Edgar Filing: INDEPENDENT BANK CORP

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FORM 10-Q

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 March 31, 2012

Commission File Number: 1-9047

Independent Bank Corp.

(Exact name of registrant as specified in its charter)

Massachusetts

04-2870273

(State or other jurisdiction of

incorporation or organization)

(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 x No ¨

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 x No ¨

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 1, 2012, there were 21,620,896 shares of the issuer’s common stock outstanding, par value $0.01 per share.

INDEX


		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets -		3
	March 31, 2012 and December 31, 2011
	Consolidated Statements of Income -		4
	Three months ended March 31, 2012 and 2011
	Consolidated Statements of Other Comprehensive Income		5
	Three months ended March 31, 2012 and 2011
	Consolidated Statements of Stockholders’ Equity -		6
	Three months ended March 31, 2012 and 2011
	Consolidated Statements of Cash Flows -		7
	Three months ended March 31, 2012 and 2011
	Notes to Consolidated Financial Statements – March 31, 2012

	Note 1 - Basis of Presentation		8
	Note 2 - Recent Accounting Standards		9
	Note 3 - Securities		10
	Note 4 - Loans, Allowance for Loan Losses, and Credit Quality		16
	Note 5 - Earnings Per Share		29
	Note 6 - Stock Based Compensation		29
	Note 7 - Derivative and Hedging Activities		30
	Note 8 - Fair Value Measurements		37
	Note 9 - Comprehensive Income/(Loss)		47
	Note 10 - Subsequent Event		48

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		49
	Table 1 - Nonperforming Assets/Loans		65
	Table 2 - Troubled Debt Restructurings		66
	Table 3 - Interest Income Recognized/Collected on Nonaccrual Loans And Troubled Debt Restructurings		66
	Table 4 - Potential Problem Commercial Loans		67
	Table 5 - Summary of Changes in the Allowance for Loan Losses		69
	Table 6 - Summary of Allocation of the Allowance for Loan Losses		70
	Table 7 - Borrowings		72
	Table 8 - Company and Bank’s Capital Amounts and Ratios		73
	Table 9 - Closed Residential Real Estate Loans		74
	Table 10 - Mortgage Servicing Asset		74
	Table 11 - Summary of Results of Operations		75
	Table 12 - Average Balance, Interest Earned/Paid & Average Yields		77
	Table 13 - Volume Rate		78
	Table 14 - Noninterest Income		80
	Table 15 - Noninterest Expense		81
	Table 16 - Tax Provision and Applicable Tax Rates		82
	Table 17 - New Markets Tax Credit Recognition Schedule		82
	Table 18 - Interest Rate Sensitivity		85
	Table 19 - Sources of Liquidity		88

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		89
Item 4.	Controls and Procedures		89

PART II. OTHER INFORMATION			89
Item 1.	Legal Proceedings		89
Item 1A.	Risk Factors		90


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 3.	Defaults Upon Senior Securities	90
Item 4.	Mine Safety Disclosures	90
Item 5.	Other Information	90
Item 6.	Exhibits	90

Signatures		94
Exhibit 31.1 – Certification 302		95
Exhibit 31.2 – Certification 302		97
Exhibit 32.1 – Certification 906		99
Exhibit 32.2 – Certification 906		100

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT BANK CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited - Dollars in Thousands)


	March 31, 2012			December 31, 2011
ASSETS
CASH AND DUE FROM BANKS	$	57,658		$	58,301
INTEREST EARNING DEPOSITS WITH BANKS		75,865			179,203
FEDERAL FUNDS SOLD		2,269			—
SECURITIES:
Trading Securities		—			8,240
Securities Available for Sale		362,109			305,332
Securities Held to Maturity (fair value $208,028 and $211,494)		200,921			204,956

TOTAL SECURITIES		563,030			518,528

LOANS HELD FOR SALE (at fair value)		22,846			20,500
LOANS:
Commercial and Industrial		599,603			575,716
Commercial Real Estate		1,853,711			1,847,654
Commercial Construction		148,034			128,904
Small Business		79,937			78,509
Residential Real Estate		402,910			416,570
Residential Construction		13,291			9,631
Home Equity - 1st Position		425,245			381,766
Home Equity - 2nd Position		310,578			314,297
Consumer - Other		36,447			41,343

TOTAL LOANS		3,869,756			3,794,390
Less: Allowance for Loan Losses		(48,340	)		(48,260	)

NET LOANS		3,821,416			3,746,130

FEDERAL HOME LOAN BANK STOCK		33,564			35,854
BANK PREMISES AND EQUIPMENT, NET		49,678			48,252
GOODWILL		130,074			130,074
IDENTIFIABLE INTANGIBLE ASSETS		10,249			10,648
CASH SURRENDER VALUE OF LIFE INSURANCE POLICIES		86,945			86,137
OTHER REAL ESTATE OWNED & OTHER FORECLOSED ASSETS		7,689			6,924
OTHER ASSETS		124,456			129,689

TOTAL ASSETS	$	4,985,739		$	4,970,240


LIABILITIES AND STOCKHOLDERS’ EQUITY
DEPOSITS:
Demand Deposits	$	1,015,231		$	992,418
Savings and Interest Checking Accounts		1,501,826			1,473,812
Money Market		803,744			780,437
Time Certificates of Deposit Over $100,000		227,239			225,099
Other Time Certificates of Deposits		397,673			405,063

TOTAL DEPOSITS		3,945,713			3,876,829

BORROWINGS:
Federal Home Loan Bank and Other Borrowings		194,580			229,701
Wholesale Repurchase Agreements		50,000			50,000
Customer Repurchase Agreements		147,678			166,128
Junior Subordinated Debentures		61,857			61,857
Subordinated Debentures		30,000			30,000

TOTAL BORROWINGS		484,115			537,686

OTHER LIABILITIES		77,048			86,668

TOTAL LIABILITIES		4,506,876			4,501,183

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 : 21,608,285 Shares at March 31, 2012 and 21,499,768 Shares at December 31, 2011 (includes 274,790 and 235,540 shares of unvested participating restricted stock awards, respectively)		213			213
Shares Held in Rabbi Trust at Cost 175,604 Shares at March 31, 2012 and 180,058 Shares at December 31, 2011		(2,996	)		(2,980	)
Deferred Compensation Obligation		2,996			2,980
Additional Paid in Capital		235,381			233,878
Retained Earnings		247,097			239,452
Accumulated Other Comprehensive Loss, Net of Tax		(3,828	)		(4,486	)

TOTAL STOCKHOLDERS’ EQUITY		478,863			469,057

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,985,739		$	4,970,240

The accompanying notes are an integral part of these consolidated financial statements.

