Investment Securities

The following is a summary of the amortized cost and fair value of investment securities available-for-sale and investment securities held-to-maturity at June 30, 2013, December 31, 2012 and June 30, 2012:



	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
June 30, 2013
Government sponsored agencies	$	92,239	$	249	$	400	$	92,088
State and political subdivisions	44,288		1,500		8		45,780
Residential mortgage-backed securities	311,425		1,166		4,219		308,372
Collateralized mortgage obligations	221,025		463		973		220,515
Corporate bonds	65,077		692		254		65,515
Preferred stock	1,389		393		—		1,782
Total	$	735,443	$	4,463	$	5,854	$	734,052
December 31, 2012
Government sponsored agencies	$	97,529	$	241	$	213	$	97,557
State and political subdivisions	47,663		2,302		—		49,965
Residential mortgage-backed securities	96,320		3,100		9		99,411
Collateralized mortgage obligations	262,790		984		182		263,592
Corporate bonds	69,788		546		539		69,795
Preferred stock	6,144		345		—		6,489
Total	$	580,234	$	7,518	$	943	$	586,809
June 30, 2012
Government sponsored agencies	$	95,021	$	205	$	81	$	95,145
State and political subdivisions	49,799		2,397		65		52,131
Residential mortgage-backed securities	109,730		3,561		200		113,091
Collateralized mortgage obligations	321,178		1,321		602		321,897
Corporate bonds	92,498		162		894		91,766
Preferred stock	6,144		57		—		6,201
Total	$	674,370	$	7,703	$	1,842	$	680,231



	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
June 30, 2013
State and political subdivisions	$	264,215	$	6,113	$	5,181	$	265,147
Trust preferred securities	10,500		—		4,250		6,250
Total	$	274,715	$	6,113	$	9,431	$	271,397
December 31, 2012
State and political subdivisions	$	219,477	$	8,087	$	3,367	$	224,197
Trust preferred securities	10,500		—		4,775		5,725
Total	$	229,977	$	8,087	$	8,142	$	229,922
June 30, 2012
State and political subdivisions	$	202,534	$	7,751	$	1,108	$	209,177
Trust preferred securities	10,500		—		5,825		4,675
Total	$	213,034	$	7,751	$	6,933	$	213,852

The majority of the Corporation’s residential mortgage-backed securities and collateralized mortgage obligations are backed by a U.S. government agency (Government National Mortgage Association) or a government sponsored enterprise (Federal Home Loan Mortgage Corporation or Federal National Mortgage Association).

During the second quarter of 2013, the Corporation sold a $4.8 million preferred stock investment security, which was carried at cost, and recognized a gross gain on the sale of $0.2 million.

At June 30, 2013, the Corporation held $10.5 million of trust preferred investment securities that were recorded as held-to-maturity, with $10.0 million of these securities representing a 100% interest in a trust preferred investment security of a small non-public bank holding company in Michigan that has been assessed by the Corporation as financially strong. The remaining $0.5 million represents a 10% interest in another trust preferred investment security of a small non-public bank holding company located in Michigan that was categorized as well-capitalized under regulatory guidelines at June 30, 2013.

At June 30, 2013, it was the Corporation’s opinion that the market for trust preferred investment securities was not active, and thus, in accordance with GAAP, when there is a significant decrease in the volume and activity for an asset or liability in relation to normal market activity, adjustments to transaction or quoted prices may be necessary or a change in valuation technique or multiple valuation techniques may be appropriate. The Corporation obtained pricing information for its trust preferred investment securities from an independent third-party pricing source. The pricing information was based on both observable inputs and appropriate risk adjustments that market participants would make for possible nonperformance, illiquidity and issuer specifics such as size, leverage position and location. The observable inputs were based on the existing market and insight into appropriate rate of return adjustments that market participants would require for the additional risk associated with a single issue investment security of this nature. Based on the information obtained from the independent third-party pricing source, the Corporation calculated a fair value at June 30, 2013 of $6.0 million on its $10.0 million trust preferred investment security and $0.2 million on its $0.5 million trust preferred investment security, resulting in a combined unrealized loss of $4.3 million at that date. At June 30, 2013, the Corporation concluded that the $4.3 million of combined unrealized loss on the trust preferred investment securities was temporary in nature.

