10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number:  0-24168

TF FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	74-2705050
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
3 Penns Trail, Newtown, Pennsylvania	18940
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (215) 579-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.10 per share	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES o     NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  YES o     NO x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES xNO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o YES o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o	Accelerated filer  o
Non-accelerated filer  o	Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES oNO x

The aggregate market value of the voting common equity held by non-affiliates of the registrant, based on the closing price of the registrant’s Common Stock as quoted on the Nasdaq System on June 30, 2010, was $40.0 million (1,835,803 shares at $21.80 per share).

As of March 08, 2011 there were outstanding 2,822,449 shares of the registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended December 31, 2010. (Parts I, II and IV)

2. Portions of the Proxy Statement for the 2011 Annual Meeting of Stockholders. (Part III)

PART I

TF FINANCIAL CORPORATION (THE “COMPANY”) MAY FROM TIME TO TIME MAKE WRITTEN OR ORAL “FORWARD-LOOKING STATEMENTS”, INCLUDING STATEMENTS CONTAINED IN THE COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS HERETO), IN ITS REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY’S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME OF WHICH ARE BEYOND THE COMPANY’S CONTROL).  THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE THE COMPANY’S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS OPERATIONS; THE EFFECTS OF, AND CHANGES IN, MONETARY AND FISCAL POLICIES AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO COMPETITORS’ PRODUCTS AND SERVICES; THE IMPACT OF CHANGES IN FINANCIAL SERVICES’ LAWS AND REGULATIONS (INCLUDING THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT AND OTHER LAWS CONCERNING TAXES, BANKING, SECURITIES AND INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED IN THE FOREGOING.

THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS NOT EXCLUSIVE.  THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

Item 1. Business

BUSINESS OF THE COMPANY

On July 13, 1994, the Company consummated its public offering of 5,290,000 shares of its common stock and acquired Third Federal Bank (the “Bank”) as part of the Bank’s mutual-to-stock conversion.  The Company was incorporated under Delaware law in March 1994.  The Company is a savings and loan holding company and is subject to regulation by the Office of Thrift Supervision (the “OTS”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Securities and Exchange Commission (the “SEC”).  The Company does not transact any material business other than through its direct and indirect subsidiaries: Third Federal Bank, TF Investments Corporation, Teragon Financial Corporation, Penns Trail Development Corporation and Third Delaware Corporation. At December 31, 2010, the Company had total assets of $691.8 million, total liabilities of $618.3 million and stockholders’ equity of $73.4 million.

BUSINESS OF THE BANK

The Bank is a federally-chartered stock savings bank, which was originally chartered in 1921 as a Pennsylvania-chartered building and loan association.  The Bank’s deposits are insured up to the maximum amount allowable by the FDIC.

The Bank is a community oriented savings institution offering a variety of financial services to meet the needs of the communities it serves.  As of December 31, 2010 the Bank operated fourteen branch offices in Bucks and Philadelphia Counties, Pennsylvania and in Mercer County, New Jersey.

The Bank attracts deposits from the general public and uses such deposits, together with borrowings and other funds primarily to originate or purchase loans secured by first mortgages on owner-occupied, one-to-four family residences in its market area and to invest in mortgage-backed and investment securities.  At December 31, 2010, one-to-four family residential mortgage loans totaled $269.2 million or 53% of the Bank’s total loan portfolio.  At that same date, the Bank had approximately $69.7 million or 10% of total assets invested in mortgage-backed securities and $57.8 million or 8% of total assets in investment securities. The Bank also originates commercial real estate and multi-family, construction and consumer loans.

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The Bank has two subsidiaries, Third Delaware Corporation, which was incorporated in 1998 for the purpose of holding and managing mortgage-backed securities and investment securities for the Bank, and Teragon Financial Corporation which holds a 75% limited partnership interest in a captive title insurance agency, Third Fed Abstract, L. P. During 2007, Teragon Financial Corporation was granted approval by the Commonwealth of Pennsylvania to conduct business as an insurance agency.

Market Area

The Bank offers a wide range of consumer and business products at its fourteen full service branch offices located in Bucks and Philadelphia Counties in Pennsylvania, and Mercer County in New Jersey. Five of the branch offices are located in Bucks County, the third wealthiest county in Pennsylvania. Bucks County is a growing region offering opportunity for growth for the Bank. Seven branches are located in the northeast section of Philadelphia where the Bank was founded. Although Philadelphia County is experiencing population decline, the Bank’s branches in this section of Philadelphia represent a deposit stronghold. The remaining two branches are in Mercer County, New Jersey which has an expanding population and represents another growth area for the Bank.

Competition

The Bank faces varying degrees of competition from banks, thrift institutions and credit unions at its various branch locations.  Stronger competition has come from local and very large regional commercial banks based in and around the Philadelphia area.  Based upon the latest available data, at June 30, 2010 the Company’s share of deposits in each of the counties in which it operates was as follows:

County, State	Market Share for Entire County		Market Share for ZIP Codes Including Company Branches
Philadelphia, Pennsylvania	0.49	%	11.55	%
Bucks, Pennsylvania	1.64	%	5.36	%
Mercer, New Jersey	0.85	%	8.03	%

Lending Activities

General.  The Bank’s loan portfolio composition consists primarily of adjustable-rate (“ARM”) and fixed-rate first mortgage loans secured by one-to-four family residences.  The Bank also makes commercial real estate and multi-family loans, construction loans and consumer and other loans.  At December 31, 2010, the Bank’s mortgage loans outstanding were $425.3 million, of which $269.2 million were secured by first mortgages on one-to-four family residential property.  Of the one-to-four family residential mortgage loans outstanding at that date, 19% were ARM’s and 81% were fixed-rate loans.  At that same date, commercial real estate and multi-family residential loans totaled $137.3 million, and construction loans totaled $18.8 million. The construction loans are predominately floating-rate, prime-rate-based loans.

Consumer and other loans held by the Bank totaled $51.8 million or 10% of total loans outstanding at December 31, 2010, of which $49.4 million consisted of home equity and second mortgage loans. At that same date commercial business loans totaled $32.2 million or 6% of total loans.

The following table sets forth the composition of the Bank’s loan portfolio and mortgage-backed and related securities portfolios in dollar amounts and in percentages of the respective portfolios at the dates indicated.

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	At December 31,
	2010					2009					2008					2007					2006
	Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total		Amount			Percent of Total		Amount			Percent  of Total
	(Dollars in thousands)
Loans receivable:
Mortgage loans:
One-to-four family	$	269,077		52.84	%	$	271,651		50.85	%	$	281,870		51.48	%	$	272,840		52.55	%	$	266,789		54.91	%
Non-residential or non-owner occupied  residential real estate	137,307			26.97	%	134,584			25.19	%	132,640			24.23	%	109,740			21.14	%	93,607			19.26	%
Construction	18,799			3.69	%	29,671			5.55	%	30,633			5.60	%	35,507			6.84	%	34,944			7.19	%
Total mortgage loans	425,183			83.50	%	435,906			81.59	%	445,143			81.31	%	418,087			80.53	%	395,340			81.36	%
Consumer loans:
Home equity and second mortgage	49,430			9.71	%	54,811			10.26	%	56,233			10.27	%	52,013			10.02	%	46,864			9.65	%
Other consumer	2,407			0.47	%	2,565			0.48	%	2,287			0.42	%	2,244			0.43	%	3,206			0.66	%
Total consumer and other loans	51,837			10.18	%	57,376			10.74	%	58,520			10.69	%	54,257			10.45	%	50,070			10.31	%
Commercial loans:
Commercial -business real estate secured	26,603			5.22	%	33,514			6.27	%	35,591			6.50	%	41,473			7.99	%	34,472			7.09	%
Commercial -business non-real estate secured	5,575			1.10	%	7,462			1.40	%	8,227			1.50	%	5,377			1.03	%	6,022			1.24	%
Total commercial-business loans	32,178			6.32	%	40,976			7.67	%	43,818			8.00	%	46,850			9.02	%	40,494			8.33	%
Total loans	509,198			100.00	%	534,258			100.00	%	547,481			100.00	%	519,194			100.00	%	485,904			100.00	%
Net of:
Deferred loan origination costs and unamortized premiums	658					609					704					675					531
Allowance for loan losses	(8,328		)			(5,215		)			(3,855		)			(2,842		)			(2,865		)
Total loans, held for investment, net	$	501,528				$	529,652				$	544,330				$	517,027				$	483,570
Loans held for sale:
Mortgage loans:
One-to-four family	$	130		100.00	%	$	1,082		100.00	%	$	1,659		100.00	%	$	1,040		100.00	%	$	969		100.00	%
Total loans held for sale	$	130		100.00	%	$	1,082		100.00	%	$	1,659		100.00	%	$	1,040		100.00	%	$	969		100.00	%
Mortgage-backed securities held-to-maturity:
Federal Home Loan Mortgage Corporation (“FHLMC”)	$	566		17.86	%	$	754		20.22	%	$	1,100		23.04	%	$	1,657		26.90	%	$	2,297		29.84	%
Federal National Mortgage Association (“FNMA”)	1,489			46.99	%	1,698			45.47	%	2,141			44.85	%	2,634			42.76	%	3,084			40.07	%
Government National Mortgage Association (“GNMA”)	1,114			35.15	%	1,281			34.31	%	1,533			32.11	%	1,869			30.34	%	2,316			30.09	%
Total mortgage-backed and related securities held-to-maturity	$	3,169		100.00	%	$	3,733		100.00	%	$	4,774		100.00	%	$	6,160		100.00	%	$	7,697		100.00	%
Mortgage-backed securities available-for-sale:
FHLMC	$	2,355		3.54	%	$	3,440		4.40	%	$	4,504		4.20	%	$	5,434		5.54	%	$	7,888		10.61	%
FNMA	9,734			14.64	%	9,146			11.70	%	12,320			11.49	%	11,183			11.39	%	10,330			13.90	%
GNMA	1,637			2,46	%	1,886			2.41	%	—			—		—			—		—			—
REMICs	52,765			79.36	%	63,726			81.49	%	90,393			84.31	%	81,561			83.07	%	56,120			75.49	%
Total mortgage-backed and related securities available-for-sale	$	66,491		100.00	%	$	78,198		100.00	%	$	107,217		100.00	%	$	98,178		100.00	%	$	74,338		100.00	%

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Loan Maturity and Repricing Information.  The following table sets forth certain information at December 31, 2010, regarding the dollar amount of loans maturing in the Bank’s loan portfolio based on their maturity date.  Demand loans, loans having no stated schedule of repayments and no stated maturity, overdrafts and delinquent loans maturing prior to December 31, 2010 are reported as due in one year or less.  The table does not include prepayments or scheduled principal repayments.

	Due 1/1/11 - 12/31/11		Due 1/1/12 - 12/31/15		Due After 12/31/15
	(In thousands)
Loans held for sale:
One-to-four family	$	—	$	—	$	130
Total loans held for sale	$	—	$	—	$	130
Loans receivable:
One-to-four family	$	38	$	6,463	$	262,576
Non-residential or non-owner occupied  residential real estate	6,420		12,987		117,900
Construction	18,799		—		—
Consumer and other	165		3,830		47,842
Commercial loans	18,389		7,954		5,835
Total loans receivable	$	43,811	$	31,234	$	434,153

The following table sets forth the dollar amount of all loans due after December 31, 2011, which have predetermined interest rates and which have floating or adjustable interest rates. Loans which have rate adjustments after ten years are considered to have predetermined rates.

	Predetermined Rates		Floating or Adjustable Rate
	(In thousands)
Loans held for sale:
One-to-four family	$	130	$	—
Total loans held for sale	$	130	$	—
Loans receivable:
One-to-four family	$	217,925	$	51,114
Non-residential or non-owner occupied residential real estate	13,928		116,959
Construction	—		—
Consumer and other	27,491		24,181
Commercial loans and leases	9,358		4,431
Total loans receivable	$	268,702	$	196,685

One-to-Four Family Mortgage Lending.  The Bank offers first mortgage loans secured by one-to-four family residences in the Bank’s lending area.  Typically, such residences are single-family homes that serve as the primary residence of the owner.  The Bank generally originates and invests in one-to-four family residential mortgage loans in amounts up to 80% of the lesser of the appraised value or selling price of the mortgaged property.  Loans originated in amounts over 80% of the lesser of the appraised value or selling price of the mortgaged property must be owner-occupied and private mortgage insurance is typically required.

Loan originations are obtained through the Bank’s retail banking channels, the local community, and referrals from established builders and realtors within the Bank’s lending area using direct advertising in local newspapers, branch signage and promotions, and word of mouth referrals. The Bank also has a mortgage lending department that is separate as to its sales efforts from the consumer lending area of the Bank. This department employs a lending manager and several commissioned loan officers. The mortgage loan officers support the Bank’s branches and customers, and additionally engage in calling efforts directed toward realtors, builders, other loan originators and others that can be sources of lending business for the Bank.

The Bank offers a variety of ARM loans with terms of 30 years which adjust at the end of 6 months, one, three, five, seven and ten years and adjust by a maximum of 3% to 5% per adjustment with a lifetime cap of 5% to 6% over the life of the loan.

The Bank offers fixed-rate mortgage loans with terms of 10 to 30 years, which are payable monthly.  Interest rates charged on fixed-rate mortgage loans are competitively priced based on market conditions.  The origination fees for fixed-rate loans range from 0% to 3% depending on the underlying loan coupon. Generally, the Bank’s standard underwriting guidelines for fixed-rate mortgage loans conform to FNMA guidelines.

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The Bank sells a portion of its conforming fixed-rate mortgage loan originations in the secondary market to FNMA while retaining the servicing rights on these loans. As of December 31, 2010, the Bank’s portfolio of loans serviced for FHLMC or FNMA totaled approximately $98.7 million. The Bank also brokers a small portion of its loan closings to correspondents on a servicing released basis. However, the Bank is primarily a portfolio lender.

Non-residential or Non-owner Occupied Residential Real Estate.  The Bank originates permanent loans secured by commercial real estate including non-owner occupied residential, multi-family dwelling units, professional office buildings and hotels/motels. The Bank generally originates commercial real estate and multi-family loans up to 75% of the appraised value of the property securing the loan.  Currently, it is the Bank’s practice to originate commercial real estate and multi-family loans primarily on properties in its general market area.  The commercial real estate and multi-family loans in the Bank’s portfolio consist of fixed-rate, ARM and balloon loans originated at prevailing market rates for terms of up to 25 years and typically either have a scheduled interest rate reset or are callable by the Bank, after a 5 to 10 year period.

Loans secured by commercial and multi-family real estate are generally larger and involve a greater degree of risk than one-to-four family residential mortgage loans.  Of primary concern in commercial and multi-family real estate lending is the the feasibility and cash flow potential of the project and the borrower’s creditworthiness. Loans secured by income properties are generally larger and involve greater risks than residential mortgage loans because payments on loans secured by income properties are often dependent on successful operation or management of the properties.  As a result, repayment of such loans may be impacted by a greater extent to adverse conditions in the real estate market or the economy than residential real estate loans.  In order to monitor cash flows on income properties, the Bank requires borrowers and loan guarantors, if any, to provide annual financial statements and rent rolls on multi-family loans.  Similarly, on commercial office buildings and hotel properties, the Bank requires minimum debt service coverage and obtains operating statements of such properties. At December 31, 2010, the five largest commercial real estate and multi-family loans totaled $26.6 million with no single loan larger than $7.2 million.

Construction and Land Acquisition Lending.  At December 31, 2010, the Bank’s construction and land acquisition loans were $18.8 million or 4% of the Bank’s total loan portfolio.  Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate.  Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development and the estimated cost (including interest) of construction.  During the construction phase, a number of factors could result in delays and cost overruns.  If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the construction.  If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. Land acquisition lending is susceptible to the risks of obtaining necessary approvals and permits, and the feasibility of the project once such approvals are obtained. At December 31, 2010, the five largest construction land acquisition loans totaled $13.4 million with no single loan larger than $3.8 million.

Consumer and Other Loans.  The Bank also offers consumer and other loans in the form of home equity and second mortgage loans (referred to hereinafter collectively as “second mortgage loans”), automobile loans and student loans.  These loans totaled $51.8 million or 10% of the Bank’s total loan portfolio at December 31, 2010.  The Bank originates consumer loans through its retail banking channel and mortgage loan department.

In connection with consumer loan applications, the Bank verifies the borrower’s income and reviews a credit bureau report.  In addition, the relationship of the loan to the value of the collateral is evaluated.  All automobile loan applications are reviewed and approved by the Bank.  The Bank reviews the credit report of the borrower as well as the value of the vehicle which secures the loan.

Consumer loans tend to be originated at higher interest rates than conventional residential mortgage loans and for shorter terms, thus facilitating the Bank’s interest rate risk management.  Consumer loans can have a higher risk of default than residential mortgage loans.  However, at December 31, 2010, $1.1 million or 2.1% of the Bank’s consumer loans were delinquent more than 90 days, compared to $0.7 million or 0.3% of residential one-to-four family loans.

The Bank offers second mortgage loans on one-to-four family residences.  At December 31, 2010, second mortgage and home equity loans totaled $49.4 million, or 10% of the Bank’s total loan portfolio.  Second mortgage loans are offered as fixed-rate loans for a term not to exceed 15 years or prime-rate-based floating rate loans with amortization periods up to 15 years and in some cases, an interest-only period of up to the first 60 months of the loan term.  Such loans are only made on owner-occupied one-to-four family residences and are subject to a 90% combined loan to value ratio.  The underwriting standards for second mortgage loans are the same as the Bank’s standards applicable to one-to-four family residential loans.

Business Lending.  The Bank makes commercial business loans predominantly on a secured or guaranteed basis.  The terms of these loans generally do not exceed five years. These loans can have floating interest rates which adjust with changes in market interest rates, usually the prime rate, or have a fixed rate related to their term to maturity.  The Bank’s commercial business loans primarily consist of short-term loans for equipment, working capital, business expansion interim financing for the purchase of income-producing property and inventory financing, and typically have some real estate collateral.

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The Bank customarily requires a personal guaranty of payment by the principals of any borrowing entity and reviews the financial statements and income tax returns of the guarantors.  At December 31, 2010, the Bank had approximately $32.2 million outstanding in commercial business loans, which represented approximately 6% of its total loan portfolio. At December 31, 2010, the five largest commercial business loans totaled $16.8 million with no single loan larger than $5.0 million.

Loan Approval Authority and Underwriting.  The Board of Directors of the Bank sets the authority to approve loans based on the amount, type of loan (i.e., secured or unsecured) and total exposure to the borrower.  Where there are one or more existing loans to a borrower, the level of approval required is governed by the proposed total exposure including the new loan.  The Board has approved loan authority and limits for certain of the Bank’s lending personnel and senior officers, including the president of the Bank.  Individual approval authority ranges from $75,000 to $750,000 for secured loans, and $10,000 to $100,000 for unsecured loans. Members of an in-house loan committee including four senior members of management can approve in certain combinations all loans over $750,000 up to $2.5 million. The committee has the authority to approve secured loans up to $2.5 million and unsecured loans up to $200,000. All loans greater than $2.5 million through $5.0 million require the approval of the Director’s Board Loan Committee composed of four members of the Board of Directors of the Bank. All loans over $5 million or loans that cause the aggregate lending relationship to exceed $5.0 million must be approved by the Bank’s Board of Directors.

One-to-four family residential mortgage loans are generally underwritten according to FNMA guidelines.  For all loans originated by the Bank, upon receipt of a completed loan application from a prospective borrower, a credit report is obtained, income and certain other information is verified and, if necessary, additional financial information may be required.  The Bank does not engage in sub-prime, stated income or “no-doc” style portfolio lending. An appraisal of the real estate intended to secure the proposed loan is required and is performed by an independent appraiser designated and approved by the Bank.  The Bank makes construction/permanent loans on individual properties.  Funds advanced during the construction phase are held in a loan-in-process account and disbursed based upon various stages of completion.  An independent appraiser or loan officer determines the stage of completion based upon a physical inspection of the construction and funds are advanced only for work in place.  It is the Bank’s policy to obtain title insurance or a title opinion on all real estate first mortgage loans in excess of $500,000.  Borrowers must also obtain hazard or flood insurance (for loans on property located in a flood zone) prior to closing the loan.

Loans to One Borrower.  Current regulations limit loans to one borrower in an amount equal to 15% of unimpaired capital and retained income on an unsecured basis and an additional amount equal to 10% of unimpaired capital and retained income if the loan is secured by readily marketable collateral (generally, financial instruments, not real estate) or $500,000, whichever is higher.  Penalties for violations of the loan-to-one borrower statutory and regulatory restrictions include cease and desist orders, the imposition of a supervisory agreement and civil money penalties.  The Bank’s maximum loan-to-one borrower limit was approximately $10.7 million as of December 31, 2010 and the Bank’s five largest aggregate lending relationships pursuant to the loans to one borrower regulations had balances ranging from $6.0 to $9.0 million.