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - Dollars in Thousands, Except Per Share Data)


	Three Months Ended March 31,
	2012			2011

INTEREST INCOME:
Interest on Loans	$	43,077		$	43,216
Taxable Interest and Dividends on Securities		4,527			5,493
Non-taxable Interest and Dividends on Securities		29			113
Interest on Loans Held for Sale		130			119
Interest on Federal Funds Sold		33			17

TOTAL INTEREST AND DIVIDEND INCOME		47,796			48,958

INTEREST EXPENSE:
Interest on Deposits		2,739			3,485
Interest on Borrowings		3,204			4,000

TOTAL INTEREST EXPENSE		5,943			7,485

NET INTEREST INCOME		41,853			41,473

PROVISION FOR LOAN LOSSES		1,600			2,200

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		40,253			39,273

NONINTEREST INCOME:
Service Charges on Deposit Accounts		3,889			3,959
Interchange and ATM Fees		2,368			1,702
Investment Management		3,563			3,216
Mortgage Banking Income		1,330			1,047
Increase in Cash Surrender Value of Life Insurance Policies		713			706
Gross Change on Write-Down of Certain Investments to Fair Value		274			249
Less: Portion of OTTI Losses Recognized in OCI		(274	)		(289	)

Net Loss on Write-Down of Certain Investments to Fair Value		—			(40	)
Other Noninterest Income		2,046			2,008

TOTAL NONINTEREST INCOME		13,909			12,598

NONINTEREST EXPENSES:
Salaries and Employee Benefits		21,436			20,252
Occupancy and Equipment Expenses		4,300			4,575
Data Processing & Facilities Management		1,175			1,638
FDIC Assessment		749			1,291
Advertising Expense		738			938
Legal Fees		647			419
Consulting Expense		626			518
Telecommunications		618			527
Debit Card Expense		559			509
Other Non-Interest Expenses		6,510			5,815

TOTAL NONINTEREST EXPENSES		37,358			36,482

INCOME BEFORE INCOME TAXES		16,804			15,389
PROVISION FOR INCOME TAXES		4,621			4,201

NET INCOME	$	12,183		$	11,188

BASIC EARNINGS PER SHARE	$	0.57		$	0.53

DILUTED EARNINGS PER SHARE	$	0.56		$	0.52

WEIGHTED AVERAGE COMMON SHARES (BASIC)		21,561,006			21,298,257
COMMON SHARE EQUIVALENTS		24,481			46,082

WEIGHTED AVERAGE COMMON SHARES (DILUTED)		21,585,487			21,344,339

CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.21		$	0.19

The accompanying notes are an integral part of these consolidated financial statements.

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited - Dollars in Thousands)


	Three Months Ended March 31,
	2012			2011

NET INCOME	$	12,183		$	11,188
OTHER COMPREHENSIVE INCOME, NET OF TAX:

UNREALIZED GAINS (LOSSES) ON SECURITIES
Change in Fair Value of Securities Available for Sale		(161	)		(664	)
Less: Net Security Gains Reclassified into Earnings		—			24

Net Change in Fair Value of Securities Available for Sale		(161	)		(640	)
UNREALIZED GAINS ON CASH FLOW HEDGES
Change in Fair Value of Cash Flow Hedges		31			304
Less: Net Cash Flow Hedge Gains Reclassified into Earnings		765			690

Net Change in Fair Value of Cash Flow Hedges		796			994
AMORTIZATION OF CERTAIN COSTS INCLUDED IN
NET PERIODIC RETIREMENT COSTS		23			161

TOTAL OTHER COMPREHENSIVE INCOME		658			515

TOTAL COMPREHENSIVE INCOME	$	12,841		$	11,703

The accompanying notes are an integral part of these consolidated financial statements.

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited - Dollars in Thousands, Except Per Share Data)


	Common Stock Outstanding		Common Stock		Value of Shares Held in Rabbi Trust at Cost			Deferred Compensation Obligation		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)Income			TOTAL

BALANCE DECEMBER 31, 2011		21,499,768	$	213	$	(2,980	)	$	2,980	$	233,878		$	239,452		$	(4,486	)	$	469,057

NET INCOME		—		—		—			—		—			12,183			—			12,183
OTHER COMPREHENSIVE INCOME																	658			658
COMMON DIVIDEND DECLARED ($0.21 PER SHARE)				—		—			—					(4,538	)		—			(4,538	)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS		20,377		—		—			—		439			—			—			439
TAX BENEFIT RELATED TO EQUITY AWARD ACTIVITY		—		—		—			—		69			—			—			69
EQUITY BASED COMPENSATION		—		—		—			—		853			—			—			853
RESTRICTED STOCK AWARDS GRANTED, NET OF AWARDS		77,965		—		—			—		(229	)		—			—			(229	)
SHARES ISSUED UNDER DIRECT STOCK PURCHASE PLAN		10,175									285									285
DEFERRED COMPENSATION OBLIGATION		—		—		(16	)		16		—			—			—			—
TAX BENEFIT RELATED TO DEFERRED COMPENSATION DISTRIBUTIONS		—									86									86

