Fair Value Measurements

The Corporation uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. As of September 30, 2012 and December 31, 2011, securities available for sale, residential real estate mortgage loans held for sale and derivatives were recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent impaired loans, property acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets.

ASC 825 allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis that may otherwise not be required to be measured at fair value under other accounting standards. Washington Trust elected the fair value option for its portfolio of residential real estate mortgage loans held for sale pursuant to forward sale commitments originated after July 1, 2011 in order to reduce certain timing differences and better match changes in fair values of the loans with changes in the fair value of the derivative forward loan sale contracts used to economically hedge them. The election under ASC 825 related to residential real estate mortgage loans held for sale does not result in a transition adjustment to retained earnings and instead, changes in fair value have an impact on earnings.

The following table summarizes information related to mortgage loans held for sale, commitments to originate fixed-rate residential real estate mortgage loans to be sold and commitments to sell fixed-rate residential real estate mortgage loans.



(Dollars in thousands)	September 30, 2012					December 31, 2011
	Notional or Principal Amount		Fair Value			Notional or Principal Amount		Fair Value
Mortgage loans held for sale (1)		$33,737		$35,409			$19,624		$20,340
Commitments to originate	102,063		4,873			56,950		1,864
Commitments to sell	135,799		(6,545		)	76,574		(2,580		)


(1)	At September 30, 2012, the difference between the aggregate fair value and the aggregate principal amount of mortgage loans held for sale amounted to $1.7 million. There were no mortgage loans held for sale 90 days or more past due as of September 30, 2012.

The following table presents the changes in fair value related to mortgage loans held for sale, commitments to originate fixed-rate residential real estate mortgage loans to be sold and commitments to sell fixed-rate residential real estate mortgage loans for the periods indicated. Changes in fair values are reported as a component of net gains on loan sales and commissions on loans originated for others in the Consolidated Statements of Income.



(Dollars in thousands)
	Three Months						Nine Months
Periods ended September 30,	2012			2011			2012			2011
Mortgage loans held for sale		$850			$828			$956			$828
Commitments to originate	1,810			2,514			3,009			2,547
Commitments to sell	(2,660		)	(3,304		)	(3,965		)	(3,810		)
Total changes in fair value		$—			$38			$—			($435	)

Fair value is a market-based measurement, not an entity-specific measurement. Fair value measurements are determined based on the assumptions the market participants would use in pricing the asset or liability. In addition, GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Corporation’s market assumptions. These two types of inputs have created the following fair value hierarchy:


•	Level 1 – Quoted prices for identical assets or liabilities in active markets.


•	Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.


•	Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect the Corporation’s market assumptions.

Determination of Fair Value

Fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, the Corporation uses quoted market prices to determine fair value. If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates. If observable market-based inputs are not available, the Corporation uses unobservable inputs to determine appropriate valuation adjustments using methodologies applied consistently over time.

The following is a description of valuation methodologies for assets and liabilities recorded at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Items Measured at Fair Value on a Recurring Basis

Securities

Securities available for sale are recorded at fair value on a recurring basis. When available, the Corporation uses quoted market prices to determine the fair value of securities; such items are classified as Level 1. This category includes exchange-traded equity securities.

Level 2 securities include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes obligations of U.S. government-sponsored enterprises, mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, municipal bonds, trust preferred securities and corporate bonds.

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities may be classified as Level 3. As of September 30, 2012 and December 31, 2011, Level 3 securities were comprised of two pooled trust preferred debt securities, in the form of collateralized debt obligations, which were not actively traded. As of September 30, 2012 and December 31, 2011, the Corporation concluded that the low level of activity for its Level 3 pooled trust preferred debt securities continued to indicate that quoted market prices are not indicative of fair value. The Corporation obtained valuations including broker quotes and cash flow scenario analyses prepared by a third party valuation consultant. The fair values were assigned a weighting that was dependent upon the methods used to calculate the prices. The cash flow scenarios (Level 3) were given substantially more weight than the broker quotes (Level 2) as management believed that the broker quotes reflected highly limited sales evidenced by an inactive market. The cash flow scenarios were prepared using discounted cash flow methodologies based on detailed cash flow and credit analysis of the pooled securities. The weighting was then used to determine an overall fair value of the securities. Management believes that this approach is most representative of fair value for these particular securities in current market conditions.

