10-Q 1 b88301e10vq.htm FORM 10-Q e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
Commission File Number: 1-9047
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
     
Massachusetts
(State or other jurisdiction of
incorporation or organization)
  04-2870273
(I.R.S. Employer
Identification No.)
Office Address: 2036 Washington Street, Hanover Massachusetts 02339
Mailing Address: 288 Union Street, Rockland, Massachusetts 02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large Accelerated Filer o   Accelerated Filer þ   Non-accelerated Filer o   Smaller Reporting Company o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
     As of November 1, 2011, there were 21,484,437 shares of the issuer’s common stock outstanding, par value $0.01 per share.
 
 

 


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INDEX
         
    PAGE  
       
       
    4  
September 30, 2011 and December 31, 2010
       
    5  
Three and nine months ended September 30, 2011 and 2010
       
    6  
Nine months ended September 30, 2011 and 2010
       
    7  
Nine months ended September 30, 2011 and 2010
       
       
September 30, 2011
       
    8  
    9  
    11  
    16  
    28  
    29  
    30  
    36  
    43  
 
       
    44  
    54  
    59  
    60  
    60  
    62  
    63  
    65  
    66  
    67  
    68  
    68  
    70  
    71  
    72  
    73  
    74  
    76  
    78  
 
       
    82  
    82  
 
       
    82  
    82  

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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited — Dollars in Thousands, Except Share and Per Share Amounts)
                 
    September 30,     December 31,  
    2011     2010  
 
ASSETS
               
CASH AND DUE FROM BANKS
  $ 53,821     $ 42,112  
INTEREST EARNING DEPOSITS WITH BANKS
    180,352       119,170  
FED FUNDS SOLD
    667        
SECURITIES
               
Trading Assets
    7,984       7,597  
Securities Available for Sale
    293,073       377,457  
Securities Held to Maturity (fair value $228,755 and $201,234 at September 30, 2011 and December 31, 2010, respectively)
    220,552       202,732  
 
TOTAL SECURITIES
    521,609       587,786  
 
LOANS HELD FOR SALE (at fair value)
    22,156       27,917  
LOANS
               
Commercial and Industrial
    567,552       502,952  
Commercial Real Estate
    1,815,063       1,717,118  
Commercial Construction
    119,309       129,421  
Small Business
    77,230       80,026  
Residential Real Estate
    441,600       473,936  
Residential Construction
    6,306       4,175  
Home Equity
    648,475       579,278  
Consumer — Other
    47,590       68,773  
 
TOTAL LOANS
    3,723,125       3,555,679  
 
Less: Allowance for Loan Losses
    (47,278 )     (46,255 )
 
NET LOANS
    3,675,847       3,509,424  
 
FEDERAL HOME LOAN BANK STOCK
    35,854       35,854  
BANK PREMISES AND EQUIPMENT, NET
    47,646       45,712  
GOODWILL
    130,074       129,617  
IDENTIFIABLE INTANGIBLE ASSETS
    11,029       12,339  
BANK OWNED LIFE INSURANCE
    85,239       82,711  
OTHER REAL ESTATE OWNED & FORECLOSED ASSETS
    8,767       7,333  
OTHER ASSETS
    126,705       95,763  
 
TOTAL ASSETS
  $ 4,899,766     $ 4,695,738  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
DEPOSITS
               
Demand Deposits
  $ 977,323     $ 842,067  
Savings and Interest Checking Accounts
    1,424,060       1,375,254  
Money Market
    744,682       717,286  
Time Certificates of Deposit Over $100,000
    226,464       219,480  
Other Time Certificates of Deposits
    415,004       473,696  
 
TOTAL DEPOSITS
    3,787,533       3,627,783  
 
BORROWINGS
               
Federal Home Loan Bank Borrowings
    257,873       302,414  
Federal Funds Purchased and Assets Sold Under Repurchase Agreements
    216,331       168,119  
Junior Subordinated Debentures
    61,857       61,857  
Subordinated Debentures
    30,000       30,000  
Other Borrowings
    2,203       3,044  
 
TOTAL BORROWINGS
    568,264       565,434  
 
OTHER LIABILITIES
    82,903       66,049  
TOTAL LIABILITIES
    4,438,700       4,259,266  
 
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDERS’ EQUITY
               
Preferred Stock, $.01 par value. Authorized: 1,000,000 Shares Outstanding: None
           
Common Stock, $.01 par value. Authorized: 75,000,000 Issued and Outstanding : 21,465,109 shares at September 30, 2011 and 21,220,801 shares at December 31, 2010 (Includes 235,540 and 219,900 shares of unvested fully participating restricted stock awards, respectively)
    212       210  
Shares Held in Rabbi Trust at Cost 178,986 shares in September 30, 2011 and 178,382 shares at December 31, 2010
    (2,884 )     (2,738 )
Deferred Compensation Obligation
    2,884       2,738  
Additional Paid in Capital
    232,845       226,708  
Retained Earnings
    232,369       210,320  
Accumulated Other Comprehensive Loss, Net of Tax
    (4,360 )     (766 )
 
TOTAL STOCKHOLDERS’ EQUITY
    461,066       436,472  
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 4,899,766     $ 4,695,738  
 
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited — Dollars in Thousands, Except Share and Per Share Data)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
     
INTEREST INCOME
                               
Interest on Loans
  $ 43,763     $ 44,436     $ 130,917     $ 133,267  
Interest on Loans Held for Sale
    116       174       305       390  
Taxable Interest and Dividends on Securities
    4,929       5,679       15,779       18,277  
Non-taxable Interest and Dividends on Securities
    78       164       286       553  
Interest on Federal Funds Sold
    49       135       80       267  
     
TOTAL INTEREST AND DIVIDEND INCOME
    48,935       50,588       147,367       152,754  
     
INTEREST EXPENSE
                               
Interest on Deposits
    3,419       4,801       10,448       16,225  
Interest on Borrowings
    3,842       4,590       11,696       13,955  
     
TOTAL INTEREST EXPENSE
    7,261       9,391       22,144       30,180  
     
NET INTEREST INCOME
    41,674       41,197       125,223       122,574  
     
PROVISION FOR LOAN LOSSES
    2,000       3,500       7,682       15,081  
     
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    39,674       37,697       117,541       107,493  
     
NON-INTEREST INCOME
                               
Service Charges on Deposit Accounts
    4,223       3,178       12,374       9,566  
Interchange and ATM Fees
    2,005       1,263       5,681       3,611  
Investment Management
    3,491       2,851       10,310       8,768  
Mortgage Banking Income, Net
    907       1,469       2,637       3,091  
Bank Owned Life Insurance Income
    757       901       2,323       2,353  
Net Gain(Loss) on Sales of Securities Available for Sale
          (22 )     723       458  
Gross Change on Write-Down of Certain Investments to Fair Value
    (318 )     207       101       325  
Less: Portion of Other-Than-Temporary Impairment Losses Recognized in Other Comprehensive Income
    290       (214 )     (305 )     (594 )
     
Net Loss on Write-Down of Certain Investments to Fair Value
    (28 )     (7 )     (204 )     (269 )
Other Non-Interest Income
    960       2,021       4,542       5,065  
     
TOTAL NON-INTEREST INCOME
    12,315       11,654       38,386       32,643  
     
NON-INTEREST EXPENSE
                               
Salaries and Employee Benefits
    20,568       19,792       60,582       56,662  
Occupancy and Equipment Expenses
    4,107       3,839       12,946       12,068  
Data Processing and Facilities Management
    1,152       1,404       3,828       4,195  
Advertising Expense
    703       469       3,247       1,699  
FDIC Assessment
    691       1,352       2,760       3,944  
Consulting Expense
    685       803       1,715       1,600  
OREO Valuation Write-Off
    656       189       1,461       272  
Legal
    580       720       1,647       2,575  
Telephone
    522       513       1,584       1,591  
Other Non-Interest Expense
    5,759       5,459       18,990       18,452  
     
TOTAL NON-INTEREST EXPENSE
    35,423       34,540       108,760       103,058  
     
INCOME BEFORE INCOME TAXES
    16,566       14,811       47,167       37,078  
PROVISION FOR INCOME TAXES
    4,607       3,666       12,900       8,676  
     
NET INCOME
  $ 11,959     $ 11,145     $ 34,267     $ 28,402  
     
BASIC EARNINGS PER SHARE
  $ 0.56     $ 0.53     $ 1.60     $ 1.35  
     
DILUTED EARNINGS PER SHARE
  $ 0.56     $ 0.53     $ 1.60     $ 1.35  
     
WEIGHTED AVERAGE COMMON SHARES (BASIC)
    21,463,714       20,981,372       21,401,885       20,961,378  
Common Share Equivalents
    13,077       52,793       32,452       74,536  
     
WEIGHTED AVERAGE COMMON SHARES (DILUTED)
    21,476,791       21,034,165       21,434,337       21,035,914  
     
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited — Dollars in Thousands, Except Per Share Data)
                                                                 
                    Value of                                      
                    Shares                             Accumulated        
    Common             Held in     Deferred     Additional             Other        
    Stock     Common     Rabbi Trust     Compensation     Paid-in     Retained     Comprehensive        
    Outstanding     Stock     at Cost     Obligation     Capital     Earnings     (Loss)Income     TOTAL  
 
BALANCE DECEMBER 31, 2010
    21,220,801     $ 210     $ (2,738 )   $ 2,738     $ 226,708     $ 210,320     $ (766 )   $ 436,472  
 
COMPREHENSIVE INCOME:
                                                               
Net Income
                                    34,267             34,267  
Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains/(Losses)
                                        228          
Change in Fair Value of Cash Flow Hedges, Net of Tax and Realized Gains/(Losses)
                                        (4,152 )        
Amortization of Prior Service Cost, net of tax
                                        330          
Other Comprehensive Loss
                                        (3,594 )     (3,594 )
TOTAL COMPREHENSIVE INCOME
                                                            30,673  
COMMON DIVIDEND DECLARED ($0.57 PER SHARE)
                                      (12,218 )           (12,218 )
PROCEEDS FROM EXERCISE OF STOCK OPTIONS
    164,100       2                   3,711                   3,713  
TAX BENEFIT RELATED TO EQUITY AWARD ACTIVITY
                            251                   251  
EQUITY BASED COMPENSATION
                            1,917                   1,917  
RESTRICTED STOCK AWARDS GRANTED, NET OF AWARDS
    60,495                         (361 )                 (361 )
SHARES ISSUED UNDER DIRECT STOCK PURCHASE PLAN
    19,713                               540                       540  
DEFERRED COMPENSATION OBLIGATION
                  (146 )     146                          
TAX BENEFIT RELATED TO DEFERRED COMPENSATION DISTRIBUTIONS
                                    79                       79  
 
BALANCE SEPTEMBER 30, 2011
    21,465,109     $ 212     $ (2,884 )   $ 2,884     $ 232,845     $ 232,369     $ (4,360 )   $ 461,066  
 
 
                                                               
BALANCE DECEMBER 31, 2009
    21,072,196     $ 209     $ (2,482 )   $ 2,482     $ 225,088     $ 184,599     $ 2,753     $ 412,649  
 
COMPREHENSIVE INCOME:
                                                               
Net Income
                                  28,402             28,402  
Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains/(Losses)
                                        3,013          
Change in Fair Value of Cash Flow Hedges, Net of Tax and Realized Gains/(Losses)
                                        (8,590 )        
Amortization of Prior Service Cost, net of tax
                                        70          
Other Comprehensive Loss
                                                    (5,507 )     (5,507 )
TOTAL COMPREHENSIVE INCOME
                                                            22,895  
DIVIDENDS DECLARED:
                                                               
COMMON DECLARED ( $0.54 PER SHARE)
                                  (11,443 )           (11,443 )
PROCEEDS FROM EXERCISE OF STOCK OPTIONS
    27,229       1                         392             393  
TAX BENEFIT RELATED TO EQUITY AWARD ACTIVITY
                            70                   70  
EQUITY BASED COMPENSATION
                            1,206                   1,206  
RESTRICTED STOCK AWARDS GRANTED, NET OF AWARDS
    103,843                         (109 )                 (109 )
DEFERRED COMPENSATION OBLIGATION
                (150 )     150                          
 
BALANCE SEPTEMBER 30, 2010
    21,203,268     $ 210     $ (2,632 )   $ 2,632     $ 226,255     $ 201,950     $ (2,754 )   $ 425,661  
 
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements

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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited — Dollars In Thousands)
                 
    Nine Months Ended  
    September 30,  
    2011     2010  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 34,267     $ 28,402  
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
               
Depreciation and Amortization
    7,178       7,109  
Provision for Loan Losses
    7,682       15,081  
Deferred Income Tax Benefit
    (32 )     (5 )
Net Gain on Sale of Investments
    (723 )     (458 )
Loss on Write-Dow n of Investments in Securities Available for Sale
    204       269  
Loss on Sale of Fixed Assets
    302       280  
Loss on Sale of Other Real Estate Ow ned and Foreclosed Assets
    1,308       74  
Realized Gain on Sale Leaseback Transaction
    (775 )     (775 )
Stock Based Compensation
    1,917       1,206  
Increase in Cash Surrender Value of Bank Ow ned Life Insurance
    (2,308 )     (2,353 )
Change in Fair Value on Loans Held for Sale
    (929 )     (227 )
Net Change In:
               
Trading Assets
    (387 )     (1,247 )
Loans Held for Sale
    6,690       (7,628 )
Other Assets
    (29,778 )     (24,154 )
Other Liabilities
    11,075       25,847  
 
TOTAL ADJUSTMENTS
    1,424       13,019  
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
    35,691       41,421  
 
CASH FLOWS USED IN INVESTING ACTIVITIES:
               
Proceeds from Sales of Securities Available For Sale
    14,639       6,423  
Proceeds from Maturities and Principal Repayments of Securities Available For Sale
    80,416       116,142  
Purchase of Securities Available For Sale
    (10,072 )     (46,349 )
Proceeds from Maturities and Principal Repayments of Securities Held to Maturity
    27,442       14,501  
Purchase of Securities Held to Maturity
    (45,946 )     (101,927 )
Purchase of Bank Ow ned Life Insurance
    (220 )     (219 )
Net Increase in Loans
    (181,160 )     (35,452 )
Cash Used In Business Combinations
    (457 )     (269 )
Purchase of Bank Premises and Equipment
    (5,933 )     (5,142 )
Proceeds from the Sale of Bank Premises and Equipment
          37  
Proceeds from the Sale of Other Real Estate Ow ned and Foreclosed Assets
    3,919       4,834  
 
NET CASH USED IN INVESTING ACTIVITIES
    (117,372 )     (47,421 )
 
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
               
Net Decrease in Time Deposits
    (51,708 )     (151,478 )
Net Increase in Other Deposits
    211,458       393,342  
Net Increase(Decrease) in Federal Funds Purchased and Assets Sold Under Repurchase Agreements
    48,212       (10,126 )
Net Increase(Decrease) in Short Term Federal Home Loan Bank Advances
          (60,002 )
Net Decrease in Long Term Federal Home Loan Bank Advances
    (44,144 )      
Net (Decrease)Increase in Treasury Tax & Loan Notes
    (841 )     549  
Proceeds from Exercise of Stock Options
    3,713       393  
Tax Benefit from Stock Option Exercises
    251       70  
Restricted Shares Surrendered
    (361 )     (109 )
Tax Benefit from Deferred Compensation Distribution
    79        
Shares Issued Under Direct Stock Purchase Plan
    540        
Common Dividends Paid
    (11,960 )     (11,419 )
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
    155,239       161,220  
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    73,558       155,220  
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    161,282       121,905  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 234,840     $ 277,125  
 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Transfer of Loans to Foreclosed Assets
  $ 5,691     $ 9,925  
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — BASIS OF PRESENTATION
     Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.
     In the first quarter of 2011, Goddard Avenue Securities Corp. a Massachusetts security corporation, was formed as a wholly owned subsidiary of Rockland Trust to hold securities and other qualifying assets. In the second quarter of 2011, Rockland Trust established Rockland MHEF Fund LLC, a Delaware limited liability company, as a wholly-owned subsidiary of Rockland Trust. Massachusetts Housing Equity Fund, Inc. is the third party non-member manager of Rockland MHEF Fund LLC which was established in connection with a low-income housing tax credit investment. There have been no other changes to the structure of the Company subsequent to December 31, 2010.
     All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts may have been reclassified to conform to the current year’s presentation.
     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the quarter ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or any other interim period.
     For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission.

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NOTE 2 — RECENT ACCOUNTING STANDARDS
     Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 715 “Compensation — Retirement Benefits — Multiemployer Plans” Update No. 2011-09. Issued in September 2011, this update requires additional separate quantitative and qualitative disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. The amended disclosures provide users with more detailed information about an employer’s involvement in multiemployer pension plans. The amendments in this update are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented. The Company does not anticipate the adoption of this standard to have a material impact on the Company’s consolidated financial position.
     FASB ASC Topic No. 350 “Intangibles — Goodwill and Other” Update No. 2011-08. Issued in September 2011, this update gives an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the two-step impairment test. Additionally, under the amendments in this update, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company does not anticipate the adoption of this standard to have a material impact on the Company’s consolidated financial position.
     FASB ASC Topic No. 220 “Comprehensive Income” Update No. 2011-05. Issued in June 2011, this update provides amendments to Topic No. 220, “Comprehensive Income”, which states that an entity has the option to present total comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The entity is no longer permitted to present the components of other comprehensive income within the statement of stockholders’ equity. Furthermore, entities must present separately on the income statement, reclassification adjustments between other comprehensive income and net income. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not anticipate the adoption of this standard to have a material impact on the Company’s consolidated financial position. Subsequent to issuing this update, the FASB has proposed deferring the new requirement to present reclassifications of other comprehensive income on the income statement. All other elements of the update would remain effective for periods beginning after December 15, 2011.

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     FASB ASC Topic No. 820 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Report Standards (“IFRS”)” Update No. 2011-04. Issued in May 2011, the amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This update does require additional disclosures pertaining to transfers between Level 1 and Level 2 investments, sensitivity analysis on Level 3 investments, and additional categorization of disclosed fair value amounts. The amendments in this update are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. Early application is not permitted. The Company does not anticipate the adoption of this standard to have a material impact on the Company’s consolidated financial position.
     FASB ASC Topic No. 860, “Reconsideration of Effective Control for Repurchase Agreements” Update No. 2011-03. Issued in April 2011, the amendments in this update remove, from the assessment of effective control, the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this update also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all of the cost of purchasing replacement financial assets. The amendments in this update are effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company does not anticipate the adoption of this standard to have a material impact on the Company’s consolidated financial position.
     FASB ASC Topic No. 310, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” Update No. 2011-02. Issued in April 2011, this update provides guidance and clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. In addition, the previously deferred disclosure requirements originally included in Update No. 2010-20 are effective upon adoption of this standard. The amendments in this update were effective the quarter ended September 30, 2011 and did not have a material impact on the Company’s consolidated financial position.

