LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2014

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

3. Loans Receivable and Allowance for Loan Losses

Loans acquired in connection with the Wilton acquisition in November 2013 are referred to as “acquired” loans as a result of the manner in which they are accounted for. All other loans are referred to as “originated” loans. Accordingly, selected credit quality disclosures that follow are presented separately for the originated loan portfolio and the acquired loan portfolio.

The following table sets forth a summary of the loan portfolio at September 30, 2014 and December 31, 2013:

	September 30, 2014								December 31, 2013
(In thousands)	Originated			Acquired		Total			Originated			Acquired			Total
Real estate loans:
Residential	$	167,362		$	-	$	167,362		$	155,874		$	-		$	155,874
Commercial		394,004			6,911		400,915			305,823			9,939			315,762
Construction		52,387			893		53,280			44,187			7,308			51,495
Home equity		9,539			3,294		12,833			9,625			3,872			13,497
		623,292			11,098		634,390			515,509			21,119			536,628
Commercial business		105,123			2,038		107,161			92,173			2,374			94,547
Consumer		190			343		533			225			612			837
Total loans		728,605			13,479		742,084			607,907			24,105			632,012
Allowance for loan losses		(9,552	)		-		(9,552	)		(8,382	)		-			(8,382	)
Deferred loan origination fees, net		(2,400	)		-		(2,400	)		(1,785	)		(31	)		(1,816	)
Unamortized loan premiums		16			-		16			16			-			16
Loans receivable, net	$	716,669		$	13,479	$	730,148		$	597,756		$	24,074		$	621,830

Lending activities are conducted principally in the Fairfield County region of Connecticut, and consist of residential and commercial real estate loans, commercial business loans and a variety of consumer loans. Loans may also be granted for the construction of residential homes and commercial properties. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate.

The following table summarizes activity in the accretable yields for the acquired loan portfolio for the three and nine months ended September 30, 2014:

(In thousands)	Three Months Ended September 30, 2014
Balance at beginning of period	$	817
Acquisition		-
Accretion		(81	)
Other (a)		-
Balance at end of period	$	736
(In thousands)	Nine Months Ended September 30, 2014
Balance at beginning of period	$	1,418
Acquisition		-
Accretion		(338	)
Other (a)		(344	)
Balance at end of period	$	736

a) Represents changes in cash flows expected to be collected due to loan sales or payoffs.

Risk management

The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each customer and, in most cases, extends credit of up to 80% of the market value of the collateral, depending on the borrowers’ creditworthiness and the type of collateral. The market value of collateral is monitored on an ongoing basis and additional collateral is obtained when warranted. Real estate is the primary form of collateral. Other important forms of collateral are business assets, time deposits and marketable securities. While collateral provides assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment to be based on the borrower’s ability to generate continuing cash flows. The Company's policy for residential lending allows that, generally, the amount of the loan may not exceed 80% of the original appraised value of the property. In certain situations, the amount may be up to 90-95% LTV either with private mortgage insurance being required for that portion of the residential loan in excess of 80% of the appraised value of the property or where secondary financing is provided by a housing authority program second mortgage, a community's low/moderate income housing program, or a religious or civic organization. Private mortgage insurance is required for that portion of the residential loan in excess of 80% of the appraised value of the property.

Credit quality of loans and the allowance for loan losses

Management segregates the loan portfolio into portfolio segments which is defined as the level at which the Company develops and documents a systematic method for determining its allowance for loan losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate.

The Company’s loan portfolio is segregated into the following portfolio segments:

Residential Real Estate: This portfolio segment consists of the origination of first mortgage loans secured by one-to four-family owner occupied residential properties and residential construction loans to individuals to finance the construction of residential dwellings for personal use located in our market area.

Commercial Real Estate: This portfolio segment includes loans secured by commercial real estate, non-owner occupied one-to four-family and multi-family dwellings for property owners and businesses in our market area. Loans secured by commercial real estate generally have larger loan balances and more credit risk than owner occupied one-to four-family mortgage loans.

Construction: This portfolio segment includes commercial construction loans for commercial development projects, including condominiums, apartment buildings, and single family subdivisions as well as office buildings, retail and other income producing properties and land loans, which are loans made with land as security. Construction and land development financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, the Company may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project proves to be inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment. Construction loans also expose the Company to the risks that improvements will not be completed on time in accordance with specifications and projected costs and that repayment will depend on the successful operation or sale of the properties, which may cause some borrowers to be unable to continue with debt service which exposes the Company to greater risk of non-payment and loss.

