10-K

UNITED STATES

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, 2012

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)

Pennsylvania	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).  x 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, 2012, was $48.4 million (1,964,609 shares at $24.66 per share).

As of March 10, 2013 there were outstanding 2,839,931 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, 2012. (Parts I, II and IV)

2. Portions of the Proxy Statement for the 2013 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; OUR ABILITY TO REALIZE THE ANTICIPATED BENEFITS FROM OUR ACQUISITION OF ROEBLING FINANCIAL CORP, INC.; 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 3rd Fed Bank (the “Bank”) as part of the Bank’s mutual-to-stock conversion.  The Company was originally incorporated under Delaware law in March 1994 and subsequently reorganized as a Pennsylvania Corporation in May 2011. In 2011, the Bank elected to convert from a federally-regulated and chartered financial institution to a state-chartered savings bank and submitted an election to remain a savings association for purposes of holding company regulation following the conversion. The Bank received approval for this conversion from the State of Pennsylvania on December 27, 2011. The official charter conversion became effective January 30, 2012. As a result, the name of the Bank was changed from Third Federal Bank to 3rd Fed Bank.

 The Company is a savings and loan holding company and is subject to regulation by the Pennsylvania Department of Banking and Securities (the “Department of Banking”), the Board of Governors of the Federal Reserve System (the “FRB”), and the Securities and Exchange Commission (the “SEC”). The Company does not transact any material business other than through its direct and indirect subsidiaries: 3rd Fed Bank, Teragon Financial Corporation, Penns Trail Development Corporation, and Third Delaware Corporation. At December 31, 2012, the Company had total assets of $711.8 million, total liabilities of $628.9 million and stockholders’ equity of $82.9 million.

BUSINESS OF THE BANK

The Bank is a community oriented Pennsylvania-chartered stock savings bank offering a variety of financial services to meet the needs of the communities it serves. The Bank’s deposits are insured up to the maximum amount allowable by the Federal Deposit Insurance Corporation (the “FDIC”).

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As of December 31, 2012 the Bank operated thirteen 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, 2012, one-to four-family residential mortgage loans totaled $324.4 million or 61% of the Bank’s total loan portfolio. At that same date, the Bank had approximately $44.6 million or 6% of total assets invested in mortgage-backed securities and $59.6 million or 8% of total assets in investment securities. The Bank also originates commercial real estate and multi-family, construction and consumer loans.

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.

Pending Acquisition of Roebling Financial Corp, Inc.

On December 28, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Roebling Financial Corp, Inc. (“Roebling”), the parent company of Roebling Bank, under which the Company will acquire Roebling for approximately $14.5 million in stock and cash.

Under the terms of the Merger Agreement, Roebling will merge with and into the Company (the “Merger”) after which Roebling Bank will merge with and into the Bank. Each outstanding share of Roebling common stock will be converted into the right to receive $8.60 per share or 0.364 shares of the Company’s common stock, at the election of Roebling shareholders, subject to proration. The aggregate cash consideration to be paid pursuant to the Merger Agreement must not exceed 50% of the total merger consideration (including any cash paid in connection with shares held by the employee stock ownership plan and not allocated to participant accounts). Cash will be paid in lieu of fractional shares at a value based on the average closing sale price of the Company’s common stock for the twenty trading days immediately prior to the closing date.

In the event of a greater than 15% decline in market value of the Company’s common stock immediately prior to the announcement of the Merger, which percentage decline exceeds any decline in the NASDAQ Bank Index from its starting point by more than 15%, Roebling may be able to terminate the Merger Agreement unless the Company increases the number of shares into which Roebling common stock may be converted.

The Merger is intended to qualify as a tax-free reorganization for federal income tax purposes. As a result, the shares of Roebling exchanged for the Company’s shares will be transferred on a tax-free basis. The Merger is expected to close during the second or third quarter of 2013. If the Merger is not consummated under certain circumstances, Roebling has agreed to pay the Company a termination fee of $650,000.

Market Area

The Bank offers a wide range of consumer and business products at its thirteen 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. Six 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, 2012 the Company’s share of deposits in each of the counties in which it operates was as follows:

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	Market Share for	Market Share for ZIP Codes
County, State	Entire County	Including Company Branches
Philadelphia, Pennsylvania	0.51%	9.66%
Bucks, Pennsylvania	1.45%	4.48%
Mercer, New Jersey	0.75%	6.44%

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, 2012, the Bank’s mortgage loans outstanding were $486.1 million, of which $324.4 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, 14% were ARMs and 86% were fixed-rate loans. At that same date, commercial loans secured by real estate totaled $145.5 million, and construction loans totaled $16.3 million. The construction loans are predominately floating-rate, prime-rate-based loans.

Consumer and other loans held by the Bank totaled $42.0 million or 8% of total loans outstanding at December 31, 2012, of which $40.1 million consisted of home equity and second mortgage loans. At that same date commercial business loans totaled $4.6 million or 1% 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,
	2012						2011						2010						2009						2008
	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:
Residential mortgages	$	323,665			60.84	%	$	277,824			55.44	%	$	269,077			52.84	%	$	271,651			50.85	%	$	281,870			51.48	%
Commercial – real estate secured		145,454			27.34	%		156,450			31.22	%		163,910			32.19	%		168,098			31.46	%		168,231			30.73	%
Construction loans		16,288			3.06	%		16,336			3.26	%		18,799			3.69	%		29,671			5.55	%		30,633			5.60	%
Total mortgage loans		485,407			91.24	%		450,610			89.92	%		451,786			88.72	%		469,420			87.86	%		480,734			87.81	%
Consumer loans:
Home equity and second mortgage		40,143			7.55	%		44,165			8.81	%		49,430			9.71	%		54,811			10.26	%		56,233			10.27	%
Other consumer		1,835			0.34	%		1,971			0.39	%		2,407			0.47	%		2,565			0.48	%		2,287			0.42	%
Total consumer and other loans		41,978			7.89	%		46,136			9.20	%		51,837			10.18	%		57,376			10.74	%		58,520			10.69	%
Commercial loans:
Commercial and industrial loans		4,646			0.87	%		4,414			0.88	%		5,575			1.10	%		7,462			1.40	%		8,227			1.50	%
Total commercial-business loans		4,646			0.87	%		4,414			0.88	%		5,575			1.10	%		7,462			1.40	%		8,227			1.50	%
Total loans		532,031			100.00	%		501,160			100.00	%		509,198			100.00	%		534,258			100.00	%		547,481			100.00	%
Net of:
Deferred loan origination costs and      unamortized premiums		1,611						1,065						658						609						704
Allowance for loan losses		(6,922	)					(8,100	)					(8,328	)					(5,215	)					(3,855	)
Total loans, held for investment, net	$	526,720					$	494,125					$	501,528					$	529,652					$	544,330
Loans held for sale:
Mortgage loans:
Residential mortgages	$	706			100.00	%	$	488			100.00	%	$	130			100.00	%	$	1,082			100.00	%	$	1,659			100.00	%
Total loans held for sale	$	706			100.00	%	$	488			100.00	%	$	130			100.00	%	$	1,082			100.00	%	$	1,659			100.00	%
Mortgage-backed securities      held to maturity:
Federal Home Loan Mortgage      Corporation (“FHLMC”)	$	342			17.40	%	$	449			17.35	%	$	566			17.86	%	$	754			20.20	%	$	1,100			23.04	%
Federal National Mortgage Association      (“FNMA”)		895			45.55	%		1,242			47.99	%		1,489			46.99	%		1,698			45.49	%		2,141			44.85	%
Government National Mortgage      Association (“GNMA”)		728			37.05	%		897			34.66	%		1,114			35.15	%		1,281			34.31	%		1,533			32.11	%
Total mortgage-backed      securities held to maturity	$	1,965			100.00	%	$	2,588			100.00	%	$	3,169			100.00	%	$	3,733			100.00	%	$	4,774			100.00	%
Mortgage-backed securities      available-for-sale:
FHLMC	$	2,159			5.06	%	$	3,586			6.36	%	$	2,355			3.54	%	$	3,440			4.40	%	$	4,504			4.20	%
FNMA		30,001			70.30	%		23,454			41.60	%		9,734			14.64	%		9,146			11.70	%		12,320			11.49	%
GNMA		726			1.70	%		1,140			2.02	%		1,637			2.46	%		1,886			2.41	%		—			—	%
Real estate investment mortgage      conduit ("REMICs")		9,788			22.94	%		28,202			50.02	%		52,765			79.36	%		63,726			81.49	%		90,393			84.31	%
Total mortgage-backed      securities available for sale	$	42,674			100.00	%	$	56,382			100.00	%	$	66,491			100.00	%	$	78,198			100.00	%	$	107,217			100.00	%

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Loan Maturity and Repricing Information.  The following table sets forth certain information at December 31, 2012, 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, 2012 are reported as due in one year or less. The table does not include prepayments or scheduled principal repayments.

	Due 1/1/13 -		Due 1/1/14 -		Due After
	12/31/13		12/31/17		12/31/17
	(In thousands)
Loans held for sale:
Residential mortgages	$	—	$	—	$	706
Total loans held for sale	$	—	$	—	$	706
Loans receivable:
Residential mortgages	$	243	$	7,743	$	315,679
Commercial – real estate secured		15,277		5,902		124,275
Construction loans		16,288		—		—
Consumer and other		159		3,725		38,094
Commercial and industrial loans		988		1,245		2,413
Total loans receivable	$	32,955	$	18,615	$	480,461

The following table sets forth the dollar amount of all loans due after December 31, 2013, 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		Floating or
	Rates		Adjustable Rate
	(In thousands)
Loans held for sale:
Residential mortgages	$	706	$	—
Total loans held for sale	$	706	$	—
Loans receivable:
Residential mortgages	$	275,616	$	47,806
Commercial – real estate secured		18,325		111,852
Consumer and other		21,098		20,721
Commercial and industrial loans		3,479		179
Total loans receivable	$	318,518	$	180,558

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 department 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.

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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.

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, 2012, the Bank’s portfolio of loans serviced for FHLMC or FNMA totaled approximately $127.9 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.

Commercial Lending.  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 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 to a greater extent by 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, 2012, the five largest commercial real estate and multi-family loans totaled $26.0 million with no single loan larger than $7.8 million.

Construction and Land Acquisition Lending.  At December 31, 2012, the Bank’s construction and land acquisition loans were $16.3 million or 3% 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, 2012, the five largest construction and land acquisition loans totaled $14.9 million with no single loan larger than $6.0 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 $42.0 million or 8% of the Bank’s total loan portfolio at December 31, 2012. 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, 2012, $0.2 million or 1% of the Bank’s consumer loans were delinquent more than 90 days, compared to $2.2 million or 1% of residential one-to four-family loans.

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The Bank offers second mortgage loans on one-to four-family residences. At December 31, 2012, second mortgage and home equity loans totaled $40.1 million, or 8% 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.

Commercial and Industrial Loans.  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 may not be real estate secured.

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, 2012, the Bank had approximately $4.6 million outstanding in commercial business loans, which represented approximately 1% of its total loan portfolio. At December 31, 2012, the five largest commercial business loans totaled $3.4 million with no single loan larger than $1.5 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 $125,000 to $750,000 for secured loans, and $25,000 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 $2.0 million. The committee has the authority to approve secured loans up to $2.0 million and unsecured loans up to $200,000. Secured loans greater than $2.0 million through $5.0 million and unsecured loans greater than $200,000 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. Under applicable Pennsylvania and federal law, the Bank has, subject to certain exemptions, a lending limit to one borrower in an amount equal to 15% of the Bank’s capital account. In addition, the Bank may extend credit to a single borrower secured by federal and state securities and other specified collateral in an amount up to 15% of its capital account. A Pennsylvania bank’s capital account includes the aggregate of all capital, surplus, undivided profits, capital securities, and general reserves for loan losses. The Bank’s maximum loan-to-one borrower limit was approximately $12.1 million as of December 31, 2012 and the Bank’s five largest aggregate lending relationships pursuant to the loans to one borrower regulations had balances ranging from $6.4 to $8.7 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, 2012, consisted of pass-through certificates issued by the FHLMC ($2.5 million), GNMA ($1.5 million), FNMA ($30.9 million), and REMICs formed from pass-through certificates issued by these same agencies ($9.8 million).

At December 31, 2012, the amortized cost of mortgage-backed securities totaled $43.2 million, or 6% of total assets, and the fair value of such securities totaled approximately $44.9 million.

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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”), “very accurately defined maturity” (“VADM”) classes, and short-term “sequential” classes that, when purchased, offered a high probability of predictable cash flows.

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,
	2012		2011		2010
	(In thousands)
Held to maturity:
GNMA-fixed rate	$	728	$	897	$	1,114
FHLMC ARMs		5		9		14
FHLMC-fixed rate		337		440		552
FNMA-fixed rate		895		1,242		1,489
Total mortgage-backed securities held to maturity	$	1,965	$	2,588	$	3,169
Available-for-sale:
GNMA-fixed rate	$	726	$	1,140	$	1,637
FHLMC-fixed rate		2,159		3,586		2,355
FNMA-fixed rate		30,001		23,454		9,734
REMICs-fixed rate		9,788		28,202		52,765
Total mortgage-backed securities available for sale	$	42,674	$	56,382	$	66,491

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, 2012. The table does not include estimated prepayments. Adjustable-rate mortgage-backed securities are shown as maturing based on contractual maturities.

	Held					Available
Contractually Due	to Maturity		WAC			for Sale		WAC
	(Dollars in thousands)
Less than 1 year	$	—		—	%	$	347		4.83	%
1 to 3 years		—		—	%		2,098		5.10	%
3 to 5 years		20		6.96	%		—		—	%
5 to 10 years		218		4.96	%		9,642		3.72	%
10 to 20 years		1,727		6.36	%		22,110		3.38	%
Over 20 years		—		—	%		8,477		4.38	%
Total mortgage-backed securities	$	1,965		6.21	%	$	42,674		3.75	%

Nonperforming 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.

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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.

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.

Nonperforming Assets.  The following table sets forth information regarding nonaccrual 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,
	2012			2011			2010			2009			2008
	(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Residential mortgages	$	2,265		$	5,502		$	3,618		$	1,117		$	780
Commercial – real estate secured		1,149			2,711			9,594			2,506			1,356
Construction loans		4,794			4,044			4,307			4,554			3,017
Consumer and other		151			278			1,415			107			126
Commercial and industrial loans		—			6			44			—			—
Total nonaccrual loans		8,359			12,541			18,978			8,284			5,279
Real estate owned, net		7,282			11,730			7,482			1,279			—
Total nonperforming assets	$	15,641		$	24,271		$	26,460		$	9,563		$	5,279
Total nonaccrual loans to loans		1.56	%		2.49	%		3.72	%		1.55	%		0.96	%
Total nonaccrual loans to total assets		1.17	%		1.84	%		2.74	%		1.16	%		0.72	%
Total nonperforming assets to total assets		2.20	%		3.56	%		3.82	%		1.34	%		0.72	%

Nonperforming commercial real estate loans include a loan with an unpaid principal 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 recorded a partial charge-off of $951,000 from the allowance for loan losses, equal to the difference between the loan balance and the fair value based upon a recent appraisal. The Bank has initiated foreclosure proceedings and the borrower has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Additionally, $296,000 of the allowance for loan losses has been allocated to this loan for potential acquisition or selling costs related to the properties.

Nonperforming construction loans also include two loans, with a combined balance of $2.0 million secured by a parcel of land. The Bank has recorded a partial charge-off of $202,000 from the allowance for loan losses equal to the difference between the recorded investment and a recent appraisal. The borrower is attempting to sell the property and intends to apply the sale proceeds to the outstanding loan balance. Additionally, $29,000 of the allowance for loan losses has been allocated to this loan for potential acquisition or selling costs related to the property.

Nonperforming construction loans also include a participation in a commercial construction project with a principal balance due to the Bank of $3.1 million. The Bank has recorded a partial charge-off of $198,000 from the allowance for loan losses equal to the difference between the recorded investment and a recent appraisal. Additionally, $1,000,000 of the allowance for loan losses has been allocated to this loan for a potential shortfall related to the disposition of the loan.

With respect to each of the remaining nonperforming 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, 2012, the Bank had no foreign loans and no loan concentrations exceeding 10% of total loans. “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.

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 fair 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, an impairment reserve 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.

Although the allowance has been determined based on loan class, the total allowance is available to absorb any and all losses from any class of the loan portfolio. At December 31, 2012, management believes that the allowance for loan losses is at an acceptable level.

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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,
	2012			2011			2010			2009			2008
	(Dollars in thousands)
Balance at beginning of period	$	8,100		$	8,328		$	5,215		$	3,855		$	2,842
Provision for loan losses		2,400			3,728			4,241			2,930			1,500
Charge-offs:
Residential mortgages		(768	)		(172	)		(49	)		(149	)		(12	)
Commercial – real estate secured		(1,438	)		(2,041	)		(831	)		(278	)		—
Construction loans		(1,182	)		(1,521	)		(59	)		(1,092	)		(347	)
Consumer and other		(116	)		(237	)		(53	)		(88	)		(55	)
Commercial and industrial loans		(156	)		(44	)		(146	)		(9	)		(160	)
Recoveries:
Residential mortgages		56			12			—			—			—
Construction loans		—			1			—			5			—
Consumer and other		4			8			9			13			19
Commercial and industrial loans		22			38			1			28			68
Balance at end of year	$	6,922		$	8,100		$	8,328		$	5,215		$	3,855
Ratio of net charge-offs      during the period to      average loans outstanding      during the period		0.70	%		0.79	%		0.22	%		0.29	%		0.09	%
Ratio of allowance for loan      losses to nonperforming      loans at the end of the      period		82.81	%		64.59	%		43.88	%		63.00	%		73.00	%
Ratio of allowance for loan      losses to loans receivable      at the end of the period		1.30	%		1.61	%		1.63	%		0.98	%		0.71	%

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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,
	2012					2011					2010					2009					2008
	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:
Residential mortgages	$	1,849		60.8	%	$	2,194		55.5	%	$	1,839		52.8	%	$	962		50.9	%	$	1,461		51.5	%
Commercial – real estate secured		2,607		27.3	%		3,071		31.2	%		3,099		32.2	%		2,031		31.5	%		1,108		30.7	%
Construction loans		1,697		3.1	%		1,830		3.2	%		2,479		3.7	%		1,736		5.5	%		953		5.6	%
Consumer and other loans		262		7.9	%		470		9.2	%		623		10.2	%		317		10.7	%		259		10.7	%
Commercial and industrial loans		119		0.9	%		138		0.9	%		76		1.1	%		169		1.4	%		74		1.5	%
Unallocated		388		—	%		397		—	%		212		—	%		—		—	%		—		—	%
Total allowance	$	6,922		100.0	%	$	8,100		100.0	%	$	8,328		100.0	%	$	5,215		100.0	%	$	3,855		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. Pennsylvania-chartered savings banks have the authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal and state agencies, certain certificates of deposit of insured depository institutions, certain bankers acceptances and bills of exchange, and commercial paper and other corporate debt obligations.

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,
	2012				2011				2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Interest-earning deposits	$	26,440	$	26,440	$	10,430	$	10,430	$	4,219	$	4,219
Securities available for sale:
U.S. government and agency obligations	$	—	$	—	$	2,995	$	3,030	$	6,000	$	6,059
State and political subdivisions		55,254		59,610		51,287		55,091		47,348		48,208
Corporate debt securities		—		—		—		—		3,340		3,563
Total	$	55,254	$	59,610	$	54,282	$	58,121	$	56,688	$	57,830

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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 interest-earning deposits, at December 31, 2012. 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		Average			Amortized		Average			Amortized		Average			Amortized		Average			Amortized		Average			Fair
	Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Value
	(Dollars in thousands)
State and      political      subdivisions	$	602		5.18	%	$	9,514		5.30	%	$	25,154		5.11	%	$	19,984		5.20	%	$	55,254		5.18	%	$	59,610

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, noninterest-bearing checking, NOW checking, money market, and certificate accounts. Of the deposit accounts, $38.3 million or 7% consist of IRA, Keogh or SEP retirement accounts at December 31, 2012.

