Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

Change in Fair Value Mortgage Loans Held For Sale, Interest Rate Lock Commitments and Commitments to Sell Disclosures

The following table presents the changes in fair value related to mortgage loans held for sale, interest rate lock commitments and commitments to sell 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,	2014			2013
Mortgage loans held for sale		$76			($1,061	)
Interest rate lock commitments	277			(918		)
Commitments to sell	(313		)	1,971
Total changes in fair value		$40			($8	)

Items Measured at Fair Value on a Recurring Basis

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. There were no Level 1 securities held at March 31, 2014 and December 31, 2013.

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, 2014	Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Obligations of U.S. government-sponsored enterprises		$—		$39,878		$—		$39,878
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	—		227,546		—		227,546
Obligations of states and political subdivisions	—		61,936		—		61,936
Individual name issuer trust preferred debt securities	—		25,380		—		25,380
Corporate bonds	—		6,260		—		6,260
Mortgage loans held for sale	—		10,409		—		10,409
Derivative assets (1):
Interest rate swap contracts with customers	—		2,975		—		2,975
Forward loan commitments	—		675		—		675
Total assets at fair value on a recurring basis		$—		$375,059		$—		$375,059
Liabilities:
Derivative liabilities (1):
Mirror swap contracts with counterparties		$—		$2,977		$—		$2,977
Interest rate risk management swap contracts	—		895		—		895
Forward loan commitments	—		892		—		892
Total liabilities at fair value on a recurring basis		$—		$4,764		$—		$4,764


(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, 2013	Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Obligations of U.S. government-sponsored enterprises		$—		$55,115		$—		$55,115
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	—		238,355		—		238,355
Obligations of states and political subdivisions	—		62,859		—		62,859
Individual name issuer trust preferred debt securities	—		24,684		—		24,684
Pooled trust preferred debt securities	—		547		—		547
Corporate bonds	—		11,343		—		11,343
Mortgage loans held for sale	—		11,636		—		11,636
Derivative assets (1):
Interest rate swap contracts with customers	—		2,733		—		2,733
Forward loan commitments	—		402		—		402
Total assets at fair value on a recurring basis		$—		$407,674		$—		$407,674
Liabilities:
Derivative liabilities (1):
Mirror swap contracts with counterparties		$—		$2,703		$—		$2,703
Interest rate risk management swap contracts	—		1,012		—		1,012
Forward loan commitments	—		583		—		583
Total liabilities at fair value on a recurring basis		$—		$4,298		$—		$4,298


(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

There were no Level 3 assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2014.

The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2013.



(Dollars in thousands)
	Securities Available for Sale (1)			Mortgage Loans Held for Sale (2)		Derivative Assets / (Liabilities) (3)			Total
Balance at beginning of period		$843		9,813			($142	)		$10,514
Gains and losses (realized and unrealized):
Included in earnings (4)	(2,772		)	(198	)	190			(2,780		)
Included in other comprehensive income	2,466			—		—			2,466
Purchases	—			—		—			—
Issuances	—			17,868		—			17,868
Sales	—			(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


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


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


(3)	Level 3 derivative assets / liabilities consisted of forward loan commitments (interest rate lock commitments and commitments to sell 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.

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 summarizes such assets, which were written down to fair value during the three months ended March 31, 2014:



(Dollars in thousands)	March 31, 2014
	Level 1		Level 2		Level 3		Total
Collateral dependent impaired loans		$—		$—		$812		$812
Property acquired through foreclosure or repossession	—		—		302		302
Total assets at fair value on a nonrecurring basis		$—		$—		$1,114		$1,114

The allowance for loan losses on collateral dependent impaired loans amounted to $116 thousand at March 31, 2014.

The following table summarizes such assets, which were written down to fair value during the year ended December 31, 2013:



(Dollars in thousands)	December 31, 2013
	Level 1		Level 2		Level 3		Total
Collateral dependent impaired loans		$—		$—		$11,177		$11,177
Property acquired through foreclosure or repossession	—		—		435		435
Total assets at fair value on a nonrecurring basis		$—		$—		$11,612		$11,612

The allowance for loan losses allocation on collateral dependent impaired loans amounted to $453 thousand at December 31, 2013.

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, 2014
	Fair Value		Valuation Technique	Unobservable Input	Range of Inputs Utilized (Weighted Average)
Collateral dependent impaired loans		$812	Appraisals of collateral	Discount for costs to sell	0% - 10% (8%)
				Appraisal adjustments (1)	0% - 15% (11%)
Property acquired through foreclosure or repossession		$302	Appraisals of collateral	Discount for costs to sell	0% - 10% (6%)
				Appraisal adjustments (1)	15% - 22% (16%)



(Dollars in thousands)	December 31, 2013
	Fair Value		Valuation Technique	Unobservable Input	Range of Inputs Utilized (Weighted Average)
Collateral dependent impaired loans		$11,177	Appraisals of collateral	Discount for costs to sell	1% - 45% (11%)
				Appraisal adjustments (1)	0% - 50% (2%)
Property acquired through foreclosure or repossession		$435	Appraisals of collateral	Discount for costs to sell	2% - 10% (9%)
				Appraisal adjustments (1)	0% - 22% (13%)


(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. 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 and accrued interest payable.



(Dollars in thousands)					Fair Value Measurements
March 31, 2014	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity		$28,889		$29,180		$—		$29,180		$—
Loans, net of allowance for loan losses	2,451,560		2,505,310		—		—		2,505,310
Loan servicing rights	2,751		3,197		—		—		3,197

Financial Liabilities:
Time deposits		$836,867		$842,321		$—		$842,321		$—
FHLBB advances	203,429		217,899		—		217,899		—
Junior subordinated debentures	22,681		17,331		—		17,331		—



(Dollars in thousands)					Fair Value Measurements
December 31, 2013	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity		$29,905		$29,865		$—		$29,865		$—
Loans, net of allowance for loan losses	2,434,998		2,479,527		—		—		2,479,527
Loan servicing rights	2,698		2,767		—		—		2,767

Financial Liabilities:
Time deposits		$790,762		$797,748		$—		$797,748		$—
FHLBB advances	288,082		308,317		—		308,317		—
Junior subordinated debentures	22,681		16,282		—		16,282		—

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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