Securities

12 Months Ended

Dec. 31, 2012

Securities [Abstract]

SECURITIES

NOTE 2 – SECURITIES

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
2012
U.S. Government agency debt obligations	$	78,447,000	$	1,039,000	$	(388,000	)	$	79,098,000
Mortgage-backed securities		20,182,000		1,814,000		0			21,996,000
Michigan Strategic Fund bonds		11,255,000		0		0			11,255,000
Municipal general obligation bonds		21,700,000		1,043,000		0			22,743,000
Municipal revenue bonds		1,726,000		91,000		0			1,817,000
Mutual funds		1,354,000		51,000		0			1,405,000
	$	134,664,000	$	4,038,000	$	(388,000	)	$	138,314,000
2011
U.S. Government agency debt obligations	$	86,783,000	$	1,872,000	$	(59,000	)	$	88,596,000
Mortgage-backed securities		31,851,000		2,759,000		0			34,610,000
Michigan Strategic Fund bonds		16,700,000		0		0			16,700,000
Municipal general obligation bonds		26,212,000		1,097,000		0			27,309,000
Municipal revenue bonds		4,300,000		123,000		0			4,423,000
Mutual funds		1,312,000		42,000		0			1,354,000
	$	167,158,000	$	5,893,000	$	(59,000	)	$	172,992,000

Securities with unrealized losses at year-end 2012 and 2011, 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
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
2012
U.S. Government agency debt obligations	$	33,555,000	$	(388,000	)	$	0	$	0		$	33,555,000	$	(388,000	)
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			0		0			0		0
Municipal revenue bonds		0		0			0		0			0		0
Mutual funds		0		0			0		0			0		0
	$	33,555,000	$	(388,000	)	$	0	$	0		$	33,555,000	$	(388,000	)
2011
U.S. Government agency debt obligations	$	9,765,000	$	(33,000	)	$	9,526,000	$	(26,000	)	$	19,291,000	$	(59,000	)
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			0		0			0		0
Municipal revenue bonds		0		0			0		0			0		0
Mutual funds		0		0			0		0			0		0
	$	9,765,000	$	(33,000	)	$	9,526,000	$	(26,000	)	$	19,291,000	$	(59,000	)

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, 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 December 31, 2012, 22 debt securities with a combined fair value totaling $33.6 million have unrealized losses aggregating $0.4 million, or 0.3% from the amortized cost basis of total securities. At December 31, 2012, 187 debt securities and a mutual fund with a combined fair value totaling $85.5 million have unrealized gains aggregating $4.0 million, or 3.0% 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 the securities, we believe it is more likely than not that we will not be required to sell the securities before recovery and we do expect to recover the entire amortized cost of the securities, no unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair values of debt securities at December 31, 2012, by maturity, are shown in the following table. The contractual maturity is utilized 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 penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.

	Weighted Average Yield			Amortized Cost		Fair Value
Due in one year or less		5.35	%	$	1,998,000	$	2,033,000
Due from one to five years		5.79			3,649,000		3,841,000
Due from five to ten years		3.09			26,765,000		27,029,000
Due after ten years		4.22			69,461,000		70,755,000
Mortgage-backed securities		5.19			20,182,000		21,996,000
Michigan Strategic Fund bonds		1.74			11,255,000		11,255,000
Mutual funds		3.03			1,354,000		1,405,000
		4.00	%	$	134,664,000	$	138,314,000

After analyzing our current and forecasted federal income tax position, we sold certain tax-exempt municipal bonds with an aggregate book value of $20.0 million in 2010. Immediately subsequent to the sale, we reclassified the remaining tax-exempt municipal bonds with an amortized cost of $39.2 million from held to maturity to available for sale. The net unrealized gain at the date of transfer amounted to $0.4 million and was reported in other comprehensive income net of tax effect. During 2012 and 2011, there were no securities sold.

At year-end 2012 and 2011, the amortized cost of securities issued by the State of Michigan and all its political subdivisions totaled $23.4 million and $30.5 million, with an estimated fair value of $24.6 million and $31.7 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 $83.8 million and $109.0 million at December 31, 2012 and 2011, 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 FHLB stock are restricted and may only be resold to, or redeemed by, the issuer.