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, 2012 and 2011:



	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
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
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



	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
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
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

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 December 31, 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 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, 2012.

At December 31, 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 December 31, 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 55% on its $10.0 million trust preferred investment security and 45% for its $0.5 million trust preferred investment security. Based upon these implied yields, the fair values of the $10.0 million and $0.5 million trust preferred investment securities at December 31, 2012, were calculated by the Corporation at $5.5 million and $0.2 million, respectively, resulting in a combined unrealized loss of $4.8 million at that date. At December 31, 2012, the Corporation concluded that the $4.8 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 December 31, 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.



	December 31, 2012
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	268,608	$	270,737
Due after one year through five years	250,615		252,835
Due after five years through ten years	47,488		49,260
Due after ten years	7,379		7,488
Preferred stock	6,144		6,489
Total	$	580,234	$	586,809
Investment Securities Held-to-Maturity:
Due in one year or less	$	38,311	$	38,371
Due after one year through five years	92,915		94,790
Due after five years through ten years	64,915		67,129
Due after ten years	33,836		29,632
Total	$	229,977	$	229,922

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at December 31, 2012 and 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
December 31, 2012	(In thousands)
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
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

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, 2012, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at December 31, 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 $4.8 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 December 31, 2012 , the Corporation expected to recover the entire amortized cost basis of these investment securities.

At December 31, 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 December 31, 2012 , 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, 2012. However, there is no assurance that OTTI may not occur in the future.

Investment securities with an amortized cost of $501 million and $537 million at December 31, 2012 and 2011, respectively, were pledged to secure public fund deposits, short-term borrowings and for other purposes as required by law.