The following table presents loan balances outstanding as of September 30, 2020, December 31, 2019 and September 30, 2019 and an analysis of the recorded investment in loans that are past due at these dates. Generally, Arrow considers a loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $10,580, $150 and $1,905 as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively, are included in the residential real estate balances for current loans.


Schedule of Past Due Loans by Loan Category
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2020
Loans Past Due 30-59 Days	$	43	$	—	$	4,238	$	428	$	4,709
Loans Past Due 60-89 Days	79		85		2,853		765		3,782
Loans Past Due 90 or more Days	22		1,475		1,303		1,517		4,317
Total Loans Past Due	144		1,560		8,394		2,710		12,808
Current Loans	275,777		539,673		841,132		923,065		2,579,647
Total Loans	$	275,921	$	541,233	$	849,526	$	925,775	$	2,592,455

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	121	$	121
Nonaccrual Loans	72		1,475		1,559		2,898		6,004

December 31, 2019
Loans Past Due 30-59 Days	$	150	$	—	$	5,670	$	152	$	5,972
Loans Past Due 60-89 Days	42		266		2,700		2,027		5,035
Loans Past Due 90 or more Days	21		326		445		1,807		2,599
Total Loans Past Due	213		592		8,815		3,986		13,606
Current Loans	150,447		509,949		802,383		909,735		2,372,514
Total Loans	$	150,660	$	510,541	$	811,198	$	913,721	$	2,386,120

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	253	$	253
Nonaccrual Loans	81		326		663		2,935		4,005

September 30, 2019
Loans Past Due 30-59 Days	$	99	$	—	$	5,216	$	241	$	5,556
Loans Past Due 60-89 Days	48		30		1,624		1,011		2,713
Loans Past Due 90 or more Days	—		328		415		2,387		3,130
Total Loans Past Due	147		358		7,255		3,639		11,399
Current Loans	141,988		497,725		798,542		885,937		2,324,192
Total Loans	$	142,135	$	498,083	$	805,797	$	889,576	$	2,335,591

Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	86	$	980	$	1,066
Nonaccrual Loans	28		465		564		2,408		3,465

Commercial - The Company offers a variety of loan options to meet the specific needs of commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion and equipment purchases. Generally, a collateral lien is placed on equipment or other assets owned by the borrower. Generally, these loans carry a higher risk than commercial real estate loans, due primarily to the nature of the underlying collateral, which can be business assets such as equipment and accounts receivable and generally have a lower liquidation value than real estate. In the event of default by the borrower, the Company may be required to liquidate collateral at deeply discounted values. To reduce the risk, management usually obtains personal guarantees to support the borrowing, as permitted by applicable law.

Commercial Real Estate - The Company offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Commercial real estate loans are often made to finance the purchases of real property which generally consists of real estate with completed structures. These commercial real estate loans are typically secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities, and both owner- and non-owner-occupied facilities. These loans are typically less risky than commercial loans, since they are secured by real estate and buildings, and are generally originated in amounts of no more than 80% of the appraised value of the property. However, the Company also offers commercial construction and land development loans to finance projects. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also typically secured by first liens on the real estate, which may include apartments, commercial structures, housing businesses, healthcare facilities and both owner-occupied and non-owner-occupied facilities. There is enhanced risk during the construction period, since the loan is secured by an incomplete project.

Consumer Loans - Included in this category are automobile loans. The Company primarily finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont. Most of these indirect consumer loans carry a fixed rate of interest with principal repayment terms typically ranging from one to five years. Indirect consumer loans are underwritten on a secured basis using the underlying collateral being financed. The Company also offers a variety of consumer installment loans to finance personal expenditures. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from one to five years, based upon the nature of the collateral and the size of the loan. In addition to installment loans, the Company also offers personal lines of credit and overdraft protection. Several of these consumer loans are unsecured, which carry a higher risk of loss.