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, noninterest-bearing checking, and NOW checking, which has contributed to a low cost-of-funds. At December 31, 2012, core deposits amounted to 69% 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 a significant amount of deposits from outside its 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,
	2012								2011								2010
	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	$	76,370		13.63	%		0.23	%	$	65,677		11.91	%		0.34	%	$	56,157		10.21	%		0.31	%
Money market accounts		153,827		27.45	%		0.51	%		155,010		28.12	%		0.62	%		149,744		27.22	%		0.80	%
Noninterest-bearing checking accounts		52,433		9.36	%		—			43,910		7.96	%		—			40,389		7.34	%		—
Total transaction accounts		282,630		50.44	%		0.34	%		264,597		47.99	%		0.45	%		246,290		44.77	%		0.56	%
Passbook accounts		106,268		18.97	%		0.23	%		105,617		19.16	%		0.39	%		99,686		18.12	%		0.46	%
Certificates of deposit		171,417		30.59	%		1.06	%		181,074		32.85	%		1.56	%		204,159		37.11	%		2.08	%
Total deposits	$	560,315		100.00	%		0.54	%	$	551,288		100.00	%		0.79	%	$	550,135		100.00	%		1.10	%

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At December 31, 2012, 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	$	5,651
Over three through six months		6,829
Over six through 12 months		20,393
Over 12 months		17,841
Total	$	50,714

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 discount window. The following tables set forth the maximum month-end balance, period ending balance, and weighted average balance of outstanding FHLB advances at the dates and for the periods indicated, together with the applicable weighted average interest rates.

	At December 31,
	2012			2011			2010
	(Dollars in thousands)
FHLB advances	$	60,656		$	46,908		$	61,987
Weighted average interest rate		1.88	%		3.37	%		3.73	%

	Years Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Maximum balance of FHLB advances	$	83,238		$	65,001		$	82,299
Weighted average balance of FHLB advances		56,837			55,274			74,758
Weighted average interest rate of FHLB advances		2.47	%		3.52	%		3.93	%

Subsidiary Activity

At December 31, 2012, 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, 2012, the Bank had $156.9 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, 2012 the Bank had an investment of $184,000 in Teragon. During 2007, Teragon was granted approval by the state of Pennsylvania to conduct business as an insurance agency, and during 2012, Teragon received $24,000 of insurance commissions.

Personnel

As of December 31, 2012, the Company had 154 full-time and 13 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

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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:

·     Merges the Office of Thrift Supervision (“OTS”) into the Office of the Comptroller of the Currency (“OCC”) and restructures the authority of the other two bank regulatory agencies. The federal thrift charter is 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. 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 noninterest-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. 

·   Repeals various banking law provisions prohibiting the payment of interest on demand deposits.

·     Requires 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.

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Company Regulation

General.  The Company is a unitary savings and loan holding company subject to regulatory oversight by the FRB. As such, the Company is required to register and file reports with the FRB and is subject to regulation and examination by the FRB. In addition, the FRB has enforcement authority over the Company and its non-savings association subsidiaries, which also permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the subsidiary institution. 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 must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or savings institution, merge or consolidate with another bank holding company or savings and loan holding company or acquire all or substantially all of the assets of another bank, savings institution or depository institution holding company. The Company must also obtain prior Federal Reserve approval before it may acquire ownership or control of any voting shares of any bank, savings institution or depository institution holding company if, after such acquisition, the Company would directly or indirectly own or control more than 5% of such shares. The Company is also required to file certain reports with, and otherwise comply with, the rules and regulations of the FRB 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 FRB has determined to be closely related to banking. A qualifying 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.

Restrictions on Dividends.  The Federal Reserve has issued a policy statement on the payment of cash dividends by bank and savings and loan holding companies, which expresses the Federal Reserve’s view that a holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with theholding company’s capital needs, asset quality and overall financial condition. The Federal Reserve also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the federal prompt corrective action regulations, the Federal Reserve may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”

Bank Regulation

General.  As a Pennsylvania-chartered, FDIC insured savings bank, the Bank is subject to extensive regulation and regular examination by the Department of Banking and by the FDIC, which insures its deposits to the maximum extent permitted by law. The federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans.

The Bank must file reports with the Department of Banking and the FDIC concerning its financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other banks or savings

16

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 Department of Banking, the FDIC or the Congress could have a material adverse impact on the Company, the Bank and their operations.

Pennsylvania Savings Bank Law.  The Pennsylvania Banking Code (“Banking Code”) contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers, and employees, as well as the corporate powers, lending authority, savings and investment operations and other aspects of the Bank and its affairs. The Banking Code delegates extensive rule-making power and administrative discretion to the Department of Banking so that the supervision and regulation of state-chartered savings banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices.

The Banking Code also provides state-chartered savings banks with all the powers enjoyed by the federal savings institutions, subject to regulation by the Department of Banking.  The Federal Deposit Insurance Corporation Act, however, prohibits state-chartered banks from making new investments, loans, or becoming involved in activities as principal and equity investments that not permitted for national banks unless (1) the FDIC determines the activity or investment does not pose a significant risk of loss to the Deposit Insurance Fund and (2) the bank meets all applicable capital requirements. Accordingly, the additional operating authority provided to the Bank by the Banking Code is significantly restricted by the Federal Deposit Insurance Corporation Act.

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 noninterest-bearing transaction accounts until December 31, 2012. 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 imposed 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. 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 Dodd-Frank 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 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 took effect for the quarter beginning April 1, 2011, and were reflected in the invoices for DIF assessments due September 30, 2011.

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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. 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.

Regulatory Capital Requirements.  The FDIC has promulgated capital adequacy requirements for state-chartered banks that, like us, are not members of the Federal Reserve System. The FDIC’s capital regulations require banks to meet two capital standards: (1) a leverage capital requirement of Tier 1 capital equal to at least 4% of total adjusted assets; (2) a risk-based capital requirement of qualifying total capital equal to at least 8.0% of total risk-weighted assets. In addition, the FDIC’s prompt corrective action regulation provides that a bank that has less than the minimum leverage capital requirement will be deemed to be “undercapitalized” and will be subject to various capital plan and activities restriction requirements. The prompt corrective action regulation also provides that any insured depository institution with a ratio of Tier 1 capital to total assets that is less than 2.0% is deemed to be operating in an unsafe or unsound condition pursuant to Section 8(a) of the Federal Deposit Insurance Act and could be subject to termination of deposit insurance.

The Bank is also subject to minimum capital requirements imposed by the Department of Banking on Pennsylvania-chartered depository institutions. Under the Department of Banking’s capital regulations, a Pennsylvania bank or savings bank must maintain a minimum leverage ratio of Tier 1 capital (as defined under the FDIC’s capital regulations) to total assets of 4%. In addition, the Department of Banking has the supervisory discretion to require a higher leverage ratio for any institution based on the institution’s substandard performance in any of a number of areas.

At December 31, 2012, the Bank was in compliance with all of its regulatory capital requirements.

Dividend Limitations.  The Banking Code provides that dividends may be declared and paid by a Pennsylvania bank only out of accumulated net earnings and may not be declared or paid unless surplus (retainedearnings) is atleast equal to contributed capital. The Bank has not declared or paid any dividends that have caused its retained earnings to be reduced below the amount required. In addition, the Bank may not declare or pay a dividend if the Bank is in default in payment of any assessment due the FDIC or if the effect of the dividend 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. Furthermore, as the subsidiary of a savings and loan holding company, the Bank is required to provide the FRB with notice of a proposed capital distribution at least 30 days before declaring a dividend to the Company.

Qualified Thrift Lender Test.  The Home Owners’ Loan Act (“HOLA”), as amended, requires subsidiary institutions of savings and loan holding companies 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, the Company will continue its status as a grandfathered unitary savings and loan holding company. 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 institutions 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, 2012, the Bank was in compliance with its QTL requirement with 69.04% 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, 2012, the Bank was in compliance with this requirement with a MAV of $337.0 million and $5.4 million in FHLB stock.

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Federal Reserve System.  The Federal Reserve Board requires all depository institutions to maintain noninterest-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, 2012, no reserves were required to be maintained on the first $11.5 million of transaction accounts, (increasing to $12.4 million in 2013), reserves of 3% were required to be maintained against the next $59.5 million (increasing to $67.1 million in 2013) 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 noninterest-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.”

Proposed Changes to Regulatory Capital Requirements

The federal banking agencies have issued a series of proposed rulemakings to conform their regulatory capital rules with the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as “Basel III”. The proposed revisions would establish new higher capital ratio requirements, tighten the definitions of capital, impose new operating restrictions on banking organizations with insufficient capital buffers and increase the risk weighting of certain assets including residential mortgages. The proposed new capital requirements would apply to all banks and savings associations, bank holding companies with more than $500 million in assets and all savings and loan holding companies regardless of asset size. The following discussion summarizes the proposed changes which are most likely to affect the Company and the Bank.

New and Higher Capital Requirements.  The proposed regulations would establish a new capital measure called “Common Equity Tier 1 Capital” which would consist of common stock instruments and related surplus (net of treasury stock), retained earnings, accumulated other comprehensive income and, subject to certain adjustments, minority common equity interests in subsidiaries. Unlike the current rules which exclude unrealized gains and losses on available-for-sale debt securities from regulatory capital, the proposed rules would generally require accumulated other comprehensive income to flow through to regulatory capital. Depository institutions and their holding companies would be required to maintain Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets by 2015.

The proposed regulations would increase the required ratio of Tier 1 Capital to risk-weighted assets from the current 4% to 6% by 2015. Tier 1 Capital would consist of Common Equity Tier 1 Capital plus Additional Tier 1 Capital elements which would include non-cumulative perpetual preferred stock. Neither cumulative preferred stock (other than cumulative preferred stock issued to the U.S. Treasury under the TARP Capital Purchase Program or the Small Business Lending Fund) nor trust preferred would qualify as Additional Tier 1 Capital. These elements, however, could be included in Tier 2 Capital which could also include qualifying subordinated debt. The proposed regulations would also require a minimum Tier 1 leverage ratio of 4% for all institutions eliminating the 3% option for institutions with the highest supervisory ratings. The minimum required ratio of total capital to risk-weighted assets would remain at 8%.

Capital Buffer Requirement.  In addition to higher capital requirements, depository institutions and their holding companies would be required to maintain a capital buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement would be phased in over four years beginning in 2016. The capital buffer requirement effectively raises the minimum required risk-based capital ratios to 7% Common Equity Tier 1 Capital, 8.5% Tier 1 Capital and 10.5% Total Capital on a fully phased-in basis.

Changes to Prompt Corrective Action Capital Categories.  The Prompt Corrective Action rules would be amended to incorporate a Common Equity Tier 1 Capital requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization would be required to have at least an 8% Total Risk-Based Capital Ratio, a 6% Tier 1 Risk-Based Capital Ratio, a 4.5% Common Equity Tier 1 Risk Based Capital Ratio and a 4% Tier 1 Leverage Ratio. To be well capitalized, a banking organization would be required to have at least a 10% Total Risk-Based Capital Ratio, an 8% Tier 1 Risk-Based Capital Ratio, a 6.5% Common Equity Tier 1 Risk Based Capital Ratio and a 5% Tier 1 Leverage Ratio.

Additional Deductions from Capital.  Banking organizations would be required to deduct goodwill and other intangible assets (other than certain mortgage servicing assets), net of associated deferred tax liabilities, from Common Equity Tier 1 Capital. Deferred tax assets arising from temporary timing differences that could not be realized through net operating loss carrybacks would continue to be deducted if they exceed 10% of Common Equity Tier 1 Capital. Deferred tax assets that could be realized through NOL carrybacks would not be deducted but would be subject to 100% risk weighting. Defined benefit pension fund assets, net of any associated deferred tax liability, would be deducted from Common Equity Tier 1 Capital unless the banking organization has

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unrestricted and unfettered access to such assets. Reciprocal cross-holdings in the capital instruments of any other financial institution would now be deducted from capital, not just holdings in other depository institutions. For thispurpose, financial institutions are broadly defined to include securities and commodities firms, hedge and private equity funds and non-depository lenders. Banking organizations would also be required to deduct non-significant investments (less than 10% of outstanding stock) in other financial institutions to the extent these exceed 10% of Common Equity Tier 1 Capital subject to a 15% of Common Equity Tier 1 Capital cap. Greater than 10% investments must be deducted if they exceed 10% of Common Equity Tier 1 Capital. If the aggregate amount of certain items excluded from capital deduction due to a 10% threshold exceeds 17.65% of Common Equity Tier 1 Capital, the excess must be deducted. Savings associations would continue to be required to deduct investments in subsidiaries engaged in activities not permitted for national banks.

Changes in Risk-Weightings.  The proposed regulations would apply a 250% risk-weighting to mortgage servicing rights, deferred tax assets that cannot be realized through NOL carrybacks and significant (greater than 10%) investments in other financial institutions. The proposed rules would also significantly change the risk-weighting for residential mortgages. Current capital rules assign a 50% risk-weighting to “qualifying mortgage loans” which generally consist of residential first mortgages with an 80% loan-to-value ratio (or which carry mortgage insurance that reduces the bank’s exposure to 80%) that are not more than 90 days past due. All other mortgage loans have a 100% risk weight. Under the proposed regulations, one-to-four family residential mortgage loans would be divided into two broad risk categories with their risk-weighting determined by their loan-to-value ratio without regard to mortgage insurance. Prudently underwritten 30-year residential mortgages providing for regular periodic payments that do not result in negative amortization or balloon payments or allow payment deferrals and caps on annual and lifetime interest rate adjustments and which are not more than 90 days past due would be assigned a risk weighting from 35% for loans with a 60% or lower loan-to-value ratio to 100% for loans over 90%. Residential mortgage loans in this category with a loan-to-value ratio greater than 60% but not more than 80% would continue to carry a 50% risk weighting. All other residential mortgage loans would be risk-weighted between 100% to 200%. The proposal also creates a new 150% risk-weighting category for “high volatility commercial real estate loans” which are credit facilities for the acquisition, construction or development of real property other than one- to four-family residential properties or commercial real projects where: (i) the loan-to-value ratio is not in excess of interagency real estate lending standards; and (ii) the borrower has contributed capital equal to not less than 15% of the real estate’s “as completed” value before the loan was made.

Item 1A. Risk Factors

Not applicable.

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, 2012, the Bank operated from its administrative offices and thirteen branch offices located in Philadelphia and Bucks Counties, Pennsylvania and Mercer County, New Jersey. The Bank also owns one parcel of land and a building behind its Doylestown branch office. The parcel is available to be leased to a third-party. The net book value of the lot was $10,000. In addition, a subsidiary of the Company, Penns Trail Development Corporation, owns investment property with a book value of $694,000.

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

Location	Leased or Owned
ADMINISTRATIVE OFFICE
Newtown Office	Owned
3 Penns Trail
Newtown, PA 18940
BRANCH AND LOAN OFFICES
Frankford Office	Leased
4625 Frankford Avenue
Philadelphia, PA 19124
Ewing Office	Owned
2075 Pennington Road
Ewing, NJ 08618

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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 Road
Doylestown, PA 18902
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
1201 Buck Road
Feasterville, PA 19053
Woodhaven Office	Leased
12051 Knights Road
Philadelphia, PA 19154
Girard Office	Leased
136 West Girard Avenue
Philadelphia, PA 19123
PROCESSING OPERATIONS
Operations Center	Owned
62-66 Walker Lane
Newtown, PA 18940
Operations Center	Leased
98 Walker Lane
Newtown, PA 18940

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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 material to the consolidated financial condition or results of operations of the Company.

Item 4. Mine Safety Disclosures

Not applicable.

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 Profile and Related Information —Stock Market Information,” “—Dividend Policy” and “—Stock Price and Dividend History” in the Registrant’s 2012 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, 2012:

			Total Number of	Maximum Number of
			Shares Purchased as	Shares that may yet
			Part of Publicly	be Purchased Under
	Total Number of	Average Price	Announced Plan or	the Plans or
Month	Shares Purchased	Paid per Share	Program	Programs
October 1, 2012 - October 31, 2012	—	—	—	101,957
November 1, 2012 - November 30, 2012	—	—	—	101,957
December 1, 2012 - December 31, 2012	—	—	—	101,957

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 2012 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 2012 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 2012 Annual Report to Stockholders are incorporated herein by reference.

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

None.

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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 2012 Annual Report to Stockholders and is incorporated herein by reference. Neither this Annual Report on Form 10-K nor the Annual Report to 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 Nominees; Security Ownership of Management” and “— Biographical Information”, “—Meetings and Committees of the Board of Directors”, “—Director Nomination Process” ,and “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 2013 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 “Proposal I — Election of Directors” in the Registrant’s Proxy Statement.

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(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

Set forth below is information as of December 31, 2012 with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.

 EQUITY COMPENSATION PLAN INFORMATION 

	(a)		(b)		(c)
	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity compensation plans approved by shareholders		89,279	$	24.08		275,000
Equity compensation plans not approved by shareholders		—		—		—
Total		89,279	$	24.08		275,000

For information regarding the material features of the Registrant’s equity compensation plans, see Note 1 and Note 10 to the Consolidated Financial Statements included as part of Exhibit 13 to this report.

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):

(1)   The following financial statements and the reports of the independent auditor of the Company included in the Company’s 2012 Annual Report to Stockholders are incorporated herein by reference.

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2012 and 2011

Consolidated Statements of Income For the Years Ended December 31, 2012 and 2011

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012 and 2011

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2012 and 2011

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011

Notes to Consolidated Financial Statements

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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.

(3)      Exhibits

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

2.1	Agreement and Plan of Merger, dated December 28, 2012, by and among TF Financial Corporation, 3rd Fed Bank, Roebling Financial Corp, Inc. and Roebling Bank (1)
3.1	Amended and Restated Articles of Incorporation of TF Financial Corporation (2)
3.2	Bylaws of TF Financial Corporation
4.0	Stock Certificate of TF Financial Corporation (3)
10.1	Third Federal Savings and Loan Association Management Stock Bonus Plan (3)
10.2	Third Federal Savings Bank Directors Consultation and Retirement Plan (4)
10.3	Severance Agreement with Kent C. Lufkin (5)
10.4	Agreement and General Release with Floyd P. Haggar (6)
10.5	Severance Agreement with Dennis R. Stewart (7)
10.6	TF Financial Corporation 1997 Stock Option Plan (8)
10.7	Severance Agreement with Robert N. Dusek (9)
10.8	TF Financial Corporation Incentive Compensation Plan (10)
10.9	TF Financial Corporation 2005 Stock-Based Incentive Plan (11)
10.10	Severance Agreement with Elizabeth Kaspern (12)
10.11	TF Financial Corporation Stock Repurchase Plan (13)
10.12	TF Financial Corporation 2011 Directors Stock Compensation Plan (14)
10.13	TF Financial Corporation 2012 Stock Option Plan
10.14	Agreement by and among TF Financial Corporation, Dennis Pollack, Lawrence B. Seidman, 2514 Multi-Strategy Fund, LP, Broad Park Investors, LLC, CBPS, LLC, LSBK06-08, LLC, Seidman and Associates, LLC, Seidman Investment Partnership, LP and Seidman Investment Partnership II, LP (15)
10.15	Amendment No. 1 to Agreement by and among TF Financial Corporation, Dennis Pollack, Lawrence B. Seidman, 2514 Multi-Strategy Fund, LP, Broad Park Investors, LLC, CBPS, LLC, LSBK06-08, LLC, Seidman and Associates, LLC, Seidman Investment Partnership, LP and Seidman Investment Partnership II, LP (16)
13.0	2012 Annual Report to Stockholders
21.0	Subsidiary Information
23.0	Consent of Independent Registered Public Accounting Firm-S.R. Snodgrass, A.C.
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
101.INS	XBRL Instance Document *
101.SCH	XBRL Taxonomy Extension Schema Document *
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document *
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document *
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document *

* Submitted as Exhibits 101 to this Form 10-K are documents formatted in XBRL (Extensible Business Reporting Language). Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

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(1)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 28, 2012.
(2)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 4, 2011.
(3)	Incorporated herein by reference to the Exhibits to Form S-1, Registration Statement, File No. 33-76960.
(4)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(5)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
(6)	Incorporated herein by reference to the Registrant’s Form 8-K/A filed with the Securities and Exchange Commission on February 21, 2013.
(7)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
(8)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(9)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
(10)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 20, 2004.
(11)	Incorporated herein by reference to the Registrant’s Form S-8 filed with the Securities and Exchange Commission on May 20, 2005.
(12)	Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
(13)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 25, 2007.
(14)	Incorporated herein by reference to the Registrant’s Form S-8 filed with the Securities and Exchange Commission on June 29, 2011.
(15)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 7, 2011.
(16)	Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 5, 2012.

