The segments of the Company’s loan portfolio at December 31 are summarized as follows:

The Company had approximately $25.5 million and $32.3 million of net deferred loan origination costs included in gross loans as of December 31, 2020 and 2019, respectively.

Certain directors and executive officers of the Company, as well as associates of such persons, are loan customers. Loans to these individuals were made in the ordinary course of business under normal credit terms and do not have more than a normal risk of collection. Following is a summary of the aggregate amount of such loans during 2020 and 2019.

The following table presents the aging of the amortized cost basis of the Company’s past due loans, including purchased credit deteriorated (“PCD”) loans, by segment as of December 31, 2020:

The following is an aged analysis of the Company’s past due loans by segment as of December 31, 2019:

The delinquency status for loans on payment deferment due to COVID-19 financial hardship were reported at December 31, 2020 based on their delinquency status at the execution date of the payment deferment, unless subsequent to the execution date of the payment deferment, the borrower made all required past due payments to bring the loan to current status.

No interest income on nonaccrual loans was recognized during the year ended December 31, 2020 or December 31, 2019. The Company wrote off $1.5 million of accrued interest on nonaccrual loans by reversing interest income in 2020 primarily due to the reversal of accrued interest on business lending loans of certain commercial borrowers, which primarily operate in the hospitality, travel and entertainment industries, who requested and were granted further extensions of existing loan repayment forbearance due to the continued pandemic-related financial hardship they were experiencing, which were reclassified from accruing to nonaccrual status. An immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income in 2019.

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”, “classified”, or “doubtful”. 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. Loans that were granted initial COVID-19 related financial hardship payment deferrals were not automatically downgraded into lower credit risk ratings, but will continue to be monitored for indications of deterioration that could result in future downgrades. 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. Loss may be incurred at some future date, if conditions deteriorate further.

Classified		The condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate and incur loss, 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 current facts and conditions and loss is likely.

The following tables show the amount of business lending loans by credit quality category at December 31, 2020 and December 31, 2019:


													Revolving
													Loans
(000’s omitted)	Term Loans Amortized Cost Basis by Origination Year												Amortized
December 31, 2020	2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Business lending:
Risk rating
Pass	$	860,178	$	351,350	$	312,087	$	217,138	$	231,453	$	543,999	$	483,018	$	2,999,223
Special mention		14,687		36,041		28,410		21,875		29,386		51,657		52,732		234,788
Classified		6,336		4,560		30,422		24,807		14,891		65,157		56,000		202,173
Doubtful		0		18		2,888		0		0		108		879		3,893
Total business lending	$	881,201	$	391,969	$	373,807	$	263,820	$	275,730	$	660,921	$	592,629	$	3,440,077


	December 31, 2019
(000’s omitted)	Legacy		Acquired		Total
Pass	$	1,655,280	$	832,693	$	2,487,973
Special mention		98,953		45,324		144,277
Classified		102,352		29,477		131,829
Doubtful		0		0		0
Acquired impaired		0		11,797		11,797
Total	$	1,856,585	$	919,291	$	2,775,876

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 loans classified as current as well as those classified as 30 - 89 days past due. 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 December 31, 2020:


													Revolving
													Loans
(000’s omitted)	Term Loans Amortized Cost Basis by Origination Year												Amortized
December 31, 2020	2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Consumer mortgage:
FICO AB
Performing	$	260,588	$	227,027	$	166,638	$	163,653	$	160,911	$	614,976	$	321	$	1,594,114
Nonperforming		0		0		275		398		345		2,709		0		3,727
Total FICO AB		260,588		227,027		166,913		164,051		161,256		617,685		321		1,597,841
FICO CDE
Performing		115,049		102,788		80,973		75,289		83,214		314,668		17,382		789,363
Nonperforming		0		1,010		582		877		1,786		10,040		0		14,295
Total FICO CDE		115,049		103,798		81,555		76,166		85,000		324,708		17,382		803,658
Total consumer mortgage	$	375,637	$	330,825	$	248,468	$	240,217	$	246,256	$	942,393	$	17,703	$	2,401,499