Mortgage-Backed Securities

To supplement lending activities, the Bank invests in residential mortgage-backed securities. The majority of such securities are classified as available for sale. In addition, they serve as collateral for borrowings and, through repayments, are a source of liquidity.

The mortgage-backed securities portfolio as of December 31, 2010, consisted of pass-through certificates issued by the FHLMC ($2.9 million), GNMA, ($2.8 million), FNMA ($11.2 million), and REMICs formed from pass-through certificates issued by these same agencies ($39.2 million), and issued by private issuers ($13.6 million).

At December 31, 2010, the amortized cost of mortgage-backed securities totaled $67.5 million, or 10% of total assets, and the fair value of such securities totaled approximately $70.0 million.

The Bank’s mortgage-backed securities which are so-called “pass-through” represent a participation interest in a pool of single-family or multi-family mortgages, the principal and interest payments on which are passed through intermediaries (generally quasi-governmental agencies) to investors such as the Bank.  Such quasi-governmental agencies, which guarantee the payment of principal and interest to investors, include FHLMC, FNMA and GNMA. The REMIC securities are composed of the same loan types as the pass-through certificates, but offer differing characteristics as to their expected cash flows depending on the class of such securities purchased. The Bank’s REMICs are primarily “planned amortization classes” (“PAC”) and “very accurately defined maturity” (“VADM”) classes that, when purchased, offered a high probability of predictable cash flows.

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Mortgage-Backed Securities Carrying Value. The following table sets forth the carrying value of the Bank’s mortgage-backed securities held in portfolio at the dates indicated.

	At December 31,
	2010		2009		2008
	(In thousands)
Held to maturity:
GNMA-fixed rate	$	1,114	$	1,281	$	1,533
FHLMC ARMs	14		16		19
FHLMC-fixed rate	552		738		1,081
FNMA-fixed rate	1,489		1,698		2,141
Total mortgage-backed securities held to maturity	$	3,169	$	3,733	$	4,774
Available-for-sale:
GNMA-fixed rate	$	1,637	$	1,886	$	—
FHLMC-fixed rate	2,355		3,440		4,504
FNMA-fixed rate	9,734		9,146		12,320
REMICs-fixed rate	52,765		63,726		90,393
Total mortgage-backed securities available-for-sale	$	66,491	$	78,198	$	107,217

Mortgage-Backed Securities Maturity.  The following table sets forth the maturity and the weighted average coupon (“WAC”) of the Bank’s mortgage-backed securities portfolio at December 31, 2010.  The table does not include estimated prepayments.  Adjustable-rate mortgage-backed securities are shown as maturing based on contractual maturities.

Contractually Due	Held to Maturity		WAC		Available -for-Sale		WAC
	(Dollars in thousands)
Less than 1 year	$3		7.99	%	$—		—	%
1 to 3 years	17		7.98	%	2,746		4.84	%
3 to 5 years	—		—	%	14,166		5.14	%
5 to 10 years	472		4.95	%	14,234		4.65	%
10 to 20 years	1,899		6.79	%	17,877		4.55	%
Over 20 years	778		5.30	%	17,468		4.58	%
Total mortgage-backed securities	$	3,169	6.16	%	$	66,491	4.72	%

Non-Performing and Problem Assets

Loan Collection.  When a borrower fails to make a required payment on a loan, the Bank takes a number of steps to have the borrower cure the delinquency and restore the loan to current status.  In the case of residential mortgage loans and consumer loans, the Bank generally sends the borrower a written notice of non-payment after the loan is 15 days past due.  In the event payment is not then received, additional letters and phone calls are made.  If the loan is still not brought current and it becomes necessary for the Bank to take legal action, which typically occurs after a loan is delinquent more than 90 days, the Bank will commence foreclosure proceedings against any real property that secures the loan and attempt to repossess any personal property that secures a consumer loan.  If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is obtained by the Bank at foreclosure.

In the case of commercial real estate and multi-family loans, and construction loans, the Bank generally attempts to contact the borrower by telephone after any loan payment is ten days past due and a senior loan officer reviews all collection efforts made if payment is not received after the loan is 30 days past due.  Decisions as to when to commence foreclosure actions for commercial real estate and multi-family loans and construction loans are made on a case by case basis.  The Bank may consider loan work-out arrangements with these types of borrowers in certain circumstances.

On mortgage loans or loan participations purchased by the Bank and serviced by others, the Bank receives monthly reports from its loan servicers with which it monitors the loan portfolio.  Based upon servicing agreements with the servicers of the loan, the Bank relies upon the servicer to contact delinquent borrowers, collect delinquent amounts and to initiate foreclosure proceedings, when necessary, all in accordance with applicable laws, regulations and the terms of the servicing agreements between the Bank and its servicing agents. At December 31, 2010 the Bank used third-party servicers to service $7.9 million in mortgage loans. All of the Bank’s third-party mortgage loan servicers are regulated financial institutions or are approved by either HUD, FNMA, or FHLMC to service loans on its behalf.

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Delinquent Loans.  Generally, the Bank establishes a reserve for uncollected interest on loans past due more than 90 days; these loans are included in the table of nonaccrual loans below.  Loans also are placed on a nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual.  When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income and the further accrual of interest ceases unless the underlying facts that prompted a nonaccrual determination are deemed to have improved significantly.

Non-Performing Assets. The following table sets forth information regarding non-accrual loans and real estate owned by the Bank at the dates indicated.  The Bank had no loans contractually past due more than 90 days for which accrued interest has been recorded.

	At December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to-four family	$	3,618		$	1,117		$	780		$	165		$	141
Non-residential or non-owner occupied  residential real estate	4,993			2,506			606			39			61
Construction	4,307			4,554			3,017			3,280			—
Consumer and other	1,415			107			126			34			68
Commercial-business loans	4,645			—			750			1,840			1,840
Total non-accrual loans	18,978			8,284			5,279			5,358			2,110
Real estate owned, net	7,482			1,279			—			—			—
Total non-performing assets	$	26,460		$	9,563		$	5,279		$	5,358		$	2,110
Total non-accrual loans to loans	3.72		%	1.55		%	0.96		%	1.03		%	0.43		%
Total non-accrual loans to total assets	2.74		%	1.16		%	0.72		%	0.76		%	0.32		%
Total non-performing assets to total assets	3.82		%	1.34		%	0.72		%	0.76		%	0.32		%

Loans secured by residential properties include two loans with a combined balance of $2.9 million to a single borrower secured by two residential properties. The Bank is in the process of foreclosure or obtaining a deed in lieu of foreclosure on the properties.

Loans secured by non-residential properties or non—owner occupied residential properties includes a $1.0 million loan secured by a parcel of land. The borrower is attempting to sell the property and intends to apply the proceeds of the sale towards the outstanding loan balance.  The Bank has allocated $210,000 of the allowance for loan losses to this loan, equal to the difference between the loan balance and the fair value less estimated selling costs.

Loans secured by non-residential properties or non—owner occupied residential properties include four loans with a combined balance of $2.4 million to a single borrower secured by 35 residential rental properties located in the greater Philadelphia area. The Bank is in the process of foreclosure or obtaining a deed in lieu of foreclosure on the properties. An in-house review of the fair values of all the properties less costs to sell indicates a value in excess of the loan balances

Construction loans include a loan with a balance of $2.4 million, secured by a largely completed commercial office building, and the personal guarantee of the borrowers.  The Bank has allocated $782,000 of the allowance for loan losses to this loan , equal to the difference between the loan balance plus other acquisition costs and the fair value based upon a recent appraisal less estimated costs to sell. The Bank has initiated foreclosure proceedings.

Also included in construction loans is a loan with a balance of $1.5 million secured by two contiguous parcels of commercial real estate and a lien on the guarantor’s personal residence.  The Bank has allocated to this loan $845,000 of the allowance for loan losses, equal to the difference between the loan balance plus other acquisition costs and the fair value based upon a recent appraisal less estimated costs to sell. The Bank has initiated foreclosure proceedings and the borrower has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.

Commercial –business loans secured by real estate include a loan with a balance of $2.6 million secured by a parcel of vacant land approved for townhome development. The Bank has allocated $373,000 of the allowance for loan losses to the loan, equal to the difference between the loan balance plus other acquisition costs and the fair value based upon a recent appraisal less estimated costs to sell. The Bank has initiated foreclosure proceedings.

Commercial-business, real estate secured loans also include two loans, with a combined balance of $2.0 million secured by a parcel of land.  The borrower is attempting to sell the property and intends to apply the sale proceeds to the outstanding loan balance.  A recent appraisal of the property indicates an appraised value less selling cost is in excess of the loan balances.

With respect to each of the remaining non-performing loans, the Bank is taking appropriate steps to resolve the individual situations.

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The Bank was not aware of any other significant potential problem loans. “Potential problem loans” are loans where information about possible credit problems of borrowers has caused management to have serious doubts about the borrowers’ ability to comply with present repayment terms.

At December 31, 2010, the Bank had no foreign loans and no loan concentrations exceeding 10% of total. “Loan concentrations” are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions.

Classified Assets.  OTS regulations provide for a classification system for problem assets of insured institutions which covers all problem assets.  Under this classification system, problem assets of insured institutions are classified as “substandard,” “doubtful,” or “loss.”  An asset is considered “substandard” if it may be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  “Substandard” assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected.  Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.  Assets classified as “loss” are those considered uncollectible and of such little value that the establishment of a specific loss reserve is warranted.  Assets designated “special mention” by management are assets that have potential weakness but that do not currently warrant classification in one of the aforementioned categories.

For regulatory purposes, the Bank’s allowance for loan losses is either general or specific.  General allowances for OTS purposes represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.  However, when an insured institution classifies all or a portion of a problem asset as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount.  An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which may determine that general or specific allowances are insufficient.  A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital.

The following table provides further information in regard to the Bank’s classified assets as of December 31, 2010.

	At December 31, 2010
	(In thousands)
Special mention assets	$	27,859
Substandard	39,127
Doubtful assets	—
Loss	—
Total classified assets	$	66,986

Real Estate Owned.  Real estate acquired by the Bank as a result of foreclosure, judgment or by deed in lieu of foreclosure is classified as real estate owned (“REO”) until it is sold.  When property is acquired it is recorded at the lower of fair value, minus estimated cost to sell, or the recorded investment in the loan.  If the property subsequently decreases in estimated value from the initial recorded amount, the Bank will provide a valuation allowance, through a charge to earnings, if the decrease is judged by management to be temporary. If the decrease is judged to be permanent, the Bank will reduce the recorded amount, through a charge to earnings, to the new estimated value.

Allowances for Loan Losses.  The Bank provides valuation allowances for estimated losses from uncollectible loans. Management determines the adequacy of the allowance on a quarterly basis to ensure that a provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is appropriate based upon management’s estimate of probable losses. Several sources of data are used in making the evaluation as to the appropriateness of the allowance.

In establishing allowances, a specific allowance is established for loans which because of past payment history, a review of recent financial information, or other facts regarding the credit, pose a higher than normal amount of perceived risk of collection. In addition, an allowance is assigned based upon qualitative and quantitative risk factors which are inherent in class of the loan portfolio.

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Although the allowance has been determined based on loan class, the total allowance is available to absorb any and all losses from any classof the loan portfolio. At December 31, 2010, management believes that the allowance for loan losses is at an acceptable level.

The following table sets forth information with respect to the allocation of the Bank’s allowance for loan losses by loan type at the dates and for the periods indicated:

	For the Years Ended December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Balance at beginning of period	$	5,215		$	3,855		$	2,842		$	2,865		$	2,641
Provision for loan losses	4,241			2,930			1,500			—			150
Charge-offs:
One-to-four family	(49		)	(149		)	(12		)	(27		)	—
Non-residential or non-owner occupied  residential real estate	(174		)	(278		)	—			—			—
Construction	(59		)	(1,092		)	(347		)	—			—
Consumer and other loans	(53		)	(88		)	(55		)	(69		)	(55		)
Commercial-business loans	(803		)	(9		)	(160		)	(1		)	(1		)
Recoveries:
Construction	—			5			—			—			—
Consumer and other loans	9			13			19			13			65
Commercial loans and leases	1			28			68			61			65
Balance at end of year	$	8,328		$	5,215		$	3,855		$	2,842		$	2,865
Ratio of net charge-offs (net recoveries) during the period to average loans outstanding during the period	0.22		%	0.29		%	0.09		%	0.00		%	(0.01		)%
Ratio of allowance for loan losses to non-performing loans at the end of the period	43.88		%	63.0		%	73.0		%	53.0		%	135.8		%
Ratio of allowance for loan losses to loans receivable at the end of the period	1.63		%	0.98		%	0.71		%	0.55		%	0.59		%

The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category and the percent of loans in each category to total loans receivable, gross, at the dates indicated.

	At December 31,
	2010				2009				2008				2007				2006
	Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans
	(Dollars in thousands)
At end of period allocated to:
One-to-four family	$	1,839	52.8	%	$	962	50.9	%	$	1,461	51.5	%	$	504	52.6	%	$	332	54.9	%
Non-residential and/ or non-owner occupied  residential real estate	2,124		27.0	%	1,275		25.2	%	845		24.2	%	667		21.1	%	665		19.3	%
Construction	2,479		3.7	%	1,736		5.5	%	953		5.6	%	1,018		6.8	%	621		7.2	%
Consumer and other loans	623		10.2	%	317		10.7	%	259		10.7	%	246		10.5	%	248		10.3	%
Commercial -business loans	1,051		6.3	%	925		7.7	%	337		8.0	%	407		9.0	%	999		8.3	%
Unallocated	212		—	%	—		—	%	—		—	%	—		—	%	—		—	%
Total allowance	$	8,328	100.0	%	$	5,215	100.0	%	$	3,855	100.0	%	$	2,842	100.0	%	$	2,865	100.0	%

Investment Securities

The purchase of investment securities is designed primarily to provide and maintain liquidity, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement the Bank’s lending activities.  In establishing its investment strategies, the Bank considers its business and growth plans, the economic environment, the types of securities to be held and other factors.  Federally chartered savings institutions have the authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers acceptances, repurchase agreements, loans on federal funds, and, subject to certain limits, commercial paper and mutual funds.

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The following table sets forth certain information regarding the amortized cost and fair values of the Bank’s investment securities at the dates indicated.

	At December 31,
	2010				2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Interest-earning deposits	$	4,219	$	4,219	$	9,971	$	9,971	$	56	$	56
Securities available-for-sale:
U.S. government and agency obligations	$	6,000	$	6,059	$	3,000	$	2,945	$	2,944	$	3,173
State and political subdivisions	47,348		48,208		33,180		34,241		24,532		24,996
Corporate debt securities	3,340		3,563		3,340		3,517		3,340		3,285
Equities	—		—		150		150		150		165
Total	$	56,688	$	57,830	$	39,670	$	40,853	$	30,966	$	31,619

Investment Portfolio Maturities

The following table sets forth certain information regarding the amortized cost, weighted average yields and maturities of the Bank’s investment securities portfolio, exclusive of equities and interest-earning deposits, at December 31, 2010.  Yields on tax exempt obligations have been computed on a tax equivalent basis.

	One Year or Less				One to Five Years				Five to Ten Years				More than Ten Years				Total Investment Securities
	Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Fair Value
	(Dollars in thousands)
U.S. government and agency obligations	$	—	—		$	6,000	2.09	%	$	—	—		$	—	—		$	6,000	2.09	%	$	6,059
State and political subdivisions	860		3.40	%	4,119		3.56	%	23,258		3.71	%	19,111		4.44	%	47,348		3.99	%	48,208
Corporate debt securities	—		—		3,340		5.50	%	—		—		—		—		3,340		5.50	%	3,563
Total	$	860	—	%	$	13,459	3.70	%	$	23,258	3.71	%	$	19,111	4.44	%	$	56,688	3.87	%	$	57,830

Sources of Funds

General. Deposits, borrowings, loan repayments and cash flows generated from operations are the primary sources of the Bank’s funds for use in lending, investing and other general purposes.

Deposits. The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank’s deposits consist of regular savings, non-interest bearing checking, NOW checking, money market, and certificate accounts. Of the deposit accounts, $39.6 million or 7% consist of IRA, Keogh or SEP retirement accounts at December 31, 2010.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The Bank’s deposits are primarily obtained from areas surrounding its offices, and the Bank relies primarily on customer service and long-standing relationships with customers to attract and retain these deposits. The Bank has historically maintained a high level of core deposits consisting of regular savings, money market, non-interest-bearing checking, and NOW checking, which has contributed to a low cost-of-funds. At December 31, 2010, core deposits amounted to 63% of total deposits.

The following table sets forth the distribution of the Bank’s deposit accounts at the dates indicated and the weighted average nominal interest rates on each category of deposits presented. The Bank does not have significant amount of deposits from outside its

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market area. Management does not believe that the use of year end balances instead of average balances resulted in any material difference in the information presented.

	At December 31,
	2010						2009						2008
	Amount		Percent of Total Deposits		Weighted Average Nominal Rate		Amount		Percent of Total Deposits		Weighted Average Nominal Rate		Amount		Percent of Total Deposits		Weighted Average Nominal Rate
	(Dollars in thousands)
Transaction Accounts:
Interest-bearing checking accounts	$	56,157	10.21	%	0.31	%	$	52,988	9.59	%	0.42	%	$	46,907	9.58	%	0.45	%
Money market accounts	149,744		27.22	%	0.80	%	141,286		25.56	%	1.07	%	88,609		18.09	%	2.15	%
Non-interest-bearing checking accounts	40,389		7.34	%	—		37,288		6.75	%	—		36,871		7.53	%	—
Total transaction accounts	246,290		44.77	%			231,562		41.90	%			172,387		35.20	%
Passbook accounts	99,686		18.12	%	0.46	%	96,061		17.38	%	0.45	%	111,591		22.77	%	1.12	%
Certificates of deposit	204,159		37.11	%	2.08	%	225,093		40.72	%	2.75	%	205,872		42.03	%	3.58	%
Total deposits	$	550,135	100.00	%	1.10	%	$	552,716	100.00	%	1.51	%	$	489,850	100.00	%	2.19	%

At December 31, 2010, the Bank had outstanding certificates of deposit in amounts of $100,000 or more maturing as follows:

Maturing Period	Amount
	(In thousands)
Three months or less	$	11,122
Over three through six months	5,568
Over six through 12 months	19,872
Over 12 months	15,692
Total	$	52,254

Borrowings

Deposits are the primary source of funds of the Bank’s lending and investment activities and for its general business purposes. The Bank may obtain advances from the Federal Home Loan Bank (“FHLB”) of Pittsburgh to supplement its supply of lendable funds. Advances from the FHLB are typically secured by a pledge of the Bank’s stock in the FHLB and a portion of the Bank’s first mortgage loans. The Bank may also access the Federal Reserve Bank (“FRB”) discount window. The following tables set forth the maximum month-end balance, period ending balance, and weighted average balance of outstanding FHLB and FRB advances at the dates and for the periods indicated, together with the applicable weighted average interest rates.

	At December 31,
	2010			2009			2008
	(Dollars in thousands)
FHLB advances	$	61,987		$	80,241		$	158,148
FRB advances		—			—			10,000
Total advances	$	61,987		$	80,241		$	168,148
Weighted average interest rate	3.73		%	4.21		%	3.52		%

	Years Ended December 31,
	2010			2009			2007
	(Dollars in thousands)
Maximum balance of FHLB/FRB advances	$	82,299		$	177,249		$	170,988
Weighted average balance of FHLB/FRB advances	$	74,758		$	120,631		$	159,268
Weighted average interest rate of FHLB/FRB advances	3.93		%	3.67		%	3.90		%

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Subsidiary Activity

The Bank is permitted to invest up to 2% of its assets in the capital stock of, or secured or unsecured loans to, subsidiary corporations, with an additional investment of 1% of assets when such additional investment is utilized primarily for community development purposes. Under such limitations, as of December 31, 2010, the Bank was authorized to invest up to approximately $16.8 million in the stock of, or loans to, service corporations (based upon the 2% limitation). In addition, the Bank can designate a subsidiary as an operating subsidiary, in which there is no percentage of assets investment limitation, if it engages only in activities in which it would be permissible for the Bank to engage. At December 31, 2010, the Bank had two wholly-owned operating subsidiaries, Third Delaware Corporation and Teragon Financial Corporation. Third Delaware Corporation was formed in 1998 for the purpose of investing in securities. At December 31, 2010, the Bank had $148.3 million invested in Third Delaware Corporation. During 2004, Teragon Financial Corporation (“Teragon”) invested $7,500 in a limited partnership entitled Third Fed Abstract, L. P., whose purpose is to operate a title insurance agency, primarily to capture certain title insurance premiums generated by the Bank’s lending activities. At December 31, 2010 the Bank had an investment of $100,000 in Teragon. During 2007, Teragon was granted approval by the state of Pennsylvania to conduct business as an insurance agency, and during 2010, Teragon received $28,000 of insurance commissions.