Home Equity: This portfolio segment primarily includes home equity loans and home equity lines of credit secured by owner occupied one-to four-family residential properties. Loans of this type are written at a maximum of 80% of the appraised value of the property and the Company requires a second lien position on the property. These loans can be affected by economic conditions and the values of the underlying properties.

Commercial Business: This portfolio segment includes commercial business loans secured by assignments of corporate assets and personal guarantees of the business owners. Commercial business loans generally have higher interest rates and shorter terms than other loans, but they also may involve higher average balances, increased difficulty of loan monitoring and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business.

Consumer: This portfolio segment includes loans secured by savings or certificate accounts, or automobiles, as well as unsecured personal loans and overdraft lines of credit. This type of loan entails greater risk than residential mortgage loans, particularly in the case of loans that are unsecured or secured by assets that depreciate rapidly.

An unallocated component is maintained, when needed, to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. The unallocated allowance is used to provide for an unidentified loss that may exist in emerging problem loans that cannot be fully quantified or may be affected by conditions not fully understood as of the balance sheet date. The unallocated allowance was $0 at September 30, 2014 and December 31, 2013, respectively.

Allowance for loan losses

The following tables set forth the activity in the Company’s allowance for loan losses for the three and nine months ended September 30, 2014 and 2013, by portfolio segment:

	Residential Real Estate		Commercial Real Estate		Construction		Home Equity		Commercial Business			Consumer		Unallocated			Total
	(In thousands)
Three Months Ended September 30, 2014
Originated
Beginning balance	$	1,392	$	4,024	$	776	$	188	$	2,291		$	6	$	307		$	8,984
Charge-offs		-		-		-		-		-			-		-			-
Recoveries		-		-		-		-		-			1		-			1
Provisions		19		637		115		3		100			-		(307	)		567
Ending balance	$	1,411	$	4,661	$	891	$	191	$	2,391		$	7	$	-		$	9,552
Acquired
Beginning balance	$	-	$	-	$	-	$	-	$	1		$	-	$	-		$	1
Charge-offs		-		-		-		-		-			-		-			-
Recoveries		-		-		-		-		-			-		-			-
Provisions		-		-		-		-		(1	)		-		-			(1	)
Ending balance	$	-	$	-	$	-	$	-	$	-		$	-	$	-		$	-
Total
Beginning balance	$	1,392	$	4,024	$	776	$	188	$	2,292		$	6	$	307		$	8,985
Charge-offs		-		-		-		-		-			-		-			-
Recoveries		-		-		-		-		-			1		-			1
Provisions		19		637		115		3		99			-		(307	)		566
Ending balance	$	1,411	$	4,661	$	891	$	191	$	2,391		$	7	$	-		$	9,552