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NOTE 3 — SECURITIES
     The following table presents a summary of the amortized cost, gross unrealized holding gains and losses, other-than-temporary impairment recorded in other comprehensive income and fair value of securities available for sale and securities held to maturity for the periods below:
                                                                                 
    September 30, 2011     December 31, 2010  
            Gross     Unrealized     Other-Than-                     Gross     Unrealized     Other-Than-  
    Amortized     Unrealized     Losses     Temporary     Fair     Amortized     Unrealized     Losses     Temporary     Fair  
    Cost     Gains     Other     Impairment     Value     Cost     Gains     Other     Impairment     Value  
                    (Dollars In Thousands)                                     (Dollars In Thousands)                  
Available for Sale Securities
                                                                               
U.S. Treasury Securities
  $     $     $     $     $     $ 715     $ 2     $     $     $ 717  
Agency Mortgage-Backed Securities
    226,216       16,853       (2 )           243,067       296,821       16,481                   313,302  
Agency Collateralized Mortgage Obligations
    35,550       607       (2 )           36,155       45,426       779       (70 )           46,135  
Private Mortgage-Backed Securities
    6,892                     (67 )     6,825       10,408                   (154 )     10,254  
Single Issuer Trust Preferred Securities Issued by Banks
    5,000             (862 )           4,138       5,000             (779 )           4,221  
Pooled Trust Preferred Securities Issued by Banks and Insurers
    8,517             (2,433 )     (3,196 )     2,888       8,550             (2,309 )     (3,413 )     2,828  
     
Total Available for Sale Securities
  $ 282,175     $ 17,460     $ (3,299 )   $ (3,263 )   $ 293,073     $ 366,920     $ 17,262     $ (3,158 )   $ (3,567 )   $ 377,457  
     
Held to Maturity Securities
                                                                               
U.S. Treasury Securities
  $ 1,014     $ 96     $     $     $ 1,110     $     $     $     $     $  
Agency Mortgage-Backed Securities
    122,264       4,809                   127,073       95,697       1,348       (1,778 )           95,267  
Agency Collateralized Mortgage Obligations
    81,191       3,333                   84,524       89,823       600       (1,691 )           88,732  
State, County, and Municipal Securities
    4,450       50                   4,500       10,562       167                   10,729  
Single Issuer Trust Preferred Securities Issued by Banks
    6,623       21       (171 )           6,473       6,650       19       (163 )           6,506  
Corporate Debt Securities
    5,010       65                   5,075                                
     
Total Held to Maturity Securities
  $ 220,552     $ 8,374     $ (171 )   $     $ 228,755     $ 202,732     $ 2,134     $ (3,632 )   $     $ 201,234  
     
TOTAL
  $ 502,727     $ 25,834     $ (3,470 )   $ (3,263 )   $ 521,828     $ 569,652     $ 19,396     $ (6,790 )   $ (3,567 )   $ 578,691  
     
     When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The following table shows the gross gains and losses on available for sale securities for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Gross Gains on Available for Sale Securities
  $     $     $ 723     $ 480  
Gross Losses on Available for Sale Securities
          (22 )           (22 )
     
NET GAINS (LOSSES) ON AVAILABLE FOR SALE SECURITIES
  $     $ (22 )   $ 723     $ 458  
     
     The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity is presented below:

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    Available for Sale     Held to Maturity  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  
    (Dollars in Thousands)     (Dollars in Thousands)  
Due in One Year or Less
  $     $     $ 720     $ 724  
Due from One Year to Five Years
    2,995       3,151       8,095       8,204  
Due from Five to Ten Years
    64,263       68,414       3,051       3,268  
Due after Ten Years
    214,917       221,508       208,686       216,559  
     
TOTAL
  $ 282,175     $ 293,073     $ 220,552     $ 228,755  
     
     Inclusive in the table above is $13.2 million and $24.3 million, respectively, of callable securities in the Company’s investment portfolio at September 30, 2011 and December 31, 2010.
     At September 30, 2011 and December 31, 2010 investment securities carried at $352.5 million and $350.3 million, respectively, were pledged to secure public deposits, assets sold under repurchase agreements, treasury tax and loan notes, letters of credit, and for other purposes.
     At September 30, 2011 and December 31, 2010, the Company had no investments in obligations of individual states, counties, or municipalities, which exceeded 10% of stockholders’ equity.
Other-Than-Temporary Impairment
     The Company continually reviews investment securities for the existence of other-than-temporary impairment (“OTTI”), taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, the credit worthiness of the obligor of the security, volatility of earnings, current analysts’ evaluations, the Company’s intent to sell the security or whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.
     The following tables show the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

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    September 30, 2011  
            Less than 12 months     12 months or longer     Total  
            Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description of Securities   # of holdings     Value     Losses     Value     Losses     Value     Losses  
                            (Dollars In Thousands)                  
Agency Mortgage-Backed Securities
    1     $ 135     $ (2 )   $     $     $ 135     $ (2 )
Agency Collateralized Mortgage Obligations
    1       228       (2 )                 228       (2 )
Single Issuer Trust Preferred Securities Issued by Banks and Insurers
    2       4,922       (171 )     4,138       (862 )     9,060       (1,033 )
Pooled Trust Preferred Securities Issued by Banks and Insurers
    2                   2,214       (2,433 )     2,214       (2,433 )
 
TOTAL TEMPORARILY IMPAIRED SECURITIES
    6     $ 5,285     $ (175 )   $ 6,352     $ (3,295 )   $ 11,637     $ (3,470 )
 
                                                         
    December 31, 2010  
            Less than 12 months     12 months or longer     Total  
            Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Description of Securities   # of holdings     Value     Losses     Value     Losses     Value     Losses  
                            (Dollars In Thousands)                  
Agency Mortgage-Backed Securities
    4     $ 48,956     $ (1,778 )   $     $     $ 48,956     $ (1,778 )
Agency Collateralized Mortgage Obligations
    6       72,631       (1,761 )                 72,631       (1,761 )
Single Issuer Trust Preferred Securities Issued by Banks and Insurers
    2       4,950       (163 )     4,221       (779 )     9,171       (942 )
Pooled Trust Preferred Securities Issued by Banks and Insurers
    2                   2,364       (2,309 )     2,364       (2,309 )
 
TOTAL TEMPORARILY IMPAIRED SECURITIES
    14     $ 126,537     $ (3,702 )   $ 6,585     $ (3,088 )   $ 133,122     $ (6,790 )
 
     The Company does not intend to sell these investments and has determined based upon available evidence that it is more likely than not that the Company will not be required to sell the security before the recovery of its amortized cost basis. As a result, the Company does not consider these investments to be OTTI. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.
     As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at September 30, 2011:
    Agency Mortgage-Backed Securities and Collateralized Mortgage Obligations: This portfolio has contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.
    Single Issuer Trust Preferred Securities: This portfolio consists of two securities, both of which are below investment grade. The unrealized loss on these securities is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for each of the issuers, including capitalization rates.
    Pooled Trust Preferred Securities: This portfolio consists of two below investment grade securities of which one is performing while the other is deferring payments as contractually allowed. The unrealized loss on these securities is attributable to the illiquid nature of the trust preferred market and the significant risk premiums required in the current economic environment.

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      Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.
     Management monitors the following issuances closely for impairment due to the history of OTTI losses recorded within these classes of securities. Management has determined that the securities possess characteristics which in the current economic environment could lead to further OTTI charges. The following tables summarize pertinent information as of September 30, 2011, that was considered by management in determining if OTTI existed:
                                                         
                                                    Total Cumulative  
                            Non-Credit             Total Cumulative     Other-Than-  
                            Related Other-             Credit Related     Temporary  
            Amortized     Gross Unrealized     Than-Temporary     Fair     Other-Than-     impairment  
    Class     Cost (1)     Gain/(Loss)     Impairment     Value     Temporary Impairment     to date  
                            (Dollars in Thousands)                  
Pooled Trust Preferred Securities
                                                       
Pooled Trust Preferred Security A
    C1     $ 1,283     $     $ (1,179 )   $ 104     $ (3,676 )   $ (4,855 )
Pooled Trust Preferred Security B
    D                               (3,481 )     (3,481 )
Pooled Trust Preferred Security C
    C1       506             (435 )     71       (482 )     (917 )
Pooled Trust Preferred Security D
    D                               (990 )     (990 )
Pooled Trust Preferred Security E
    C1       2,081             (1,582 )     499       (1,368 )     (2,950 )
Pooled Trust Preferred Security F
    B       1,891       (1,310 )           581              
Pooled Trust Preferred Security G
    A1       2,756       (1,123 )           1,633              
 
TOTAL POOLED TRUST PREFERRED SECURITIES
          $ 8,517     $ (2,433 )   $ (3,196 )   $ 2,888     $ (9,997 )   $ (13,193 )
 
 
                                                       
Private Mortgage-Backed Securities
                                                       
Private Mortgage-Backed Securities — One
    2A1     $ 3,285     $     $ (104 )   $ 3,181     $ (650 )   $ (754 )
Private Mortgage-Backed Securities — Two
    A19       3,607             37       3,644       (85 )     (48 )
 
TOTAL PRIVATE MORTGAGE-BACKED SECURITIES
          $ 6,892     $     $ (67 )   $ 6,825     $ (735 )   $ (802 )
 
 
                                                       
TOTAL
          $ 15,409     $ (2,433 )   $ (3,263 )   $ 9,713     $ (10,732 )   $ (13,995 )
 
 
                                                       
 
(1)   The amortized cost reflects previously recorded OTTI charges recognized in earnings for the applicable securities.
                                                 
                                    Excess Subordination        
            Number of     Current     Total Projected     (After Taking into        
            Performing     Deferrals/     Defaults/     Account Best        
            Banks and Insurance     Defaults/Losses     Losses (as a     Estimate of Future        
            Cos. in Issuances     (As a % of Original     % of Performing     Deferrals/     Lowest credit  
    Class     (Unique)     Collateral)     Collateral)     Defaults/Losses) (1)     Ratings to date (2)  
Pooled Trust Preferred Securities
                                               
Trust Preferred Security A
    C1       57       36.96 %     22.19 %     0.00 %   C (Fitch & Moody’s)
Trust Preferred Security B
    D       57       36.96 %     22.19 %     0.00 %   C (Fitch & Moody’s)
Trust Preferred Security C
    C1       50       34.09 %     21.13 %     0.00 %   C (Fitch & Moody’s)
Trust Preferred Security D
    D       50       34.09 %     21.13 %     0.00 %   C (Fitch & Moody’s)
Trust Preferred Security E
    C1       50       28.26 %     17.57 %     0.00 %   C (Fitch & Moody’s)
Trust Preferred Security F
    B       33       28.14 %     23.52 %     24.56 %   CC (Fitch)
Trust Preferred Security G
    A1       33       28.14 %     23.52 %     48.68 %   CCC+ (S&P)
 
                                               
Private Mortgage-Backed Securities
                                               
Private Mortgage-Backed Securities — One
    2A1       N/A       4.14 %     12.63 %     0.00 %   C (Fitch)
Private Mortgage-Backed Securities — Two
    A19       N/A       2.39 %     6.12 %     0.00 %   B3 (Moody’s)
 
(1)   Excess subordination represents the additional default/losses in excess of both current and projected defaults/losses that the security can absorb before the security experiences any credit impairment.
 
(2)    The Company reviewed credit ratings provided by S&P, Moody’s and Fitch in its evaluation of issuers.
     Per review of the factors outlined above, seven of the securities shown in the table above were deemed to be OTTI. The remaining securities were not deemed to be OTTI as the Company does not intend to sell these investments and has determined, based upon available

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evidence, that it is more likely than not that the Company will not be required to sell the securities before the recovery of their amortized cost basis.
     During 2011 and 2010, the Company recorded OTTI credit losses on certain securities. The following table shows the total OTTI that the Company recorded for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Total OTTI Gains (Losses)
  $ (318 )   $ 207     $ 101     $ 325  
Less: Non-credit Related OTTI Gains (Losses) Recognized in OCI
    (290 )     214       305       594  
     
CREDIT RELATED OTTI LOSSES
  $ (28 )   $ (7 )   $ (204 )   $ (269 )
     
     The following table shows the cumulative credit related component of OTTI for the periods indicated:
                                 
    Credit Related Component of Other-Than-Temporary Impairment  
    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Balance at Beginning of Period
  $ (10,704 )   $ (10,456 )   $ (10,528 )   $ (10,194 )
Add:
                               
Incurred on Securities not Previously Impaired
          (7 )           (41 )
Incurred on Securities Previously Impaired
    (28 )           (204 )     (228 )
Less:
                               
Realized Gain/Loss on Sale of Securities
                       
Reclassification Due to Changes in Company’s Intent
                       
Increases in Cash Flow Expected to be Collected
                       
     
BALANCE AT END OF PERIOD
  $ (10,732 )   $ (10,463 )   $ (10,732 )   $ (10,463 )
     
 
                               

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NOTE 4 — LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY
     The following table summarizes changes in the allowance for loan losses by loan category and bifurcates the amount of allowance allocated to each loan category based on collective impairment analysis and loans evaluated individually for impairment:
                                                                 
As of September 30, 2011  
            (Dollars in Thousands)                                
    Commercial and     Commercial Real     Commercial     Small     Residential Real     Consumer     Consumer        
    Industrial     Estate     Construction     Business     Estate     Home Equity     Other     Total  
     
Allowance for Loan Losses:
                                                               
Beginning Balance
  $ 10,423     $ 21,939     $ 2,145     $ 3,740     $ 2,915     $ 3,369     $ 1,724     $ 46,255  
Charge-offs
    (2,455 )     (1,386 )     (769 )     (970 )     (490 )     (912 )     (1,261 )     (8,243 )
Recoveries
    348       98       500       72             30       536       1,584  
Provision
    3,286       2,334       15       (845 )     756       1,629       507       7,682  
 
Ending Balance
  $ 11,602     $ 22,985     $ 1,891     $ 1,997     $ 3,181     $ 4,116     $ 1,506     $ 47,278  
 
 
                                                               
Ending Balance: individually evaluated for impairment
  $ 558     $ 306     $     $ 299     $ 1,258     $ 24     $ 240     $ 2,685  
 
 
                                                               
Ending Balance: collectively evaluated for impairment
  $ 11,044     $ 22,679     $ 1,891     $ 1,698     $ 1,923     $ 4,092     $ 1,266     $ 44,593  
 
 
                                                               
Financing Receivables:
                                                               
Ending Balance: total loans by group
  $ 567,552     $ 1,815,063     $ 119,309     $ 77,230     $ 447,906     $ 648,475     $ 47,590     $ 3,723,125 (1)
 
Ending Balance: individually evaluated for impairment
  $ 2,956     $ 32,611     $ 551     $ 3,025     $ 12,699     $ 474     $ 2,146     $ 54,462  
 
Ending Balance: collectively evaluated for impairment
  $ 564,596     $ 1,782,452     $ 118,758     $ 74,205     $ 435,207     $ 648,001     $ 45,444     $ 3,668,663  
 
                                                                 
As of December 31, 2010  
            (Dollars in Thousands)                                
    Commercial and     Commercial Real     Commercial     Small     Residential Real     Consumer     Consumer        
    Industrial     Estate     Construction     Business     Estate     Home Equity     Other     Total  
     
Allowance for Loan Losses:
                                                               
Beginning Balance
  $ 7,545     $ 19,451     $ 2,457     $ 3,372     $ 2,840     $ 3,945     $ 2,751     $ 42,361  
Charge-offs
    (5,170 )     (3,448 )     (1,716 )     (2,279 )     (557 )     (939 )     (2,078 )     (16,187 )
Recoveries
    361       1             217       59       131       657       1,426  
Provision
    7,687       5,935       1,404       2,430       573       232       394       18,655  
 
Ending Balance
  $ 10,423     $ 21,939     $ 2,145     $ 3,740     $ 2,915     $ 3,369     $ 1,724     $ 46,255  
 
Ending Balance: individually evaluated for impairment
  $ 511     $ 411     $ 151     $ 221     $ 991     $ 17     $ 245     $ 2,547  
 
 
                                                               
Ending Balance: collectively evaluated for impairment
  $ 9,912     $ 21,528     $ 1,994     $ 3,519     $ 1,924     $ 3,352     $ 1,479     $ 43,708  
 
 
                                                               
Financing Receivables:
                                                               
Ending Balance: total loans by group
  $ 502,952     $ 1,717,118     $ 129,421     $ 80,026     $ 478,111     $ 579,278     $ 68,773     $ 3,555,679 (1)
 
Ending Balance: individually evaluated for impairment
  $ 3,823     $ 26,665     $ 1,999     $ 2,494     $ 9,963     $ 428     $ 2,014     $ 47,386  
 
Ending Balance: collectively evaluated for impairment
  $ 499,129     $ 1,690,453     $ 127,422     $ 77,532     $ 468,148     $ 578,850     $ 66,759     $ 3,508,293  
 
 
(1)   The amount of deferred fees included in the ending balance was $2.8 million at September 30, 2011 and December 31, 2010, respectively.
     For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the risk characteristics unique to each loan category include:
Commercial Portfolio:
Commercial & Industrial — Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant & equipment, or real estate, if applicable. Repayment sources consist of: primarily, operating cash flow, and secondarily, liquidation of assets.

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Real Estate — Commercial — Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of: primarily, cash flow from operating leases and rents, and secondarily, liquidation of assets.
Commercial Real Estate — Construction — Loans in this category consist of short-term construction loans, revolving and non-revolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property. Project types include: residential 1-4 family condominium and multi-family homes, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with non-amortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of: sale or lease of units, operating cash flows or liquidation of other assets.
Small Business — Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant & equipment, or real estate (if applicable). Repayment sources consist of: primarily, operating cash flows, and secondarily, liquidation of assets.
     For the commercial portfolio it is the Bank’s policy to obtain personal guaranties for payment from individuals holding material ownership interests of the borrowing entities.
Consumer Portfolio:
Consumer Real Estate — Residential — Residential mortgage loans held in the Bank’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral. Collateral consists of mortgage liens on 1-4 family residential properties. The Company does not originate sub-prime loans.
Consumer — Home Equity — Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes or on non-owner occupied 1-4 family homes with more restrictive loan to value requirements. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.

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Consumer — Other — Other consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer — Other loans may be secured or unsecured. Auto loans collateral consists of liens on motor vehicles.
Credit Quality
     The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”). The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio.
     For the commercial and industrial, commercial real estate, commercial construction and small business portfolios, the Company utilizes a 10-point commercial risk-rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-ratings categories are defined as follows:
1- 6 Rating — Pass
Risk-rating grades “1” through “6” comprise those loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average or below average asset quality, margins and market share. Collateral coverage is protective.
7 Rating — Potential Weakness
Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Bank’s asset and position. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned.

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8 Rating — Definite Weakness — Loss Unlikely
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loan may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.
9 Rating — Partial Loss Probable
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
10 Rating — Definite Loss
Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Bank is not warranted.
     The credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk-ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan.
     The Company utilizes a comprehensive strategy for monitoring commercial credit quality. Borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by an experienced credit analysis group. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis.

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     The following table details the internal risk-rating categories for the Company’s commercial and industrial, commercial real estate, commercial construction and small business portfolios:
                                                 
            September 30, 2011  
    Risk     Commercial     Commercial     Commercial              
Category   Rating     and Industrial     Real Estate     Construction     Small Business     Total  
    (Dollars in Thousands)  
Pass
    1-6     $ 521,319     $ 1,605,283     $ 107,524     $ 69,108     $ 2,303,234  
Potential Weakness
    7       25,585       111,349       5,546       4,336       146,816  
Definite Weakness — Loss Unlikely
    8       19,020       97,083       6,239       3,640       125,982  
Partial Loss Probable
    9       1,628       1,348             146       3,122  
Definite Loss
    10                                
 
TOTAL
          $ 567,552     $ 1,815,063     $ 119,309     $ 77,230     $ 2,579,154  
 
                                                 
            December 31, 2010  
    Risk     Commercial     Commercial     Commercial              
Category   Rating     and Industrial     Real Estate     Construction     Small Business     Total  
    (Dollars in Thousands)  
Pass
    1-6     $ 445,116     $ 1,496,822     $ 110,549     $ 70,987     $ 2,123,474  
Potential Weakness
    7       30,250       99,400       6,311       5,252       141,213  
Definite Weakness — Loss Unlikely
    8       25,864       117,850       12,561       3,533       159,808  
Partial Loss Probable
    9       1,722       3,046             254       5,022  
Definite Loss
    10                                
 
TOTAL
          $ 502,952     $ 1,717,118     $ 129,421     $ 80,026     $ 2,429,517  
 
     For the Company’s residential real estate, residential construction, home equity and other consumer portfolios, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a quarterly basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically, typically twice per annum. The following table shows the weighted average FICO scores and the weighted average combined LTV ratio for the periods indicated below:

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    As of  
    September 30,     December 31,  
    2011     2010  
Residential Portfolio
               
FICO Score (re-scored) (1)
    734       738  
Combined LTV (re-valued) (2)
    66.0 %     64.0 %
 
Home Equity Portfolio
               
FICO Score (re-scored) (1)
    761       760  
Combined LTV (re-valued) (2)
    55.0 %     55.0 %
 
(1)   The average FICO scores above for September 30, 2011 are based upon rescores available from August 2011, and actual score data for loans booked between September 1 and September 30, 2011. The average FICO scores above for December 31, 2010 are based upon re-scores available from November 2010 and actual score data for loans booked between December 1 and December 31, 2010.
 
(2)   The combined LTV ratios for September 30, 2011 are based upon updated automated valuations as of May 31, 2011. The combined LTV ratios at December 31, 2010 are based upon updated automated valuations as of November 30, 2010.
     The Bank’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of seasoned collection specialists and the Bank seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. As permitted by banking regulations, certain consumer loans past due 90 days or more may continue to accrue interest. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and in process of collection. Set forth is information regarding the Company’s nonperforming loans at the period shown.

