LOANS

12 Months Ended

Dec. 31, 2021

LOANS

LOANS

NOTE D:  LOANS

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

(000’s omitted)	2021		2020
Business lending	$	3,075,904	$	3,440,077
Consumer mortgage		2,556,114		2,401,499
Consumer indirect		1,189,749		1,021,885
Consumer direct		153,811		152,657
Home equity		398,061		399,834
Gross loans, including deferred origination costs		7,373,639		7,415,952
Allowance for credit losses		(49,869)		(60,869)
Loans, net of allowance for credit losses	$	7,323,770	$	7,355,083

The Company had approximately $34.9 million and $25.5 million of net deferred loan origination costs included in gross loans as of December 31, 2021 and 2020, 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 2021 and 2020.

(000’s omitted)	2021		2020
Balance at beginning of year	$	15,549	$	17,486
New loans		2,500		4,194
Payments		(4,276)		(6,131)
Balance at end of year	$	13,773	$	15,549

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, 2021 and 2020:

	Past Due		90+ Days Past
(000’s omitted)	30 – 89		Due and				Total
December 31, 2021	Days		Still Accruing		Nonaccrual		Past Due		Current		Total Loans
Business lending	$	5,540	$	99	$	24,105	$	29,744	$	3,046,160	$	3,075,904
Consumer mortgage		10,297		3,328		15,027		28,652		2,527,462		2,556,114
Consumer indirect		9,611		87		0		9,698		1,180,051		1,189,749
Consumer direct		796		22		1		819		152,992		153,811
Home equity		1,778		272		2,532		4,582		393,479		398,061
Total	$	28,022	$	3,808	$	41,665	$	73,495	$	7,300,144	$	7,373,639

	Past Due		90+ Days Past
(000’s omitted)	30 – 89		Due and				Total
December 31, 2020	Days		Still Accruing		Nonaccrual		Past Due		Current		Total Loans
Business lending	$	4,896	$	59	$	55,709	$	60,664	$	3,379,413	$	3,440,077
Consumer mortgage		13,236		3,051		14,970		31,257		2,370,242		2,401,499
Consumer indirect		13,161		219		1		13,381		1,008,504		1,021,885
Consumer direct		1,170		28		3		1,201		151,456		152,657
Home equity		2,296		565		2,246		5,107		394,727		399,834
Total	$	34,759	$	3,922	$	72,929	$	111,610	$	7,304,342	$	7,415,952

The delinquency status for loans on payment deferment due to COVID-19 financial hardship were reported at December 31, 2021 and 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 years ended December 31, 2021 or 2020. For the year ended December 31, 2021, an immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income. 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. Approximately $2.3 million of interest income on loans that returned to accrual status in 2021 was recognized for the year ended December 31, 2021.

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 COVID-19 related financial hardship payment deferrals were reviewed on a case-by-case basis for credit risk ratings. Loans on payment deferral 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, 2021 and 2020:

	Term Loans Amortized Cost Basis by Origination Year
													Revolving
													Loans
(000’s omitted)													Amortized
December 31, 2021	2021		2020		2019		2018		2017		Prior		Cost Basis		Total
Business lending:
Risk rating
Pass	$	524,302	$	328,885	$	320,638	$	248,175	$	186,074	$	584,912	$	524,553	$	2,717,539
Special mention		5,969		11,013		10,111		46,318		22,524		57,134		27,444		180,513
Classified		1,870		1,767		20,315		40,235		21,904		63,685		27,511		177,287
Doubtful		0		0		0		62		0		0		503		565
Total business lending	$	532,141	$	341,665	$	351,064	$	334,790	$	230,502	$	705,731	$	580,011	$	3,075,904

	Term Loans Amortized Cost Basis by Origination Year
													Revolving
													Loans
(000’s omitted)													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

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, 2021 and 2020:

	Term Loans Amortized Cost Basis by Origination Year
													Revolving
													Loans
(000’s omitted)													Amortized
December 31, 2021	2021		2020		2019		2018		2017		Prior		Cost Basis		Total
Consumer mortgage:
FICO AB
Performing	$	514,680	$	229,039	$	183,469	$	113,618	$	116,417	$	566,129	$	0	$	1,723,352
Nonperforming		0		266		0		131		435		3,236		0		4,068
Total FICO AB		514,680		229,305		183,469		113,749		116,852		569,365		0		1,727,420
FICO CDE
Performing		168,870		122,546		85,253		57,973		54,396		300,341		25,028		814,407
Nonperforming		0		522		972		1,465		939		10,389		0		14,287
Total FICO CDE		168,870		123,068		86,225		59,438		55,335		310,730		25,028		828,694
Total consumer mortgage	$	683,550	$	352,373	$	269,694	$	173,187	$	172,187	$	880,095	$	25,028	$	2,556,114
Consumer indirect:
Performing	$	590,857	$	204,529	$	182,458	$	107,683	$	39,385	$	64,750	$	0	$	1,189,662
Nonperforming		0		34		0		24		17		12		0		87
Total consumer indirect	$	590,857	$	204,563	$	182,458	$	107,707	$	39,402	$	64,762	$	0	$	1,189,749
Consumer direct:
Performing	$	72,584	$	28,905	$	24,770	$	12,340	$	4,396	$	4,575	$	6,218	$	153,788
Nonperforming		0		4		18		1		0		0		0		23
Total consumer direct	$	72,584	$	28,909	$	24,788	$	12,341	$	4,396	$	4,575	$	6,218	$	153,811
Home equity:
Performing	$	76,041	$	43,106	$	35,990	$	18,824	$	15,134	$	35,740	$	170,422	$	395,257
Nonperforming		0		64		47		102		131		679		1,781		2,804
Total home equity	$	76,041	$	43,170	$	36,037	$	18,926	$	15,265	$	36,419	$	172,203	$	398,061

	Term Loans Amortized Cost Basis by Origination Year
													Revolving
													Loans
(000’s omitted)													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

All loan classes are collectively assessed for impairment except business lending. A summary of individually assessed business lending loans as of December 31, 2021 and 2020 follows:

	December 31,		December 31,
(000’s omitted)	2021		2020
Loans with allowance allocation	$	7,102	$	27,437
Loans without allowance allocation		7,417		8,138
Carrying balance		14,519		35,575
Contractual balance		16,963		38,362
Specifically allocated allowance		566		3,874

The average carrying balance of individually assessed loans was $33.4 million, and $12.2 million for the years ended December 31, 2021 and 2020, respectively. No interest income was recognized on individually assessed loans for the years ended December 31, 2021 and 2020.

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 2021 and 2020 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 assessed, 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 individually assessed 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, 2021, the Company had 5 borrowers in forbearance due to COVID-19 related financial hardship, representing $4.2 million in outstanding loan balances, or 0.1% of total loans outstanding. These forbearances were comprised of 4 business borrowers representing $4.1 million in outstanding loan balances and 1 consumer borrower representing approximately $0.1 million in outstanding loan balances.

Information regarding TDRs as of December 31, 2021 and 2020 is as follows:

	December 31, 2021									December 31, 2020
(000’s omitted)	Nonaccrual			Accruing			Total			Nonaccrual			Accruing			Total
	#	Amount		#	Amount		#	Amount		#	Amount		#	Amount		#	Amount
Business lending	10	$	1,011	4	$	811	14	$	1,822	6	$	529	4	$	191	10	$	720
Consumer mortgage	61		2,694	47		2,420	108		5,114	56		2,413	48		2,266	104		4,679
Consumer indirect	0		0	72		829	72		829	0		0	86		951	86		951
Consumer direct	0		0	16		7	16		7	0		0	23		85	23		85
Home equity	10		235	12		232	22		467	11		285	13		264	24		549
Total	81	$	3,940	151	$	4,299	232	$	8,239	73	$	3,227	174	$	3,757	247	$	6,984

The following table presents information related to loans modified in a TDR during the years ended December 31, 2021 and 2020. Of the loans noted in the table below, all consumer mortgage loans for the years ended December 31, 2021 and 2020 were modified due to a Chapter 7 bankruptcy as described previously. The financial effects of these restructurings were immaterial.