Personnel

As of December 31, 2010, the Company had 162 full-time and 28 part-time employees. None of the Company’s employees are represented by a collective bargaining group. The Company believes that its relationship with its employees is good.

REGULATION

Set forth below is a brief description of all material laws and regulations which relate to the regulation of the Bank and the Company. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Financial Reform Legislation.  On July 21, 2010, the President signed the Dodd-Frank Act into law. The Dodd-Frank Act will likely result in dramatic changes across the financial regulatory system, some of which became effective immediately and some of which will not become effective until various future dates. Implementation of the Dodd-Frank Act will require many new rules to be made by various federal regulatory agencies over the next several years, including our current and future regulatory agencies, and the effect of many of the Dodd-Frank Act’s provisions will be determined through the rulemaking process.

The Dodd-Frank Act includes provisions that, among other effects:

·    The OTS will be merged into the Office of the Comptroller of the Currency (“OCC”) and the authority of the other two bank regulatory agencies restructured. The federal thrift charter will be preserved with the Federal Reserve given authority over savings and loan holding companies.  

·    Creates a new agency, the Bureau of Consumer Financial Protection (“CFPB”), to centralize responsibility for consumer financial protection. responsible for implementing, examining and enforcing compliance with federal consumer financial laws such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving Act, among others.  Depository institutions that have assets of $10 billion or less, such as us, will continue to be supervised by their primary federal regulators (in our case, the OTS until it is abolished, and then the OCC).  The CFPB will also have data collecting powers for fair lending purposes for small business and mortgage loans, as well as authority to prevent unfair, deceptive and abusive practices.  

  ·    Imposes new consumer protection requirements in mortgage loan transactions, including requiring creditors to make reasonable, good faith determinations that consumers have a reasonable ability to repay mortgage loans, prohibiting originators of residential mortgage loans from being paid compensation (such as a “yield spread premium”) that varies based on the terms of the loan other than the principal amount of the loan, requiring new disclosure requirements for residential mortgage loans, requiring additional disclosures in periodic loan account statements, amending the Truth-in-Lending Act’s “high-cost” mortgage provisions, and adopting certain other revisions.  

·    Changes the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminates the ceiling on the size of the FDIC’s Deposit Insurance Fund (“DIF”), and increases the required minimum reserve ratio for the DIF, from 1.15% to 1.35% of insured deposits.  

·    Increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, with non-interest-bearing transaction accounts having unlimited deposit insurance through December 31, 2012.  

·    Adopts changes to corporate governance requirements, including requiring shareholder votes on executive compensation and proxy access by shareholders that apply to all public companies.  

·    Effective in July 2011, repeals various banking law provisions prohibiting the payment of interest on demand deposits.  

·    Authorizes the Federal Reserve to adopt rules to regulate the reasonableness of debit card interchange fees charged by financial institutions with $10 billion or more in assets with respect to electronic debit transactions. The amount of such fees must be “reasonable and proportional” to the cost incurred by the issuer. Issuers that, together with their affiliates, have assets of less than $10 billion would not be covered by the rules.

Some of these provisions may have the consequence of increasing our expenses, decreasing our revenues, and changing the activities in which we choose to engage. At a minimum, we expect that the Dodd-Frank Act will increase our operating and compliance costs.  The specific impact of the Dodd-Frank Act on our current activities or new financial activities will be considered in the future, and our financial performance and the markets in which we operate will depend on the manner in which the relevant agencies develop and implement the required rules and the reaction of market participants to these regulatory developments. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers, or the financial industry in general.

14

Company Regulation

General. The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries, which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. This regulation and oversight is intended primarily for the protection of the depositors of the Bank and not for the benefit of stockholders of the Company. The Company is also required to file certain reports with, and otherwise comply with, the rules and regulations of the OTS and the SEC.

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the “Act”) implemented legislative reforms intended to address corporate and accounting fraud and improve public company reporting. The SEC has promulgated new regulations pursuant to the Act and may continue to propose additional implementing or clarifying regulations as necessary in furtherance of the Act. The passage of the Act by Congress and the implementation of new regulations by the SEC subject publicly-traded companies to additional and more cumbersome reporting regulations and disclosure. Compliance with the Act and corresponding regulations may increase the Company’s expenses.

Financial Modernization. The Gramm-Leach-Bliley Act (“GLB”) permits qualifying bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. GLB defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking. A qualifying national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development, and real estate investment, through a financial subsidiary of the bank.

GLB also prohibits new unitary thrift holding companies from engaging in nonfinancial activities or from affiliating with a nonfinancial entity. As a grandfathered unitary thrift holding company, the Company has retained its authority to engage in nonfinancial activities.

Qualified Thrift Lender Test. As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions, provided the Bank satisfies the QTL test. See “Bank Regulation — Qualified Thrift Lender Test.”  If the Company acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of the Company and any of its subsidiaries (other than the Bank) would become subject to restrictions applicable to bank holding companies unless such other associations each also qualify as a QTL and were acquired in a supervisory acquisition.

Bank Regulation

General. As a federally chartered, FDIC-insured savings association, the Bank is subject to extensive regulation by the OTS and the FDIC. Lending activities and other investments must comply with various federal statutory and regulatory requirements. The Bank is also subject to certain reserve requirements promulgated by the Federal Reserve Board.

The OTS, in conjunction with the FDIC, regularly examines the Bank and prepares reports for the consideration of the Bank’s Board of Directors on any deficiencies that they find in the Bank’s operations. The Bank’s relationship with its depositors and borrowers is also regulated to a great extent by federal law, especially in such matters as the ownership of savings accounts and the form and content of the Bank’s mortgage documents.

The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the FDIC and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulations, whether by the OTS, the FDIC or the Congress could have a material adverse impact on the Company, the Bank and their operations. The Company is also required to file certain reports with, and otherwise comply with, the rules and regulations of the OTS and the SEC.

Loan Limitations.  Regulations limit the amount of non-residential mortgage loans a savings institution may hold as a percentage of assets or capital.  Separate from the qualified thrift lender test, regulations limit a savings institution to a maximum of 10% of its assets in large commercial loans (defined as loans in excess of $2 million), with another 10% of assets permissible in “small business loans.”  Commercial loans secured by real estate can be made in an amount up to four times an institution’s capital.

15

An institution can also have commercial leases, in addition to the above items, up to 10% of its assets. Commercial paper, corporate bonds, and consumer loans cannot collectively exceed 35% of an institution’s assets.  For this purpose, however, residential mortgage loans (including securities backed by such loans) and credit card loans are not considered consumer loans, and are both unlimited in amount.

Insurance of Deposit Accounts.The Bank’s deposits are insured by the DIF of the FDIC.  Pursuant to the Dodd-Frank Act, the Federal Deposit Insurance Act was amended to increase the maximum deposit insurance amount from $100,000 to $250,000 and extended the unlimited deposit insurance coverage for non interest-bearing transaction accounts until December 31, 2012.  Prior to the Dodd-Frank Act, the unlimited coverage for non-interest-bearing deposit accounts had been provided on a temporary basis pursuant to the FDIC’s Transaction Account Guarantee Program established in October, 2008. Institutions had been able to opt out of the provisions of the Transaction Account Guarantee Program but those that chose to participate were assessed an additional fee. The unlimited coverage is now applicable to all institutions and there is no longer a separate assessment.  The Transaction Account Guarantee Program expired on December 31, 2010.  The FDIC determines insurance premiums based on a number of factors, primarily the risk of loss that insured institutions pose to the DIF.

In May 2009, the FDIC adopted a final rule imposing a 5 basis point special assessment on each insured depository institution's assets minus Tier 1 capital as of June 30, 2009, subject to a limit that the amount of the special assessment for any institution cannot exceed 10 basis points times the institution's deposit insurance assessment base for the second quarter 2009. We paid this special assessment in September, 2009. Further, in November 2009, the FDIC adopted a final rule imposing a 13-quarter prepayment of FDIC premiums. The prepayment amount was paid in December 2009 and represented an estimated prepayment for deposit insurance assessments for the fourth quarter of 2009 through the fourth quarter of 2012. The prepayment amount will be used to offset future FDIC premiums beginning with the March 2010 payment.

The Dodd-Frank Act eliminated the previous statutory maximum limit on the FDIC’s reserve ratio (which is generally the ratio of the DIF balance to the estimated amount of deposits insured by the DIF) and set the minimum reserve ratio to not less than 1.35 percent of estimated insured deposits or the comparable percentage of the FDIC’s assessment base. The act also required the FDIC to take the steps necessary to attain the 1.35 percent ratio by September 30, 2020, subject to an offsetting requirement for certain institutions.

The large number of bank failures during the last several years have significantly increased the DIF’s losses such that its reserve ratio is less than the mandated minimum.  As a result, the FDIC established a restoration plan in October 2008 and has amended the plan several times since then. Most recently, the FDIC amended the restoration plan on October 19, 2010 in response to the Dodd-Frank Act to provide for reaching the 1.35% reserve ratio by September 30, 2020. The amended restoration plan also provided that the FDIC will forego the uniform 3 basis point increase in initial deposit insurance assessment rates that were previously scheduled to take effect on January 1, 2011 and to otherwise maintain the current schedule of assessment rates for all insured depository institutions. Also under the amended plan, the FDIC will pursue further rulemaking in 2011 regarding the method that will be used to reach 1.35 percent by September 30, 2020 and regarding the Dodd-Frank Act requirement that the FDIC offset the effect on insured depository institutions with total consolidated assets of less than $10 billion of the statutory requirement that the reserve ratio reach 1.35 percent by September 30, 2020, rather than 1.15 percent by the end of 2016 (which was required under the prior restoration plan). At least semiannually, the FDIC will update its loss and income projections for the DIF and, if needed, will increase assessment rates, following notice-and-comment rulemaking if required. The FDIC may also lower assessment rates following notice-and comment rulemaking if required. Institutions may continue to use assessment credits (for regular quarterly assessments and for any special assessments) without additional restriction (other than those imposed by law) during the term of the restoration plan.

On February 7, 2011, the FDIC issued a final rule to implement changes to the its assessment base used to determine risk-based premiums for insured depository institutions as required under the Dodd-Frank Act and also changed the risk-based pricing system necessitated by changes to the assessment base. These changes will take effect for the quarter beginning April 1, 2011, and will be reflected in the invoices for DIF assessments due September 30, 2011.

Future changes in insurance premiums could have an adverse effect on the operating expenses and results of operations and we cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. We do not know of any practice, condition or violation that might lead to termination of its deposit insurance. 

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund.

16

Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to at least 4% of total adjusted assets and (3) a risk-based capital requirement equal to 8.0% of total risk-weighted assets. In addition, the OTS prompt corrective action regulation provides that a savings institution that has a leverage capital ratio of less than 4% (3% for institutions receiving the highest examination rating) will be deemed to be “undercapitalized” and may be subject to certain restrictions.

At December 31, 2010, the Bank was in compliance with all of its regulatory capital requirements.

Dividend and Other Capital Distribution Limitations. The Bank may not declare or pay a cash dividend on its capital stock if the effect thereof would be to reduce the regulatory capital of the Bank below the amount required for the liquidation account established at the time of the Bank’s mutual-to-stock conversion.

Savings associations that would remain at least adequately capitalized following the capital distribution, and that meet other specified requirements, are not required to file a notice or application for capital distributions (such as cash dividends) declared below specified amounts. Savings associations which are eligible for expedited treatment under current OTS regulations are not required to file an application with the OTS if (i) the savings association would remain at least adequately capitalized following the capital distribution and (ii) the amount of capital distribution does not exceed an amount equal to the savings association’s net income for that year to date, plus the savings association’s retained net income for the previous two calendar years. Thus, only undistributed net income for the prior two years may be distributed in addition to the current year’s undistributed net income without the filing of an application with the OTS. Savings associations which do not qualify for expedited treatment or which desire to make a capital distribution in excess of the specified amount, must file an application with, and obtain the approval of, the OTS prior to making the capital distribution. A savings association such as the Bank that is a subsidiary of a savings and loan holding company, and under certain other circumstances, must file a notice with OTS prior to making the capital distribution.

Qualified Thrift Lender Test. The Home Owners’ Loan Act (“HOLA”), as amended, requires savings institutions to meet a QTL test. If the Bank maintains an appropriate level of Qualified Thrift Investments (primarily residential mortgages and related investments, including certain mortgage-backed securities) (“QTIs”) and otherwise qualifies as a QTL, it will continue to enjoy full borrowing privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65% of portfolio assets (defined as all assets minus intangible assets, property used by the institution in conducting its business and liquid assets equal to 10% of total assets). Certain assets are subject to a percentage limitation of 20% of portfolio assets. In addition, savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. The method for measuring compliance with the QTL test requires an institution to be in compliance nine out of every 12 months. As of December 31, 2010, the Bank was in compliance with its QTL requirement with 69.50% of its assets invested in QTIs.

Federal Home Loan Bank System. The Bank is a member of the FHLB of Pittsburgh, one of 12 regional FHLBs that administer the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.

As a member, the Bank is required to purchase and maintain an investment in the capital stock of the FHLB of Pittsburgh in an amount equal to 4.60% of its advances outstanding from the FHLB plus 0.35% of its member asset value (“MAV”). The FHLB determines the Bank’s MAV by assigning a borrowing factor to the Bank’s investment in loans and securities. At December 31, 2010, the Bank was in compliance with this requirement with a MAV of $402.5 million and $9.4 million in FHLB stock.

Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts) and non-personal time deposits. As of December 31, 2010, no reserves were required to be maintained on the first $10.7 million of transaction accounts, reserves of 3% were required to be maintained against the next $55.2 million (increasing to $58.8 million in 2011) of transaction accounts and a reserve of 10% against all remaining transaction accounts. This percentage is subject to adjustment by the Federal Reserve Board. Because required reserves must be maintained in the form of vault cash or in a non-interest bearing account at a Federal Reserve Bank, the effect of the reserve requirement may reduce the amount of an institution’s interest-earning assets.

Savings associations have authority to borrow from the Federal Reserve Bank “discount window.”

Item 1A. Risk Factors

Not applicable.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company is located and conducts its business at 3 Penns Trail, Newtown, Pennsylvania. At December 31, 2010, the Bank operated from its administrative offices and fourteen branch offices located in Philadelphia and Bucks Counties, Pennsylvania and Mercer County, New Jersey. The Bank also owns two parcels of land and a building behind its Doylestown branch office. The parcel with the building is available to be leased to a third-party and the other parcel is used as a parking lot for employees of the Bank and tenants. The net book value of the two lots was $100,000. In addition, a subsidiary of the Company, Penns Trail Development Corporation, owns investment property with a book value of $718,000.

The following table sets forth certain information regarding the Bank’s operating properties:

Location	Leased or Owned
ADMINISTRATIVE OFFICE	Owned
Newtown Office
3 Penns Trail
Newtown, PA 18940
DEPOSIT OPERATIONS	Leased
828C Newtown-Yardley Road
Suite 301B
Newtown, PA 18940
BRANCH AND LOAN OFFICES	Leased
Frankford Office
4625 Frankford Avenue
Philadelphia, PA 19124
Ewing Office	Owned
2075 Pennington Road
Ewing, NJ 08618
Hamilton Office	Owned
1850 Route 33
Hamilton Square, NJ 08690
Fishtown Office	Owned
York & Memphis Streets
Philadelphia, PA 19125
Cross Keys Office	Owned
834 North Easton Highway
Doylestown, PA 18901
Bridesburg Office	Owned
Orthodox & Almond Streets
Philadelphia, PA 19137
New Britain Office	Leased
600 Town Center
New Britain, PA 18901
Newtown Office	Leased
950 Newtown Yardley Road
Newtown, PA 18940
Mayfair Office	Owned
Roosevelt Blvd. at Unruh
Philadelphia, PA 19149
Doylestown Office	Owned
60 North Main Street
Doylestown, PA 18901
Feasterville Office	Leased
Buck Hotel Complex
Feasterville, PA 19053
Woodhaven Office	Leased
12051 Knights Road
Philadelphia, PA 19154
Girard Office	Leased
136 West Girard Avenue
Philadelphia, PA 19123
Northern Liberties Office	Leased
905 North 2nd Street
Philadelphia, PA 19123
PROCESSING OPERATIONS	Owned
Operations Center
62-66 Walker Lane
Newtown, PA 18940

Item 3. Legal Proceedings

Neither the Company nor its subsidiaries are involved in any pending legal proceedings, other than routine legal matters occurring in the ordinary course of business that in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company.

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Item 4. [Removed and Reserved]

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Information relating to the market for Registrant’s common equity and related stockholder matters appears under the section captioned “Corporate “Corporate Profile and Related Information —Stock Market Information,” “—Dividend Policy” and “—Stock Price and Dividend History” in the Registrant’s 2010 Annual Report to Stockholders and is incorporated herein by reference.

The following table provides information on repurchases by the Company of its common stock in each month for the three months ended December 31, 2010:

Month	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
October 1, 2010 - October 31, 2010	—	—	—	101,597
November 1, 2010 - November 30, 2010	—	—	—	101,597
December 1, 2010 - December 31, 2010	—	—	—	101,597

Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Registrant’s 2010 Annual Report to Stockholders is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The information under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Registrant’s 2010 Annual Report to Stockholders is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements of TF Financial Corporation and its subsidiaries included in the Registrant’s 2010 Annual Report to Stockholders are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

(a) Disclosure Controls and Procedures

Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), the Company’s principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K such disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting

Management’s report on internal control over financial reporting is included in the Registrant’s 2010 Annual Report to Stockholders and is incorporated herein by reference. Neither this Annual Report on Form 10-K nor the Annual Report to

19

Stockholders includes an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

(c)  Changes in Internal Control Over Financial Reporting.

During the last quarter of the year under report, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information contained under the sections captioned “Proposal I - Election of Directors — General Information and the Nominee” and “— Biographical Information”, “—Meetings and Committees of the Board of Directors,” “—Director Nomination Process,”“Additional Information About Directors and Executive Officers —Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s definitive proxy statement for the Registrant’s 2011 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or persons performing such functions. The Code of Ethics can be obtained without charge by sending a written request to the Corporate Secretary, TF Financial Corporation, 3 Penns Trail, Newtown, Pennsylvania 18940.

Item 11. Executive Compensation

The information relating to executive compensation is incorporated herein by reference to the information contained under the sections captioned “Executive Compensation” and “Director Compensation” in the Registrant’s Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

(a) Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the Section captioned “Voting Securities and Principal Holders Thereof” in the Registrant’s Proxy Statement.

(b) Security Ownership of Management

Information required by this item is incorporated herein by reference to the sections captioned “Security Ownership of Certain Beneficial Owners and Management” and Proposal I — Election of Directors” in the Registrant’s Proxy Statement.

(c) Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

Information required by this item is incorporated by reference to the section captioned “Proposal III-Approval of the Directors Stock Compensation Plan—Equity Compensation Plan Information” in the Registrant’s Proxy Statement.

20

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information relating to certain relationships and related transactions is incorporated herein by reference to the information contained under the section captioned “Additional Information About Directors and Executive Officers — Certain Relationships and Related Transactions and Director Independence” in the Registrant’s Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information relating to this item is incorporated herein by reference to the information contained under the section captioned Additional Information about Directors and Executive Officers - “Principal Accounting Firm Fees” in the Registrant’s Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as a part of this report:

(1)  The following financial statements and the reports of the independent auditors of the Company included in the Company’s 2010 Annual Report to Stockholders are incorporated herein by reference.

Management’s Report on Internal Control

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 31, 2010 and 2009

Consolidated Statements of Income For the Years Ended December 31, 2010 and 2009

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2010 and 2009

Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009

Notes to Consolidated Financial Statements

All other schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

21

(3)      Exhibits

(a)           The following exhibits are filed as part of this report.

