Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Mortgage Loans Held For Sale, Commitments to Originate and Commitments to Sell Disclosures

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	)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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.

Schedule of Changes in Level Three Assets and Liabilities Measured at Fair Value on a Recurring Basis

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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2012, while credit-related impairment losses of $158 thousand were recognized during the three months endedSeptember 30, 2011. Credit-related impairment losses of $209 thousand and $191 thousand, respectively, were recognized during the nine months endedSeptember 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.

T

Quantitative Information About Level 3 Assets Measured at Fair Value on a Recurring Basis

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.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2011.  As of September 30, 2011, the allowance for loan losses allocation on these loans amounted to $489 thousand.

During the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2011. Subsequent valuation adjustments charged to earnings totaled $392 thousand for the nine months endedSeptember 30, 2011.

Quantitative Information About Level 3 Assets Measured at Fair Value on a Nonrecurring Basis

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.

Carrying Amounts and Estimated Fair Values of Financial Instruments

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.