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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 27, 2013	By:	/s/ Kent C. Lufkin
		Kent C. Lufkin
		President and 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 March 27, 2013.

By:	/s/ Kent C. Lufkin	By:	/s/ Dennis R. Stewart
	Kent C. Lufkin		Dennis R. Stewart
	President and 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/ Dennis Pollack	By:	/s/ Joseph F. Slabinski, III
	Dennis Pollack		Joseph F. Slabinski, III
	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-3.2

Back to 10K

Exhibit 3.2

BYLAWS

of

TF FINANCIAL CORPORATION

(As Amended on January 25, 2012)

ARTICLE I

Offices

The registered office of TF Financial Corporation (the “Corporation”) shall be located in the Commonwealth of Pennsylvania at such place as may be fixed from time to time by the board of directors of the Company upon filing of such notices as may be required by law, and the registered agent of the Corporation shall have a business office identical with such registered office.  The Corporation may also have offices at such other places within or without the Commonwealth of Pennsylvania as the board of directors shall from time to time determine.

ARTICLE II

Stockholders

SECTION 1.  Place of Meetings.  All annual and special meetings of stockholders shall be held at the home office of the Corporation or at such other place within or without the Commonwealth of Pennsylvania as the board of directors may determine and as designated in the notice of such meeting.

SECTION 2.  Annual Meeting.  A meeting of the stockholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine.

SECTION 3.  Special Meetings.  Special meetings of the stockholders for any purpose or purposes may be called at any time by the majority of the board of directors or the chairman of the board, and may otherwise be called only by such persons as are specifically permitted to call meetings by the Pennsylvania Business Corporation Law in accordance with the provisions of the Corporation’s Articles of Incorporation.

SECTION 4.  Conduct of Meetings.  Annual and special meetings shall be conducted in accordance with the rules and procedures established by the board of directors.  The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings.

SECTION 5.  Notice of Meetings.  Written notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed by the secretary or the officer performing his duties, not less than ten days nor more than sixty days before the meeting to each stockholder of record entitled to vote at such meeting.  If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II, with postage thereon prepaid.  If a

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stockholder is present at a meeting, or in writing waives notice thereof before or after the meeting, notice of the meeting to such stockholder shall be unnecessary.  When any stockholders’ meeting, either annual or special, is adjourned and a new record date is fixed for an adjourned meeting of stockholders, notice of the adjourned meeting shall be given as in the case of an original meeting.  It shall not be necessary to give any notice of the time and place of any adjourned meeting unless new business is to be transacted thereat or a new record date is fixed therefor, other than an announcement at the meeting at which such adjournment is taken.

SECTION 6.  Fixing of Record Date.  For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of stockholders.  Such date in any case shall be not more than ninety days, and in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken.  When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof.

SECTION 7.  Voting Lists.  The officer or agent, having charge of the stock transfer books for shares of the Corporation shall make, at least ten days before each meeting of stockholders, a complete record of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each.  Such record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder for any purpose germane to the meeting during the whole time of the meeting.  The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of stockholders.

SECTION 8.  Quorum.  A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders.  If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice.  At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.  The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

SECTION 9.  Proxies.  At all meetings of stockholders, a stockholder may vote by proxy executed or authenticated by the stockholder, or such person’s duly authorized attorney-in-fact. A stockholder or his duly authorized attorney-in-fact may execute or authenticate a writing or transmit an electronic message authorizing another person to act for him by proxy. A telegram, telex, cablegram, datagram, e-mail, Internet communication, or other means of electronic transmission from a stockholder or attorney-in-fact, or a photographic, facsimile, or similar reproduction of a writing executed by a stockholder or attorney-in-fact may be treated as properly executed for purposes of this section and shall be so treated if it sets forth a confidential

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and unique identification number or other mark furnished by the Corporation to the stockholder for the purposes of a particular meeting or transaction.  No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy.

SECTION 10.  Voting.  At each election for directors every stockholder entitled to vote at such election shall be entitled to one vote for each share of stock held by him.  Unless otherwise provided in the Articles of Incorporation, by Statute, or by these Bylaws, a majority of those votes cast by stockholders at a lawful meeting shall be sufficient to pass on a transaction or matter.

SECTION 11.  Voting of Shares in the Name of Two or More Persons. Where shares are held jointly or as tenants in common by two or more persons as fiduciaries or otherwise, if only one or more of such persons is present in person or by proxy, all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum and the Corporation shall accept as the vote of all such shares the votes cast by such person or a majority of them.  If in any case such persons are equally divided upon the manner of voting the shares held by them, the vote of such shares shall be divided equally among such persons, without prejudice to the rights of such joint owners or the beneficial owners thereof among themselves, except that, if there shall have been filed with the Secretary of the Corporation a copy, certified by an attorney-at-law to be correct, of the relevant portions of the agreements under which such shares are held or the instrument by which the trust or estate was created or the decree of court appointing them, or of a decree of court directing the voting of such shares, the persons specified as having such voting power in the latest such document so filed, and only such persons, shall be entitled to vote such shares but only in accordance therewith.

SECTION 12.  Voting of Shares by Certain Holders.  Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine.  Shares held by an administrator, executor, guardian trustee or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name.  Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee shall be entitled to vote the shares so transferred.

Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

SECTION 13.  Judges of Election.  In advance of any meeting of stockholders, the board of directors may appoint any persons, other than nominees for office, as judges of election

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to act at such meeting or any adjournment thereof.  The number of judges shall be either one or three.  If the board of directors so appoints either one or three judges, that appointment shall not be altered at the meeting.  If judges of election are not so appointed, the chairman of the board or the president may make such appointment at the meeting.  In case any person appointed as judge fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president.

Unless otherwise prescribed by the Articles of Incorporation or by applicable law, the duties of such judges shall include:  determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders.

SECTION 14.  Nominations for Director.  The nominating committee of the board of directors shall select the management nominees for election as directors.  Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least twenty days prior to the date of the annual meeting.  Provided such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by stockholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of Article X of the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were fully set forth herein.  Any such nominations by stockholders must also be accompanied by a certification, under oath before a notary public, that the nominee meets the eligibility requirements to be a director set forth in Article III, Sections 15-18, of these Bylaws.

SECTION 15.  New Business.  Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the Corporation in accordance with the provisions of Article X of the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were fully set forth herein.  This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees, but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as provided in the Corporation’s Articles of Incorporation.

ARTICLE III

Board of Directors

SECTION 1.  General Powers.  The business and affairs of the Corporation shall be under the direction of its board of directors.  The board of directors shall annually elect a president from among its members and may also elect a chairman of the board from among its members.  The board of directors shall designate, when present, either the chairman of the board or the president to preside at its meetings.

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SECTION 2.  Number, Term and Election.  The board of directors shall consist of nine members and shall be divided into three classes as nearly equal in number as possible.  The members of each class shall be elected for a term of three years and until their successors are elected or qualified.  The board of directors shall be classified in accordance with the provisions of the Corporation’s Articles of Incorporation.  Directors are to be elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting of stockholders at which a quorum is present.  The board of directors may increase the number of members of the board of directors but in no event shall the number of directors be increased in excess of fifteen.

SECTION 3.  Place of Meetings.  All annual and special meetings of the board of directors shall be held at the home office of the Corporation or at such other place within the Commonwealth of Pennsylvania as the board of directors may determine and as is designated in the notice of such meeting.

SECTION 4.  Regular Meetings.  A regular meeting of the board of directors shall be held without other notice than this Bylaw at such time and date as the board of directors may determine.

SECTION 5.  Special Meetings.  Special meetings of the board of directors may be called by or at the request of the chairman of the board or the president, or by one-third of the directors.  The persons authorized to call special meetings of the board of directors may fix any place in the Commonwealth of Pennsylvania as the place for holding any special meeting of the board of directors called by such persons.

Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other.

SECTION 6.  Notice of Special Meetings.  Written notice of any special meeting shall be given to each director at least two days previous thereto delivered personally or by telegram, telex, courier, e-mail, facsimile, or other similar communication or at least five days previous thereto delivered by mail at the address at which the director is most likely to be reached.  Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed or when delivered to the telegraph company if sent by telegram.  Any director may waive notice of any meeting by a writing filed with the secretary.  The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.

SECTION 7.  Quorum.  A majority of the number of directors fixed by Section 2 of Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time.  Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of Article III.

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SECTION 8.  Manner of Acting.  The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Articles of Incorporation, or the laws of Pennsylvania.

SECTION 9.  Action Without a Meeting.  Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors and filed with the secretary of the Corporation.

SECTION 10.  Resignation.  Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the chairman of the board or the president.  Unless otherwise specified herein, such resignation shall take effect upon receipt thereof by the chairman of the board or the president.

SECTION 11.  Vacancies.  Any vacancy occurring in the board of directors shall be filled in accordance with the provisions of the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were fully set forth herein.  Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of two-thirds of the directors then in office.  The term of such director shall be in accordance with the provisions of the Corporation’s Articles of Incorporation.

SECTION 12.  Removal of Directors.  Any director or the entire board of directors may be removed only for cause and then only in accordance with the provisions of the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were fully set forth herein.

SECTION 13.  Compensation.  Directors, as such, may receive a stated fee for their services.  By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for actual attendance at each regular or special meeting of the board of directors.  Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine.  Nothing herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor.

SECTION 14.  Presumption of Assent.  A director of the Corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent or abstention shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting.  Such right to dissent shall not apply to a director who votes in favor of such action.

SECTION 15.  Residency Requirement.  Each director of the Corporation must, at all times, maintain a permanent primary residence within a 90 mile radius of the Corporation’s administrative office located at 3 Penns Trail in Newtown, Pennsylvania.

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SECTION 16.  Minimum Share Requirement.  Each director of the Corporation must be a shareholder of the Corporation and own at least five thousand (5,000) shares of the Corporation’s Common Stock.

SECTION 17.   Affiliations With Other Depository Institutions.  A person is not eligible to serve as a director of the Corporation if he or she is a “management official” of another “depository institution” or “depository holding company” as those terms are defined in 12 U.S.C. § 3201.  If elected director of the Corporation, a person may not thereafter serve or agree to serve as a management official of another depository institution or depository holding company  unless and until his or her term as director of the Corporation has expired.

SECTION 18.   Eligibility Requirement.  A person is not eligible to serve as director if he or she: (1) is under indictment for, or has ever been convicted of, a criminal offense, involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year; (2) is a person against whom a federal or state bank regulatory agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal; (3) has been found either by any federal or state regulatory agency whose decision is final and not subject to appeal, or by a court to have (a) committed a wilful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency; or (b) breached a fiduciary duty involving personal profit; or (4) has been nominated by a person who would be disqualified from serving as a director of this Corporation under clauses (1), (2) or (3) of this Section 18.

ARTICLE IV

Committees of the Board of Directors

The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of the Corporation, and may prescribe the duties, constitution and procedures thereof.  Each committee shall consist of one or more directors of the Corporation.  The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

The board of directors shall have power, by the affirmative vote of a majority of the authorized number of directors, at any time to change the members of, to fill vacancies in, and to discharge any committee of the board.  Any member of any such committee may resign at any time by giving notice to the Corporation provided, however, that notice to the board, the chairman of the board, the chief executive officer, the chairman of such committee, or the secretary shall be deemed to constitute notice to the Corporation.  Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.  Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the board called for that purpose.

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ARTICLE V

Officers

SECTION 1.  Positions.  The officers of the Corporation shall be a chief executive officer, president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors.  The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer.  The board of directors may designate one or more vice presidents as executive vice president or senior vice president.  The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require.  The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine.  In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.

SECTION 2.  Election and Term of Office.  The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the stockholders.  If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible.  Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.  Election or appointment of an officer, employee or agent shall not of itself create contract rights.  The board of directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V.

SECTION 3.  Removal.  Any officer may be removed by vote of the majority of the board of directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed.

SECTION 4.  Vacancies.  A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term.

SECTION 5.  Remuneration.  The remuneration of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation.

ARTICLE VI

Contracts, Loans, Checks and Deposits

SECTION 1.  Contracts.  To the extent permitted by applicable law, and except as otherwise prescribed by the Corporation’s Articles of Incorporation or these Bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of

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and on behalf of the Corporation.  Such authority may be general or confined to specific instances.

SECTION 2.  Loans.  No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors.  Such authority may be general or confined to specific instances.

SECTION 3.  Checks, Drafts, Etc.  All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by resolution of the board of directors.

SECTION 4.  Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the board of directors may select.

ARTICLE VII

Shares and Their Transfer

SECTION 1.  Shares.  Shares of the Corporation’s capital stock may be in certificated form or may be in book-entry, uncertificated form.

SECTION 2.  Form of Share Certificates.  All certificates representing shares issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to any stockholder upon request and without charge a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined, and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series.

Each certificate representing shares shall state upon the face thereof: that the Corporation is incorporated under the laws of the Commonwealth of Pennsylvania; the name of the person to whom issued; the number and class of shares; the date of issue; the designation of the series, if any, which such certificate represents; the par value of each share represented by such certificate, or a statement that the shares are without par value.  Other matters in regard to the form of the certificates shall be determined by the board of directors.

Each certificate representing shares shall be signed by the chairman of the board of directors or by the president or a vice president and by the treasurer or by the secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof.  Any or all of the signatures upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation.  If any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

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SECTION 3.  Payment for Shares.  No share, whether certificated or uncertificated, shall be issued until such share is fully paid.

SECTION 4.  Form of Payment for Shares.  The consideration for the issuance of shares shall be paid in accordance with the provisions of Pennsylvania law.

SECTION 5.  Transfer of Shares.  Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books.  Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation.  Transfer of certificated shares shall be made only on surrender for cancellation of the certificate for such shares.  The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes.

SECTION 6.  Stock Ledger.  The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

SECTION 7.  Lost Certificates.  The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed.  When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

SECTION 8.  Beneficial Owners.  The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE VIII

Fiscal Year; Annual Audit

The fiscal year of the Corporation shall end on the last day of December of each year.  The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors.

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ARTICLE IX

Dividends

Subject to the provisions of the Articles of Incorporation and applicable law, the board of directors may, at any regular or special meeting, declare dividends on the Corporation’s outstanding capital stock.  Dividends may be paid in cash, in property or in the Corporation’s own stock.

ARTICLE X

Corporate Seal

The corporate seal of the Corporation shall be in such form as the board of directors shall prescribe.

ARTICLE XI

Amendments

The Bylaws may be altered, amended or repealed or new Bylaws may be adopted in the manner set forth in the Articles of Incorporation.

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EX-10.13

Back to 10K

Exhibit 10.13

TF FINANCIAL CORPORATION

2012 STOCK OPTION PLAN

1.           DEFINITIONS.

“Affiliate” means any “parent corporation” or “subsidiary corporation” of the Corporation, as such terms are defined in Sections 424(e) and 424(f) of the Code.

“Award” means, individually or collectively, a grant under the Plan of Non-Statutory Stock Options or Incentive Stock Options.

“Award Agreement” means an agreement evidencing and setting forth the terms of an Award.

“Bank” means Third Fed Bank, Newtown, Pennsylvania

“Beneficiary” means the person or persons designated by the Participant to receive any benefits payable under the Plan in the event of such Participant’s death.  Such person or persons shall be designated in writing by the Participant and addressed to the Corporation or the Committee on forms provided for this purpose by the Committee, and delivered to the Corporation or the Committee. Such Beneficiary designation may be changed from time to time by similar written notice to the Committee.  A Participant’s last will and testament or any codicil thereto shall not constitute written designation of a Beneficiary.  In the absence of such written designation, the Beneficiary shall be the Participant’s surviving spouse, if any, or if none, the Participant’s estate.

“Board of Directors” or “Board” means the board of directors of the Corporation.

“Change in Control” of the Corporation or the Bank shall mean an event of a nature that: (i) would be required to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act; (ii) involves the sale of all, or a material portion, of the assets of the Corporation or the Bank; (iii) involves the merger or re-capitalization of the Corporation whereby the Corporation is not the surviving entity; (iv) results in a change in control of the Corporation, as otherwise defined or determined by the applicable banking regulatory agency or regulations promulgated by it; or (v) without limitation, such a Change in Control shall be deemed to have occurred at such time as (A) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank or the Corporation representing 10% or more of the Bank's or the Corporation's outstanding securities except for any securities of the Bank purchased by the Corporation and any securities purchased by any tax qualified employee benefit plan of the Bank or the Corporation; or (B) individuals who constitute the Board of Directors on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Corporation's stockholders was approved by the same Nominating

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Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Corporation or similar transaction occurs in which the Bank or Corporation is not the resulting entity; or (D) solicitations of stockholders of the Corporation, by someone other than the current management of the Corporation, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Corporation or Bank or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged for or converted into cash or property or securities not issued by the Bank or the Corporation shall be distributed; or (E) a tender offer is made for 10% or more of the voting securities of the Bank or the Corporation, other than by the Corporation.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the committee designated by the Board of Directors, pursuant to Section 2 of the Plan, to administer the Plan.

“Common Stock” or “Shares” means the Common Stock of the Corporation.

“Corporation” means TF Financial Corporation.

“Date of Grant” means the effective date of an Award.

“Director” means a member of the Board of Directors.

“Disability” means (a) with respect to Incentive Stock Options, the “permanent and total disability” of the Employee as such term is defined at Section 22(e)(3) of the Code; and (b) with respect to Non-Statutory Stock Options, a condition of incapacity of a Participant which renders that person unable to engage in the performance of his or her duties by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.

“Effective Date” means the date of approval of the Plan by a vote of the stockholders of the Corporation.

“Employee” means any person employed by the Corporation or an Affiliate. Unless otherwise noted herein, a Director who is also employed by the Corporation or an Affiliate shall be considered an Employee under the Plan.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exercise Price” means the price at which a Participant may purchase a share of Common Stock pursuant to an Option.

“Fair Market Value” means, with respect to a Share on a specified date:

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 (I)           the final reported sales price on the date in question (or if there is no reported sale on such date, on the last preceding date on which any reported sale occurred) as reported in the principal consolidated reporting system with respect to securities listed or admitted to trading on the principal United States securities exchange on which the Shares are listed or admitted to trading, as of the close of the market in New York City and without regard to after-hours trading activity; or

 (II)           if the Shares are not listed or admitted to trading on any such exchange, the closing bid quotation with respect to a Share on such date, as of the close of the market in New York City and without regard to after-hours trading activity, or, if no such quotation is provided, on another similar system, selected by the Committee, then in use; or

 (III)           if (I) and (II) are not applicable, the Fair Market Value of a Share as the Committee may determine in good faith and in accordance with Code Section 422 and the applicable requirements of Code Section 409A and the regulations promulgated thereunder.  For purposes of the exercise of a Stock Option, Fair Market Value on such date shall be the date a notice of exercise is received by the Corporation or the Bank, or if not a day on which the market is open, the next day that it is open.

