Securities

9 Months Ended

Sep. 30, 2011

Securities [Abstract]

SECURITIES

2. SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2011
U.S. Government agency debt obligations	$	82,452,000	$	2,136,000	$	(76,000	)	$	84,512,000
Mortgage-backed securities		35,235,000		3,232,000		0			38,467,000
Michigan Strategic Fund bonds		16,955,000		0		0			16,955,000
Municipal general obligation bonds		26,614,000		848,000		(4,000	)		27,458,000
Municipal revenue bonds		4,301,000		98,000		0			4,399,000
Mutual funds		1,294,000		49,000		0			1,343,000
	$	166,851,000	$	6,363,000	$	(80,000	)	$	173,134,000
December 31, 2010
U.S. Government agency debt obligations	$	121,633,000	$	1,704,000	$	(1,775,000	)	$	121,562,000
Mortgage-backed securities		44,340,000		2,601,000		0			46,941,000
Michigan Strategic Fund bonds		18,175,000		0		0			18,175,000
Municipal general obligation bonds		28,594,000		227,000		(779,000	)		28,042,000
Municipal revenue bonds		4,841,000		46,000		(44,000	)		4,843,000
Mutual funds		1,264,000		3,000		0			1,267,000
	$	218,847,000	$	4,581,000	$	(2,598,000	)	$	220,830,000

Securities with unrealized losses at September 30, 2011 and December 31, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
September 30, 2011
U.S. Government agency debt obligations	$	12,585,000	$	(76,000	)	$	0	$	0		$	12,585,000	$	(76,000	)
Mortgage-backed securities		0		0			0		0			0		0
Michigan Strategic Fund bonds		0		0			0		0			0		0
Municipal general obligation bonds		0		0			589,000		(4,000	)		589,000		(4,000	)
Municipal revenue bonds		0		0			0		0			0		0
Mutual funds		0		0			0		0			0		0
	$	12,585,000	$	(76,000	)	$	589,000	$	(4,000	)	$	13,174,000	$	(80,000	)
December 31, 2010
U.S. Government agency debt obligations	$	56,588,000	$	(1,775,000	)	$	0	$	0		$	56,588,000	$	(1,775,000	)
Mortgage-backed securities		0		0			0		0			0		0
Michigan Strategic Fund bonds		0		0			0		0			0		0
Municipal general obligation bonds		7,847,000		(299,000	)		6,497,000		(480,000	)		14,344,000		(779,000	)
Municipal revenue bonds		811,000		(25,000	)		805,000		(19,000	)		1,616,000		(44,000	)
Mutual funds		0		0			0		0			0		0
	$	65,246,000	$	(2,099,000	)	$	7,302,000	$	(499,000	)	$	72,548,000	$	(2,598,000	)

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those debt securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At September 30, 2011, 10 debt securities with a fair value totaling $13.2 million have unrealized losses with aggregate depreciation of $0.1 million, or 0.04% from the amortized cost basis of total securities. At September 30, 2011, 232 debt securities and a mutual fund with a fair value totaling $142.0 million have unrealized gains with aggregate appreciation of $6.4 million, or 3.8% from the amortized cost basis of total securities. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that unrealized losses were due to changing interest rate environments. As we do not intend to sell our debt securities before recovery of their cost basis and we believe it is more likely than not that we will not be required to sell our debt securities before recovery of the cost basis, no declines are deemed to be other-than-temporary.

The amortized cost and fair value of debt securities at September 30, 2011, by contractual maturity, are shown below. The contractual maturity is utilized below for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

The maturities of securities and their weighted average yields at September 30, 2011 are also shown in the following table. The yields for municipal securities are included at their tax equivalent yield.

	Weighted Average Yield			Amortized Cost		Fair Value
Due in 2011		NA		$	0	$	0
Due in 2012 through 2016		5.09	%		6,589,000		6,952,000
Due in 2017 through 2021		4.43			18,505,000		18,859,000
Due in 2022 and beyond		4.75			88,273,000		90,558,000
Mortgage-backed securities		5.14			35,235,000		38,467,000
Michigan Strategic Fund bonds		2.88			16,955,000		16,955,000
Mutual funds		2.94			1,294,000		1,343,000
		4.61	%	$	166,851,000	$	173,134,000

At September 30, 2011, and December 31, 2010, the amortized cost of securities issued by the State of Michigan and all its political subdivisions totaled $30.9 million and $33.4 million, respectively, with an estimated market value of $31.9 million and $32.9 million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations and mortgage-backed securities that are pledged to secure repurchase agreements and letters of credit issued on behalf of our customers was $94.4 million and $166.9 million at September 30, 2011 and December 31, 2010, respectively. In addition, substantially all of our municipal bonds have been pledged to the Discount Window of the Federal Reserve Bank of Chicago. Investments in Federal Home Loan Bank stock are restricted and may only be resold or redeemed by the issuer.