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 September 30, 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 September 30, 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 three and nine months ended September 30, 2020. 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 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 September 30, 2020 and December 31, 2019:


													Revolving
													Loans
(000’s omitted)	Term Loans Amortized Cost Basis by Origination Year												Amortized
September 30, 2020	2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Business lending:
Risk rating
Pass	$	783,726	$	351,036	$	337,662	$	243,816	$	246,551	$	576,220	$	483,163	$	3,022,174
Special mention		14,008		39,130		20,714		19,157		29,987		65,627		53,293		241,916
Classified		5,942		2,852		28,228		14,084		14,363		61,121		41,996		168,586
Doubtful		0		0		0		0		0		0		889		889
Total business lending	$	803,676	$	393,018	$	386,604	$	277,057	$	290,901	$	702,968	$	579,341	$	3,433,565


	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 September 30, 2020:


													Revolving
													Loans
(000’s omitted)	Term Loans Amortized Cost Basis by Origination Year												Amortized
September 30, 2020	2020		2019		2018		2017		2016		Prior		Cost Basis		Total
Consumer mortgage:
FICO AB
Performing	$	182,675	$	237,891	$	176,837	$	175,605	$	170,844	$	664,129	$	582	$	1,608,563
Nonperforming		0		0		329		444		311		3,556		0		4,640
Total FICO AB		182,675		237,891		177,166		176,049		171,155		667,685		582		1,613,203
FICO CDE
Performing		75,419		106,072		84,280		79,292		87,578		337,097		13,945		783,683
Nonperforming		0		647		482		813		1,530		9,891		0		13,363
Total FICO CDE		75,419		106,719		84,762		80,105		89,108		346,988		13,945		797,046
Total consumer mortgage	$	258,094	$	344,610	$	261,928	$	256,154	$	260,263	$	1,014,673	$	14,527	$	2,410,249

Consumer indirect:
Performing	$	227,697	$	338,279	$	230,246	$	100,529	$	73,331	$	69,830	$	0	$	1,039,912
Nonperforming		0		5		0		4		1		3		0		13
Total consumer indirect	$	227,697	$	338,284	$	230,246	$	100,533	$	73,332	$	69,833		0	$	1,039,925

Consumer direct:
Performing	$	42,905	$	53,421	$	32,359	$	14,773	$	6,707	$	4,722	$	6,715	$	161,602
Nonperforming		0		4		9		0		24		0		0		37
Total consumer direct	$	42,905	$	53,425	$	32,368	$	14,773	$	6,731	$	4,722	$	6,715	$	161,639

Home equity:
Performing	$	40,760	$	51,240	$	29,904	$	25,286	$	19,964	$	39,429	$	204,281	$	410,864
Nonperforming		0		0		82		110		212		481		1,516		2,401
Total home equity	$	40,760	$	51,240	$	29,986	$	25,396	$	20,176	$	39,910	$	205,797	$	413,265

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 September 30, 2020 and December 31, 2019 follows:


	September 30,		December 31,
(000’s omitted)	2020		2019
Loans with allowance allocation	$	6,842	$	0
Loans without allowance allocation		1,414		1,414
Carrying balance		8,256		1,414
Contractual balance		10,558		2,944
Specifically allocated allowance		882		0

The average carrying balance of individually evaluated impaired loans was $8.8 million and $5.1 million for the three months ended September 30, 2020 and September 30, 2019, respectively. The average carrying balance of individually evaluated impaired loans was $4.2 million and $5.4 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. No interest income was recognized on individually evaluated impaired loans for the three or nine months ended September 30, 2020 and September 30, 2019.

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 nine months ended September 30, 2020 and 2019 was immaterial.

TDRs that are less than $0.5 million are collectively included in the allowance for credit loss estimate. TDRs that are commercial loans and greater than $0.5 million are individually evaluated for impairment, and if necessary, a specific allocation of the allowance for credit losses is provided. As a result, the determination of the amount of allowance for credit losses related to TDRs is the same as detailed in the critical accounting policies.

With respect to the Company’s lending activities, the Company implemented a customer payment deferral program for deferrals up to three months per request during the first nine months of 2020 to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges. Business lending, consumer direct, and consumer indirect loans in deferment status will continue to accrue interest on the deferred principal during the deferment period unless otherwise classified as nonaccrual. Consumer mortgage and home equity loans will not accrue interest on the deferred payments during the deferment period. Consistent with the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") and industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral period. These payment deferrals were also deemed to be an insignificant borrower concession, and therefore, not classified as TDR loans during the first nine months of 2020. Borrowers that were delinquent in their payments to Community Bank, N.A. (the "Bank") prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case by case basis for troubled debt restructure classification and non-performing loan status.

Information regarding TDRs as of September 30, 2020 and December 31, 2019 is as follows:


	September 30, 2020									December 31, 2019
(000’s omitted)	Nonaccrual			Accruing			Total			Nonaccrual			Accruing			Total
	#	Amount		#	Amount		#	Amount		#	Amount		#	Amount		#	Amount
Business lending	8	$	602	3	$	195	11	$	797	8	$	681	3	$	201	11	$	882
Consumer mortgage	57		2,478	47		2,330	104		4,808	59		2,638	47		1,892	106		4,530
Consumer indirect	0		0	85		935	85		935	0		0	84		941	84		941
Consumer direct	0		0	24		94	24		94	0		0	23		101	23		101
Home equity	11		277	13		272	24		549	13		290	11		238	24		528
Total	76	$	3,357	172	$	3,826	248	$	7,183	80	$	3,609	168	$	3,373	248	$	6,982