BALANCE MARCH 31, 2012		21,608,285	$	213	$	(2,996	)	$	2,996	$	235,381		$	247,097		$	(3,828	)	$	478,863


BALANCE DECEMBER 31, 2010		21,220,801	$	210	$	(2,738	)	$	2,738	$	226,708		$	210,320		$	(766	)	$	436,472

NET INCOME		—		—		—			—		—			11,188			—			11,188
OTHER COMPREHENSIVE INCOME																	515			515
COMMON DIVIDEND DECLARED ($0.19 PER SHARE)		—		—		—			—		—			(4,065	)		—			(4,065	)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS		133,627		2		—			—		3,065			—			—			3,067
TAX BENEFIT RELATED TO EQUITY AWARD ACTIVITY		—		—		—			—		231			—			—			231
EQUITY BASED COMPENSATION		—		—		—			—		716			—			—			716
RESTRICTED STOCK AWARDS GRANTED, NET OF AWARDS		52,670		—		—			—		(216	)		—			—			(216	)
SHARES ISSUED UNDER DIRECT STOCK PURCHASE PLAN		113		—		—			—		3			—			—			3
DEFERRED COMPENSATION OBLIGATION		—		—		(14	)		14		—			—			—			—
TAX BENEFIT RELATED TO DEFERRED COMPENSATION DISTRIBUTIONS		—		—		—			—		74			—			—			74

BALANCE MARCH 31, 2011		21,407,211	$	212	$	(2,752	)	$	2,752	$	230,581		$	217,443		$	(251	)	$	447,985

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - Dollars In Thousands)


	Three Months Ended March 31,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	12,183		$	11,188
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization		2,589			2,378
Provision for Loan Losses		1,600			2,200
Deferred Income Tax Benefit		(9	)		(11	)
Loss on Write-Down of Investments in Securities Available for Sale		—			40
Gain on Sale of Fixed Assets		(9	)		—
Loss on Sale of Other Real Estate Owned and Foreclosed Assets		95			474
Gain Realized from Early Termination of Hedging Relationship		(22	)		—
Realized Gain on Sale Leaseback Transaction		(258	)		(258	)
Stock Based Compensation		853			716
Increase in Cash Surrender Value of Life Insurance Policies		(713	)		(706	)
Change in Fair Value on Loans Held for Sale		269			(639	)
Net Change In:
Trading Assets		(265	)		(924	)
Loans Held for Sale		(2,615	)		19,913
Other Assets		3,835			13,378
Other Liabilities		(8,369	)		(8,097	)

TOTAL ADJUSTMENTS		(3,019	)		28,464

NET CASH PROVIDED BY OPERATING ACTIVITIES		9,164			39,652

CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from Sales of Securities Available For Sale		—			—
Proceeds from Maturities and Principal Repayments of Securities Available For Sale		23,079			34,932
Purchase of Securities Available For Sale		(71,765	)		—
Proceeds from Maturities and Principal Repayments of Securities Held to Maturity		13,728			8,130
Purchase of Securities Held to Maturity		(9,975	)		(44,931	)
Redemption of Federal Home Loan Bank Stock		2,290			—
Purchase of Life Insurance Policies		(95	)		(94	)
Net Increase in Loans		(78,900	)		(78,228	)
Cash Used In Business Combinations		—			(457	)
Purchase of Bank Premises and Equipment		(2,762	)		(1,995	)
Proceeds from the Sale of Bank Premises and Equipment		11			—
Proceeds Resulting from Early Termination of Hedging Relationship		22			—
Proceeds from the Sale of Other Real Estate Owned and Foreclosed Assets		1,492			514

NET CASH USED IN INVESTING ACTIVITIES		(122,875	)		(82,129	)

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net Decrease in Time Deposits		(5,250	)		(18,400	)
Net Increase(Decrease) in Other Deposits		74,134			(24,457	)
Net Increase(Decrease) in Wholesale and Customer Repurchase Agreements		(18,450	)		16,619
Net Increase(Decrease) in Short Term Federal Home Loan Bank Advances		(35,000	)		20,000
Net Decrease in Long Term Federal Home Loan Bank Advances		—			(45,000	)
Net Increase(Decrease) in Treasury Tax & Loan Notes		—			(206	)
Proceeds from Exercise of Stock Options		439			3,067
Tax Benefit from Stock Option Exercises		69			231
Restricted Shares Surrendered		(229	)		(216	)
Tax Benefit from Deferred Compensation Distribution		86			74
Shares Issued Under Direct Stock Purchase Plan		285			3
Common Dividends Paid		(4,085	)		(3,819	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		11,999			(52,104	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(101,712	)		(94,581	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		237,504			161,282

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	135,792		$	66,701

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of Loans to Foreclosed Assets	$	1,503		$	3,061
Transfer of Securities from Trading to Available for Sale	$	8,505		$	—

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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.

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 March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 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, 2011, filed with the Securities and Exchange Commission.

NOTE 2 - RECENT ACCOUNTING STANDARDS

FASB ASC Topic No. 220 “Comprehensive Income” Update No. 2011-05 and Update no. 2011-12. Update No. 2011-05 was issued in June 2011, and provided amendments to Topic No. 220, “Comprehensive Income”, stating 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. Update 2011-12 deferred the component of Update 2011-05 which required entities to present separately on the income statement, reclassification adjustments between other comprehensive income and net income. The amendments in these updates 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 adoption of this standard did not have an impact on the Company’s consolidated financial position.

FASB ASC Topic No. 820 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in United States Generally Accepted Accounting Principles (“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 IFRS. 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 adoption of this standard did not have an impact on the Company’s consolidated financial position.

