The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of June 30, 2022:

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of December 31, 2021:

No interest income on nonaccrual loans was recognized during the three and six months ended June 30, 2022. An immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income.

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 to loans individually based on a case-by-case evaluation. In general, the following are the definitions of the Company’s credit quality indicators:

The following tables show the amount of business lending loans by credit quality category at June 30, 2022 and December 31, 2021:

The business lending portfolio experienced an improvement in credit quality as a higher proportion of loans were classified as Pass at June 30, 2022 as compared to December 31, 2021. This change was the result of improvements in economic conditions, leading to improvements in the financial condition of the borrowers.

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are 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 June 30, 2022:

(1)

FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination.

(2)

FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk.

The following table details the balances in all other loan categories at December 31, 2021:


	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⁽¹⁾
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⁽²⁾
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

(1)

FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination.

(2)

FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk.

Commercial loans greater than $0.5 million that are on nonaccrual are individually assessed, and if necessary, a specific allocation of the allowance for credit losses is provided. A summary of individually assessed business loans as of June 30, 2022 and December 31, 2021 follows:


	June 30,		December 31,
(000’s omitted)	2022		2021
Loans with allowance allocation	$	5,353	$	7,102
Loans without allowance allocation		3,302		7,417
Carrying balance		8,655		14,519
Contractual balance		11,046		16,963
Specifically allocated allowance		504		566

The average carrying balance of individually assessed loans was $8.7 million and $32.9 million for the three months ended June 30, 2022 and 2021, respectively. The average carrying balance of individually assessed loans was $12.2 million and $34.6 million for the six months ended June 30, 2022 and 2021, respectively. No interest income was recognized on individually assessed loans for the three or six months ended June 30, 2022 and 2021.

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.

In accordance with the clarified guidance issued by the Office of the Comptroller of the Currency (“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 the three and six months ended June 30, 2022 and 2021 was immaterial.

Information regarding TDRs as of June 30, 2022 and December 31, 2021 is as follows:


	June 30, 2022									December 31, 2021
(000’s omitted)	Nonaccrual			Accruing			Total			Nonaccrual			Accruing			Total
	#	Amount		#	Amount		#	Amount		#	Amount		#	Amount		#	Amount
Business lending	1	$	135	3	$	291	4	$	426	10	$	1,011	4	$	811	14	$	1,822
Consumer mortgage	58		2,412	46		2,137	104		4,549	61		2,694	47		2,420	108		5,114
Consumer indirect	0		0	65		708	65		708	0		0	72		829	72		829
Consumer direct	0		0	15		1	15		1	0		0	16		7	16		7
Home equity	9		122	12		225	21		347	10		235	12		232	22		467
Total	68	$	2,669	141	$	3,362	209	$	6,031	81	$	3,940	151	$	4,299	232	$	8,239

The following table presents information related to loans modified in a TDR during the three months and six months ended June 30, 2022 and 2021. Of the loans noted in the table below, all consumer mortgage loans for the three months and six months ended June 30, 2022 and 2021 were modified due to a Chapter 7 bankruptcy as described previously. The financial effects of these restructurings were immaterial.


	Three Months Ended			Three Months Ended
	June 30, 2022			June 30, 2021
	Number of	Outstanding		Number of	Outstanding
(000’s omitted)	loans modified	Balance		loans modified	Balance
Business lending	0	$	0	0	$	0
Consumer mortgage	1		89	7		366
Consumer indirect	3		26	9		116
Consumer direct	0		0	0		0
Home equity	1		7	0		0
Total	5	$	122	16	$	482


	Six Months Ended			Six Months Ended
	June 30, 2022			June 30, 2021
	Number of	Outstanding		Number of		Outstanding
(000’s omitted)	loans modified	Balance		loans modified		Balance
Business lending	0	$	0		0	$	0
Consumer mortgage	5		280		10		474
Consumer indirect	7		60		15		177
Consumer direct	0		0		1		6
Home equity	1		7		0		0
Total	13	$	347		26	$	657

Allowance for Credit Losses

The following presents by segment the activity in the allowance for credit losses during the three months and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30, 2022
								PCD
	Beginning		Charge-					Allowance at			Ending
(000’s omitted)	balance		offs		Recoveries			Acquisition	Provision		balance
Business lending	$	21,764	$	(39)	$	155	$	71	$	1,290	$	23,241
Consumer mortgage		10,324		(77)		8		0		2,376		12,631
Consumer indirect		12,866		(1,789)		1,346		0		1,955		14,378
Consumer direct		2,725		(216)		227		0		86		2,822
Home equity		1,468		(26)		28		0		0		1,470
Unallocated		1,000		(0)		0		0		0		1,000
Allowance for credit losses – loans		50,147		(2,147)		1,764		71		5,707		55,542
Liabilities for off-balance-sheet credit exposures		892		0		0		0		331		1,223
Total allowance for credit losses	$	51,039	$	(2,147)	$	1,764	$	71	$	6,038	$	56,765