Our internal review procedures have also confirmed that the fair values provided by the aforementioned third party valuation sources utilized by the Corporation are consistent with GAAP. Our fair values assumed liquidation in an orderly market and not under distressed circumstances. Due to the continued market illiquidity and credit risk for securities in the financial sector, the fair value of these securities is highly sensitive to assumption changes and market volatility.

Mortgage Loans Held for Sale

Effective July 1, 2011, Washington Trust elected to carry newly originated closed residential real estate mortgage loans held for sale at fair value pursuant to ASC 825, "Financial Instruments." Level 2 mortgage loans held for sale fair values are estimated based on what secondary markets are currently offering for loans with similar characteristics. In certain cases when quoted market prices are not available, fair value is determined by utilizing a discounted cash flow analysis and these assets are classified as Level 3. Any change in the valuation of mortgage loans held for sale is based upon the change in market interest rates between closing the loan and the measurement date and an immaterial portion attributable to changes in instrument-specific credit risk.

Derivatives

Interest rate swap contracts are traded in over-the-counter markets where quoted market prices are not readily available. Fair value measurements are determined using independent pricing models that utilize primarily market observable inputs, such as swap rates of different maturities and LIBOR rates and, accordingly, are classified as Level 2. Our internal review procedures have confirmed that the fair values determined with independent pricing models and utilized by the Corporation are consistent with GAAP. For purposes of potential valuation adjustments to its interest rate swap contracts, the Corporation evaluates the credit risk of its counterparties as well as that of the Corporation. Accordingly, Washington Trust considers factors such as the likelihood of default by the Corporation and its counterparties, its net exposures and remaining contractual life, among other factors, in determining if any fair value adjustments related to credit risk are required. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position. Washington Trust met the criteria for and effective January 1, 2012 elected to apply the accounting policy exception with respect to measuring counterparty credit risk for derivative transactions subject to master netting arrangements provided in ASU 2011-04. Electing this policy exception had no impact on financial statement presentation.

Level 2 fair value measurements of forward loan commitments (interest rate lock commitments and commitments to sell fixed-rate residential mortgages) are estimated using the anticipated market price based on pricing indications provided from syndicate banks. In certain cases when quoted market prices are not available, fair value is determined by utilizing a discounted cash flow analysis and these assets are classified as Level 3.

Items Measured at Fair Value on a Nonrecurring Basis

Collateral Dependent Impaired Loans

Collateral dependent loans that are deemed to be impaired are valued based upon the fair value of the underlying collateral less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level 3.

Loan Servicing Rights

Loan servicing rights do not trade in an active market with readily observable prices. Accordingly, we determine the fair value of loan servicing rights using a valuation model that calculates the present value of the estimated future net servicing income. The model incorporates assumptions used in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service and contractual servicing fee income. Loan servicing rights are subject to fair value measurements on a nonrecurring basis. Fair value measurements of our loan servicing rights use significant unobservable inputs and, accordingly, are classified as Level 3.

Property Acquired Through Foreclosure or Repossession

Property acquired through foreclosure or repossession is adjusted to fair value less costs to sell upon transfer out of loans. Subsequently, it is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon appraised values of the collateral. Management adjusts appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is categorized as Level 3.

