Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value 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)
Three months ended March 31,	2013			2012
Mortgage loans held for sale		($1,061	)		($231	)
Commitments to originate	(918		)	(49		)
Commitments to sell	1,971			280
Total changes in fair value		($8	)		$—

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
March 31, 2013	Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Obligations of U.S. government-sponsored enterprises		$—		$31,320		$—		$31,320
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	—		206,794		—		206,794
States and political subdivisions	—		71,583		—		71,583
Trust preferred securities:
Individual name issuers	—		25,574		—		25,574
Collateralized debt obligations	—		—		404		404
Corporate bonds	—		14,530		—		14,530
Mortgage loans held for sale	—		19,944		7,955		27,899
Derivative assets (1):
Interest rate swap contracts with customers	—		3,375		—		3,375
Forward loan commitments	—		1,594		221		1,815
Total assets at fair value on a recurring basis		$—		$374,714		$8,580		$383,294
Liabilities:
Derivative liabilities (1):
Mirror swap contracts with customers		$—		$3,457		$—		$3,457
Interest rate risk management swap contracts	—		1,438		—		1,438
Forward loan commitments	—		2,267		173		2,440
Total liabilities at fair value on a recurring basis		$—		$7,162		$173		$7,335

(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, 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.

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:

Three months ended March 31,	2013												2012
(Dollars in thousands)	Securities Available for Sale (1)			Mortgage Loans Held for Sale (2)			Derivative Assets / (Liabilities) (3)			Total			Securities Available for Sale (1)
Balance at beginning of period		$843			$9,813			($142	)		$10,514			$887
Gains and losses (realized and unrealized):
Included in earnings (4)	(2,772		)	(198		)	190			(2,780		)	(209		)
Included in other comprehensive income	2,466			—			—			2,466			71
Purchases	—			—			—			—			—
Issuances	—			17,868			—			17,868			—
Sales	—			(19,528		)	—			(19,528		)	—
Settlements	(133		)	—			—			(133		)	—
Transfers into Level 3	—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—
Balance at end of period		$404			$7,955			$48			$8,407			$749

(1) During the periods indicated, Level 3 securities available for sale were comprised of 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 real estate mortgages) whose fair value was determined utilizing a discounted cash flow analysis.

(4) Losses included in earnings for Level 3 securities available for sale were included in net impairment losses recognized in earnings in the Consolidated Income Statement. Losses included in earnings for Level 3 mortgage loans held for sale and derivative assets and liabilities 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 tables present 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 as of the dates indicated.

(Dollars in thousands)	March 31, 2013
	Fair Value			Valuation Technique	Unobservable Input	Range of Inputs Utilized (Weighted Average)
Trust preferred securities:
Collateralized debt obligations		$404		Discounted Cash Flow	Discount Rate	16.00%
					Cumulative Default %	3.5% - 100% (21.4%)
					Loss Given Default %	85% - 100% (90.8%)
Mortgage loans held for sale		$7,955		Discounted Cash Flow	Interest Rate	2.875% - 4.95% (3.85%)
					Credit Risk Adjustment	0.25%
Forward loan commitments - assets		$221		Discounted Cash Flow	Interest Rate	2.875% - 3.99% (3.75%)
					Credit Risk Adjustment	0.25%
Forward loan commitments - liabilities		($173	)	Discounted Cash Flow	Interest Rate	2.875% - 3.99% (3.63%)
					Credit Risk Adjustment	0.25%

(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%

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 tables present the carrying value of certain assets measured at fair value on a nonrecurring basis as of the dates indicated:

(Dollars in thousands)	March 31, 2013
	Level 1		Level 2		Level 3		Total
Collateral dependent impaired loans		$—		$—		$8,937		$8,937
Property acquired through foreclosure or repossession	—		—		1,170		1,170
Total assets at fair value on a nonrecurring basis		$—		$—		$10,107		$10,107

The allowance for loan losses on collateral dependent impaired loans amounted to $2.6 million at March 31, 2013.

(Dollars in thousands)	December 31, 2012
	Level 1		Level 2		Level 3		Total
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

The allowance for loan losses allocation on collateral dependent impaired loans amounted to $2.0 million at December 31, 2012.

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

The following tables present 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 for the dates indicated.

(Dollars in thousands)	March 31, 2013
	Fair Value		Valuation Technique	Unobservable Input	Range of Inputs Utilized (Weighted Average)
Collateral dependent impaired loans		$8,937	Appraisals of collateral	Discount for costs to sell	1% - 50% (9%)
				Appraisal adjustments (1)	0% - 25% (12%)
Property acquired through foreclosure or repossession		$1,170	Appraisals of collateral	Discount for costs to sell	0% - 10% (2%)
				Appraisal adjustments (1)	0% - 25% (9%)

(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 March 31, 2013 and December 31, 2012. 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
March 31, 2013	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity		$36,897		$37,804		$—		$37,804		$—
Loans, net of allowance for loan losses	2,293,906		2,367,869		—		—		2,367,869
Loan servicing rights (1)	1,397		1,547		—		—		1,547
Financial Liabilities:
Time deposits		$861,952		$871,881		$—		$871,881		$—
FHLBB advances	341,218		371,078		—		371,078		—
Junior subordinated debentures	32,991		23,113		—		23,113		—

(1) The carrying value of loan servicing rights is net of $150 thousand in reserves as of March 31, 2013. The estimated fair value does not include such adjustment.

(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.