	Three Months Ended June 30, 2021
	Beginning		Charge-						Ending
(000’s omitted)	balance		offs		Recoveries		Provision		balance
Business lending	$	29,038	$	(2)	$	288	$	(4,022)	$	25,302
Consumer mortgage		9,686		(142)		9		448		10,001
Consumer indirect		11,120		(750)		1,183		(450)		11,103
Consumer direct		2,682		(195)		213		(152)		2,548
Home equity		1,543		(17)		5		265		1,796
Unallocated		1,000		0		0		0		1,000
Allowance for credit losses – loans		55,069		(1,106)		1,698		(3,911)		51,750
Liabilities for off-balance-sheet credit exposures		1,189		0		0		(427)		762
Total allowance for credit losses	$	56,258	$	(1,106)	$	1,698	$	(4,338)	$	52,512


	Six Months Ended June 30, 2022
							PCD
	Beginning		Charge-				Allowance at				Ending
(000’s omitted)	balance		offs		Recoveries		Acquisition		Provision		balance
Business lending	$	22,995	$	(155)	$	494	$	71	$	(164)	$	23,241
Consumer mortgage		10,017		(117)		17		0		2,714		12,631
Consumer indirect		11,737		(3,477)		2,346		0		3,772		14,378
Consumer direct		2,306		(517)		403		0		630		2,822
Home equity		1,814		(37)		121		0		(428)		1,470
Unallocated		1,000		0		0		0		0		1,000
Allowance for credit losses – loans		49,869		(4,303)		3,381		71		6,524		55,542
Liabilities for off-balance-sheet credit exposures		803		0		0		0		420		1,223
Total allowance for credit losses	$	50,672	$	(4,303)	$	3,381	$	71	$	6,944	$	56,765


	Six Months Ended June 30, 2021
	Beginning		Charge-						Ending
(000’s omitted)	balance		offs		Recoveries		Provision		balance
Business lending	$	30,072	$	(53)	$	382	$	(5,099)	$	25,302
Consumer mortgage		10,672		(242)		19		(448)		10,001
Consumer indirect		13,696		(2,149)		2,429		(2,873)		11,103
Consumer direct		3,207		(513)		444		(590)		2,548
Home equity		2,222		(115)		9		(320)		1,796
Unallocated		1,000		0		0		0		1,000
Allowance for credit losses – loans		60,869		(3,072)		3,283		(9,330)		51,750
Liabilities for off-balance-sheet credit exposures		1,489		0		0		(727)		762
Total allowance for credit losses	$	62,358	$	(3,072)	$	3,283	$	(10,057)	$	52,512

The continued improvement in non-economic qualitative adjustments resulting from low levels of delinquencies, deferrals, and charge-offs, offset in part by a moderate deterioration in the economic forecast, have resulted in an allowance for credit losses to total loans ratio of 0.68% at June 30, 2022, three basis points lower than the level at June 30, 2021 and consistent with the level at December 31, 2021. Included in the provision for credit losses for the three and six months ended June 30, 2022 is $3.9 million of acquisition-related provision for credit losses recognized in connection with the Elmira acquisition.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $19.7 million at June 30, 2022 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 adjustment 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, with forecasts available as of June 30, 2022. These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and include the continued influence of supply chain constraints and inflationary pressures as well as their commensurate impact on collateral values and economic growth. The scenarios utilized forecast stable unemployment levels and continued historically elevated collateral values for housing and commercial real estate, offset by moderate deterioration in GDP growth, auto values, and median household income.

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 estimation of credit 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 inflation-adjusted 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 six months ended June 30, 2022 by portfolio segment:


	Business		Consumer		Consumer		Consumer		Home
(000’s omitted)	lending		mortgage		indirect		direct		equity		Total
Purchases	$	125,288	$	271,408	$	9,383	$	12,511	$	18,429	$	437,019
Sales		0		3,749		0		0		0		3,749

All purchases of loans were from the acquisition of Elmira. All the sales of consumer mortgages during the six months ended June 30, 2022 were sales of secondary market eligible residential mortgage loans.