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     The following table shows nonaccrual loans at the dates indicated:
                 
    September 30,     December 31,
    2011     2010  
    (Dollars In Thousands)  
Loans accounted for on a nonaccrual basis (1)
               
Commercial and Industrial
  $ 1,836     $ 3,123  
Commercial Real Estate
    10,121       7,837  
Commercial Construction
    552       1,999  
Small Business
    1,032       887  
Residential Real Estate
    10,420       6,728  
Home Equity
    2,009       1,752  
Consumer — Other
    327       505  
       
TOTAL NONACCRUAL LOANS
  $ 26,297     $ 22,831  
       
 
(1)   Included in these amounts w ere $8.5 million and $4.0 million nonaccruing TDRs at September 30, 2011 and December 31, 2010, respectively.
     The following table shows the age analysis of past due financing receivables as of the dates indicated:
                                                                                         
September 30, 2011  
                                                                                    Recorded  
    30-59 days     60-89 days     90 days or more     Total Past Due             Total     Investment  
    Number     Principal     Number     Principal     Number     Principal     Number     Principal             Financing     >90 Days  
    of Loans     Balance     of Loans     Balance     of Loans     Balance     of Loans     Balance     Current     Receivables     and Accruing  
    (Dollars in Thousands)  
Commercial and Industrial
    12     $ 775       1     $ 85       19     $ 1,129     32     $ 1,989     $ 565,563     $ 567,552     $  
Commercial Real Estate
    19       6,268       4       1,123       29       5,452       52       12,843       1,802,220       1,815,063        
Commercial Construction
    1       133                   3       551       4       684       118,625       119,309        
Small Business
    18       335       8       146       24       174       50       655       76,575       77,230        
Residential Real Estate
    8       1,596       9       3,226       32       5,511       49       10,333       431,267       441,600        
Residential Construction
                                                    6,306       6,306        
Home Equity
    30       1,808       10       425       19       1,329       59       3,562       644,913       648,475        
Consumer -Other
    269       1,947       51       609       72       447       392       3,003       44,587       47,590       328  
 
TOTAL
    357     $ 12,862       83     $ 5,614       198     $ 14,593     638     $ 33,069     $ 3,690,056     $ 3,723,125     $ 328  
 
 
December 31, 2010  
                                                                                    Recorded  
    30-59 days     60-89 days     90 days or more     Total Past Due             Total     Investment  
    Number     Principal     Number     Principal     Number     Principal     Number     Principal             Financing     >90 Days  
    of Loans     Balance     of Loans     Balance     of Loans     Balance     of Loans     Balance     Current     Receivables     and Accruing  
                                            (Dollars in Thousands)                                  
Commercial and Industrial
    16     $ 1,383       8     $ 910       18     $ 2,207       42     $ 4,500     $ 498,452     $ 502,952     $  
Commercial Real Estate
    13       2,809       7       4,820       29       6,260       49       13,889       1,703,229       1,717,118        
Commercial Construction
                            9       1,999       9       1,999       127,422       129,421        
Small Business
    23       1,071       11       302       19       420       53       1,793       78,233       80,026        
Residential Real Estate
    14       4,793       6       865       21       4,050       41       9,708       464,228       473,936        
Residential Construction
                                                    4,175       4,175        
Home Equity
    31       1,737       8       878       12       1,095       51       3,710       575,568       579,278       4  
Consumer -Other
    402       2,986       89       478       85       564       576       4,028       64,745       68,773       273  
 
TOTAL
    499     $ 14,779       129     $ 8,253       193     $ 16,595       821     $ 39,627     $ 3,516,052     $ 3,555,679     $ 277  
 

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     In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work-out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.
     The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated:
                 
    As of September 30, 2011     As of December 31, 2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
TDRs on Accrual Status
  $ 35,633     $ 26,091  
TDRs on Nonaccrual
    8,520       3,982  
         
TOTAL TDR’S
  $ 44,153     $ 30,073  
         
 
               
Amount of specific reserves included in the allowance for loan loss associated with TDRs:
  $ 1,921     $ 1,658  
 
               
Additional commitments to lend to a borrower who has been a party to a TDR:
  $ 1,668     $ 1,240  
     The Bank’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted accordingly to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession.

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     The following table shows the modifications which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:
                                                 
    Three Months Ended,     Three Months Ended,  
    September 30, 2011     September 30, 2010  
            Pre-Modification     Post-Modification             Pre-Modification     Post-Modification  
            Outstanding Recorded     Outstanding Recorded             Outstanding Recorded     Outstanding Recorded  
    Number of Contracts     Investment     Investment (1)     Number of Contracts     Investment     Investment  
            (Dollars in Thousands)                     (Dollars in Thousands)          
Troubled Debt Restructurings
                                               
Commercial & Industrial
    1     $ 200     $ 200       9     $ 118     $ 118  
Commercial Real Estate
    2       872       872       5       4,506       4,506  
Small Business
    14       480       480       14       460       460  
Residential Real Estate (2)
    2       203       203       8       2,436       2,514  
Consumer — Home Equity
                      1       68       68  
Consumer — Other
    26       302       302       12       159       159  
     
SUBTOTAL
    45     $ 2,057     $ 2,057       49     $ 7,747     $ 7,825  
     
                                                 
    Nine Months Ended,     Nine Months Ended,  
    September 30, 2011     September 30, 2010  
            Pre-Modification     Post-Modification             Pre-Modification     Post-Modification  
            Outstanding Recorded     Outstanding Recorded             Outstanding Recorded     Outstanding Recorded  
    Number of Contracts     Investment     Investment     Number of Contracts     Investment     Investment  
            (Dollars in Thousands)                     (Dollars in Thousands)          
Troubled Debt Restructurings
                                               
Commercial & Industrial
    5     $ 410     $ 410       10     $ 952     $ 952  
Commercial Real Estate
    8       6,151       6,151       11       11,522       11,522  
Small Business
    34       1,267       1,267       47       1,518       1,518  
Residential Real Estate (1)
    11       3,082       3,130       14       4,780       4,886  
Consumer — Home Equity
    3       127       127       4       296       296  
Consumer — Other
    71       816       816       71       863       863  
     
SUBTOTAL
    132     $ 11,853     $ 11,901       157     $ 19,931     $ 20,037  
     
 
(1)   The post-modification balances represent the balance of the loan on the date of modifications. These amounts may show an increase when modifications include a capitalization of interest.
 
(2)   Residential real estate includes residential construction.
     The following table shows the Company’s post-modification balance of TDRs listed by type of modification as of the periods indicated:
                                 
    For the Three Months Ended September 30,     For the Nine Months Ended September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Extended Maturity
  $ 481     $ 687     $ 3,978     $ 9,403  
Adjusted Interest Rate
    622       5       647       52  
Combination Rate & Maturity
    954       7,133       7,276       10,582  
     
TOTAL
  $ 2,057     $ 7,825     $ 11,901     $ 20,037  
     

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     The following table shows the loans that have been modified during the past twelve months which have subsequently defaulted during the periods indicated. The Company considers a loan to have defaulted when it reaches 90 days past due.
                                 
    For the Three Months Ended September 30,  
    2011     2010  
    Number     Recorded     Number     Recorded  
    of Contracts     Investment     of Contracts     Investment  
    (Dollars in Thousands)     (Dollars in Thousands)  
Troubled Debt Restructurings
                               
That Subsequently Defaulted (1)
                               
Commercial & Industrial
        $           $  
Commercial Real Estate
                       
Small Business
    2       66       2       22  
Residential Real Estate (2)
    1       378       2       951  
Consumer — Home Equity
                       
Consumer — Other
    2       11       2       11  
     
SUBTOTAL
    5     $ 455       6     $ 984  
     
                                 
    For the Nine Months Ended September 30,  
    2011     2010  
    Number     Recorded     Number     Recorded  
    of Contracts     Investment     of Contracts     Investment  
    (Dollars in Thousands)     (Dollars in Thousands)  
Troubled Debt Restructurings
                               
That Subsequently Defaulted
                               
Commercial & Industrial
        $           $  
Commercial Real Estate
                       
Small Business
    2       66       2       22  
Residential Real Estate (2)
    1       378       2       951  
Consumer — Home Equity
                       
Consumer — Other
    2       11       2       11  
     
SUBTOTAL
    5     $ 455       6     $ 984  
     
 
(1)   This table does not reflect any TDRs which were charged off during the periods indicated. The amount of TDRs that were modified in the past twelve months that were charged off were $358,000 for the three and nine months ended September 30, 2011 and $20,000 and $29,000 for the three and nine months ended September 30, 2010.
 
(2)   Residential real estate includes residential construction.
     All TDR loans are considered impaired and therefore are subject to a specific review for impairment. The impairment analysis appropriately discounts the present value of the anticipated cash flows by the loan’s contractual rate of interest in effect prior to the loan’s modification. The amount of impairment, if any, is recorded as a specific loss allocation to each individual loan in the allowance for loan losses. Commercial loans (commercial and industrial, commercial construction, commercial real estate and small business loans) and residential loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In such an instance,

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any shortfall between the value of the collateral and the book value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell. The Company charges off the amount of any confirmed loan loss in the period when the loans, or portion of loans, are deemed uncollectible. Smaller balance consumer TDR loans are reviewed to determine when a charge-off is appropriate.
     A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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     The table below sets forth information regarding the Company’s impaired loans as of the dates indicated:
                                                         
                            For the Three Months Ended     For the Nine Months Ended  
    As of September 30, 2011     September 30, 2011     September 30, 2011  
            Unpaid             Average     Interest     Average     Interest  
    Recorded     Principal     Related     Recorded     Income     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized     Investment     Recognized  
    (Dollars in Thousands)  
With no Related Allowance Recorded:
                                                       
Commercial & Industrial
  $ 2,182     $ 2,783     $     $ 2,236     $ 46     $ 2,527     $ 143  
Commercial Real Estate
    19,317       19,644             19,391       345       19,600       1,020  
Commercial Construction
    551       551             551       11       560       32  
Small Business
    1,621       1,674             1,641       28       1,627       82  
Residential Real Estate (1)
    1       1             2             5        
Consumer — Home Equity
    22       22             22             22       1  
Consumer — Other
    44       84             90       2       113       5  
 
                                         
Subtotal
    23,738       24,759             23,933       432       24,454       1,283  
With an Allowance Recorded:
                                                       
Commercial & Industrial
  $ 774     $ 777     $ 558     $ 756     $ 12     $ 926     $ 41  
Commercial Real Estate
    13,294       13,637       306       13,247       183       13,304       569  
Commercial Construction
                                         
Small Business
    1,404       1,430       299       1,401       21       1,505       67  
Residential Real Estate (1)
    12,698       13,316       1,258       12,721       132       12,744       378  
Consumer — Home Equity
    452       492       24       457       8       480       22  
Consumer — Other
    2,102       2,116       240       2,043       20       1,919       56  
 
                                         
Subtotal
    30,724       31,768       2,685       30,625       376       30,878       1,133  
 
                                                       
 
TOTAL
  $ 54,462     $ 56,527     $ 2,685     $ 54,558     $ 808     $ 55,332     $ 2,416  
 
                                                         
                            For the Three Months Ended     For the Nine Months Ended  
    As of September 30, 2010     September 30, 2010     September 30, 2010  
            Unpaid             Average     Interest     Average     Interest  
    Recorded     Principal     Related     Recorded     Income     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized     Investment     Recognized  
    (Dollars in Thousands)  
With no Related Allowance Recorded:
                                                       
Commercial & Industrial
  $ 2,904     $ 3,756     $     $ 2,996     $ 58     $ 2,944     $ 169  
Commercial Real Estate
    15,785       16,367             16,024       275       16,367       834  
Commercial Construction
                                         
Small Business
    719       835             747       15       821       43  
Residential Real Estate (1)
    205       205             205             206       10  
Consumer — Home Equity
                                         
Consumer — Other
                                         
 
                                         
Subtotal
    19,613       21,163             19,972       348       20,338       1,056  
With an Allowance Recorded:
                                                       
Commercial & Industrial
  $ 1,631     $ 2,399     $ 864     $ 1,641     $ 31     $ 2,181     $ 91  
Commercial Real Estate
    7,247       7,502       444       7,256       104       7,543       346  
Commercial Construction
                                         
Small Business
    1,880       2,010       307       1,994       31       1,942       90  
Residential Real Estate (1)
    9,106       9,469       855       9,075       130       9,186       267  
Consumer — Home Equity
    409       415       14       410       6       411       14  
Consumer — Other
    1,554       1,572       188       1,521       16       1,253       42  
 
                                         
Subtotal
    21,827       23,367       2,672       21,897       318       22,516       850  
 
                                                       
 
TOTAL
  $ 41,440     $ 44,530     $ 2,672     $ 41,869     $ 666     $ 42,854     $ 1,906  
 
 
(1)   Includes residential construction loans.

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NOTE 5 — EARNINGS PER SHARE
     Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of participating common shares outstanding. Unvested restricted shares are considered outstanding in the computation of basic earnings per share as holders of unvested restricted stock awards participate fully in the awards of stock ownership of the Company, including voting and dividend rights. Diluted earnings per share is calculated in a manner similar to that of basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method.
     During 2011, the Company issued performance-based restricted stock awards to non-executive bank employees which will vest if certain performance measures are met. These performance-based restricted stock awards do not participate in the rewards of stock ownership of the Company until vested. As a result, these awards are not considered in the calculation of basic earnings per share. To the extent the performance measures outlined in the performance-based restricted stock award agreements are met in advance of vesting, the shares will be included in the diluted earnings per share calculation, computed using the treasury stock method.
     Earnings per share consisted of the following components for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
         
    (Dollars in Thousands)     (Dollars in Thousands)  
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
  $ 11,959     $ 11,145     $ 34,267     $ 28,402  
         
                                 
    Weighted Average Shares     Weighted Average Shares  
BASIC SHARES
    21,463,714       20,981,372 (1)     21,401,885       20,961,378 (1)
Effect of Dilutive Securities
    13,077       52,793       32,452       74,536  
         
DILUTIVE SHARES
    21,476,791       21,034,165       21,434,337       21,035,914  
         
 
                               
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS PER SHARE
                               
BASIC EPS
  $ 0.56     $ 0.53     $ 1.60     $ 1.35  
Effect of Dilutive Securities
                       
         
DILUTIVE EPS
  $ 0.56     $ 0.53     $ 1.60     $ 1.35  
         
 
(1)   Unvested restricted stock awards were not considered outstanding in the computation of basic earnings per share due to the immaterial balance for the three and nine months ended September 30, 2010.
     The following table illustrates the options to purchase common stock that were excluded from the calculation of diluted earnings per share because they were anti-dilutive:

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    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
     
Stock Options
    888,963       1,007,005       820,871       797,564  
NOTE 6- STOCK BASED COMPENSATION
Restricted Stock Awards
     During 2011 the Company has made the following restricted stock award grants:
                                 
Date     Shares Granted     Plan   Fair Value     Vesting Period  
  2/10/2011       27,750    
2005 Employee Stock Plan
  $ 27.58     Ratably over 5 years from grant date
  2/17/2011       33,000    
2005 Employee Stock Plan
  $ 27.43     Ratably over 5 years from grant date
  5/3/2011       3,000    
2005 Employee Stock Plan
  $ 29.00     Ratably over 5 years from grant date
  5/24/2011       9,800    
2010 Non-Employee Director Stock Plan
  $ 28.88     At the end of 5 years from grant date (1)
 
(1)   These restricted stock grants issued out of the 2010 Non-Employee Director Stock Plan will vest at the end of a five year period, or earlier if the director ceases to be a director for any reason other than cause, such as, for example, by retirement. If a non-employee director is removed from the Board for cause, the Company has ninety (90) days within which to exercise a right to repurchase any unvested portion of any restricted stock award from the non-employee director for the aggregate price of one dollar ($1.00).
     The fair value of the restricted stock awards are based upon the average of the high and low price at which the Company’s common stock traded on the date of grant. The holders of these awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights.
Performance-Based Restricted Stock Awards
     On August 8, 2011, the Company granted 3,637 performance-based restricted stock awards to certain non-executive Bank employees. These performance-based restricted stock awards were issued from the 2005 Employee Stock Plan, were determined to have a fair value per share of $23.81 and vest on December 31, 2014. The number of shares vested as of December 31, 2014 may be adjusted in accordance with the attainment of certain performance measures outlined in the award agreement. These awards will be accounted for as equity awards due to the nature of these awards and the fact that these shares will not be settled in cash.
     The fair value of the performance-based restricted stock awards is based upon the average of the high and low price at which the Company’s common stock traded on the date of grant. The holders of these awards do not participate in the rewards of stock ownership of the Company until vested.

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Stock Options
     During 2011 the Company made the following awards of non-qualified options to purchase shares of common stock:
                                         
Date     Shares Granted     Plan   Fair Value     Vesting Period (Ratably)     Expiration Date  
  2/10/2011       40,000    
2005 Employee Stock Plan
  $ 6.81     3 years from grant date     2/10/2021  
  2/17/2011       54,000    
2005 Employee Stock Plan
  $ 6.39     3 years from grant date     2/17/2021  
  5/24/2011       7,000    
2010 Non-Employee Director Stock Plan
  $ 6.72     3 year period ending 1/1/2013     5/24/2021  
     The following table shows the assumptions used to determine the fair value of the granted options:
                         
    February 10,     February 17,     May 24,  
    2011     2011     2011  
Volatility
    32.38 %     32.11 %     32.95 %
Expected Life
  5.5 Years   5 Years   5 Years
Dividend Yield
    2.90 %     2.89 %     2.87 %
Risk Free Interest Rate
    2.57 %     2.27 %     1.81 %
NOTE 7 — DERIVATIVES AND HEDGING ACTIVITIES
     The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives and foreign exchange contracts to accommodate the business requirements of its customers (“customer related positions”). The Company minimizes the market and liquidity risks of customer-related positions by entering into similar offsetting positions with broker-dealers. Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.
     The Company does not enter into proprietary trading positions for any derivatives.
Asset Liability Management
     The Company currently utilizes interest rate swap agreements as hedging instruments against interest rate risk associated with the Company’s borrowings. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The maximum length of time over

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which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is eight years.
     The following table reflects the Company’s derivative positions for the periods indicated below for interest rate swaps which qualify as hedges for accounting purposes:
                                                         
As of September 30, 2011  
                                Receive                   Fair Value at  
Notional     Trade     Effective     Maturity     (Variable)   Current Rate     Pay Fixed     September 30,  
Amount     Date     Date     Date     Index   Received     Swap Rate     2011  
 
(Dollars in Thousands)  
$ 25,000     16-Feb-06   28-Dec-06   28-Dec-16  
3 Month LIBOR
    0.35 %     5.04 %   $ (4,883 )
  25,000     16-Feb-06   28-Dec-06   28-Dec-16  
3 Month LIBOR
    0.35 %     5.04 %     (4,884 )
  25,000     8-Dec-08   10-Dec-08   10-Dec-13  
3 Month LIBOR
    0.34 %     2.65 %     (1,132 )
  25,000     9-Dec-08   10-Dec-08   10-Dec-13  
3 Month LIBOR
    0.34 %     2.59 %     (1,101 )
  25,000     9-Dec-08   10-Dec-08   10-Dec-18  
3 Month LIBOR
    0.34 %     2.94 %     (2,280 )
  50,000     17-Nov-09   20-Dec-10   20-Dec-14  
3 Month LIBOR
    0.35 %     3.04 %     (3,665 )
  25,000     5-May-11   10-Jun-11   10-Jun-15  
3 Month LIBOR
    0.34 %     1.71 %     (761 )
  40,000     18-Aug-11   2-Apr-12   10-Mar-19  
3 Month LIBOR
  TBD     1.89 %     (174 ) (1)
                             
 
                     
$ 240,000                            
 
                  $ (18,880 )
                             
 
                     
                                                         
As of December 31, 2010  
                                Receive                   Fair Value at  
Notional     Trade     Effective     Maturity     (Variable)   Current Rate     Pay Fixed     December 31,  
Amount     Date     Date     Date     Index   Received     Swap Rate     2010  
 
(Dollars in Thousands)  
$ 25,000     16-Feb-06   28-Dec-06   28-Dec-16  
3 Month LIBOR
    0.30 %     5.04 %   $ (3,713 )
  25,000     16-Feb-06   28-Dec-06   28-Dec-16  
3 Month LIBOR
    0.30 %     5.04 %     (3,682 )
  25,000     8-Dec-08   10-Dec-08   10-Dec-13  
3 Month LIBOR
    0.30 %     2.65 %     (1,044 )
  25,000     9-Dec-08   10-Dec-08   10-Dec-13  
3 Month LIBOR
    0.30 %     2.59 %     (1,002 )
  25,000     9-Dec-08   10-Dec-08   10-Dec-18  
3 Month LIBOR
    0.30 %     2.94 %     (109 )
  50,000     17-Nov-09   20-Dec-10   20-Dec-14  
3 Month LIBOR
    0.30 %     3.04 %     (2,656 )
                             
 
                     
$ 175,000                            
 
                  $ (12,206 )
                             
 
                     
 
(1)   In August 2011, the Company entered into a forward starting swap with a notional amount of $40.0 million, with the intention of hedging $40.0 million of a future FHLB advance to be originated in April 2012.
     For derivative instruments that are designated and qualify as hedging instruments, the effective portion of the gains or losses is reported as a component of OCI, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $5.6 million (pre-tax), to be reclassified to interest expense from OCI, related to the Company’s cash flow hedges in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of September 30, 2011.
     The ineffective portion of a cash flow hedge is recognized directly in earnings. The Company did not recognize any ineffectiveness for the three and nine months ending