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:


	March 31, 2012												December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Unrealized Losses Other			Other- Than- Temporary Impairment			Fair Value		Amortized Cost		Gross Unrealized Gains		Unrealized Losses Other			Other- Than- Temporary Impairment			Fair Value
											(Dollars In Thousands)

AVAILABLE FOR SALE SECURITIES:
U.S. Government Agency Securities	$	20,058	$	—	$	(474	)	$	—		$	19,584	$	—	$	—	$	—		$	—		$	—
Agency Mortgage-Backed Securities		243,415		15,275		—			—			258,690		222,349		16,042		—			—			238,391
Agency Collateralized Mortgage Obligations		59,900		893		—			—			60,793		52,927		874		—			—			53,801
Private Mortgage-Backed Securities		5,305		—		—			49			5,354		6,215		—		—			(105	)		6,110
Single Issuer Trust Preferred Securities Issued by Banks		5,000		—		(87	)		—			4,913		5,000		—		(790	)		—			4,210
Pooled Trust Preferred Securities Issued by Banks and Insurers		8,496		—		(2,511	)		(3,046	)		2,939		8,505		—		(2,518	)		(3,167	)		2,820
Marketable Equity Securities		9,845		17		(26	)		—			9,836		—		—		—			—			—

TOTAL AVAILABLE FOR SALE SECURITIES	$	352,019	$	16,185	$	(3,098	)	$	(2,997	)	$	362,109	$	294,996	$	16,916	$	(3,308	)	$	(3,272	)	$	305,332

HELD TO MATURITY SECURITIES:
U.S. Treasury Securities	$	1,014	$	74	$	—		$	—		$	1,088	$	1,014	$	103	$	—		$	—		$	1,117
Agency Mortgage-Backed Securities		100,490		4,283		—			—			104,773		109,553		4,406		—			—			113,959
Agency Collateralized Mortgage Obligations		84,492		2,732		—			—			87,224		77,804		2,494		—			—			80,298
State, County, and Municipal Securities		1,938		18		—			—			1,956		3,576		34		—			—			3,610
Single Issuer Trust Preferred Securities Issued by Banks		7,978		8		(134	)		—			7,852		8,000		15		(669	)		—			7,346
Corporate Debt Securities		5,009		126		—			—			5,135		5,009		155		—			—			5,164

TOTAL HELD TO MATURITY SECURITIES	$	200,921	$	7,241	$	(134	)	$	—		$	208,028	$	204,956	$	7,207	$	(669	)	$	—		$	211,494

TOTAL	$	552,940	$	23,426	$	(3,232	)	$	(2,997	)	$	570,137	$	499,952	$	24,123	$	(3,977	)	$	(3,272	)	$	516,826

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. There were no sales of securities in the three months ended March 31, 2012 or 2011.

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 as of March 31, 2012 is presented below:


	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
			(Dollars in Thousands)
DUE IN ONE YEAR OR LESS	$	—	$	—	$	—	$	—
DUE FROM ONE YEAR TO FIVE YEARS		2,144		2,285		7,390		7,629
DUE FROM FIVE TO TEN YEARS		77,884		81,396		1,658		1,735
DUE AFTER TEN YEARS		262,146		268,592		191,873		198,664

TOTAL DEBT SECURITIES	$	342,174	$	352,273	$	200,921	$	208,028

MARKETABLE EQUITY SECURITIES	$	9,845	$	9,836	$	—		—

TOTAL	$	352,019	$	362,109	$	200,921	$	208,028

Inclusive in the table above is $11.5 million and $13.0 million, respectively, of callable securities in the Company’s investment portfolio at March 31, 2012 and December 31, 2011.

At March 31, 2012 and December 31, 2011 investment securities carried at $391.8 million and $389.7 million, respectively, were pledged to secure public deposits, assets sold under repurchase agreements, letters of credit, and for other purposes.

At March 31, 2012 and December 31, 2011, 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 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 is 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:


	March 31, 2012
	# of holdings		Less than 12 months					12 months or longer					Total
	# of holdings		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars In Thousands)
U. S. GOVERNMENT AGENCY SECURITIES		2	$	19,584	$	(474	)	$	—	$	—		$	19,584	$	(474	)
SINGLE ISSUER TRUST PREFERRED SECURITIES ISSUED BY BANKS AND INSURERS		2		—		—			9,835		(221	)		9,835		(221	)
POOLED TRUST PREFERRED SECURITIES ISSUED BY BANKS AND INSURERS		2		—		—			2,116		(2,511	)		2,116		(2,511	)
MARKETABLE EQUITY SECURITIES		26		6,084		(26	)		—		—			6,084		(26	)

TOTAL TEMPORARILY IMPAIRED SECURITIES		32	$	25,668	$	(500	)	$	11,951	$	(2,732	)	$	37,619	$	(3,232	)


	December 31, 2011
			Less than 12 months				12 months or longer					Total
	# of holdings		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars In Thousands)
SINGLE ISSUER TRUST PREFERRED SECURITIES ISSUED BY BANKS AND INSURERS		2	$	—	$	—	$	8,617	$	(1,459	)	$	8,617	$	(1,459	)
POOLED TRUST PREFERRED SECURITIES ISSUED BY BANKS AND INSURERS		2		—		—		2,117		(2,518	)		2,117		(2,518	)

TOTAL TEMPORARILY IMPAIRED SECURITIES		4	$	—	$	—	$	10,734	$	(3,977	)	$	10,734	$	(3,977	)

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 December 31, 2011:

•

U.S. Government Agency Securities: 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.

•

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 regulatory capital ratios of issuers.

•

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.

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.

