Investment Securities

12 Months Ended

Dec. 31, 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 December 31, 2011 and 2010:

	Investment Securities Available-for-Sale
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
December 31, 2011
Government sponsored agencies	$	70,486	$	240	$	47	$	70,679
State and political subdivisions		42,881		2,354		—		45,235
Residential mortgage-backed securities		117,198		3,883		301		120,780
Collateralized mortgage obligations		332,632		600		832		332,400
Corporate bonds		97,558		45		835		96,768
Preferred stock		1,389		46		21		1,414
Total	$	662,144	$	7,168	$	2,036	$	667,276
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

	Investment Securities Held-to-Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(In thousands)
December 31, 2011
State and political subdivisions	$	172,839	$	6,807	$	342	$	179,304
Trust preferred securities		10,500		—		6,035		4,465
Total	$	183,339	$	6,807	$	6,377	$	183,769
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

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 December 31, 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 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 recognized a small amount of net income in 2011, compared to a net loss in 2010, and was considered well-capitalized under regulatory guidelines at December 31, 2011.

At December 31, 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 possible 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 December 31, 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 $10.0 million and $0.5 million trust preferred investment securities at December 31, 2011 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 that date. At December 31, 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 December 31, 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.

	December 31, 2011
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	343,484	$	345,415
Due after one year through five years		241,070		241,405
Due after five years through ten years		60,595		62,695
Due after ten years		15,606		16,347
Preferred stock		1,389		1,414
Total	$	662,144	$	667,276

	December 31, 2011
	Amortized Cost		Fair Value
	(In thousands)
Investment Securities Held-to-Maturity:
Due in one year or less	$	25,963	$	26,063
Due after one year through five years		75,577		77,297
Due after five years through ten years		51,555		54,361
Due after ten years		30,244		26,048
Total	$	183,339	$	183,769

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized losses at December 31, 2011 and 2010, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position.

	December 31, 2011
	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)
Government sponsored agencies	$	9,883	$	36	$	9,632	$	11	$	19,515	$	47
State and political subdivisions		—		—		31,706		342		31,706		342
Residential mortgage-backed securities		27,367		152		19,018		149		46,385		301
Collateralized mortgage obligations		200,218		703		18,176		129		218,394		832
Corporate bonds		50,590		415		14,580		420		65,170		835
Trust preferred securities		—		—		4,465		6,035		4,465		6,035
Preferred stock		—		—		319		21		319		21
Total	$	288,058	$	1,306	$	97,896	$	7,107	$	385,954	$	8,413

	December 31, 2010
	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)
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

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 at December 31, 2011, represented an OTTI. Management believed that the unrealized losses on investment securities at December 31, 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 assessed by the Corporation to be attributable to illiquidity in certain financial markets. The Corporation performed an analysis of the creditworthiness of these issuers and concluded that, at December 31, 2011, the Corporation expected to recover the entire amortized cost basis of these investment securities.

At December 31, 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 December 31, 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 year ended December 31, 2011. However, there is no assurance that OTTI may not occur in the future.

Investment securities with an amortized cost of $537 million and $435 million at December 31, 2011 and 2010, respectively, were pledged to secure public fund deposits, short-term borrowings and for other purposes as required by law.