The following is a summary of the amortized cost and fair value of investment securities at June 30, 2013, by maturity, for both available-for-sale and held-to-maturity investment securities. The maturities of residential mortgage-backed securities and collateralized mortgage obligations are based on scheduled principal payments. The maturities of all other debt securities are based on final contractual maturity.



	June 30, 2013
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	101,422	$	101,999
Due after one year through five years	109,213		110,633
Due after five years through ten years	446,924		443,441
Due after ten years	76,495		76,197
Preferred stock	1,389		1,782
Total	$	735,443	$	734,052
Investment Securities Held-to-Maturity:
Due in one year or less	$	46,155	$	46,148
Due after one year through five years	118,260		119,256
Due after five years through ten years	74,190		75,179
Due after ten years	36,110		30,814
Total	$	274,715	$	271,397

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at June 30, 2013, December 31, 2012 and June 30, 2012, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position.



	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In thousands)
June 30, 2013
Government sponsored agencies	$	58,646	$	400	$	—	$	—	$	58,646	$	400
State and political subdivisions	128,062		4,707		19,378		482		147,440		5,189
Residential mortgage-backed securities	267,211		4,217		257		2		267,468		4,219
Collateralized mortgage obligations	100,469		939		8,083		34		108,552		973
Corporate bonds	4,881		130		19,876		124		24,757		254
Trust preferred securities	—		—		6,250		4,250		6,250		4,250
Total	$	559,269	$	10,393	$	53,844	$	4,892	$	613,113	$	15,285
December 31, 2012
Government sponsored agencies	$	46,103	$	213	$	—	$	—	$	46,103	$	213
State and political subdivisions	70,675		2,257		8,046		1,110		78,721		3,367
Residential mortgage-backed securities	273		1		1,305		8		1,578		9
Collateralized mortgage obligations	19,331		10		36,835		172		56,166		182
Corporate bonds	4,747		253		34,707		286		39,454		539
Trust preferred securities	—		—		5,725		4,775		5,725		4,775
Total	$	141,129	$	2,734	$	86,618	$	6,351	$	227,747	$	9,085
June 30, 2012
Government sponsored agencies	$	30,177	$	61	$	9,516	$	20	$	39,693	$	81
State and political subdivisions	49,355		1,100		8,258		73		57,613		1,173
Residential mortgage-backed securities	13,038		23		19,988		177		33,026		200
Collateralized mortgage obligations	30,651		296		52,335		306		82,986		602
Corporate bonds	49,984		726		14,831		168		64,815		894
Trust preferred securities	—		—		4,675		5,825		4,675		5,825
Total	$	173,205	$	2,206	$	109,603	$	6,569	$	282,808	$	8,775

An assessment is performed quarterly by the Corporation to determine whether unrealized losses in its investment securities portfolio are temporary or other-than-temporary by carefully considering all available information. The Corporation reviews factors such as financial statements, credit ratings, news releases and other pertinent information of the underlying issuer or company to make its determination. Management did not believe any individual unrealized loss on any investment security, as of June 30, 2013, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at June 30, 2013 were temporary in nature and due primarily to changes in interest rates, increased credit spreads and reduced market liquidity and not as a result of credit-related issues. Unrealized losses of $4.3 million in the trust preferred securities portfolio, related to trust preferred securities of two well-capitalized bank holding companies in Michigan, were attributable to the illiquidity in financial markets for these types of investments. The Corporation performed an analysis of the creditworthiness of these issuers and concluded that, at June 30, 2013, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At June 30, 2013, the Corporation did not have the intent to sell any of its impaired investment securities and believed that it was more-likely-than-not that the Corporation will not have to sell any such investment securities before a full recovery of amortized cost. Accordingly, at June 30, 2013, the Corporation believed the impairments in its investment securities portfolio were temporary in nature. However, there is no assurance that OTTI may not occur in the future.