•

Marketable Equity Securities: This portfolio consists of mutual funds and other equity investments. During some periods, the mutual funds in the Company’s investment portfolio may have unrealized losses resulting from market fluctuations as well as the risk premium associated with that particular asset class. For example, emerging market equities tend to trade at a higher risk premium than U.S. government bonds and thus, will fluctuate to a greater degree on both the upside and the downside. In the context of a well-diversified portfolio, however, the correlation amongst the various asset classes represented by the funds serves to minimize downside risk. The Company evaluates each mutual fund in the portfolio regularly and measures performance on both an absolute and relative basis. A reasonable recovery period for positions with an unrealized loss is based on management’s assessment of general economic data, trends within a particular asset class, valuations, earnings forecasts and bond durations.

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 these securities possess characteristics which in the current economic environment could lead to further credit related OTTI charges. The following tables summarize pertinent information as of March 31, 2012, that was considered by management in determining if OTTI existed:


	Class	Amortized Cost (1)		Gross Unrealized Gain/ (Loss)			Non-Credit Related Other- Than-Temporary Impairment			Fair Value		Total Cumulative Credit Related Other- Than- Temporary Impairment			Total Cumulative Other- Than- Temporary impairment to Date
	(Dollars in Thousands)
POOLED TRUST PREFERRED SECURITIES:
Pooled Trust Preferred Security A	C1	$	1,283	$	—		$	(1,079	)	$	204	$	(3,676	)	$	(4,755	)
Pooled Trust Preferred Security B	D		—		—			—			—		(3,481	)		(3,481	)
Pooled Trust Preferred Security C	C1		506		—			(417	)		89		(482	)		(899	)
Pooled Trust Preferred Security D	D		—		—			—			—		(990	)		(990	)
Pooled Trust Preferred Security E	C1		2,080		—			(1,550	)		530		(1,368	)		(2,918	)
Pooled Trust Preferred Security F	B		1,892		(1,315	)		—			577		—			—
Pooled Trust Preferred Security G	A1		2,735		(1,196	)		—			1,539		—			—

TOTAL POOLED TRUST PREFERRED SECURITIES		$	8,496	$	(2,511	)	$	(3,046	)	$	2,939	$	(9,997	)	$	(13,043	)


PRIVATE MORTGAGE-BACKED SECURITIES:
Private Mortgage-Backed Securities - One	2A1	$	2,928	$	—		$	(5	)	$	2,923	$	(689	)	$	(694	)
Private Mortgage-Backed Securities - Two	A19		2,377		—			54			2,431		(85	)		(31	)

TOTAL PRIVATE MORTGAGE-BACKED SECURITIES		$	5,305	$	—		$	49		$	5,354	$	(774	)	$	(725	)


TOTAL		$	13,801	$	(2,511	)	$	(2,997	)	$	8,293	$	(10,771	)	$	(13,768	)

(1)	The amortized cost reflects previously recorded OTTI charges recognized in earnings for the applicable securities.


	Class	Number of Performing Banks and Insurance Cos. in Issuances (Unique)		Current Deferrals/ Defaults/ Losses (As a % of Original Collateral)			Total Projected Defaults/ Losses (as a % of Performing Collateral)			Excess Subordination (After Taking into Account Best Estimate of Future Deferrals/ Defaults/ Losses) (1)			Lowest credit Ratings to date (2)
POOLED TRUST PREFERRED SECURITIES:
Trust Preferred Security A	C1		57		32.96	%		20.91	%		0.00	%	C (Fitch)
Trust Preferred Security B	D		57		32.96	%		20.91	%		0.00	%	C (Fitch)
Trust Preferred Security C	C1		47		33.18	%		21.50	%		0.00	%	C (Fitch)
Trust Preferred Security D	D		47		33.18	%		21.50	%		0.00	%	C (Fitch)
Trust Preferred Security E	C1		50		27.54	%		16.75	%		2.55	%	C (Fitch)
Trust Preferred Security F	B		33		28.14	%		25.26	%		28.14	%	CC (Fitch)
Trust Preferred Security G	A1		33		28.14	%		25.26	%		52.46	%	CCC+ (S&P)

PRIVATE MORTGAGE-BACKED SECURITIES:
Private Mortgage-Backed Securities - One	2A1		N/A		4.28	%		13.14	%		0.00	%	C (Fitch)
Private Mortgage-Backed Securities - Two	A19		N/A		2.85	%		6.04	%		0.00	%	CC (Fitch)

(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 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.

The following table shows the cumulative credit related component of OTTI for the periods indicated:


	Three Months Ended March 31,
	2012			2011
	(Dollars in Thousands)
BALANCE AT BEGINNING OF PERIOD	$	(10,771	)	$	(10,528	)
ADD:
Incurred on Securities not Previously Impaired		—			—
Incurred on Securities Previously Impaired		—			(40	)
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	$	(10,771	)	$	(10,568	)

NOTE 4 - LOANS, ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The following tables bifurcates the amount of allowance allocated to each loan category based on collective impairment analysis and loans evaluated individually for impairment as of the periods indicated:


	March 31, 2012
	(Dollars in Thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Consumer Home Equity		Consumer Other		Total
FINANCING RECEIVABLES:
Ending Balance: Total Loans by Group	$	599,603	$	1,853,711	$	148,034	$	79,937	$	416,201	$	735,823	$	36,447	$	3,869,756	(1)

Ending Balance: Individually Evaluated for Impairment	$	5,570	$	41,421	$	558	$	2,604	$	12,858	$	300	$	1,977	$	65,288

Ending Balance: Collectively Evaluated for Impairment	$	594,033	$	1,812,290	$	147,476	$	77,333	$	403,343	$	735,523	$	34,470	$	3,804,468


	December 31, 2011
	(Dollars in Thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Consumer Home Equity		Consumer Other		Total
FINANCING RECEIVABLES:
Ending Balance: Total Loans by Group	$	575,716	$	1,847,654	$	128,904	$	78,509	$	426,201	$	696,063	$	41,343	$	3,794,390	(1)

Ending Balance: Individually Evaluated for Impairment	$	5,608	$	37,476	$	843	$	2,326	$	12,984	$	326	$	2,138	$	61,701

Ending Balance: Collectively Evaluated for Impairment	$	570,108	$	1,810,178	$	128,061	$	76,183	$	413,217	$	695,737	$	39,205	$	3,732,689

(1)	The amount of deferred fees included in the ending balance was $3.2 million and $2.9 million at March 31, 2012 and December 31, 2011, respectively.