“Incentive Stock Option” means a stock option granted to a Participant, pursuant to Section 7 of the Plan, which is intended to meet the requirements of Section 422 of the Code.

“Non-Statutory Stock Option” means a stock option granted to a Participant pursuant to the terms of the Plan but which is not intended to be and is not identified as an Incentive Stock Option or a stock option granted under the Plan which is intended to be and is identified as an Incentive Stock Option but which does not meet the requirements of Section 422 of the Code.

“Option” means an Incentive Stock Option or Non-Statutory Stock Option.

“Outside Director” means a member of the board(s) of directors of the Corporation or an Affiliate who is not also an Employee of the Corporation or an Affiliate.

“Participant” means any person who holds an outstanding Award.

“Plan” means this TF Financial Corporation 2012 Stock Option Plan.

“Retirement as a Director” means retirement from service with the Corporation or an Affiliate following attainment of age 75.

“Retirement as an Employee” means retirement from employment with the Corporation or an Affiliate following attainment of age 65.

“Termination for Cause” shall mean termination because of a Participant's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or material breach of any provision of any employment agreement between the Corporation and/or any subsidiary of the Corporation and a Participant.

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2.           ADMINISTRATION.

(a) Composition of the Committee.  The Plan shall be administered by the Board of Directors of the Corporation or a Committee which shall consist of not less than two Directors of the Corporation appointed by the Board and serving at the pleasure of the Board.  All persons designated as members of the Committee shall meet the requirements of: (i) a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act, as found at 17 CFR Section 240.16b-3, and (ii) to the extent deemed appropriate by the Board of Directors or the Committee, such requirements as the Internal Revenue Service may establish for “outside directors” acting under plans intended to qualify for exemption under Section 162(m)(4)(C) of the Code; provided, however, a failure to comply with the requirements of subparagraphs (i) and/or (ii) shall not disqualify any actions taken by the Committee.  A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby.

 (b)           Powers of the Committee.  The Committee shall

1.      select the individuals who are to receive Awards under the Plan,

2. determine the type, number, vesting requirements and other features and conditions of such Awards,

3.      interpret the Plan and Award Agreements in all respects and

4. make all other decisions relating to the operation of the Plan.

The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons.

(c)           Award Agreement.  Each Award shall be evidenced by a written agreement (“Award Agreement”) containing such provisions as may be required by the Plan and otherwise approved by the Committee. Each Award Agreement shall constitute a binding contract between the Corporation or an Affiliate and the Participant, and every Participant, upon acceptance of an Award Agreement, shall be bound by the terms and restrictions of the Plan and the Award Agreement. The terms of each Award Agreement shall be in accordance with the Plan, but each Award Agreement may include any additional provisions and restrictions determined by the Committee, in its discretion, provided that such additional provisions and restrictions are not inconsistent with the terms of the Plan. In particular, and at a minimum, the Committee shall set forth in each Award Agreement:

1.      the type of Award granted;

2.      the Exercise Price of any Option;

3.      the number of shares subject to the Award;

4.      the expiration date of the Award;

5. the manner, time, and rate (cumulative or otherwise) of exercise or vesting of such Award; and

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6. the restrictions, if any, placed upon such Award, or upon shares which may be issued upon exercise of such Award.

The President of the Corporation, the Chairman of the Committee and such other directors and officers as shall be designated by the Committee is hereby authorized to execute Award Agreements on behalf of the Corporation or an Affiliate and to cause them to be delivered to the recipients of Awards.

(d)           The Committee may delegate all authority for:

1. the determination of forms of payment to be made by or received by the Plan and

2. the execution of any Award Agreement.

The Committee may rely on the descriptions, representations, reports and estimates provided to it by the management of the Corporation or an Affiliate for determinations to be made pursuant to the Plan, including the satisfaction of any conditions of an Award; provided, however, only the Committee or a portion of the Committee may certify the attainment of any conditions of an Award intended to satisfy the requirements of Section 162(m) of the Code.

(e)           Six-Month Holding Period.  Subject to vesting requirements, if applicable, except in the event of death or Disability of the Participant or a Change in Control of the Corporation, a minimum of six months must elapse between the date of the grant of an Option and the date of the sale of the Common Stock received through the exercise of such Option.

3.           TYPES OF AWARDS.

The following Awards may be granted under the Plan:

(a)           Non-Statutory Stock Options.

(b)           Incentive Stock Options.

4.           STOCK SUBJECT TO THE PLAN; AWARD MAXIMUMS.

(a)           Shares Under Plan.  Subject to adjustment as provided in Section 10 of the Plan, the maximum number of shares reserved for Awards under the Plan is 275,000.    The shares of Common Stock issued under the Plan may be either authorized but unissued shares or authorized shares previously issued and acquired or reacquired by the Corporation. To the extent that Options are granted under the Plan, the shares underlying such Awards will be unavailable for any other use including future grants under the Plan except that, to the extent that Options terminate, expire or are forfeited without having vested or without having been exercised, new Awards may be made with respect to these shares.

(b)           Stock Option Award Limitations.  No individual shall be granted an amount of Stock Options which exceeds 20% of the total shares reserved for Awards under the Plan. The maximum number of shares subject to Options granted to any individual Outside Director shall not exceed 10,000 shares; provided that the Chairman of the Board of the Company or the Bank may receive Options to purchase up to an additional 5,000 shares for such service.

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(c)           Vesting of Awards.  Except as otherwise provided by the terms of the Plan or by action of the Committee at the time of the grant of an Award, Stock Options will become first earned and exercisable at the rate of 20% of such Award on the one year anniversary of the date of grant and 20% annually thereafter during such periods of service as an Employee or Director.

(d)           Reservation of Shares; No Fractional Shares; Minimum Issue.  The Corporation shall at all times reserve a number of shares of Common Stock sufficient to cover the Corporation’s obligations and contingent obligations to deliver shares with respect to Awards then outstanding under this Plan. No fractional shares shall be delivered under this Plan. The Committee may pay cash in lieu of any fractional shares in settlements of Awards under this Plan. No fewer than 100 shares may be purchased upon exercise of any Stock Option unless the total number purchased or exercised is the total number at the time available for purchase or exercise by the Participant.

5.           ELIGIBILITY.

Subject to the terms of the Plan, all Employees and Outside Directors shall be eligible to receive Awards under the Plan.

6.           NON-STATUTORY STOCK OPTIONS.

The Committee may, subject to the limitations of this Plan and the availability of shares of Common Stock reserved but not previously awarded under the Plan, grant Non-Statutory Stock Options to eligible individuals upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions:

(a)           Exercise Price. The Committee shall determine the Exercise Price of each Non-Statutory Stock Option. However, the Exercise Price shall not be less than 100% of the Fair Market Value of the Common Stock on the Date of Grant.

(b)           Terms of Non-Statutory Stock Options. The Committee shall determine the term during which a Participant may exercise a Non-Statutory Stock Option, but in no event may a Participant exercise a Non-Statutory Stock Option, in whole or in part, more than seven (7) years from the Date of Grant. The Committee shall also determine the date on which each Non-Statutory Stock Option, or any part thereof, first becomes exercisable and any terms or conditions a Participant must satisfy in order to exercise each Non-Statutory Stock Option. The shares of Common Stock underlying each Non-Statutory Stock Option may be purchased in whole or in part by the Participant at any time during the term of such Non-Statutory Stock Option, or any portion thereof, once the Non-Statutory Stock Option becomes exercisable.

(c)           Non-Transferability. Unless otherwise determined by the Committee in accordance with this Section 6(c), a Participant may not transfer, assign, hypothecate, or dispose of in any manner, other than by will or the laws of intestate succession, a Non-Statutory Stock Option. The Committee may, however, in its sole discretion, permit transferability or assignment of a Non-Statutory Stock Option if such transfer or assignment is, in the Committee’s sole determination, for valid estate planning purposes and such transfer or assignment is permitted

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under the Code and Rule 16b-3 under the Exchange Act. For purposes of this Section 6(c), a transfer for valid estate planning purposes includes, but is not limited to: (a) a transfer to a revocable intervivos trust as to which the Participant is both the settlor and trustee, or (b) a transfer for no consideration to: (i) any member of the Participant's Immediate Family, (ii) any trust solely for the benefit of members of the Participant's Immediate Family, (iii) any partnership whose only partners are members of the Participant's Immediate Family, and (iv) any limited liability corporation or corporate entity whose only members or equity owners are members of the Participant's Immediate Family. For purposes of this Section 6(c), “Immediate Family” includes, but is not necessarily limited to, a Participant's parents, grandparents, spouse, children, grandchildren, siblings (including half bothers and sisters), and individuals who are family members by adoption. Nothing contained in this Section 6(c) shall be construed to require the Committee to give its approval to any transfer or assignment of any Non-Statutory Stock Option or portion thereof, and approval to transfer or assign any Non-Statutory Stock Option or portion thereof does not mean that such approval will be given with respect to any other Non-Statutory Stock Option or portion thereof. The transferee or assignee of any Non-Statutory Stock Option shall be subject to all of the terms and conditions applicable to such Non-Statutory Stock Option immediately prior to the transfer or assignment and shall be subject to any other conditions proscribed by the Committee with respect to such Non-Statutory Stock Option.

(d)           Termination of Employment or Service (General). Unless otherwise determined by the Committee, upon the termination of a Participant's employment or other service for any reason other than Retirement, Disability or death, or Termination for Cause, the Participant may exercise only those Non-Statutory Stock Options that were earned and immediately exercisable by the Participant at the date of such termination and only for a period of three (3) months following the date of such termination, or, if sooner, until the expiration of the term of the Option.

(e)           Termination of Employment or Service (Upon Retirement). Unless otherwise determined by the Committee, in the event of a Participant's Retirement as a Director or Retirement as an Employee, the Participant will continue to earn and vest in the Non-Statutory Stock Options on the same vesting schedule as if he were still in service to the Corporation or the Bank. Upon such Retirement, such Non-Statutory Stock Options shall continue to be exercisable for the remaining term of the Non-Statutory Stock Option without regard to the continued services of such Participant to the Corporation or the Bank.

(f)           Termination of Employment or Service (Disability or Death). Unless otherwise determined by the Committee, in the event of the termination of a Participant's employment or other service due to Disability or death, all Non-Statutory Stock Options held by such Participant shall become earned and immediately exercisable upon such Disability or death, and shall remain exercisable for a period of one (1) year following the date of such Disability or death, or, if sooner, until the expiration of the term of the Non-Statutory Stock Option.

(g)           Termination of Employment or Service (Termination for Cause). Unless otherwise determined by the Committee, in the event of a Participant's Termination for Cause, all rights with respect to the Participant's Non-Statutory Stock Options shall expire immediately upon the effective date of such Termination for Cause.

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(h)           Acceleration Upon a Change in Control. In the event of a Change in Control, all Non-Statutory Stock Options held by a Participant as of the date of the Change in Control shall immediately become earned and exercisable.

(i)           Delivery of Shares. Upon the exercise of a Non- Statutory Stock Option, payment by the Corporation shall be made in the form of shares of Common Stock.

(j)           Events Not Deemed Terminations of Employment or Service.  Unless Corporation policy or the Committee provides otherwise, the employment relationship shall not be considered terminated in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence authorized by the Corporation or the Committee; provided that, unless reemployment upon the expiration of such leave is guaranteed by contract or law, such leave is for a period of not more than 90 days. In the case of any Employee on an approved leave of absence, continued vesting of the Award while on leave may be suspended until the Employee returns to service, unless the Committee otherwise provides or applicable law otherwise requires. In no event shall an Award be exercised after the expiration of the term set forth in the Award Agreement.

7.           INCENTIVE STOCK OPTIONS.

The Committee may, subject to the limitations of the Plan and the availability of shares of Common Stock reserved but unawarded under this Plan, grant Incentive Stock Options to an Employee upon such terms and conditions as it may determine to the extent such terms and conditions are consistent with the following provisions:

(a)           Exercise Price. The Committee shall determine the Exercise Price of each Incentive Stock Option. However, the Exercise Price shall not be less than 100% of the Fair Market Value of the Common Stock on the Date of Grant; provided, however, that if at the time an Incentive Stock Option is granted, the Employee owns or is treated as owning, for purposes of Section 422 of the Code, Common Stock representing more than 10% of the total combined voting securities of the Corporation (“10% Owner”), the Exercise Price shall not be less than 110% of the Fair Market Value of the Common Stock on the Date of Grant.

(b)           Amounts of Incentive Stock Options. To the extent the aggregate Fair Market Value of shares of Common Stock with respect to which Incentive Stock Options that are exercisable for the first time by an Employee during any calendar year under the Plan and any other stock option plan of the Corporation or an Affiliate exceeds $100,000, or such higher value as may be permitted under Section 422 of the Code, such Options in excess of such limit shall be treated as Non-Statutory Stock Options. Fair Market Value shall be determined as of the Date of Grant with respect to each such Incentive Stock Option.

(c)           Terms of Incentive Stock Options. The Committee shall determine the term during which a Participant may exercise an Incentive Stock Option, but in no event may a Participant exercise an Incentive Stock Option, in whole or in part, more than seven (7) years from the Date of Grant; provided, however, that if at the time an Incentive Stock Option is granted to an Employee who is a 10% Owner, the Incentive Stock Option granted to such Employee shall not be exercisable after the expiration of five (5) years from the Date of Grant.

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The Committee shall also determine the date on which each Incentive Stock Option, or any part thereof, first becomes exercisable and any terms or conditions a Participant must satisfy in order to exercise each Incentive Stock Option. The shares of Common Stock underlying each Incentive Stock Option may be purchased in whole or in part at any time during the term of such Incentive Stock Option after such Option becomes exercisable.

(d)           Non-Transferability. No Incentive Stock Option shall be transferable except by will or the laws of descent and distribution and is exercisable, during his lifetime, only by the Employee to whom the Committee grants the Incentive Stock Option. The designation of a Beneficiary does not constitute a transfer of an Incentive Stock Option.

(e)           Termination of Employment (General). Unless otherwise determined by the Committee, upon the termination of a Participant's employment or other service for any reason other than Retirement, Disability or death, or Termination for Cause, the Participant may exercise only those Incentive Stock Options that were earned and immediately exercisable by the Participant at the date of such termination and only for a period of three (3) months following the date of such termination, or, if sooner, until the expiration of the term of the Incentive Stock Option.

(f)           Termination of Employment (Upon Retirement). Unless otherwise determined by the Committee, in the event of a Participant's Retirement as an Employee, the Participant will continue to earn and vest in Incentive Stock Options on the same vesting schedule as if he were still employed by the Corporation or the Bank.  Upon such Retirement, such Incentive Stock Options shall continue to be exercisable for the remaining term of the Incentive Stock Option without regard to continued employment by the Corporation or the Bank. Any Option originally designated as an Incentive Stock Option shall be treated as a Non-Statutory Stock Option to the extent the Participant exercises such Option more than three (3) months following the Participant's cessation of employment.

(g)           Termination of Employment (Disability or Death). Unless otherwise determined by the Committee, in the event of the termination of a Participant's employment or other service due to Disability or death, all Incentive Stock Options held by such Participant shall become earned and immediately exercisable upon such Disability or death, and shall remain exercisable for a period of one (1) year following the date of such Disability or death, or, if sooner, until the expiration of the term of the Incentive Stock Option.

(h)           Termination of Employment (Termination for Cause). Unless otherwise determined by the Committee, in the event of an Employee's Termination for Cause, all rights under such Employee's Incentive Stock Options shall expire immediately upon the effective date of such Termination for Cause.

(i)           Acceleration Upon a Change in Control.  In the event of a Change in Control all Incentive Stock Options held by a Participant as of the date of the Change in Control shall immediately become earned and exercisable.

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(j)           Delivery of Shares.  Upon the exercise of an Incentive Stock Option, payment shall be made in the form of shares of Common Stock.

(k)           Disqualifying Dispositions.  Each Award Agreement with respect to an Incentive Stock Option shall require the Participant to notify the Committee of any disposition of shares of Common Stock issued pursuant to the exercise of such Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition.

(l)           Events Not Deemed Terminations of Employment or Service.  Unless Corporation policy or the Committee provides otherwise, the employment relationship shall not be considered terminated in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence authorized by the Corporation or the Committee; provided that, unless reemployment upon the expiration of such leave is guaranteed by contract or law, such leave is for a period of not more than 90 days. In the case of any Employee on an approved leave of absence, continued vesting of the Award while on leave may be suspended until the Employee returns to service, unless the Committee otherwise provides or applicable law otherwise requires. In no event shall an Award be exercised after the expiration of the term set forth in the Award Agreement.

8.           METHOD OF EXERCISE OF OPTIONS.

Subject to any applicable Award Agreement, any Option may be exercised by the Participant in whole or in part at such time or times, and the Participant may make payment of the Exercise Price in such form or forms permitted by the Committee, including, without limitation, payment by delivery of cash or Common Stock having a Fair Market Value on the day immediately preceding the exercise date equal to the total Exercise Price, or by any combination of cash and shares of Common Stock, including exercise by means of a cashless exercise arrangement with a qualifying broker-dealer in accordance with procedures approved by the Corporation. Payment of the Exercise Price in full or partial payment in the form of Common Stock shall be made utilizing Common Stock that has been owned by the party exercising such Option for not less than six months prior to the date of exercise of such Option.  No shares of Common Stock shall be issued until full payment of the Exercise Price has been received by the Corporation.

9.           RIGHTS OF PARTICIPANTS.

No Participant shall have any rights as a shareholder with respect to any shares of Common Stock covered by an Option until the date of issuance of a stock certificate for such Common Stock. Nothing contained herein or in any Award Agreement confers on any person any right to continue in the employ or service of the Corporation or an Affiliate or interferes in any way with the right of the Corporation or an Affiliate to terminate a Participant's employment or services.

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10. ADJUSTMENTS IN CAPITAL STRUCTURE; ACCELERATION UPON A CHANGE IN CONTROL.

10.1           Adjustments in Capital Structure.  Upon any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split; any merger, combination, consolidation, or other reorganization; any spin-off, split-up, or similar extraordinary dividend distribution with respect to the Common Stock (whether in the form of securities or property); any exchange of Common Stock or other securities of the Corporation, or any similar, unusual or extraordinary corporate transaction affecting the Common Stock; or a sale of all or substantially all the business or assets of the Corporation; then the Committee shall proportionately adjust the Plan and the Awards thereunder in such manner, to such extent and at such times, as is necessary to preserve the benefits or potential benefits of such Awards, including:

(a) proportionately adjust any or all of:  (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of Awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan); (2) the number, amount and type of shares of Common Stock (or other securities or property) subject to any or all outstanding Awards; (3) the grant, purchase, or Exercise Price of any or all outstanding Awards; (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding Awards; or (5) the performance standards applicable to any outstanding Awards; or

(b) make provision for a cash payment or for the assumption, substitution or exchange of any or all outstanding Awards, based upon the distribution or consideration payable to holders of the Common Stock.

10.2           The Committee may adopt such valuation methodologies for outstanding Awards as it deems reasonable in the event of a cash or property settlement and, in the case of Options, may base such settlement solely upon the excess, if any, of the per share amount payable upon or in respect of such event over the Exercise Price or base price of the Award. With respect to any Award of an Incentive Stock Option, the Committee may make an adjustment that causes the Option to cease to qualify as an Incentive Stock Option without the consent of the affected Participant.

