The following two tables present loan balances outstanding as of September 30, 2021, 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 $2,169, $11,085 and $10,580 as of September 30, 2021, December 31, 2020 and September 30, 2020, 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, 2021
Loans Past Due 30-59 Days	$	729	$	—	$	4,809	$	368	$	5,906
Loans Past Due 60-89 Days	63		—		2,543		1,295		3,901
Loans Past Due 90 or more Days	75		1,641		1,010		1,951		4,677
Total Loans Past Due	867		1,641		8,362		3,614		14,484
Current Loans	187,324		613,440		912,827		926,676		2,640,267
Total Loans	$	188,191	$	615,081	$	921,189	$	930,290	$	2,654,751

December 31, 2020
Loans Past Due 30-59 Days	$	102	$	—	$	4,976	$	261	$	5,339
Loans Past Due 60-89 Days	113		—		2,713		1,279		4,105
Loans Past Due 90 or more Days	78		1,658		1,379		1,224		4,339
Total Loans Past Due	293		1,658		9,068		2,764		13,783
Current Loans	240,261		570,129		850,700		920,157		2,581,247
Total Loans	$	240,554	$	571,787	$	859,768	$	922,921	$	2,595,030

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


Schedule of Non Accrual Loans by Category
			Commercial
September 30, 2021	Commercial		Real Estate		Consumer		Residential		Total
Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	555	$	555
Nonaccrual Loans	91		7,766		1,101		1,765		10,723
Nonaccrual With No Allowance for Credit Loss	91		4,983		1,101		1,765		7,940
Interest Income on Nonaccrual Loans	—		111		—		—		111

December 31, 2020
Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	184	$	—	$	44	$	228
Nonaccrual Loans	78		1,475		1,470		3,010		6,033

September 30, 2020
Loans 90 or More Days Past Due and Still Accruing Interest	$	—	$	—	$	—	$	121	$	121
Nonaccrual Loans	72		1,475		1,559		2,898		6,004

Commercial - The Company offers a variety of loan options to meet the specific needs of our 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 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 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 - This category is primarily comprised of automobile loans. Arrow primarily finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont. Most automobile loans carry a fixed rate of interest with principal repayment terms typically ranging from three to seven years. Automobile loans are underwritten on a secured basis using the underlying collateral being financed. Arrow 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, Arrow 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. Arrow originates fixed-rate and adjustable-rate one-to-four-family residential real estate loans for the construction, purchase of real estate or refinancing of an existing mortgage. These loans are collateralized primarily by owner-occupied properties generally located in Arrow'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. Arrow’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 Arrow'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 home equity lines of credit to consumers to finance home improvements, debt consolidation, education and other uses. Arrow's policy allows for a maximum loan to value ratio of 80%, although periodically higher advances are allowed. Arrow 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.

Loan segments were selected by class code and application code to ensure each segment is comprised of loans with homogenous loan characteristics and similar risk profiles. The resulting loan segments are commercial - non-PPP, commercial PPP, commercial real estate, consumer and residential real estate loans. The consumer segment is mainly comprised of automobile loans, and since they are relatively short-term in nature, with similar dollar amounts and collateral, the vintage analysis method was selected to determine the credit loss reserve. The vintage method utilizes Arrow loan data exclusively as the method calculates a loss rate based on the total

origination balance of the loans by year and the charge-off and recovery rate of the same origination year. Arrow maintains, over the life of the loan, the loss curve by vintage year. The discounted cash flow method (DCF) is used to calculate the reserve for credit losses for the commercial, commercial real estate and residential real estate segments. Please see Note 1 for a full explanation.

The September 30, 2021 allowance for credit losses calculation incorporated a reasonable and supportable forecast period to account for economic conditions utilized in the measurement. The quantitative model utilized an economic forecast sourced from reputable third-parties that reflected economic improvement with a reduction of approximately 0.2% in the national unemployment rate during the six-quarter forecast period, while forecasted gross domestic product declined approximately 1.0%. The home price index forecast increased approximately 2.2% from the previous quarter level. Key assumptions utilized in the CECL calculation include loan segmentation, loan loss regression analysis, reasonable and supportable forecast period, reversion period, discounted cash flow inputs including economic forecast data and prepayment and curtailment speeds and qualitative factors. Key assumptions are reviewed and approved on a quarterly basis. Driven by current economic forecasts, loan growth and net charge offs during the quarter, the third quarter provision for credit losses was $99 thousand. The provision is directionally consistent with both the latest economic forecasts as well as third quarter activity. Management's evaluation considers the allowance for credit losses for loans to be appropriate as of September 30, 2021.