	Residential Real Estate		Commercial Real Estate			Construction			Home Equity			Commercial Business		Consumer			Unallocated			Total
	(In thousands)
Three Months Ended September 30, 2013
Beginning balance	$	1,326	$	3,672		$	1,013		$	213		$	1,766	$	91		$	143			8,224
Charge-offs		-		-			-			-			-		-			-			-
Recoveries		-		-			-			-			-		6			-			6
Provisions		143		(81	)		(85	)		(1	)		286		(87	)		(128	)		47
Ending balance	$	1,469	$	3,591		$	928		$	212		$	2,052	$	10		$	15		$	8,277
	Residential Real Estate		Commercial Real Estate			Construction			Home Equity			Commercial Business		Consumer			Unallocated			Total
	(In thousands)
Nine Months Ended September 30, 2014
Originated
Beginning balance	$	1,310	$	3,616		$	1,032		$	190		$	2,225	$	9		$	-		$	8,382
Charge-offs		-		-			-			-			-		(1	)		-			(1	)
Recoveries		-		-			-			-			-		424			-			424
Provisions		101		1,045			(141	)		1			166		(425	)		-			747
Ending balance	$	1,411	$	4,661		$	891		$	191		$	2,391	$	7		$	-		$	9,552
Acquired
Beginning balance	$	-	$	-		$	-		$	-		$	-	$	-		$	-		$	-
Charge-offs		-		-			(100	)		-			-		-			-			(100	)
Recoveries		-		-			-			-			-		-			-			-
Provisions		-		-			100			-			-		-			-			100
Ending balance	$	-	$	-		$	-		$	-		$	-	$	-		$	-		$	-
Total
Beginning balance	$	1,310	$	3,616		$	1,032		$	190		$	2,225	$	9		$	-		$	8,382
Charge-offs		-		-			(100	)		-			-		(1	)		-			(101	)
Recoveries		-		-			-			-			-		424			-			424
Provisions		101		1,045			(41	)		1			166		(425	)		-			847
Ending balance	$	1,411	$	4,661		$	891		$	191		$	2,391	$	7		$	-		$	9,552
	Residential Real Estate		Commercial Real Estate			Construction			Home Equity			Commercial Business		Consumer			Unallocated			Total
	(In thousands)
Nine Months Ended September 30, 2013
Beginning balance	$	1,230	$	3,842		$	929		$	220		$	1,718	$	2		$	-		$	7,941
Charge-offs		-		(166	)		-			-			-		(3	)		-			(169	)
Recoveries		-		-			-			-			-		16			-			16
Provisions		239		(85	)		(1	)		(8	)		334		(5	)		15			489
Ending balance	$	1,469	$	3,591		$	928		$	212		$	2,052	$	10		$	15		$	8,277

With respect to the originated portfolio, the allocation to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

The following tables are a summary, by portfolio segment and impairment methodology, of the allowance for loan losses and related portfolio balances at September 30, 2014 and December 31, 2013:

	Originated Loans				Acquired Loans				Total
	Portfolio		Allowance		Portfolio		Allowance		Portfolio		Allowance
	(In thousands)
September 30, 2014
Loans individually evaluated for impairment:
Residential real estate	$	864	$	-	$	-	$	-	$	864	$	-
Commercial real estate		2,895		22		-		-		2,895		22
Construction		-		-		-		-		-		-
Home equity		94		-		-		-		94		-
Commercial business		1,977		17		631		-		2,608		17
Consumer		-		-		-		-		-		-
Subtotal	$	5,830	$	39	$	631	$	-	$	6,461	$	39
Loans collectively evaluated for impairment:
Residential real estate	$	166,498	$	1,411	$	-	$	-	$	166,498	$	1,411
Commercial real estate		391,109		4,639		6,911		-		398,020		4,639
Construction		52,387		891		893		-		53,280		891
Home equity		9,445		191		3,294		-		12,739		191
Commercial business		103,146		2,374		1,407		-		104,553		2,374
Consumer		190		7		343		-		533		7
Subtotal	$	722,775	$	9,513	$	12,848	$	-	$	735,623	$	9,513
Unallocated Allowance		-		-		-		-		-		-
Total	$	728,605	$	9,552	$	13,479	$	-	$	742,084	$	9,552

	Originated Loans				Acquired Loans				Total
	Portfolio		Allowance		Portfolio		Allowance		Portfolio		Allowance
	(In thousands)
December 31, 2013
Loans individually evaluated for impairment:
Residential real estate	$	1,867	$	73	$	-	$	-	$	1,867	$	73
Commercial real estate		1,117		56		-		-		1,117		56
Construction		-		-		-		-		-		-
Home equity		97		4		-		-		97		4
Commercial business		642		12		-		-		642		12
Consumer		-		-		-		-		-		-
Subtotal	$	3,723	$	145	$	-	$	-	$	3,723	$	145
Loans collectively evaluated for impairment:
Residential real estate	$	154,007	$	1,237	$	-	$	-	$	154,007	$	1,237
Commercial real estate		304,706		3,560		9,939		-		314,645		3,560
Construction		44,187		1,032		7,308		-		51,495		1,032
Home equity		9,528		187		3,872		-		13,400		187
Commercial business		91,531		2,212		2,374		-		93,905		2,212
Consumer		225		9		612		-		837		9
Subtotal	$	604,184	$	8,237	$	24,105	$	-	$	628,289	$	8,237
Total	$	607,907	$	8,382	$	24,105	$	-	$	632,012	$	8,382

Credit quality indicators

The Company’s policies provide for the classification of loans into the following categories: pass, special mention, substandard, doubtful and loss. Consistent with regulatory guidelines, loans that are considered to be of lesser quality are classified as substandard, doubtful, or loss assets. A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans classified as loss are those considered uncollectible and of such little value that their continuance as loans is not warranted. Loans that do not expose the Company to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are designated as special mention.