Items Recorded at Fair Value on a Recurring Basis

The tables below present the balances of assets and liabilities reported at fair value on a recurring basis:



(Dollars in thousands)							Assets/Liabilities at Fair Value
	Fair Value Measurements Using
September 30, 2012	Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Obligations of U.S. government-sponsored enterprises		$—		$32,035		$—		$32,035
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	—		295,826		—		295,826
States and political subdivisions	—		73,613		—		73,613
Trust preferred securities:
Individual name issuers	—		23,436		—		23,436
Collateralized debt obligations	—		—		930		930
Corporate bonds	—		14,449		—		14,449
Mortgage loans held for sale	—		31,176		4,233		35,409
Derivative assets (1):
Interest rate swap contracts with customers	—		4,115		—		4,115
Forward loan commitments	—		4,793		82		4,875
Total assets at fair value on a recurring basis		$—		$479,443		$5,245		$484,688
Liabilities:
Derivative liabilities (1):
Mirror swap contracts with customers		$—		$4,249		$—		$4,249
Interest rate risk management swap contracts	—		1,796		—		1,796
Forward loan commitments	—		6,410		137		6,547
Total liabilities at fair value on a recurring basis		$—		$12,455		$137		$12,592


(1)	Derivative assets are included in other assets and derivative liabilities are reported in other liabilities in the Consolidated Balance Sheets.



(Dollars in thousands)							Assets/Liabilities at Fair Value
	Fair Value Measurements Using
December 31, 2011	Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Obligations of U.S. government-sponsored enterprises		$—		$32,833		$—		$32,833
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	—		389,658		—		389,658
States and political subdivisions	—		79,493		—		79,493
Trust preferred securities:
Individual name issuers	—		22,396		—		22,396
Collateralized debt obligations	—		—		887		887
Corporate bonds	—		14,282		—		14,282
Perpetual preferred stocks	1,704		—		—		1,704
Mortgage loans held for sale	—		20,340		—		20,340
Derivative assets (1):
Interest rate swap contracts with customers	—		4,513		—		4,513
Forward loan commitments	—		1,864		—		1,864
Total assets at fair value on a recurring basis		$1,704		$565,379		$887		$567,970
Liabilities:
Derivative liabilities (1):
Mirror swap contracts with customers		$—		$4,669		$—		$4,669
Interest rate risk management swap contracts	—		1,802		—		1,802
Forward loan commitments	—		2,580		—		2,580
Total liabilities at fair value on a recurring basis		$—		$9,051		$—		$9,051


(1)	Derivative assets are included in other assets and derivative liabilities are reported in other liabilities in the Consolidated Balance Sheets.

It is the Corporation’s policy to review and reflect transfers between Levels as of the financial statement reporting date. During the three and nine months ended September 30, 2012, there were no transfers in and/or out of Level 1, 2 or 3. During the third quarter of 2011, after evaluating forward loan commitments consisting of interest rate lock commitments and commitments to sell fixed-rate residential mortgages, it was determined that significant inputs and significant value drivers were observable in active markets, and the Corporation therefore reclassified these derivatives from out of Level 3 into Level 2. There were no other transfers during the three and nine months ended September 30, 2011.

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis during the periods indicated:



Three months ended September 30,	2012									2011
(Dollars in thousands)	Securities Available for Sale (1)		Mortgage Loans Held for Sale (2)		Derivative Assets / (Liabilities) (3)			Total		Securities Available for Sale (1)			Derivative Assets / (Liabilities) (3)			Total
Balance at beginning of period		$767		$—		$—			$767		$934			($38	)		$896
Gains and losses (realized and unrealized):
Included in earnings (4)	—		—		—			—		(158		)	(790		)	(948		)
Included in other comprehensive income	163		—		—			163		20			—			20
Issuances	—		4,233		(55		)	4,178		—			—			—
Transfers out of Level 3	—		—		—			—		—			828			828
Balance at end of period		$930		$4,233		($55	)		$5,108		$796			$—			$796