3.1	Certificate of Incorporation of TF Financial Corporation (1)
3.2	Bylaws of TF Financial Corporation (1)
4.0	Stock Certificate of TF Financial Corporation (1)
10.1	Third Federal Savings and Loan Association Management Stock Bonus Plan (1)
10.2	Third Federal Savings Bank Directors Consultation and Retirement Plan (2)
10.3	Severance Agreement with Kent C. Lufkin (3)
10.4	Severance Agreement with Floyd P. Haggar (3)
10.5	Severance Agreement with Dennis R. Stewart (4)
10.6	TF Financial Corporation 1997 Stock Option Plan (5)
10.7	Severance Agreement with Robert N. Dusek (6)
10.8	TF Financial Corporation 1996 Directors Stock Option Plan (7)
10.9	Retirement and Non-Competition Agreement with John R. Stranford (8)
10.10	Employment Agreement with John R. Stranford (8)
10.11	TF Financial Corporation Incentive Compensation Plan (9)
10.12	TF Financial Corporation 2005 Stock-Based Incentive Plan (10)
10.13	Severance Agreement with Elizabeth Kaspern (11)
10.14	TF Financial Corporation Stock Repurchase Plan (12)
10.15	TF Financial Corporation Amended and Restated Bylaws (13)
13.0	2010 Annual Report to Stockholders
21.0	Subsidiary Information
23.1	Consent of Independent Registered Public Accounting Firm-Grant Thornton
23.2	Consent of Independent Registered Public Accounting Firm-S.R. Snodgrass
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.0	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

[Missing Graphic Reference]

(1)	Incorporated herein by reference to the Exhibits to Form S-1, Registration Statement, File No. 33-76960.
(2)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(3)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
(4)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
(5)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(6)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
(7)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
(8)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
(9)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 20, 2004.
(10)	Incorporated herein by reference to the Registrant’s Form S-8 filed with the Securities and Exchange Commission on May 20, 2005.
(11)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
(12)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 25, 2008.
(13)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 26, 2008.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TF FINANCIAL CORPORATION
Dated: March 28, 2011	By:	/s/ Kent C. Lufkin
		Kent C. Lufkin
		President, Chief Executive Officer
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of Dated: March 28, 2011.

By:	/s/ Kent C. Lufkin	By:	/s/ Dennis R. Stewart
	Kent C. Lufkin		Dennis R. Stewart
	President, Chief Executive Officer (Principal Executive Officer)		Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
By:	/s/ Robert N. Dusek	By:	/s/ Carl F. Gregory
	Robert N. Dusek		Carl F. Gregory
	Chairman of the Board		Director
By:	/s/ Joseph F. Slabinski	By:	/s/ John R. Stranford
	Joseph F. Slabinski		John R. Stranford
	Director		Director
By:	/s/ Kenneth A. Swanstrom	By:	/s/ Albert M. Tantala, Sr.
	Kenneth A.Swanstrom		Albert M. Tantala, Sr.
	Director		Director
By:	/s/ James B. Wood
	James B. Wood
	Director

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EX-13.0

CONTENTS

CORPORATE PROFILE AND RELATED INFORMATION	1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2
MANAGEMENT’S REPORT ON INTERNAL CONTROL	9
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	10
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS	12
CONSOLIDATED STATEMENTS OF INCOME	13
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME	14
CONSOLIDATED STATEMENTS OF CASH FLOWS	15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	17
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS	46

CORPORATE PROFILE AND RELATED INFORMATION

TF Financial Corporation (the “Company”) is the parent company of Third Federal Bank and its subsidiaries Third Delaware Corporation and Teragon Financial Corporation (collectively, “Third Federal” or the “Bank”), TF Investments Corporation, and Penns Trail Development Corporation. At December 31, 2010, total assets were approximately $691.8 million and total stockholders’ equity was approximately $73.4 million. The Company is a unitary savings and loan holding company which, under existing laws, generally is not restricted in the types of business activities in which it may engage, provided that Third Federal retains a specified amount of its assets in housing-related investments. Third Federal is a federally chartered stock savings bank headquartered in Newtown, Pennsylvania, which was originally chartered in 1921 under the name “Polish American Savings Building and Loan Association.” Deposits of Third Federal have been federally insured since 1935 and are currently insured up to the maximum amount allowable by the Federal Deposit Insurance Corporation (the “FDIC”). Third Federal is a community-oriented institution offering a variety of financial services to meet the needs of the communities that it serves. As of December 31, 2010, Third Federal operated branch offices in Bucks and Philadelphia counties, Pennsylvania and Mercer County, New Jersey. Third Federal attracts deposits (approximately $550.1 million at December 31, 2010) from the general public and uses such deposits, together with borrowings mainly from the Federal Home Loan Bank of Pittsburgh (“FHLB”) (approximately $62.0 million at December 31, 2010) and other funds, to originate loans secured by first mortgages and junior liens on owner-occupied, one-to-four family residences, and to originate loans secured by commercial real estate, including construction loans.

Stock Market Information

Since its issuance in July 1994, the Company’s common stock has been traded on the Nasdaq Global Market. The daily stock quotation for the Company is listed on the Nasdaq Global Market published in The Wall Street Journal, The Philadelphia Inquirer, and other leading newspapers under the trading symbol of “THRD.” The number of shareholders of record of common stock as of March 7, 2011, was approximately 424. This does not reflect the number of persons or entities who held stock in nominee or “street” name through various brokerage firms.

Dividend Policy

The Company has adopted a formal Dividend Policy. Before each dividend declaration by the Board of Directors, the Board makes the following determinations:

1.   The capital of the Company is adequate for the current and projected business operations of the Company.

2.   The liquidity of the Company after the payment of the dividend is adequate to fund the operations of the Company for a reasonable period of time into the future.

3.   In light of the fact that the primary source of liquidity with which to pay dividends is dividend payments from the subsidiary Bank, the Board considers a number of factors specifically applicable to the Bank, such as its expected level of earnings and capital, and the possibility of regulatory restrictions.  Among other limitations, Third Federal may not declare or pay a cash dividend on any of its stock if the effect thereof would cause Third Federal’s regulatory capital to be reduced below (1) the amount required for the liquidation account established in connection with Third Federal’s conversion from mutual to stock form, or (2) the regulatory capital requirements imposed by the Office of Thrift Supervision (“OTS”).

The amount of the quarterly dividend is reviewed quarterly by the Board of Directors, may be increased or reduced as deemed appropriate by the Board, and may be suspended by the Board at any time and recommenced or discontinued at the discretion of the Board. In addition to quarterly cash dividends, the Board of Directors may periodically consider the payment of special cash dividends or stock dividends.

Stock Price and Dividend History

The following table sets forth the high and low sales prices and cash dividends declared for the periods indicated. All stock price information has been adjusted for the 5% stock dividend paid in February, 2011.

	Quoted market price		Dividend paid
Quarter ended	High	Low	per share
December 31, 2010	$21.23	$19.67	$0.19
September 30, 2010	$21.81	$19.05	$0.19
June 30, 2010	$21.38	$17.95	$0.19
March 31, 2010	$18.29	$17.67	$0.19
December 31, 2009	$18.32	$17.19	$0.19
September 30, 2009	$18.51	$15.71	$0.19
June 30, 2009	$19.38	$15.95	$0.19
March 31, 2009	$21.90	$15.24	$0.19

1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

General.  The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and is intended to assist in understanding and evaluating the major changes in the financial position and results of operations of the Company with a primary focus on an analysis of operating results.

The Company may from time to time make written or oral “forward-looking statements”, including statements contained in the Company’s filings with the Securities and Exchange Commission (“SEC”), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services; the willingness of users to substitute competitors’ products and services for the Company’s products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

The Company’s income on a consolidated basis is derived substantially from its investment in its subsidiary Third Federal. The earnings of Third Federal depend primarily on its net interest income. Net interest income is affected by the interest income that Third Federal receives from its loans and investments and by the interest expense that Third Federal incurs on its deposits, borrowings and other sources of funds. In addition, the mix of Third Federal’s interest-bearing assets and liabilities can have a significant effect on Third Federal’s net interest income; loans generally have higher yields than securities; retail deposits generally have lower interest rates than other borrowings.

Third Federal also receives income from service charges and other fees and occasionally from sales of investment securities, loan sales and real estate owned. Third Federal incurs expenses in addition to interest expense in the form of provisions for loan losses, salaries and benefits, deposit insurance premiums, property operations and maintenance, advertising and other related business expenses.

Critical Accounting Policies

Certain critical accounting policies of the Company require the use of significant judgment and accounting estimates in the preparation of the consolidated financial statements and related data of the Company. These accounting estimates require management to make assumptions about matters that are highly uncertain at the time the accounting estimate is made.

Management believes that the most critical accounting policy requiring the use of a significant amount of accounting estimates and judgment is the determination of the allowance for loan losses. Allowances are established based on an analysis of individual loans, pools of similar loans, delinquencies, loss experience, economic conditions generally and as they may affect individual borrowers, and other factors. Individual loans are evaluated based on cash flows or value of the underlying collateral, and the financial strength of any guarantors. All of these evaluation factors are subject to a high degree of uncertainty. If the financial condition and collateral values of a significant amount of debtors should deteriorate more than the Company has estimated, present allowances for loan losses may be insufficient and additional provisions for loan losses may be required. In addition, a single loan may result in the loss of a substantial amount and may significantly reduce the allowance. The allowance for loan losses was $8.3 million at December 31, 2010.

2

 Financial Condition and Changes in Financial Condition

Assets.  The Company’s total assets at December 31, 2010 were $691.8 million, a decrease of $22.3 million during the year.

Loans receivable net of the allowance for loan losses were $501.5 million, a $28.1 million or 5.3% decrease, the combined result of loan repayments and transfers to real estate acquired through foreclosure exceeding demand for new loans, as well as an increase in the allowance for loan losses during the year. Principal repayments of loans receivable totaled $99.2 million during the year ended December 31, 2010 and the Company transferred $7.5 million from loans to real estate acquired through foreclosure. The allowance for loan losses was increased by a provision of $4.2 million less $1.1 million of net loan charge-offs. Originations of consumer and single-family residential mortgage loans were $60.8 million and originations of commercial loans were $22.3 million. Loans receivable held for sale decreased by $1.0 million during 2010, mainly the net result of loans originated for sale of $39.0 million, less $40.5 million in proceeds from the sale of loans in the secondary market. The Company sold the majority of its fixed rate, 30 year term loan originations to the Federal National Mortgage Association (“FNMA”) and retained the loan servicing.

Mortgage-backed securities available for sale decreased by $11.7 million during 2010. Principal repayments totaled $28.5 million, the fair value of the securities decreased by $0.1 million and net discount amortization was $0.1 million. Offsetting these decreases were purchases of $17.0 million. Mortgage-backed securities held to maturity decreased by $0.6 million mainly as a result of principal repayments.

Investment securities available for sale increased by $17.0 million during the year due to purchases of federal agency and municipal bonds of $17.8 million. Sales and security maturities totaled $0.8 million.

The increase in other assets during 2010 was caused by the increase of $6.2 million in real estate acquired through foreclosure, which at December 31, 2010 totaled $7.5 million and was mainly composed of one parcel of unimproved raw land.

Liabilities.  Deposit balances decreased by $2.6 million during 2010. Money market, checking and savings accounts increased $18.4 million. The largest growth in deposits occurred in money market accounts, mostly in consumer accounts, but also a large percentage increase in business money market accounts reflecting the Company’s efforts to increase its business deposits. Retail certificates of deposit decreased by $20.9 million during 2010.

Advances from the FHLB and other borrowings decreased by $18.3 million, the result of a scheduled amortization and maturities of $31.1 million, net of new borrowings of $12.9 million. It is the current intent of the Company to fund a portion of its interest-bearing assets, not funded by deposits, with longer term advances from the FHLB. The Bank may also fund its day-to-day cash needs and shorter term interest-bearing assets not otherwise funded with deposits using draws on its line of credit with the FHLB. The Bank’s line of credit at the FHLB was $60 million of which none was drawn at December 31, 2010.

Stockholders’ Equity.  Total consolidated stockholders’ equity increased by $1.5 million to $73.4 million at December 31, 2010. The increase is largely the result of the retention of $3.4 million in net income less cash dividends paid to the Company’s common stockholders of $2.0 million. Accumulated other comprehensive income decreased by $0.1 million due to the fair value adjustment for unrealized losses on available for sale securities and there was an increase of $0.1 million to the funded status of the pension plan. Also, there was a $0.2 million increase due to the allocation of 11,712 shares to participants in the Company’s employee stock ownership plan, and an increase of $0.3 million attributable to stock grants and stock options. Stockholder’s equity was reduced by a $0.3 million adjustment to deferred tax assets associated with expired stock options.

3

 Average Balance Sheet.  The following table sets forth information (dollars in thousands) relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. The yields and costs are computed by dividing income or expense by the average balance of interest earning assets or interest-bearing liabilities, respectively for the periods indicated.

	2010							2009
	Average balance		Interest			Average yield/ cost			Average balance		Interest			Average yield/ cost
ASSETS
Interest-earning assets:
Loans receivable(1)	$	521,272	$	28,205		5.43	%		$	538,759	$	30,426		5.66	%
Mortgage-backed securities		78,401		3,595		4.60	%			101,142		4,966		4.92	%
Investment securities(2)		58,204		2,328		4.01	%			41,360		1,653		4.01	%
Other interest-earning assets(3)		9,534		6		0.06	%			3,747		3		0.08	%
Total interest-earning assets		667,411		34,134		5.13	%			685,008		37,048		5.42	%
Non interest-earning assets		42,850								37,170
Total assets	$	710,261							$	722,178
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Deposits	$	553,307		7,210		1.31	%		$	524,431		9,566		1.83	%
Advances from the FHLB and other borrowings		75,406		2,998		3.99	%			120,631		4,415		3.67	%
Total interest-bearing liabilities		628,713		10,208		1.63	%			645,062		13,981		2.17	%
Non interest-bearing liabilities		7,847								9,081
Total liabilities		636,560								654,143
Stockholders’ equity		73,701								68,035
Total liabilities and stockholders’ equity	$	710,261							$	722,178
Net interest income-tax equivalent basis			$	23,926							$	23,067
Interest rate spread(4)—tax equivalent basis						3.50	%							3.25	%
Net yield on interest-earning assets(5)—tax equivalent  basis						3.59	%							3.38	%
Ratio of average interest-earning assets to average interest-bearing liabilities						106.15	%							106.19	%
Less: tax—equivalent interest adjustment				(566	)							(451	)
Net interest income			$	23,360							$	22,616
Interest rate spread(4)						3.42	%							3.18	%
Net yield on interest-earning assets(5)						3.51	%							3.31	%

(1) Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income.

(2) Tax equivalent adjustments to interest on investment securities were $566,000 and $451,000 for the years ended December 31, 2010 and 2009 respectively. Tax equivalent interest income is based upon a marginal effective tax rate of 34%.

(3) Includes interest-bearing deposits in other banks.

(4) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(5) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

4

Rate/Volume Analysis.  The following table presents, for the periods indicated, the change in interest income and interest expense attributed to (i) changes in volume (changes in the weighted average balance of the total interest-earning asset and interest-bearing liability portfolios multiplied by the prior year rate), and (ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate.

	2010 vs. 2009
	Increase (decrease) due to
	Volume			Rate			Net
	(in thousands)
Interest income:
Loans receivable, net	$	(970	)	$	(1,251	)	$	(2,221	)
Mortgage-backed securities		(1,060	)		(311	)		(1,371	)
Investment securities(1)		674			1			675
Other interest-earning assets		4			(1	)		3
Total interest-earning assets		(1,352	)		(1,562	)		(2,914	)
Interest expense:
Deposits		505			(2,861	)		(2,356	)
Advances from the FHLB and other borrowings		(1,773	)		356			(1,417	)
Total interest-bearing liabilities		(1,268	)		(2,505	)		(3,773	)
Net change in net interest income	$	(84	)	$	943		$	859

(1) Tax equivalent adjustments to interest on investment securities were $566,000 and $451,000 for the years ended December 31, 2010 and 2009 respectively. Tax equivalent interest income is based upon a marginal effective rate of 34%.

Comparison of Years Ended December 31, 2010 and December 31, 2009

Net Income.  Net income was $3.4 million for the year ended December 31, 2010 compared with net income of $4.5 million for the year ended December 31, 2009.

Total Interest Income.  For the year ended December 31, 2010, total interest income, on a taxable equivalent basis, decreased by $2.9 million to $34.1 million. Interest income from loans receivable decreased by $2.2 million and the average yield on loans decreased 23 points. The decrease in interest income is attributable to the combined results of a high level of mortgage loan refinancing due to the historically low level of mortgage loan rates during much of the year and the increased level of non-performing loans. Interest income from mortgage-backed securities was lower in 2010 mainly because repayments of $29.1 million exceeded purchases of $17.0 million during the year. In addition, the yield associated with repayments was higher than the yield on newly purchased mortgage-backed securities. Interest income from investment securities was higher as a result of purchases of $17.8 million of municipal and federal agency bonds during the year.

Total Interest Expense.  Total interest expense decreased to $10.2 million from $14.0 million. The average balance of deposits outstanding increased $28.9 million during the year, however the interest rate paid on the deposits was 52 basis points lower. The migration of maturing high-rate certificates of deposit into lower cost core accounts was the underlying cause of the decrease in the average cost of deposits during the year. Interest on advances from the FHLB and other borrowings decreased by $1.4 million during 2010 versus 2009 as a result of a $45.2 million decrease in the average balance of advances outstanding.  The rate paid on advances increased 32 basis points as the Bank reduced its low cost short-term advances during 2009, and the remaining fixed rate fixed term advances had a higher rate than those that were combined with the short term borrowing accessed through the Federal Reserve Bank (“FRB”) and FHLB in 2009.

Allowance for Loan Losses. The allowance for loan losses was $8.3 million and $5.2 million at December 31, 2010 and 2009, respectively. The provision for loan losses was $4.2 million during 2010 compared with $2.9 million the previous year. Net loan charge-offs were $1.1 million during 2010 compared to $1.6 million during 2009. The increase in the provision for loan loss is the result of the Company’s analysis and review of its loan portfolio and assessment of the underlying risks associated with delinquent loans as well as loans classified for regulatory purposes. The main component of the increase was caused by continued weakness in commercial real estate values in the Company’s lending markets throughout the Philadelphia region.

Non-Interest Income.  Total non-interest income was $3.3 million during 2010 compared with $4.4 million for 2009.  Gain on the sale of investment and mortgage-backed securities during 2010 was $20,000 compared with a $762,000 net gain in 2009.  The sale of foreclosed real estate produced a loss of $244,000 in 2010 compared with a gain of $337,000 in 2009.  Total service fees, charges and other operating income decreased by $20,000 in 2010 compared with 2009.  Within this line item, loan servicing fees were higher during 2010 by $116,000 mainly due to a greater amount of loans serviced for FNMA, and deposit service charges were lower during 2010 by $160,000 mainly due to a decrease in overdraft fees.  During 2010, the gain on sale of loans held for sale increased by $214,000 as a result of the high level of residential loan sales activity which occurred throughout the year, especially during the second half of 2010.

5

Non-Interest Expense.  Total non-interest expense decreased by $84,000 to $18.0 million for 2010 compared to $18.1 million in 2009. Employee compensation and benefits decreased $437,000 as various bonus and incentive compensation programs were suspended in 2010. While FDIC insurance premiums decreased by $5,000 during 2010 compared to 2009, there was a special one-time assessment of $330,000 during 2009; whereas the FDIC insurance premium in 2010 reflects an increased deposit base and an increased assessment rate. Occupancy and equipment costs increased $133,000 mainly the result of costs associated with a relocated and renovated branch office.  Professional fees increased between the two periods as legal costs associated with non-performing loans and foreclosures during 2010 increased by $339,000.  However, the Company’s professional fees related to consultants and fees for audit and tax services decreased by $148,000 in 2010. Other operating expense increased $4,000 but included increased costs of $103,000 associated with maintenance of real estate acquired through foreclosure. Partially, offsetting the increase in other operating expense was a change in a deposit services related contract that reduced the expense by $123,000 in 2010.

Income Tax Expense.  The Company’s effective tax rate was 23.8% in 2010 compared to 24.9% for 2009. These effective tax rates are lower than the Company’s marginal tax rate of 34% largely due to the tax-exempt income associated with the Company’s investments in municipal bonds and bank-owned life insurance. Income tax expense includes federal as well as state income tax which increased $256,000 as a state tax loss carry-forward credit expired.

Liquidity and Capital Resources

Liquidity.  The Company’s primary sources of liquidity are dividends from the Bank, principal and interest  payments received from a loan made to the Bank’s Employee Stock Ownership Plan (“ESOP”), and tax benefits arising from the use of the Company’s tax deductions by other members of its consolidated group pursuant to a tax sharing agreement.  The Company is dependent upon these sources and cash on hand which totaled approximately $1.0 million at December 31, 2010 in order to fund its operations and pay the dividend to its shareholders.  There has been no material adverse change in the ability of the Company to fund its operations during the year ended December 31, 2010.

