS

The segments of the Company's loan portfolio are disaggregated into the following classes 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, but not limited to agricultural-related and dealer floor plans, as well as mortgages on commercial property.

•

Consumer indirect - consists primarily of installment loans originated through selected dealerships and are secured by automobiles, marine and other recreational vehicles.

•

Consumer direct - all other loans to consumers such as personal installment loans and lines of credit.

•

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.

The balance of these classes are summarized as follows:

	March 31,			December 31,
(000's omitted)	2013			2012
Consumer mortgage	$	1,480,192		$	1,448,415
Business lending		1,222,835			1,233,944
Consumer indirect		639,560			647,518
Consumer direct		165,649			171,474
Home equity		353,365			364,225
Gross loans, including deferred origination costs		3,861,601			3,865,576
Allowance for loan losses		(42,913	)		(42,888	)
Loans, net of allowance for loan losses	$	3,818,688		$	3,822,688

The outstanding balance related to credit impaired acquired loans was $21.9 million and $22.4 million at March 31, 2013 and December 31, 2012, respectively. The changes in the accretable discount related to the credit impaired acquired loans are as follows:

Balance at December 31, 2012	$	1,770
Accretion recognized, year-to-date		(264	)
Net reclassification from accretable to nonaccretable		35
Balance at March 31, 2013	$	1,541

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 March 31, 2013:

Legacy Loans (excludes loans acquired after January 1, 2009)

	Past Due		90+ Days Past
	30 - 89		Due and				Total
(000's omitted)	Days		Still Accruing		Nonaccrual		Past Due		Current		Total Loans
Consumer mortgage	$	12,106	$	1,591	$	8,814	$	22,511	$	1,360,191	$	1,382,702
Business lending		6,659		71		9,238		15,968		988,604		1,004,572
Consumer indirect		7,133		191		0		7,324		624,116		631,440
Consumer direct		1,311		48		6		1,365		151,552		152,917
Home equity		1,899		263		1,698		3,860		267,037		270,897
Total	$	29,108	$	2,164	$	19,756	$	51,028	$	3,391,500	$	3,442,528

Acquired Loans (includes loans acquired after January 1, 2009)

	Past Due		90+ Days Past
	30 - 89		Due and				Total		Acquired				Total
(000's omitted)	Days		Still Accruing		Nonaccrual		Past Due		Impaired(1)		Current		Loans
Consumer mortgage	$	1,051	$	75	$	2,517	$	3,643	$	0	$	93,847	$	97,490
Business lending		1,282		52		2,134		3,468		13,435		201,360		218,263
Consumer indirect		310		24		0		334		0		7,786		8,120
Consumer direct		326		11		0		337		0		12,395		12,732
Home equity		307		234		399		940		0		81,528		82,468
Total	$	3,276	$	396	$	5,050	$	8,722	$	13,435	$	396,916	$	419,073

(1)

Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

The following is an aged analysis of the Company's past due loans by class as of December 31, 2012:

Legacy Loans (excludes loans acquired after January 1, 2009)

	Past Due		90+ Days Past
	30 - 89		Due and				Total
(000's omitted)	Days		Still Accruing		Nonaccrual		Past Due		Current		Total Loans
Consumer mortgage	$	16,334	$	1,553	$	8,866	$	26,753	$	1,318,534	$	1,345,287
Business lending		6,012		167		12,010		18,189		984,665		1,002,854
Consumer indirect		9,743		73		0		9,816		627,541		637,357
Consumer direct		1,725		71		8		1,804		154,462		156,266
Home equity		4,124		491		1,044		5,659		270,798		276,457
Total	$	37,938	$	2,355	$	21,928	$	62,221	$	3,356,000	$	3,418,221

Acquired Loans (includes loans acquired after January 1, 2009)

	Past Due		90+ Days Past
		30 - 89	Due and				Total		Acquired
(000's omitted)	Days		Still Accruing		Nonaccrual		Past Due		Impaired(1)		Current		Total Loans
Consumer mortgage	$	1,726	$	265	$	2,420	$	4,411	$	0	$	98,717	$	103,128
Business lending		3,665		80		1,681		5,426		13,761		211,903		231,090
Consumer indirect		434		0		0		434		0		9,727		10,161
Consumer direct		470		0		0		470		0		14,738		15,208
Home equity		959		48		331		1,338		0		86,430		87,768
Total	$	7,254	$	393	$	4,432	$	12,079	$	13,761	$	421,515	$	447,355

(1)

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. In general, the following are the definitions of the Company's credit quality indicators:

Pass	The condition of the borrower and the performance of the loans are satisfactory or better.

Special Mention	The condition of the borrower has deteriorated although the loan performs as agreed.

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

Doubtful	The condition of the borrower has deteriorated to the point that collection of the balance is improbable based on currently facts and conditions.

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

	March 31, 2013						December 31, 2012
(000's omitted)	Legacy		Acquired		Total		Legacy		Acquired		Total
Pass	$	818,639	$	136,009	$	954,648	$	818,469	$	144,869	$	963,338
Special mention		101,301		30,909		132,210		92,739		32,328		125,067
Classified		83,345		37,910		121,255		90,035		40,132		130,167
Doubtful		1,287		0		1,287		1,611		0		1,611
Acquired impaired		0		13,435		13,435		0		13,761		13,761
Total	$	1,004,572	$	218,263	$	1,222,835	$	1,002,854	$	231,090	$	1,233,944

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 acquired impaired loans. Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans.