The following tables summarize changes in allowance for loan losses by loan category for the periods indicated:


	Three Months Ended March 31, 2012
	(Dollars in Thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction		Small Business			Residential Real Estate			Consumer Home Equity			Consumer Other			Total
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$	11,682		$	23,514		$	2,076	$	1,896		$	3,113		$	4,597		$	1,382		$	48,260
Charge-offs		(15	)		(604	)		—		(170	)		(109	)		(750	)		(297	)		(1,945	)
Recoveries		200			—			—		52			—			13			160			425
Provision		(413	)		(81	)		157		(319	)		68			2,217			(29	)		1,600

Ending Balance	$	11,454		$	22,829		$	2,233	$	1,459		$	3,072		$	6,077		$	1,216		$	48,340

Ending Balance: Individually Evaluated for Impairment	$	464		$	1,757		$	—	$	184		$	1,215		$	32		$	200		$	3,852

Ending Balance: Collectively Evaluated for Impairment	$	10,990		$	21,072		$	2,233	$	1,275		$	1,857		$	6,045		$	1,016		$	44,488


	Three Months Ended March 31, 2011
	(Dollars in Thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business			Residential Real Estate			Consumer Home Equity			Consumer 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		(888	)		(652	)		—			(266	)		(122	)		(78	)		(478	)		(2,484	)
Recoveries		202			—			50			28			—			4			189			473
Provision		1,106			1,066			(202	)		(115	)		63			100			182			2,200

Ending Balance	$	10,843		$	22,353		$	1,993		$	3,387		$	2,856		$	3,395		$	1,617		$	46,444

Ending Balance: Individually Evaluated for Impairment	$	757		$	105		$	—		$	105		$	916		$	18		$	252		$	2,153

Ending Balance: Collectively Evaluated for Impairment	$	10,086		$	22,248		$	1,993		$	3,282		$	1,940		$	3,377		$	1,365		$	44,291

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.

Commercial Real Estate - 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 Construction - Loans in this category consist of short-term construction loans, revolving and nonrevolving 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 nonamortizing 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 guarantees for payment from individuals holding material ownership interests of the borrowing entities.

Consumer Portfolio:

Residential Real Estate - 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 nonowner 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.

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. These loans may be secured or unsecured.

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 portfolio, 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, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.

8 Rating – Definite Weakness

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.

The following table details the internal risk-rating categories for the Company’s commercial portfolio:


		March 31, 2012
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in Thousands)
PASS	1 - 6	$	550,791	$	1,629,309	$	133,493	$	72,139	$	2,385,732
POTENTIAL WEAKNESS	7		32,494		123,115		8,393		3,939		167,941
DEFINITE WEAKNESS - LOSS UNLIKELY	8		15,262		96,683		6,148		3,772		121,865
PARTIAL LOSS PROBABLE	9		1,056		4,604		—		87		5,747
DEFINITE LOSS	10		—		—		—		—		—

TOTAL		$	599,603	$	1,853,711	$	148,034	$	79,937	$	2,681,285


		December 31, 2011
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in Thousands)
PASS	1 - 6	$	528,798	$	1,626,745	$	114,633	$	70,543	$	2,340,719
POTENTIAL WEAKNESS	7		33,313		124,661		7,859		4,041		169,874
DEFINITE WEAKNESS - LOSS UNLIKELY	8		12,683		93,438		6,412		3,762		116,295
PARTIAL LOSS PROBABLE	9		922		2,810		—		163		3,895
DEFINITE LOSS	10		—		—		—		—		—

TOTAL		$	575,716	$	1,847,654	$	128,904	$	78,509	$	2,630,783

For the Company’s consumer portfolio, 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. At March 31, 2012 and December 31, 2011, 57.8% and 54.8% of the home equity loans were in first lien position, respectively. The following table shows the weighted average FICO scores and the weighted average combined LTV ratio as of the periods indicated below:


	March 31,
	2012			2011
RESIDENTIAL PORTFOLIO:
FICO Score (re-scored) (1)		729			736
Combined LTV (re-valued) (2)		67.0	%		65.0	%

HOME EQUITY PORTFOLIO:
FICO Score (re-scored) (1)		763			761
Combined LTV (re-valued) (2)		55.0	%		55.0	%

(1)	The average FICO scores above are based upon rescores available from March 2012 or 2011, and actual score data for loans booked between March 1 and March 31, 2012 or 2011.

(2)	The combined LTV ratios for March 31, 2012 and March 31, 2011 are based upon updated automated valuations as of February 29, 2012 and February 28, 2011.

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.

The following table shows nonaccrual loans at the dates indicated:


	March 31,		December 31,
	2012		2011
	(Dollars In Thousands)

COMMERCIAL AND INDUSTRIAL	$	2,429	$	1,883
COMMERCIAL REAL ESTATE		15,015		12,829
COMMERCIAL CONSTRUCTION		—		280
SMALL BUSINESS		544		542
RESEDENTIAL REAL ESTATE		10,465		9,867
HOME EQUITY		2,773		3,130
CONSUMER - OTHER		370		381

TOTAL NONACCRUAL LOANS (1)	$	31,596	$	28,912

(1)	Included in these amounts were $9.2 million nonaccruing TDRs at both March 31, 2012 and December 31, 2011.

