Investment Securities

9 Months Ended

Sep. 30, 2011

Investments, Debt and Equity 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 September 30, 2011, December 31, 2010 and September 30, 2010:

	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
September 30, 2011
Government sponsored agencies	$	74,381	$	241	$	61	$	74,561
State and political subdivisions		43,647		1,817		—		45,464
Residential mortgage-backed securities		125,400		3,910		446		128,864
Collateralized mortgage obligations		295,347		1,029		444		295,932
Corporate bonds		64,828		35		679		64,184
Preferred stock		1,389		99		—		1,488
Total	$	604,992	$	7,131	$	1,630	$	610,493
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
September 30, 2010
Government sponsored agencies	$	139,298	$	640	$	17	$	139,921
State and political subdivisions		47,231		1,491		1		48,721
Residential mortgage-backed securities		152,446		4,476		149		156,773
Collateralized mortgage obligations		239,777		736		224		240,289
Corporate bonds		23,132		148		161		23,119
Total	$	601,884	$	7,491	$	552	$	608,823
	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
September 30, 2011
State and political subdivisions	$	175,932	$	5,635	$	1,008	$	180,559
Trust preferred securities		10,500		—		6,035		4,465
Total	$	186,432	$	5,635	$	7,043	$	185,024
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
September 30, 2010
State and political subdivisions	$	144,975	$	3,824	$	527	$	148,272
Trust preferred securities		10,500		—		6,560		3,940
Total	$	155,475	$	3,824	$	7,087	$	152,212

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, 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 reported net income for the nine months ended September 30, 2011 compared to a net loss in 2010, while remaining well-capitalized under regulatory guidelines during that time.

At September 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 September 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 43% on its $10.0 million trust preferred investment security and 33% 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 $4.3 million and $0.2 million, respectively, resulting in a combined unrealized loss of $6.0 million. At September 30, 2011, the Corporation concluded that the $6.0 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 September 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.

	September 30, 2011
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	135,281	$	135,643
Due after one year through five years		328,234		330,180
Due after five years through ten years		71,279		72,943
Due after ten years		68,809		70,239
Preferred stock		1,389		1,488
Total	$	604,992	$	610,493
Investment Securities Held-to-Maturity:
Due in one year or less	$	26,135	$	26,191
Due after one year through five years		78,625		79,367
Due after five years through ten years		51,323		53,588
Due after ten years		30,349		25,878
Total	$	186,432	$	185,024

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at September 30, 2011, December 31, 2010 and September 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
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In thousands)
September 30, 2011
Government sponsored agencies	$	28,763	$	59	$	2,753	$	2	$	31,516	$	61
State and political subdivisions		38,661		874		7,544		134		46,205		1,008
Residential mortgage-backed securities		29,560		343		19,206		103		48,766		446
Collateralized mortgage obligations		108,302		367		16,164		77		124,466		444
Corporate bonds		37,658		648		2,467		31		40,125		679
Trust preferred securities		—		—		4,465		6,035		4,465		6,035
Total	$	242,944	$	2,291	$	52,599	$	6,382	$	295,543	$	8,673
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
September 30, 2010
Government sponsored agencies	$	10,863	$	17	$	—	$	—	$	10,863	$	17
State and political subdivisions		22,912		418		5,717		110		28,629		528
Residential mortgage-backed securities		30,763		149		—		—		30,763		149
Collateralized mortgage obligations		95,231		224		—		—		95,231		224
Corporate bonds		—		—		2,329		161		2,329		161
Trust preferred securities		—		—		3,940		6,560		3,940		6,560
Total	$	159,769	$	808	$	11,986	$	6,831	$	171,755	$	7,639

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, 2011, represented an other-than-temporary impairment (OTTI). Management believed that the unrealized losses on investment securities at September 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 $6.0 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 September 30, 2011, the Corporation expected to recover the entire amortized cost basis of these investment securities.

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