Loans | LOANS (In Thousands) Loan Categories and Past Due Loans The following table presents loan balances outstanding as of June 30, 2018 , December 31, 2017 and June 30, 2017 and an analysis of the recorded investment in loans that are past due at these dates. Generally, Arrow considers an amortizing loan past due 30 or more days when the borrower is two payments past due. Loans held-for-sale of $544 , $327 and $261 as of June 30, 2018 , December 31, 2017 and June 30, 2017 , respectively, are included in the residential real estate balances for current loans. Commercial Commercial Real Estate Consumer Residential Total June 30, 2018 Loans Past Due 30-59 Days $ 3 $ — $ 4,769 $ 2,004 $ 6,776 Loans Past Due 60-89 Days 15 — 720 273 1,008 Loans Past Due 90 or more Days 28 963 231 771 1,993 Total Loans Past Due 46 963 5,720 3,048 9,777 Current Loans 118,835 463,430 656,188 809,632 2,048,085 Total Loans $ 118,881 $ 464,393 $ 661,908 $ 812,680 $ 2,057,862 Loans 90 or More Days Past Due and Still Accruing Interest $ — $ — $ 28 $ 142 $ 170 Nonaccrual Loans 633 963 459 1,825 3,880 December 31, 2017 Loans Past Due 30-59 Days $ 139 $ — $ 5,891 $ 2,094 $ 8,124 Loans Past Due 60-89 Days 19 — 1,215 509 1,743 Loans Past Due 90 or more Days 99 807 513 1,422 2,841 Total Loans Past Due 257 807 7,619 4,025 12,708 Current Loans 128,992 443,441 595,208 770,421 1,938,062 Total Loans $ 129,249 $ 444,248 $ 602,827 $ 774,446 $ 1,950,770 Loans 90 or More Days Past Due and Still Accruing Interest $ — $ — $ 6 $ 313 $ 319 Nonaccrual Loans $ 588 $ 1,530 $ 653 $ 2,755 5,526 June 30, 2017 Loans Past Due 30-59 Days $ 138 $ — $ 4,123 $ 122 $ 4,383 Loans Past Due 60-89 Days 40 865 1,265 2,591 4,761 Loans Past Due 90 or more Days 249 357 391 2,115 3,112 Total Loans Past Due 427 1,222 5,779 4,828 12,256 Current Loans 125,832 440,587 572,975 726,982 1,866,376 Total Loans $ 126,259 $ 441,809 $ 578,754 $ 731,810 $ 1,878,632 Loans 90 or More Days Past Due and Still Accruing Interest $ 120 $ 357 $ 75 $ 1,269 $ 1,821 Nonaccrual Loans $ 653 $ 1,343 $ 419 $ 2,807 5,222 The Company disaggregates its loan portfolio into the following four categories: 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. 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 of the borrowers. 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 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, primarily within the communities that we serve. Many projects will ultimately be used by the borrowers' businesses, while others are developed for resale. These real estate loans are also secured by first liens on the real estate, which may include apartments, commercial structures, housing business, 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 - The Company 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 loans are unsecured, which carry a higher risk of loss. Also 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 loans carry a fixed rate of interest with principal repayment terms typically ranging from three to seven years. Indirect consumer loans are underwritten on a secured basis using the underlying collateral being financed. Residential - Residential real estate loans consist primarily of loans secured by first or second mortgages on primary residences. The Company originates adjustable-rate and fixed-rate one-to-four-family residential real estate loans for the construction, purchase 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 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 The following table presents a roll-forward of the allowance for loan losses and other information pertaining to the allowance for loan losses: Allowance for Loan Losses Commercial Commercial Real Estate Consumer Residential Total Roll-forward of the Allowance for Loan Losses for the Quarterly Periods: March 31, 2018 $ 1,119 $ 5,412 $ 8,019 $ 4,507 $ 19,057 Charge-offs — — (248 ) (16 ) (264 ) Recoveries — 3 215 — 218 Provision (175 ) 423 351 30 629 June 30, 2018 $ 944 $ 5,838 $ 8,337 $ 4,521 $ 19,640 March 31, 2017 $ 939 $ 5,449 $ 6,702 $ 4,126 $ 17,216 Charge-offs (23 ) — (277 ) (5 ) (305 ) Recoveries 5 — 104 — 109 Provision 4 (466 ) 776 108 422 June 30, 2017 $ 925 $ 4,983 $ 7,305 $ 4,229 $ 17,442 Allowance for Loan Losses Commercial Commercial Real Estate Consumer Residential Total Roll-forward of the Allowance for Loan Losses for the Year-to-Date Periods: December 31, 2017 $ 1,873 $ 4,504 $ 7,604 $ 4,605 $ 18,586 Charge-offs (16 ) — (595 ) (23 ) (634 ) Recoveries — 12 301 — 313 Provision (913 ) 1,322 1,027 (61 ) 1,375 June 30, 2018 $ 944 $ 5,838 $ 8,337 $ 4,521 $ 19,640 December 31, 2016 $ 1,017 $ 5,677 $ 6,120 $ 4,198 $ 17,012 Charge-offs (39 ) — (530 ) (6 ) (575 ) Recoveries 12 — 213 — 225 Provision (65 ) (694 ) 1,502 37 780 June 30, 2017 $ 925 $ 4,983 $ 7,305 $ 4,229 $ 17,442 June 30, 2018 Allowance for loan losses - Loans Individually Evaluated for Impairment $ 88 $ 44 $ — $ 53 $ 185 Allowance for loan losses - Loans