Consumer indirect:
Performing	$	303,471	$	305,901	$	202,373	$	86,497	$	61,449	$	61,975	$	0	$	1,021,666
Nonperforming		51		52		82		17		16		1		0		219
Total consumer indirect	$	303,522	$	305,953	$	202,455	$	86,514	$	61,465	$	61,976	$	0	$	1,021,885

Consumer direct:
Performing	$	49,181	$	46,992	$	27,872	$	12,326	$	5,232	$	4,146	$	6,878	$	152,627
Nonperforming		1		19		2		5		0		3		0		30
Total consumer direct	$	49,182	$	47,011	$	27,874	$	12,331	$	5,232	$	4,149	$	6,878	$	152,657

Home equity:
Performing	$	48,145	$	48,780	$	28,074	$	23,524	$	17,828	$	35,900	$	194,773	$	397,024
Nonperforming		0		24		73		104		183		490		1,936		2,810
Total home equity	$	48,145	$	48,804	$	28,147	$	23,628	$	18,011	$	36,390	$	196,709	$	399,834

The following table details the balances in all other loan categories at December 31, 2019:

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


	Consumer		Consumer		Consumer		Home
(000’s omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	1,984,533	$	1,107,183	$	175,900	$	312,235	$	3,579,851
Nonperforming		12,183		125		76		1,772		14,156
Total	$	1,996,716	$	1,107,308	$	175,976	$	314,007	$	3,594,007

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


	Consumer		Consumer		Consumer		Home
(000’s omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	431,523	$	5,723	$	8,350	$	71,668	$	517,264
Nonperforming		2,663		31		52		650		3,396
Total	$	434,186	$	5,754	$	8,402	$	72,318	$	520,660

All loan classes are collectively evaluated for impairment except business lending. A summary of individually evaluated impaired business lending loans as of December 31, 2020 and December 31, 2019 follows:


	December 31,		December 31,
(000’s omitted)	2020		2019
Loans with allowance allocation	$	27,437	$	0
Loans without allowance allocation		8,138		1,414
Carrying balance		35,575		1,414
Contractual balance		38,362		2,944
Specifically allocated allowance		3,874		0

The average carrying balance of individually evaluated impaired loans was $12.2 million, $5.1 million and $7.6 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively. No interest income was recognized on individually evaluated impaired loans for the years ended December 31, 2020, December 31, 2019 and December 31, 2018.

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 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.

In accordance with clarified guidance issued by the OCC, 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 2020, 2019 and 2018 was immaterial.

TDRs less than $0.5 million are collectively included in the allowance for credit loss estimate. Commercial loans greater than $0.5 million are individually evaluated for impairment, and if necessary, a specific allocation of the allowance for credit losses is provided. With regard to determination of the amount of the allowance for credit losses, troubled debt restructured loans are considered to be impaired. As a result, the determination of the amount of allowance for credit losses related to impaired loans for each portfolio segment within TDRs is the same as detailed previously.

With respect to the Company’s lending activities, the Company implemented a customer forbearance program allowing for loan payment deferrals up to three months per request during 2020 to assist both consumer and business borrowers that were experiencing financial hardship due to COVID-19 related challenges. Business lending, consumer direct, and consumer indirect loans in deferment status continued to accrue interest on the deferred principal during the deferment period unless otherwise classified as nonaccrual. Consumer mortgage and home equity loans did not accrue interest on the deferred payments during the deferment period. Consistent with the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), the Consolidated Appropriations Act of 2021 (“CAA”) and industry regulatory guidance, borrowers that were otherwise current on loan payments and granted COVID-19 related financial hardship payment deferrals were reported as current loans throughout the first 180 days of the deferral period and were not classified as TDRs. Borrowers that were delinquent in their payments to the Bank prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case-by-case basis for TDR classification and non-performing loan status.

