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, 2014, December 31, 2013 and June 30, 2013:



	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
June 30, 2014
Government sponsored agencies	$	88,503	$	346	$	141	$	88,708
State and political subdivisions	40,165		1,443		—		41,608
Residential mortgage-backed securities	265,673		1,117		1,422		265,368
Collateralized mortgage obligations	154,035		376		1,128		153,283
Corporate bonds	64,979		456		83		65,352
Preferred stock	1,389		267		—		1,656
Total	$	614,744	$	4,005	$	2,774	$	615,975
December 31, 2013
Government sponsored agencies	$	93,895	$	250	$	382	$	93,763
State and political subdivisions	42,450		1,355		7		43,798
Residential mortgage-backed securities	303,495		968		5,097		299,366
Collateralized mortgage obligations	182,128		452		1,639		180,941
Corporate bonds	65,028		499		252		65,275
Preferred stock	1,389		63		25		1,427
Total	$	688,385	$	3,587	$	7,402	$	684,570
June 30, 2013
Government sponsored agencies	$	92,239	$	249	$	400	$	92,088
State and political subdivisions	44,288		1,500		8		45,780
Residential mortgage-backed securities	311,425		1,166		4,219		308,372
Collateralized mortgage obligations	221,025		463		973		220,515
Corporate bonds	65,077		692		254		65,515
Preferred stock	1,389		393		—		1,782
Total	$	735,443	$	4,463	$	5,854	$	734,052



	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
June 30, 2014
State and political subdivisions	$	297,630	$	5,885	$	6,329	$	297,186
Trust preferred securities	10,500		—		3,725		6,775
Total	$	308,130	$	5,885	$	10,054	$	303,961
December 31, 2013
State and political subdivisions	$	263,405	$	5,462	$	6,846	$	262,021
Trust preferred securities	10,500		—		4,250		6,250
Total	$	273,905	$	5,462	$	11,096	$	268,271
June 30, 2013
State and political subdivisions	$	264,215	$	6,113	$	5,181	$	265,147
Trust preferred securities	10,500		—		4,250		6,250
Total	$	274,715	$	6,113	$	9,431	$	271,397

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, 2014, 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 June 30, 2014.

At June 30, 2014, 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 unobservable inputs, including appropriate risk adjustments that market participants would make for possible 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 June 30, 2014 of $6.5 million on its $10.0 million trust preferred investment security and $0.3 million on its $0.5 million trust preferred investment security, resulting in a combined unrealized loss of $3.7 million at that date.

The following is a summary of the amortized cost and fair value of investment securities at June 30, 2014, 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, 2014
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	159,350	$	159,511
Due after one year through five years	371,009		371,673
Due after five years through ten years	78,876		79,101
Due after ten years	4,120		4,034
Preferred stock	1,389		1,656
Total	$	614,744	$	615,975
Investment Securities Held-to-Maturity:
Due in one year or less	$	34,176	$	34,260
Due after one year through five years	132,011		133,164
Due after five years through ten years	88,674		89,653
Due after ten years	53,269		46,884
Total	$	308,130	$	303,961

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at June 30, 2014, December 31, 2013 and June 30, 2013, 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, 2014
Government sponsored agencies	$	2,377	$	2	$	44,786	$	139	$	47,163	$	141
State and political subdivisions	92,279		4,047		71,421		2,282		163,700		6,329
Residential mortgage-backed securities	10,144		60		197,042		1,362		207,186		1,422
Collateralized mortgage obligations	47,142		68		35,722		1,060		82,864		1,128
Corporate bonds	4,996		5		14,922		78		19,918		83
Trust preferred securities	—		—		6,775		3,725		6,775		3,725
Total	$	156,938	$	4,182	$	370,668	$	8,646	$	527,606	$	12,828
December 31, 2013
Government sponsored agencies	$	47,352	$	205	$	14,031	$	177	$	61,383	$	382
State and political subdivisions	126,345		6,475		19,074		378		145,419		6,853
Residential mortgage-backed securities	274,076		5,097		—		—		274,076		5,097
Collateralized mortgage obligations	84,995		1,127		14,684		512		99,679		1,639
Corporate bonds	14,931		78		19,826		174		34,757		252
Trust preferred securities	—		—		6,250		4,250		6,250		4,250
Preferred stock	1,024		25		—		—		1,024		25
Total	$	548,723	$	13,007	$	73,865	$	5,491	$	622,588	$	18,498
June 30, 2013
Government sponsored agencies	$	58,646	$	400	$	—	$	—	$	58,646	$	400
State and political subdivisions	128,062		4,707		19,378		482		147,440		5,189
Residential mortgage-backed securities	267,211		4,217		257		2		267,468		4,219
Collateralized mortgage obligations	100,469		939		8,083		34		108,552		973
Corporate bonds	4,881		130		19,876		124		24,757		254
Trust preferred securities	—		—		6,250		4,250		6,250		4,250
Total	$	559,269	$	10,393	$	53,844	$	4,892	$	613,113	$	15,285

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, 2014, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at June 30, 2014 were temporary in nature and due primarily to changes in interest rates and reduced market liquidity and not as a result of credit-related issues. Unrealized losses of $3.7 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 financial markets for these types of investments. The Corporation performed an analysis of the creditworthiness of these issuers and concluded that, at June 30, 2014, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At June 30, 2014, 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, 2014, 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.