Nine months ended September 30,	2012											2011
(Dollars in thousands)	Securities Available for Sale (1)			Mortgage Loans Held for Sale (2)		Derivative Assets / (Liabilities) (3)			Total			Securities Available for Sale (1)			Derivative Assets / (Liabilities) (3)			Total
Balance at beginning of period		$887			$—		$—			$887			$806			$435			$1,241
Gains and losses (realized and unrealized):
Included in earnings (4)	(209		)	—		—			(209		)	(191		)	(1,263		)	(1,454		)
Included in other comprehensive income	252			—		—			252			181			—			181
Issuances	—			4,233		(55		)	4,178			—			—			—
Transfers out of Level 3	—			—		—			—			—			828			828
Balance at end of period		$930			$4,233		($55	)		$5,108			$796			$—			$796


(1)	During the periods indicated, Level 3 securities available for sale were comprised of two pooled trust preferred debt securities in the form of collateralized debt obligations.


(2)	During the periods indicated, Level 3 mortgage loans held for sale consisted of certain mortgage loans whose fair value was determined utilizing a discounted cash flow analysis.

(3)

During the three and nine months ended September 30, 2012, Level 3 derivative assets / liabilities consisted of forward loan commitments (interest rate lock commitments and commitments to sell fixed-rate residential real estate mortgages) whose fair value was determined utilizing a discounted cash flows analysis. During the three and nine months ended September 30, 2011, Level 3 derivative assets / liabilities consisted of certain forward loan commitments that were reclassified out of Level 3 into Level 2 after evaluation during the third quarter of 2011, when it was determined that significant inputs and significant value drivers were observable in active markets.

(4)

Losses included in earnings for Level 3 securities available for sale consisted of credit-related impairment losses on two Level 3 pooled trust preferred debt securities. No credit-related impairment losses were recognized during the three months ended September 30, 2012, while credit-related impairment losses of $158 thousand were recognized during the three months ended September 30, 2011. Credit-related impairment losses of $209 thousand and $191 thousand, respectively, were recognized during the nine months ended September 30, 2012 and 2011. The losses included in earnings for Level 3 derivative assets and liabilities, which were comprised of forward loan commitments (interest rate lock commitments and commitments to sell fixed-rate residential real estate mortgages), were included in net gains on loan sales and commissions on loans originated for others in the Consolidated Statements of Income.

The following table presents additional quantitative information about assets measured at fair value on a recurring basis for which the Corporation has utilized Level 3 inputs to determine fair value.



(Dollars in thousands)	September 30, 2012
	Fair Value			Valuation Technique	Unobservable Input	Range of Inputs Utilized (Weighted Average)
Trust preferred securities:
Collateralized debt obligations		$930		Discounted Cash Flow	Discount Rate	15.75% - 16.75% (16.25%)
					Cumulative Default %	4.0% - 100% (26.9%)
					Loss Given Default %	85% - 100% (90.9%)

Mortgage loans held for sale		$4,233		Discounted Cash Flow	Interest Rate	3.5% - 4.125% (4.05%)
					Credit Risk Adjustment	0.25%

Derivative assets/liabilities:
Forward loan commitments		($55	)	Discounted Cash Flow	Interest Rate	3.5% - 4.125% (3.87%)
					Credit Risk Adjustment	0.25%

Trust Preferred Debt Securities in the Form of Collateralized Debt Obligations

Given the low level of market activity for trust preferred securities in the form of collateralized debt obligations, the discount rate utilized in the fair value measurement was derived by analyzing current market yields for trust preferred securities of individual name issuers in the financial services industry. Adjustments were then made for credit and structural differences between these types of securities. There is an inverse correlation between the discount rate and the fair value measurement. When the discount rate increases, the fair value decreases.

Other significant unobservable inputs to the fair value measurement of collateralized debt obligations included prospective defaults and recoveries. The cumulative default percentage represents the lifetime defaults assumed, excluding currently defaulted collateral and including all performing and currently deferring collateral. As a result, the cumulative default percentage also reflects assumptions of the possibility of currently deferring collateral curing and becoming current. The loss given default percentage represents the percentage of current and projected defaults assumed to be lost. There is an inverse correlation between the cumulative default and loss given default percentages and the fair value measurement. When the default percentages increase, the fair value decreases.