10.3           Upon any of the events set forth in Section 10.1, the Committee may take such action prior to such event to the extent that the Committee deems the action necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the Awards in the same manner as is or will be available to stockholders of the Corporation generally.  In the case of any stock dividend, stock split or reverse stock split, if no action is taken by the Committee, the proportionate adjustments contemplated by Section 10.1(a) above shall nevertheless be made.

10.4           No such adjustments may, however, materially change the value of benefits available to a Participant under a previously granted Award. All Awards under this Plan shall be binding upon any successors or assigns of the Corporation.

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10.5           Acceleration of Vesting. The Committee shall at all times have the power to accelerate the exercise date of Options with respect to previously granted Awards; provided that such action is not contrary to regulations of the Corporation’s applicable banking regulatory agency then in effect.

11.           MISCELLANEOUS PROVISIONS.

11.1           Compliance with Laws.  This Plan, the granting and vesting of Awards under this Plan, the offer, issuance and delivery of shares of Common Stock, the acceptance of payment of money under this Plan or under Awards are subject to compliance with all applicable federal and state laws, rules and regulations (including, but not limited to, state and federal securities laws) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith.  The person acquiring any securities under this Plan will, if requested by the Corporation, provide such assurances and representations to the Corporation as may be deemed necessary or desirable to assure compliance with all applicable legal and accounting requirements.

11.2           Claims.  No person shall have any claim or rights to an Award (or additional Awards, as the case may be) under this Plan, subject to any express contractual rights to the contrary (set forth in a document other than this Plan).

11.3           No Employment/Service Contract.  Nothing contained in this Plan (or in any other documents under this Plan or in any Award Agreement) shall confer upon any Participant any right to continue in the employ or other service of the Corporation or an Affiliate, constitute any contract or agreement of employment or other service or affect an Employee’s status as an employee-at-will, nor interfere in any way with the right of the Corporation to change a Participant’s compensation or other benefits, or terminate his or her employment or other service, with or without cause.  Nothing in this Section 11.3, however, is intended to adversely affect any express independent right of such Participant under a separate employment or service contract other than an Award Agreement.

11.4           Plan Not Funded.  Awards payable under this Plan shall be payable in shares of Common Stock or from the general assets of the Corporation. No Participant, Beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly provided otherwise) of the Corporation by reason of any Award hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Corporation and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

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11.5           Tax Matters; Tax Withholding.

Tax Withholding.  Upon any exercise, vesting, or payment of any Award, the Corporation shall have the right, within its sole discretion, to:

(i) require the Participant (or the Participant’s personal representative or Beneficiary, as the case may be) to pay or provide for payment of at least the minimum amount of any taxes which the Corporation may be required to withhold with respect to such Award or payment; or

(ii) deduct from any amount otherwise payable in cash to the Participant (or the Participant’s personal representative or Beneficiary, as the case may be) the minimum amount of any taxes which the Corporation may be required to withhold with respect to such cash payment, or

(iii) in any case where tax withholding is required in connection with the delivery of shares of Common Stock under this Plan, the Committee may, in its sole discretion, pursuant to such rules and subject to such conditions as the Committee may establish, reduce the number of shares to be delivered to the Participant by the appropriate number of shares, valued in a consistent manner at their Fair Market Value as necessary to satisfy the minimum applicable withholding obligation.  In no event shall the shares withheld exceed the minimum whole number of shares required for tax withholding under applicable law.

11.6 Effective Date, Termination and Suspension, Amendments.

(a) Effective Date and Termination.  This Plan is effective upon the later of approval of the Plan by the Board of Directors of the Corporation or the vote of approval by the stockholders of the Corporation (“Approval Date”).  Unless earlier terminated by the Board, this Plan shall terminate at the close of business on the day before the tenth anniversary of the Approval Date. After the termination of this Plan either upon such stated expiration date or its earlier termination by the Board, no additional Awards may be granted under this Plan, but previously granted Awards (and the authority of the Committee with respect thereto, including the authority to amend such Awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.

(b) Board Authorization.  Subject to applicable laws and regulations, the Board of Directors may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part; provided, however, that no such amendment may have the effect of repricing the Exercise Price of Options. No Awards may be granted during any period that the Board of Directors suspends this Plan.

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(c) Stockholder Approval. The Plan must be approved by a majority of votes cast by stockholders of the Corporation by proxy or in person within 12 months of the date the Plan is approved by the Board.

(d) Limitations on Amendments to Plan and Awards.  No amendment, suspension or termination of this Plan or change affecting any outstanding Award shall, without the written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations of the Corporation under any Award granted under this Plan prior to the effective date of such change. Changes, settlements and other actions contemplated by Section 10 shall not be deemed to constitute changes or amendments for purposes of this Section 11.6.

11.7 Governing Law; Compliance with Regulations; Construction; Severability.

(a) Construction.  This Plan, the Awards, all documents evidencing Awards and all other related documents shall be governed by, and construed in accordance with, the laws of the United States and the laws of the Commonwealth of Pennsylvania to the extent not preempted by Federal law.

(b) Severability.  If a court of competent jurisdiction holds any provision invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.

(c) Section 16 of Exchange Act.  It is the intent of the Corporation that the Awards and transactions permitted by Awards be interpreted in a manner that, in the case of Participants who are or may be subject to Section 16 of the Exchange Act, qualify, to the maximum extent compatible with the express terms of the Award, for exemption from matching liability under Rule 16b-3 promulgated under the Exchange Act. Notwithstanding the foregoing, the Corporation shall have no liability to any Participant for Section 16 consequences of Awards or events affecting Awards if an Award or event does not so qualify.

(d) Compliance with Law.  Shares of Common Stock shall not be issued with respect to any Award granted under the Plan unless the issuance and delivery of such shares shall comply with all relevant provisions of applicable law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities laws and the requirements of any stock exchange upon which the shares may then be listed.

(e) Necessary Approvals.  The inability of the Corporation to obtain any necessary authorizations, approvals or letters of non-objection from any

14

regulatory body or authority deemed by the Corporation’s counsel to be necessary to the lawful issuance and sale of any shares of Common Stock issuable hereunder shall relieve the Corporation of any liability with respect to the non-issuance or sale of such shares.

(f) Representations and Warranties of Participants.  As a condition to the exercise of any Option or the delivery of shares in accordance with an Award, the Corporation may require the person exercising the Option or receiving delivery of the shares to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law.

(g) Cash Payment in Lieu of Delivery of Shares.  Upon the exercise of an Option, the Committee, in its sole and absolute discretion, may make a cash payment to the Participant, in whole or in part, in lieu of the delivery of shares of Common Stock.  Such cash payment to be paid in lieu of delivery of Common Stock shall be equal to the difference between the Fair Market Value of the Common Stock on the date of the Option exercise and the exercise price per share of the Option.  Such cash payment shall be in exchange for the cancellation of such Option.  Such cash payment shall not be made in the event that such transaction would result in liability to the Participant or the Corporation under Section 16(b) of the Exchange Act and regulations promulgated thereunder, or subject the Participant to additional tax liabilities related to such cash payments pursuant to Section 409A of the Code.

(h) Forfeiture of Awards in Certain Circumstances.  In addition to any forfeiture or reimbursement conditions the Committee may impose upon an Award, a Participant may be required to forfeit an Award, or reimburse the Corporation for the value of a prior Award, by virtue of the requirement of Section 304 of the Sarbanes-Oxley Act of 2002 (or by virtue of any other applicable statutory or regulatory requirement), but only to the extent that such forfeiture or reimbursement is required by such statutory or regulatory provision. Unless otherwise determined by the Committee, in the event of a forfeiture of an Award with respect to which a Participant paid cash consideration, the Participant shall be repaid the amount of such cash consideration.

(i) Termination for Cause.  Notwithstanding anything herein to the contrary, upon the Termination for Cause of a Participant by the Bank or the Corporation as determined by the Board of Directors or the Committee, all Awards held by such Participant which have not yet been delivered shall be forfeited by such Participant as of the date of such termination of employment or service.

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11.8           Captions.  Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.

11.9           Non-Exclusivity of Plan.  Nothing in this Plan shall limit or be deemed to limit the authority of the Board of Directors or the Committee to grant Awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.

11.10           Limitation on Liability.  No Director or member of the Committee shall be liable for any determination made in good faith with respect to the Plan or any Awards granted.  If a Director or member of the Committee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by any reason of anything done or not done by him in such capacity under or with respect to the Plan, the Corporation shall indemnify such person against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in the best interests of the Corporation and its Affiliates and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

12.           NO DEFERRAL OF COMPENSATION UNDER SECTION 409A OF THE CODE.

All Awards granted under the Plan are designed to not constitute a deferral of compensation for purposes of Section 409A of the Code. Notwithstanding any other provision in this Plan to the contrary, all of the terms and conditions of any Option granted under this Plan shall be designed to satisfy the exemption for stock options set forth in the regulations issued under Section 409A of the Code.  Both this Plan and the terms of all Options granted hereunder shall be interpreted in a manner that requires compliance with all of the requirements of the exemption for stock options set forth in the regulations issued under Section 409A of the Code.  No Participant shall be permitted to defer the recognition of income beyond the exercise date of a Non-Statutory Stock Option or beyond the date that the Common Stock received upon the exercise of an Incentive Stock Option is sold.

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EX-13.0

Back to 10K

CONTENTS

CORPORATE PROFILE AND RELATED INFORMATION	1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING	10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	11
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS	12
CONSOLIDATED STATEMENTS OF INCOME	13
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	14
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	15
CONSOLIDATED STATEMENTS OF CASH FLOWS	16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	18
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS	62

CORPORATE PROFILE AND RELATED INFORMATION

TF Financial Corporation (the “Company”) is the parent company of 3rd Fed Bank and its subsidiaries Third Delaware Corporation and Teragon Financial Corporation (collectively, “3rd Fed” or the “Bank”) and Penns Trail Development Corporation. At December 31, 2012, total assets were $711.8 million and total stockholders’ equity was $82.9 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 3rd Fed retains a specified amount of its assets in housing-related investments. 3rd Fed is a Pennsylvania-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 3rd Fed have been federally insured since 1935 and are currently insured up to the maximum amount allowable by the Federal Deposit Insurance Corporation (the “FDIC”). 3rd Fed 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, 2012, 3rd Fed operated branch offices in Bucks and Philadelphia counties, Pennsylvania and Mercer County, New Jersey. 3rd Fed attracts deposits ($560.3 million at December 31, 2012) from the general public and uses such deposits, together with borrowings mainly from the Federal Home Loan Bank of Pittsburgh (“FHLB”) ($60.7 million at December 31, 2012) 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 February 27, 2013, was approximately 397. 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, 3rd Fed may not declare or pay a cash dividend on any of its stock if the effect thereof would cause 3rd Fed’s regulatory capital to be reduced below (1) the amount required for the liquidation account established in connection with 3rd Fed’s conversion from mutual to stock form, or (2) the regulatory capital requirements imposed by federal banking agencies.

The amount of the quarterly dividend is reviewed 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.

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Stock Price and Dividend History

The following table sets forth the high and low sales prices and cash dividends declared for the periods indicated.

	Quoted market price				Dividend paid
Quarter ended	High		Low		per share
December 31, 2012	$	24.84	$	22.06	$	0.05
September 30, 2012	$	24.90	$	22.50	$	0.05
June 30, 2012	$	26.47	$	22.26	$	0.05
March 31, 2012	$	25.96	$	22.30	$	0.05
December 31, 2011	$	23.00	$	18.54	$	0.05
September 30, 2011	$	22.38	$	19.17	$	0.05
June 30, 2011	$	22.09	$	20.92	$	0.05
March 31, 2011	$	22.76	$	20.37	$	0.05

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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 3rd Fed. The earnings of 3rd Fed depend primarily on its net interest income. Net interest income is affected by the interest income that 3rd Fed receives from its loans and investments and by the interest expense that 3rd Fed incurs on its deposits, borrowings and other sources of funds. In addition, the mix of 3rd Fed’s interest-bearing assets and liabilities can have a significant effect on 3rd Fed’s net interest income; loans generally have higher yields than securities; retail deposits generally have lower interest rates than other borrowings.

3rd Fed also receives income from service charges and other fees and occasionally from sales of investment securities, loan sales and real estate owned. 3rd Fed 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

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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 $6.9 million at December 31, 2012.

Financial Condition and Changes in Financial Condition

Assets.  The Company’s total assets at December 31, 2012 were $711.8 million, an increase of $29.9 million during the year.

Loans receivable, net of the allowance for loan losses, were $526.7 million, a $32.6 million or 6.6% increase from December 31, 2011. Originations of single-family residential mortgage and consumer loans totaled $117.7 million and originations of commercial loans were $14.6 million. Offsetting these increases were principal repayments of loans receivable totaling $93.6 million, $3.5 million of transfers from loans to real estate acquired through foreclosure and amortization of net deferred loan origination costs of $0.2 million. The allowance for loan losses began the year at $8.1 million, was increased by provisions of $2.4 million and reduced by net charge-offs of $3.6 million during the year and totaled $6.9 million at year end. During 2012, loans originated for sale totaled $52.9 million and proceeds from the sale of loans approximated $53.5 million. 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.

Investment securities decreased by $12.8 million during the year due to principal repayments received of $26.8 million, security sales of $3.8 million, security maturities of $5.8 million and net premium amortization of $0.6 million, partially offset by security purchases of $23.8 million and increases in the fair value of available for sale securities of $0.2 million.

Other assets decreased by $4.0 million mainly due to the sales of real estate acquired through foreclosure totaling $7.6 million offset by foreclosure actions that resulted in the acquisition of new properties totaling $3.5 million. At December 31, 2012, real estate acquired through foreclosure totaled $7.3 million.

Liabilities.  Advances from the FHLB and other borrowings increased by $13.7 million, the result of new borrowings of $39.2 million less scheduled amortization and maturities of $25.4 million. The increase in advances correlates to the overall increase in the loan portfolio. 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, 2012.

Deposit balances increased by $9.0 million during 2012. Checking and savings accounts increased $19.9 million from December 31, 2011 to December 31, 2012. This increase was offset by a decrease in money market accounts of $1.2 million and a decrease of $9.7 million in certificates of deposit (“CDs”) during 2012 largely caused by the maturity of CDs which were several years old, had interest rates substantially above current interest rates and were reinvested in non-CD products at the Bank. However, during the fourth quarter of 2012, the Bank ran a CD promotion which resulted in $25.0 million of new CDs and caused a temporary increase in cash and cash equivalent balances of the Bank at year end.

 Stockholders’ Equity.  Total consolidated stockholders’ equity increased by $5.5 million to $82.9 million at December 31, 2012. The increase is largely the result of the retention of $5.4 million in net income less cash dividends paid to the Company’s common stockholders of $543,000. Accumulated other comprehensive income increased by $224,000, net of tax, due to the fair value adjustment for unrealized gains on available for sale securities, an increase, net of tax, related to the funded status of the pension plan. Equity also increased due to a $317,000 increase as a result of the allocation of 13,000 shares to participants in the Company’s employee stock ownership plan and an increase of $156,000 attributable to stock grants, stock options and director compensation.

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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.

	For the year ended December 31,
	2012								2011
	Average					Average			Average					Average
	balance		Interest			yld/cost			balance		Interest			yld/cost
ASSETS
Interest-earning assets:
Loans receivable, net (1)	$	513,178	$	25,205			4.91	%	$	500,095	$	26,373			5.27	%
Mortgage-backed securities		57,164		1,933			3.38	%		64,416		2,718			4.22	%
Investment securities (2)		65,813		2,849			4.33	%		67,747		2,885			4.26	%
Other interest-earning assets (3)		6,155		8			0.13	%		5,406		3			0.06	%
Total interest-earning assets		642,310		29,995			4.67	%		637,664		31,979			5.02	%
Noninterest-earning assets		47,726								50,390
Total assets	$	690,036							$	688,054
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Deposits	$	545,677		3,532			0.65	%	$	550,019		5,467			0.99	%
Advances from the FHLB		56,837		1,405			2.47	%		55,274		1,948			3.52	%
Total interest-bearing liabilities		602,514		4,937			0.82	%		605,293		7,415			1.23	%
Noninterest-bearing liabilities		6,957								6,802
Total liabilities		609,471								612,095
Stockholders’ equity		80,565								75,959
Total liabilities and stockholders’ equity	$	690,036							$	688,054
Net interest income—tax equivalent basis				25,058								24,564
Interest rate spread (4)—tax equivalent basis							3.85	%							3.79	%
Net yield on interest-earning assets (5)—tax  equivalent basis							3.90	%							3.85	%
Ratio of average interest-earning assets to  average interest-bearing liabilities							106.60	%							105.35	%
Less: tax equivalent interest adjustment				(775	)							(691	)
Net interest income			$	24,283							$	23,873
Interest rate spread (4)							3.73	%							3.68	%
Net yield on interest-earning assets (5)							3.78	%							3.74	%

(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 $775,000 and $691,000 for the years ended December 31, 2012 and 2011 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.

5

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.

	For the year ended December 31,
	2012 vs 2011 Increase (decrease) due to
	Volume			Rate			Net
	(in thousands)
Interest income:
Loans receivable, net	$	677		$	(1,845	)	$	(1,168	)
Mortgage-backed securities		(284	)		(501	)		(785	)
Investment securities (1)		(83	)		47			(36	)
Other interest-earning assets		1			4			5
Total interest-earning assets		311			(2,295	)		(1,984	)
Interest expense:
Deposits		(43	)		(1,892	)		(1,935	)
Advances from the FHLB		54			(597	)		(543	)
Total interest-bearing liabilities		11			(2,489	)		(2,478	)
Net change in net interest income	$	300		$	194		$	494

(1) Tax equivalent adjustments to interest on investment securities were $775,000 and $691,000 for the years ended December 31, 2012 and 2011 respectively. Tax equivalent interest income is based upon a marginal effective rate of 34%.

Comparison of Years Ended December 31, 2012 and December 31, 2011

Net Income.  Net income was $5.4 million for the year ended December 31, 2012 compared with net income of $3.9 million for the year ended December 31, 2011.

Total Interest Income.  For the year ended December 31, 2012, total interest income, on a taxable equivalent basis, decreased by $2.0 million to $30.0 million. Interest income from loans receivable decreased by $1.2 million due to a decrease in the average yield of 36 basis points. Offsetting the decrease was a $13.1 million increase in the average balance of loans outstanding during 2012. The decrease in the average yield of loans and the increase in the average balance of loans outstanding are due to the historically low level of mortgage loan rates during the year which resulted in a high level of mortgage loan refinancing. Interest income from mortgage-backed securities was lower in 2012 because principal repayments of $26.8 million and sales of $3.8 million exceeded purchases of $16.8 million during the year resulting in a $7.3 million decrease in the average balance during 2012 as compared to 2011. In addition, the yield associated with repayments was higher than the yield on newly purchased mortgage-backed securities resulting in an 84 basis point decrease in the average yield.

Total Interest Expense.  Total interest expense decreased to $4.9 million for 2012 from $7.4 million in 2011. The average balance of deposits outstanding only decreased $4.3 million during the year; however the average interest rate paid on the deposits was 34 basis points lower resulting in a net decrease in interest expense from deposits of $1.9 million. 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

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decreased by $0.5 million during 2012 versus 2011 as a result of a decrease in the rate paid on advances of 105 basis points as maturing advances had a higher rate than the rates on new and remaining advances.

Provision for Loan Losses.  The allowance for loan losses was $6.9 million and $8.1 million at December 31, 2012 and 2011, respectively. The provision for loan losses was $2.4 million during 2012 compared with $3.7 million the previous year. Net loan charge-offs were $3.6 million during 2012 compared to $4.0 million during 2011. The provision for loan loss reflects 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. For additional analysis of the allowance refer to Note 5-Loans Receivable in the Consolidated Financial Statements.