The Bank’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The Bank’ short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, broker deposits, other borrowings, and new borrowings from the FHLB and the FRB. There has been no material adverse change during the year ended December 31, 2010 in the ability of the Bank’s and its subsidiaries to fund their operations.

The amount of certificate accounts that are scheduled to mature during the twelve months ending December 31, 2011, is approximately $146.3 million. To the extent that these deposits do not remain at the Bank upon maturity, the Bank believes that it can replace these funds with other deposits, excess liquidity, and advances from the FHLB or other borrowings. It has been the Bank’s experience that substantial portions of such maturing deposits remain at the Bank.

At December 31, 2010, the Bank had outstanding $57.4 million in commitments to originate loans or fund unused lines of credit, letters of credit and loans sold with recourse. The loan commitments will be funded during the twelve months ending December 31, 2011. The unused lines of credit can be funded at any time. At December 31, 2010, the Bank had $6.5 million in optional commitments to sell loans. The Company also has obligations under lease agreements. Payments required under such lease agreements will be approximately $464,000 during the year ending December 31, 2011. The Bank endeavors to fund its operations internally but has, when deemed prudent, borrowed funds from the FHLB. As of December 31, 2010, such borrowed funds totaled $62.0 million. The amount of these borrowings that will mature during the twelve months ending December 31, 2011 is $21.3 million. At December 31, 2010, potential sources of funds to fulfill these possible liquidity needs were: a $60.0 million line of credit, which was unused, and up to approximately $138.1 million of additional collateral-based borrowing capacity at the FHLB, and $28.1 million of collateral based borrowing capacity at the Federal Reserve Bank.

Capital Resources.  Under current regulations, the Bank must have core capital equal to 4% of adjusted total assets of which 1.5% must be tangible capital, and risk-based capital equal to 8% of risk-weighted assets. On December 31, 2010, the Bank met its three regulatory capital requirements.

Management believes that under current regulations, the Bank will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond the control of the Bank, such as increased interest rates or a downturn in the economy in areas in which the Bank operates, could adversely affect future earnings and as a result, the ability of the Bank to meet its future minimum capital requirements.

6

 Impact of Inflation and Changing Prices

The consolidated financial statements and related data have been prepared in accordance with accounting principles generally accepted in the United States of America which require the measurement of financial position and operating results in terms of historical dollars, without consideration for changes in the relative purchasing power of money over time caused by inflation. Unlike industrial companies, nearly all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such goods and services are affected by inflation. In the current interest rate environment, liquidity and the maturity structure of the Bank’s assets and liabilities are critical to the maintenance of acceptable performance levels.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk Management.  The Bank has established an Asset/Liability Management Committee (“ALCO”) for the purpose of monitoring and managing market risk, which is defined as the risk of loss of net interest income or economic value arising from changes in market interest rates and prices.

The type of market risk which most affects the Company’s financial instruments is interest rate risk, which is best quantified by simulating the hypothetical change in the economic value of the Bank that would occur under specific changes in interest rates. Substantially all of the Bank’s interest-bearing assets and liabilities are exposed to interest rate risk. Change in economic value is measured using reports generated by the OTS, using input from the Bank, wherein the current net portfolio value of the Bank’s interest-sensitive assets and liabilities is measured at different hypothetical interest rate levels centered on the current term structure of interest rates. The Bank’s exposure to interest rate risk results from, among other things, the difference in maturities in interest-earning assets and interest-bearing liabilities. Since the Bank’s assets currently have a longer maturity than its liabilities, the Bank’s earnings could be negatively impacted during a period of rising interest rates. Alternatively, in periods of falling interest rates the Bank’s mortgage loans will repay at an increasing rate and cause the Bank to reinvest these cash flows in periods of low interest rates, also negatively affecting the Bank’s earnings. The relationship between the interest rate sensitivity of the Bank’s assets and liabilities is continually monitored by management and ALCO.

The Bank prices and originates loans, and prices and originates its deposits, including CDs, at market interest rates. Volumes of such loans and deposits at various maturity and repricing horizons will vary according to customer preferences as influenced by the term structure of market interest rates. The Bank utilizes its investment and mortgage-backed security portfolios available for sale to generate additional interest income, to manage its liquidity, and to manage its interest rate risk. These securities provide the Bank with a cash flow stream to fund asset growth or liability maturities. In addition, if management determines that it is advisable to do so, the Bank can lengthen or shorten the average maturity of all interest- bearing assets through the selection of fixed rate or variable rate securities, respectively.

The Bank utilizes advances from the FHLB in managing its interest rate risk and as a tool to augment deposits in funding asset growth. The Bank typically utilizes these funding sources to better match its fixed rate interest-bearing assets with longer maturities or repricing characteristics.

The nature of the Bank’s current operations is such that it is not subject to foreign currency exchange or commodity price risk. Additionally, neither the Company nor the Bank owns any trading assets. At December 31, 2010, the Bank did not have any hedging transactions in place such as interest rate swaps, caps, or floors, although these derivatives are often used by banks to manage interest rate risk.

7

The Bank is a savings bank regulated by the OTS and has policies or procedures in place for measuring interest rate risk. These policies and procedures stipulate acceptable levels of interest rate risk. As part of its interest rate risk management, the Bank uses the Interest Rate Risk Exposure Report, which is generated quarterly by the OTS. This report forecasts the interest rate sensitivity of net portfolio value (“NPV”) under alternative interest rate environments. The NPV is defined as the net present value of the Bank’s existing assets, liabilities and off-balance sheet instruments. The calculated estimates of change in NPV at December 31, 2010 are as follows:

Change in interest rates	NPV amount	% change	Policy limitation
	(in thousands)
+300 Basis Points	$68,716	−28%	−50%
+200 Basis Points	$79,415	−17%	−35%
+100 Basis Points	$89,107	−7%	−25%
+50 Basis Points	$92,202	−3%	−15%
Flat Rates	$95,454	0%	0%
−50 Basis Points	$97,091	2%	−10%
−100 Basis Points	$100,096	5%	−20%

Management believes that the assumptions utilized by OTS in evaluating the vulnerability of the Company’s net portfolio value to changes in interest rates are reasonable; however, the interest rate sensitivity of the Bank’s assets and liabilities as well as the estimated effect of changes in interest rates on NPV could vary substantially if different assumptions are used or actual experience differs from the experience on which the assumptions were based. At December 31, 2010, the Bank’s interest rate risk using the OTS methodologies was determined to be “minimal”.

Recent Accounting Pronouncements

See Note 2 in the Consolidated Financial Statements for a discussion on this topic.

8

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Under supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2010.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

March 23, 2011

Kent C. Lufkin President and Chief Executive Officer	Dennis R. Stewart Executive Vice President and Chief Financial Officer

9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

TF Financial Corporation

We have audited the accompanying consolidated balance sheet of TF Financial Corporation (the “Company”) and its subsidiaries as of December 31, 2010, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income, and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of TF Financial Corporation and its subsidiaries for the year ended December 31, 2009, were audited by other auditors whose report, dated March 30, 2010, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TF Financial Corporation and its subsidiaries as of December 31, 2010, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

Wexford, PA

March 23, 2011

S.R. Snodgrass, A.C. * 2100 Corporate Drive, Suite 400 * Wexford, Pennsylvania  15090-8399 * Phone: (724) 934-0344 * Facsimile: (724) 934-0345

10

Report of Independent Registered Public Accounting Firm

Board of Directors and

Shareholders of TF Financial Corporation

We have audited the accompanying consolidated balance sheet of TF Financial Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2009, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TF Financial Corporation and subsidiaries as of December 31, 2009, and the results of their consolidated operations and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Philadelphia, Pennsylvania

March 30, 2010

11

TF Financial Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	December 31,
	2010			2009
	(in thousands)
ASSETS
Cash and cash equivalents	$	7,437		$	12,801
Investment securities available for sale—at fair value		57,830			40,853
Mortgage-backed securities available for sale—at fair value		66,491			78,198
Mortgage-backed securities held to maturity (fair value of $3,510 and $4,033 as of December 31, 2010 and 2009, respectively)		3,169			3,733
Loans receivable, net		501,528			529,652
Loans receivable, held for sale		130			1,082
Federal Home Loan Bank stock—at cost		9,401			9,896
Accrued interest receivable		2,738			2,777
Premises and equipment, net		6,797			5,523
Goodwill		4,324			4,324
Bank owned life insurance		17,868			17,190
Other assets		14,044			8,061
TOTAL ASSETS	$	691,757		$	714,090
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits	$	550,135		$	552,716
Advances from the FHLB		61,987			80,241
Advances from borrowers for taxes and insurance		2,166			2,231
Accrued interest payable		1,784			2,818
Other liabilities		2,269			4,210
Total liabilities		618,341			642,216
Stockholders’ equity
Preferred stock, no par value; 2,000,000 shares authorized at December 31, 2010 and 2009, none issued		—			—
Common stock, $0.10 par value; 10,000,000 shares authorized, 5,290,000 shares issued, 2,822,449 and 2,672,603 shares outstanding at December 31, 2010 and 2009, respectively, net of shares in treasury: 2010—2,467,551; 2009—2,617,397		529			529
Additional paid-in capital		53,964			54,009
Unearned ESOP shares		(1,217	)		(1,334	)
Treasury stock—at cost		(51,220	)		(54,331	)
Retained earnings		70,749			72,376
Accumulated other comprehensive income		611			625
Total stockholders’ equity		73,416			71,874
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	691,757		$	714,090

The accompanying notes are an integral part of these statements.

12

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

	Year ended December 31,
	2010			2009
	(in thousands, except per share data)
Interest income
Loans, including fees	$	$28,205		$	30,426
Mortgage-backed securities		3,595			4,966
Investment securities		1,762			1,202
Interest-bearing deposits and other		6			3
TOTAL INTEREST INCOME		33,568			36,597
Interest expense
Deposits		7,210			9,566
Borrowings		2,998			4,415
TOTAL INTEREST EXPENSE		10,208			13,981
NET INTEREST INCOME		23,360			22,616
Provision for loan losses		4,241			2,930
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		19,119			19,686
Non-interest income
Service fees, charges and other operating income		1,958			1,978
Gain on sale of investment and mortgage-backed securities		20			762
Bank owned life insurance		678			676
Gain on sale of loans		871			657
(Loss)/gain on sale of real estate acquired through foreclosure		(244	)		337
TOTAL NON-INTEREST INCOME		3,283			4,410
Non-interest expense
Compensation and benefits		10,205			10,642
Occupancy and equipment		3,003			2,870
Federal deposit insurance premiums		915			920
Professional fees		1,063			856
Marketing and advertising		483			469
Other operating		2,332			2,328
TOTAL NON-INTEREST EXPENSE		18,001			18,085
INCOME BEFORE INCOME TAXES		4,401			6,011
Income tax expense		1,049			1,497
NET INCOME	$	3,352		$	4,514
Earnings per share—basic	$	1.25		$	1.70
Earnings per share—diluted	$	1.25		$	1.70

The accompanying notes are an integral part of these statements.

13

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME

Years ended December 31, 2010 and 2009

	Common Stock					Additional			Unearned									Accumulated other
	Shares			Par value		paid-in capital			ESOP shares			Treasury stock			Retained earnings			comprehensive income (loss)			Total			Comprehensive income (loss)
	(in thousands, except share data)
Balance at December 31, 2008		2,515,407		$	529	$	53,897		$	(1,468	)	$	(54,538	)	$	69,875		$	(603	)	$	67,692
Allocation of ESOP shares		13,433			—		110			134			—			—			—			244
Purchase of treasury stock		(5,756	)		—		—			—			(128	)		—			—			(128	)
Cash dividends—common stock		—			—		—			—			—			(2,013	)		—			(2,013	)
Compensation expense—restricted shares		—			—		16			—			—			—			—			16
Exercise of options		15,445			—		(79	)		—			321			—			—			242
Income tax benefit arising from stock compensation		—			—		23			—			—			—			—			23
Stock option expense		—			—		56			—			—			—			—			56
Vesting of restricted stock grant		666			—		(14	)		—			14			—			—			—
Unrealized gains on securities, net of tax		—			—		—			—			—			—			867			867		$	867
Adjustment to record funded status of pension, net of tax		—			—		—			—			—			—			361			361			361
Net income for the year ended December 31, 2009		—			—		—			—			—			4,514			—			4,514			4,514
Comprehensive income																								$	5,742
Balance at December 31, 2009		2,539,195		$	529	$	54,009		$	(1,334	)	$	(54,331	)	$	72,376		$	625		$	71,874
Allocation of ESOP shares		11,712			—		124			117			—			—			—			241
Cash dividends—common stock		—			—		—			—			—			(2,037	)		—			(2,037	)
Compensation expense—restricted shares		—			—		16			—			—			—			—			16
Exercise of options		14,870			—		(102	)		—			309			—			—			207
Income tax benefit arising from stock compensation		—			—		6			—			—			—			—			6
Stock option expense		—			—		52			—			—			—			—			52
Vesting of restricted stock grant		667			—		(14	)		—			14			—			—			—
Unrealized losses on securities, net of tax		—			—		—			—			—			—			(91	)		(91	)	$	(91	)
Adjustment to record funded status of pension, net of tax		—			—		—			—			—			—			77			77			77
Adjustment of deferred tax asset related to expired stock options		—			—		(281	)		—			—			—			—			(281	)
5% stock dividend		134,308			—		154			—			2,788			(2,942	)		—			—
Net income for the year ended December 31, 2010		—			—		—			—			—			3,352			—			3,352			3,352
Comprehensive income																								$	3,338
Balance at December 31, 2010		2,700,752		$	529	$	53,964		$	(1,217	)	$	(51,220	)	$	70,749		$	611		$	73,416

The accompanying notes are an integral part of this statement

14

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2010			2009
	(in thousands)
OPERATING ACTIVITIES
Net income	$	3,352		$	4,514
Adjustments to reconcile net income to net cash provided by operating activities
Amortization (accretion) of:
Mortgage loan servicing rights		160			146
Deferred loan origination fees		191			137
Premiums and discounts on investment securities, net		79			80
Premiums and discounts on mortgage-backed securities, net		96			(230	)
Premiums and discounts on loans, net		170			176
Deferred income taxes		(642	)		198
Provision for loan losses		4,241			2,930
Depreciation of premises and equipment		867			886
Increase in value of bank-owned life insurance		(678	)		(676	)
Restricted shares grant expense		16			16
Stock option expense		52			56
Stock based benefit programs: ESOP		241			244
Proceeds from sale of loans originated for sale		40,455			44,926
Origination of loans held for sale		(38,973	)		(44,085	)
(Loss) gain on sale of:
Investment and mortgage-backed securities		(20	)		(762	)
Loans		(871	)		(657	)
Real estate acquired through foreclosure		244			(337	)
(Increase) decrease in:
Accrued interest receivable		39			11
Other assets		516			(3,757	)
(Decrease) increase in:
Accrued interest payable		(1,034	)		(248	)
Other liabilities		(1,603	)		744
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	6,898		$	4,312

15

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	Year ended December 31,
	2010			2009
	(in thousands)
INVESTING ACTIVITIES
Loan originations	$	(83,117	)	$	(82,610	)
Loan principal payments		99,159			90,602
Principal repayments on mortgage-backed securities held to maturity		561			1,050
Principal repayments on mortgage-backed securities available for sale		28,544			32,230
Purchase of investment securities available for sale		(17,837	)		(14,746	)
Purchase of mortgage-backed securities available for sale		(17,027	)		(10,608	)
Proceeds from the sale of investment securities available for sale		170			5,514
Proceeds from the sale of mortgage-backed securities available for sale		—			8,859
Proceeds from maturities of investment securities available for sale		590			755
Redemption of FHLB stock		495			—
Proceeds from sale of real estate acquired through foreclosure		1,065			2,498
Purchase of premises and equipment		(2,141	)		(773	)
NET CASH PROVIDED BY INVESTING ACTIVITIES		10,462			32,771
FINANCING ACTIVITIES
Net (decrease) increase in deposits		(2,581	)		62,866
Net decrease in short-term FHLB and other borrowings		—			(42,416	)
Proceeds from long-term FHLB advances		12,884			—
Repayment of long-term FHLB advances		(31,138	)		(45,491	)
Net decrease in advances from borrowers for taxes and insurance		(65	)		(84	)
Treasury stock acquired		—			(128	)
Exercise of stock options		207			242
Tax benefit arising from stock compensation		6			23
Common stock dividends paid		(2,037	)		(2,013	)
NET CASH USED IN FINANCING ACTIVITIES		(22,724	)		(27,001	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(5,364	)		10,082
Cash and cash equivalents at beginning of year		12,801			2,719
Cash and cash equivalents at end of year	$	7,437		$	12,801
Supplemental disclosure of cash flow information:
Cash paid for
Interest on deposits and advances from FHLB and other borrowings	$	11,242		$	14,229
Income taxes	$	2,237		$	1,225
Capitalization of mortgage servicing rights	$	341		$	393
Transfers from loans to real estate acquired through foreclosure	$	7,479		$	3,443
Securities available for sale purchased, not settled	$	—		$	745

The accompanying notes are an integral part of these statements.

16

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010 and 2009

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

TF Financial Corporation (the “Company”) is a unitary savings and loan holding company, organized under the laws of the State of Delaware, which conducts its consumer banking operations primarily through its wholly owned subsidiary, Third Federal Bank (“Third Federal”) or the (“Bank”). Third Federal is a federally chartered stock savings bank insured by the Federal Deposit Insurance Corporation. Third Federal is a community-oriented savings institution and conducts operations from its main office in Newtown, Pennsylvania, twelve full-service branch offices located in Philadelphia and Bucks Counties, Pennsylvania, and two full-service branch offices located in Mercer County, New Jersey. The Bank competes with other banking and financial institutions in its primary market communities, including financial institutions with resources substantially greater than its own. Commercial banks, savings banks, savings and loan associations, credit unions and money market funds actively compete for savings and time deposits and loans. Such institutions, as well as consumer finance and insurance companies, may be considered competitors of the Bank with respect to one or more of the services it renders.

The Bank is subject to regulations of certain state and federal agencies and, accordingly, those regulatory authorities conduct periodic examinations. As a consequence of the extensive regulation of commercial banking activities, the Bank’s business is particularly susceptible to being affected by state and federal legislation and regulations.

a.           Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: TF Investments, Penns Trail Development Corporation and Third Federal, and the Bank’s wholly owned subsidiaries, Third Delaware Corporation and Teragon Financial Corporation, (collectively, the “Company”). All material intercompany balances and transactions have been eliminated in consolidation.

The accounting policies of the Company conform to accounting principles generally accepted in the United States of America (“US GAAP”) and predominant practices within the banking industry. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more significant accounting policies are summarized below.

b.           Cash and Cash Equivalents

The Company considers cash, due from banks, and interest-bearing deposits in other financial institutions, with original terms to maturity of less than three months, as cash equivalents for presentation purposes in the consolidated balance sheets and cash flows. The Company is required to maintain certain cash reserves relating to deposit liabilities. This requirement is ordinarily satisfied by cash on hand.

c.           Investment and Mortgage-Backed Securities

The Company classifies its investment, mortgage-backed and marketable equity securities in one of three categories: held to maturity, trading, or available for sale. The Company does not presently engage in security trading activities.

Investment, mortgage-backed and marketable equity securities available for sale are stated at fair value, with net unrealized gains and losses excluded from income and reported in other comprehensive income. See Note 16-Fair Value Measurements which defines the basis for determining fair value. Realized gains and losses on the sale of securities are recognized using the specific identification method.

Mortgage-backed securities held to maturity are carried at cost, net of unamortized premiums and discounts, which are recognized in interest income using the interest method.

On a quarterly basis, temporarily impaired securities are evaluated to determine whether such impairment is other-than-temporary impairment (“OTTI”). This evaluation involves consideration of the length of time and the amount by which the fair value has been lower than amortized cost, the financial condition and credit rating of the issuer, the changes in fair value in relation to the change in market interest rates and other relevant information. In addition, with respect to mortgage-backed securities issued by government and quasi-governmental agencies (i. e. Government National Mortgage Association (“GNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and FNMA), the Company considers the ultimate payment of principal and interest as an obligation of the United States Government and thus assured. With respect to mortgage-backed securities issued by private parties, the Company studies delinquencies, loss rates, loss severity and other information related to the underlying loans in order to form an opinion regarding the possibility of a cash flow shortfall. The Company also evaluates its intent to hold, intent to sell or need to sell the securities in light of its investment strategy, cash flow needs, interest rate risk position, prospects for the issuer and all other relevant factors.

17

d.           Loans Receivable, net

Loans receivable that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are stated at unpaid principal balances less the allowance for loan losses, and net of deferred loan origination fees, direct origination costs and unamortized premiums and discounts associated with purchased loans. Loan origination fees and costs as well as unamortized premiums and discounts on mortgage loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for actual prepayments.