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September 30, 2011, and recognized an immaterial amount related to hedge ineffectiveness during the three and nine months ending September 30, 2010.
     During the first quarter of 2010, one of the Company’s $25.0 million interest rate swaps failed to qualify for hedge accounting. The Company ceased hedge accounting on January 6, 2010, which was the last date the interest rate swap qualified for hedge accounting. As a result, the Company recognized a loss of $238,000 directly in earnings as part of non-interest expense and reclassified $107,000 from interest expense to non-interest expense within the first quarter of 2010. Additionally, a gain of $191,000 which was previously deferred in OCI was immediately recognized in income during the first quarter, based on the Company’s anticipation of the hedged forecasted transaction no longer being probable to occur. The Company terminated the swap in June 2010 as a result of management’s decision to pay down the underlying borrowing and recognized $792,000 in earnings through the date of termination.
     The table below presents the net amortization income recognized as an offset to interest expense related to previously terminated swaps for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Net Amortization Income
  $ 61     $ 61     $ 183     $ 161  
Customer Related Positions
     Interest rate derivatives, primarily interest-rate swaps, offered to commercial borrowers through the Bank’s loan level derivative program do not qualify as hedges for accounting purposes. The Bank believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. The commercial customer derivative program allows the Bank to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap.
     Foreign exchange contracts offered to commercial borrowers through the Bank’s derivative program do not qualify as hedges for accounting purposes. The Bank acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Bank enters into similar offsetting positions.
     The following table reflects the Company’s customer related derivative positions for the periods indicated below for those derivatives not designated as hedging:

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    Number of     Notional Amount Maturing        
    Positions     2011     2012     2013     2014     Thereafter     Total     Fair Value  
 
    (Dollars in Thousands)  
As of September 30, 2011
                                                               
 
                                                               
Loan Level Swaps
                                                               
Receive fixed, pay variable
    90     $             19,804       80,943       250,458     $ 351,205     $ 23,709  
 
                                                               
Pay fixed, receive variable
    90     $             19,804       80,943       250,458     $ 351,205     $ (23,761 )
 
                                                               
Foreign Exchange Contracts
                                                               
Buys foreign exchange, sells US currency
    5     $ 6,953       7,936                       $ 14,889     $ (702 )
 
                                                               
Buys US currency, sells foreign exchange
    5     $ 6,953       7,936                       $ 14,889     $ 712  
 
                                                               
As of December 31, 2010
                                                               
 
                                                               
Loan Level Swaps
                                                               
Receive fixed, pay variable
    72     $             21,624       83,051       202,275     $ 306,950     $ 7,673  
 
                                                               
Pay fixed, receive variable
    72     $             21,624       83,051       202,275     $ 306,950     $ (7,835 )
 
                                                               
Foreign Exchange Contracts
                                                               
Buys foreign exchange, sells US currency
    18     $ 41,706                             $ 41,706     $ 1,301  
 
                                                               
Buys US currency, sells foreign exchange
    18     $ 41,706                             $ 41,706     $ (1,286 )
     The table below presents the changes in the fair value for the periods indicated of net customer related positions which are recorded directly in earnings as they are not afforded hedge accounting treatment:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Change in Fair Value
  $ 52     $ 47     $ 105     $ (99 )

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     The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet at the periods indicated:
                                                 
Fair Values of Derivative Instruments  
    Asset Derivatives     Liability Derivatives  
            Fair Value at     Fair Value at             Fair Value at     Fair Value at  
    Balance Sheet     September 30,     December 31,     Balance Sheet     September 30,     December 31,  
    Location     2011     2010     Location     2011     2010  
    (Dollars In Thousands)     (Dollars In Thousands)  
Derivatives designated as hedges:
                                               
Interest rate swaps
  Other Assets   $     $     Other Liabilities   $ 18,880     $ 12,206  
 
 
                                               
Derivatives not designated as hedges:
                                               
Customer Related Positions:
                                               
Loan level swaps
  Other Assets   $ 23,709     $ 9,813     Other Liabilities   $ 23,761     $ 9,975  
 
                                               
Foreign exchange contracts
  Other Assets     712       1,655     Other Liabilities     702       1,640  
 
TOTAL
          $ 24,421     $ 11,468             $ 24,463     $ 11,615  
 
     The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated:
Amount of Derivative Gain/(Loss) Recognized/Reclassified
                                 
    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Gain/(Loss) in OCI on Derivative (Effective Portion), Net of Tax
  $ (4,110 )   $ 3,367     $ (6,518 )   $ 10,310  
         
 
                               
Gain/(Loss) Reclassified from OCI into Interest Income (Effective Portion)
  $ (1,467 )   $ 948     $ (4,065 )   $ 2,926  
         
 
                               
Gain/(Loss) Recognized in Interest Income on Derivative (Ineffective Portion & Amount Excluded from Effectiveness Testing)
  $     $     $     $  
         
     Derivative contracts involve the risk of dealing with derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s Board of Directors. The Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company had no exposure relating to interest rate swaps with institutional counterparties at September 30, 2011 or December 31, 2010. The Company’s exposure relating to customer related positions was approximately $24.2 million

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and $10.2 million at September 30, 2011 and December 31, 2010, respectively. Credit exposure may be reduced by the amount of collateral pledged by the counterparty.
     The Company currently holds derivative instruments that contain credit-risk related contingent features that are in a net liability position, which require the Company to assign collateral. The notional amount of these instruments as of September 30, 2011 and December 31, 2010 was $591.2 million and $482.0 million, respectively. The aggregate fair value of these instruments at September 30, 2011 and December 31, 2010 were $42.6 million and $20.0 million, respectively. The Company has collateral assigned to these derivative instruments amounting to $47.0 million and $30.8 million, respectively. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary. Per a review completed by management of these instruments at September 30, 2011 it was determined that no additional collateral would have to be posted to immediately settle these instruments.
     The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement.
Mortgage Derivatives
     Forward sale contracts of residential mortgage loans, considered derivative instruments for accounting purposes, are utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans intended for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. The interest rate lock commitments and forward sales commitments are recorded at fair value, with changes in fair value recorded in current period earnings. Effective July 1, 2010, pursuant to FASB ASC Topic No. 825, “Financial Instruments,” the Company elected to carry newly originated closed loans held for sale at fair value. As such, the change in fair value of loans held for sale is recorded in current period earnings.
     The table below summarizes the fair value of residential mortgage loans commitments, forward sales agreements, and loans held for sale:

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    Fair Value at  
    September 30,     December 31,  
    2011     2010  
    (Dollars in Thousands)  
Interest Rate Lock Commitments
  $ 441     $ (459 )
Forward Sales Agreements
  $ (777 )   $ 1,052  
Loans Held for Sale Fair Value Adjustment
  $ 336     $ (593 )
                                 
    Change for the Three Months     Change for the Nine Months  
    Ended September 30,     Ended September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Interest Rate Lock Commitments
  $ 468     $ (52 )   $ 900     $ 998  
Forward Sales Agreements
    (750 )     44       (1,829 )     (1,470 )
Loans Held for Sale Fair Value Adjustment
    282       227       929       228  
     
TOTAL CHANGE IN FAIR VALUE (1)
  $     $ 219     $     $ (244 )
     
 
(1)   Changes in these fair values are recorded as a component of Mortgage Banking Income.
NOTE 8 — FAIR VALUE MEASUREMENTS
     Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The Company uses prices and inputs that are current as of the measurement date, including in periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from one level to another.
     The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:

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     Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
     Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
     Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
     To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation Techniques
There have been no changes in the valuation techniques used during the current period.
Trading Securities
These equity and fixed income securities are valued based on quoted market prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
U.S. Treasury Securities
Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.
Agency Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.
Agency Collateralized Mortgage Obligations and Private Mortgage-Backed Securities
The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, recent reported trades, new issue data, broker and dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Single and Pooled Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or

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similar techniques. The inputs used in these valuations include benchmark yields, recent reported trades, new issue data, broker and dealer quotes and collateral performance. Accordingly, these trust preferred securities are categorized as Level 3.
Loans Held for Sale
The Company measures loans held for sale pursuant to the fair value option. The fair value of loans held for sale is measured using quoted market prices when available. If quoted market prices are not available, comparable market values or discounted cash flow analysis may be utilized. These assets are typically categorized as Level 2.
Derivative Instruments
Derivatives
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analyses on the expected cash flows of derivatives. These analyses reflect the contractual terms of the derivatives, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. However, as of September 30, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2.
Residential Mortgage Loan Commitments and Forward Sales Agreements
The fair value of the commitments and agreements are estimated using the anticipated market price based on pricing indications provided from syndicate banks. These commitments and agreements are categorized as Level 2.
Impaired Loans
Loans that are deemed to be impaired are valued based upon the lower of cost or fair value of the underlying collateral or discounted cash flow analyses. The inputs used in the appraisals of the collateral are not always observable, and therefore the loans may be categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. The inputs used in performing discounted cash flow analyses are not observable and therefore such loans are classified as Level 3.

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Other Real Estate Owned
The fair values are estimated based upon recent appraisal values of the property less estimated costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore Other Real Estate Owned may be categorized as Level 3 within the fair value hierarchy. When inputs used in appraisals are observable, they are classified as Level 2.
Mortgage Servicing Asset
The mortgage servicing asset is amortized in proportion to and over the period of estimated servicing income, and is assessed for impairment based upon fair value at each reporting date. A valuation model, which utilizes a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments, is used for impairment testing. If the valuation model reflects a value less than the carrying value, loan servicing rights are adjusted to fair value through a valuation allowance as determined by the model. As such, the Company classifies the mortgage servicing asset as Level 3.
Goodwill and Other Intangible Assets
Goodwill and identified intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year and more frequently if necessary. Intangible assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. To estimate the fair value of goodwill and other intangible assets the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the goodwill and/or other intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify goodwill and other intangible assets subjected to non-recurring fair value adjustments as Level 3.

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     Assets and Liabilities Measured at Fair Value on a Recurring Basis at the periods indicated were as follows:
                                 
            Fair Value Measurements at Reporting Date Using  
            Quoted Prices              
            in Active     Significant        
            Markets for     Other     Significant  
            Identical     Observable     Unobservable  
            Assets     Inputs     Inputs  
    Balance     (Level 1)     (Level 2)     (Level 3)  
    (Dollars in Thousands)  
September 30, 2011                      
Description
                               
Assets
                               
Trading Securities
  $ 7,984     $ 7,984     $     $  
Securities Available for Sale:
                               
U.S. Treasury Securities
                       
Agency Mortgage-Backed Securities
    243,067             243,067        
Agency Collateralized Mortgage Obligations
    36,155             36,155        
Private Mortgage-Backed Securities
    6,825                   6,825  
Single Issuer Trust Preferred Securities Issued by Banks and Insurers
    4,138                   4,138  
Pooled Trust Preferred Securities Issued by Banks and Insurers
    2,888                   2,888  
Loans Held for Sale
    22,156             22,156        
Derivative Instruments
    24,862             24,862        
Liabilities
                               
Derivative Instruments
    44,120             44,120        
 
                               
December 31, 2010
                               
Description
                               
Assets
                               
Trading Securities
  $ 7,597     $ 7,597     $     $  
Securities Available for Sale:
                               
U.S. Treasury Securities
    717             717        
Agency Mortgage-Backed Securities
    313,302             313,302        
Agency Collateralized Mortgage Obligations
    46,135             46,135        
Private Mortgage-Backed Securities
    10,254                   10,254  
Single Issuer Trust Preferred Securities Issued by Banks and Insurers
    4,221                   4,221  
Pooled Trust Preferred Securities Issued by Banks and Insurers
    2,828                   2,828  
Loans Held for Sale
    27,917             27,917        
Derivative Instruments
    12,520             12,520        
Liabilities
                               
Derivative Instruments
    24,280             24,280        

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     The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). These instruments were valued using pricing models and discounted cash flow methodologies.
                                 
    Reconciliation for All Assets and Liabilities Measured at Fair Value on  
    a Recurring Basis Using Significant Unobservable Inputs (Level 3)  
    Securities Available for Sale  
                    Private        
    Pooled Trust     Single Trust     Mortgage-        
    Preferred     Preferred     Backed        
    Securities     Securities     Securities     Total  
    (Dollars in Thousands)  
 
Balance at June 30, 2011
  $ 3,425     $ 4,466     $ 8,118     $ 16,009  
 
Gains and Losses (realized/unrealized)
                               
Included in earnings
                (28 )     (28 )
Included in Other Comprehensive Income
    (532 )     (328 )     (69 )     (929 )
Purchases
                       
Issuances
                       
Settlements
    (5 )           (1,196 )     (1,201 )
Transfers in to Level 3
                       
 
Balance at September 30, 2011
  $ 2,888     $ 4,138     $ 6,825     $ 13,851  
 
 
                               
 
Balance at January 1, 2010
  $ 2,595     $ 3,010     $ 14,289     $ 19,894  
 
Gains and Losses (realized/unrealized)
                               
Included in earnings
    (112 )           (222 )     (334 )
Included in Other Comprehensive Income
    388       1,211       1,197       2,796  
Purchases
                       
Issuances
                       
Settlements
    (43 )           (5,010 )     (5,053 )
Transfers in to Level 3
                       
 
Balance at December 31, 2010
  $ 2,828     $ 4,221     $ 10,254     $ 17,303  
 
Gains and Losses (realized/unrealized)
                               
Included in earnings
    (8 )           (196 )     (204 )
Included in Other Comprehensive Income
    93       (83 )     87       97  
Purchases
                       
Issuances
                       
Settlements
    (25 )           (3,320 )     (3,345 )
Transfers in to Level 3
                       
 
Balance at September 30, 2011
  $ 2,888     $ 4,138     $ 6,825     $ 13,851  
 

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     Assets and liabilities measured at fair value on a non-recurring basis at the periods indicated were as follows:
                                         
    Fair Value Measurements at Reporting Date Using  
            Quoted                    
            Prices in                    
            Active     Significant              
            Markets for     Other     Significant        
            Identical     Observable     Unobservable     Total  
            Assets     Inputs     Inputs     Gains  
    Balance     (Level 1)     (Level 2)     (Level 3)     (Losses)  
    (Dollars in Thousands)  
As of September 30, 2011                                        
Description                                        
Impaired Loans
  $ 30,724     $     $     $ 30,724     $ (2,685 )
Other Real Estate Owned
    8,497             3,811       4,686        
Mortgage Servicing Asset
    1,230                   1,230        
 
                                       
As of December 31, 2010
                                       
Description
                                       
 
                                       
Impaired Loans
  $ 23,411     $     $     $ 23,411     $ (2,547 )
Other Real Estate Owned
    7,273             2,933       4,340        
Mortgage Servicing Asset
    1,635                   1,635        
     The estimated fair values and related carrying amounts of the Company’s financial instruments are as follows:
                                 
    September 30,     December 31,  
    2011     2010  
    BOOK     FAIR     BOOK     FAIR  
    VALUE     VALUE     VALUE     VALUE  
FINANCIAL ASSETS   (Dollars In Thousands)     (Dollars In Thousands)  
Securities Held To Maturity (a)
  $ 220,552     $ 228,755     $ 202,732     $ 201,234  
Loans, Net of Allowance for Loan Losses (b)
    3,675,847       3,708,613       3,509,424       3,554,761  
 
                               
FINANCIAL LIABILITIES
                               
Time Certificates of Deposits ( c)
  $ 641,468     $ 650,074     $ 693,176     $ 697,064  
Federal Home Loan Bank Advances ( c)
    257,873       255,970       302,414       297,740  
Federal Funds Purchased and Assets Sold Under Repurchase Agreements ( c)
    216,331       218,377       168,119       171,702  
Junior Subordinated Debentures (d)
    61,857       60,311       61,857       60,796  
Subordinated Debentures ( c)
    30,000       24,570       30,000       23,655  
 
(a)   The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analyses.
 
(b)   Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows.
 
(c)   Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities.
 
(d)   Fair value was determined based upon market prices of securities with similar terms and maturities.
     This summary excludes financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these include cash and due from banks, federal funds sold, short-term investments, Federal Home Loan Bank stock, and bank owned life insurance. For financial liabilities, these include demand, savings, money market deposits, and federal funds purchased, and assets sold under repurchase agreements. The estimated fair value of demand, savings and money market deposits is the amount payable at the reporting date. Also excluded from the summary are financial instruments measured at fair value on a recurring and non-recurring basis, as previously described.

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NOTE 9 — COMPREHENSIVE INCOME(LOSS)
     Information on the Company’s comprehensive income(loss), presented net of taxes, is set forth below for the three and nine months ended September 30, 2011 and 2010:
                                                 
    Three Months Ended September 30, 2011     Nine Months Ended September 30, 2011  
    Pre Tax     Tax Expense     After Tax     Pre Tax     Tax Expense     After Tax  
    Amount     (Benefit)     Amount     Amount     (Benefit)     Amount  
    (Dollars in Thousands)     (Dollars in Thousands)  
Change in Fair Value of Securities Available for Sale
  $ (412 )   $ (184 )   $ (228 )   $ 879     $ 334     $ 545  
Net Security Gains (Losses) Reclassified into Earnings
    28 (1)     11       17       (519 ) (1)     (202 )     (317 )
 
                                   
Net Change in Fair Value of Securities Available for Sale
    (384 )     (173 )     (211 )     360       132       228  
Change in Fair Value of Cash Flow Hedges
    (6,947 ) (2)     (2,837 )     (4,110 )     (11,016 ) (2)     (4,498 )     (6,518 )
Net Cash Flow Hedge Gains Reclassified into Earnings
    1,467       599       868       4,065       1,699       2,366  
 
                                   
Net Change in Fair Value of Cash Flow Hedges
    (5,480 )     (2,238 )     (3,242 )     (6,951 )     (2,799 )     (4,152 )
 
                                               
Amortization of Certain Costs Included in Net Periodic Retirement Costs
    131       53       78       473       143       330  
     
TOTAL OTHER COMPREHENSIVE LOSS
  $ (5,733 )   $ (2,358 )   $ (3,375 )   $ (6,118 )   $ (2,524 )   $ (3,594 )
     
                                                 
    Three Months Ended September 30, 2010     Nine Months Ended September 30, 2010  
    Pre Tax     Tax Expense     After Tax     Pre Tax     Tax Expense     After Tax  
    Amount     (Benefit)     Amount     Amount     (Benefit)     Amount  
    (Dollars in Thousands)     (Dollars in Thousands)  
Change in Fair Value of Securities Available for Sale
  $ (2,354 )   $ (890 )   $ (1,464 )   $ 5,176     $ 2,028     $ 3,148  
Net Security Gains (Losses) Reclassified into Earnings
    29 (1)     10       19       (190 )(1)     (55 )     (135 )
 
                                   
Net Change in Fair Value of Securities Available for Sale
    (2,325 )     (880 )     (1,445 )     4,986       1,973       3,013  
 
                                               
Change in Fair Value of Cash Flow Hedges
    (5,692 ) (2)     (2,325 )     (3,367 )     (17,430 ) (2)     (7,120 )     (10,310 )
Net Cash Flow Hedge Gains Reclassified into Earnings
    948       387       561       2,926       1,206       1,720  
 
                                   
Net Change in Fair Value of Cash Flow Hedges
    (4,744 )     (1,938 )     (2,806 )     (14,504 )     (5,914 )     (8,590 )
 
                                               
Amortization of Certain Costs Included in Net Periodic Retirement Costs
    40       16       24       118       48       70  
     
TOTAL OTHER COMPREHENSIVE LOSS
  $ (7,029 )   $ (2,802 )   $ (4,227 )   $ (9,400 )   $ (3,893 )   $ (5,507 )
     
 
(1)   Net security losses represent pre-tax OTTI credit related losses of $28,000 and $7,000 for the three months ended September 30, 2011 and 2010, respectively and there w ere no gains or losses and $22,000 in losses on sales of securities for the three months ended September 30, 2011 and 2010, respectively . For the nine months ended September 30, 2011 and 2010, net security losses represent pre-tax OTTI credit related losses of $204,000 and $269,000 and net gains on sales of securities of $723,000 and $458,000, respectively .
 
