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



	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
September 30, 2014
Government sponsored agencies	$	76,626	$	354	$	42	$	76,938
State and political subdivisions	39,589		1,375		—		40,964
Residential mortgage-backed securities	252,908		846		2,715		251,039
Collateralized mortgage obligations	141,273		346		1,174		140,445
Corporate bonds	64,955		295		67		65,183
Preferred stock	1,389		253		—		1,642
Total	$	576,740	$	3,469	$	3,998	$	576,211
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
September 30, 2013
Government sponsored agencies	$	86,065	$	264	$	404	$	85,925
State and political subdivisions	44,191		1,386		5		45,572
Residential mortgage-backed securities	310,550		1,144		3,534		308,160
Collateralized mortgage obligations	200,407		199		2,148		198,458
Corporate bonds	65,053		583		202		65,434
Preferred stock	1,389		208		—		1,597
Total	$	707,655	$	3,784	$	6,293	$	705,146



	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
September 30, 2014
State and political subdivisions	$	308,062	$	5,704	$	6,476	$	307,290
Trust preferred securities	10,500		—		3,515		6,985
Total	$	318,562	$	5,704	$	9,991	$	314,275
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
September 30, 2013
State and political subdivisions	$	272,079	$	5,978	$	8,441	$	269,616
Trust preferred securities	10,500		—		4,250		6,250
Total	$	282,579	$	5,978	$	12,691	$	275,866

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 September 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 September 30, 2014.

At September 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 September 30, 2014 of $6.7 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 $3.5 million at that date.

The following is a summary of the amortized cost and fair value of investment securities at September 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.



	September 30, 2014
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	153,539	$	153,302
Due after one year through five years	349,258		348,952
Due after five years through ten years	68,701		68,537
Due after ten years	3,853		3,778
Preferred stock	1,389		1,642
Total	$	576,740	$	576,211
Investment Securities Held-to-Maturity:
Due in one year or less	$	34,833	$	34,898
Due after one year through five years	135,150		136,359
Due after five years through ten years	95,222		95,839
Due after ten years	53,357		47,179
Total	$	318,562	$	314,275

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at September 30, 2014, December 31, 2013 and September 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)
September 30, 2014
Government sponsored agencies	$	1,744	$	4	$	24,810	$	38	$	26,554	$	42
State and political subdivisions	91,532		4,010		70,116		2,466		161,648		6,476
Residential mortgage-backed securities	34,280		144		196,045		2,571		230,325		2,715
Collateralized mortgage obligations	44,195		81		28,544		1,093		72,739		1,174
Corporate bonds	4,996		4		14,937		63		19,933		67
Trust preferred securities	—		—		6,985		3,515		6,985		3,515
Total	$	176,747	$	4,243	$	341,437	$	9,746	$	518,184	$	13,989
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
September 30, 2013
Government sponsored agencies	$	43,816	$	223	$	14,395	$	181	$	58,211	$	404
State and political subdivisions	120,232		6,918		30,915		1,528		151,147		8,446
Residential mortgage-backed securities	267,495		3,532		40		2		267,535		3,534
Collateralized mortgage obligations	129,049		1,617		15,302		531		144,351		2,148
Corporate bonds	9,926		85		19,883		117		29,809		202
Trust preferred securities	—		—		6,250		4,250		6,250		4,250
Total	$	570,518	$	12,375	$	86,785	$	6,609	$	657,303	$	18,984

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 September 30, 2014, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at September 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 $3.5 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 financial markets for these types of investments. The Corporation performed an analysis of the creditworthiness of these issuers and concluded that, at September 30, 2014, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At September 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 September 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.