Loans that are considered to be impaired are analyzed to determine whether a loss is possible and if so, a calculation is performed to determine the possible loss amount. If it is determined that the loss amount is $0, no reserve is held against the asset. If a loss is calculated, then a specific reserve for that asset is determined.

The following tables are a summary of the loan portfolio quality indicators by portfolio segment at September 30, 2014 and December 31, 2013:

	Commercial Credit Quality Indicators
	At September 30, 2014						At December 31, 2013
	Commercial				Commercial		Commercial				Commercial
	Real Estate		Construction		Business		Real Estate		Construction		Business
	(In thousands)
Originated loans:
Pass	$	387,877	$	52,387	$	99,354	$	304,469	$	44,187	$	91,093
Special mention		1,571		-		5,191		237		-		438
Substandard		4,556		-		578		1,117		-		642
Doubtful		-		-		-		-		-		-
Loss		-		-		-		-		-		-
Total originated loans		394,004		52,387		105,123		305,823		44,187		92,173
Acquired loans:
Pass		5,878		-		1,138		9,580		4,639		1,806
Special mention		-		-		53		24		161		252
Substandard		1,033		893		847		335		2,508		316
Doubtful		-		-		-		-		-		-
Loss		-		-		-		-		-		-
Total acquired loans		6,911		893		2,038		9,939		7,308		2,374
Total	$	400,915	$	53,280	$	107,161	$	315,762	$	51,495	$	94,547

	Residential and Consumer Credit Quality Indicators
	At September 30, 2014						At December 31, 2013
	Residential						Residential
	Real Estate		Home Equity		Consumer		Real Estate		Home Equity		Consumer
	(In thousands)
Originated loans:
Pass	$	166,498	$	9,372	$	190	$	153,443	$	9,447	$	225
Special mention		864		167		-		2,431		178		-
Substandard		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-
Loss		-		-		-		-		-		-
Total originated loans		167,362		9,539		190		155,874		9,625		225
Acquired loans:
Pass		-		3,294		343		-		3,826		469
Special mention		-		-		-		-		-		143
Substandard		-		-		-		-		46		-
Doubtful		-		-		-		-		-		-
Loss		-		-		-		-		-		-
Total acquired loans		-		3,294		343		-		3,872		612
Total	$	167,362	$	12,833	$	533	$	155,874	$	13,497	$	837

Loan portfolio aging analysis

When a loan is 15 days past due, the Company sends the borrower a late notice. The Company also contacts the borrower by phone if the delinquency is not corrected promptly after the notice has been sent. When the loan is 30 days past due, the Company mails the borrower a letter reminding the borrower of the delinquency, and attempts to contact the borrower personally to determine the reason for the delinquency and ensure the borrower understands the terms of the loan. If necessary, subsequent delinquency notices are issued and the account will be monitored on a regular basis thereafter. By the 90th day of delinquency, the Company will send the borrower a final demand for payment and may recommend foreclosure. A summary report of all loans 30 days or more past due is provided to the board of directors of the Company each month. Loans greater than 90 days past due are generally put on nonaccrual status. A nonaccrual loan is restored to accrual status when it is no longer delinquent and collectability of interest and principal is no longer in doubt. A loan is considered to be no longer delinquent when timely payments are made for a period of at least six months (one year for loans providing for quarterly or semi-annual payments) by the borrower in accordance with the contractual terms.

The following tables set forth certain information with respect to our loan portfolio delinquencies by portfolio segment and amount as of September 30, 2014 and December 31, 2013:

	As of September 30, 2014
											Carrying
											Amount > 90
	31-60 Days		61-90 Days		Greater Than		Total Past				Days and
	Past Due		Past Due		90 Days		Due		Current		Accruing
					(In thousands)
Originated Loans
Real estate loans:
Residential real estate	$	-	$	-	$	-	$	-	$	167,362	$	-
Commercial real estate		-		-		1,102		1,102		392,902		-
Construction		-		-		-		-		52,387		-
Home equity		-		-		-		-		9,539		-
Commercial business		-		-		-		-		105,123		-
Consumer		-		1		-		1		189		-
Total originated loans		-		1		1,102		1,103		727,502		-
Acquired Loans
Real estate loans:
Residential real estate		-		-		-		-		-		-
Commercial real estate		-		-		416		416		6,495		416
Construction		-		-		893		893		-		893
Home equity		-		-		-		-		3,294		-
Commercial business		-		-		-		-		2,038		-
Consumer		1		-		-		1		342		-
Total acquired loans		1		-		1,309		1,310		12,169		1,309
Total loans	$	1	$	1	$	2,411	$	2,413	$	739,671	$	1,309

	As of December 31, 2013
											Carrying
											Amount > 90
	31-60 Days		61-90 Days		Greater Than		Total Past				Days and
	Past Due		Past Due		90 Days		Due		Current		Accruing
	(In thousands)
Originated Loans
Real estate loans:
Residential real estate	$	-	$	-	$	1,003	$	1,003	$	154,871	$	-
Commercial real estate		-		-		-		-		305,823		-
Construction		-		-		-		-		44,187		-
Home equity		-		-		-		-		9,625		-
Commercial business		-		-		-		-		92,173		-
Consumer		-		-		-		-		225		-
Total originated loans		-		-		1,003		1,003		606,904		-
Acquired Loans
Real estate loans:
Residential real estate		-		-		-		-		-		-
Commercial real estate		-		-		797		797		9,142		797
Construction		-		-		2,508		2,508		4,800		2,508
Home equity		-		-		-		-		3,872		-
Commercial business		-		-		315		315		2,059		315
Consumer		-		-		-		-		612		-
Total acquired loans		-		-		3,620		3,620		20,485		3,620
Total loans	$	-	$	-	$	4,623	$	4,623	$	627,389	$	3,620

Loans on nonaccrual status

The following is a summary of nonaccrual loans by portfolio segment as of September 30, 2014 and December 31, 2013:

	September 30,		December 31,
	2014		2013
	(In thousands)
Residential real estate	$	-	$	1,003
Commercial real estate		1,246		-
Total	$	1,246	$	1,003

The amount of income that was contractually due but not recognized on originated nonaccrual loans totaled $51 thousand, and $67 thousand, respectively for the nine months ended September 30, 2014, and 2013. The amount of income that was contractually due but not recognized on originated nonaccrual loans totaled $18 thousand, and $27 thousand, respectively for the three months ended September 30, 2014 and 2013. There was $4 thousand and $8 thousand actual interest income recognized on these loans for the nine months ended September 30, 2014, and 2013.

At September 30, 2014 and December 31, 2013, there were no commitments to lend additional funds to any borrower on nonaccrual status.

The preceding table excludes acquired loans that are accounted for as purchased credit impaired loans totaling $1.9 million and $6.2 million, respectively at September 30, 2014 and December 31, 2013. Such loans otherwise meet the Company’s definition of a nonperforming loan but are excluded because the loans are included in loan pools that are considered performing. The discounts arising from recording these loans at fair value were due, in part, to credit quality. The acquired loans are accounted for on either a pool or individual basis and the accretable yield is being recognized as interest income over the life of the loans based on expected cash flows.

Impaired loans

An impaired loan generally is one for which it is probable, based on current information, the Company will not collect all the amounts due under the contractual terms of the loan. Loans are individually evaluated for impairment. When the Company classifies a problem loan as impaired, it provides a specific valuation allowance for that portion of the asset that is deemed uncollectible.

The following table summarizes impaired loans by portfolio segment as of September 30, 2014 and December 31, 2013:

	Carrying				Unpaid Principal				Associated
	Amount				Balance				Allowance
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2014		2013		2014		2013		2014		2013
	(In thousands)
Originated
Impaired loans without a valuation allowance:
Residential real estate	$	864	$	-	$	864	$	-	$	-	$	-
Commercial real estate		2,440		-		2,455		-		-		-
Home equity		94		-		94		-		-		-
Commercial business		1,344		-		1,350		-		-		-
Total impaired loans without a valuation allowance	$	4,742	$	-	$	4,763	$	-	$	-	$	-
Impaired loans with a valuation allowance:
Residential real estate	$	-	$	1,867	$	-	$	1,880	$	-	$	73
Commercial real estate		455		1,117		455		1,117		22		56
Home equity		-		97		-		97		-		4
Commercial business		633		642		633		642		17		12
Total impaired loans with a valuation allowance	$	1,088	$	3,723	$	1,088	$	3,736	$	39	$	145
Total originated impaired loans	$	5,830	$	3,723	$	5,851	$	3,736	$	39	$	145
Acquired
Impaired loans without a valuation allowance:
Commercial business	$	631	$	-	$	631	$	-	$	-	$	-
Total impaired loans without a valuation allowance	$	631	$	-	$	631	$	-	$	-	$	-
Total acquired impaired loans	$	631	$	-	$	631	$	-	$	-	$	-