The following table shows the age analysis of past due financing receivables as of the dates indicated:


	March 31, 2012
	30-59 days				60-89 days				90 days or more				Total Past Due				Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	Number of Loans		Principal Balance		Number of Loans		Principal Balance		Number of Loans		Principal Balance		Number of Loans		Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	(Dollars in Thousands)
LOAN PORTFOLIO:
Commercial and Industrial		19	$	1,716		4	$	425		21	$	1,671		44	$	3,812	$	595,791	$	599,603	$	—
Commercial Real Estate		16		5,147		3		445		34		9,651		53		15,243		1,838,468		1,853,711		—
Commercial Construction		—		—		—		—		—		—		—		—		148,034		148,034		—
Small Business		7		136		9		127		9		77		25		340		79,597		79,937		—
Residential Real Estate		11		2,094		8		2,615		29		6,210		48		10,919		391,991		402,910		—
Residential Construction		—		—		—		—		—		—		—		—		13,291		13,291		—
Home Equity		22		1,380		7		411		26		1,793		55		3,584		732,239		735,823		—
Consumer - Other		169		1,104		36		239		55		391		260		1,734		34,713		36,447		50

TOTAL		244	$	11,577		67	$	4,262		174	$	19,793		485	$	35,632	$	3,834,124	$	3,869,756	$	50


	December 31,2011
	30-59 days				60-89 days				90 days or more				Total Past Due				Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	Number of Loans		Principal Balance		Number of Loans		Principal Balance		Number of Loans		Principal Balance		Number of Loans		Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	(Dollars in Thousands)
LOAN PORTFOLIO:
Commercial and Industrial		21	$	2,143		10	$	2,709		20	$	1,279		51	$	6,131	$	569,585	$	575,716	$	—
Commercial Real Estate		7		3,684		7		2,522		29		6,737		43		12,943		1,834,711		1,847,654		—
Commercial Construction		—		—		—		—		3		280		3		280		128,624		128,904		—
Small Business		19		320		3		21		12		148		34		489		78,020		78,509		—
Residential Real Estate		14		2,770		10		3,208		31		6,065		55		12,043		404,527		416,570		—
Residential Construction		—		—		—		—		—		—		—		—		9,631		9,631		—
Home Equity		28		1,483		19		1,139		19		1,502		66		4,124		691,939		696,063		—
Consumer - Other		260		1,821		57		303		58		374		375		2,498		38,845		41,343		41

TOTAL		349	$	12,221		106	$	9,902		172	$	16,385		627	$	38,508	$	3,755,882	$	3,794,390	$	41

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:


	March 31, 2012		December 31, 2011
	(Dollars in Thousands)

TDRS ON ACCRUAL STATUS	$	38,006	$	37,151
TDRS ON NONACCRUAL		9,189		9,230

TOTAL TDR’S	$	47,195	$	46,381


AMOUNT OF SPECIFIC RESERVES INCLUDED IN THE ALLOWANCE FOR LOAN LOSSES ASSOCIATED WITH TDRS:	$	3,204	$	1,887

ADDITIONAL COMMITMENTS TO LEND TO A BORROWER WHO HAS BEEN A PARTY TO A TDR:	$	954	$	693

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 to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized.

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, March 31, 2012						Three Months Ended, March 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment(1)		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in Thousands)

TROUBLED DEBT RESTRUCTURINGS:
Commercial & Industrial		6	$	319	$	319		—	$	—	$	—
Commercial Real Estate		5		3,283		3,283		3		1,165		1,165
Small Business		9		371		371		10		391		391
Residential Real Estate		1		117		117		2		165		166
Consumer - Home Equity		—		—		—		—		—		—
Consumer - Other		3		86		86		29		282		282

TOTAL		24	$	4,176	$	4,176		44	$	2,003	$	2,004

(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.

The following table shows the Company’s post-modification balance of TDRs listed by type of modification as of the periods indicated:


	Three Months Ended March 31,
	2012		2011
	(Dollars in Thousands)
EXTENDED MATURITY	$	3,842	$	1,554
ADJUSTED INTEREST RATE		41		25
COMBINATION RATE & MATURITY		293		425

TOTAL	$	4,176	$	2,004

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.


	Three Months Ended March 31,
	2012				2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
	(Dollars in Thousands)
TROUBLED DEBT RESTRUCTURINGS THAT SUBSEQUENTLY DEFAULTED:
Commercial & Industrial		1	$	250		1	$	334
Commercial Real Estate		—		—		—		—
Small Business		1		4		—		—
Residential Real Estate		—		—		2		757
Consumer - Home Equity		—		—		1		67
Consumer - Other		1		5		1		13

TOTAL		3	$	259		5	$	1,171

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, 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 Bank 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.

The tables below set forth information regarding the Company’s impaired loans by loan portfolio as of the dates indicated:


	March 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in Thousands)
WITH NO RELATED ALLOWANCE RECORDED:
Commercial & Industrial	$	2,982	$	3,339	$	—
Commercial Real Estate		20,393		20,976		—
Commercial Construction		558		558		—
Small Business		1,411		1,467		—
Residential Real Estate		—		—		—
Consumer - Home Equity		22		22		—
Consumer - Other		72		73		—

Subtotal		25,438		26,435		—

WITH AN ALLOWANCE RECORDED:
Commercial & Industrial	$	2,588	$	2,898	$	464
Commercial Real Estate		21,028		22,390		1,757
Commercial Construction		—		—		—
Small Business		1,193		1,217		184
Residential Real Estate		12,858		13,568		1,215
Consumer - Home Equity		278		348		32
Consumer - Other		1,905		1,939		200

Subtotal		39,850		42,360		3,852



TOTAL	$	65,288	$	68,795	$	3,852


	December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in Thousands)
WITH NO RELATED ALLOWANCE RECORDED:
Commercial & Industrial	$	3,380	$	4,365	$	—
Commercial Real Estate		19,433		20,010		—
Commercial Construction		843		843		—
Small Business		1,131		1,193		—
Residential Real Estate		—		—		—
Consumer - Home Equity		22		22		—
Consumer - Other		31		32		—