Noninterest Income.  Total noninterest income was $4.1 million during 2012 compared with $3.6 million for 2011.  Gain on sale of loans increased by $826,000 as a result of the high level of residential loan sales activity which occurred throughout 2012. The disposition of a branch property to a local municipality resulted in a gain of $264,000 in 2012. Gain on the sale of investment and mortgage-backed securities during 2012 was $85,000 compared with a $760,000 net gain in 2011.  

Noninterest Expense.  Total noninterest expense was relatively unchanged for the year, and stood at $18.9 million. Employee compensation and benefits increased by $457,000 which was the combined result of annual salary increases and the increased costs associated with the defined benefit plan which increased $346,000 between the two years. Occupancy and equipment costs decreased $177,000, which was mainly the result of a substantial reduction of costs associated with facility snow removal during 2012. Other operating expense decreased $150,000 as the 2012 supervisory examination fee was $96,000 lower due to the Bank’s conversion from a federally-chartered institution to a state-chartered savings bank at the beginning of the year.

Income Tax Expense.  The Company’s effective tax rate was 24.3% in 2012 compared to 20.5% for 2011. 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.

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 $2.3 million at December 31, 2012 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, 2012.

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’s short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, brokered deposits, other borrowings, and new borrowings from the FHLB and the Federal Reserve Bank (“FRB”). There has been no material adverse change during the year ended December 31, 2012 in the ability of the Bank and its subsidiaries to fund their operations.

The amount of certificate accounts that are scheduled to mature during the twelve months ending December 31, 2013, is approximately $114.4 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, cash and cash equivalents, 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, 2012, the Bank had outstanding $75.4 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, 2013. The unused lines and letters of credit can be funded at any time. At December 31, 2012, the Bank had $7.5 million in optional commitments to sell loans. The Company also has obligations under lease agreements. Payments required under such lease agreements will be approximately $470,000

7

during the year ending December 31, 2013. The Bank endeavors to fund its operations internally but has, when deemed prudent, borrowed funds from the FHLB. As of December 31, 2012, such borrowed funds totaled $60.7 million. The amount of these borrowings that will mature during the twelve months ending December 31, 2013 is $14.8 million. At December 31, 2012, potential sources of funds to fulfill these possible liquidity needs included: a $60.0 million line of credit, which was unused, up to approximately $130.8 million of additional collateral-based borrowing capacity at the FHLB, and $18.2 million of collateral-based borrowing capacity at the FRB.

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, 2012, 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.

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, and a large percentage of the Bank’s assets are longer term loans with the interest rate fixed for a significant period of time. Thus, the change in the economic value of the Bank’s net assets is a more meaningful measurement, rather than the volatility of net interest income, to use in measuring and monitoring the Bank’s interest rate risk. Change in economic value is measured using an internal model, wherein the net portfolio value (“NPV”) of the Bank’s current 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 economic value 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 economic value. 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 available for sale investment portfolios 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,

8

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, 2012, 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.

The Bank has policies or procedures in place for measuring interest rate risk. These policies and procedures stipulate acceptable levels of interest rate risk. The key measurement of interest rate risk is the calculation of the sensitivity of the Bank’s economic value, or NPV which is defined as the net present value of the Bank’s existing assets, liabilities and off-balance sheet instruments. The calculated estimates of the change in NPV and the change in the ratio of NPV to the economic value of the Bank’s assets in each rate scenario (“NPV Ratio”) at December 31, 2012 are as follows:

						NPV Amount						NPV Ratio
Change in Interest  Rates	NPV Amount		NPV Ratio			% Change			Policy Limitation			% Change			Policy Limitation
	(in thousands)
+400 Basis Points	$	90,180		14.50	%		-26	%		-50	%		-2.64	%		-5.00	%
+300 Basis Points		95,585		14.90	%		-22	%		-45	%		-2.24	%		-5.00	%
+200 Basis Points		103,848		15.63	%		-15	%		-35	%		-1.51	%		-6.00	%
+100 Basis Points		113,032		16.43	%		-7	%		-25	%		-0.71	%		-7.00	%
Flat Rates		121,848		17.14	%		—	%		—	%		—	%		—	%
-100 Basis Points		122,097		16.73	%		—	%		-20	%		-0.41	%		-7.00	%

Management believes that the assumptions utilized 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.

Recent Accounting Pronouncements

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

9

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, 2012.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent 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 27, 2013

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

10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

of TF Financial Corporation

We have audited the accompanying consolidated balance sheets of TF Financial Corporation and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years 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 audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits 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 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 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 financial position of TF Financial Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Wexford, Pennsylvania

March 27, 2013

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

11

TF Financial Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	At December 31,
	2012			2011
	(in thousands)
ASSETS
Cash and cash equivalents	$	31,137		$	14,928
Investment securities
Available for sale		102,284			114,503
Held to maturity (fair value of $2,271 and $2,928 as of      December 31, 2012 and 2011, respectively)		1,965			2,588
Loans receivable, net		526,720			494,125
Loans receivable, held for sale		706			488
Federal Home Loan Bank stock—at cost		5,431			7,657
Accrued interest receivable		2,460			2,610
Premises and equipment, net		6,108			6,559
Goodwill		4,324			4,324
Bank owned life insurance		19,109			18,506
Other assets		11,592			15,641
TOTAL ASSETS	$	711,836		$	681,929
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits	$	560,315		$	551,288
Advances from the FHLB		60,656			46,908
Advances from borrowers for taxes and insurance		2,880			2,322
Accrued interest payable		817			1,375
Other liabilities		4,223			2,628
Total liabilities		628,891			604,521
Stockholders’ equity
Preferred stock, no par value; 2,000,000 shares authorized at      December 31, 2012 and 2011, none issued		—			—
Common stock, $0.10 par value; 10,000,000 shares authorized,      5,290,000 shares issued, 2,838,493 and 2,831,874 shares      outstanding at December 31, 2012 and 2011, respectively,      net of shares in treasury: 2012-2,451,507; 2011-2,458,126.		529			529
Additional paid-in capital		54,328			54,118
Unearned ESOP shares		(970	)		(1,097	)
Treasury stock—at cost		(50,896	)		(51,032	)
Retained earnings		78,984			74,144
Accumulated other comprehensive income		970			746
Total stockholders’ equity		82,945			77,408
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	711,836		$	681,929

The accompanying notes are an integral part of these statements.

12

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

	For the year ended December 31,
	2012		2011
	(in thousands, except per share data)
Interest income
Loans, including fees	$	25,205	$	26,373
Investment securities
Fully taxable		2,315		3,406
Exempt from federal taxes		1,692		1,506
Interest-bearing deposits and other		8		3
TOTAL INTEREST INCOME		29,220		31,288
Interest expense
Deposits		3,532		5,467
Borrowings		1,405		1,948
TOTAL INTEREST EXPENSE		4,937		7,415
NET INTEREST INCOME		24,283		23,873
Provision for loan losses		2,400		3,728
NET INTEREST INCOME AFTER PROVISION      FOR LOAN LOSSES		21,883		20,145
Noninterest income
Service fees, charges and other operating income		1,771		1,698
Gain on sale of investment securities		85		760
Bank owned life insurance		603		638
Gain on sale of loans		1,350		524
Gain on disposition of premises and equipment		277		—
TOTAL NONINTEREST INCOME		4,086		3,620
Noninterest expense
Compensation and benefits		10,982		10,525
Occupancy and equipment		2,795		2,972
Federal deposit insurance premiums		596		675
Professional fees		1,284		1,331
Marketing and advertising		346		312
Foreclosed real estate expense		811		805
Other operating		2,047		2,197
TOTAL NONINTEREST EXPENSE		18,861		18,817
INCOME BEFORE INCOME TAXES		7,108		4,948
Income tax expense		1,725		1,019
NET INCOME	$	5,383	$	3,929
Earnings per share—basic	$	1.97	$	1.45
Earnings per share—diluted	$	1.97	$	1.45
Weighted average shares outstanding:
Basic		2,726,133		2,702,200
Diluted		2,729,762		2,702,710

The accompanying notes are an integral part of these statements.

13

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the year ended December 31,
	2012			2011
	(in thousands)
Net income	$	5,383		$	3,929
Other comprehensive income:
Investment securities available for sale:
Unrealized holding gains		321			3,023
Tax effect		(109	)		(1,028	)
Reclassification adjustment for gains realized in net income		(85	)		(760	)
Tax effect		29			258
Net of tax amount		156			1,493
Pension plan benefit adjustment:
Related to actuarial losses and prior service cost		103			(2,059	)
Tax effect		(35	)		701
Net of tax amount		68			(1,358	)
Total other comprehensive income		224			135
Comprehensive income	$	5,607		$	4,064

The accompanying notes are an integral part of these statements.

14

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years ended December 31, 2012 and 2011

																		Accumulated
	Common Stock					Additional			Unearned									other
				Par		paid-in			ESOP			Treasury			Retained			comprehensive
	Shares			value		capital			shares			stock			Earnings			income (loss)			Total
	(in thousands, except share data)
Balance at December 31, 2010		2,694,676		$	529	$	53,964		$	(1,217	)	$	(51,220	)	$	70,749		$	611		$	73,416
Allocation of ESOP shares		12,018			—		136			120			—			—			—			256
Purchase of treasury stock		(5,439	)		—		—			—			(122	)		—			—			(122	)
Cash dividends-common stock      ($0.20 per share)		—			—		—			—			—			(534	)		—			(534	)
Director compensation		3,248			—		—			—			69			—			—			69
Compensation expense-      restricted shares		—			—		13			—			—			—			—			13
Exercise of options		10,916			—		(16	)		—			227			—			—			211
Income tax benefit arising      from stock compensation		—			—		3			—			—			—			—			3
Stock option expense		—			—		32			—			—			—			—			32
Vesting of restricted stock grant		700			—		(14	)		—			14			—			—			—
Unrealized gains on securities,      net of tax		—			—		—			—			—			—			1,493			1,493
Adjustment to record funded      status of pension, net of tax		—			—		—			—			—			—			(1,358	)		(1,358	)
Net income for the year ended      December 31, 2011		—			—		—			—			—			3,929			—			3,929
Balance at December 31, 2011		2,716,119			529		54,118			(1,097	)		(51,032	)		74,144			746			77,408
Allocation of ESOP shares		13,104			—		190			127			—			—			—			317
Cash dividends-common stock      ($0.20 per share)		—			—		—			—			—			(543	)		—			(543	)
Director compensation		6,304			—		20			—			129			—			—			149
Exercise of options		315			—		—			—			7			—			—			7
Deferred tax adjustment arising      from stock compensation		—			—		(27	)		—			—			—			—			(27	)
Stock option expense		—			—		27			—			—			—			—			27
Unrealized gains on securities,      net of tax		—			—		—			—			—			—			156			156
Adjustment to record funded      status of pension, net of tax		—			—		—			—			—			—			68			68
Net income for the year ended      December 31, 2012		—			—		—			—			—			5,383			—			5,383
Balance at December 31, 2012		2,735,842		$	529	$	54,328		$	(970	)	$	(50,896	)	$	78,984		$	970		$	82,945

The accompanying notes are an integral part of these statements. 

15

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2012			2011
	(in thousands)
OPERATING ACTIVITIES
Net income	$	5,383		$	3,929
Adjustments to reconcile net income to net cash      provided by operating activities:
Amortization and impairment adjustment of mortgage loan      servicing rights		358			353
Premiums and discounts on investment securities, net		245			135
Premiums and discounts on mortgage-backed securities, net		320			166
Deferred loan origination costs, net		150			194
Deferred income taxes		1,194			(77	)
Provision for loan losses		2,400			3,728
Depreciation of premises and equipment		781			853
Increase in value of bank owned life insurance		(603	)		(638	)
Stock-based compensation		493			370
Proceeds from sale of loans originated for sale		53,521			26,453
Origination of loans held for sale		(52,940	)		(26,525	)
Loss on foreclosed real estate		471			459
Gain on:
Sale of investment securities		(85	)		(760	)
Sale of loans held for sale		(1,350	)		(524	)
Disposition of premises and equipment		(277	)		—
Decrease (increase) in:
Accrued interest receivable		150			128
Other assets		(248	)		419
(Decrease) increase in:
Accrued interest payable		(558	)		(409	)
Other liabilities		307			426
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	9,712		$	8,680

16

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	For the year ended December 31,
	2012			2011
	(in thousands)
INVESTING ACTIVITIES
Loan originations	$	(132,292	)	$	(94,586	)
Loan principal payments		93,622			92,523
Proceeds from sale of foreclosed real estate		7,626			836
Proceeds from disposition of premises and equipment		356			—
Proceeds from maturities of investment securities available for sale		5,765			6,860
Principal repayments on mortgage-backed securities held to maturity		622			583
Principal repayments on mortgage-backed securities available for sale		26,195			26,651
Proceeds from sale of investment securities available for sale		—			9,206
Proceeds from sale of mortgage-backed securities available for sale		3,822			1,518
Purchase of investment securities available for sale		(6,982	)		(13,051	)
Purchase of mortgage-backed securities available for sale		(16,824	)		(18,646	)
Purchase of premises and equipment		(409	)		(615	)
Redemption of Federal Home Loan Bank stock		2,226			1,744
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES		(16,273	)		13,023
FINANCING ACTIVITIES
Net increase in customer deposits		9,027			1,153
Proceeds of long-term FHLB borrowings		39,197			6,573
Repayment of long-term FHLB borrowings		(25,449	)		(21,652	)
Net increase in advances from borrowers for taxes and insurance		558			156
Treasury stock acquired		—			(122	)
Exercise of stock options		7			211
Deferred tax adjustment arising from stock compensation		(27	)		—
Tax benefit arising from stock compensation		—			3
Common stock dividends paid		(543	)		(534	)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		22,770			(14,212	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		16,209			7,491
Cash and cash equivalents at beginning of period		14,928			7,437
Cash and cash equivalents at end of period	$	31,137		$	14,928
Supplemental disclosure of cash flow information
Cash paid for:
Interest on deposits and borrowings	$	5,495		$	7,824
Income taxes	$	475		$	1,030
Noncash transactions:
Capitalization of mortgage servicing rights	$	551		$	238
Transfers from loans to foreclosed real estate	$	3,525		$	5,544

The accompanying notes are an integral part of these statements.

17

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

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 Commonwealth of Pennsylvania, which conducts its consumer banking operations primarily through its wholly owned subsidiary, 3rd Fed Bank (“3rd Fed” or the “Bank”). 3rd Fed is a Pennsylvania-chartered stock savings bank insured by the Federal Deposit Insurance Corporation (the “FDIC”). 3rd Fed is a community-oriented savings institution and conducts operations from its main office in Newtown, Pennsylvania, eleven 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: Penns Trail Development Corporation and 3rd Fed, including 3rd Fed’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 and mortgage-backed 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 and mortgage-backed 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 and Fair Value of Financial Instruments which defines the basis for determining fair value. Realized gains and losses on the sale of securities are recognized using the specific identification method.

18

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 Federal National Mortgage Association (“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.

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 and direct origination costs. Loan origination fees and costs on 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: owner and non-owner occupied commercial, multi-family real estate, construction, commercial and industrial, one-to four-family residential, and consumer which is predominately real estate secured junior liens and home equity lines of credit as well as other consumer loans. 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 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

19

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 nonaccrual 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, 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.

e.           Loans Receivable, Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at fair value on an individual basis. Any resulting gain or loss is included in other operating income.

f.           Troubled Debt Restructurings

Loans whose terms are modified are classified as Troubled Debt Restructurings (“TDRs”) if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring may include extending the maturity date of the loan, reducing the interest rate on the loan to a rate which is below market, a combination of rate adjustments and maturity extensions, or by other means including covenant modifications, forbearances or other concessions. Interest income is not accrued on loans that had been placed on nonaccrual prior to the troubled debt restructuring until they have performed in accordance with their restructured terms for a period of at least six months.  The Company evaluates the ALLL needed with respect to TDRs under the same policy and guidelines as all other loans, and TDRs are evaluated individually for impairment.

g.           Transfers of Financial Assets

The Company accounts for the transfers 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. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or

20

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Mortgage servicing rights (“MSRs”) are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Under the applicable accounting guidance regarding servicing assets and liabilities, servicing rights resulting from the sale of loans originated by the Company are initially measured at fair value at the date of transfer. Fair value is based on market prices for comparable mortgage servicing rights, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The Company subsequently recognizes mortgage servicing expense for each class of servicing assets using the amortization method. MSRs are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance charged to servicing fee income for an individual tranche, to the extent that fair value is less than the amortized cost for the tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to other operating income. These servicing rights are included in other assets in the Consolidated Balance Sheets and are discussed in Note 16-Fair Value Measurements and Fair Value of Financial Instruments.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of loan servicing rights is recorded as a reduction of service fee income.

h.           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, 2012 and 2011.

i.           Foreclosed Real Estate

Real estate acquired through, or in lieu of, loan foreclosure is carried at the fair value of the property, based on an appraisal less estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance (any direct write-down) are included in foreclosed real estate expense. Included in other assets is foreclosed real estate of $7.3 million and $11.7 million at December 31, 2012 and 2011, respectively.

j.           Goodwill

Goodwill does not require amortization but is subject to impairment testing. Goodwill impairment testing allows entities to first assess qualitative factors and circumstance to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. At December 31, 2012, the Company performed an assessment of key factors and determined that impairment of goodwill was not likely.

21

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 k.           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 $19.1 million and $18.5 million at December 31, 2012 and 2011, respectively.

l.           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.

m.           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 2012 or 2011.

n.           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.

o.           Advertising Costs

The Company expenses marketing and advertising costs as incurred.

p.           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.

22

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 q.           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.

r.           Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 16-Fair Value Measurements and Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the FASB issued an accounting update, “Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment”. The update give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance. The update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. This update is not expected to have a significant impact on the Company’s financial statements.

In October 2012, the FASB issued an accounting update, “ Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution”. The update requires that when a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). The update is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. This update is not expected to have a significant impact on the Company’s financial statements.

In January 2013, the FASB issued an accounting update, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. The amendment clarifies that the scope of Update 2011-11 as it applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and

23

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. This update is not expected to have a significant impact on the Company’s financial statements.

In February 2013, the FASB issued an accounting update, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under US GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The Company is currently evaluating the impact that these disclosures will have on its financial statements.

NOTE 3 — CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

	At December 31,
	2012		2011
	(in thousands)
Cash and due from banks	$	4,697	$	4,498
Interest-bearing deposits in other financial institutions		26,440		10,430
	$	31,137	$	14,928

24

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 4 — INVESTMENT SECURITIES

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

	At December 31, 2012
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(in thousands)
Available for sale
State and political subdivisions	$	55,254	$	4,360	$	(4	)	$	59,610
Residential mortgage-backed securities      issued by quasi-governmental agencies		41,265		1,409		—			42,674
Total investment securities available for sale		96,519		5,769		(4	)		102,284
Held to maturity
Residential mortgage-backed securities      issued by quasi-governmental agencies		1,965		306		—			2,271
Total investment securities	$	98,484	$	6,075	$	(4	)	$	104,555

	At December 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(in thousands)
Available for sale
U.S. Government and federal agencies	$	2,995	$	35	$	—		$	3,030
State and political subdivisions		51,287		3,804		—			55,091
Residential mortgage-backed securities      issued by quasi-governmental agencies		45,969		1,525		—			47,494
Residential mortgage-backed securities      privately issued		8,723		195		(30	)		8,888
Total investment securities available for sale		108,974		5,559		(30	)		114,503
Held to maturity
Residential mortgage-backed securities      issued by quasi-governmental agencies		2,588		340		—			2,928
Total investment securities	$	111,562	$	5,899	$	(30	)	$	117,431

Gross realized gains were $112,000 and $760,000 for the years ended December 31, 2012 and 2011, respectively. These gains resulted from the sale proceeds of investment and mortgage-backed securities available for sale of $2.7 million and $10.7 million for the years ended December 31, 2012 and 2011, respectively. Gross realized losses for the year ended were $27,000, which resulted from the sale proceeds of mortgage-backed securities available

25

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 4 — INVESTMENT SECURITIES (Continued)

for sale of $1.1 million for the year ended December 31, 2012. There were no gross losses resulting from security sales for the year ended December 31, 2011.