	December 31, 2021			December 31, 2020
(000’s omitted)	#	Amount		#	Amount
Business lending	5	$	1,371	1	$	4
Consumer mortgage	24		1,425	17		1,339
Consumer indirect	23		284	31		333
Consumer direct	2		7	3		10
Home equity	0		0	3		70
Total	54	$	3,087	55	$	1,756

Allowance for Credit Losses

The following presents by segment the activity in the allowance for credit losses during 2021 and 2020:

	Year Ended December 31, 2021
	Beginning		Charge-						Ending
(000’s omitted)	balance		offs		Recoveries		Provision		balance
Business lending	$	28,190	$	(1,618)	$	689	$	(6,240)	$	21,021
Consumer mortgage		10,672		(426)		91		(320)		10,017
Consumer indirect		13,696		(5,160)		4,346		(1,145)		11,737
Consumer direct		3,207		(1,232)		793		(462)		2,306
Home equity		2,222		(225)		92		(275)		1,814
Unallocated		1,000		0		0		0		1,000
Purchased credit deteriorated		1,882		(304)		107		289		1,974
Allowance for credit losses – loans		60,869		(8,965)		6,118		(8,153)		49,869
Liabilities for off-balance-sheet credit exposures		1,489		0		0		(686)		803
Total allowance for credit losses	$	62,358	$	(8,965)	$	6,118	$	(8,839)	$	50,672

	Year Ended December 31, 2020
	Beginning				Beginning
	balance,				balance,
	prior to the				after
	adoption of		Impact of		adoption of		Charge-				Steuben				Ending
(000’s omitted)	ASC 326		ASC 326		ASC 326		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 – loans		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	$	49,911	$	2,542	$	52,453	$	(10,664)	$	5,689	$	3,729	$	11,151	$	62,358

The allowance for credit losses to total loans ratio of 0.68% at December 31, 2021 was 14 basis points lower than the level at December 31, 2020. This decrease was primarily due to improvements in the economic forecasts and improvements in non-economic qualitative adjustments resulting from lower levels of delinquencies, deferrals, and chargeoffs than in the prior year.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $16.7 million and $22.2 million at December 31, 2021 and 2020, respectively, and is excluded from the estimate of credit losses and amortized cost basis of loans.

Under ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), also referred to as 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, 2020. 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 for economic factors that are not dependent on collateral values, and no lag for factors that do utilize collateral values, 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, 2021. These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and included the continued impact of COVID-19, such as supply chain pressures and their impact on collateral values and economic growth. The scenarios utilized forecast a generally positive outlook on the economy, with low unemployment figures and high collateral values for housing, commercial real estate, and vehicles. 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.

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

● Business lending – non real estate: The Company selected projected unemployment and GDP as indicators of forecasted losses related to business lending and utilize both factors in an even weight for the calculation. 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 selected projected unemployment and commercial real estate values as indicators of forecasted losses related to commercial real estate loans and utilize both factors in an even weight for the calculation. The Company also considered the factors noted in business lending – non real estate.

● Consumer mortgages and home equity: The Company selected projected unemployment and residential real estate values as indicators of forecasted losses related to mortgage lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered.

● Consumer indirect: The Company selected projected unemployment and vehicle valuation indices as indicators of forecasted losses related to indirect lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, the level of loan deferrals, charge-offs and acquired loans were considered.

● Consumer direct: The Company selected projected unemployment and household income as indicators of forecasted losses related to consumer direct lending and utilize both factors in an even weight for the calculation. 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, 2021 by portfolio segment:

(000’s	Business		Consumer		Consumer		Consumer		Home
omitted)	lending		mortgage		indirect		direct		equity		Total
Purchases	$	0	$	0	$	0	$	0	$	0	$	0
Sales		3,748		20,133		0		0		0		23,881

All the sales of consumer mortgages during the year ended December 31, 2021 were sales of secondary market eligible residential mortgage loans. The sales of business loans during the year ended December 31, 2021 includes three business lending loans under two relationships.