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 March 31, 2013, December 31, 2012 and March 31, 2012:



	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
March 31, 2013
Government sponsored agencies	$	94,939	$	608	$	168	$	95,379
State and political subdivisions	47,043		2,206		—		49,249
Residential mortgage-backed securities	237,256		1,984		48		239,192
Collateralized mortgage obligations	246,751		1,087		170		247,668
Corporate bonds	65,114		783		349		65,548
Preferred stock	6,144		442		—		6,586
Total	$	697,247	$	7,110	$	735	$	703,622
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
March 31, 2012
Government sponsored agencies	$	77,365	$	240	$	79	$	77,526
State and political subdivisions	41,816		2,240		—		44,056
Residential mortgage-backed securities	107,126		3,938		159		110,905
Collateralized mortgage obligations	355,291		1,356		695		355,952
Corporate bonds	86,547		218		699		86,066
Preferred stock	1,389		113		—		1,502
Total	$	669,534	$	8,105	$	1,632	$	676,007



	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
March 31, 2013
State and political subdivisions	$	247,249	$	10,002	$	1,886	$	255,365
Trust preferred securities	10,500		—		4,460		6,040
Total	$	257,749	$	10,002	$	6,346	$	261,405
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
March 31, 2012
State and political subdivisions	$	180,797	$	7,449	$	549	$	187,697
Trust preferred securities	10,500		—		5,825		4,675
Total	$	191,297	$	7,449	$	6,374	$	192,372

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 March 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 categorized as well-capitalized under regulatory guidelines at March 31, 2013.

At March 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 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 March 31, 2013 of $5.8 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 $4.5 million at that date. At March 31, 2013, the Corporation concluded that the $4.5 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 March 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.



	March 31, 2013
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	111,238	$	112,000
Due after one year through five years	110,514		112,051
Due after five years through ten years	351,441		353,879
Due after ten years	117,910		119,106
Preferred stock	6,144		6,586
Total	$	697,247	$	703,622
Investment Securities Held-to-Maturity:
Due in one year or less	$	37,103	$	37,168
Due after one year through five years	103,486		106,000
Due after five years through ten years	78,048		82,248
Due after ten years	39,112		35,989
Total	$	257,749	$	261,405

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at March 31, 2013, December 31, 2012 and March 31, 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
	(In thousands)
March 31, 2013
Government sponsored agencies	$	17,281	$	168	$	—	$	—	$	17,281	$	168
State and political subdivisions	73,880		1,667		10,685		219		84,565		1,886
Residential mortgage-backed securities	86,179		45		374		3		86,553		48
Collateralized mortgage obligations	27,802		133		8,560		37		36,362		170
Corporate bonds	—		—		19,651		349		19,651		349
Trust preferred securities	—		—		6,040		4,460		6,040		4,460
Total	$	205,142	$	2,013	$	45,310	$	5,068	$	250,452	$	7,081
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
March 31, 2012
Government sponsored agencies	$	19,205	$	54	$	9,897	$	25	$	29,102	$	79
State and political subdivisions	26,775		525		3,956		24		30,731		549
Residential mortgage-backed securities	32		1		20,630		158		20,662		159
Collateralized mortgage obligations	79,386		448		39,597		247		118,983		695
Corporate bonds	29,598		392		14,693		307		44,291		699
Trust preferred securities	—		—		4,675		5,825		4,675		5,825
Total	$	154,996	$	1,420	$	93,448	$	6,586	$	248,444	$	8,006

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 March 31, 2013, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at March 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 $4.5 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 March 31, 2013, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At March 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 March 31, 2013, 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.