Allowance for Credit Losses
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Rollforward of the Allowance for Credit Losses for the Quarterly Period:
June 30, 2021	$	2,241	$	13,606	$	2,443	$	8,720	$	27,010


Charge-offs	(17)		—		(427)		—		(444)
Recoveries	—		—		291		—		291
Provision	200		65		(19)		(147)		99
September 30, 2021	$	2,424	$	13,671	$	2,288	$	8,573	$	26,956


December 31, 2020	$	2,173	$	9,990	$	11,562	$	5,507	$	29,232
Impact of Adoption ASC 326	2,084		2,064		(9,383)		3,935		(1,300)
Balance as of January 1, 2021 as adjusted for ASU 2016-13	4,257		12,054		2,179		9,442		27,932
Charge-offs	(37)		—		(1,480)		(3)		(1,520)
Recoveries	—		—		830		—		830
Provision	(1,796)		1,617		759		(866)		(286)
September 30, 2021	$	2,424	$	13,671	$	2,288	$	8,573	$	26,956

Financial instrument credit losses apply to off-balance sheet credit exposures such as unfunded loan commitments and standby letters of credit. A liability for expected credit losses for off-balance sheet exposures is recognized if the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancellable by the entity. The Day 1 adoption of ASU 2016-13, created an allowance for credit loss on off-balance sheet exposures recognized as other liabilities of $1.1 million. Subsequent changes in this allowance are reflected in other operating expenses within the non-interest expense category. As of September 30, 2021, the total unfunded commitment off-balance sheet credit exposure was $1.8 million.

All loans not included in the vintage analysis method that exceed $250,000, which are on nonaccrual status, are evaluated on an individual basis. Arrow made the policy election to apply a practical expedient for collateral dependent financial assets when the borrower is experiencing financial difficulty and the repayment is expected through the sale of the collateral. This allows Arrow to use fair value of the collateral at the reporting date adjusted for estimated cost to sell when recording the net carrying amount of the asset and determining the allowance for credit losses for a financial asset. In the event where the repayment of a collateral dependent financial asset is expected to be provided substantially through the operating of the collateral, Arrow will use fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the allowance for credit losses. As of September 30, 2021, there were six total relationships identified to be evaluated for loss on an individual basis which had an amortized cost basis of $7.9 million and only one loan had an allowance for credit loss of $616 thousand.


Allowance for Credit Losses - Collectively and Individually Evaluated
	Commercial		Commercial Real Estate		Consumer		Residential		Total
September 30, 2021
Ending Loan Balance - Collectively Evaluated	$	188,191	$	607,827	$	921,189	$	929,614	$	2,646,821
Allowance for Credit Losses - Loans Collectively Evaluated	2,424		13,055		2,288		8,573		26,340

Ending Loan Balance - Individually Evaluated	—		7,254		—		676		7,930
Allowance for Credit Losses - Loans Individually Evaluated	—		616		—		—		616


Allowance for Loan Losses - Collectively and Individually Evaluated for Impairment
	Commercial		Commercial Real Estate		Consumer		Residential		Total
December 31, 2020
Ending Loan Balance - Collectively Evaluated for Impairment	$	240,507	$	570,659	$	859,657	$	921,504	$	2,592,327
Allowance for Loan Losses - Loans Collectively Evaluated for Impairment	2,154		9,990		11,562		5,485		$	29,191
Ending Loan Balance - Individually Evaluated for Impairment	47		1,128		111		1,417		2,703
Allowance for Loan Losses - Loans Individually Evaluated for Impairment	19		—		—		22		41

September 30, 2020
Ending Loan Balance - Collectively Evaluated for Impairment	$	275,874	$	540,105	$	849,402	$	924,348	$	2,589,729
Allowance for Loan Losses - Loans Collectively Evaluated for Impairment	2,301		9,369		11,145		5,585		28,400
Ending Loan Balance - Individually Evaluated for Impairment	47		1,128		124		1,427		2,726
Allowance for Loan Losses - Loans Individually Evaluated for Impairment	18		—		—		28		46

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

Management considers the need to qualitatively adjust expected credit loss estimates for information not already captured in the loss estimation process. These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses. Adjustments are not made for information that has already been considered and included in the loss estimation process.