The following table details the balances in all other loan categories at March 31, 2013:

Legacy loans (excludes loans acquired after January 1, 2009)

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	1,372,297	$	631,249	$	152,863	$	268,936	$	2,425,345
Nonperforming		10,405		191		54		1,961		12,611
Total	$	1,382,702	$	631,440	$	152,917	$	270,897	$	2,437,956

Acquired loans (includes loans acquired after January 1, 2009)

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	94,898	$	8,096	$	12,721	$	81,835	$	197,550
Nonperforming		2,592		24		11		633		3,260
Total	$	97,490	$	8,120	$	12,732	$	82,468	$	200,810

The following table details the balances in all other loan categories at December 31, 2012:

Legacy loans (excludes loans acquired after January 1, 2009)

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	1,334,868	$	637,284	$	156,187	$	274,922	$	2,403,261
Nonperforming		10,419		73		79		1,535		12,106
Total	$	1,345,287	$	637,357	$	156,266	$	276,457	$	2,415,367

Acquired loans (includes loans acquired after January 1, 2009)

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	100,443	$	10,161	$	15,208	$	87,389	$	213,201
Nonperforming		2,685		0		0		379		3,064
Total	$	103,128	$	10,161	$	15,208	$	87,768	$	216,265

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 March 31, 2013 and December 31, 2012 follows:

	March 31,		December 31,
(000's omitted)	2013		2012
Loans with allowance allocation	$	1,586	$	1,611
Loans without allowance allocation		4,443		7,798
Carrying balance		6,029		9,409
Contractual balance		7,249		12,804
Specifically allocated allowance		400		800

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring ("TDR") has occurred, which is when, for economic or legal reasons related to a borrower's financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial standing and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. With regard to determination of the amount of the allowance for loan losses, troubled debt restructured loans are considered to be impaired. As a result, the determination of the amount of allowance for loan losses related to impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously.

Loans are considered modified in a TDR when, due to a borrower's financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications primarily include, among others, an extension of the term of the loan or granting a period with reduced or no principal and/or interest payments that can be caught up with payments made over the remaining term of the loan or at maturity. During 2012, clarified guidance was issued by the OCC addressing the accounting for certain loans that have been discharged in Chapter 7 bankruptcy. In accordance with this clarified guidance, loans that have been discharged in Chapter 7 bankruptcy, but not reaffirmed by the borrower, are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Company's lien position against the underlying collateral remains unchanged. Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral. The amount of loss incurred in 2012 and 2013 was immaterial. In reporting periods prior to December 31, 2012, such loans were classified as TDRs only if there had been a change in contractual payment terms that represented a concession to the borrower. The impact on prior periods was determined to be immaterial and therefore, prior period disclosure has not been made.

Commercial loans greater than $0.5 million are individually evaluated for impairment, and if necessary, a specific allocation of the allowance for loan losses is provided. Included in the impaired loan balances above was one TDR totaling $1.6 million with a specific reserve of $0.4 million. TDRs less than $0.5 million are collectively included in the general loan loss allocation and the qualitative review if necessary.

Information regarding troubled debt restructurings as of March 31, 2013 and December 31, 2012 is as follows:

	March 31, 2013												December 31, 2012
(000's omitted)	Nonaccrual				Accruing				Total				Nonaccrual				Accruing				Total
		#	Amount			#	Amount			#	Amount			#	Amount			#	Amount			#	Amount
Consumer mortgage		11	$	760		51	$	2,380		62	$	3,140		3	$	160		45	$	2,074		48	$	2,234
Business lending		8		2,026		1		50		9		2,076		10		3,046		0		0		10		3,046
Consumer indirect		2		10		97		659		99		669		0		0		106		718		106		718
Consumer direct		0		0		26		134		26		134		0		0		19		116		19		116
Home equity		7		87		21		309		28		396		5		70		19		266		24		336
Total		28	$	2,883		196	$	3,532		224	$	6,415		18	$	3,276		189	$	3,174		207	$	6,450

The following table presents information related to loans modified in a TDR during the three months ended March 31, 2013.

(000's omitted)	Number of loans modified	Outstanding Balance
Consumer mortgage	13	$	1,002
Business lending	3		72
Consumer indirect	11		107
Consumer direct	9		31
Home equity	5		97
Total	41	$	1,309

Allowance for Loan Losses

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

	Three Months Ended March 31, 2013
	Consumer			Business			Consumer			Consumer			Home						Acquired
(000's omitted)	Mortgage			Lending			Indirect			Direct			Equity			Unallocated			Impaired		Total
Beginning balance	$	7,070		$	18,013		$	9,606		$	3,303		$	1,451		$	2,666		$	779	$	42,888
Charge-offs		(371	)		(784	)		(891	)		(545	)		(185	)		0			0		(2,776	)
Recoveries		6			142			958			298			4			0			0		1,408
Provision		587			(186	)		(225	)		28			413			261			143		1,393
Ending balance	$	7,292		$	17,557		$	9,448		$	3,084		$	1,683		$	2,927		$	992	$	42,913

	Three Months Ended March 31, 2012
	Consumer			Business			Consumer			Consumer			Home						Acquired
(000's omitted)	Mortgage			Lending			Indirect			Direct			Equity			Unallocated			Impaired		Total
Beginning balance	$	4,651		$	20,574		$	8,960		$	3,290		$	1,130		$	3,222		$	386	$	42,213
Charge-offs		(269	)		(1,565	)		(1,039	)		(457	)		(116	)		0			0		(3,446	)
Recoveries		13			155			1,042			172			16			0			0		1,398
Provision		490			2,249			(1,025	)		61			251			(452	)		70		1,644
Ending balance	$	4,885		$	21,413		$	7,938		$	3,066		$	1,281		$	2,770		$	456	$	41,809