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

	At December 31, 2012
	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
	(in thousands)
Investment securities
Due in one year or less	$	602	$	608	$	—	$	—
Due after one year through five years		9,514		10,040		—		—
Due after five years through ten years		25,154		26,848		—		—
Due after ten years		19,984		22,114		—		—
		55,254		59,610		—		—
Mortgage-backed  securities		41,265		42,674		1,965		2,271
Total investment securities	$	96,519	$	102,284	$	1,965	$	2,271

Investment securities having an aggregate amortized cost of approximately $7.0 million and $7.1 million were pledged to secure public deposits at December 31, 2012 and 2011, 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 FHLB totaling $5.4 million and $7.7 million as of December 31, 2012 and 2011, 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, 2012 the Company was required to hold $4.1 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. 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. Redemptions of FHLB stock totaled $2.2 million and $1.7 million for the years ended December 31, 2012 and 2011, respectively. 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, 2012 or 2011.

26

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 4 — INVESTMENT SECURITIES (Continued)

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, 2012:

	Number		Less than 12 months					12 months or longer				Total
	of		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
Description of Securities	Securities		Value		Loss			Value		Loss		Value		Loss
	(dollars in thousands)
State and political subdivisions		1	$	617	$	(4	)	$	—	$	—	$	617	$	(4	)
Total temporarily impaired     securities		1	$	617	$	(4	)	$	—	$	—	$	617	$	(4	)

\

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, 2011:

	Number		Less than 12 months					12 months or longer				Total
	of		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
Description of Securities	Securities		Value		Loss			Value		Loss		Value		Loss
	(dollars in thousands)
Residential mortgage-backed     securities privately issued		2	$	3,442	$	(30	)	$	—	$	—	$	3,442	$	(30	)
Total temporarily impaired     securities		2	$	3,442	$	(30	)	$	—	$	—	$	3,442	$	(30	)

The Company evaluates debt securities on a quarterly basis to determine whether OTTI exists. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns. The Company does not intend to sell these securities and it is not more likely than not that it will be required to sell these securities. Accordingly, unrealized losses at December 31, 2012 and 2011 are not considered other-than-temporary and are therefore reflected in other comprehensive income.

27

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE

Loans receivable are summarized as follows:

	At December 31,
	2012			2011
	(in thousands)
Held for investment:
Residential
Residential mortgages	$	323,665		$	277,824
Commercial
Real estate-commercial		104,766			110,743
Real estate-residential		21,570			25,801
Real estate-multi-family		19,118			19,906
Construction loans		16,288			16,336
Commercial and industrial loans		4,646			4,414
Total commercial loans		166,388			177,200
Consumer
Home equity and second mortgage		40,143			44,165
Other consumer		1,835			1,971
Total consumer loans		41,978			46,136
Total loans		532,031			501,160
Net deferred loan origination costs and unamortized premiums		1,611			1,065
Less allowance for loan losses		(6,922	)		(8,100	)
Total loans receivable	$	526,720		$	494,125
Held for sale:
Residential
Residential mortgages	$	706		$	488

28

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

The following tables present by credit quality indicator the composition of the commercial loan portfolio:

Commercial credit exposure-credit risk profile by internally assigned grade

	At December 31, 2012
			Special
	Pass		mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	91,446	$	4,192	$	9,128	$	—	$	104,766
Real estate-residential		19,244		1,018		1,308		—		21,570
Real estate-multi-family		15,751		—		3,367		—		19,118
Construction loans		7,397		4,097		4,794		—		16,288
Commercial and industrial loans		4,565		81		—		—		4,646
Total	$	138,403	$	9,388	$	18,597	$	—	$	166,388

	At December 31, 2011
			Special
	Pass		mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	95,719	$	6,189	$	8,835	$	—	$	110,743
Real estate-residential		21,447		2,891		1,463		—		25,801
Real estate-multi-family		12,753		3,768		3,385		—		19,906
Construction loans		4,452		4,312		7,572		—		16,336
Commercial and industrial loans		4,139		100		175		—		4,414
Total	$	138,510	$	17,260	$	21,430	$	—	$	177,200

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 may be adjusted upward or downward as a result of this review. 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: A 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.

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

29

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

information, or documentation. There is currently the capacity to meet interest and principal payments, but further adverse business, financial, or economic conditions may impair the borrower’s 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 should be charged off. The Company has charged-off all loans classified as loss.

Loans classified as special mention, substandard or doubtful are monitored individually on a monthly basis. Loans which require impairment evaluation are placed on nonaccrual status and are classified as substandard or doubtful.

The following tables present by credit quality indicator the composition of the residential mortgage and consumer loan portfolios:

Mortgage and consumer credit exposure-credit risk profile by payment activity

	At December 31, 2012
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	321,400	$	2,265	$	323,665
Home equity and second mortgage		40,000		143		40,143
Other consumer		1,827		8		1,835
Total	$	363,227	$	2,416	$	365,643

	At December 31, 2011
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	272,322	$	5,502	$	277,824
Home equity and second mortgage		43,888		277		44,165
Other consumer		1,970		1		1,971
Total	$	318,180	$	5,780	$	323,960

30

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

In order to assess and monitor the credit risk associated with residential mortgage 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. Residential mortgage and other consumer loans 90 days or more past due are placed on nonaccrual status and evaluated for impairment on a pooled basis with the exception of loans with balances in excess of $1 million and loans that have been modified as TDRs. An individual impairment analysis is performed using a recent appraisal or current sales contract for TDRs as well as nonperforming mortgage and consumer loans with balances in excess of $1 million.

The following table presents by class nonperforming loans including impaired loans and loan balances past due over 90 days for which the accrual of interest has been discontinued:  

	At December 31,
	2012		2011
	(in thousands)
Residential
Residential mortgages	$	2,265	$	5,502
Commercial
Real estate-commercial		1,098		2,711
Real estate-residential		51		—
Construction loans		4,794		4,044
Commercial and industrial loans		—		6
Consumer
Home equity and second mortgage		143		277
Other consumer		8		1
Total nonperforming loans	$	8,359	$	12,541
Total loans past due 90 days as to interest or principal and accruing interest	$	—	$	—

Additional interest income that would have been recorded under the original terms of theloan agreements amounted to $413,000 and $616,000 for the years ended December 31, 2012 and 2011, respectively.

31

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

The following tables present by class loans individually evaluated for impairment:

	At December 31, 2012
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
With an allowance recorded:	(in thousands)
Residential
Residential mortgages	$	2,137	$	2,214	$	218	$	2,061	$	—
Commercial
Real estate-commercial		546		1,497		296		697		—
Real estate-residential		51		51		4		298		—
Construction loans		4,737		5,137		1,029		3,604		—
Commercial and industrial loans		—		—		—		2		—
		7,471		8,899		1,547		6,662		—
With no allowance recorded:
Residential
Residential mortgages		—		—		—		698		—
Commercial
Real estate-commercial		552		552		—		1,012		—
Real estate-residential		—		—		—		216		—
Construction loans		57		116		—		1,932		—
		609		668		—		3,858		—
Total	$	8,080	$	9,567	$	1,547	$	10,520	$	—

32

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

	At December 31, 2011
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
With an allowance recorded:	(in thousands)
Residential
Residential mortgages	$	1,252	$	1,252	$	388	$	751	$	—
Commercial
Real estate-commercial		1,497		1,497		877		3,581		—
Real estate-residential		—		—		—		497		—
Construction loans		3,816		3,816		1,035		4,143		—
Commercial and industrial loans		6		6		3		72		—
		6,571		6,571		2,303		9,044		—
With no allowance recorded:
Residential
Residential mortgages		2,381		2,381		—		1,497		—
Commercial
Real estate-commercial		1,214		1,214		—		1,270		—
Real estate-residential		—		—		—		459		—
Construction loans		228		228		—		1,642		—
		3,823		3,823		—		4,868		—
Total	$	10,394	$	10,394	$	2,303	$	13,912	$	—

33

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

The following tables present by class the contractual aging of delinquent loans:

	At December 31, 2012
	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)
Residential
Residential mortgages	$	319,982	$	1,161	$	329	$	2,193	$	3,683	$	323,665	$	—
Commercial
Real estate-commercial		102,868		800		—		1,098		1,898		104,766		—
Real estate-residential		21,488		31		—		51		82		21,570		—
Real estate-multi-family		19,118		—		—		—		—		19,118		—
Construction loans		11,494		—		—		4,794		4,794		16,288		—
Commercial and industrial loans		4,646		—		—		—		—		4,646		—
Consumer
Home equity and second mortgage		39,842		34		124		143		301		40,143		—
Other consumer		1,824		—		3		8		11		1,835		—
Total	$	521,262	$	2,026	$	456	$	8,287	$	10,769	$	532,031	$	—

	At December 31, 2011
	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)
Residential
Residential mortgages	$	273,231	$	98	$	153	$	4,342	$	4,593	$	277,824	$	—
Commercial
Real estate-commercial		108,382		—		—		2,361		2,361		110,743		—
Real estate-residential		25,489		312		—		—		312		25,801		—
Real estate-multi-family		19,906		—		—		—		—		19,906		—
Construction loans		9,151		—		3,141		4,044		7,185		16,336		—
Commercial and industrial loans		4,408		—		—		6		6		4,414		—
Consumer
Home equity and second mortgage		43,712		165		11		277		453		44,165		—
Other consumer		1,956		6		8		1		15		1,971		—
Total	$	486,235	$	581	$	3,313	$	11,031	$	14,925	$	501,160	$	—

34

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

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

	Balance January 1, 2012		Provision			Charge-offs			Recoveries		Balance December 31, 2012
	(in thousands)
Residential
Residential mortgages	$	2,194	$	367		$	(768	)	$	56	$	1,849
Commercial
Real estate-commercial		2,352		353			(951	)		—		1,754
Real estate-residential		369		726			(487	)		—		608
Real estate-multi-family		350		(105	)		—			—		245
Construction loans		1,830		1,049			(1,182	)		—		1,697
Commercial and industrial loans		138		115			(156	)		22		119
Consumer
Home equity and second mortgage		448		(104	)		(93	)		—		251
Other consumer		22		8			(23	)		4		11
Unallocated		397		(9	)		—			—		388
Total	$	8,100	$	2,400		$	(3,660	)	$	82	$	6,922

	Balance January 1, 2011		Provision			Charge-offs			Recoveries		Balance December 31, 2011
	(in thousands)
Residential
Residential mortgages	$	1,839	$	515		$	(172	)	$	12	$	2,194
Commercial
Real estate-commercial		3,281		82			(1,011	)		—		2,352
Real estate-residential		534		865			(1,030	)		—		369
Real estate-multi-family		399		(49	)		—			—		350
Construction loans		1,363		1,987			(1,521	)		1		1,830
Commercial and industrial loans		77		67			(44	)		38		138
Consumer
Home equity and second mortgage		607		62			(221	)		—		448
Other consumer		16		14			(16	)		8		22
Unallocated		212		185			—			—		397
Total	$	8,328	$	3,728		$	(4,015	)	$	59	$	8,100

35

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

The following tables present by class the ending balance of the allowance for loan losses and ending loan balance based on the impairment method as of December 31, 2012:

	Evaluated for impairment
Allowance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	218	$	1,631	$	1,849
Commercial
Real estate-commercial		296		1,458		1,754
Real estate-residential		4		604		608
Real estate-multi-family		—		245		245
Construction loans		1,029		668		1,697
Commercial and industrial loans		—		119		119
Consumer
Home equity and second mortgage		—		251		251
Other consumer		—		11		11
Unallocated		—		388		388
Total	$	1,547	$	5,375	$	6,922

	Evaluated for impairment
Loan balance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	2,137	$	321,528	$	323,665
Commercial
Real estate-commercial		1,098		103,668		104,766
Real estate-residential		51		21,519		21,570
Real estate-multi-family		—		19,118		19,118
Construction loans		4,794		11,494		16,288
Commercial and industrial loans		—		4,646		4,646
Consumer
Home equity and second mortgage		—		40,143		40,143
Other consumer		—		1,835		1,835
Total	$	8,080	$	523,951	$	532,031

36

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

The following tables present by class the ending balance of the allowance for loan losses and ending loan balance based on impairment method as of December 31, 2011:

	Evaluated for impairment
Allowance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	388	$	1,806	$	2,194
Commercial
Real estate-commercial		877		1,475		2,352
Real estate-residential		—		369		369
Real estate-multi-family		—		350		350
Construction loans		1,035		795		1,830
Commercial and industrial loans		3		135		138
Consumer
Home equity and second mortgage		—		448		448
Other consumer		—		22		22
Unallocated		—		397		397
Total	$	2,303	$	5,797	$	8,100

	Evaluated for impairment
Loan balance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	3,633	$	274,191	$	277,824
Commercial
Real estate-commercial		2,711		108,032		110,743
Real estate-residential		—		25,801		25,801
Real estate-multi-family		—		19,906		19,906
Construction loans		4,044		12,292		16,336
Commercial and industrial loans		6		4,408		4,414
Consumer
Home equity and second mortgage		—		44,165		44,165
Other consumer		—		1,971		1,971
Total	$	10,394	$	490,766	$	501,160

37

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 5 — LOANS RECEIVABLE (Continued)

The following table presents by class loans classified as TDRs segregated for the periods indicated:

	For the year ended December 31, 2012						For the year ended December 31, 2011
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment
Residential	(dollars in thousands)
Residential mortgage		2	$	950	$	923		2	$	510	$	507
Total		2	$	950	$	923		2	$	510	$	507

The following table presents loans classified as TDRs that subsequently defaulted:

	For the year ended December 31, 2011
	Number of Contracts		Recorded Investment
Residential	(dollars in thousands)
Residential mortgage		1	$	169
Total		1	$	169

There were no TDRs modified during 2012 that subsequently defaulted. However, a TDR identified in 2011 as in default of its modified terms was subsequently discharged in a short sale during 2012 with a $40,000 loss charged to the allowance for loan losses.

The Bank had no concentration of loans to borrowers engaged in similar activities that exceeded 10% of loans at December 31, 2012 and 2011. 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 $125,000 and $138,000 at December 31, 2012 and 2011, respectively. New loans to related parties of $35,000 were made during 2012. For the year ended December 31, 2012, principal repayments of $48,000 of related party loans were received. Unused lines of credit available were $360,000 at December 31, 2012 and 2011.

38

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

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:

	At December 31,
	2012		2011
	(in thousands)
Mortgage loan servicing portfolios
FHLMC	$	235	$	285
FNMA		127,677		108,275
Other investors		8,294		10,434
	$	136,206	$	118,994

Custodial balances maintained in connection with the foregoing loan servicing totaled approximately $2.8 million and $1.2 million and are included as deposits at December 31, 2012 and 2011, respectively. Net servicing (loss) on mortgage loans serviced for others was $(66,000) and $(98,000) for the years ended December 31, 2012 and 2011, respectively.

NOTE 7 — PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

		At December 31,
	Estimated useful lives	2012		2011
		(in thousands)
Buildings	30 years	$	7,614	$	7,669
Leasehold improvements	5-10 years		3,243		3,262
Furniture, fixtures and equipment	3-7 years		7,292		8,688
			18,149		19,619
Less accumulated depreciation			13,640		14,752
			4,509		4,867
Land			1,599		1,692
		$	6,108	$	6,559

The Company recognized depreciation expense of $781,000 and $853,000 for the years ended December 31, 2012 and 2011, respectively.

39

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 8 — DEPOSITS

Deposits are summarized as follows:

	At December 31,
	2012		2011
	(in thousands)
Deposit Type
Demand	$	52,433	$	43,910
NOW		76,370		65,677
Money market		153,827		155,010
Passbook savings		106,268		105,617
Total demand, transaction and passbook deposits		388,898		370,214
Certificates of deposit		171,417		181,074
	$	560,315	$	551,288

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $50.7 million and $45.3 million at December 31, 2012 and 2011, respectively.

At December 31, 2012, scheduled maturities of certificates of deposit by year are as follows:

Maturity year
2013		2014		2015		2016		2017		Thereafter		Total
(in thousands)
$	114,386	$	32,593	$	12,868	$	7,964	$	3,441	$	165	$	171,417

Related party deposits are on substantially the same terms as are comparable transactions with unrelated persons. Related parties include certain executive officers, directors and their related interests. The aggregate dollar amount of these deposits was approximately $5.0 million and $4.2 million at December 31, 2012 and 2011, respectively.

40

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 9 — ADVANCES FROM THE FHLB

Advances from the FHLB consist of the following:

	At December 31,
	2012					2011
			Weighted					Weighted
Principal payments due during	Amount		average rate			Amount		average rate
	(in thousands)
2012	$	—		—	%	$	25,259		3.88	%
2013		14,754		2.79	%		10,187		3.30	%
2014		4,287		2.40	%		3,398		2.52	%
2015		3,669		2.16	%		2,767		2.28	%
2016		10,887		1.38	%		3,969		2.22	%
2017		14,895		1.12	%		961		2.19	%
Thereafter		12,164		2.43	%		367		2.08	%
	$	60,656		1.88	%	$	46,908		3.37	%

The advances are collateralized by certain first mortgage loans totaling approximately $337.0 million and the FHLB stock owned by the Bank which allow for a maximum borrowing capacity of $251.5 million. Total unused lines of credit at the FHLB were $60.0 million at December 31, 2012. All of the advances from the FHLB are fixed rate, fixed term.

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 $78,000 in both 2012 and 2011.

b.           Defined Benefit Plan

The Bank has a noncontributory 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.

41

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 10 — BENEFIT PLANS (Continued)

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:

	At December 31,
	2012			2011
	(in thousands)
Reconciliation of projected benefit obligation
Benefit obligation at beginning of year	$	8,045		$	5,837
Service cost		736			565
Interest cost		360			328
Actuarial loss		339			1,411
Amendments		—			—
Benefits paid		(540	)		(96	)
Benefit obligation at end of year	$	8,940		$	8,045
Reconciliation of fair value of assets
Fair value of plan assets at beginning of year	$	8,006		$	7,761
Actual return on plan assets		801			(145	)
Employer contribution		1,500			486
Benefits paid		(540	)		(96	)
Fair value of plan assets at end of year	$	9,767		$	8,006
Funded status at end of year	$	827		$	(39	)

The accumulated benefit obligation at December 31, 2012 and 2011 was $8.1 million and $6.9 million, respectively.

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 2013 is $400,000.

The following table sets forth the amounts recognized in accumulated other comprehensive income for the years ended:

	At December 31,
	2012			2011
	(in thousands)
Net loss	$	(4,270	)	$	(4,372	)
Prior service cost		(27	)		(28	)
Total	$	(4,297	)	$	(4,400	)

The net gain (loss) recognized in accumulated other comprehensive income as an adjustment to the funded status of the plan was $103,000 and $(2.1) million at December 31, 2012 and 2011, respectively. The amounts

42

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 10 — BENEFIT PLANS (Continued)

expected to be amortized from accumulated other comprehensive income in 2013 is $264,000 of net actuarial loss and prior service cost.

	At December 31,
	2012	2011
Weighted-average assumptions used to determine benefit obligations:
Discount rate	4.00%	4.50%
Rate of compensation increase	3.00%	4.00%

	For the year ended December 31,
	2012			2011
	(in thousands)
Components of net periodic benefit cost
Service cost	$	736		$	565
Interest cost		360			328
Expected return on plan assets		(644	)		(619	)
Amortization of prior service cost		2			2
Recognized net actuarial loss		283			115
Net periodic benefit cost	$	737		$	391

	For the year ended December 31,
	2012	2011
Weighted-average assumptions used to determine net benefit costs:
Discount rate	4.50%	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 2012 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)
2013	$	125
2014		213
2015		239
2016		275
2017		278
2018-2022		1,864

43

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 10 — BENEFIT PLANS (Continued)

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 and Fair Value of Financial Instruments. 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.