Mortgage Loans Held for Sale and Derivative Assets / Liabilities

Significant unobservable inputs to the fair market value measurement for certain mortgage loans held for sale and certain forward loan commitments include interest rate and credit risk. Interest rates approximate the Corporation's current origination rates for similar loans. Credit risk approximates the Corporation's current loss exposure factor for similar loans.

Items Recorded at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or write-downs of individual assets. The valuation methodologies used to measure these fair value adjustments are described above.

The following table presents the carrying value of certain assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012:



(Dollars in thousands)	Carrying Value at September 30, 2012
	Level 1		Level 2		Level 3		Total
Collateral dependent impaired loans		$—		$—		$5,821		$5,821
Loan servicing rights (1)	—		—		902		902
Property acquired through foreclosure or repossession (1)	—		—		1,139		1,139
Total assets at fair value on a nonrecurring basis		$—		$—		$7,862		$7,862


(1)	Loan servicing rights and property acquired through foreclosure or repossession are included in other assets in the Consolidated Balance Sheets.

Collateral dependent impaired loans with a carrying value of $5.8 million at September 30, 2012 were subject to nonrecurring fair value measurement during the nine months ended September 30, 2012. As of September 30, 2012, the allowance for loan losses allocation on these loans amounted to $1.0 million.

During the nine months ended September 30, 2012, properties acquired through foreclosures or repossession with a fair value of $3.3 million were transferred from loans. Prior to the transfer, the assets whose fair value less costs to sell was less than the carrying value were written down to fair value through a charge to the allowance for loan losses. For the three and nine months ended September 30, 2012, such valuation adjustments charged to the allowance for loan losses amounted to $65 thousand and $397 thousand, respectively. Subsequent to foreclosures, valuations are updated periodically and assets may be adjusted down further, reflecting a new cost basis. Subsequent valuation adjustments charged to earnings totaled $127 thousand and $298 thousand for the three and nine months ended September 30, 2012, respectively.

The following table presents the carrying value of certain assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2011:



(Dollars in thousands)	Carrying Value at September 30, 2011
	Level 1		Level 2		Level 3		Total
Collateral dependent impaired loans		$—		$—		$6,599		$6,599
Loan servicing rights (1)	—		—		482		482
Property acquired through foreclosure or repossession (1)	—		—		892		892
Total assets at fair value on a nonrecurring basis		$—		$—		$7,973		$7,973


(1)	Loan servicing rights and property acquired through foreclosure or repossession are included in other assets in the Consolidated Balance Sheets.

Collateral dependent impaired loans with a carrying value of $6.6 million at September 30, 2011 were subject to nonrecurring fair value measurement during the nine months ended September 30, 2011. As of September 30, 2011, the allowance for loan losses allocation on these loans amounted to $489 thousand.

During the nine months ended September 30, 2011, properties acquired through foreclosures or repossession with a fair value of $1.3 million were transferred from loans. Prior to the transfer, the assets whose fair value less costs to sell was less than the carrying value were written down to fair value through a charge to the allowance for loan losses. There were no valuation adjustments charged to the allowance for loan losses for the three months ended September 30, 2011. For the nine months ended September 30, 2011, such valuation adjustments charged to the allowance for loan losses amounted to $124 thousand. Subsequent to foreclosures, valuations are updated periodically and assets may be adjusted down further, reflecting a new cost basis. There were no subsequent valuation adjustments charged to earnings during the three months ended September 30, 2011. Subsequent valuation adjustments charged to earnings totaled $392 thousand for the nine months ended September 30, 2011.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value.