As of December 31, 2020, the Company had 74 borrowers in forbearance due to COVID-19 related financial hardship, representing $66.5 million in outstanding loan balances, or 0.9% of total loans outstanding. These forbearances were comprised of 63 business borrowers representing $65.7 million in outstanding loan balances and 11 consumer borrowers representing approximately $0.8 million in outstanding loan balances.

Information regarding TDRs as of December 31, 2020 and December 31, 2019 is as follows:


	December 31, 2020									December 31, 2019
(000’s omitted)	Nonaccrual			Accruing			Total			Nonaccrual			Accruing			Total
	#	Amount		#	Amount		#	Amount		#	Amount		#	Amount		#	Amount
Business lending	6	$	529	4	$	191	10	$	720	8	$	681	3	$	201	11	$	882
Consumer mortgage	56		2,413	48		2,266	104		4,679	59		2,638	47		1,892	106		4,530
Consumer indirect	0		0	86		951	86		951	0		0	84		941	84		941
Consumer direct	0		0	23		85	23		85	0		0	23		101	23		101
Home equity	11		285	13		264	24		549	13		290	11		238	24		528
Total	73	$	3,227	174	$	3,757	247	$	6,984	80	$	3,609	168	$	3,373	248	$	6,982

The following table presents information related to loans modified in a TDR during the years ended December 31, 2020 and 2019. Of the loans noted in the table below, all consumer mortgage loans for the years ended December 31, 2020 and December 31, 2019, were modified due to a Chapter 7 bankruptcy as described previously. The financial effects of these restructurings were immaterial.


	December 31, 2020			December 31, 2019
(000’s omitted)	#	Amount		#	Amount
Business lending	1	$	4	6	$	685
Consumer mortgage	17		1,339	22		1,519
Consumer indirect	31		333	33		364
Consumer direct	3		10	6		49
Home equity	3		70	6		181
Total	55	$	1,756	73	$	2,798

Allowance for Credit Losses

The following presents by segment the activity in the allowance for credit losses during 2020 and 2019:


	Year Ended December 31, 2020
	Beginning				Beginning
	balance,				balance,
	prior to the				after
	adoption of		Impact of		adoption of						Steuben				Ending
(000’s omitted)	ASC 326		ASC 326		ASC 326		Charge-offs		Recoveries		acquisition		Provision		balance
Business lending	$	19,426	$	288	$	19,714	$	(1,497)	$	356	$	2,343	$	7,274	$	28,190
Consumer mortgage		10,269		(1,051)		9,218		(862)		130		146		2,040		10,672
Consumer indirect		13,712		(997)		12,715		(6,382)		3,992		183		3,188		13,696
Consumer direct		3,255		(643)		2,612		(1,633)		743		87		1,398		3,207
Home equity		2,129		808		2,937		(199)		28		235		(779)		2,222
Unallocated		957		43		1,000		0		0		0		0		1,000
Purchased credit deteriorated		0		3,072		3,072		(91)		440		668		(2,207)		1,882
Acquired impaired		163		(163)		0		0		0		0		0		0
Allowance for credit losses		49,911		1,357		51,268		(10,664)		5,689		3,662		10,914		60,869
Liabilities for off-balance-sheet credit exposures		0		1,185		1,185		0		0		67		237		1,489
Total allowance for credit losses and liabilities for off-balance-sheet credit exposures	$	49,911	$	2,542	$	52,453	$	(10,664)	$	5,689	$	3,729	$	11,151	$	62,358


	Year Ended December 31, 2019
	Business		Consumer		Consumer		Consumer		Home				Acquired
(000’s omitted)	Lending		Mortgage		Indirect		Direct		Equity		Unallocated		Impaired		Total
Balance at December 31, 2018		18,522		10,124		14,366		3,095		2,144		1,000		33		49,284
Charge-offs		(2,334)		(1,372)		(7,631)		(1,945)		(445)		0		0		(13,727)
Recoveries		826		60		4,180		710		148		0		0		5,924
Provision		2,412		1,457		2,797		1,395		282		(43)		130		8,430
Balance at December 31, 2019	$	19,426	$	10,269	$	13,712	$	3,255	$	2,129	$	957	$	163	$	49,911

The allowance for credit losses to total loans ratio of 0.82% at December 31, 2020 was 10 basis points higher than the level at December 31, 2019. This increase was primarily due to non-economic qualitative adjustments resulting from higher loan delinquency and payment deferral levels and loan risk rating downgrades largely driven by the decline in economic conditions associated with the COVID-19 pandemic.