(2)   Includes the remaining balance of a realized but unrecognized gain, net of tax , from the termination of interest rate swaps in June 2009. The original gain of $1.3 million, net of tax will be recognized in earnings through December 2018, the original maturity date of the swap. The balance of this gain had amortized to $1.0 million and $1.2 million at September 30, 2011 and 2010, respectively .
Accumulated Other Comprehensive Loss, net of tax, is comprised of the following components:
                 
    At September 30,  
    2011     2010  
    (Dollars in Thousands)  
Unrealized gain on securities available for sale
  $ 6,533     $ 7,406  
Net actuarial loss and prior service cost for pension and other post retirement benefit plans
    (764 )     (1,142 )
Unrealized loss on cash flow hedge
    (11,169 )     (10,202 )
Deferred gain on hedge accounting transactions
    1,040       1,184  
 
TOTAL
  $ (4,360 )   $ (2,754 )
 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission.
Cautionary Statement Regarding Forward-Looking Statements
     A number of the presentations and disclosures in this Form 10-Q, including, without limitation, statements regarding the level of allowance for loan losses, the rate of delinquencies and amounts of charge-offs, and the rates of loan growth, and any statements preceded by, followed by, or which include the words “may,” “could,” “should,” “will,” “would,” “hope,” “might,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “assume” or similar expressions constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
     These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business, of the Company including the Company’s expectations and estimates with respect to the Company’s revenues, expenses, earnings, return on average equity, return on average assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.
     Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors (some of which are beyond the Company’s control). The following factors, among others, could cause the Company’s financial performance to differ materially from the Company’s goals, plans, objectives, intentions, expectations and other forward-looking statements:
    a weakening in the United States economy in general and the regional and local economies within the New England region and Massachusetts, which could result in a deterioration of credit quality, a change in the allowance for loan losses, or a reduced demand for the Company’s credit or fee-based products and services;
 
    adverse changes in the local real estate market could result in a deterioration of credit quality and an increase in the allowance for loan loss, as most of the Company’s loans are concentrated in eastern Massachusetts and Cape Cod, and to a lesser extent, Rhode Island, and a substantial portion of these loans have real estate as collateral;
 
    the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve

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      System, could affect the Company’s business environment or affect the Company’s operations;
 
    the effects of, any changes in, and any failure by the Company to comply with tax laws generally and requirements of the federal New Markets Tax Credit program in particular could adversely affect the Company’s tax provision and its financial results;
 
    inflation, interest rate, market and monetary fluctuations could reduce net interest income and could increase credit losses;
 
    adverse changes in asset quality could result in increasing credit risk-related losses and expenses;
 
    changes in the deferred tax asset valuation allowance in future periods may adversely affect financial results;
 
    competitive pressures could intensify and affect the Company’s profitability, including continued industry consolidation, the increased financial services provided by non-banks and banking reform;
 
    a deterioration in the conditions of the securities markets could adversely affect the value or credit quality of the Company’s assets, the availability and terms of funding necessary to meet the Company’s liquidity needs, and the Company’s ability to originate loans and could lead to impairment in the value of securities in the Company’s investment portfolios, having an adverse effect on the Company’s earnings;
 
    a further deterioration of the credit rating for U.S. long-term sovereign debt could adversely impact the Company. On August 5, 2011, Standard and Poor’s downgraded the U.S. long-term sovereign debt from AAA, the highest rating, to AA+, the second highest rating. This downgrade does not directly impact the immediate current financial position or outlook for the Company, but a further downgrade could result in a re-evaluation of the ‘risk-free’ rate used in many accounting models, other-than-temporary-impairment of securities and/or impairment of goodwill and other intangibles;
 
    the potential need to adapt to changes in information technology could adversely impact the Company’s operations and require increased capital spending;
 
    the risk of electronic fraudulent activity within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting bank accounts and other customer information, which could adversely impact the Company’s operations, damage its reputation and require increased capital spending;

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    changes in consumer spending and savings habits could negatively impact the Company’s financial results;
 
    acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
 
    new laws and regulations regarding the financial services industry including, but not limited to, the Dodd-Frank Wall Street Reform & Consumer Protection Act, may have significant effects on the financial services industry in general, and/or the Company in particular, the exact nature and extent of which is uncertain;
 
    changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business could adversely affect the Company’s operations; and
 
    changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters, could negatively impact the Company’s financial results.
     If one or more of the factors affecting the Company’s forward-looking information and statements proves incorrect, then the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, the Company cautions you not to place undue reliance on the Company’s forward-looking information and statements.
     The Company does not intend to update the Company’s forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

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Selected Quarterly Financial Data
     The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere herein.
                                         
                    Three Months Ended              
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2011     2011     2011     2010     2010  
            (Dollars in Thousands, Except Per Share Data)          
FINANCIAL CONDITION DATA:
                                       
Securities available for sale
  $ 293,073     $ 305,895     $ 341,362     $ 377,457     $ 436,887  
Securities held to maturity
    220,552       233,109       239,305       202,732       180,623  
Loans
    3,723,125       3,725,231       3,628,374       3,555,679       3,408,043  
Allowance for loan losses
    47,278       46,637       46,444       46,255       45,619  
Goodwill and Core Deposit Intangibles
    141,103       141,489       141,951       141,956       142,422  
Total assets
    4,899,766       4,842,943       4,645,783       4,695,738       4,703,791  
Total deposits
    3,787,533       3,786,562       3,584,926       3,627,783       3,617,158  
Total borrowings
    568,264       535,670       556,718       565,434       577,429  
Stockholders’ equity
    461,066       455,702       447,985       436,472       425,661  
Non-performing loans
    26,625       21,926       23,397       23,108       24,687  
Non-performing assets
    36,647       30,963       33,856       31,493       34,789  
 
                                       
OPERATING DATA:
                                       
Interest income
  $ 48,935     $ 49,474     $ 48,958     $ 49,971     $ 50,588  
Interest expense
    7,261       7,398       7,485       8,582       9,391  
Net interest income
    41,674       42,076       41,473       41,389       41,197  
Provision for loan losses
    2,000       3,482       2,200       3,575       3,500  
Non-interest income
    12,315       13,474       12,598       14,263       11,654  
Non-interest expenses
    35,423       36,856       36,482       36,688       34,540  
Net income available to the common shareholder
    11,959       11,120       11,188       11,838       11,145  
 
                                       
PER SHARE DATA:
                                       
Net income — Basic
  $ 0.56     $ 0.52     $ 0.53     $ 0.56     $ 0.53  
Net income — Diluted
    0.56       0.52       0.52       0.56       0.53  
Cash dividends declared
    0.19       0.19       0.19       0.18       0.18  
Book value (1)
    21.48       21.24       20.93       20.57       20.08  
 
                                       
OPERATING RATIOS:
                                       
Return on average assets
    0.99 %     0.95 %     0.98 %     1.01 %     0.95 %
Return on average common equity
    10.28 %     9.78 %     10.24 %     10.85 %     10.38 %
Net interest margin (on a fully tax equivalent basis)
    3.84 %     3.97 %     4.02 %     3.91 %     3.89 %
Equity to assets
    9.41 %     9.41 %     9.64 %     9.30 %     9.05 %
Dividend payout ratio
    34.10 %     36.65 %     36.33 %     32.25 %     34.26 %
 
                                       
ASSET QUALITY RATIOS:
                                       
Non-performing loans as a percent of gross loans
    0.72 %     0.59 %     0.64 %     0.65 %     0.72 %
Non-performing assets as a percent of total assets
    0.75 %     0.64 %     0.73 %     0.67 %     0.74 %
Allowance for loan losses as a percent of total loans
    1.27 %     1.25 %     1.28 %     1.30 %     1.34 %
Allowance for loan losses as a percent of non-performing loans
    177.57 %     212.70 %     198.50 %     200.17 %     184.79 %
 
                                       
CAPITAL RATIOS:
                                       
Tier 1 leverage capital ratio
    8.59 %     8.54 %     8.48 %     8.19 %     7.99 %
Tier 1 risk-based capital ratio
    10.62 %     10.46 %     10.48 %     10.28 %     10.35 %
Total risk-based capital ratio
    12.67 %     12.52 %     12.55 %     12.37 %     12.47 %
 
(1)   Calculated by dividing total stockholders’ equity by the total outstanding shares as of the end of each period.

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Executive Level Overview
During the third quarter of 2011, the Company sustained its positive momentum, as its underlying business lines continued to perform well. The Company reported net income for the third quarter of $12.0 million, or $0.56 on a diluted per share basis, an increase of 7.3% and 5.7%, respectively, as compared to three months ended September 30, 2010. The following table illustrates key performance measures for the periods indicated:
                                 
    For the Three Months     For the Nine Months  
    Ended     Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Diluted Earnings Per Share
  $ 0.56     $ 0.53     $ 1.60     $ 1.35  
Return on Average Assets
    0.99 %     0.95 %     0.97 %     0.83 %
Return on Average Common Equity
    10.28 %     10.38 %     10.10 %     8.98 %
Net Interest Margin
    3.84 %     3.89 %     3.94 %     3.97 %
     Total loans remained consistent at $3.7 billion at September 30, 2011, compared with the prior quarter, and have grown by 6.3% since December 31, 2010 on an annualized basis. The Company continues to see strong loan growth in the home equity portfolio, with growth in the third quarter of 9.9%, on an annualized basis. Compared to the year ended December 31, 2010, commercial and home equity loan growth was 8.2% and 16.0%, respectively on an annualized basis during the nine months ended September 30, 2011. The Company continues to experience robust commercial and home equity loan demand and maintains a strong loan pipeline.
     Deposits remained consistent at $3.8 billion at September 30, 2011, as compared to the prior quarter. Core deposits increased by $30.5 million to $3.1 billion, while time deposits declined, as expected, decreasing at a modest pace by $29.5 million, or 4.4%, in the third quarter. Core deposits to total deposits rose to 83.1% as the Company continues to emphasize core deposits, and the total cost of deposits has steadily declined to 0.37% for the current quarter.
     The Company maintained a solid credit profile during the quarter. Net charge-offs decreased to $1.4 million, or 0.15% of average loans on an annualized basis for the third quarter of 2011 compared to $3.3 million, or 0.36%, for the quarter ended June 30, 2011. The provision for loan losses was $2.0 million for the quarter ended September 30, 2011, a decrease in provisioning from the prior quarter amount of $3.5 million, reflective of strong credit metrics and static loan balances. Nonperforming loans increased to $26.6 million, or 0.72% of total loans at September 30, 2011, from $21.9 million, or 0.59% of total loans at June 30, 2011. Delinquency as a percent of loans increased to 0.89% at September 30, 2011 compared to 0.83% at June 30, 2011. Early stage delinquency (30 to 89 days) increased slightly by 2 basis points to 0.50% of loans.

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     The following charts represent a number of important asset quality indicators that management monitors:
     The Company’s net charge-offs over the trailing five quarters are shown in the table below:
(BAR CHART)

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     The following table shows the levels of the Company’s nonperforming loans over the trailing five quarters:
(GRAPH)
     Nonperforming assets are comprised of nonperforming loans, nonperforming securities, other real estate owned, and other assets in possession, and are closely managed to ensure an expedient workout. The following table shows the rollforward of nonperforming assets for the three and nine months ended September 30, 2011:
                                 
    For the     For the  
    Three Months Ending     Nine Months Ending  
Nonperforming Assets Reconciliation   September 30, 2011     September 30, 2011  
    (Dollars in Thousands)     (Dollars in Thousands)  
Nonperforming Assets Beginning Balance
          $ 30,963             $ 31,493  
New to Nonperforming
            12,937               31,068  
Loans Charged-Off
            (2,172 )             (8,243 )
Loans Paid-Off
            (2,708 )             (9,772 )
Loans Transferred to Other Real Estate Owned and Foreclosed Assets
            (1,458 )             (5,691 )
Loans Restored to Accrual Status
            (1,415 )             (3,169 )
Change to Other Real Estate Owned:
                               
New to Other Real Estate Owned
  $ 1,458             $ 5,691          
Valuation Write Down
    (655 )             (1,461 )        
Sale of Other Real Estate Owned
    (300 )             (3,971 )        
Other
    584               965          
 
                           
Total Change to Other Real Estate Owned
    1,087       1,087       1,224       1,224  
Other
            (587 )             (263 )
             
NONPERFORMING ASSETS ENDING BALANCE
          $ 36,647             $ 36,647  
             

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     The chart below shows the level of delinquencies over the trailing five quarters:
(Graph)
     The net interest margin decreased to 3.84% in the current quarter from 3.97% in the second quarter of 2011 and 3.89% in the third quarter of 2010, as a result of the prevailing low rate environment and the consequent pressure placed on new asset origination yields along with the Company’s relative inability to further reduce the cost of deposits.
     Non-interest income, excluding securities gains, decreased in the third quarter of 2011 when compared to the second quarter of 2011, mainly due to an increase in the unrealized losses on the Company’s trading assets due to market conditions. Non-interest income increased when compared to the third quarter of 2010 due to improved service charges, interchange and investment management revenue.
     Non-interest expense was down in the third quarter of 2011 when compared to the quarter ended June 30, 2011. The third quarter of 2011 included reductions in credit-related loan workout expenses and OREO property write-downs, decreases in advertising expense, as well as lower FDIC assessments due to a change in the assessment base during 2011 when compared to the linked quarter, offset by an increase in salary and benefit costs due to the Company’s growth initiatives. Non-interest expense has increased from the same period in 2011 due primarily to the increased salary and benefits in the current quarter as well as slight increases in occupancy costs as compared to the third quarter of 2010.
     Capital levels remained strong. The Company’s tier one leverage capital ratio rose to 8.6% for the quarter and the tangible common equity ratio (pro forma to include the deductibility of goodwill) remained consistent at 7.1%, showing that the Company continues to generate adequate levels of capital to internally fund future growth.

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     The following table summarizes the impact of non-core items recorded for the time periods indicated below and reconciles them to the most comparable amounts calculated in accordance with Generally Accepted Accounting Principles (“GAAP”):
                                 
    Three Months Ended September 30,  
    Net Income        
    Available to Common     Diluted  
    Shareholders     Earnings Per Share  
    2011     2010     2011     2010  
            (Dollars in Thousands)          
     
AS REPORTED (GAAP)
                               
Net Income available to Common Shareholders (GAAP)
  $ 11,959     $ 11,145     $ 0.56     $ 0.53  
Non-GAAP Measures:
                               
Non-Interest Income Components:
                               
Net Loss on Sale of Securities, net of tax
          13              
TOTAL IMPACT OF NON-CORE ITEMS
          13              
 
AS ADJUSTED (NON-GAAP)
  $ 11,959     $ 11,158     $ 0.56     $ 0.53  
 
                                 
    Nine Months Ended September 30,  
    Net Income        
    Available to Common     Diluted  
    Shareholders     Earnings Per Share  
    2011     2010     2011     2010  
            (Dollars in Thousands)          
     
AS REPORTED (GAAP)
                               
Net Income available to Common Shareholders (GAAP)
  $ 34,267     $ 28,402     $ 1.60     $ 1.35  
Non-GAAP Measures:
                               
Non-Interest Income Components:
                               
Net Gain on Sale of Securities, net of tax
    (428 )     (271 )     (0.02 )     (0.01 )
Non-Interest Expense Components:
                               
Fair Value Mark on a Terminated Hedging Relationship, net of tax
          328             0.01  
 
TOTAL IMPACT OF NON-CORE ITEMS
    (428 )     57       (0.02 )      
 
AS ADJUSTED (NON-GAAP)
  $ 33,839     $ 28,459     $ 1.58     $ 1.35  
 
     When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and non-interest or fee income, reduced by operating expenses, the provision for loan losses, and the impact of income taxes. The Company’s financial performance is determined in accordance with GAAP which sometimes includes gain or loss due to items that management does not believe are related to its core banking business, such as gains or losses on the sales of securities, merger and acquisition expenses, and other items. Management, therefore, also computes the Company’s non-GAAP operating earnings, which excludes these items, to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by gains or losses which management deems not to be core to the Company’s operations. Management believes that the financial impact of the items excluded when computing non-GAAP operating earnings will disappear or become immaterial within a near-term finite period.
     Management’s computation of the Company’s non-GAAP operating earnings are set forth above because management believes it may be useful for investors to have access to the same analytical tool used by management to evaluate the Company’s core operational performance so that investors may assess the Company’s overall financial health and identify business and performance trends that may be more difficult to identify and evaluate when non-core items are included.

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Management also believes that the computation of non-GAAP operating earnings may facilitate the comparison of the Company to other companies in the financial services industry.
     Non-GAAP operating earnings should not be considered a substitute for GAAP operating results. An item which management deems to be non-core and excludes when computing non-GAAP operating earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP operating earnings set forth above are not necessarily comparable to non-GAAP information which may be presented by other companies.
Critical Accounting Policies
     Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the Company’s most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.
     There have been no material changes in critical accounting policies during the first nine months of 2011. Please refer to the 2010 Form 10-K for a complete listing of critical accounting policies.
FINANCIAL POSITION
     Securities Portfolio The Company’s securities portfolio consists of trading assets, securities available for sale, and securities which management intends to hold until maturity. Securities decreased by $103.3 million to $521.6 million at September 30, 2011 as compared to December 31, 2010. This decrease is primarily due to paydowns on securities and the sale of mortgage backed securities as well as reduced investment activity due to unattractive yields. The ratio of securities to total assets as of September 30, 2011 was 10.6% compared to 12.5% at December 31, 2010.
     The Company continually reviews investment securities for the presence of other-than-temporary impairment (“OTTI”). Further analysis of the Company’s OTTI can be found in Note 3 “Securities” within Notes to Consolidated Financial Statements included in Item 1 hereof.

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     Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans to other financial institutions. During 2011 and 2010, the Bank originated residential loans with the intention of selling them in the secondary market. Loans are sold with servicing rights released and with servicing rights retained. The table below reflects the origination of these loans during the periods indicated:
Table 1 -Residential Mortgage Loan Sales
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Loans originated and sold with servicing rights released
  $ 58,976     $ 87,365     $ 179,481     $ 204,940  
Loans originated and sold with servicing rights retained
  $ 1,549     $ 2,891     $ 6,591     $ 6,782  
     The Company recognizes a mortgage servicing asset when it sells a loan with servicing rights retained. When the Company sells a loan the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company has not at this time established a reserve for loan repurchases as it believes material losses are not probable.
     Loan Portfolio Management has been focusing on changing the overall composition of the balance sheet by emphasizing growth in commercial and home equity lending categories, while placing less emphasis on the other lending categories. Although changing the composition of the Company’s loan portfolio has led to a slower growth rate than what otherwise may have been achieved, management believes the change to be prudent given the prevailing interest rate and economic environment. At September 30, 2011, the Bank’s loan portfolio amounted to $3.7 billion, an increase of $167.4 million, or 4.7%, from December 31, 2010. The Company was able to sustain growth by continuing to generate growth in both the commercial and industrial and commercial real estate categories, resulting in total commercial portfolio growth of 6.2%, or 8.2% annualized from December 31, 2010. The Company’s home equity portfolio has also shown solid growth, with increases of 12.0%, or 16.0% on an annualized basis, as compared to December 31, 2010.
     The Bank’s commercial real estate portfolio, inclusive of commercial construction, is the Bank’s largest loan type concentration. This portfolio is well-diversified with loans secured by a variety of property types, such as owner-occupied and non-owner-occupied commercial, retail, office, industrial, warehouse, industrial development bonds, and other special purpose properties, such as hotels, motels, nursing homes, restaurants, churches, recreational facilities, marinas, and golf courses. Commercial real estate also includes loans secured by

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certain residential-related property types including multi-family apartment buildings, residential development tracts and condominiums. The following pie chart shows the diversification of the commercial real estate portfolio as of September 30, 2011:
Commercial Real Estate Portfolio by Property Type
(Graph)
     The Bank’s commercial and industrial portfolio has shown growth of 12.8% for the nine months ended September 30, 2011. This portfolio is also well-diversified with loans to various types of industries. The following pie chart shows the diversification of the commercial and industrial portfolio as of September 30, 2011:

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(Graph)
     Asset Quality The Company continually monitors the credit quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”). When the Bank works to resolve loans with any of these issues, the borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. If such efforts by the Bank do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work-out a satisfactory payment plan.
     Delinquency The Bank’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Bank seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Bank requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain

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the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. A late charge is usually assessed on loans upon expiration of the grace period.
     Nonaccrual Loans As permitted by banking regulations, certain consumer loans past due 90 days or more continue to accrue interest. In addition, certain commercial and real estate loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. As a general rule, within commercial real estate or home equity categories, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), when the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for loan losses.
     Troubled Debt Restructurings In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work-out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.
     It is the Bank’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status. All TDRs are considered impaired by the Company, unless it is determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable rate for a comparable new loan.
     Nonperforming Assets Nonperforming assets are comprised of nonperforming loans, nonperforming securities, OREO, and other assets in possession. Nonperforming loans consist of loans that are more than 90 days past due but still accruing interest and nonaccrual loans.
     Nonperforming securities consist of securities that are on nonaccrual status. The Company holds six collateralized debt obligation securities comprised of pools of trust preferred securities issued by banks and insurance companies, which are currently deferring interest payments on certain tranches within the bonds’ structure, including the tranches held by the Company. The bonds are anticipated to continue to defer interest until cash flows are sufficient to satisfy certain collateralization levels designed to protect more senior tranches. As

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a result, the Company has placed these securities on nonaccrual status and has reversed any previously accrued income related to these securities.
     When loan collateral is deemed to be in the Bank’s control, it is classified as OREO on the balance sheet and it is recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value of the foreclosed asset (net of estimated costs to sell) is charged to the allowance for loan losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the allowance, but not below zero. All costs incurred thereafter in maintaining the property are charged to non-interest expense. In the event the real estate is utilized as a rental property, rental income and expenses are recorded as incurred and included in non-interest income and non-interest expense, respectively.