The following table summarizes the average recorded investment balance of impaired loans and interest income recognized on impaired loans by portfolio segment for the nine months ended September 30, 2014 and 2013:

	Average Recorded Investment				Interest Income Recognized
Nine months ended September 30,	2014		2013		2014		2013
	(In thousands)
Originated
Impaired loans without a valuation allowance:
Residential real estate	$	864	$	-	$	21	$	-
Commercial real estate		1,714		-		21		-
Home equity		96		-		2		-
Commercial business		1,434		-		48		-
Total impaired loans without a valuation allowance	$	4,108	$	-	$	92	$	-
Impaired loans with a valuation allowance:
Residential real estate	$	-	$	1,900	$	-	$	29
Commercial real estate		459		1,131		24		38
Home equity		665		246		-		6
Commercial business		-		690		27		28
Total impaired loans with a valuation allowance	$	1,124	$	3,967	$	51	$	101
Total originated impaired loans	$	5,232	$	3,967	$	143	$	101
Acquired
Impaired loans without a valuation allowance:
Commercial business	$	599	$	-	$	20	$	-
Total impaired loans without a valuation allowance	$	599	$	-	$	20	$	-
Total acquired impaired loans	$	599	$	-	$	20	$	-

Troubled debt restructurings (TDRs)

Modifications to a loan are considered to be a troubled debt restructuring when one or both of the following conditions is met: 1) the borrower is experiencing financial difficulties and/or 2) the modification constitutes a concession that is not in line with market rates and/or terms. Modified terms are dependent upon the financial position and needs of the individual borrower. Trouble debt restructurings are classified as impaired loans. If a performing loan is restructured into a TDR it remains in performing status.

If a nonperforming loan is restructured into a TDR, it continues to be carried in nonaccrual status. Nonaccrual classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of six months. Troubled debt restructured loans are reported as such for at least one year from the date of restructuring. In years after the restructuring, troubled debt restructured loans are removed from this classification if the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring and the loan is not deemed to be impaired based on the modified terms.

The recorded investment in TDRs was $2.1 million at September 30, 2014 and $1.6 million at December 31, 2013.

The following table presents loans whose terms were modified as TDRs during the periods presented:

					Outstanding Recorded Investment
	Number of Loans				Pre-Modification				Post-Modification
(Dollars in thousands)	2014		2013		2014		2013		2014		2013
Three months ended September 30,
Commercial business		1		-	$	241	$	-	$	241	$	-
Total		1		-	$	241	$	-	$	241	$	-

					Outstanding Recorded Investment
	Number of Loans				Pre-Modification				Post-Modification
(Dollars in thousands)	2014		2013		2014		2013		2014		2013
Nine months ended September 30,
Commercial real estate		2		-	$	1,324	$	-	$	1,324	$	-
Home equity		-		1		-		94		-		94
Commercial business		4		-		796		-		796		-
Total		6		1	$	2,120	$	94	$	2,120	$	94

All TDRs at September 30, 2014 and December 31, 2013 were performing in compliance under their modified terms.

27

Bankwell Financial Group,Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Unaudited)

The following table provides information on how loans were modified as a TDR during the three and nine months ended September 30, 2014 and 2013.

	Three months				Nine months
Periods ended September 30,	2014		2013		2014		2013
	(In thousands)
Maturity/amortization concession	$	241	$	-	$	962	$	94
Payment concession	$	-	$	-	$	1,158	$	-
Total	$	241	$	-	$	2,120	$	94

There was $1.1 million and no loans modified in a troubled debt restructuring, for which there was a payment default during the three or nine months ended September 30, 2014 and 2013, respectively.