The Bank provides valuation allowances for estimated losses from uncollectible loans. The allowance is increased by provisions charged to expense and reduced by net charge-offs. On a quarterly basis, the Bank prepares an allowance for loan losses (ALLL) analysis. In the analysis, the loan portfolio is segmented into groups of homogeneous loans that share similar risk characteristics: non-residential and non-owner occupied residential real estate, construction, commercial business, single family residential, and consumer which is predominately real estate secured junior liens and home equity lines of credit. Each segment is assigned reserve factors based on quantitative and qualitative measurements. In addition, the Bank reviews its internally classified loans, its loans classified for regulatory purposes, delinquent loans, and other relevant information in order to isolate loans for further scrutiny as potentially impaired loans.

Quantitative factors include an actual expected loss factor based on historical loss experience over a relevant look-back period. Quantitative factors also include the Bank’s actual risk ratings for the commercial loan segments as determined in accordance with loan review and loan grading policies and procedures, and additional factors as determined by management to be representative of additional risk due to the loan’s geographic location, type, and other attributes. These quantitative factors are adjusted if necessary, up or down, based on actual experience and an evaluation of the qualitative factors.

Qualitative factors are based upon: (1) changes in lending policies and procedures, including but not limited to changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; (3) changes in the nature and volume of the portfolio and in the terms of loans; (4) changes in the experience, ability, and depth of lending management and other relevant staff; (5) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; (6) changes in the quality of the loan review system; (7) changes in the value of underlying collateral for collateral dependent loans; (8) the existence and effect of any concentration of credit, and changes in the level of such concentrations; and (9) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio.

            Potentially impaired loans selected for individual evaluation are reviewed in accordance with US GAAP which governs the accounting for impaired assets, and consideration of regulatory guidance regarding treatment of troubled, collateral dependent loans. Each potentially impaired loan is evaluated using all available information such as recent appraisals, whether the loan is currently on accrual or non-accrual status, discounted cash flow analyses, guarantor financial strength, the value of additional collateral, and the loan’s and borrower’s past performance to determine whether in management’s best judgment it is probable that the Bank will be unable to collect all contractual interest and principal in accordance with the loan’s terms. Loans deemed impaired are generally assigned a reserve derived from the value of the underlying collateral. Loans deemed not to be impaired are assigned a reserve factor based upon the class from which they were selected.

The ALLL needed as a result of the foregoing evaluations is compared with the unadjusted amount, and an adjustment is made by means of a provision charged to expense for loan losses. Recognizing the inherently imprecise nature of the loss estimates and the large number of assumptions needed in order to perform the analysis, the required reserve may be less than the actual level of reserves at the end of any evaluation period, and thus there may be an unallocated portion of the ALLL. Management adjusts the unallocated portion to an amount which management considers reasonable under the circumstances.

The Bank provides an allowance for accrued but uncollected interest when a loan becomes more than ninety days past due or is identified as impaired. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is no longer impaired, in which case the loan is returned to accrual status.

18

e.           Loans Receivable, Held-for-Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value on an individual basis. Any resulting loss is included in other income. The fair value of the Bank’s loans held for sale was valued in excess of cost at December 31, 2010 and 2009.

f.           Transfers of Financial Assets

The Company accounts for the transfer of financial assets using the financial-components approach. This approach recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. Consistent guidelines for distinguishing transfers of financial assets from transfers that are secured borrowings are observed.

g.           Premises and Equipment

Land is carried at cost. Buildings and furniture, fixtures and equipment are carried at cost less accumulated depreciation. Depreciation is provided by the straight-line method over the estimated useful lives of the assets. The Company records any impairment of long-lived assets to be held and used or to be disposed of by sale. The Company had no impaired long-lived assets at December 31, 2010 and 2009.

h.           Goodwill

Goodwill does not require amortization but is subject to annual impairment testing. The Company has tested the goodwill for impairment in the fourth quarter of 2010 and noted the presence of indicators of potential impairment namely adverse economic conditions reflected in the trading value of the common stock relative to its book value. As a result, the Company estimated the fair value of the Company and based upon this, no impairment has been recognized at December 31, 2010.

i.           Bank Owned Life Insurance

The Company maintains life insurance policies on the lives of executives and officers. The Company is the owner and beneficiary of the policies. The cash surrender values of the policies were approximately $17.9 million and $17.2 million at December 31, 2010 and 2009, respectively.

j.           Benefit Plans

The Company has established an ESOP covering eligible employees with six months of service, as defined by the ESOP. The Company records compensation expense in the amount equal to the fair value of shares committed to be released from the ESOP to employees less dividends received on the allocated shares applied to the required debt service of the plan.

The Company has a defined benefit pension plan covering substantially all full-time employees meeting certain requirements. The Company recognizes the overfunded or underfunded status of the defined benefit postretirement plan as an asset or liability in its consolidated balance sheets and recognizes changes in that funded status, including the gains and or losses and prior service costs or credits that were not recognized as components of net periodic benefit cost, in the year in which the changes occur through accumulated other comprehensive income. The Company measures the funded status of a plan as of the date of its year-end consolidated balance sheet.

k.           Stock-Based Compensation

The Company has stock benefit plans that allow the Company to grant options and stock to employees and directors and which are more fully discussed in Note 10—Benefit Plans. The options, which have a term of up to 10 years when issued, vest over a three to five year period. The exercise price of each option equals the market price of the Company’s stock on the date of the grant. The Company measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period which is usually the vesting period. There were no options granted in 2010 or 2009.

l.           Income Taxes

The Company accounts for income taxes under the liability method whereby deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes due to change in tax rates is recognized in income in the period that includes the enactment date.

19

m.           Advertising Costs

The Company expenses marketing and advertising costs as incurred.

n.           Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

o.           Comprehensive Income

Comprehensive (loss) income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The components of other comprehensive (loss) income are as follows:

	December 31, 2010
	Before tax amount			Tax (expense) benefit			Net of tax amount
	(in thousands)
Unrealized losses on securities
Unrealized holding losses arising during period	$	(118	)	$	40		$	(78	)
Reclassification adjustment for gains realized in net income		(20	)		7			(13	)
Pension plan benefit adjustment related to actuarial losses		117			(40	)		77
Other comprehensive loss, net	$	(21	)	$	7		$	(14	)

	December 31, 2009
	Before tax amount			Tax (expense) benefit			Net of tax amount
	(in thousands)
Unrealized gains on securities
Unrealized holding gains arising during period	$	2,076		$	(706	)	$	1,370
Reclassification adjustment for gains realized in net income		(762	)		259			(503	)
Pension plan benefit adjustment related to actuarial losses		552			(191	)		361
Other comprehensive income, net	$	1,866		$	(638	)	$	1,228

p.           Segment Reporting

The Company has one reportable segment, “Community Banking.” All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, commercial lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer and residential mortgage lending. Accordingly, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.

20

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) added new requirements for disclosures of fair value measurements. The new requirements include disclosure about transfers in and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The guidance is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those years.   Early adoption is permitted. The required additional disclosures are contained in Note 16-Fair Value Measurements.

In April 2010, the FASB issued guidance on the treatment for a modified loan that was acquired as part of a pool of assets.  The guidance establishes that entities should not evaluate whether a modification of loans that are part of a pool meets the criteria for a troubled debt restructuring. In addition, modified loans should not be removed from the pool unless certain criteria are met.  The amendment became effective for loans that are part of an asset pool and are modified during financial reporting periods that end July 15, 2010 or later. Adoption of the new guidance did not have a significant impact on the Company’s financial statements. 

In July 2010, the FASB issued an amendment which requires disclosures about the credit quality of financing receivables and the allowance for credit losses. The amendment improves the transparency in financial reporting by public and non public companies that hold financing receivables which include loans, lease receivables and other long-term receivables. The additional disclosures include aging of past due receivables, credit quality indicators and modifications of financing receivables.  The disclosures also include information on the development of the credit loss allowance and the management of credit exposures. The amendment is effective for financial reporting periods ending after December 15, 2010. The Company adopted the period end disclosures of the new guidance which are contained in Note 5-Loans Receivable.

In December 2010, the FASB issued an amendment that modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that goodwill impairment exists.  In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist.  The qualitative factors are consistent with the existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  The Company does not anticipate that the adoption of this guidance will have a significant impact on the Company’s financial statements.

In January 2011, the FASB issued an amendment that temporarily delays the effective date of the disclosures about troubled debt restructurings. Public-entity creditors are to provide those disclosures after the FASB clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of other disclosure requirements regarding financing receivables.  FASB has proposed that the disclosures regarding troubled debt restructuring would be effective for interim and annual periods ending after June 15, 2011 and would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted.  Adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

NOTE 3—CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

	December 31,
	2010		2009
	(in thousands)
Cash and due from banks	$	3,218	$	2,830
Interest-bearing deposits in other financial institutions		4,219		9,971
	$	7,437	$	12,801

21

NOTE 4—INVESTMENT AND MORTGAGE-BACKED SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities at December 31, 2010 and 2009, are summarized as follows:

	December 31, 2010
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(in thousands)
Investment securities available for sale
U.S. Government and federal agencies	$	6,000	$	59	$	—		$	6,059
Corporate debt securities		3,340		223		—			3,563
State and political subdivisions		47,348		1,120		(260	)		48,208
Total investment securities available for sale	$	56,688	$	1,402	$	(260	)	$	57,830
Mortgage-backed  securities available for sale
Residential mortgage-backed securities issued by quasi-governmental agencies	$	50,942	$	1,950	$	(6	)	$	52,886
Residential mortgage-backed securities, privately issued		13,425		224		(44	)		13,605
Total mortgage-backed securities available for sale	$	64,367	$	2,174	$	(50	)	$	66,491
Residential mortgage-backed securities held to maturity issued by quasi-governmental agencies	$	3,169	$	341	$	—		$	3,510

Gross realized gains were $20,000 and $829,000 for the years ended December 31, 2010 and 2009, respectively. These gains resulted from the sale of investment and mortgage-backed securities available for sale of $150,000 and $12.5 million for the years ended December 31, 2010 and 2009, respectively.

Gross realized losses were $67,000 for the year ended December 31, 2009. These losses resulted from the sale of mortgage-backed securities available for sale of $1.4 million for the year ended December 31, 2009. There were no losses in 2010.

	December 31, 2009
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(in thousands)
Investment securities available for sale
U.S. Government and federal agencies	$	3,000	$	—	$	(55	)	$	2,945
Corporate debt securities		3,340		177		—			3,517
State and political subdivisions		33,180		1,170		(109	)		34,241
Equity securities		150		—		—			150
Total investment securities available for sale	$	39,670	$	1,347	$	(164	)	$	40,853
Mortgage-backed  securities available for sale
Residential mortgage-backed securities issued by quasi-governmental agencies	$	68,707	$	2,483	$	(39	)	$	71,151
Residential mortgage-backed securities, privately issued		7,270		—		(223	)		7,047
Total mortgage-backed securities available for sale	$	75,977	$	2,483	$	(262	)	$	78,198
Residential mortgage-backed securities held to maturity issued by quasi-governmental agencies	$	3,733	$	300	$	—		$	4,033

22

The amortized cost and fair value of investment and mortgage-backed securities, by contractual maturity, are shown below.

	December 31, 2010
	Available for sale				Held to maturity
	Amortized cost		Fair value		Amortized cost		Fair value
	(in thousands)
Investment securities
Due in one year or less	$	860	$	863	$	—	$	—
Due after one year through five years		13,459		13,932		—		—
Due after five years through 10 years		23,258		24,058		—		—
Due after ten years		19,111		18,977		—		—
		56,688		57,830		—		—
Mortgage-backed  securities		64,367		66,491		3,169		3,510
Total investment and mortgage-backed securities	$	121,055	$	124,321	$	3,169	$	3,510

Investment securities having an aggregate amortized cost of approximately $4.6 million and $2.3 million were pledged to secure public deposits at December 31, 2010 and 2009, respectively.

There were no securities held other than U.S. Government and agencies from a single issuer that represented more than 10% of stockholders’ equity at year end.

The Company also holds stock in the Federal Home Loan Bank of Pittsburgh (“FHLB”) totaling $9.4 and $9.9 million as of December 31, 2010 and 2009, respectively. The Company is required to maintain a minimum amount of FHLB stock as determined by its borrowing levels and amount of eligible assets.  At December 31, 2010 the Company was required to hold $4.3 million in FHLB stock.  FHLB stock can only be repurchased by the FHLB or sold to another member, and all sales must be at par. The Company holds FHLB stock as a long term investment based on the ultimate recoverability of the par value. During the fourth quarter of 2008, the FHLB suspended the repurchase of stock and dividend payments which prompted the Company to give consideration to evaluating the potential impairment of the investment. The Company evaluates potential impairment of its investment in FHLB stock quarterly and considers the following: 1) the magnitude and direction of the change in the net assets of the FHLB as compared to the capital stock amount and the duration of this condition, 2) the ability of the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, 3) the impact of regulatory changes on the FHLB and on its members and 4) the liquidity position of the FHLB. During the fourth quarter of 2010, the FHLB resumed limited repurchases of members’ excess stock. After evaluating these factors the Company has concluded that the par value of its investment in FHLB stock is recoverable and no impairment has been recorded during the year ended December 31, 2010 or 2009.

23

The table below indicates the length of time individual securities, both held to maturity and available for sale, have been in a continuous unrealized loss position at December 31, 2010:

	Number of securities			Less than 12 months					12 months or longer				Total
Description of securities				Fair value		Unrealized loss			Fair value		Unrealized loss		Fair value		Unrealized loss
		(in thousands)
State and political subdivisions			17	$	14,210	$	(260	)	$	—	$	—	$	14,210	$	(260	)
Residential mortgage-backed securities issued by quasi-governmental agencies			1		3,027		(6	)		—		—		3,027		(6	)
Residential mortgage-backed securities privately issued			3		7,048		(44	)		—		—		7,048		(44	)
Total temporarily impaired securities			21	$	24,285	$	(310	)	$	—	$	—	$	24,285	$	(310	)

The table below indicates the length of time individual securities, both held to maturity and available for sale, have been in a continuous unrealized loss position at December 31, 2009:

	Number of securities		Less than 12 months					12 months or longer					Total
Description of securities			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
	(in thousands)
U.S. Government  and federal agencies		1	$	2,945	$	(55	)	$	—	$	—		$	2,945	$	(55	)
State and political subdivisions		6		4,086		(109	)		—		—			4,086		(109	)
Residential mortgage-backed securities issued by quasi-governmental agencies		2		4,352		(39	)		—		—			4,352		(39	)
Residential mortgage-backed securities privately issued		4		5,536		(160	)		1,511		(63	)		7,047		(223	)
Total temporarily impaired securities		13	$	16,919	$	(363	)	$	1,511	$	(63	)	$	18,430	$	(426	)

The Company evaluates debt securities on a quarterly basis to determine whether OTTI exists. The Company has performed this evaluation and has determined that the unrealized losses at December 31, 2010 and 2009, respectively, are not considered other-than-temporary and are therefore reflected in other comprehensive income.

24

NOTE 5—LOANS RECEIVABLE

Loans receivable are summarized as follows:

	December 31,
	2010			2009
	(in thousands)
Held for investment:
First mortgage loans	$	269,077		$	271,651
Secured by one-to-four family residences		137,307			134,584
Secured by non-residential properties or non—owner occupied residential properties		18,799			29,671
Construction loans		425,183			435,906
Total first mortgage loans
Other loans
Commercial-business, real estate secured		26,603			33,514
Commercial-business, non-real estate secured		5,575			7,462
Home equity and second mortgage		49,430			54,811
Other		2,407			2,565
Total other loans		84,015			98,352
Total loans		509,198			534,258
Net deferred loan origination costs and unamortized premiums		658			609
Less allowance for loan losses		(8,328	)		(5,215	)
Total loans receivable	$	501,528		$	529,652
Held for sale:
First mortgage loans
Secured by one-to-four family residences	$	130		$	1,082

The following table presents the composition of the commercial loan portfolio by credit quality indicator at December 31, 2010:

Commercial credit exposure-credit risk profile by internally assigned grade
		Pass		Special mention		Substandard		Doubtful		Total
		(in thousands)
Secured by non-residential properties or non—owner occupied residential properties	$	108,484	$	19,299	$	9,524	$	—	$	137,307
Construction loans		3,482		6,269		9,048		—		18,799
Commercial-business, real estate secured		15,778		1,007		9,818		—		26,603
Commercial-business, non-real estate secured		5,531		—		—		44		5,575
Total	$	133,275	$	26,575	$	28,390	$	44	$	188,284

In order to assess and monitor the credit risk associated with commercial loans, the Company employs a risk rating methodology whereby each commercial loan is initially assigned a risk grade. At least annually, all risk ratings are reviewed in light of information received such as tax returns, rent rolls, cash flow statements, appraisals, and any other information which may affect the then current risk rating, which is adjusted upward or downward as needed.  At the end of each quarter the risk ratings are summarized and become a component of the evaluation of the allowance for loan losses. The Company’s risk rating definitions mirror those promulgated by banking regulators and are as follows:

Pass: Good quality loan characterized by satisfactory liquidity; reasonable debt capacity and coverage; acceptable management in all critical positions and normal operating results for its peer group.  The Company has grades 1 through 6 within the Pass category which reflect the increasing amount of attention paid to the individual loan because of, among other things, trends in debt service coverage, management weaknesses, or collateral values.

25

Special mention:  A loan that has potential weaknesses that deserves management’s close attention.  Although the loan is currently protected, if left uncorrected, potential weaknesses may result in deterioration of the loan’s repayment prospects or in the Company’s future credit position.  Potential weaknesses include: weakening financial condition; an unrealistic repayment program; inadequate sources of funds; lack of adequate collateral; credit information; or documentation.  There is currently the capacity to meet interest and principal payments, but further adverse business, financial, or economic conditions may impair capacity or willingness to pay interest and repay principal.

            Substandard:  A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged.  Although no loss of principal or interest is presently apparent, there is the distinct possibility that a partial loss of interest and/or principal will be sustained if the deficiencies are not corrected.  There is a current identifiable vulnerability to default and the dependence upon favorable business, financial, or economic conditions to meet timely payment of interest and repayment of principal.

Doubtful: A loan which has all the weaknesses inherent in a substandard asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to strengthen the asset, classification as an estimated loss if deferred until a more exact status is determined.  Pending factors include: proposed merger, acquisition, liquidation, capital injection, perfecting liens on additional collateral, and refinancing plans.

Loss: Loans which are considered uncollectible and have been charged off. The Company has charged-off all loans classified as loss.

Loans classified as special mention, substandard or doubtful are evaluated for potential impairment. All impaired loans are placed on non-accrual status and are classified as substandard or doubtful.

The following table presents the composition of the residential mortgage and consumer loan portfolios by credit quality indicator at December 31, 2010:

Mortgage and consumer credit exposure-credit risk profile by payment activity
		Performing		Non-performing	Total
		(in thousands)
Secured by one-to-four family residences	$	265,459	$	3,618	$	269,077
Home equity and second mortgage		48,018		1,412		49,430
Other		2,404		3		2,407
Total	$	315,881	$	5,033	$	320,914

In order to assess and monitor the credit risk associated with 1-4 family residential loans and consumer loans which include second mortgage loans and home equity secured lines of credit, the Company relies upon the payment status of the loan. Loans 90 days or more past due are placed on non-accrual status and evaluated for impairment on a pooled basis.

The following table presents non-performing loans including impaired loans and loan balances past due over 90 days for which the accrual of interest has been discontinued by class at December 31, 2010:  

	(in thousands)
Secured by one-to-four family residences	$	3,618
Secured by non-residential properties or non—owner occupied residential properties		4,993
Construction loans		4,307
Commercial-business, real estate secured		4,601
Commercial-business, non-real estate secured		44
Home equity and second mortgage		1,412
Other consumer		3
Total non-performing loans	$	18,978
Total loans past due 90 days as to interest or principal and accruing interest	$	—

26

The following table presents loans individually evaluated for impairment by class at December 31, 2010:

	Impaired loans
		Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
		(in thousands)
With an allowance recorded:
Secured by non-residential properties or non—owner occupied residential properties	$	1,855	$	1,855	$	218	$	925	$	—
Construction loans		3,887		3,887		1,627		3,887		—
Commercial-business, real estate secured		2,605		2,605		373		1,563		—
Commercial-business, non-real estate secured		44		44		44		18		—
With no allowance recorded:
Secured by non-residential properties or non—owner occupied residential properties		2,830		2,830		—		3,479		—
Construction loans		420		420		—		492		—
Commercial-business, real estate secured		1,996		1,996		—		4,717		—
Commercial-business, non-real estate secured		—		—		—		22		—
Total	$	13,637	$	13,637	$	2,262	$	15,103	$	—

The following table sets forth information regarding the Company’s non-performing loans at December 31, 2009:

	(thousands)
Impaired loans with a related allowance	$	2,389
Impaired loans without a related allowance		5,895
Total impaired loans	$	8,284
Allowance for impaired loans	$	540
Total non-performing loans	$	8,284
Total loans past due 90 days as to interest or principal and accruing interest	$	—

Interest income that would have been recorded under the original terms of impaired loans totaled approximately $768,000 and $199,000 for the years ended December 31, 2010 and 2009, respectively.