(Dollars in thousands)	September 30, 2012
	Fair Value		Valuation Technique	Unobservable Input	Range of Inputs Utilized (Weighted Average)
Collateral dependent impaired loans		$5,821	Appraisals of collateral	Discount for costs to sell	1% - 50% (15%)
				Appraisal adjustments (1)	0% - 15% (15%)
Loan servicing rights		$902	Discounted Cash Flow	Discount Rate	.09% - 2.8% (2.2%)
Property acquired through foreclosure or repossession		$1,139	Appraisals of collateral	Discount for costs to sell	0% - 10% (4%)
				Appraisal adjustments (1)	15% - 34% (20%)


(1)	Management may adjust appraisal values to reflect market value declines or other discounts resulting from its knowledge of the property.

Valuation of Other Financial Instruments

The methodologies for estimating the fair value of financial instruments that are measured at fair value on a recurring or nonrecurring basis are discussed above. The methodologies for other financial instruments are discussed below.

Loans

Fair values are estimated for categories of loans with similar financial characteristics. Loans are segregated by type and are then further segmented into fixed-rate and adjustable rate interest terms to determine their fair value. The fair value of fixed-rate commercial and consumer loans is calculated by discounting scheduled cash flows through the estimated maturity of the loan using interest rates offered at September 30, 2012 and December 31, 2011 that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Corporation's historical repayment experience. For residential mortgages, fair value is estimated by using quoted market prices for sales of similar loans on the secondary market, adjusted for servicing costs. The fair value of floating rate commercial and consumer loans approximates carrying value. Fair value for impaired loans is estimated using a discounted cash flow method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or if the loan is collateral dependent, at the fair value of the collateral less costs to sell. Loans are classified within Level 3 of the fair value hierarchy.

Time Deposits

The discounted values of cash flows using the rates currently offered for deposits of similar remaining maturities were used to estimate the fair value of time deposits. Time deposits are classified within Level 2 of the fair value hierarchy.

Federal Home Loan Bank Advances

Rates currently available to the Corporation for advances with similar terms and remaining maturities are used to estimate fair value of existing advances. FHLBB advances are categorized as Level 2.

Junior Subordinated Debentures

The fair value of the junior subordinated debentures is estimated using rates currently available to the Corporation for debentures with similar terms and maturities. Junior subordinated debentures are categorized as Level 2.

The following tables present the carrying amount, estimated fair value and placement in the fair value hierarchy of the Corporation's financial instruments as of September 30, 2012 and December 31, 2011. The tables exclude financial instruments for which the carrying value approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, FHLBB stock, accrued interest receivable and bank-owned life insurance. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, other borrowings and accrued interest payable.



(Dollars in thousands)					Fair Value Measurements
September 30, 2012	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity		$43,569		$45,031		$—		$45,031		$—
Loans, net of allowance for loan losses	2,225,945		2,329,192		—		—		2,329,192
Loan servicing rights (1)	902		1,084		—		—		1,084

Financial Liabilities:
Time deposits		$886,972		$896,861		$—		$896,861		$—
FHLBB advances	417,675		454,248		—		454,248		—
Junior subordinated debentures	32,991		22,776		—		22,776		—


(1)	The carrying value of loan servicing rights is net of $182 thousand in reserves as of September 30, 2012. The estimated fair value does not include such adjustment.



(Dollars in thousands)					Fair Value Measurements
December 31, 2011	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity		$52,139		$52,499		$—		$52,499		$—
Loans, net of allowance for loan losses	2,117,357		2,198,940		—		—		2,198,940
Loan servicing rights (1)	765		937		—		—		937

Financial Liabilities:
Time deposits		$878,794		$891,378		$—		$891,378		$—
FHLBB advances	540,450		577,315		—		577,315		—
Junior subordinated debentures	32,991		20,391		—		20,391		—


(1)	The carrying value of loan servicing rights is net of $172 thousand in reserves as of December 31, 2011. The estimated fair value does not include such adjustment.