Subtotal		24,840		26,465		—

WITH AN ALLOWANCE RECORDED:
Commercial & Industrial	$	2,228	$	2,280	$	562
Commercial Real Estate		18,043		19,344		457
Commercial Construction		—		—		—
Small Business		1,195		1,218		148
Residential Real Estate		12,984		13,651		1,245
Consumer - Home Equity		304		349		31
Consumer - Other		2,107		2,125		239

Subtotal		36,861		38,967		2,682



TOTAL	$	61,701	$	65,432	$	2,682

The following tables set forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated:


	Three Months
	Ended March 31, 2012
	Average		Interest
	Recorded		Income
	Investment		Recognized

WITH NO RELATED ALLOWANCE RECORDED:
Commercial & Industrial	$	3,078	$	50
Commercial Real Estate		20,508		362
Commercial Construction		560		11
Small Business		1,441		25
Residential Real Estate		—		—
Consumer - Home Equity		22		—
Consumer - Other		46		1

Subtotal		25,655		449

WITH AN ALLOWANCE RECORDED:
Commercial & Industrial	$	2,662	$	40
Commercial Real Estate		21,194		316
Commercial Construction		—		—
Small Business		1,209		17
Residential Real Estate		12,885		138
Consumer - Home Equity		279		5
Consumer - Other		1,951		19

Subtotal		40,180		535



TOTAL	$	65,835	$	984


	Three Months
	Ended March 31, 2011
	Average		Interest
	Recorded		Income
	Investment		Recognized

WITH NO RELATED ALLOWANCE RECORDED:
Commercial & Industrial	$	2,485	$	38
Commercial Real Estate		23,534		395
Commercial Construction		1,344		19
Small Business		1,766		28
Residential Real Estate		205		—
Consumer - Home Equity		—		—
Consumer - Other		9		—

Subtotal		29,343		480

WITH AN ALLOWANCE RECORDED:
Commercial & Industrial	$	2,233	$	24
Commercial Real Estate		2,935		42
Commercial Construction		—		—
Small Business		1,251		16
Residential Real Estate		9,899		92
Consumer - Home Equity		426		6
Consumer - Other		2,036		20

Subtotal		18,780		200



TOTAL	$	48,123	$	680

NOTE 5 - EARNINGS PER SHARE

Earnings per share consisted of the following components for the periods indicated:


	Three Months Ended
	March 31,
	2012		2011
	(Dollars in Thousands)
NET INCOME	$	12,183	$	11,188


	Weighted Average Shares
BASIC SHARES		21,561,006		21,298,257
EFFECT OF DILUTIVE SECURITIES		24,481		46,082

DILUTIVE SHARES		21,585,487		21,344,339


NET INCOME PER SHARE:
BASIC EPS	$	0.57	$	0.53
EFFECT OF DILUTIVE SECURITIES		0.01		0.01

DILUTIVE EPS	$	0.56	$	0.52

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:


	Three Months Ended
	March 31,
	2012		2011
STOCK OPTIONS		803,378		787,163

NOTE 6 - STOCK BASED COMPENSATION

On February 16, 2012, the Company granted 89,800 restricted stock awards to certain executive and nonexecutive officers of the Company and/or Bank. These restricted stock awards, which vest over a five year period, were issued from the 2005 Employee Stock Plan and were determined to have a fair value per share of $27.81, 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.

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 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 seven 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:


March 31, 2012
Notional Amount		Trade Date		Effective Date		Maturity Date		Receive (Variable) Index	Current Rate Received			Pay Fixed Swap Rate			Fair Value
(Dollars in Thousands)
$	25,000		16-Feb-06		28-Dec-06		28-Dec-16	3 Month LIBOR		0.47	%		5.04	%	$	(4,530	)
	25,000		16-Feb-06		28-Dec-06		28-Dec-16	3 Month LIBOR		0.47	%		5.04	%		(4,531	)
	25,000		8-Dec-08		10-Dec-08		10-Dec-13	3 Month LIBOR		0.47	%		2.65	%		(896	)
	25,000		9-Dec-08		10-Dec-08		10-Dec-13	3 Month LIBOR		0.47	%		2.59	%		(871	)
	25,000		9-Dec-08		10-Dec-08		10-Dec-18	3 Month LIBOR		0.47	%		2.94	%		(2,100	)
	50,000		17-Nov-09		20-Dec-10		20-Dec-14	3 Month LIBOR		0.47	%		3.04	%		(3,195	)
	25,000		5-May-11		10-Jun-11		10-Jun-15	3 Month LIBOR		0.47	%		1.71	%		(733	)

$	200,000														$	(16,856	)


December 31, 2011
Notional Amount		Trade Date		Effective Date		Maturity Date		Receive (Variable) Index	Current Rate Received			Pay Fixed Swap Rate			Fair Value
(Dollars in Thousands)
$	25,000		16-Feb-06		28-Dec-06		28-Dec-16	3 Month LIBOR		0.55	%		5.04	%	$	(4,745	)
	25,000		16-Feb-06		28-Dec-06		28-Dec-16	3 Month LIBOR		0.55	%		5.04	%		(4,745	)
	25,000		8-Dec-08		10-Dec-08		10-Dec-13	3 Month LIBOR		0.54	%		2.65	%		(941	)
	25,000		9-Dec-08		10-Dec-08		10-Dec-13	3 Month LIBOR		0.54	%		2.59	%		(913	)
	25,000		9-Dec-08		10-Dec-08		10-Dec-18	3 Month LIBOR		0.54	%		2.94	%		(2,349	)
	50,000		17-Nov-09		20-Dec-10		20-Dec-14	3 Month LIBOR		0.56	%		3.04	%		(3,316	)

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