The following table presents information related to loans modified in a TDR during the three months and nine months ended September 30, 2020 and 2019. Of the loans noted in the table below, all consumer mortgage loans for the three months and nine months ended September 30, 2020 and 2019 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
	September 30, 2020			September 30, 2019
	Number of	Outstanding		Number of	Outstanding
(000’s omitted)	loans modified	Balance		loans modified	Balance
Business lending	0	$	0	1	$	415
Consumer mortgage	8		646	8		464
Consumer indirect	14		131	10		116
Consumer direct	1		2	2		25
Home equity	2		56	0		0
Total	25	$	835	21	$	1,020


	Nine Months Ended			Nine Months Ended
	September 30, 2020			September 30, 2019
	Number of	Outstanding		Number of	Outstanding
(000’s omitted)	loans modified	Balance		loans modified	Balance
Business lending	0	$	0	3	$	660
Consumer mortgage	17		1,378	19		1,271
Consumer indirect	25		261	22		206
Consumer direct	2		12	5		35
Home equity	2		56	4		72
Total	46	$	1,707	53	$	2,244

Allowance for Credit Losses

The following presents by segment the activity in the allowance for credit losses:


	Three Months Ended September 30, 2020
	Beginning		Charge-						Ending
(000’s omitted)	balance		offs		Recoveries		Provision		balance
Business lending	$	24,204	$	(736)	$	67	$	3,539	$	27,074
Consumer mortgage		13,088		(248)		23		(599)		12,264
Consumer indirect		15,866		(1,281)		1,111		(963)		14,733
Consumer direct		4,028		(340)		225		(120)		3,793
Home equity		2,690		(24)		5		(124)		2,547
Unallocated		1,000		0		0		4		1,004
Purchased credit deteriorated		3,561		(91)		32		45		3,547
Allowance for credit losses		64,437		(2,720)		1,463		1,782		64,962
Liabilities for off-balance-sheet credit exposures		1,452		0		0		163		1,615
Total allowance for credit losses and liabilities for off-balance-sheet credit exposures	$	65,889	$	(2,720)	$	1,463	$	1,945	$	66,577


	Three Months Ended September 30, 2019
	Business		Consumer		Consumer		Consumer		Home				Acquired
(000’s omitted)	Lending		Mortgage		Indirect		Direct		Equity		Unallocated		Impaired		Total
Beginning balance	$	17,769	$	10,763	$	14,345	$	3,184	$	2,103	$	991	$	155	$	49,310
Charge-offs		(305)		(200)		(2,224)		(456)		(45)		0		0		(3,230)
Recoveries		290		8		1,095		167		32		0		0		1,592
Provision		301		(94)		1,221		383		(8)		(53)		1		1,751
Ending balance	$	18,055	$	10,477	$	14,437	$	3,278	$	2,082	$	938	$	156	$	49,423


	Nine Months Ended September 30, 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	$	(919)	$	289	$	2,483	$	5,507	$	27,074
Consumer mortgage		10,269		(1,051)		9,218		(668)		67		146		3,501		12,264
Consumer indirect		13,712		(997)		12,715		(4,791)		3,107		183		3,519		14,733
Consumer direct		3,255		(643)		2,612		(1,214)		578		87		1,730		3,793
Home equity		2,129		808		2,937		(178)		23		235		(470)		2,547
Unallocated		957		43		1,000		0		0		0		4		1,004
Purchased credit deteriorated		0		3,072		3,072		(91)		80		528		(42)		3,547
Purchased credit impaired		163		(163)		0		0		0		0		0		0
Allowance for credit losses		49,911		1,357		51,268		(7,861)		4,144		3,662		13,749		64,962
Liabilities for off-balance-sheet credit exposures		0		1,185		1,185		0		0		67		363		1,615
Total allowance for credit losses and liabilities for off-balance-sheet credit exposures	$	49,911	$	2,542	$	52,453	$	(7,861)	$	4,144	$	3,729	$	14,112	$	66,577


	Nine Months Ended September 30, 2019
	Business		Consumer		Consumer		Consumer		Home				Acquired
(000’s omitted)	Lending		Mortgage		Indirect		Direct		Equity		Unallocated		Impaired		Total
Beginning balance	$	18,522	$	10,124	$	14,366	$	3,095	$	2,144	$	1,000	$	33	$	49,284
Charge-offs		(1,774)		(1,040)		(5,529)		(1,436)		(223)		0		0		(10,002)
Recoveries		593		44		3,296		567		68		0		0		4,568
Provision		714		1,349		2,304		1,052		93		(62)		123		5,573
Ending balance	$	18,055	$	10,477	$	14,437	$	3,278	$	2,082	$	938	$	156	$	49,423

The allowance for credit losses to total loans ratio of 0.87% at September 30, 2020 was 15 basis points higher than the level at both September 30, 2019 and December 31, 2019, primarily due to 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 expected losses under a life of loan concept. 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 to reflect changes as a result of current conditions.

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 September 30, 2020. These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and included the impact of COVID-19 and current and future Federal stimulus packages. The scenarios utilized outline a continued weakness in economic activity with peak unemployment ranging from 7% to 11% in the third 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 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 best leading indicator 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 best leading indicator 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 best leading indicator 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 best leading indicator 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 a possible 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 nine months ended September 30, 2020 by portfolio segment:


	Business		Consumer		Consumer		Consumer		Home
(000’s omitted)	lending		mortgage		indirect		direct		equity		Total
Purchases	$	253,368	$	26,721	$	13,926	$	5,994	$	39,554	$	339,563
Sales		0		37,409		0		0		0		37,409

All the purchases during the nine months ended September 30, 2020 were associated with the Steuben acquisition on June 12, 2020 and all the sales during the nine months ended September 30, 2020 were sales of secondary market eligible residential mortgage loans.