Residential - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. The Company originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for construction, the purchase of real estate or refinancing of an existing mortgage. These loans are collateralized primarily by owner-occupied properties generally located in the Company’s market area. Loans on one-to-four-family residential real estate are generally originated in amounts of no more than 80% of the purchase price or appraised value (whichever is lower), or have private mortgage insurance. The Company’s underwriting analysis for residential mortgage loans typically includes credit verification, independent appraisals, and a review of the borrower’s financial condition. Mortgage title insurance and hazard insurance are normally required. It is the Company's general practice to underwrite residential real estate loans to secondary market standards. Construction loans have a unique risk, because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period. In addition, the Company offers fixed home equity loans, as well as variable rate home equity lines of credit, to consumers to finance home improvements, debt consolidation, education and other uses. The Company's policy allows for a maximum loan to value ratio of 80%, although periodically higher advances are allowed. The Company originates home equity lines of credit and second mortgage loans (loans secured by a second junior lien position on one-to-four-family residential real estate). Risk is generally reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.


Allowance for Loan Losses
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
Roll-forward of the Allowance for Loan Losses for the Quarterly Periods:
June 30, 2020	$	1,917	$	8,361	$	10,639	$	5,383	$	26,300
Charge-offs	(17)		(5)		(370)		—		(392)
Recoveries	—		—		267		—		267
Provision	419		1,013		609		230		2,271
September 30, 2020	$	2,319	$	9,369	$	11,145	$	5,613	$	28,446

June 30, 2019	$	1,231	$	5,459	$	9,654	$	4,351	$	20,695
Charge-offs	(11)		—		(351)		(40)		(402)
Recoveries	—		—		120		—		120
Provision	42		162		263		51		518
September 30, 2019	$	1,262	$	5,621	$	9,686	$	4,362	$	20,931


Allowance for Loan Losses
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2019
Allowance for loan losses - Loans Individually Evaluated for Impairment	$	5	$	—	$	—	$	—	$	5
Allowance for credit losses - Loans Collectively Evaluated for Impairment	1,257		5,621		9,686		4,362		20,926
Ending Loan Balance - Individually Evaluated for Impairment	36		—		113		575		724
Ending Loan Balance - Collectively Evaluated for Impairment	$	142,099	$	498,083	$	805,684	$	889,001	$	2,334,867

Through the provision for loan losses, an allowance for loan losses is maintained that reflects the best estimate of the incurred risk of loss in the Company’s loan portfolio as of the balance sheet date. Additions are made to the allowance for loan losses through a periodic provision for loan losses. Actual loan losses are charged against the allowance for loan losses when loans are deemed uncollectible and recoveries of amounts previously charged off are recorded as credits to the allowance for loan losses.

The Company uses a two-step process to determine the provision for loan losses and the amount of the allowance for loan losses. An evaluation of impaired loans is performed on a quarterly basis. Impaired loans are generally nonaccrual loans over $250 thousand and all troubled debt restructured loans. Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. In general, Arrow's impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.

The remainder of the portfolio is evaluated on a pooled basis, as described below. For each homogeneous loan pool, a total loss factor is estimated based on the historical net loss rates adjusted for applicable qualitative factors. The total loss factors assigned to each loan category are updated on a quarterly basis. For the commercial, commercial construction and commercial real estate categories, the loan categories are further segregated by credit risk profile (pools of loans graded pass, special mention and accruing substandard). Additional description of the credit risk classifications is detailed in the Credit Quality Indicators section of this note.

The historical net loss rate is determined for each loan category using a trailing three-year net charge-off average. While historical net loss experience provides a reasonable starting point for analysis, historical net losses, or even recent trends in net losses, do not by themselves form a sufficient basis to determine the appropriate level of the allowance for loan losses. Therefore, historical net loss factors are considered and adjusted for qualitative factors that impact the incurred risk of loss associated with the loan categories within the total loan portfolio. These include:


Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2020
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	264,094	$	493,982					$	758,076
Special Mention	1,485		12,620						14,105
Substandard	10,342		34,631						44,973
Doubtful	—		—						—


Credit Risk Profile Based on Payment Activity:
Performing					$	847,967	$	922,756	$	1,770,723
Nonperforming					1,559		3,019		4,578

December 31, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	144,283	$	484,267					$	628,550
Special Mention	32		263						295
Substandard	6,345		26,011						32,356
Doubtful	—		—						—

Credit Risk Profile Based on Payment Activity:
Performing					$	810,535	$	910,533	$	1,721,068
Nonperforming					663		3,188		3,851

September 30, 2019
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	135,355	$	471,637					$	606,992
Special Mention	107		2,484						2,591
Substandard	6,673		23,962						30,635
Doubtful	—		—						—
Credit Risk Profile Based on Payment Activity:
Performing					$	805,147	$	886,188	$	1,691,335
Nonperforming					650		3,388		4,038

