FAIR VALUE

6 Months Ended

Jun. 30, 2011

FAIR VALUE [Abstract]

FAIR VALUE

7.      FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1:                 Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:                 Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:                 Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Corporation used the following methods and significant assumptions to estimate the fair value:

Investment Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used, if available, to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Impaired Loans:  The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned:  Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

The following table summarizes, for the periods indicated, assets measured at fair value on a recurring basis, including financial assets for which the Corporation has elected the fair value option:

Assets Measured on a Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)
	June 30,
(In Thousands)	2011
Assets:
Available for Sale:
U.S. Government-Sponsored
Entities	$	7,294	$	-	$	7,294	$	-
Mortgage-Backed Securities -
Residential		223,968		-		223,968		-
State and Political Subdivisions		13,990		-		13,990		-
Other Securities		2,434		-		2,434		-
CRA Investment Fund		1,514		-		1,514		-
Marketable Equity Securities		637		637		-		-
Total	$	249,837	$	637	$	249,200	$	-
	December 31,
	2010
Assets:
Available for Sale:
U.S. Treasury and U.S.
Government-Sponsored
Entities	$	51,135	$	-	$	51,135	$	-
Mortgage-Backed Securities -
Residential		202,090		-		202,090		-
State and Political Subdivisions		16,613		-		16,613		-
Other Securities		3,001		-		3,001		-
CRA Investment Fund		1,499		-		1,499		-
Marketable Equity Securities		738		738		-		-
Total	$	275,076	$	738	$	274,338	$	-

The following table summarizes, for the periods indicated, assets measured at fair value on a non-recurring basis:

Assets Measured on a Non-Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)
	June 30,
(In Thousands)	2011
Assets:
Impaired Loans:
Residential Mortgage	$	1,809	$	-	$	-	$	1,809
Commercial Mortgage		5,287		-		-		5,287
Commercial		57		-		-		57
	December 31,
	2010
Assets:
Impaired Loans:
Commercial Mortgage	$	10,452	$	-	$	-	$	10,452
Commercial		3,346		-		-		3,346

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $8.9 million, with a valuation allowance of $1.7 million at June 30, 2011. Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $23.2 million, with a valuation allowance of $2.5 million at December 31, 2010.

The carrying amounts and estimated fair values for financial instruments at June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
(In Thousands)	Amount		Value		Amount		Value
Financial Assets:
Cash and Cash Equivalents	$	60,384	$	60,384	$	62,687	$	62,687
Investment Securities, Held to Maturity		140,572		140,589		140,277		138,438
Securities Available for Sale		249,837		249,837		275,076		275,076
FHLB and FRB Stock		4,704		N/A		4,624		N/A
Loans Held for Sale		1,813		1,813		-		-
Loans, Net of Allowance for
Loan Losses		951,701		953,010		918,215		917,257
Accrued Interest Receivable		4,391		4,391		4,231		4,231
Financial Liabilities:
Deposits		1,361,711		1,364,263		1,351,546		1,353,834
Federal Home Loan Bank Advances		20,905		22,205		24,126		25,330
Accrued Interest Payable		539		539		716		716

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

The carrying amount is the estimated fair value for cash and cash equivalents, interest-earning deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable-rate loans or deposits that reprice frequently and fully. For fixed-rate loans or deposits and for variable-rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk, including consideration of credit spreads. Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of FHLB or FRB stock due to restrictions placed on its transferability. The fair value of off-balance sheet items is not considered material or is based on the current fees or cost that would be charged to enter into or terminate such arrangements.