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loan Converted to Term		Total
September 30, 2021	2021		2020		2019		2018		2017		Prior
Commercial:
Risk rating
Satisfactory	$	81,914	$	38,970	$	13,966	$	12,860	$	8,511	$	3,917	$	12,796	$	—	$	172,934
Special mention	—		652		51		—		—		5,499		—		—		6,202
Substandard	3,575		4,496		636		—		31		295		22		—		9,055
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial Loans	$	85,489	$	44,118	$	14,653	$	12,860	$	8,542	$	9,711	$	12,818	$	—	$	188,191

Commercial Real Estate:
Risk rating
Satisfactory	$	96,419	$	290,785	$	47,605	$	41,215	$	22,661	$	62,203	$	2,935	$	—	$	563,823
Special mention	—		16,829		1,227		—		139		1,976		—		—		20,171
Substandard	7,248		10,359		3,950		146		—		9,384		—		—		31,087
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial Real Estate Loans	$	103,667	$	317,973	$	52,782	$	41,361	$	22,800	$	73,563	$	2,935	$	—	$	615,081

Consumer:
Risk rating
Performing	$	330,952	$	264,963	$	175,448	$	97,563	$	37,112	$	13,572	$	477	$	—	$	920,087
Nonperforming	203		319		332		160		30		58		—		—		1,102
Total Consumer Loans	$	331,155	$	265,282	$	175,780	$	97,723	$	37,142	$	13,630	$	477	$	—	$	921,189

Residential:
Risk rating
Performing	$	124,536	$	154,071	$	101,678	$	94,621	$	97,457	$	231,375	$	124,231	$	—	$	927,969
Nonperforming	—		336		—		155		213		1,586		31		—		2,321
Total Residential Loans	$	124,536	$	154,407	$	101,678	$	94,776	$	97,670	$	232,961	$	124,262	$	—	$	930,290

Total Loans	$	644,847	$	781,780	$	344,893	$	246,720	$	166,154	$	329,865	$	140,492	$	—	$	2,654,751

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

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.


Loan Credit Quality Indicators
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total












December 31, 2020
Credit Risk Profile by Creditworthiness Category:
Satisfactory	$	229,351	$	525,609					$	754,960
Special Mention	1,574		16,213						17,787
Substandard	9,629		29,965						39,594
Doubtful	—		—						—


Performing					$	858,298	$	919,867	$	1,778,165
Nonperforming					1,470		3,054		4,524

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


Impaired Loans
			Commercial
	Commercial		Real Estate		Consumer		Residential		Total








December 31, 2020
Recorded Investment:
With No Related Allowance	$	—	$	1,124	$	112	$	1,174	$	2,410
With a Related Allowance	46		—		—		244		290
Unpaid Principal Balance:
With No Related Allowance	—		1,128		111		1,174		2,413
With a Related Allowance	47		—		—		244		291

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













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	—		—		—		—		—

At December 31, 2020 and September 30, 2020, 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 loan 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
	Commercial		Real Estate		Consumer		Residential		Total
For the Quarter Ended:
September 30, 2021
Number of Loans	—		—		—		—		—
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	—	$	—	$	—
Post-Modification Outstanding Recorded Investment	—		—		—		—		—
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

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	—		—		—		—		—

For the Year-To-Date Period Ended:
September 30, 2021
Number of Loans	—		—		—		—		—
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	—	$	—	$	—
Post-Modification Outstanding Recorded Investment	—		—		—		—		—
Subsequent Default, Number of Contracts	—		—		—		—		—
Subsequent Default, Recorded Investment	—		—		—		—		—

September 30, 2020
Number of Loans	—		—		2		—		2
Pre-Modification Outstanding Recorded Investment	$	—	$	—	$	32	$	—	$	32
Post-Modification Outstanding Recorded Investment	—		—		32		—		32
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, 2021. The Consolidated Appropriations Act, 2021 extended certain provisions of the CARES Act including, 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 TDR.