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Loans | 9 Months Ended
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Sep. 30, 2021
Receivables [Abstract] |
Loans | LOANS (In Thousands) Loan Categories and Past Due Loans 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 |
Arrow disaggregates its loan portfolio into the following four categories: 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. The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2021:
September 30, 2021 | Collateral Type -Residential Real Estate |  | Collateral Type - Commercial Real Estate |  | Total Loans
Commercial | $ | — |  |  | $ | — |  |  | $ | — |
Commercial Real Estate | — |  |  | 7,254 |  |  | 7,254 |
Consumer | — |  |  | — |  |  | — |
Residential | 676 |  |  | — |  |  | 676 |
Total | $ | 676 |  |  | $ | 7,254 |  |  | $ | 7,930 |
Allowance for Credit Losses As mentioned in Note 1 Accounting Policies, Arrow adopted CECL on January 1, 2021. 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. The following table details activity in the allowance for credit losses on loans for the three and nine months ended September 30, 2021 and September 30, 2020. Arrow adopted ASU 2016-13 on January 1, 2021. Results for the periods beginning after January 1, 2021 are presented under ASC 326 and prior periods continue to be reported in accordance with previously applicable US GAAP.
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 |
Allowance for Loan Losses
| Commercial |  | Commercial Real Estate |  | Consumer |  | Residential |  |  |  | Total
Rollforward of the Allowance for Loan Losses for the Quarterly Period: |  |  |  |  |  |  |  |  |  |
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 |
Estimated Credit Losses on Off-Balance Sheet Credit Exposures Recognized as Other Liabilities 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. Individually Evaluated Loans 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 |
The following table presents information pertaining to the allowance for loan losses as of December 31, 2020 and September 30, 2020, as determined in accordance with ASC 310, prior to the adoption of ASU 2016-13:
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. Arrow's 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 independent internal loan review department performs periodic reviews of the credit quality indicators on individual loans in the commercial loan portfolio. 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. Management considers the qualitative factors that are relevant to Arrow as of the reporting date, which may include, but are not limited to the following factors: •The nature and volume of Arrow's financial assets; •The existence, growth, and effect of any concentrations of credit; •The volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; •The value of the underlying collateral for loans that are not collateral-dependent; •Arrow's lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries; •The quality of Arrow's loan review function; •The experience, ability, and depth of Arrow's lending, investment, collection, and other relevant management/staff; •The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters; •Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets; and •Other qualitative factors not reflected in quantitative loss rate calculations. Loan Credit Quality Indicators The following table presents credit quality indicators by total loans amortized cost basis by origination year as of September 30, 2021.
| 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 |
For the purposes of the table above, nonperforming consumer and residential loans were those loans on nonaccrual status or are 90 days or more past due and still accruing interest. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $1.3 million. For the allowance calculation, an internally developed system of five credit quality indicators is used 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 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 5) Loss - Loans classified as “loss” are considered uncollectible with collateral 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 incurred risk of loss in our commercial related loan portfolios. The following table presents information pertaining to loan credit quality indicators as of December 31, 2020 and September 30, 2020, as determined in accordance with ASC 310, prior to the adoption of ASU 2016-13:
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 |
I mpaired Loans The following table presents information on impaired loans as of December 31, 2020 and September 30, 2020 based on whether the impaired loan has a recorded related allowance or has no recorded related allowance, as determined in accordance with ASC 310, prior to the adoption of ASU 2016-13:
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 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: |  |  |  |  |  |  |  |  |
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.

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