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     The following table sets forth information regarding nonperforming assets held by the Bank at the dates indicated:
Table 2 — Nonperforming Assets/Loans
                         
    September 30,     December 31,     September 30,  
    2011     2010     2010  
    (Dollars In Thousands)  
Loans Past Due 90 Days or More but Still Accruing
                       
Home Equity
  $     $ 4     $  
Consumer — Other
    328       273       216  
     
Total
  $ 328     $ 277     $ 216  
     
 
                       
Loans Accounted for on a Nonaccrual Basis (1)
                       
Commercial and Industrial
  $ 1,836     $ 3,123     $ 4,417  
Commercial Real Estate
    10,121       7,837       8,966  
Commercial Construction
    552       1,999        
Small Business
    1,032       887       909  
Residential Real Estate
    10,420       6,728       7,863  
Home Equity
    2,009       1,752       1,881  
Consumer — Other
    327       505       435  
 
                 
Total
  $ 26,297     $ 22,831     $ 24,471  
 
                 
 
                       
Total Nonperforming Loans
  $ 26,625     $ 23,108     $ 24,687  
 
                 
 
                       
Nonaccrual Securities
    1,255       1,051       1,017  
 
                       
Other Real Estate Owned and Foreclosed Assets
    8,767       7,334       9,085  
 
                 
 
                       
Total Nonperforming Assets
  $ 36,647     $ 31,493     $ 34,789  
 
                 
 
                       
Nonperforming Loans as a Percent of Gross Loans
    0.72 %     0.65 %     0.72 %
 
                 
 
                       
Nonperforming Assets as a Percent of Total Assets
    0.75 %     0.67 %     0.74 %
 
                 
 
(1)   Inclusive of $8.5 million, $4.0 million, and $3.7 million TDRs on nonaccrual at September 30, 2011, December 31, 2010, and September 30, 2010, respectively.

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     Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans and which are not considered TDRs, where known information about possible credit problems of the borrower causes management to have concerns as to the ability of such borrower to comply with present loan repayment terms, however these loans continue to perform with respect to payments. Management actively monitors these loans and strives to minimize any possible adverse impact to the Bank. The table below shows the potential problem commercial loans at the time periods indicated:
Table 3 — Potential Problem Commercial Loans
                 
    September 30,     December 31,  
    2011     2010  
    (Dollars in Thousands)  
Number of Loan Relationships
    56       62  
Aggregate Outstanding Balance
  $ 116,726     $ 126,167  
     Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. The table below shows interest income that was recognized or collected on nonaccrual loans and performing TDRs as of the dates indicated:
Table 4 — Interest Income Recognized/Collected on
Nonaccrual Loans and Troubled Debt Restructurings
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Interest income that would have been recognized if nonaccruing loans had been performing
  $ 457     $ 638     $ 1,257     $ 2,160  
 
                               
Interest income recognized on TDRs still accruing
  $ 590     $ 328     $ 1,686     $ 1,006  
Interest collected on these nonaccrual and TDRs and included in interest income
  $ 646     $ 376     $ 2,030     $ 1,278  
     A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the

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loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
     Impairment is measured on a loan by loan basis for commercial and industrial, commercial real estate, commercial construction categories and for all loans identified as a troubled debt restructuring by comparing the loans value to either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. For impaired loans deemed collateral dependent, where impairment is measured using the fair value of the collateral, the Bank will either order a new appraisal or use another available source of collateral assessment such as a broker’s opinion of value to determine a reasonable estimate of the fair value of the collateral.
     At September 30, 2011, impaired loans included all commercial and industrial loans, commercial real estate loans, commercial construction, and small business loans that are on nonaccrual status, TDRs, and certain other loans that have been categorized as impaired. Total impaired loans at September 30, 2011 and December 31, 2010 were $54.5 million and $47.4 million, respectively. For additional information regarding the Bank’s asset quality, including delinquent loans, nonaccrual loans, TDRs, and impaired loans, see Note 4, “Loans, Allowance for Loan Losses, and Credit Quality” within Notes to Consolidated Financial Statements included in Item 1 hereof.
     Allowance for Loan Losses The allowance for loan losses is maintained at a level that management considers adequate to provide for probable loan losses based upon evaluation of known and inherent risks in the loan portfolio. The allowance is increased by providing for loan losses through a charge to expense and by recoveries of loans previously charged-off and is reduced by loans being charged-off.
     While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on increases in nonperforming loans, changes in economic conditions, or for other reasons. Additionally, various regulatory agencies, as an integral part of the Bank’s examination process, periodically assess the adequacy of the allowance for loan losses and may require the Company to increase its provision for loan losses or recognize further loan charge-offs.
     As of September 30, 2011, the allowance for loan losses totaled $47.3 million, or 1.27% of total loans as compared to $46.3 million, or 1.30% of total loans, at December 31, 2010. The change in the allowance was due to a combination of factors including shifts in the composition of the loan portfolio mix, changes in asset quality and loan growth.

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     The following table summarizes changes in the allowance for loan losses and other selected statistics for the periods presented:
Table 5 — Summary of Changes in the Allowance for Loan Losses
                                         
                    Three Months Ended              
    September 30,     June 30,     March 31,     December 31,     September 30,  
    2011     2011     2011     2010     2010  
                    (Dollars in Thousands)                  
AVERAGE LOANS
  $ 3,709,864     $ 3,678,019     $ 3,590,829     $ 3,481,884     $ 3,430,372  
 
Allowance for Loan Losses, Beginning of Period
  $ 46,637     $ 46,444     $ 46,255     $ 45,619     $ 45,291  
Charged-Off Loans:
                                       
Commercial and Industrial
    749       818       888       1,313       1,489  
Commercial Real Estate
    242       492       652       594       851  
Commercial Construction
          769                    
Small Business
    386       318       266       541       549  
Residential Real Estate
    88       280       122       46       51  
Consumer -Home Equity
    333       501       78       384       24  
Consumer -Other
    374       409       478       512       515  
 
Total Charged-Off Loans
    2,172       3,587       2,484       3,390       3,479  
 
Recoveries on Loans Previously Charged-Off:
                                       
Commercial and Industrial
    77       69       202       276       60  
Commercial Real Estate
    98                          
Commercial Construction
    425       25       50              
Small Business
    18       26       28       46       34  
Residential Real Estate
                            26  
Consumer -Home Equity
    13       13       4       6       63  
Consumer -Other
    182       165       189       123       124  
 
Total Recoveries
    813       298       473       451       307  
 
Net Loans Charged-Off:
                                       
Commercial and Industrial
    672       749       686       1,037       1,429  
Commercial Real Estate
    144       492       652       594       851  
Commercial Construction
    (425 )     744       (50 )            
Small Business
    368       292       238       495       515  
Residential Real Estate
    88       280       122       46       25  
Consumer -Home Equity
    320       488       74       378       (39 )
Consumer -Other
    192       244       289       389       391  
 
Total Net Loans Charged-Off
    1,359       3,289       2,011       2,939       3,172  
 
Provision for Loan Losses
    2,000       3,482       2,200       3,575       3,500  
 
TOTAL ALLOWANCES FOR LOAN LOSSES, END OF PERIOD
  $ 47,278     $ 46,637     $ 46,444     $ 46,255     $ 45,619  
 
 
                                       
Net Loans Charged-off as a Percent of Average Total Loans (Annualized)
    0.15 %     0.36 %     0.23 %     0.33 %     0.37 %
Total Allowance for Loan Losses as a Percent of Total Loans
    1.27 %     1.25 %     1.28 %     1.30 %     1.34 %
Total Allowance for Loan Losses as a Percent of Nonperforming Loans
    177.57 %     212.70 %     198.50 %     200.17 %     184.79 %
Net Loans Charged-Off as a Percent of Allowance for Loan Losses (Annualized)
    11.40 %     28.29 %     17.56 %     25.21 %     27.89 %
Recoveries as a Percent of Charge-Offs (Annualized)
    37.43 %     8.31 %     19.04 %     13.30 %     8.82 %
     For purposes of the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for loan losses is made to each loan category using the analytical techniques and estimation methods described herein. While these amounts represent management’s best estimate of the distribution of probable losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that

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may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio.
     The following table sets forth the allocation of the allowance for loan losses by loan category at the dates indicated:
Table 6 — Summary of Allocation of Allowance for Loan Losses
                                 
    September 30,     December 31,  
    2011     2010  
    (Dollars In thousands)     (Dollars In thousands)  
            Percent of             Percent of  
            Loans             Loans  
    Allowance     In Category     Allowance     In Category  
    Amount     To Total Loans     Amount     To Total Loans  
Commercial and Industrial
  $ 11,602       15.2 %   $ 10,423       14.1 %
Commercial Real Estate
    22,985       48.8 %     21,939       48.4 %
Commercial Construction
    1,891       3.2 %     2,145       3.6 %
Small Business
    1,997       2.1 %     3,740       2.3 %
Residential Real Estate (1)
    3,181       12.0 %     2,915       13.4 %
Home Equity
    4,116       17.4 %     3,369       16.3 %
Consumer — Other
    1,506       1.3 %     1,724       1.9 %
     
 
                               
Total Allowance for Loan Losses
  $ 47,278       100.0 %   $ 46,255       100.0 %
 
                           
 
(1)   Includes residential construction.
     To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for loan losses and any recoveries of such previously charged-off amounts are credited to the allowance.
     Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the book value of the loan or receivable, or a deficiency balance following the sale of the collateral. During the first nine months of 2011, the allowance has increased by approximately $1.0 million to $47.3 million at September 30, 2011.
     For additional information regarding the Bank’s allowance for loan losses, see Note 4, “Loans, Allowance for Loan Losses, and Credit Quality” within Notes to Consolidated Financial Statements included in Item 1 hereof.

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     Federal Home Loan Bank Stock The Bank held an investment in Federal Home Loan Bank Boston (“FHLBB”) of $35.9 million at September 30, 2011 and December 31, 2010. The FHLBB is a cooperative that provides services to its member banking institutions. The primary reason for the FHLBB membership is to gain access to a reliable source of wholesale funding, particularly term funding, as a tool to manage interest rate risk. The purchase of stock in the FHLBB is a requirement for a member to gain access to funding. The Company purchases FHLBB stock proportional to the volume of funding received and views the purchases as a necessary long-term investment for the purposes of balance sheet liquidity and not for investment return.
     The FHLBB’s board of directors have continued to focus on building retained earnings while delivering core solutions of liquidity and longer-term funding to their members. As a result of these efforts, the FHLBB was able to restore a modest dividend beginning in the first quarter of 2011.
     Goodwill and Identifiable Intangible Assets Goodwill and identifiable intangible assets were $141.1 million and $142.0 million at September 30, 2011 and December 31, 2010, respectively. The Company performed its annual goodwill impairment testing during the third quarter of 2011, concluding that the Company’s goodwill was not impaired.
     Bank Owned Life Insurance The Bank holds Bank Owned Life Insurance (“BOLI”) for the purpose of offsetting the Bank’s future obligations to its employees under its retirement and benefits plans. The value of BOLI was $85.2 million and $82.7 million at September 30, 2011 and December 31, 2010, respectively. The Bank recorded tax exempt income from BOLI of $757,000 and $2.3 million for the three and nine months ended September 30, 2011, respectively, a decrease of 16.0% and 1.3%, respectively, compared to the year ago periods, due primarily to special dividends received in the prior year periods.
     Deposits Total deposits increased by $159.8 million, or 4.4%, at September 30, 2011 compared to December 31, 2010. Core deposits were higher by $211.5 million, or 7.2%, driven by inflows in municipal deposits as well as increases in demand deposits due to both advertising efforts of the Company and seasonality within the deposit customer base. The Company’s emphasis on core deposits has led to a steady reduction in time deposits which declined by $51.7 million, or 7.5%, at September 30, 2011 as compared to December 31, 2010. Core deposits to total deposits rose to 83.1% and the total cost of deposits declined to 0.39% for the nine months ended September 30, 2011, down 23 basis points from the nine months ended September 30, 2010.
     The Bank also participates in the Certificate of Deposit Registry Service (“CDARS”) program, allowing the Bank to provide easy access to multi-million dollar FDIC deposit insurance protection on certificate of deposits investments for consumers, businesses and public entities. As of September 30, 2011 and December 31, 2010, CDARS deposits totaled $47.3 million and $13.6 million, respectively.

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     Borrowings The Company’s borrowings amounted to $568.3 million at September 30, 2011, a decrease of $2.8 million from December 31, 2010. The following table shows the balance of borrowings at the periods indicated:
Table 7 — Borrowings by Category
                         
    September 30,     December 31,        
    2011     2010     % Change  
    (Dollars in Thousands)          
Federal Home Loan Bank Advances
  $ 257,873     $ 302,414       -14.7 %
Fed Funds Purchased and Assets Sold Under Repurchase Agreements
    216,331       168,119       28.7 %
Junior Subordinated Debentures
    61,857       61,857       0.0 %
Subordinated Debentures
    30,000       30,000       0.0 %
Other Borrowings
    2,203       3,044       -27.6 %
               
TOTAL BORROWINGS
  $ 568,264     $ 565,434       0.5 %
               
     Capital Resources The Federal Reserve, the FDIC, and other regulatory agencies have established capital guidelines for banks and bank holding companies. Risk-based capital guidelines issued by the federal regulatory agencies require banks to meet a minimum Tier 1 risk-based capital ratio of 4.0% and a total risk-based capital ratio of 8.0%. A minimum requirement of 4.0% Tier 1 leverage capital is also mandated. At September 30, 2011, the Company and the Bank exceeded the minimum requirements for Tier 1 risk-based, total risk-based capital, and Tier 1 leverage capital.

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     The Company’s and the Bank’s actual capital amounts and ratios are also presented in the following table:
Table 8 — Company and Bank’s Capital Amounts and Ratios
                                                 
    September 30, 2011  
                                    To Be Well Capitalized  
                    For Capital     Under Prompt Corrective  
    Actual     Adequacy Purposes     Action Provisions  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
                    (Dollars in Thousands)                  
Company: (Consolidated)
                                               
Total capital (to risk weighted assets)
  $ 475,442       12.67 %   $ 300,157 ≥       8.0 %     N/A       N/A  
Tier 1 capital (to risk weighted assets)
    398,532       10.62     $ 150,079 ≥       4.0       N/A       N/A  
Tier 1 capital (to average assets)
    398,532       8.59       185,680 ≥       4.0       N/A       N/A  
Bank:
                                               
Total capital (to risk weighted assets)
  $ 454,517       12.11 %   $ 300,178 ≥       8.0 %   $ 375,223 ≥       10.0 %
Tier 1 capital (to risk weighted assets)
    377,604       10.06     $ 150,089 ≥       4.0     $ 225,134 ≥       6.0  
Tier 1 capital (to average assets)
    377,604       8.13       185,785 ≥       4.0       232,231 ≥       5.0  
                                                 
                    December 31, 2010                  
 
Company: (Consolidated)
                                               
Total capital (to risk weighted assets)
  $ 444,963       12.37 %   $ 287,846 ≥       8.0 %     N/A       N/A  
Tier 1 capital (to risk weighted assets)
    369,965       10.28       143,923 ≥       4.0       N/A       N/A  
Tier 1 capital (to average assets)
    369,965       8.19       180,784 ≥       4.0       N/A       N/A  
Bank:
                                               
Total capital (to risk weighted assets)
  $ 429,304       11.92 %   $ 288,098 ≥       8.0 %   $ 360,123 ≥       10.0 %
Tier 1 capital (to risk weighted assets)
    354,267       9.84       144,049 ≥       4.0       216,074 ≥       6.0  
Tier 1 capital (to average assets)
    354,267       7.83       181,039 ≥       4.0       226,299 ≥       5.0  
     On September 15, 2011 the Company’s Board of Directors declared a cash dividend of $0.19 per share to stockholders of record as of the close of business on September 26, 2011. This dividend was paid on October 7, 2011. For the quarter ended September 30, 2011, the dividend payout ratio amounted to 34.1%.
Investment Management
     As of September 30, 2011, the Rockland Trust Investment Management Group had assets under administration of $1.6 billion representing approximately 3,550 trust, fiduciary, and agency accounts. At December 31, 2010, assets under administration were $1.6 billion, representing approximately 3,181 trust, fiduciary, and agency accounts. Included in these amounts as of September 30, 2011 and December 31, 2010 are assets under administration of $102.8 million and $103.6 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which was established in 2010 and provides institutional quality investment management services to institutional and high net

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worth clients. Revenue from the Investment Management Group amounted to $3.0 million and $9.2 million for the three and nine months ended September 30, 2011, respectively, compared to $2.5 million and $7.7 million for the three and nine months ended September 30, 2010, respectively.
     Additionally, for the three and nine months ended September 30, 2011, retail investments and insurance revenue was $438,000 and $1.1 million respectively compared to $343,000 and $1.1 million for the three and nine months ended September 30, 2010. Retail investments and insurance includes revenue from LPL Financial and its affiliates, LPL Insurance Associates, Inc., and Savings Bank Life Insurance of Massachusetts.
Mortgage Banking
     The Bank originates residential loans for both its portfolio and with the intention of selling them in the secondary market. The Bank’s mortgage banking income consists primarily of revenue from premiums received on loans sold with servicing released, origination fees, and gains and losses on sold mortgages less related commission expense. The gains and losses resulting from the sales of loans with servicing retained are adjusted to recognize the present value of future servicing fee income over the estimated lives of the related loans. The following table shows the residential loans that were closed, held in the portfolio, and sold or held for sale in the secondary market during the periods indicated:
Table 9 — Residential Real Estate Loans Closed, Held in Portfolio, and Sold or Held for Sale
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Closed
  $ 81,943     $ 109,999     $ 227,404     $ 262,229  
Held in Portfolio
    12,524       15,603       48,042       40,769  
Sold or Held for Sale in the Secondary Market
    69,419       94,396       179,362       221,460  
     Included in the mortgage banking income results is the impact of the Bank’s mortgage servicing assets. Servicing assets are recognized as separate assets when rights are acquired through sale of loans with servicing rights retained. The principal balance of loans serviced by the Bank on behalf of investors amounted to $248.7 million at September 30, 2011 and $279.7 million at December 31, 2010. Upon sale, the mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines

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that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. Servicing rights are recorded in other assets in the consolidated balance sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. The following table shows fair value of the servicing rights associated with these loans and the changes for the periods indicated:
Table 10 — Mortgage Servicing Asset
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Balance at beginning of period
  $ 1,402     $ 2,056     $ 1,619     $ 2,195  
Additions
    13       8       58       36  
Amortization
    (138 )     (164 )     (416 )     (504 )
Change in Valuation Allowance
    (50 )     (196 )     (34 )     (23 )
 
                       
Balance at end of period
  $ 1,227     $ 1,704     $ 1,227     $ 1,704  
 
                       
RESULTS OF OPERATIONS
     The Company’s results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and the interest paid on deposits and borrowings. The results of operations are also affected by the level of income/fees from loans, deposits, mortgage banking and investment management, as well as the level of operating expenses, provision for loan losses, provision for income taxes, and the relative levels of interest rates and economic activity.
     The following table provides a summary of results of operations:
Table 11 — Summary of Results of Operations
                                 
    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands)     (Dollars in Thousands)  
Net Income
  $ 11,959     $ 11,145     $ 34,267     $ 28,402  
Diluted Earnings Per Share
  $ 0.56     $ 0.53     $ 1.60     $ 1.35  
Return on Average Assets
    0.99 %     0.95 %     0.97 %     0.83 %
Return on Average Equity
    10.28 %     10.38 %     10.10 %     8.98 %

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     Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume and mix of interest earning assets and interest bearing liabilities.
     On a fully tax equivalent basis, net interest income for the third quarter of 2011 increased $562,000, or 1.4%, to $42.0 million, when compared to the third quarter of 2010. The Company’s net interest margin was 3.84% for the quarter ended September 30, 2011 as compared to 3.89% for the quarter ended September 30, 2010. The Company’s interest rate spread (the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) was 3.63% and 3.66% for the third quarters of 2011 and 2010, respectively.
     The decline in the net interest margin is primarily due to the continued reduction in interest rates driven by the global economic conditions and a modestly asset sensitive interest rate position.
     The following tables present the Company’s daily average balances, net interest income, interest rate spread, and net interest margin for the three and nine months ending September 30, 2011 and 2010. For purposes of the table and the following discussion, income from interest-earning assets and net interest income are presented on a fully-taxable equivalent basis by adjusting income and yields earned on tax-exempt interest received on securities and loans, to make them equivalent to income and yields on fully-taxable earning assets. The fully-taxable equivalent was calculated using the blended federal and state statutory tax rate:

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Table 12 — Average Balance, Interest Earned/Paid & Average Yields
                                                 
    Three Months Ended September 30,  
    2011     2010  
            Interest                     Interest        
    Average     Earned/     Yield/     Average     Earned/     Yield/  
    Balance     Paid     Rate     Balance     Paid     Rate  
    (Dollar in Thousands)     (Dollar in Thousands)  
INTEREST-EARNING ASSETS
                                               
Interest Earning Deposits with Banks, Federal Funds Sold, and Short Term Investments
  $ 78,285     $ 49       0.25 %   $ 200,862     $ 135       0.27 %
SECURITIES
                                               
Trading Assets
    8,437       72       3.39 %     7,257       61       3.33 %
Taxable Investment Securities
    526,509       4,856       3.66 %     561,240       5,618       3.97 %
Non-taxable Investment Securities (1)
    7,104       133       7.43 %     15,953       277       6.89 %
 
TOTAL SECURITIES
    542,050       5,061       3.70 %     584,450       5,956       4.04 %
LOANS HELD FOR SALE
    12,422       116       3.70 %     15,738       174       4.39 %
LOANS
                                               
Commercial and Industrial
    555,745       5,840       4.17 %     440,539       5,077       4.57 %
Commercial Real Estate (1)
    1,800,914       23,496       5.18 %     1,641,627       23,736       5.74 %
Commercial Construction
    129,540       1,495       4.58 %     148,151       1,792       4.80 %
Small Business
    77,850       1,141       5.81 %     80,740       1,221       6.00 %
 
TOTAL COMMERCIAL
    2,564,049       31,972       4.95 %     2,311,057       31,826       5.46 %
Residential Real Estate
    450,225       4,915       4.33 %     525,003       6,174       4.67 %
Residential Construction
    6,735       73       4.30 %     4,874       63       5.13 %
Consumer — Home Equity
    638,991       6,103       3.79 %     507,308       4,914       3.84 %
 
TOTAL CONSUMER REAL ESTATE
    1,095,951       11,091       4.01 %     1,037,185       11,151       4.27 %
TOTAL OTHER CONSUMER
    49,864       978       7.78 %     82,130       1,593       7.70 %
 
TOTAL LOANS
    3,709,864       44,041       4.71 %     3,430,372       44,570       5.15 %
 
TOTAL INTEREST EARNING ASSETS
    4,342,621       49,267       4.50 %     4,231,422       50,835       4.77 %
 
CASH AND DUE FROM BANKS
    57,103                       55,357                  
FEDERAL HOME LOAN BANK STOCK
    35,854                       35,854                  
OTHER ASSETS
    345,400                       323,523                  
 
TOTAL ASSETS
  $ 4,780,978                     $ 4,646,156                  
 
 
                                               
INTEREST-BEARING LIABILITIES
                                               
DEPOSITS
                                               
Savings and Interest Checking Accounts
  $ 1,364,307     $ 839       0.24 %   $ 1,220,073     $ 1,040       0.34 %
Money Market
    723,736       763       0.42 %     757,154       1,058       0.55 %
Time Deposits
    659,154       1,817       1.09 %     805,825       2,703       1.33 %
 
TOTAL INTEREST-BEARING DEPOSITS
    2,747,197       3,419       0.49 %     2,783,052       4,801       0.68 %
BORROWINGS
                                               
Federal Home Loan Bank Borrowings
    261,681       1,814       2.75 %     302,610       2,372       3.11 %
Federal Funds Purchased and Assets Sold
                                               
Under Repurchase Agreement
    201,588       559       1.10 %     179,983       740       1.63 %
Junior Subordinated Debentures
    61,857       922       5.91 %     61,857       931       5.97 %
Subordinated Debentures
    30,000       547       7.23 %     30,000       547       7.23 %
Other Borrowings
    2,385             0.00 %     2,602             0.00 %
 
TOTAL BORROWINGS
    557,511       3,842       2.73 %     577,052       4,590       3.16 %
 
TOTAL INTEREST-BEARING LIABILITIES
    3,304,708       7,261       0.87 %     3,360,104       9,391       1.11 %
 
DEMAND DEPOSITS
    944,518                       796,205                  
OTHER LIABILITIES
    70,380                       63,790                  
 
TOTAL LIABILITIES
    4,319,606                       4,220,099                  
STOCKHOLDERS’ EQUITY
    461,372                       426,057                  
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 4,780,978                     $ 4,646,156                  
 
 
                                               
NET INTEREST INCOME
          $ 42,006                     $ 41,444          
 
 
                                               
INTEREST RATE SPREAD (2)
                    3.63 %                     3.66 %
 
 
                                               
NET INTEREST MARGIN (3)
                    3.84 %                     3.89 %
 
 
                                               
Supplemental Information:
                                               
Total Deposits, including Demand Deposits
  $ 3,691,715     $ 3,419             $ 3,579,257     $ 4,801          
Cost of Total Deposits
                    0.37 %                     0.53 %
Total Funding Liabilities, including Demand Deposits
  $ 4,249,226     $ 7,261             $ 4,156,309     $ 9,391          
Cost of Total Funding Liabilities
                    0.68 %                     0.90 %
 
(1)   The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $332 and $247 for the three months ended September 30, 2011 and 2010, respectively.
 
(2)   Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
 
(3)   Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Table 13 — Average Balance, Interest Earned/Paid & Average Yields
                                                 
    Nine Months Ended September 30,  
    2011     2010  
            Interest                     Interest        
    Average     Earned/     Yield/     Average     Earned/     Yield/  
    Balance     Paid     Rate     Balance     Paid     Rate  
    (Dollar in Thousands)     (Dollar in Thousands)  
INTEREST-EARNING ASSETS
                                               
Interest Earning Deposits with Banks, Federal Funds Sold, and Short Term Investments
  $ 43,181     $ 80       0.25 %   $ 138,319     $ 267       0.26 %
SECURITIES
                                               
Trading Assets
    8,388       206       3.28 %     7,143       183       3.43 %
Taxable Investment Securities
    550,425       15,573       3.78 %     562,422       18,093       4.30 %
Non-taxable Investment Securities (1)
    8,619       484       7.50 %     17,582       936       7.12 %
 
TOTAL SECURITIES
    567,432       16,263       3.83 %     587,147       19,212       4.37 %
LOANS HELD FOR SALE
    11,750       305       3.47 %     10,204       390       5.11 %
LOANS
                                               
Commercial and Industrial
    530,774       16,951       4.27 %     406,838       14,051       4.62 %
Commercial Real Estate (1)
    1,779,379       70,310       5.28 %     1,639,380       70,833       5.78 %
Commercial Construction
    127,285       4,388       4.61 %     161,823       5,967       4.93 %
Small Business
    79,314       3,471       5.85 %     81,506       3,639       5.97 %
 
TOTAL COMMERCIAL
    2,516,752       95,120       5.05 %     2,289,547       94,490       5.52 %
Residential Real Estate
    458,609       15,481       4.51 %     536,918       19,424       4.84 %
Residential Construction
    5,005       172       4.59 %     7,146       276       5.16 %
Consumer — Home Equity
    622,952       17,645       3.79 %     492,048       14,140       3.84 %
 
TOTAL CONSUMER REAL ESTATE
    1,086,566       33,298       4.10 %     1,036,112       33,840       4.37 %
TOTAL OTHER CONSUMER
    56,688       3,305       7.79 %     93,232       5,388       7.73 %
 
TOTAL LOANS
    3,660,006       131,723       4.81 %     3,418,891       133,718       5.23 %
 
TOTAL INTEREST EARNING ASSETS
    4,282,369       148,371       4.63 %     4,154,561       153,587       4.94 %
 
CASH AND DUE FROM BANKS
    55,101                       64,314                  
FEDERAL HOME LOAN BANK STOCK
    35,854                       35,854                  
OTHER ASSETS
    329,456                       310,992                  
 
TOTAL ASSETS
  $ 4,702,780                     $ 4,565,721                  
 
 
                                               
INTEREST-BEARING LIABILITIES
                                               
DEPOSITS
                                               
Savings and Interest Checking Accounts
  $ 1,340,077     $ 2,449       0.24 %   $ 1,153,459     $ 3,521       0.41 %
Money Market
    723,675       2,362       0.44 %     740,128       3,699       0.67 %
Time Deposits
    667,279       5,636       1.13 %     845,631       9,005       1.42 %
 
TOTAL INTEREST-BEARING DEPOSITS
    2,731,031       10,447       0.51 %     2,739,218       16,225       0.79 %
BORROWINGS
                                               
Federal Home Loan Bank Borrowings
    291,103       5,468       2.51 %     322,221       7,196       2.99 %
Federal Funds Purchased and Assets Sold
                                               
Under Repurchase Agreement
    187,221       1,867       1.33 %     182,456       2,391       1.75 %
Junior Subordinated Debentures
    61,857       2,738       5.92 %     61,857       2,744       5.93 %
Subordinated Debentures
    30,000       1,624       7.24 %     30,000       1,624       7.24 %
Other Borrowings
    2,561             0.00 %     2,704             0.00 %
 
TOTAL BORROWINGS
    572,742       11,697       2.73 %     599,238       13,955       3.11 %
 
TOTAL INTEREST-BEARING LIABILITIES
    3,303,773       22,144       0.90 %     3,338,456       30,180       1.21 %
 
DEMAND DEPOSITS
    882,460                       750,895                  
OTHER LIABILITIES
    62,968                       53,622                  
 
TOTAL LIABILITIES
    4,249,201                       4,142,973                  
STOCKHOLDERS’ EQUITY
    453,579                       422,748                  
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 4,702,780                     $ 4,565,721                  
 
 
                                               
NET INTEREST INCOME
          $ 126,227                     $ 123,407          
 
 
                                               
INTEREST RATE SPREAD (2)
                    3.74 %                     3.73 %
 
 
                                               
NET INTEREST MARGIN (3)
                    3.94 %                     3.97 %
 
 
                                               
Supplemental Information:
                                               
Total Deposits, including Demand Deposits
  $ 3,613,491     $ 10,447             $ 3,490,113     $ 16,225          
Cost of Total Deposits
                    0.39 %                     0.62 %
Total Funding Liabilities, including Demand Deposits
  $ 4,186,233     $ 22,144             $ 4,089,351     $ 30,180          
Cost of Total Funding Liabilities
                    0.71 %                     0.99 %
 
(1)   The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1,004 and $833 for the nine months ended September 30, 2011 and 2010, respectively.
 
(2)   Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
 
(3)   Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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     The following table presents certain information on a fully tax-equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in rate (change in rate multiplied by old volume), (2) changes in volume (change in volume multiplied by old rate), and (3) changes in volume/rate (change in volume multiplied by change in rate) which is allocated to the change due to rate column:
Table 14 — Volume Rate Analysis
                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2011 Compared to 2010     2011 Compared to 2010  
    Change     Change             Change     Change        
    Due to     Due to     Total     Due to     Due to     Total  
    Rate (1)     Volume     Change     Rate (1)     Volume     Change  
    (Dollars in Thousands)     (Dollars in Thousands)  
INCOME ON INTEREST-EARNING ASSETS:
                                               
INTEREST EARNING DEPOSITIS WITH BANKS, FEDERAL FUNDS SOLD AND SHORT TERM INVERSTMENTS
  $ (4 )   $ (82 )   $ (86 )   $ (3 )   $ (184 )   $ (187 )
SECURIITIES:
                                               
Taxable Securities
    (414 )     (348 )     (762 )     (2,134 )     (386 )     (2,520 )
Non-Taxable Securities (2)
    10       (154 )     (144 )     25       (477 )     (452 )
Trading Assets
    1       10       11       (9 )     32       23  
 
TOTAL SECURITIES
    (403 )     (492 )     (895 )     (2,118 )     (831 )     (2,949 )
LOANS HELD FOR SALE
    (21 )     (37 )     (58 )     (144 )     59       (85 )
LOANS (2)(3)
    (4,160 )     3,631       (529 )     (11,425 )     9,430       (1,995 )
 
TOTAL
  $ (4,588 )   $ 3,020     $ (1,568 )   $ (13,690 )   $ 8,474     $ (5,216 )
 
 
                                               
EXPENSE OF INTEREST-BEARING LIABILITIES:
                                               
DEPOSITS:
                                               
Savings and Interest Checking Accounts
  $ (324 )   $ 123     $ (201 )   $ (1,642 )   $ 570     $ (1,072 )
Money Market
    (248 )     (47 )     (295 )     (1,255 )     (82 )     (1,337 )
Time Deposits
    (394 )     (492 )     (886 )     (1,470 )     (1,899 )     (3,369 )
 
TOTAL INTEREST-BEARING DEPOSITS
    (966 )     (416 )     (1,382 )     (4,367 )     (1,411 )     (5,778 )
BORROWINGS:
                                               
Federal Home Loan Bank Borrowings
  $ (237 )   $ (321 )   $ (558 )   $ (1,033 )   $ (695 )   $ (1,728 )
Federal Funds Purchased and Assets Sold Under Repurchase Agreements
    (270 )     89       (181 )     (586 )     62       (524 )
Junior Subordinated Debentures
    (9 )           (9 )     (6 )           (6 )
Subordinated Debentures
                                   
Other Borrowings
                                   
 
TOTAL BORROWINGIS
    (516 )     (232 )     (748 )     (1,625 )     (633 )     (2,258 )
 
TOTAL
  $ (1,482 )   $ (648 )   $ (2,130 )   $ (5,992 )   $ (2,044 )   $ (8,036 )
 
CHANGE IN NET INTEREST INCOME
  $ (3,106 )   $ 3,668     $ 562     $ (7,698 )   $ 10,518     $ 2,820  
 
 
(1)   The changes for each category of interest income and expense are divided between the portion of change attributable to the variances in volume and the portion of the change attributable to the variances in rate for that category. The unallocated change in rate or volume variance has been allocated to the rate variances.
 
(2)   The total amount of the adjustment to present income and yield on a fully tax-equivalent basis is $332 and $247 for the three months ended September 30, 2011 and 2010, respectively and $1,004 and $833 for the nine months ended September 30, 2011 and 2010, respectively.
 
(3)   Loans include portfolio loans, and nonperforming loans; however unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.
     Provision For Loan Losses The provision for loan losses represents the charge to expense that is required to maintain an adequate level of allowance for loan losses. The provision for loan losses totaled $2.0 million and $7.7 million for the three and nine months ended September 30, 2011, compared with $3.5 million and $15.1 million for the comparable year-ago periods. The Company’s allowance for loan losses, as a percentage of total loans, was 1.27% at September 30, 2011 compared to 1.30% at December 31, 2010 and 1.34% at September 30, 2010. For the three and nine months ended September 30, 2011, net loan charge-offs totaled $1.4 million and $6.7 million, respectively, a decrease of $1.8 million and $5.2 million from the year ago comparative periods. While the total loan portfolio increased by 4.7% at September 30, 2011, as compared to December 31, 2010, the Company’s solid credit

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profile and decreased charge-offs led to lower provisioning levels in the first nine months of 2011.
     Although the economic environment remains challenging, regional and local general economic conditions continued to show gradual improvement during the third quarter, as measured in terms of employment levels, statewide economic activity, and other regional economic indicators. Local residential real estate market fundamentals were mixed during the third quarter of 2011, characterized by a higher level of home sales compared to the same period in 2010 but lower median sales prices. Additionally, foreclosure activity in Massachusetts has shown signs of acceleration in the third quarter. Regional commercial real estate market conditions were mixed during the third quarter, with some areas experiencing a continued recovery, and others still exhibiting higher vacancy rates and negative absorption. Leading economic indicators signal continued economic improvement through the remainder of 2011, however uncertainty persists and growth is expected to be slow.
     Management’s periodic evaluation of the adequacy of the allowance for loan losses considers past loan loss experience, known and inherent risks in the loan portfolio, adverse situations which may affect the borrowers’ ability to repay, the estimated value of the underlying collateral, if any, and current and prospective economic conditions. Substantial portions of the Bank’s loans are secured by real estate in Massachusetts. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changes in property values within the state.
     Non-Interest Income The following table sets forth information regarding non-interest income for the periods shown:
Table 15 — Non-Interest Income
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
     
    (Dollars In Thousands)     (Dollars In Thousands)  
Service Charges on Deposit Accounts
  $ 4,223     $ 3,178     $ 12,374     $ 9,566  
Interchange and ATM Fees
    2,005       1,263       5,681       3,611  
Investment Management
    3,491       2,851       10,310       8,768  
Mortgage Banking
    907       1,469       2,637       3,091  
Bank Owned Life Insurance
    757       901       2,323       2,353  
Net Gain(Loss) on Sales of Securities Available for Sale
          (22 )     723       458  
Gross Change on Write-Down of Certain Investments to Fair Value
    (318 )     207       101       325  
Less: Portion of Other-Than-Temporary Impairment Loses Recognized in Other Comprehensive Income
    290       (214 )     (305 )     (594 )
     
Net Loss on Write-Down of Certain Investments to Fair Value
    (28 )     (7 )     (204 )     (269 )
Other Non-Interest Income
    960       2,021       4,542       5,065  
     
TOTAL
  $ 12,315     $ 11,654     $ 38,386     $ 32,643  
     
     Non-interest income increased by $661,000, or 5.7%, and by $5.7 million, or 17.6%, during the three and nine months ended September 30, 2011, as compared to the same periods in the prior year. The change in non-interest income is attributable to the following:

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     Service charges on deposit accounts increased $1.0 million, or 32.9%, and $2.8 million, or 29.4% during the three and nine months ended September 30, 2011, as compared to the same periods in 2010, primarily due to increased customer utilization of the Bank’s overdraft privilege program.
     Interchange and ATM fees increased by $742,000, or 58.8%, and $2.1 million, or 57.3% during the three and nine months ended September 30, 2011, mainly due to the reclassification of certain net interchange revenue as other non-interest income. Previously, the net amount was recorded in non-interest expense.
     Investment management revenue increased by $640,000, or 22.5%, and $1.5 million, or 17.6% during the three and nine months ended September 30, 2011, as compared to the same period in the prior year. This increase is mainly due to increases in assets under administration, which were $1.6 billion at September 30, 2011, an increase of $98.5 million, or 6.7%, as compared to the same period in the prior year. The increase is due to the general increases in the stock market in these comparable periods and net new client asset flows.
     Mortgage banking decreased by $562,000, or 38.3%, and $454,000, or 14.7% during the three and nine months ended September 30, 2011, primarily driven by lower volume.
     Other non-interest income decreased by $1.1 million, or 52.5%, and $523,000, or 10.3% during the three and nine months ended September 30, 2011. The decreases year to date are mainly associated with losses on the Company’s trading securities and a decrease in revenues from the loan level interest rate derivatives.
     Non-Interest Expense The following table sets forth information regarding non-interest expense for the periods shown:
Table 16 — Non-Interest Expense
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
     
    (Dollars in Thousands)     (Dollars in Thousands)  
Salaries and Employee Benefits
  $ 20,568     $ 19,792     $ 60,582     $ 56,662  
Occupancy and Equipment Expenses
    4,107       3,839       12,946       12,068  
Data Processing and Facilities Management
    1,152       1,404       3,828       4,195  
Advertising
    703       469       3,247       1,699  
FDIC Assessment
    691       1,352       2,760       3,944  
Consulting Expense
    685       803       1,715       1,600  
OREO Valuation Write-Off
    656       189       1,461       272  
Legal Fees
    580       720       1,647       2,575  
Telephone
    522       513       1,584       1,591  
Other Non-Interest Expense
    5,759       5,459       18,990       18,452  
     
TOTAL
  $ 35,423     $ 34,540     $ 108,760     $ 103,058  
     
     Non-interest expense increased by $883,000, or 2.6%, and by $5.7 million, or 5.5%, during the three and nine months ended September 30, 2011, as compared to the same periods in the prior year. The change in non-interest expense is attributable to the following:

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     Salaries and employee benefits increased by $776,000, or 3.9%, and $3.9 million, or 6.9% during the three and nine months ended September 30, 2011, as compared to the same periods in 2010, with the increase attributable to salary merit increases, incentive programs, equity compensation plans, and expansion of the commercial banking business to support growth initiatives.
     Occupancy and equipment expense increased by $268,000, or 7.0%, and by $878,000, or 7.3%, during the three and nine months ended September 30, 2011. The increase for the three month period is mainly due to increased losses on fixed assets and for the nine month period the increase is mainly due to snow removal costs incurred during the first quarter of 2011.
     Data processing and facilities management expense decreased by $252,000, or 18.0%, and by $367,000, or 8.8%, during the three and nine months ended September 30, 2011, due primarily to a change to a lower cost service provider.
     Advertising expense increased by $234,000, or 49.9%, and by $1.5 million, or 91.1%, during the three and nine months ended September 30, 2011. The large increase is due to a major advertising campaign including television, radio and billboard advertisements in 2011.
     FDIC Assessment decreased by $661,000, or 48.9%, and by $1.2 million, or 30.0%, during the three and nine months ended September 30, 2011 due to a lower assessment rate that became effective during the second quarter.
     Other non-interest expense increased by $300,000, or 5.5%, and by $538,000, or 2.9%, during the three and nine months ended September 30, 2011, primarily due to increases in credit-related loan workout costs and the reclassification of debit card processing fees to other non-interest income for amounts that were previously recorded net in non-interest expense offset by lower loan level derivative expense.
     Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. For the three months ended September 30, 2011 and 2010, the Company recorded combined federal and state income tax provisions of $4.6 million and $3.7 million equating to an effective tax rate of 27.8% and 24.8%, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded combined federal and state income tax provisions of $12.9 million and $8.7 million equating to an effective tax rate of 27.4% and 23.4%, respectively. The Company’s effective rates for each year were lower than the blended federal and state statutory rates of 41.2% and 41.5% for the 2011 and 2010 tax years, attributable to certain tax preference assets such as BOLI, tax exempt bonds, as well as federal tax credits recognized in connection with the New Markets Tax Credit (“NMTC”) program. Effective July 1, 2008 Massachusetts state legislation was passed which enacted corporate tax reform. As a result of that legislation, the state tax rate is being reduced 1.5% over a three year period which began on January 1, 2010 and will result in a blended statutory rate of 40.9% in 2012. The increase in the Company’s effective

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tax rate in 2011 was primarily attributable to a reduction in federal tax credits recognized by the Company in connection with its NMTC program.
     Deferred tax assets generally represent items that can be used as a tax deduction or credit in future income tax returns, for which a financial statement tax benefit has already been recognized. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income to which “carry-back” refund claims could be made. Valuation allowances are established against those deferred tax assets determined not likely to be realized. The Company had no recorded tax valuation allowance as of September 30, 2011 and 2010.
     To date the Company has been awarded a total of $125.0 million in tax credit allocation authority under the Federal New Markets Tax Credit Program. Tax credits are eligible to be recognized over a seven year period totaling 39.0% of the total award, as capital is invested into a subsidiary which will lend to qualifying businesses in low income communities. Accordingly, the Company has received and continues to receive eligible aggregated tax credits totaling $48.8 million. The following table details the tax credit recognition by year associated with this program:
Table 17 — New Markets Tax Credit Recognition Schedule
                                                                                 
                                                                            Total  
Investment     2004 — 2009     2010     2011     2012     2013     2014     2015     2016     Credits  
            (Dollars in Thousands)  
2004
  $ 15M     $ 4,950     $ 900     $     $     $     $     $     $     $ 5,850  
2005
    15M       4,050       900       900                                     5,850  
2007
    38.2M       5,730       2,292       2,292       2,292       2,292                         14,898  
2008
    6.8M       680       340       408       408       408       408                   2,652  
2009
    10M       500       500       500       600       600       600       600             3,900  
2010
    40M             2,000       2,000       2,000       2,400       2,400       2,400       2,400       15,600  
 
TOTAL
  $ 125M     $ 15,910     $ 6,932     $ 6,100     $ 5,300     $ 5,700     $ 3,408     $ 3,000     $ 2,400     $ 48,750  
 
     Market Risk Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices. The Company’s trading operations are limited to the funds held for the purpose of funding an executive non-qualified supplementary retirement plan managed by the Company’s investment management group of $4.8 million and a $3.2 million acquired equities portfolio.
     Interest rate risk is the most significant non-credit risk to which the Company is exposed. Interest rate risk is the sensitivity of income to changes in interest rates. Changes in interest rates, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, as well as other effects.
     The primary goal of interest rate risk management is to control this risk within limits approved by the Board of Directors. These limits reflect the Company’s tolerance for interest

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rate risk over both short-term and long-term horizons. The Company attempts to control interest rate risk by identifying, quantifying, and where appropriate, hedging its exposure. The Company manages its interest rate exposure by using a combination of on and off-balance sheet instruments, primarily fixed rate portfolio securities, and interest rate swaps.
     The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and Economic Value of Equity analysis. Key assumptions in these simulation analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g. DDA, NOW, savings and money market). The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, the resultant interest rate sensitivity of loan assets cannot be determined exactly.
     To mitigate these uncertainties, the Company gives careful attention to its assumptions. In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans.
     The Bank may choose to utilize interest rate swap agreements and interest rate caps and floors to mitigate interest rate risk. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from a second party. Interest rate caps and floors are agreements whereby one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized. The amounts relating to the notional principal amount are not actually exchanged. See Note 7, “Derivatives and Hedging Activities” within Notes to Consolidated Financial Statements included in Item 1 hereof for additional information regarding the Company’s Derivative Financial Instruments.
     The Company manages the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts. An increase in market interest rates between the time the Company commits to terms on a loan and the time the Company ultimately sells the loan in the secondary market will have the effect of reducing the gain (or increasing the loss) the Company records on the sale. The Company attempts to mitigate this risk by entering into forward sales commitments in amounts sufficient to cover all closed loans and interest rate-locked loan commitments.
     The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines, as well as changes in the fair value of trading securities.

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     The Company’s policy on interest rate risk simulation specifies that estimated net interest income for the subsequent 12 months of any simulation should decline by less than 10.0%. The Company was well within policy limits at September 30, 2011 and 2010.
     The following table sets forth the estimated effects on the Company’s net interest income over a 12-month period following the indicated dates in the event of the indicated increases or decreases in market interest rates:
Table 18 — Interest Rate Sensitivity
                         
                    500 Basis Point  
    200 Basis Point     100 Basis Point     Rate Increase  
    Rate Increase     Rate Decrease     Flattening Curve  
September 30, 2011
    2.6 %     0.1 %     3.3 %
September 30, 2010
    1.1 %     0.1 %     1.1 %
     It should be emphasized, however, that the results are dependent on material assumptions such as those discussed above. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits forced the Company to raise rates on those liabilities quicker than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income may be negatively impacted. Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward net interest income would be positively impacted.
     The most significant factors affecting market risk exposure of the Company’s net interest income during the nine months of 2011 were (i) the shape of the U.S. Government securities and interest rate swap yield curve, (ii) the level of U.S. prime interest rate and LIBOR rates, and (iii) the level of interest rates being offered on long-term fixed rate loans.
     Liquidity Risk Liquidity, as it pertains to the Company, is the ability to generate adequate amounts of cash in the most economical way for the institution to meet its ongoing obligations to pay deposit withdrawals and to fund loan commitments. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment and maturities of loans and securities.
     The Bank utilizes its extensive branch network to access retail customers who provide a stable base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors. The Bank has also established repurchase agreements, with major brokerage firms as potential sources of liquidity. At September 30, 2011 the Bank had the following sources of liquidity:
    Outstanding FHLBB borrowings of $257.9 million, with access to $514.4 million additional available borrowing capacity.

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    No outstanding borrowings with the Federal Reserve Bank of Boston with access to $616.1 million of available borrowing capacity.
    Unpledged securities of $115.4 million.
    Outstanding repurchase agreements with major brokerage firms of $50.0 million.
    Outstanding customer repurchase agreements amounting to $166.3 million.
     In connection with the repurchase agreements, the Company had investment securities carried at $228.3 million that were pledged to secure assets sold under these repurchase agreements.
     Also included in borrowings at September 30, 2011, were $61.8 million of junior subordinated debentures, comprised primarily of trust preferred debt issued to the public and $30.0 million of subordinated debt.
     Asset/Liability Management The Bank’s asset/liability management process monitors and manages, among other things, the interest rate sensitivity of the balance sheet, the composition of the securities portfolio, funding needs and sources, and the liquidity position. All of these factors, as well as projected asset growth, current and potential pricing actions, competitive influences, national monetary and fiscal policy, and the regional economic environment are considered in the asset/liability management process.
     The Asset/Liability Management Committee (“ALCO”), whose members are comprised of the Bank’s senior management, develop procedures consistent with policies established by the Board of Directors, which monitor and coordinate the Bank’s interest rate sensitivity and the sources, uses, and pricing of funds. Interest rate sensitivity refers to the Bank’s exposure to fluctuations in interest rates and its effect on earnings. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is management’s objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary, within prudent limits, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors and caps. The ALCO employs simulation analyses in an attempt to quantify, evaluate, and manage the impact of changes in interest rates on the Bank’s net interest income. In addition, the Bank engages an independent consultant to render advice with respect to asset and liability management strategy.
     The Bank is careful to increase deposits without adversely impacting the weighted average cost of those funds. Accordingly, management has implemented funding strategies that include FHLB advances and repurchase agreement lines. These non-deposit funds are also viewed as a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to such funds provides a means to grow the balance sheet.
     The Company actively manages its liquidity position under the direction of the ALCO. Periodic review under prescribed policies and procedures is intended to ensure that the Company will maintain adequate levels of available funds. At September 30, 2011 the Company’s liquidity position was above policy guidelines. Management believes that the Bank has adequate liquidity available to respond to current and anticipated liquidity demands.

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     Off-Balance Sheet Arrangements There have been no material changes in off-balance sheet financial instruments during the nine months ended September 30, 2011. Please refer to the 2010 Form 10-K for a complete table of contractual obligations, commitments, contingencies and off-balance sheet financial instruments.
     Contractual Obligations, Commitments, and Contingencies There have been no material changes in contractual obligations, commitments, or contingencies during the nine months ended September 30, 2011. Please refer to the 2010 Form 10-K for a complete table of contractual obligations, commitments, contingencies, and off-balance sheet financial instruments. Subsequent to September 30, 2011, the Bank entered into an amended and restated contract with an existing vendor that was effective as of October 24, 2011 and described in the Form 8-K filed with the SEC on October 28, 2011.
     Regulatory Update In July 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of implementing rules and regulations, and to prepare numerous studies and reports for Congress.
     The Company continues to review the provisions of the Dodd-Frank Act, monitor its implementation and assess its probable impact on the Company’s business, financial condition, and results of operations. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on the Company in particular, remains uncertain at this time.
     Provisions under the Dodd-Frank Act include:
    Effective July 21, 2011, a provision of the Dodd-Frank Act that eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on the Company’s interest expense.
    The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2013. The Company has begun to see a reduction in the amount of the FDIC assessment as a result of these changes in 2011.
    The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizes the Securities and Exchange Commission to

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      promulgate rules that would allow stockholders to nominate their own board candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not. The Company’s Board has decided to include a proxy vote on executive compensation every year.
    The Dodd-Frank Act broadened the scope of derivative instruments and requires clearing and exchange trading of certain instruments. Furthermore, the Dodd-Frank Act includes capital margin, reporting and registration requirements for derivative participants. Final regulations are in process and the effective date of the changes has been delayed to December 31, 2011.
    The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. Banks and savings institutions with $10 billion or less in assets will continue to be examined for compliance with consumer laws by their primary bank regulators.
    The Dodd-Frank Act requires that the Federal Reserve Board (“FRB”) propose regulations to establish standards for debit card interchange transaction fees. Interchange fees are established by payment card networks and ultimately paid by merchants to debit card issuers for each electronic debit transaction. In accordance with the Dodd-Frank Act, these fees must be reasonable and proportional to the issuer’s cost for processing the transaction. On June 29, 2011, the FRB approved a final debit card interchange regulation which caps an issuer’s base fee at 21 cents per transaction plus an additional fee computed at five basis-points of the transaction value. If an issuer complies with certain fraud-prevention policies, the issuer can charge an additional $0.01 per transaction to cover the costs of the fraud-prevention program. These standards apply to issuers that, together with their affiliates, have assets of $10 billion or more. The effective date of the pricing restrictions is October 1, 2011. The Company’s assets are under $10 billion and therefore not directly impacted by these provisions. The Company is currently assessing the impact of these regulations with their payment card networks as it anticipated that the market will drive the interchange fees down for the Company.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
     Information required by this Item 3 is included in Item 2 of Part I of this Form 10-Q, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 4. Controls and Procedures
     Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
     Changes in Internal Controls over Financial Reporting. There were no changes in our internal control over financial reporting that occurred through the third quarter of 2011 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
     The Company is not involved in any legal proceedings other than routine legal proceedings occurring in the ordinary course of business or other matters not considered to be material. Management believes that those legal proceedings involve, in the aggregate, amounts that are immaterial to the Company’s financial condition and results of operations.
Item 1A. Risk Factors
     As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in Item 1A of our 2010 Annual Report on Form 10-K, which are incorporated herein by reference.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  (a)   Not applicable.
 
  (b)   Not applicable.
 
  (c)   Not applicable
Item 3. Defaults Upon Senior Securities — None
Item 5. Other Information — None
Item 6. Exhibits
Exhibits Index
     
No.   Exhibit
3.(i)
  Restated Articles of Organization, as adopted May 20, 2010, incorporated by reference to Form 8-K filed on May 24, 2010.
 
   
3.(ii)
  Amended and Restated Bylaws of the Company, incorporated by reference to Form 8-K filed on May 24, 2010.
 
   
4.1
  Specimen Common Stock Certificate, incorporated by reference to Form 10-K for the year ended December 31, 1992.
 
   
4.2
  Specimen Preferred Stock Purchase Rights Certificate, incorporated by reference to Form 8-A Registration Statement filed on November 5, 2001.
 
   
4.3
  Indenture of Registrant relating the Junior Subordinated Debt Securities issued to Independent Capital Trust V, is incorporated by reference to Form 10-K for the year ended December 31, 2006 filed on February 28, 2007.
 
   
4.4
  Form of Certificate of Junior Subordinated Debt Security for Independent Capital Trust V (included as Exhibit A to Exhibit 4.9)
 
   
4.5
  Amended and Restated Declaration of Trust for Independent Capital Trust V, incorporated by reference to Form 10-K for the year ended December 31, 2006 filed on February 28, 2007.
 
   
4.6
  Form of Capital Security Certificate for Independent Capital Trust V (included as Exhibit A-1 to Exhibit 4.9).
 
   
4.7
  Guarantee Agreement relating to Independent Capital Trust V, is incorporated by reference to Form 10-K for the year ended December 31, 2006 filed on February 28, 2007.

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No.   Exhibit
4.8
  Forms of Capital Securities Purchase Agreements for Independent Capital Trust V, is incorporated by reference to Form 10-K for the year ended December 31, 2006 filed on February 28, 2007.
 
   
4.9
  Subordinated Debt Purchase Agreement between USB Capital Resources and Rockland Trust Company dated as of August 27, 2008, is incorporated by reference to Form 8-K filed on September 2, 2008.
 
   
4.10
  Rockland Trust Company Employee Savings, Profit Sharing and Stock Ownership Plan, incorporated by reference to Form S-8 filed on April 16, 2010.
 
   
4.11
  Independent Bank Corp. 2010 Dividend Reinvestment and Stock Purchase Plan, incorporated by reference to Form S-3 filed on August 24, 2010.
 
   
10.1
  Independent Bank Corp. 1996 Non-Employee Directors’ Stock Option Plan incorporated by reference to Definitive Proxy Statement for the 1996 Annual Meeting of Stockholders filed on March 19, 1996.
 
   
10.2
  Independent Bank Corp. 1997 Employee Stock Option Plan incorporated by reference to the Definitive Proxy Statement for the 1997 Annual Meeting of Stockholders filed on March 20, 1997.
 
   
10.3
  Independent Bank Corp. 2005 Employee Stock Plan, incorporated by reference to Form S-8 filed on July 28, 2005.
 
   
10.4
  Renewal Rights Agreement dated as of September 14, 2000 by and between the Company and Rockland Trust, as Rights Agent, incorporated by reference to Form 8-K filed on October 23, 2000.
 
   
10.5
  Independent Bank Corp. Deferred Compensation Program for Directors (restated as amended as of December 1, 2000), incorporated by reference to Form 10-K for the year ended December 31, 2000, filed on March 29, 2001.
 
   
10.6
  Master Securities Repurchase Agreement, incorporated by reference to Form S-1 Registration Statement filed on September 18, 1992.
 
   
10.7
  Revised employment agreements between Christopher Oddleifson, Raymond G. Fuerschbach, Edward F. Jankowski, Jane L. Lundquist, Gerard F. Nadeau, Edward H. Seksay, and Denis K. Sheahan and the Company and/or Rockland Trust and a Rockland Trust Company amended and restated Supplemental Executive Retirement Plan dated November 20, 2008, incorporated by reference to Form 8-K filed on November 21, 2008.
 
   
10.8
  Specimen forms of stock option agreements for the Company’s Chief Executive and other executive officers, incorporated by reference to Form 8-K filed on December 20, 2005.
 
   
10.9
  On-Site Outsourcing Agreement by and between Fidelity Information Services, Inc. and Independent Bank Corp., effective as of November 1, 2004, incorporated by reference to Form 10-K for the year ended December 31, 2004 filed on March 4, 2005. Amendment to On-Site Outsourcing Agreement, incorporated by reference to Form 8-K filed on May 7, 2008.

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No.   Exhibit
10.10
  New Markets Tax Credit program Allocation Agreement between the Community Development Financial Institutions Fund of the United States Department of the Treasury and Rockland Community Development with an Allocation Effective Date of September 22, 2004, incorporated by reference to Form 8-K filed on October 14, 2004.
 
   
10.11
  Independent Bank Corp. 2006 Non-Employee Director Stock Plan, incorporated by reference to Form S-8 filed on April 17, 2006.
 
   
10.12
  Independent Bank Corp. 2006 Stock Option Agreement for Non-Employee Director, incorporated by reference to Form 10-Q filed on May 9, 2006.
 
   
10.13
  Independent Bank Corp. 2006 Restricted Stock Agreement for Non-Employee Director, incorporated by reference to Form 10-Q filed on May 9, 2006.
 
   
10.14
  New Markets Tax Credit program Allocation Agreement between the Community Development Financial Institutions Fund of the United States Department of the Treasury and Rockland Community Development with an Allocation Effective Date of January 9, 2007, is incorporated by reference to Form 10-K for the year ended December 31, 2006 filed on February 28, 2007.
 
   
10.15
  New Markets Tax Credit program Allocation Agreement between the Community Development Financial Institutions Fund of the United States Department of the Treasury and Rockland Community Development with an Allocation Effective Date of June 18, 2009, incorporated by reference to Form 10-Q filed on November 5, 2009.
 
   
10.16
  Item Processing and Other Services Agreement dated and effective as of July 1, 2010 by and between Fidelity Information Services, Inc. and Independent Bank Corp., incorporated by reference to Form 10-Q filed August 5, 2010.
 
   
10.17
  Independent Bank Corp. 2010 Non-Employee Director Stock Plan, incorporated by reference to Form 8-K filed May 24, 2010.
 
   
10.18
  Independent Bank Corp. 2010 Stock Option Agreement for Non-Employee Director, incorporated by reference to Form 8-K filed May 24, 2010.
 
   
10.20
  Independent Bank Corp. 2010 Restricted Stock Agreement for Non-Employee Director, incorporated by reference to Form 8-K filed May 24, 2010.
 
   
10.21
  Independent Bank Corp. amendment to the Amended and Restated 2005 Employee Stock Plan, incorporated by reference to Form S-8 filed on June 17, 2011.
 
   
10.22
  Independent Bank Corp. and Rockland Trust company Executive Officer Performance Incentive Plan, incorporated by reference to Form 8-K filed on April 20, 2011.
 
   
31.1
  Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.*
 
   
31.2
  Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.*

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No.   Exhibit
32.1
  Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
 
   
32.2
  Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
 
   
101.INS
  XBRL Instance Document +
101.SCH
  XBRL Taxonomy Extension Schema Document +
101.CAL
  XBRL Taxonomy Extension Calculation Linkbase Document +
101.LAB
  XBRL Taxonomy Extension Label Linkbase Document +
101.PRE
  XBRL Taxonomy Extension Presentation Linkbase Document +
101.DEF
  XBRL Taxonomy Extension Definition Linkbase Document +
 
*   Filed herewith
 
+   Furnished herewith

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INDEPENDENT BANK CORP.
(registrant)
         
     
Date: November 4, 2011  /s/ Christopher Oddleifson    
  Christopher Oddleifson   
  President and Chief Executive Officer
(Principal Executive Officer) 
 
     
Date: November 4, 2011  /s/ Denis K. Sheahan    
  Denis K. Sheahan   
  Chief Financial Officer
(Principal Financial Officer) 
 
 
INDEPENDENT BANK CORP.
(registrant)

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