Collectively Evaluated for Impairment 856 5,794 8,337 4,468 19,455 Ending Loan Balance - Individually Evaluated for Impairment 489 813 110 1,080 2,492 Ending Loan Balance - Collectively Evaluated for Impairment $ 118,392 $ 463,580 $ 661,798 $ 811,600 $ 2,055,370 December 31, 2017 Allowance for loan losses - Loans Individually Evaluated for Impairment $ 94 $ 2 $ — $ 10 $ 106 Allowance for loan losses - Loans Collectively Evaluated for Impairment 1,779 4,502 7,604 4,595 18,480 Ending Loan Balance - Individually Evaluated for Impairment 489 1,537 95 1,562 3,683 Ending Loan Balance - Collectively Evaluated for Impairment $ 128,760 $ 442,711 $ 602,732 $ 772,884 $ 1,947,087 June 30, 2017 Allowance for loan losses - Loans Individually Evaluated for Impairment $ 112 $ — $ — $ 34 $ 146 Allowance for loan losses - Loans Collectively Evaluated for Impairment 813 4,983 7,305 4,195 17,296 Ending Loan Balance - Individually Evaluated for Impairment 503 1,178 88 1,090 2,859 Ending Loan Balance - Collectively Evaluated for Impairment $ 125,756 $ 440,631 $ 578,666 $ 730,720 $ 1,875,773 Through the provision for loan losses, an allowance for loan losses is maintained that reflects the best estimate of the inherent 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. Loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with certain criticized and classified commercial-related relationships. In addition, the Company's independent internal loan review department performs periodic reviews of the credit quality indicators on individual loans in the commercial loan portfolio. A two-step process is utilized to determine the provision for loan losses and the amount of the allowance for loan losses. The Company performs an evaluation of impaired loans on a quarterly basis. Impaired loans are generally nonaccrual loans over $250 thousand and all troubled debt restructured loans. These impaired loans are generally considered to be collateral dependent with the specific reserve, if any, determined based on the value of the collateral less estimated costs to sell. The remainder of the portfolio is evaluated on a pooled basis, as described below. For each homogeneous loan pool, the Company estimates a total loss factor 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 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 annualized 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, the Company also considers and adjusts historical net loss factors for qualitative factors that impact the inherent risk of loss associated with the loan categories within the total loan portfolio. These include: • Changes in the volume and severity of past due, nonaccrual and adversely classified loans • Changes in the nature and volume of the portfolio and in the terms of loans • Changes in the value of the underlying collateral for collateral dependent loans • Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses • Changes in the quality of the loan review system • Changes in the experience, ability, and depth of lending management and other relevant staff • Changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio • The existence and effect of any concentrations of credit, and changes in the level of such concentrations • The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio or pool Credit Quality Indicators The following table presents the credit quality indicators by loan category at June 30, 2018 , December 31, 2017 and June 30, 2017 : Loan Credit Quality Indicators Commercial Commercial Real Estate Consumer Residential Total June 30, 2018 Credit Risk Profile by Creditworthiness Category: Satisfactory $ 110,911 $ 436,670 $ — $ — $ 547,581 Special Mention 5,948 — — — 5,948 Substandard 2,023 26,915 — — 28,938 Doubtful — 807 — — 807 Credit Risk Profile Based on Payment Activity: Performing $ — $ — $ 661,449 $ 810,855 $ 1,472,304 Nonperforming — — 459 1,825 2,284 December 31, 2017 Credit Risk Profile by Creditworthiness Category: Satisfactory $ 124,961 $ 417,362 $ — $ — $ 542,323 Special Mention 1,341 177 — — 1,518 Substandard 2,947 25,902 — — 28,849 Doubtful — 807 — — 807 Credit Risk Profile Based on Payment Activity: Performing $ — $ — $ 602,168 $ 771,584 $ 1,373,752 Nonperforming — — 659 3,068 3,727 June 30, 2017 Credit Risk Profile by Creditworthiness Category: Satisfactory $ 120,388 $ 412,423 $ — $ — $ 532,811 Special Mention 1,269 1,414 — — 2,683 Substandard 4,602 27,973 — — 32,575 Doubtful — — — — — Credit Risk Profile Based on Payment Activity: Performing $ — $ — $ 578,317 $ 727,733 $ 1,306,050 Nonperforming — — 437 4,076 4,513 For the purposes of the table above, nonperforming consumer and residential loans are those loans on nonaccrual status or are 90 days or more past due and still accruing interest. For the allowance calculation, we use an internally developed system of five credit quality indicators to rate the credit worthiness of each commercial loan defined as follows: 1) Satisfactory - "Satisfactory" borrowers have acceptable financial condition with satisfactory record of earnings and sufficient historical and projected cash flow to service the debt. Borrowers have satisfactory repayment histories and primary and secondary sources of repayment can be clearly identified; 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 bank 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 (i.e. 