Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities [Abstract]

Investment Securities

Note 3: 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, 2011, December 31, 2010 and June 30, 2010:

	Investment Securities Available-for-Sale
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
June 30, 2011
Government sponsored agencies	$	108,957	$	283	$	36	$	109,204
State and political subdivisions		43,793		1,163		6		44,950
Residential mortgage-backed securities		111,760		4,036		191		115,605
Collateralized mortgage obligations		283,840		775		371		284,244
Corporate bonds		56,941		138		175		56,904
Preferred stock		1,389		170		—		1,559
Total	$	606,680	$	6,565	$	779	$	612,466
December 31, 2010
Government sponsored agencies	$	117,167	$	394	$	40	$	117,521
State and political subdivisions		45,951		326		231		46,046
Residential mortgage-backed securities		132,683		4,439		187		136,935
Collateralized mortgage obligations		233,202		911		192		233,921
Corporate bonds		43,115		99		467		42,747
Preferred stock		1,389		51		—		1,440
Total	$	573,507	$	6,220	$	1,117	$	578,610
June 30, 2010
Government sponsored agencies	$	163,194	$	730	$	82	$	163,842
State and political subdivisions		47,312		561		—		47,873
Residential mortgage-backed securities		152,112		4,582		335		156,359
Collateralized mortgage obligations		247,407		661		711		247,357
Corporate bonds		29,230		135		246		29,119
Total	$	639,255	$	6,669	$	1,374	$	644,550

	Investment Securities Held-to-Maturity
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
June 30, 2011
State and political subdivisions	$	179,529	$	4,614	$	1,223	$	182,920
Trust preferred securities		10,500		—		5,825		4,675
Total	$	190,029	$	4,614	$	7,048	$	187,595
December 31, 2010
State and political subdivisions	$	154,900	$	2,106	$	1,758	$	155,248
Trust preferred securities		10,500		—		6,560		3,940
Total	$	165,400	$	2,106	$	8,318	$	159,188
June 30, 2010
State and political subdivisions	$	154,796	$	2,400	$	1,106	$	156,090
Trust preferred securities		10,500		—		6,875		3,625
Total	$	165,296	$	2,400	$	7,981	$	159,715

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, 2011, 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 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 non-public bank holding company located in Michigan that incurred net losses in both 2010 and 2009, although remained well-capitalized under regulatory guidelines during that time.

At June 30, 2011, 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 June 30, 2011, 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 45% on its $10.0 million trust preferred investment security and 35% for its $0.5 million trust preferred investment security. Based upon these implied yields, the fair values of the trust preferred investment securities were calculated by the Corporation at $4.5 million and $0.2 million, respectively, resulting in a combined impairment of $5.8 million. At June 30, 2011, the Corporation concluded that the $5.8 million of combined impairment 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 June 30, 2011, 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, 2011
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	102,789	$	103,451
Due after one year through five years		365,277		367,800
Due after five years through ten years		82,693		83,886
Due after ten years		54,532		55,770
Preferred stock		1,389		1,559
Total	$	606,680	$	612,466
Investment Securities Held-to-Maturity:
Due in one year or less	$	27,053	$	27,108
Due after one year through five years		82,904		83,729
Due after five years through ten years		50,426		51,995
Due after ten years		29,646		24,763
Total	$	190,029	$	187,595

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at June 30, 2011, December 31, 2010 and June 30, 2010, 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
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
June 30, 2011
Government sponsored agencies	$	29,311	$	34	$	2,860	$	2	$	32,171	$	36
State and political subdivisions		48,011		1,046		12,173		183		60,184		1,229
Residential mortgage-backed securities		25,538		185		1,240		6		26,778		191
Collateralized mortgage obligations		94,073		300		27,617		71		121,690		371
Corporate bonds		24,853		147		2,468		28		27,321		175
Trust preferred securities		—		—		4,675		5,825		4,675		5,825
Total	$	221,786	$	1,712	$	51,033	$	6,115	$	272,819	$	7,827
December 31, 2010
Government sponsored agencies	$	20,117	$	40	$	—	$	—	$	20,117	$	40
State and political subdivisions		71,900		1,863		3,800		126		75,700		1,989
Residential mortgage-backed securities		26,117		187		—		—		26,117		187
Collateralized mortgage obligations		57,556		170		9,616		22		67,172		192
Corporate bonds		24,683		317		2,341		150		27,024		467
Trust preferred securities		—		—		3,940		6,560		3,940		6,560
Total	$	200,373	$	2,577	$	19,697	$	6,858	$	220,070	$	9,435
June 30, 2010
Government sponsored agencies	$	21,237	$	82	$	—	$	—	$	21,237	$	82
State and political subdivisions		34,383		844		10,427		262		44,810		1,106
Residential mortgage-backed securities		46,896		335		—		—		46,896		335
Collateralized mortgage obligations		98,813		689		13,126		22		111,939		711
Corporate bonds		—		—		2,241		246		2,241		246
Trust preferred securities		—		—		3,625		6,875		3,625		6,875
Total	$	201,329	$	1,950	$	29,419	$	7,405	$	230,748	$	9,355

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, 2011, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at June 30, 2011 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 $5.8 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 June 30, 2011, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At June 30, 2011, 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, 2011, 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 six months ended June 30, 2011. However, there is no assurance that OTTI may not occur in the future.