The following table presents the contractual aging of delinquent loans by class at December 31, 2010:

	Current		30-59 days past due		60-89 days past due		Loans past due 90 days or more		Total past due		Total loans		Recorded investment over 90 days and accruing interest
	(in thousands)
Secured by one-to-four family residences	$	267,885	$	424	$	26	$	742	$	1,192	$	269,077	$	—
Secured by non-residential properties or non—owner occupied residential properties		131,566		748		754		4,239		5,741		137,307		—
Construction loans		14,492		—		—		4,307		4,307		18,799
Commercial-business, real estate secured		18,877		3,125		—		4,601		7,726		26,603		—
Commercial-business, non-real estate secured		5,531		—		—		44		44		5,575		—
Home equity and second mortgage		48,285		60		9		1,076		1,145		49,430
Other		2,381		13		10		3		26		2,407		—
Total	$	489,017	$	4,370	$	799	$	15,012	$	20,181	$	509,198	$	—

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Activity in the allowance for loan losses is summarized as follows:

	December 31,
	2010			2009
	(in thousands)
Balance at beginning of year	$	5,215		$	3,855
Provision charged to income		4,241			2,930
(Charge-offs), net of recoveries		(1,128	)		(1,570	)
Balance at end of year	$	8,328		$	5,215

            The following tables present the ending balance of the allowance for loan losses and ending loan balance by portfolio by class based on impairment method as of December 31, 2010:

Allowance		Individually evaluated for impairment		Collectively evaluated for impairment		Total
		(in thousands)
Secured by one-to-four family residences	$	—	$	1,839	$	1,839
Secured by non-residential properties or non—owner occupied residential properties		218		1,906		2,124
Construction loans		1,627		852		2,479
Commercial-business, real estate secured		373		601		974
Commercial-business, non-real estate secured		44		33		77
Home equity and second mortgage		—		607		607
Other consumer		—		16		16
Unallocated		—		212		212
Total	$	2,262	$	6,066	$	8,328

Loan balance		Individually evaluated for impairment		Collectively evaluated for impairment		Total
		(in thousands)
Secured by one-to-four family residences	$	—	$	269,077	$	269,077
Secured by non-residential properties or non—owner occupied residential properties		4,685		132,621		137,307
Construction loans		4,307		14,492		18,799
Commercial-business, real estate secured		4,601		22,003		26,603
Commercial-business, non-real estate secured		44		5,531		5,575
Home equity and second mortgage		—		49,430		49,430
Other consumer		—		2,407		2,407
Total	$	13,637	$	495,561	$	509,198

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The Bank has no concentration of loans to borrowers engaged in similar activities that exceeded 10% of loans at December 31, 2010 and 2009. In the ordinary course of business, the Bank has granted loans to certain executive officers, directors and their related interests. Related party loans are made on substantially the same terms as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans was approximately $156,000 and $161,000 at December 31, 2010 and 2009, respectively. New loans to related parties of $110,000 were made during 2010. For the year ended December 31, 2010, principal repayments of $115,000 of related party loans were received. Unused lines of credit available were $357,000 and $363,000 at December 31, 2010 and 2009, respectively.

NOTE 6—LOAN SERVICING

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans are summarized as follows:

	December 31,
	2010		2009
	(in thousands)
Mortgage loan servicing portfolios
FHLMC	$	342	$	401
FNMA		98,367		76,429
Other investors		14,348		15,408
	$	113,057	$	92,238

Custodial balances maintained in connection with the foregoing loan servicing totaled approximately $914,000 and $900,000 and are included as deposits at December 31, 2010 and 2009, respectively. Net servicing revenue on mortgage loans serviced for others was $57,000 and $16,000 for the years ended December 31, 2010 and 2009, respectively.

The Company initially recognizes and measures servicing assets based on the fair value of the servicing right at the time the loan is sold. The Company uses the amortization method for subsequent measurement of its servicing assets and evaluates the recorded value for impairment as discussed in Note 16—Fair Value Measurements. Mortgage servicing rights of $878,000 and $696,000 which approximate fair value were reported as a component of other assets at December 31, 2010 and 2009, respectively.

NOTE 7—PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	Estimated		December 31,
	useful lives		2010		2009
			(in thousands)
Buildings		30 years	$	7,369	$	6,492
Leasehold improvements		5 – 10 years		3,254		2,003
Furniture, fixtures and equipment		3 – 7 years		8,438		11,389
				19,061		19,884
Less accumulated depreciation				13,956		16,053
				5,105		3,831
Land				1,692		1,692
			$	6,797	$	5,523

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NOTE 8—DEPOSITS

Deposits are summarized as follows:

	December 31,
	2010		2009
	(in thousands)
Deposit Type
Demand	$	40,389	$	37,288
NOW		56,157		52,988
Money market		149,744		141,286
Passbook savings		99,686		96,061
Total demand, transaction and passbook deposits		345,976		327,623
Certificates of deposit		204,159		225,093
	$	550,135	$	552,716

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $52.3 million and $56.8 million at December 31, 2010 and 2009, respectively.

At December 31, 2010, scheduled maturities of certificates of deposit by year are as follows:

Maturity year
2011	2012	2013	2014	2015	Thereafter	Total
(in thousands)
$146,308	$37,462	$9,701	$3,950	$6,416	$322	$204,159

Related party deposits are on substantially the same terms as are comparable transactions with unrelated persons. The aggregate dollar amount of these deposits was approximately $4.3 million and $4.7 million at December 31, 2010 and 2009, respectively.

NOTE 9—ADVANCES FROM THE FEDERAL HOME LOAN BANK AND OTHER BORROWINGS

Advances from the Federal Home Loan Bank consist of the following:

	December 31,
	2010				2009
			Weighted				Weighted
Principal payments due during	Amount		average rate		Amount		Average rate
	(in thousands)
2010	$	—		—%	$	29,879		4.49%
2011		21,322		4.02%		19,461		4.18%
2012		24,578		3.93%		22,676		4.06%
2013		9,492		3.39%		7,542		3.66%
2014		2,686		2.69%		683		3.66%
2015		2,044		2.35%		—		—%
Thereafter		1,865		2.46%		—		—%
	$	61,987		3.73%	$	80,241		4.21%

The advances are collateralized by certain first mortgage loans totaling approximately $347.3 million and the Federal Home Loan Bank stock owned by the Bank. Total unused lines of credit at the Federal Home Loan Bank were $60.0 million at December 31, 2010. The remaining advances from the Federal Home Loan Bank are fixed rate, fixed term.

30

NOTE 10—BENEFIT PLANS

a.           Defined Contribution Plan

The Bank maintains a 401(k) profit-sharing plan for eligible employees. Participants may contribute up to 15% of pretax eligible compensation. The Bank makes matching discretionary contributions equal to 75% of the initial $1,000 deferral. Matching contributions to the 401(k) plan totaled $72,000 and $73,000 in 2010 and 2009, respectively.

b.           Defined Benefit Plan

The Bank has a non-contributory defined benefit pension plan covering substantially all full-time employees meeting certain eligibility requirements. The benefits are based on each employee’s years of service and an average earnings formula. An employee becomes fully vested upon completion of five years of qualifying service. It is the policy of the Bank to fund the maximum amount allowable under the individual aggregate cost method to the extent deductible under existing federal income tax regulations.

The following tables set forth the projected benefit obligation, the fair value of assets of the plan and funded status of the defined benefit pension plan as reflected in the consolidated balance sheets:

	December 31,
	2010			2009
	(in thousands)
Reconciliation of projected benefit obligation
Benefit obligation at beginning of year	$	4,938		$	4,346
Service cost		553			471
Interest cost		296			249
Actuarial loss		202			10
Amendments		33			—
Benefits paid		(185	)		(138	)
Benefits obligation at end of year	$	5,837		$	4,938
Reconciliation of fair value of assets
Fair value of plan assets at beginning of year	$	6,756		$	4,637
Actual return on plan assets		747			751
Employer contribution		443			1,506
Benefits paid		(185	)		(138	)
Fair value of plan assets at end of year	$	7,761		$	6,756
Prepaid benefit cost at end of year	$	1,924		$	1,818

The net gain recognized in accumulated other comprehensive income as an adjustment to the funded status of the plan was $117,000 and $552,000 at December 31, 2010 and 2009, respectively. During 2011, the amounts expected to be amortized from accumulated other comprehensive income is $116,000 of net actuarial loss and prior service cost.

The accumulated benefit obligation at December 31, 2010 and 2009 was $5.0 million and $4.2 million, respectively.

31

Employer contributions and benefits paid in the above table include only those amounts contributed directly to, or paid directly from, Plan assets. The expected employer contribution for 2011 is $400,000.

	December 31,
	2010		2009
Weighted-average assumptions used to determine benefit obligations:
Discount rate		5.75%		5.75%
Rate of compensation increase		4.00%		4.00%

	December 31,
	2010			2009
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	553		$	471
Interest cost		296			249
Expected return on plan assets		(545	)		(371	)
Amortization of prior service cost		3			—
Recognized net actuarial loss		147			183
Net periodic benefit cost	$	454		$	532

	December 31,
	2010		2009
Weighted-average assumptions used to determine net benefit costs:
Discount rate		5.75%		5.75%
Expected return on plan assets		8.00%		8.00%
Rate of compensation increase		4.00%		4.00%

The long-term expected rate of return used for the Plan year 2010 was determined by analyzing average rates of return over a number of prior periods on the assets in which the Plan is currently invested.

Estimated future benefits payments are as follows:

Year ending December 31,	Amount
	(in thousands)
2011	$	64
2012		107
2013		120
2014		198
2015		218
2016 – 2020		1,439

The financial statements of the Company’s defined benefit pension plan are prepared in conformity with US GAAP. Investments of the plan are stated at fair value. Purchase and sales of securities are recorded on a trade date basis. Interest income is recorded on an accrual basis. Dividends are recorded on the ex-dividend date. Fair value of plan assets is determined using the fair value hierarchy discussed in Note 16-Fair Value Measurements. The fair value hierarchy requires the Plan to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and provides three levels of inputs that may be used to measure fair value.

32

The following table sets forth by level, within the fair value hierarchy, the Plan’s financial assets at fair value as of December 31, 2010:

	Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Balance as of December 31,
	(Level 1)		(Level 2)		(Level 3)		2010
	(in thousands)
Assets
Collective investment trust funds	$	—	$	7,761	$	—	$	7,761
Total Plan assets at fair value	$	—	$	7,761	$	—	$	7,761

The following table sets forth by level, within the fair value hierarchy, the Plan’s financial assets at fair value as of December 31, 2009:

	Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Balance as of December 31,
	(Level 1)		(Level 2)		(Level 3)		2009
	(in thousands)
Assets
Collective investment trust funds	$	—	$	4,953	$	—	$	4,953
Equities		6		—		—		6
Other assets		269		—		—		269
Total Plan assets available for sale	$	275	$	4,953	$	—	$	5,228

Collective investment trust funds are valued by the trustee. The trustee follows written procedures for establishing unit values on a periodic basis which incorporate observable market data; however the collective investment trust fund itself is not traded on an established market and therefore is categorized as a Level 2 hierarchy. Investments in equity securities are valued at quoted prices in active markets. Other assets are valued at the net asset value of the shares.

The Plan’s weighted-average asset allocations by asset category are as follows:

	Percentage of Plan assets At December 31,
	2010			2009
Asset Category
Equity securities		—	%		0.1	%
Mutual funds		96.1	%		73.3	%
Money funds		3.9	%		22.6	%
Other assets		—	%		4.0	%
Total		100.0	%		100.0	%

During 2009, the Plan transferred management of Plan assets to a new trustee in order to improve investment performance while reducing Plan costs. Trustees of the Plan are responsible for defining and implementing the investment objectives and policies for the Plan’s assets. Assets are invested in accordance with sound investment practices that emphasize long-term investment fundamentals that closely match the demographics of the Plan’s participants. The Plan’s goal is to earn long-term returns that match or exceed the benefit obligations of the Plan, giving consideration to the timing of expected future benefit payments, through a well-diversified portfolio structure. The Plan’s return objectives and risk parameters are managed through a diversified mix of assets. The asset mix and investment strategy are reviewed on a quarterly basis and rebalanced when necessary.

33

c.           ESOP

The Company has an internally leveraged ESOP for eligible employees who have completed six months of service with the Company or its subsidiaries. The ESOP borrowed $4.2 million from the Company in 1996 to purchase 423,200 newly issued shares of common stock. Any dividends received by the ESOP will be used to pay debt service. The Company makes discretionary contributions to the ESOP in order to service the ESOP’s debt if necessary. The ESOP shares are pledged as collateral for its debt. As the debt is repaid, shares are released from collateral based on the proportion of debt service paid in the year and allocated to qualifying employees. The Company reports compensation expense in the amount equal to the fair value of shares released from the ESOP to employees less dividends received on the allocated shares in the plan used for debt service. The allocated shares are included in outstanding shares for earnings per share computations. Annual ESOP compensation expense totaled $193,000 in both 2010 and 2009.

	December 31,
	2010		2009
Allocated shares		192,000		186,000
Unreleased shares		128,000		140,000
Total ESOP shares		320,000		326,000
Fair value of unreleased shares (in thousands)	$	2,713	$	2,531

d.           Stock-Based Compensation Plans

A summary of the status of the Company’s stock option plans as of December 31, 2010 and 2009, and changes for each of the years in the periods then ended is as follows:

	2010					2009
				Weighted					Weighted
				average					average
	Number			exercise		Number			exercise
	of			price per		of			price per
	shares			share		shares			share
Outstanding at beginning of year		285,228		$	24.98		301,703		$	24.45
Options granted		—			—		—			—
Options exercised		(15,614	)	$	13.24		(16,217	)	$	15.11
Options forfeited		(7,466	)	$	26.56		(247	)	$	30.91
Options expired		(135,891	)	$	27.11		(11	)	$	14.10
Outstanding at end of year		126,257		$	24.04		285,228		$	24.98
Options exercisable		98,149		$	25.19		243,655		$	25.72

The following table summarizes information about stock options outstanding at December 31, 2010:

Options outstanding								Options exercisable
Range of exercise prices		Number		Weighted average remaining contractual life (years)		Weighted average exercise price		Number		Weighted average exercise price
$	19.33–28.42		108,598		3.35	$	22.66		80,490	$	23.58
$	28.43–32.51		17,659		2.96	$	32.51		17,659	$	32.51
			126,257		3.29	$	24.04		98,149	$	25.19

34

The following table reflects information on the aggregate intrinsic value of options as well as cash receipts from option exercises:

	December 31,
	2010		2009
	(in thousands)
Aggregate value of
Options outstanding	$	90	$	76
Options exercisable	$	49	$	76
Options exercised	$	88	$	67
Cash receipts from options exercised	$	207	$	241

The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of exercisable in-the-money options). The Company has a policy of issuing shares from treasury to satisfy share option exercises.

Stock-based compensation expense included in net income related to stock options was $52,000 and $56,000, resulting in a tax benefit of $18,000 and $19,000, for the year ended December 31, 2010 and 2009, respectively. There was $82,000 and $140,000 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested options under the stock option plans at December 31, 2010 and 2009, respectively. That cost is expected to be recognized over a weighted average period of 21 months and 25.6 months at December 31, 2010 and 2009, respectively.

The table below summarizes the changes in non-vested restricted stock during the past year:

	2010					2009
				Weighted					Weighted
				average					average
	Number			grant		Number			grant
	of			price per		of			price per
	shares			share		shares			share
Total non-vested restricted stock at December 31		1,401		$	19.67		2,100		$	19.67
Restricted stock grant		—			—		—			—
Vesting of restricted stock		(701	)	$	19.67		(699	)	$	19.67
Forfeitures of restricted stock		—			—		—			—
Total non-vested restricted stock at December 31		700		$	19.67		1,401		$	19.67

Annual stock-based compensation expense related to stock grants was $16,000 for each of the years ended December 31, 2010 and 2009. In 2011, the anticipated compensation expense related to stock grants is $11,000.

NOTE 11—INCOME TAXES

The components of income tax expense are summarized as follows:

	Year ended December 31,
	2010			2009
	(in thousands)
Federal
Current	$	1,424		$	$1,270
Charge in lieu of income tax relating to stock compensation		6			23
Deferred		(642	)		198
		788			1,491
State and local—current		261			6
Income tax provision	$	1,049		$	1,497

35

The Company’s effective income tax rate was different than the statutory federal income tax rate as follows:

	Year ended December 31,
	2010			2009
Statutory federal income tax		34.0	%		34.0	%
(Decrease) increase resulting from
Tax-exempt income		(14.3	)		(9.3	)
State tax, net of federal benefit		3.9			(0.1	)
Other		0.2	%		0.3
		23.8	%		24.9	%

Deferred taxes are included as other liabilities in the accompanying consolidated balance sheets at December 31, 2010 and 2009, for the estimated future tax effects of differences between the financial statement and federal income tax bases of assets and liabilities according to the provisions of currently enacted tax laws. No valuation allowance was recorded against deferred tax assets at December 31, 2010 and 2009. The Company’s net deferred tax liability at December 31, 2010 and 2009 was as follows:

	December 31,
	2010			2009
	(in thousands)
Deferred tax assets
Deferred compensation	$	32		$	147
Allowance for loan losses, net		2,831			1,773
Stock compensation		106			350
Adjustment to record funded status of pension plan		796			836
Non accrual interest		294			114
Other		35			13
		4,094			3,233
Deferred tax liabilities
Accrued pension expense		1,444			1,447
Unrealized gain on securities available for sale		1,110			1,157
Prepaid expenses		185			155
Deferred loan costs		815			796
Amortization of goodwill		1,309			1,094
Other		294			296
		5,157			4,945
Net deferred tax liability	$	(1,063	)	$	(1,712	)

The Company files consolidated income tax returns on the basis of a calendar year. The Company is subject to income taxes in the U.S. federal jurisdiction, and various state and local jurisdictions, the majority of activity residing in Pennsylvania. The statute of limitations for the federal return has expired on years prior to 2007. The expirations of the statutes of limitations related to the various state income tax returns that the Company and its subsidiaries file, vary by state, and are expected to expire over the term of 2011 through 2015. There are no material uncertain tax positions at December 31, 2010.

The Bank is not required to recapture approximately $5.7 million of its tax bad debt reserve, attributable to bad debt deductions taken by it prior to 1988, as long as the Bank continues to operate as a bank under federal tax law and does not use the reserve for any other purpose. The Bank has not recorded any deferred tax liability on this portion of its tax bad debt reserve. The tax that would be paid were the Bank ultimately required to recapture that portion of the reserve would amount to approximately $1.9 million.

36

NOTE 12—REGULATORY MATTERS

The Bank is subject to minimum regulatory capital standards promulgated by the OTS. Failure to meet minimum capital requirements can initiate certain mandatory—and possible additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Such minimum capital standards generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement provides for minimum tangible capital (defined as stockholders’ equity less all intangible assets) equal to 1.5% of adjusted total assets. The core capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) equal to 4% of adjusted total assets. The risk-based capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) adjusted for the general valuation allowances equal to 8% of total assets classified in one of four risk-weighted categories.

As of December 31, 2010 and 2009, management believes that the Bank met all capital adequacy requirements to which it was subject.