2) Special Mention - Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. "Special mention" assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Loans which might be assigned this credit quality indicator include loans to borrowers with deteriorating financial strength and/or earnings record and loans with potential for problems due to weakening economic or market conditions;

3) Substandard - Loans classified as “substandard” are inadequately protected by the current sound net worth or paying capacity of the borrower or the collateral pledged, if any. Loans in this category have well defined weaknesses that jeopardize the repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. “Substandard” loans may include loans which are likely to require liquidation of collateral to effect repayment, and other loans where character or ability to repay has become suspect. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard;

4) Doubtful - Loans classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. Although possibility of loss is extremely high, classification of these loans as “loss” has been deferred due to specific pending factors or events which may strengthen the value (e.g. possibility of additional collateral, injection of capital, collateral liquidation, debt restructure, economic recovery, etc). Loans classified as “doubtful” need to be placed on non-accrual; and

Commercial loans are generally evaluated on an annual basis depending on the size and complexity of the loan relationship, unless the credit related quality indicator falls to a level of "special mention" or below, when the loan is evaluated quarterly. The credit quality indicator is one of the factors used in assessing the level of incurred risk of loss in our commercial related loan portfolios.


Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total
September 30, 2020
Recorded Investment:
With No Related Allowance	$	—	$	1,124	$	124	$	1,178	$	2,426
With a Related Allowance	46		—		—		249		295
Unpaid Principal Balance:
With No Related Allowance	—		1,128		124		1,178		2,430
With a Related Allowance	47		—		—		249		296

December 31, 2019
Recorded Investment:
With No Related Allowance	$	—	$	—	$	108	$	699	$	807
With a Related Allowance	34		—		—		260		294
Unpaid Principal Balance:
With No Related Allowance	—		—		107		699		806
With a Related Allowance	35		—		—		260		295

September 30, 2019
Recorded Investment:
With No Related Allowance	$	—	$	—	$	114	$	575	$	689
With a Related Allowance	35		—		—		—		35
Unpaid Principal Balance:
With No Related Allowance	—		—		113		575		$	688
With a Related Allowance	36		—		—		—		36

For the Quarter Ended:
September 30, 2020
Average Recorded Balance:
With No Related Allowance	$	2	$	1,127	$	120	$	938	$	2,187
With a Related Allowance	46		—		—		253		299
Interest Income Recognized:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

September 30, 2019
Average Recorded Balance:
With No Related Allowance	$	—	$	1	$	119	$	1,489	$	1,609
With a Related Allowance	36		—		—		—		36
Interest Income Recognized:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—
Cash Basis Income:
With No Related Allowance	—		—		—		—		—
With a Related Allowance	—		—		—		—		—

At September 30, 2020, December 31, 2019 and September 30, 2019, all impaired loans were considered to be collateral dependent and were therefore evaluated for impairment based on the fair value of collateral less estimated cost to sell. Interest income recognized in the table above represents income earned after the loans became impaired and includes restructured loans in compliance with their modified terms and nonaccrual loans where interest income was recognized on a cash basis.

Loans Modified in Trouble Debt Restructurings During the Period

Commercial

Real Estate

Consumer

Residential

Total

For the Quarter Ended:

September 30, 2020

Number of Loans

—

Pre-Modification Outstanding Recorded Investment

—

Post-Modification Outstanding Recorded Investment

—

Subsequent Default, Number of Contracts

—

Subsequent Default, Recorded Investment

—

September 30, 2019

Number of Loans

—

Pre-Modification Outstanding Recorded Investment

—

Post-Modification Outstanding Recorded Investment

—

Subsequent Default, Number of Contracts

—

Subsequent Default, Recorded Investment

—

In general, prior to the novel coronavirus (COVID-19) pandemic, loans requiring modification are restructured to accommodate the projected cash-flows of the borrower. Such modifications may involve a reduction of the interest rate, a significant deferral of payments or forgiveness of a portion of the outstanding principal balance. As indicated in the table above, no loans modified during the preceding twelve months subsequently defaulted as of September 30, 2020. In accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, if a short-term loan modification (e.g. six months) is made for a borrower as the result of the COVID-19 pandemic, and who was current on contractual payments as of December 31, 2019, this modification is not considered a troubled debt restructuring (TDR).