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 December 31, 2013 and 2012:



	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
December 31, 2013
Government sponsored agencies	$	93,895	$	250	$	382	$	93,763
State and political subdivisions	42,450		1,355		7		43,798
Residential mortgage-backed securities	303,495		968		5,097		299,366
Collateralized mortgage obligations	182,128		452		1,639		180,941
Corporate bonds	65,028		499		252		65,275
Preferred stock	1,389		63		25		1,427
Total	$	688,385	$	3,587	$	7,402	$	684,570
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



	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
December 31, 2013
State and political subdivisions	$	263,405	$	5,462	$	6,846	$	262,021
Trust preferred securities	10,500		—		4,250		6,250
Total	$	273,905	$	5,462	$	11,096	$	268,271
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

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).

The Corporation had a $4.8 million preferred stock investment security, which was carried at cost, that was redeemed by the issuer during 2013 and resulted in the Corporation recognizing a gain of $0.3 million.

At December 31, 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 considered well-capitalized under regulatory guidelines at December 31, 2013.

At December 31, 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 December 31, 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 December 31, 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 December 31, 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.



	December 31, 2013
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	144,423	$	143,762
Due after one year through five years	436,081		434,027
Due after five years through ten years	101,624		100,642
Due after ten years	4,868		4,712
Preferred stock	1,389		1,427
Total	$	688,385	$	684,570
Investment Securities Held-to-Maturity:
Due in one year or less	$	39,966	$	39,981
Due after one year through five years	106,380		107,688
Due after five years through ten years	74,759		75,563
Due after ten years	52,800		45,039
Total	$	273,905	$	268,271

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at December 31, 2013 and 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
December 31, 2013	(In thousands)
Government sponsored agencies	$	47,352	$	205	$	14,031	$	177	$	61,383	$	382
State and political subdivisions	126,345		6,475		19,074		378		145,419		6,853
Residential mortgage-backed securities	274,076		5,097		—		—		274,076		5,097
Collateralized mortgage obligations	84,995		1,127		14,684		512		99,679		1,639
Corporate bonds	14,931		78		19,826		174		34,757		252
Trust preferred securities	—		—		6,250		4,250		6,250		4,250
Preferred stock	1,024		25		—		—		1,024		25
Total	$	548,723	$	13,007	$	73,865	$	5,491	$	622,588	$	18,498
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

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 at December 31, 2013, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at December 31, 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 illiquidity in the financial markets for these types of investments. The Corporation performed an analysis of the creditworthiness of these issuers and concluded that, at December 31, 2013, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At December 31, 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 December 31, 2013, the Corporation believed the impairments in its investment securities portfolio were temporary in nature. Additionally, no impairment loss was realized in the Corporation's consolidated statement of income for the year ended December 31, 2013. However, there is no assurance that OTTI may not occur in the future.

Investment securities with an amortized cost of $616 million and $501 million at December 31, 2013 and 2012, respectively, were pledged to secure public fund deposits, short-term borrowings and for other purposes as required by law.