	Regulatory capital
	December 31, 2010
	Tangible					Core					Risk-Based
	Capital			Percent		Capital			Percent		Capital			Percent
	(in thousands)
Capital under generally accepted accounting principles	$	70,604		10.27	%	$	70,604		10.27	%	$	70,604		17.44	%
Unrealized gain on certain available-for-sale securities		(2,156	)	(0.31	)%		(2,156	)	(0.31	)%		(2,156	)	(0.53	)%
Adjustment to record funded status of pension		1,545		0.23	%		1,545		0.23	%		1,545		0.38	%
Goodwill and other intangible assets		(4,324	)	(0.63	)%		(4,324	)	(0.63	)%		(4,324	)	(1.07	)%
Additional capital items
General valuation allowances—limited		—		—			—		—			5,072		1.25	%
Regulatory capital computed		65,669		9.56	%		65,669		9.56	%		70,741		17.47	%
Minimum capital requirement		10,308		1.50	%		27,487		4.00	%		32,397		8.00	%
Regulatory capital—excess	$	55,361		8.06	%	$	38,182		5.56	%	$	38,344		9.47	%

	Regulatory capital
	December 31, 2009
	Tangible					Core					Risk-Based
	Capital			Percent		Capital			Percent		Capital			Percent
	(in thousands)
Capital under generally accepted accounting principles	$	68,368		9.64	%	$	68,368		9.64	%	$	68,368		16.35	%
Unrealized gain on certain available-for-sale securities		(2,246	)	(0.32	)%		(2,246	)	(0.32	)%		(2,246	)	(0.54	)%
Adjustment to record funded status of pension		1,622		0.23	%		1,622		0.23	%		1,622		0.39	%
Goodwill and other intangible assets		(4,324	)	(0.61	)%		(4,324	)	(0.61	)%		(4,324	)	(1.04	)%
Additional capital items
General valuation allowances—limited		—		—			—		—			4,676		1.12	%
Regulatory capital computed		63,420		8.94	%		63,420		8.94	%		68,096		16.28	%
Minimum capital requirement		10,639		1.50	%		28,372		4.00	%		33,454		8.00	%
Regulatory capital—excess	$	52,781		7.44	%	$	35,048		4.94	%	$	34,642		8.28	%

At December 31, 2010 and 2009, the Bank met all regulatory requirements for classification as a “well-capitalized” institution. A “well-capitalized” institution must have risk-based capital of 10% and core capital of 5%. The Bank’s capital exceeded the minimum required amounts for classification as a “well-capitalized” institution. There are no conditions or events that have occurred that management believes have changed the Bank’s classification as a “well-capitalized” institution.

The Bank maintains a liquidation account for the benefit of eligible savings account holders who maintained deposit accounts in the Bank after the Bank converted to a stock form of ownership. The Bank may not declare or pay a cash dividend on or repurchase any of its common shares if the effect thereof would cause the Bank’s stockholders’ equity to be reduced below either the amount required for the liquidation account or the regulatory capital requirements for insured institutions.

37

NOTE 13—FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the consolidated balance sheets when they become receivable or payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Unless noted otherwise, the Company requires collateral to support financial instruments with credit risk.

Financial instruments, the contract amounts of which represent credit risk, are as follows:

	Year ended December 31,
	2010		2009
	(in thousands)
Commitments to extend credit	$	56,355	$	63,017
Standby letters of credit		951		1,170
Loans sold with recourse		57		61
	$	57,363	$	64,248

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held generally includes residential or commercial real estate.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

NOTE 14—COMMITMENTS AND CONTINGENCIES

The Bank had optional commitments of $6.5 million and $4.6 million to sell mortgage loans to investors at December 31, 2010 and 2009, respectively.

The Bank leases branch facilities and office space for periods ranging up to ten years. These leases are classified as operating leases and contain options to renew for additional periods. Rental expense was approximately $569,000 and $492,000 for the years ended December 31, 2010 and 2009, respectively.

The minimum annual rental commitments of the Bank under all non-cancelable leases with terms of one year or more at December 31, 2010 are as follows:

Year ending December 31,	(in thousands)
2011	$	464
2012		444
2013		421
2014		356
2015		224
Thereafter		1,248
Total	$	3,157

38

The Company has agreements with certain key executives that provide severance pay benefits if there is a change in control of the Company. The agreements will continue in effect until terminated or not renewed by the Company or key executives. Upon a change in control, the Company will make a lump-sum payment or continue to pay the key executives’ salaries per the agreements, and reimburse the executive for certain benefits for one year. The contingent liability under the agreements at December 31, 2010 was approximately $2.7 million.

From time to time, the Company and its subsidiaries are parties to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of these lawsuits would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

NOTE 15—SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

The Bank is principally engaged in originating and investing in one-to-four family residential real estate and commercial real estate loans in eastern Pennsylvania and New Jersey. The Bank offers both fixed and adjustable rates of interest on these loans that have amortization terms ranging to 30 years. The loans are generally originated or purchased on the basis of an 80% or less loan-to-value ratio, which has historically provided the Bank with more than adequate collateral coverage in the event of default. Nevertheless, the Bank, as with any lending institution, is subject to the risk that real estate values in the primary lending area will deteriorate, thereby potentially impairing underlying collateral values. However, management believes that weakened residential and commercial real estate values have been taken into consideration and that the loan loss allowances have been provided for in amounts commensurate with its current perception of the foregoing risks in the portfolio.

NOTE 16- FAIR VALUE MEASUREMENTS

The following tables present information about the Company’s assets and liabilities measured at fair valued on a recurring basis as of December 31, 2010 and 2009. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement hierarchy has been established for inputs in valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The fair value hierarchy levels are summarized below:

·           Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

·           Level 2 inputs are inputs that are observable for the asset or liability, either directly or indirectly.

·           Level 3 inputs are unobservable and contain assumptions of the party fair valuing the asset or liability.

Determination of the appropriate level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement for the instrument or security.  Assets and liabilities measured at fair value on a recurring basis segregated by fair value hierarchy level are summarized below:

At December 31, 2010	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance as of December 31, 2010
	(in thousands)
Assets
Investment securities available for sale
U.S. Government and federal agencies	$	—	$	6,059	$	—	$	6,059
Corporate debt securities		—		3,563		—		3,563
State and political subdivisions		—		48,208		—		48,208
Total investment securities available for sale	$	—	$	57,830	$	—	$	57,830
Residential mortgage-backed securities issued by quasi-governmental agencies	$	—	$	52,886	$	—	$	52,886
Residential real estate mortgage-backed securities privately issued		—		13,605		—		13,605
Total mortgage-backed securities available for sale	$	—	$	66,491	$	—	$	66,491
Forward loan sales	$	—	$	—	$	3	$	3

39

At December 31, 2009	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance as of December  31, 2009
	(in thousands)
Assets
Investment securities available for sale
U.S. Government and federal agencies	$	—	$	2,945	$	—	$	2,945
Corporate debt securities		—		3,517		—		3,517
State and political subdivision		—		34,241		—		34,241
Equity securities		150		—		—		150
Total investment securities available for sale	$	150	$	40,703	$	—	$	40,853
Residential mortgage-backed securities issued by quasi-governmental agencies	$	—	$	71,151	$	—	$	71,151
Residential real estate mortgage-backed securities privately issued		—		7,047		—		7,047
Total mortgage-backed securities available for sale	$	—	$	78,198	$	—	$	78,198
Forward loan sales	$	—	$	—	$	21	$	21

Active listed equities are classified within Level 1 of the fair value hierarchy. Investment securities available for sale and mortgage-backed securities available for sale are valued primarily by a third party pricing agent. U.S. Government and federal agency and corporate debt securities are primarily priced through a multi-dimensional relational model, a Level 2 hierarchy, which incorporates dealer quotes and other market information including, defined sector breakdown, benchmark yields, base spread, yield to maturity, and corporate actions.  State and political subdivision securities are also valued within the Level 2 hierarchy using inputs with a series of matrices that reflect benchmark yields, ratings updates, and spread adjustments. Mortgage-backed securities include FHLMC, GNMA, and FNMA certificates and privately issued real estate mortgage investment conduits which are valued under a Level 2 hierarchy using a matrix correlation to benchmark yields, spread analysis, and prepayment speeds.

The fair value of forward loan sales is determined at the time the underlying loan is identified as held for sale with changes in fair value correlated to the change in secondary market loan pricing. The value is adjusted to reflect the Company’s historical loan “fallout” experience which incorporates such factors as changes in market rates, origination channels and loan purpose.

The following table presents additional information about assets measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:

		Forward loan sales
		(in thousands)
Beginning balance, January 1, 2010		$	21
Total gains (losses) — realized/unrealized:
	Included in earnings		(18	)
	Included in other comprehensive income		—
	Purchases, issuances, and settlements		—
Ending balance, December 31, 2010		$	3

40

Assets and liabilities measured at fair value on a nonrecurring basis segregated by fair value hierarchy level are summarized below:

At December 31, 2010	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance as of December 31, 2010
	(in thousands)
Assets
Impaired loans	$	—	$	—	$	11,375	$	11,375
Real estate acquired through foreclosure	$	—	$	—	$	7,482	$	7,482
Mortgage servicing rights	$	—	$	878	$	—	$	878

At December 31, 2009	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance as of December 31, 2009
	(in thousands)
Assets
Impaired loans	$	—	$	—	$	7,744	$	7,744
Real estate acquired through foreclosure	$	—	$	—	$	1,279	$	1,279
Mortgage servicing rights	$	—	$	696	$	—	$	696

Impaired loans are evaluated and valued while the loan is identified as impaired, at the lower of the recorded investment in the loan or fair value. Real estate acquired through foreclosure is initially valued at the lower of the recorded investment in the loan or fair value at foreclosure and subsequently adjusted for further decreases in market value, if necessary.  Fair value is determined by using the value of the collateral securing the loans and is therefore classified as a Level 3 hierarchy.  The value of the real estate securing impaired loans and real estate acquired through foreclosure is based on appraisals prepared by qualified independent licensed appraisers contracted by the Company to perform the assessment.

The Company initially recognizes and measures servicing assets based on the fair value of the servicing right at the time the loan is sold. The Company uses the amortized cost method for subsequent measurement of its servicing assets and evaluates the recorded value for impairment quarterly. The Company retains a qualified valuation service to calculate the amortized cost and to determine the fair value of the mortgage servicing rights. The valuation service utilizes discounted cash flow analyses adjusted for prepayment speeds, market discount rates and conditions existing in the secondary servicing market. Hence, the fair value of mortgage servicing rights is deemed a Level 2 hierarchy. The amortized cost basis of the Company’s mortgage servicing rights was $997,000 and $789,000 at December 31, 2010 and 2009, respectively. The fair value of the mortgage servicing rights was $878,000 and $696,000 and was included in other assets in the consolidated balance sheets at December 31, 2010 and 2009, respectively.

NOTE 17—FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Bank, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments. However, many such instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Also, it is the Company’s general practice and intent to hold its financial instruments to maturity or available for sale and to not engage in trading or significant sales activities. For fair value disclosure purposes, the Company substantially utilized the fair value measurement criteria as explained in Note 16- Fair Value Measurements. Additionally, the Company used significant estimations and present value calculations to prepare this disclosure.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. In addition, there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

41

Fair values have been estimated using data which management considered the best available, as generally provided by estimation methodologies deemed suitable for the pertinent category of financial instrument. The estimation methodologies, resulting fair values and recorded carrying amounts are as follows:

The fair value of cash and cash equivalents equals historical book value. The fair value of investment and mortgage-backed securities is described and presented under fair value measurement guidelines.

	December 31, 2010				December 31, 2009
	Fair		Carrying		Fair		Carrying
	value		value		value		value
	(in thousands)
Cash and cash equivalents	$	7,437	$	7,437	$	12,801	$	12,801
Investment securities		57,830		57,830		40,853		40,853
Mortgage-backed securities		70,001		69,660		82,231		81,931

The fair value of the loans receivable, net has been estimated using the present value of cash flows, discounted at the approximate current market rates, and giving consideration to estimated prepayment risk but not adjusted for credit risk. Loans receivable, net also includes loans receivable held for sale.

	December 31, 2010				December 31, 2009
	Fair		Carrying		Fair		Carrying
	value		value		value		value
	(in thousands)
Loans receivable, net	$	518,324	$	501,658	$	539,670	$	530,734

The fair value of deposits and borrowings with stated maturities has been estimated using the present value of cash flows, discounted at rates approximating current market rates for similar liabilities. Fair value of deposits and borrowings with floating interest rates is generally presumed to approximate the recorded carrying amounts.

	December 31, 2010				December 31, 2009
	Fair		Carrying		Fair		Carrying
	value		value		value		value
	(in thousands)
Deposits with stated maturities	$	206,791	$	204,159	$	228,676	$	225,093
Borrowings with stated maturities		63,811		61,987		82,947		80,241

The fair value of deposits and borrowings with no stated maturities is generally presumed to approximate the carrying amount (the amount payable on demand). Fair value deposits and borrowings with floating interest rates are generally presumed to approximate the recorded carrying amounts.

	December 31, 2010				December 31, 2009
	Fair		Carrying		Fair		Carrying
	value		value		value		value
	(in thousands)
Deposits with no stated maturities	$	345,976	$	345,976	$	327,623	$	327,623

The Bank’s remaining assets and liabilities are not considered financial instruments. No disclosure of the relationship value of the Bank’s depositors or customers is required.

42

NOTE 18—SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE

	Year ended December 31,
	2010		2009
	(in thousands)
Service fees, charges and other operating income
Loan servicing fees	$	235	$	119
Late charge income		122		128
Deposit service charges		777		937
Debit card income		415		358
Other income		409		436
	$	1,958	$	1,978
Other operating expense
Insurance and surety bond	$	190	$	171
Office supplies		161		162
Loan expense		310		300
Debit card and ATM expense		237		360
Postage		275		276
Telephone		265		274
Supervisory examination fees		171		170
Other expenses		723		615
	$	2,332	$	2,328

NOTE 19—EARNINGS PER SHARE

The following tables set forth the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

	Year ended December 31, 2010
	Income (numerator)		Weighted average shares (denominator)		Per share amount
	(dollars in thousands, except per share data)
Basic earnings per share
Income available to common stockholders	$	3,352		2,682,135	$	1.25
Effect of dilutive securities
Stock compensation plans		—		—		—
Diluted earnings per share
Income available to common stockholders plus effect of dilutive securities	$	3,352		2,682,135	$	1.25

There were options to purchase 71,017 shares of common stock at a price at a range of $23.53 to $32.51 per share which were outstanding during 2010 that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.

	Year ended December 31, 2009
	Income (numerator)		Weighted average shares (denominator)		Per share amount
	(dollars in thousands, except per share data)
Basic earnings per share
Income available to common stockholders	$	4,514		2,648,906	$	1.70
Effect of dilutive securities
Stock compensation plans		—		—		—
Diluted earnings per share
Income available to common stockholders plus effect of dilutive securities	$	4,514		2,648,906	$	1.70

There were options to purchase 269,675 shares of common stock at a price range of $19.33 to $32.51 per share which were outstanding during 2009 that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.

43

NOTE 20—CONDENSED FINANCIAL INFORMATION—PARENT COMPANY ONLY

Condensed financial information for TF Financial Corporation (parent company only) follows:

BALANCE SHEETS

	December 31,
	2010		2009
	(in thousands)
ASSETS
Cash	$	997	$	1,600
Investment in Third Federal		69,387		67,034
Investment in TF Investments		1,766		1,758
Investment in Penns Trail Development		1,100		1,111
Investment securities available for sale		—		150
Other assets		208		281
Total assets	$	73,458	$	71,934
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total liabilities	$	42	$	60
Stockholders’ equity		73,416		71,874
Total liabilities and stockholders’ equity	$	73,458	$	71,934

STATEMENTS OF INCOME

	Year ended December 31,
	2010		2009
	(in thousands)
INCOME
Equity in earnings of subsidiaries	$	3,725	$	4,896
Interest and dividend income		20		24
Gain on sale of investment		20		—
Total income		3,765		4,920
EXPENSES
Other		413		406
Total expenses		413		406
NET INCOME	$	3,352	$	4,514

44

STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2010			2009
	(in thousands)
Cash flows from operating activities
Net income	$	3,352		$	4,514
Adjustments to reconcile net income to net cash used in operating activities
Stock compensation plans		68			72
Gain on sale of investment securities		(20	)		—
Equity in earnings of subsidiaries		(3,725	)		(4,896	)
Net change in assets and liabilities		(218	)		(55	)
Net cash used in operating activities		(543	)		(365	)
Cash flows from investing activities
Capital distribution from subsidiaries		1,600			2,700
Proceeds from sale of investment securities		170			—
Net cash provided by investing activities		1,770			2,700
Cash flows from financing activities
Cash dividends paid to stockholders		(2,037	)		(2,013	)
Treasury stock acquired		—			(128	)
Exercise of stock options		207			242
Net cash used in financing activities		(1,830	)		(1,899	)
NET (DECREASE) INCREASE IN CASH		(603	)		436
Cash at the beginning of year		1,600			1,164
Cash at end of year	$	997		$	1,600
Supplemental disclosure of cash flow information
Cash paid during the year for income taxes	$	—		$	—

NOTE 21—SUBSEQUENT EVENTS

On January 27, 2011the Board of Directors declared a quarterly dividend of $0.05 per share payable February 15, 2011 to shareholders of record on February 8, 2011, and a 5% stock dividend, payable February 28, 2011 to shareholders of record on February 15, 2011, with shareholders receiving cash in lieu of fractional shares.  The consolidated financial statements have been adjusted to report the effect of the stock dividend transaction as if it had occurred on the balance sheet date at December 31, 2010.  Additionally, all per share data information has been revised as if the stock dividend had occurred at the beginning of the earliest period presented.

45

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

TF Financial Corporation

Board of Directors

Robert N. Dusek

Chairman of TF Financial Corporation

President of Direction Associates, Inc.

Carl F. Gregory

Chairman Emeritus and Retired President/CEO of Third Federal Bank

Joseph F. Slabinski, III

President/Owner of Slabinski-Sucharski Funeral Homes, Inc.

John R. Stranford

Retired President/CEO of TF Financial Corporation and Third Federal Bank

Kenneth A. Swanstrom 

Retired Chairman/CEO of PennEngineering

Albert M. Tantala, Sr.

Chairman of Third Federal Bank

President of Tantala Associates

James B. Wood                                

Vice Chairman of Third Federal Bank

Senior Vice President/Chief Strategy Officer of The Clemens Family Corporation

Kent C. Lufkin

President/CEO of TF Financial Corporation and Third Federal Bank

Executive Officers

Kent C. Lufkin

President and Chief Executive Officer

Dennis R. Stewart

Executive Vice President and Chief Financial Officer

Lorraine A. Wolf

Corporate Secretary

EX-21.0

Exhibit 21.0

SUBSIDIARIES OF THE REGISTRANT

Parent

TF Financial Corporation

Subsidiaries	Percentage Owned		Jurisdiction of Incorporation
Third Federal Bank(a)	100	%	United States
TF Investments Corporation(a)	100	%	Delaware
Teragon Financial Corporation(a)(b)	100	%	Pennsylvania
Penns Trail Development Corporation(a)	100	%	Delaware
Third Delaware Corporation(a)(b)	100	%	Delaware

[Missing Graphic Reference]

(a) The operations of this subsidiary are included in the consolidated financial statements contained in the 2010 Annual Report to Stockholders incorporated herein by reference.

(b) Third Delaware Corporation and Teragon Financial Corporation are wholly-owned subsidiaries of Third Federal Bank.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 We have issued our report dated March 30, 2010, with respect to the consolidated financial statements incorporated by reference in the Annual Report of TF Financial Corporation on Form 10-K for the year ended December 31, 2009. We hereby consent to the incorporation by reference of said report in the Registration Statements of TF Financial Corporation on Forms S-8 (File No. 333-87176, effective December 7, 1994, File No. 333-09235, effective July 31, 1996, File No. 333-27085, effective May 14, 1997, and File No. 333-125116, effective May 20, 2005).

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

March 28, 2011

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements No. 333-87176, effective December 7, 1994, File No. 333-09235, effective July 31, 1996, File No. 333-27085, effective May 14, 1997, and File No. 333-125116, effective May 20, 2005, on Form S-8 of TF Financial Corporation of our report dated March 23, 2011, relating to our audit of the consolidated financial statements, which appear in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K of TF Financial Corporation for the year ended December 31, 2010.

/s/ S.R.Snodgrass

Wexford, Pennsylvania

March 28, 2011

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kent C. Lufkin, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of TF Financial Corporation for the year ended December 31, 2010;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and to the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:	March 28, 2011	/s/ KENT C. LUFKIN
		Kent C. Lufkin
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dennis R. Stewart, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of TF Financial Corporation for the year ended December 31, 2010;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted principles;

c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and to the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:	March 28, 2011	/s/ DENNIS R. STEWART
		Dennis R. Stewart
		Executive Vice President and Chief Financial Officer
		(Principal Financial & Accounting Officer)

EX-32.0

Exhibit 32.0

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2010 (the “Report”) of TF Financial Corporation (the “Company”) as filed with the Securities and Exchange Commission, we, Kent C. Lufkin, President and Chief Executive Officer, and Dennis R. Stewart, Executive Vice President and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. ‘1350, as adopted pursuant to ‘906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ KENT C. LUFKIN	/s/ DENNIS R. STEWART
Kent C. Lufkin	Dennis R. Stewart
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer
March 28, 2011	March 28, 2011