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 5) Loss - Loans classified as “loss” are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. As of the date of the balance sheet, all loans in this category have been charged-off to the allowance for loan losses. 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 inherent risk of loss in our commercial related loan portfolios. Impaired Loans The following table presents information on impaired loans based on whether the impaired loan has a recorded related allowance or has no recorded related allowance: Impaired Loans Commercial Commercial Real Estate Consumer Residential Total June 30, 2018 Recorded Investment: With No Related Allowance $ — $ 7 $ 110 $ 784 $ 901 With a Related Allowance 479 790 — 351 1,620 Unpaid Principal Balance: With No Related Allowance — 7 110 797 914 With a Related Allowance 489 806 — 283 1,578 December 31, 2017 Recorded Investment: With No Related Allowance $ — $ 781 $ 94 $ 1,269 $ 2,144 With a Related Allowance 485 725 — 333 1,543 Unpaid Principal Balance: With No Related Allowance — 816 95 1,274 2,185 With a Related Allowance 489 721 — 288 1,498 June 30, 2017 Recorded Investment: With No Related Allowance $ — $ 1,178 $ 88 $ 802 $ 2,068 With a Related Allowance 503 — — 288 791 Unpaid Principal Balance: With No Related Allowance — 1,178 88 802 $ 2,068 With a Related Allowance 503 — — 288 791 For the Quarter Ended: June 30, 2018 Average Recorded Balance: With No Related Allowance $ — $ 8 $ 100 $ 1,030 $ 1,138 With a Related Allowance 481 787 — 354 1,622 Interest Income Recognized: With No Related Allowance — — — — — With a Related Allowance — — — — — Cash Basis Income: With No Related Allowance — — — — — With a Related Allowance — — — — — June 30, 2017 Average Recorded Balance: With No Related Allowance $ — $ 1,031 $ 88 $ 804 $ 1,923 With a Related Allowance 252 — — 288 540 Interest Income Recognized: With No Related Allowance — — 2 4 6 With a Related Allowance — — — — — Cash Basis Income: With No Related Allowance — — — — — With a Related Allowance — — — — — Impaired Loans Commercial Commercial Real Estate Consumer Residential Total For the Year-To-Date Period Ended: June 30, 2018 Average Recorded Balance: With No Related Allowance $ — $ 394 $ 102 $ 1,027 $ 1,523 With a Related Allowance 482 758 — 342 1,582 Interest Income Recognized: With No Related Allowance — — — — — With a Related Allowance — — — 24 24 Cash Basis Income: With No Related Allowance — — — — — With a Related Allowance — — — — — June 30, 2017 Average Recorded Balance: With No Related Allowance $ — $ 1,034 $ 90 $ 950 $ 2,074 With a Related Allowance 252 — — 144 396 Interest Income Recognized: With No Related Allowance — — 3 4 7 With a Related Allowance — — — — — Cash Basis Income: With No Related Allowance — — — — — With a Related Allowance — — — — — At June 30, 2018 , December 31, 2017 and June 30, 2017 , 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 we have recognized interest income on a cash basis. Loans Modified in Trouble Debt Restructurings The following table presents information on loans modified in trouble debt restructurings during the periods indicated. Loans Modified in Trouble Debt Restructurings During the Period Commercial Commercial Real Estate Consumer Residential Total For the Quarter Ended: June 30, 2018 Number of Loans — — 3 — 3 Pre-Modification Outstanding Recorded Investment $ — $ — $ 26 $ — $ 26 Post-Modification Outstanding Recorded Investment — — 26 — 26 Subsequent Default, Number of Contracts — — — — — Subsequent Default, Recorded Investment — — — — — June 30, 2017 Number of Loans 1 — 2 — 3 Pre-Modification Outstanding Recorded Investment $ 503 $ — $ 10 $ — $ 513 Post-Modification Outstanding Recorded Investment 503 — 10 — 513 Subsequent Default, Number of Contracts — — — — — Subsequent Default, Recorded Investment — — — — — For the Year-To-Date Period Ended: June 30, 2018 Number of Loans — — 4 — 4 Pre-Modification Outstanding Recorded Investment $ — $ — $ 28 $ — $ 28 Post-Modification Outstanding Recorded Investment — — 28 — 28 Subsequent Default, Number of Contracts — — — — — Subsequent Default, Recorded Investment — — — — — June 30, 2017 Number of Loans 1 — 4 — 5 Pre-Modification Outstanding Recorded Investment $ 503 $ — $ 26 $ — $ 529 Post-Modification Outstanding Recorded Investment 503 — 26 — 529 Subsequent Default, Number of Contracts — — — — — Subsequent Default, Recorded Investment — — — — — In general, 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 June 30, 2018 . |