Under CECL, the Company utilizes the historical loss rate on its loan portfolio as the initial basis for the estimate of credit losses using the cumulative loss, vintage loss and line loss methods which is derived from the Company’s historical loss experience from January 1, 2012 to December 31, 2019. Adjustments to historical loss experience were made for differences in current loan-specific risk characteristics and to address current period delinquencies, charge-off rates, risk ratings, lack of loan level data through an entire economic cycle, changes in loan sizes and underwriting standards as well as the addition of acquired loans which were not underwritten by the Company. The Company considered historical losses immediately prior, through and following the Great Recession of 2008 compared to the historical period used for modeling to adjust the historical information to account for longer-term expectations for loan credit performance. Under CECL, the Company is required to consider future economic conditions to determine current expected credit losses. Management selected an eight quarter reasonable and supportable forecast period using a two quarter lag adjustment with a four quarter reversion to the historical mean to use as part of the economic forecast. Management determined that these qualitative adjustments were needed to adjust historical information for expected losses and to reflect changes as a result of current conditions.

For qualitative macroeconomic adjustments, the Company uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios that were weighted based on guidance from the third party provider, with forecasts available as of December 31, 2020. These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and included the impact of COVID-19, including forecasted vaccine distribution progress, and current and future Federal stimulus packages. The scenarios utilized outline a continued weakness in economic activity with peak unemployment ranging from 6% to 10% in the fourth quarter of 2021 and a general improvement in unemployment levels over the subsequent three quarters. In addition to the economic forecast, the Company also considered additional qualitative adjustments as a result of COVID-19 and the impact on all industries, loan deferrals, delinquencies and downgrades, and the risk that Paycheck Protection Program loans will not be forgiven.

Management developed expected loss estimates considering factors for segments as outlined below:

●

Business lending – non real estate: The Company considered projected unemployment and GDP as possible indicators of forecasted losses related to business lending and selected projected unemployment as the exclusive leading indicator in the model given the current economic environment. The Company also considered delinquencies, the level of loan deferrals, risk rating changes, recent charge-off history and acquired loans as part of the review of estimated losses.

●

Business lending – real estate: The Company considered projected unemployment and real estate values as possible indicators of forecasted losses related to commercial real estate loans and selected projected unemployment as the exclusive leading indicator in the model given the current economic environment. The Company also considered the factors noted in business lending – non real estate.

●

Consumer mortgages and home equity: The Company considered projected unemployment and real estate values as possible indicators of forecasted losses related to mortgage lending and selected projected unemployment as the exclusive leading indicator in the model given the current economic environment. In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered.

●

Consumer indirect: The Company considered projected unemployment and vehicle valuation indices as possible indicators of forecasted losses related to indirect lending and selected projected unemployment as the exclusive leading indicator in the model given the current economic environment. In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered.

●

Consumer direct: The Company considered and selected projected unemployment as the exclusive indicator of forecasted losses related to direct lending. In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered.

The following table presents the carrying amounts of loans purchased and sold during the year ended December 31, 2020 by portfolio segment:


(000’s omitted)	Business lending		Consumer mortgage		Consumer indirect		Consumer direct		Home equity		Total
Purchases	$	253,509	$	26,721	$	13,926	$	5,994	$	39,554	$	339,704
Sales		0		79,709		0		0		0		79,709

All the purchases during the twelve months ended December 31, 2020 were associated with the Steuben acquisition on June 12, 2020 and all the sales during the twelve months ended December 31, 2020 were sales of secondary market eligible residential mortgage loans.