Investment Securities

6 Months Ended

Jun. 30, 2012

Investment Securities [Abstract]

Investment Securities

Note 3: 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, 2012, December 31, 2011 and June 30, 2011:

	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
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
December 31, 2011
Government sponsored agencies	$	70,486	$	240	$	47	$	70,679
State and political subdivisions		42,881		2,354		—		45,235
Residential mortgage-backed securities		117,198		3,883		301		120,780
Collateralized mortgage obligations		332,632		600		832		332,400
Corporate bonds		97,558		45		835		96,768
Preferred stock		1,389		46		21		1,414
Total	$	662,144	$	7,168	$	2,036	$	667,276
June 30, 2011
Government sponsored agencies	$	108,957	$	283	$	36	$	109,204
State and political subdivisions		43,793		1,163		6		44,950
Residential mortgage-backed securities		111,760		4,036		191		115,605
Collateralized mortgage obligations		283,840		775		371		284,244
Corporate bonds		56,941		138		175		56,904
Preferred stock		1,389		170		—		1,559
Total	$	606,680	$	6,565	$	779	$	612,466

	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
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
December 31, 2011
State and political subdivisions	$	172,839	$	6,807	$	342	$	179,304
Trust preferred securities		10,500		—		6,035		4,465
Total	$	183,339	$	6,807	$	6,377	$	183,769
June 30, 2011
State and political subdivisions	$	179,529	$	4,614	$	1,223	$	182,920
Trust preferred securities		10,500		—		5,825		4,675
Total	$	190,029	$	4,614	$	7,048	$	187,595

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).

At June 30, 2012, 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 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 non-public bank holding company located in Michigan that was categorized as well-capitalized under regulatory guidelines.

At June 30, 2012, 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 fair values of the trust preferred investment securities were based upon a calculation of discounted cash flows. The cash flows were discounted based upon both observable inputs and appropriate risk adjustments that market participants would make for nonperformance, illiquidity and issuer specifics. An independent third party provided the Corporation with observable inputs 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. Using a model that incorporated the average current yield of publicly traded performing trust preferred securities of large financial institutions with no known material financial difficulties at June 30, 2012, and adjusted for both illiquidity and the specific characteristics of the issuer, such as size, leverage position and location, the Corporation calculated an implied yield of 45% on its $10.0 million trust preferred investment security and 35% for its $0.5 million trust preferred investment security. Based upon these implied yields, the fair values of the trust preferred investment securities at June 30, 2012 were calculated by the Corporation at $4.5 million and $0.2 million, respectively, resulting in a combined unrealized loss of $5.8 million at that date. At June 30, 2012, the Corporation concluded that the $5.8 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, 2012, 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, 2012
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	123,976	$	124,424
Due after one year through five years		415,814		418,132
Due after five years through ten years		54,967		57,144
Due after ten years		73,469		74,330
Preferred stock		6,144		6,201
Total	$	674,370	$	680,231
Investment Securities Held-to-Maturity:
Due in one year or less	$	35,811	$	35,757
Due after one year through five years		92,961		94,725
Due after five years through ten years		54,792		58,452
Due after ten years		29,470		24,918
Total	$	213,034	$	213,852

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at June 30, 2012, December 31, 2011 and June 30, 2011, 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, 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
December 31, 2011
Government sponsored agencies	$	9,883	$	36	$	9,632	$	11	$	19,515	$	47
State and political subdivisions		—		—		31,706		342		31,706		342
Residential mortgage-backed securities		27,367		152		19,018		149		46,385		301
Collateralized mortgage obligations		200,218		703		18,176		129		218,394		832
Corporate bonds		50,590		415		14,580		420		65,170		835
Trust preferred securities		—		—		4,465		6,035		4,465		6,035
Preferred stock		—		—		319		21		319		21
Total	$	288,058	$	1,306	$	97,896	$	7,107	$	385,954	$	8,413
June 30, 2011
Government sponsored agencies	$	29,311	$	34	$	2,860	$	2	$	32,171	$	36
State and political subdivisions		48,011		1,046		12,173		183		60,184		1,229
Residential mortgage-backed securities		25,538		185		1,240		6		26,778		191
Collateralized mortgage obligations		94,073		300		27,617		71		121,690		371
Corporate bonds		24,853		147		2,468		28		27,321		175
Trust preferred securities		—		—		4,675		5,825		4,675		5,825
Total	$	221,786	$	1,712	$	51,033	$	6,115	$	272,819	$	7,827

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, 2012, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at June 30, 2012 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 $5.8 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 certain financial markets. The Corporation performed an analysis of the creditworthiness of these issuers and concluded that, at June 30, 2012, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At June 30, 2012, 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, 2012, 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.