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Fair Value Measurements (Tables)
12 Months Ended
Dec. 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Related to Mortgage Loans Held For Sale, Commitments to Originate and Commitments to Sell Disclosures

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)
 
 
 
 
 
Years ended December 31,
2012

 
2011

 
2010

Mortgage loans held for sale

$970

 

$716

 

$—

Commitments to originate
649

 
1,968

 
54

Commitments to sell
(1,611
)
 
(3,119
)
 
228

Total changes in fair value

$8

 

($435
)
 

$282


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
 
December 31, 2012
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises

$—

 

$31,670

 

$—

 

$31,670

Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises

 
231,233

 

 
231,233

States and political subdivisions

 
72,620

 

 
72,620

Trust preferred securities:
 
 
 
 
 
 
 

Individual name issuers

 
24,751

 

 
24,751

Collateralized debt obligations

 

 
843

 
843

Corporate bonds

 
14,381

 

 
14,381

Mortgage loans held for sale

 
40,243

 
9,813

 
50,056

Derivative assets (1)
 
 
 
 
 
 
 

Interest rate swap contracts with customers

 
3,851

 

 
3,851

Forward loan commitments

 
2,469

 
44

 
2,513

Total assets at fair value on a recurring basis

$—

 

$421,218

 

$10,700

 

$431,918

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities (1)
 
 
 
 
 
 
 
Mirror swap contracts with customers

$—

 

$3,952

 

$—

 

$3,952

Interest rate risk management swap contracts

$—

 

$1,619

 

$—

 

$1,619

Forward loan commitments

 
4,005

 
186

 
4,191

Total liabilities at fair value on a recurring basis

$—

 

$9,576

 

$186

 

$9,762

(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)
Derivatives 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 table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis during the periods indicated.
Years ended December 31,
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)
(221
)
 

 

 
(221
)
 
(191
)
 
(1,263
)
 
(1,454
)
Included in other comprehensive income
177

 

 

 
177

 
272

 

 
272

Issuances

 
9,813

 
(142
)
 
9,671

 

 

 

Transfers out of Level 3

 

 

 

 

 
828

 
828

Balance at end of period

$843

 

$9,813

 

($142
)
 

$10,514

 

$887

 

$—

 

$887

(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 periods indicated, Level 3 derivative assets / liabilities consisted of forward loan commitments (interest rate lock commitments and commitments to sell fixed-rate residential mortgages) whose fair value was determined utilizing a discounted cash flow analysis. During 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 the two Level 3 pooled trust preferred debt securities.  Credit-related impairment losses of $221 thousand and $191 thousand were recognized in December 31, 2012 and 2011, respectively.  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 mortgages), were included in net gains on loan sales and commissions on loans originated for others in the Consolidated Statements of Income.

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)
December 31, 2012
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range of Inputs Utilized (Weighted Average)
Trust preferred securities:
 
 
 
 
 
 
 
Collateralized debt obligations

$843

 
Discounted Cash Flow
 
Discount Rate
 
16.75%
 
 
 
 
 
Cumulative Default %
 
3.3% - 100% (25.7%)
 
 
 
 
 
Loss Given Default %
 
85% - 100% (90.9%)
 
 
 
 
 
 
 
 
Mortgage loans held for sale

$9,813

 
Discounted Cash Flow
 
Interest Rate
 
2.875% - 4.95% (3.71%)
 
 
 
 
 
Credit Risk Adjustment
 
0.25%
 
 
 
 
 
 
 
 
Forward loan commitments - assets

$44

 
Discounted Cash Flow
 
Interest Rate
 
3.25% - 3.875% (3.56%)
 
 
 
 
 
Credit Risk Adjustment
 
0.25%
 
 
 
 
 
 
 
 
Forward loan commitments - liabilities

($186
)
 
Discounted Cash Flow
 
Interest Rate
 
3.25% - 3.875% (3.69%)
 
 
 
 
 
Credit Risk Adjustment
 
0.25%
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following table presents the carrying value of certain assets measured at fair value on a nonrecurring basis during the year ended December 31, 2012.
(Dollars in thousands)
Carrying Value at December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Collateral dependent impaired loans

$—

 

$—

 

$9,550

 

$9,550

Property acquired through foreclosure or repossession

 

 
1,073

 
1,073

Total assets at fair value on a nonrecurring basis

$—

 

$—

 

$10,623

 

$10,623


Collateral dependent impaired loans with a carrying value of $9.6 million at December 31, 2012 were subject to nonrecurring fair value measurement during the year ended December 31, 2012.  As of December 31, 2012, the allowance for loan losses allocation on these loans amounted to $2.0 million.

For the year ended December 31, 2012, property acquired through foreclosures or repossession with a fair value of $3.2 million was 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 year ended December 31, 2012, valuation adjustments to reflect property acquired through foreclosure or repossession at fair value less cost to sell resulted in a charge to the allowance for loan losses of $410 thousand.  Subsequent to foreclosures, valuations are updated periodically, and assets may be marked down further, reflecting a new cost basis.  Subsequent valuation adjustments resulted in a charge to earnings of $350 thousand for the year ended December 31, 2012.

The following table presents the carrying value of certain assets measured at fair value on a nonrecurring basis during the year ended December 31, 2011.
(Dollars in thousands)
Carrying Value at December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Collateral dependent impaired loans

$—

 

$—

 

$10,391

 

$10,391

Loan servicing rights

 

 
765

 
765

Property acquired through foreclosure or repossession

 

 
1,758

 
1,758

Total assets at fair value on a nonrecurring basis

$—

 

$—

 

$12,914

 

$12,914

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)
December 31, 2012
 
Fair Value
 
Valuation Technique
 
Unobservable Input
Range of Inputs Utilized (Weighted Average)
Collateral dependent impaired loans

$9,550

 
Appraisals of collateral
 
Discount for costs to sell
0% - 50% (11%)
 
 
 
 
 
Appraisal adjustments (1)
0% - 27% (18%)
Property acquired through foreclosure or repossession

$1,073

 
Appraisals of collateral
 
Discount for costs to sell
0% - 10% (5%)
 
 
 
 
 
Appraisal adjustments (1)
15% - 34% (21%)
(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 December 31, 2012 and 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
December 31, 2012
Carrying Amount
 
Estimated Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial Assets:
 
 
 
 
 
 
 
 
 
Securities held to maturity

$40,381

 

$41,420

 

$—

 

$41,420

 

$—

Loans, net of allowance for loan losses
2,263,130

 
2,350,153

 

 

 
2,350,153

Loan servicing rights (1)
1,110

 
1,275

 

 

 
1,275

 
 
 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
 
 
Time deposits

$870,232

 

$879,705

 

$—

 

$879,705

 

$—

FHLBB advances
361,172

 
392,805

 

 
392,805

 

Junior subordinated debentures
32,991

 
23,371

 

 
23,371

 

(1)
The carrying value of loan servicing rights is net of $165 thousand in reserves as of December 31, 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.