The following table sets forth by level, within the fair value hierarchy, the plan’s financial assets at fair value as of December 31, 2012:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
	(in thousands)
Assets
Collective investment trust funds	$	—	$	9,767	$	—	$	9,767
Total plan assets at fair value	$	—	$	9,767	$	—	$	9,767

The following table sets forth by level, within the fair value hierarchy, the plan’s financial assets at fair value as of December 31, 2011:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2011
	(in thousands)
Assets
Collective investment trust funds	$	—	$	8,006	$	—	$	8,006
Total plan assets at fair value	$	—	$	8,006	$	—	$	8,006

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.

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

	Percentage of plan assets at December 31,
	2012		2011
Asset Category
Mutual funds	100.00	%	100.00	%
Total	100.00	%	100.00	%

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

44

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 10 — BENEFIT PLANS (Continued)

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.

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 allocated 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. ESOP compensation expense included in stock-based compensation totaled $286,000 and $222,000 for the years ended December 31, 2012 and 2011, respectively.

	At December 31,
	2012		2011
Allocated shares		184,000		177,000
Unreleased shares		103,000		115,000
Total ESOP shares		287,000		292,000
Fair value of unreleased shares (in thousands)	$	2,446	$	2,615

45

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 10 — BENEFIT PLANS (Continued)

 d.           Stock-Based Compensation Plans

A summary of the status of the Company’s stock option plans as of December 31, 2012 and 2011, and changes for each of the years in the periods then ended, is as follows:

	2012					2011
	Number of shares			Weighted average exercise price per share		Number of shares			Weighted average exercise price per share
Outstanding at beginning of year		109,765		$	24.41		126,257		$	24.04
Options granted		—			—		—			—
Options exercised		(315	)		19.67		(10,916	)		19.33
Options forfeited		(1,904	)		28.59		(3,370	)		26.10
Options expired		(18,267	)		25.68		(2,206	)		25.44
Outstanding at end of year		89,279			24.08		109,765			24.41
Options exercisable		80,652		$	24.55		92,328		$	25.31

 The following table summarizes information about stock options outstanding at December 31, 2012:

	Options outstanding						Options exercisable
Range of exercise prices	Number		Weighted average remaining contractual life (years)		Weighted average exercise price		Number		Weighted average exercise price
$ 19.67 - 28.42		73,126		2.16	$	22.21		64,499	$	22.55
$ 28.43 - 32.51		16,153		0.96		32.51		16,153		32.51
		89,279		2.60		24.08		80,652		24.55

46

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 10 — BENEFIT PLANS (Continued)

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

	For the year ended December 31,
	2012		2011
	(in thousands)
Aggregate intrinsic value of
Options outstanding	$	179	$	133
Options exercisable		144		80
Options exercised		1		30
Cash receipts		7		211

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 related to stock options resulted in a tax benefit of $9,000 and $11,000, for the year ended December 31, 2012 and 2011, respectively. There was $22,000 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested options under the stock option plans at December 31, 2012. That cost is expected to be recognized over a weighted average period of 10 months at December 31, 2012.

The following table provides information regarding the Company’s stock-based compensation expense associated with stock options and grants:

	For the year ended December 31,
	2012		2011
	(in thousands)
Stock-based compensation expense
Director fees	$	149	$	69
Stock grant expense		—		13
Stock option expense		27		32
Total stock-based compensation expense	$	176	$	114

47

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 10 — BENEFIT PLANS (Continued)

The table below summarizes the changes in non-vested restricted stock for the year ended December 31, 2011. There were no stock grants during 2012.

	2011
	Number of shares			Weighted average grant price per share
Total non-vested restricted stock grants at January 1, 2011		700		$	19.67
Restricted stock grant		—			—
Vesting of restricted stock		(700	)		19.67
Forfeitures of restricted stock		—			—
Total non-vested restricted stock grants at December 31, 2011		—		$	—

NOTE 11 — INCOME TAXES

 The components of income tax expense are summarized as follows:

	For the year ended December 31,
	2012		2011
	(in thousands)
Federal
Current	$	524	$	1,085
Charge in lieu of income tax relation to stock compensation		—		3
Deferred		1,194		(77	)
		1,718		1,011
State and local – current		7		8
Income tax provision	$	1,725	$	1,019

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

	For the year ended December 31,
	2012		2011
Statutory federal income tax	34.0	%	34.0	%
(Decrease) increase resulting from
Tax-exempt income	(10.3)		(14.0)
State tax, net of federal benefit	0.1		0.1
Other	0.5		0.4
	24.3	%	20.5	%

48

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 11 — INCOME TAXES (Continued)

Deferred taxes are included as other liabilities in the accompanying consolidated balance sheets at December 31, 2012 and 2011, 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 established at December 31, 2012 and 2011, in view of the Company’s ability to carry back to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company’s earnings potential.

The Company’s net deferred tax liability was as follows:

	At December 31,
	2012			2011
	(in thousands)
Deferred tax assets
Deferred compensation	$	138		$	137
Allowance for loan losses, net		2,353			2,754
Stock compensation		78			106
Adjustment to record funded status of pension plan		1,462			1,497
Nonaccrual interest		333			336
Adjustment for real estate acquired thru foreclosure		20			182
Other		5			34
	$	4,389		$	5,046
Deferred tax liabilities
Accrued pension expense	$	1,704		$	1,444
Unrealized gain on securities available for sale		1,960			1,880
Prepaid expenses		151			180
Deferred loan costs		1,172			831
Amortization of goodwill		1,470			1,470
Other		296			296
		6,753			6,101
Net deferred tax liability	$	(2,364	)	$	(1,055	)

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, with the majority of activity residing in Pennsylvania. The statute of limitations for the federal return has expired on years prior to 2009. 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 2013 through 2017. There are no material uncertain tax positions at December 31, 2012.

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.

49

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 12 — REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by the FDIC and the Pennsylvania Department of Banking.  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.

The Bank’s actual capital amounts and ratios are presented in the following table:

	Actual					For capital adequacy  purposes					To be well capitalized under prompt corrective action provision
	Amount		Ratio			Amount		Ratio			Amount		Ratio
At December 31, 2012
Tangible capital (to tangible assets)	$	73,612		10.45	%	$	10,562		1.50	%	$	—		N/A
Core capital (to adjusted  tangible assets)		73,612		10.45	%		28,164		4.00	%		35,206		5.00	%
Tier 1 capital (to risk weighted assets)		73,612		16.63	%		17,703		4.00	%		26,555		6.00	%
Total Risk		79,161		17.89	%		35,407		8.00	%		44,259		10.00	%
At December 31, 2011
Tangible capital (to tangible assets)		69,144		10.21	%		10,154		1.50	%		—		N/A
Core capital (to adjusted  tangible assets)		69,144		10.21	%		27,078		4.00	%		33,847		5.00	%
Tier 1 capital (to risk weighted assets)		69,144		17.31	%		15,976		4.00	%		23,965		6.00	%
Total Risk		74,147		18.56	%		31,953		8.00	%		39,941		10.00	%

At December 31, 2012 and 2011, the Bank exceeded 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%. 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 at the time the Bank converted to a stock form of ownership and who continue as depositors. 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.

50

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

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 nonperformance 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:

	At December 31,
	2012		2011
	(in thousands)
Commitments to extend credit	$	74,571	$	67,435
Standby letters of credit		780		710
Loans sold with recourse		50		52
	$	75,401	$	68,197

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 $7.5 million and $5.3 million to sell mortgage loans to investors at December 31, 2012 and 2011, 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 $554,000 and $574,000 for the years ended December 31, 2012 and 2011, respectively.

51

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 14 — COMMITMENTS AND CONTINGENCIES (Continued)

The minimum annual rental commitments of the Bank under all noncancelable leases with terms of one year or more at December 31, 2012 are as follows:

Year ending December 31,	2012
	(in thousands)
2013	$	470
2014		399
2015		236
2016		168
2017		133
Thereafter		948
Total	$	2,354

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, 2012 was approximately $2.3 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 AND FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011. 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.

52

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 16 — FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
	(in thousands)
Assets
Investment securities available for sale
State and political subdivisions	$	—	$	59,610	$	—	$	59,610
Residential mortgage-backed      securities issued by quasi-      governmental agencies		—		42,674		—		42,674
Total investment securities available for sale	$	—	$	102,284	$	—	$	102,284
Loans receivable, held for sale	$	—	$	706	$	—	$	706

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2011
	(in thousands)
Assets
Investment securities available for sale
U.S. Government and federal agencies	$	—	$	3,030	$	—	$	3,030
State and political subdivisions		—		55,091		—		55,091
Residential mortgage-backed      securities issued by quasi-      governmental agencies		—		47,494		—		47,494
Residential real estate mortgage-backed      securities privately issued		—		8,888		—		8,888
Total investment securities available for sale	$	—	$	114,503	$	—	$	114,503
Loans receivable, held for sale	$	—	$	488	$	—	$	488

Investment and mortgage-backed securities available for sale are valued primarily by a third party pricing agent. U.S. Government and federal agency securities are primarily priced through a multidimensional 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.

53

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 16 — FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
Impaired loans	$	—	$	—	$	6,533	$	6,533
Real estate acquired through foreclosure		—		—		7,282		7,282
Mortgage servicing rights		—		956		—		956

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Bank has utilized Level 3 inputs to determine fair value at December 31, 2012:

		Fair value		Valuation	Unobservable	Range of
Description		estimate		technique	Input	inputs
	(in thousands)
Impaired loans		$	6,533	Appraisal of collateral (1)	Discount rate to reflect current market conditions and ultimate recoverability		5%-15	%
Real estate acquired through foreclosure			7,282	Appraisal of collateral (1)	Discount rate to reflect current market conditions and liquidation expenses		5%-20	%

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The fair value of impaired loans is generally determined through independent appraisals of the underlying collateral, which generally include Level 3 inputs that are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. 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. The range and weighted average of liquidation expenses are presented as a percent of the appraised value. The significant unobservable inputs used in the fair value measurements of the Company’s impaired loans using discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements.  The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.

54

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 16 — FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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 real estate acquired through foreclosure based on appraisals prepared by qualified independent licensed appraisers contracted by the Company to perform the assessment and is therefore classified as a Level 3 hierarchy. 

Assets measured at fair value on a nonrecurring basis segregated by fair value hierarchy level at December 31, 2011 are summarized below:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2011
Impaired loans	$	—	$	—	$	8,091	$	8,091
Real estate acquired through foreclosure		—		—		11,730		11,730
Mortgage servicing rights		—		763		—		763

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 $1.3 million and $1.0 million at December 31, 2012 and 2011, respectively. The fair value of the mortgage servicing rights was $956,000 and $763,000 at December 31, 2012 and 2011, respectively.

In addition to financial instruments recorded at fair value in the Company’s financial statements, disclosure of the estimated fair value of all of an entity’s assets and liabilities considered to be financial instruments is also required. 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 and to not engage in trading or significant sales activities. For fair value disclosure purposes, the Company substantially utilized the established fair value measurement hierarchy.

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.

55

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 16 — FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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 recorded carrying amounts and fair values segregated by fair value hierarchy level at December 31, 2012 are summarized below:

	Carrying		Fair		Fair value hierarchy levels
	value		value		Level 1		Level 2		Level 3
Assets	(in thousands)
Cash and cash equivalents	$	31,137	$	31,137	$	31,137	$	—	$	—
Investment securities		59,610		59,610		—		59,610		—
Mortgage-backed securities		44,639		44,945		—		44,945		—
Loans receivable		527,426		539,665		—		706		538,959
Liabilities
Deposits with stated maturities	$	171,417	$	175,025	$	—	$	—	$	175,025
Deposits with no stated maturities		388,898		388,898		388,898		—		—
Borrowings with stated maturities		60,656		60,939		—		—		60,939

The recorded carrying amounts and fair values at December 31, 2011 are summarized below:

	At December 31, 2011
	Carrying value		Fair value
	(in thousands)
Assets
Cash and cash equivalents	$	14,928	$	14,928
Investment securities		58,121		58,121
Mortgage-backed securities		58,970		59,310
Loans receivable		494,613		516,359
Liabilities
Deposits with stated maturities	$	181,074	$	183,306
Deposits with no stated maturities		370,214		370,214
Borrowings with stated maturities		46,908		48,092

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 as discussed earlier.

56

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 16 — FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The fair value of loans receivable has been estimated using the present value of cash flows, discounted at the approximate current market rates, and giving consideration to estimated prepayment risk. Loans receivable also includes loans receivable held for sale.

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.

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

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.

NOTE 17 — SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE

	For the year ended December 31,
	2012		2011
	(in thousands)
Service fees, charges and other operating income
Loan servicing fees, net	$	139	$	25
Late charge income		117		110
Deposit service charges		581		666
Debit card income		539		512
Other income		395		385
	$	1,771	$	1,698
Other operating expense
Insurance and surety bond	$	178	$	192
Office supplies		184		164
Loan expense		228		310
Debit card and ATM expense		272		245
Postage		246		231
Telephone		288		261
Supervisory examination fees		73		169
Other expenses		578		625
	$	2,047	$	2,197

57

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 18 — EARNINGS PER SHARE

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

	For the year ended December 31, 2012
			Weighted
			average
	Income		shares		Per share
	(numerator)		(denominator)		Amount
	(dollars in thousands, except share data)
Basic earnings per share
Income available to common stockholders	$	5,383		2,726,133	$	1.97
Effect of dilutive securities
Stock compensation plans		—		3,629		—
Diluted earnings per share
Income available to common stockholders plus effect of      dilutive securities	$	5,383		2,729,762	$	1.97

There were options to purchase 42,462 shares of common stock at a price at a range of $23.53 to $32.51 per share which were outstanding during 2012 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.

	For the year ended December 31, 2011
			Weighted
			average
	Income		shares		Per share
	(numerator)		(denominator)		Amount
	(dollars in thousands, except share data)
Basic earnings per share
Income available to common stockholders	$	3,929		2,702,200	$	1.45
Effect of dilutive securities
Stock compensation plans		—		510		—
Diluted earnings per share
Income available to common stockholders plus effect of      dilutive securities	$	3,929		2,702,710	$	1.45

There were options to purchase 62,057 shares of common stock at a price at a range of $23.53 to $32.51 per share which were outstanding during 2011 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.

58

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 19 — CONDENSED FINANCIAL INFORMATION – PARENT COMPANY ONLY

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

 BALANCE SHEETS

	At December 31,
	2012		2011
	(in thousands)
ASSETS
Cash	$	2,031	$	1,414
Investment in 3rd Fed		78,032		73,117
Investment in Penns Trail Development		1,077		1,087
Notes receivable ESOP		1,208		1,352
Other assets		723		465
Total assets	$	83,071	$	77,435
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total liabilities	$	126	$	27
Stockholders’ equity		82,945		77,408
Total liabilities and stockholders’ equity	$	83,071	$	77,435

 STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	For the year ended December 31,
	2012		2011
	(in thousands)
INCOME
Equity in earnings of subsidiaries	$	5,963	$	4,432
Interest and dividend income		22		6
Total income		5,985		4,438
EXPENSES
Other		602		509
Total expenses		602		509
NET INCOME		5,383		3,929
Total other comprehensive income (2)		224		135
Total comprehensive income	$	5,607	$	4,064

(2) See Consolidated Statements of Comprehensive Income for other comprehensive income detail.

59

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 19 — CONDENSED FINANCIAL INFORMATION – PARENT COMPANY ONLY (Continued)

STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2012			2011
	(in thousands)
Cash flows from operating activities
Net income	$	5,383		$	3,929
Adjustments to reconcile net income to net cash used in operating activities
Stock compensation plans		176			114
Equity in earnings of subsidiaries		(5,963	)		(4,432	)
Net change in assets and liabilities		(16	)		(300	)
Net cash used in operating activities		(420	)		(689	)
Cash flows from investing activities
Capital distribution from subsidiaries		1,600			1,548
Net cash provided by investing activities		1,600			1,548
Cash flows from financing activities
Common stock dividends paid		(543	)		(534	)
Treasury stock acquired		—			(122	)
Exercise of stock options		7			211
Deferred tax adjustment arising from stock compensation		(27	)		—
Tax benefit arising from stock compensation		—			3
Net cash used in financing activities		(563	)		(442	)
NET INCREASE IN CASH		617			417
Cash at beginning of year		1,414			997
Cash at end of year	$	2,031		$	1,414

NOTE 20 — MERGERS AND ACQUISITIONS

On December 28, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Roebling Financial Corp, Inc. (“Roebling”), the parent company of Roebling Bank, under which the Company will acquire Roebling for approximately $14.5 million in stock and cash.

Under the terms of the Merger Agreement, Roebling will merge with and into the Company (the “Merger”) after which Roebling Bank will merge with and into 3rd Fed.  Each outstanding share of Roebling common stock will be converted into the right to receive $8.60 per share or 0.3640 shares of the Company’s common stock, at the election of Roebling shareholders, subject to proration.  The aggregate cash consideration to be paid pursuant to the Merger Agreement must not exceed 50% of the total merger consideration (including any cash paid in connection with shares held by the employee stock ownership plan and not allocated to participant accounts). Cash will be paid in lieu of fractional shares at a value based on the average closing sale price of the Company’s common stock for the twenty trading days immediately prior to the closing date.

In the event of a greater than 15% decline in market value of the Company’s common stock immediately prior to the announcement of the Merger, which percentage decline exceeds any decline in the NASDAQ Bank Index

60

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

NOTE 20 — MERGERS AND ACQUISITIONS (Continued)

from its starting point by more than 15%, Roebling may be able to terminate the Merger Agreement unless the Company increases the number of shares into which Roebling common stock may be converted.

The Merger is intended to qualify as a tax-free reorganization for federal income tax purposes.  As a result, the shares of Roebling exchanged for the Company’s shares will be transferred on a tax-free basis.   The Merger is expected to close during the second or third quarter of 2013.  If the Merger is not consummated under certain circumstances, Roebling has agreed to pay the Company a termination fee of $650,000.

61

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 3rd Fed Bank

Dennis Pollack

Chairman of Presilient, LLC

Joseph F. Slabinski, III

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

Kenneth A. Swanstrom 

Retired Chairman/CEO of PennEngineering

Albert M. Tantala, Sr.

Chairman of 3rd Fed Bank

President of Tantala Associates

James B. Wood                                

Vice Chairman of 3rd Fed Bank

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

Kent C. Lufkin

President/CEO of TF Financial Corporation and 3rd Fed 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

62

EX-21.0

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Exhibit 21.0

SUBSIDIARIES OF THE REGISTRANT

Parent

TF Financial Corporation

Subsidiaries	Percentage Owned	Jurisdiction of Incorporation
3rd Fed Bank(a)	100%	Pennsylvania
Teragon Financial Corporation(a)(b)	100%	Pennsylvania
Penns Trail Development Corporation(a)	100%	Delaware
Third Delaware Corporation(a)(b)	100%	Delaware

(a)           The operations of this subsidiary are included in the consolidated financial statements contained in the 2012 Annual Report to Stockholders incorporated herein by reference.

(b)           Third Delaware Corporation and Teragon Financial Corporation are wholly-owned subsidiaries of 3rd Fed Bank.

EX-23.0

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Exhibit 23.0

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, File No. 333-125116, effective May 20, 2005, and File No. 333-175214, effective June 29, 2011, on Form S-8 of TF Financial Corporation of our report dated March 27, 2013, 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, 2012.

/s/S.R. Snodgrass, A.C.

Wexford, Pennsylvania

March 27, 2013

EX-31.1

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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, 2012;

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 provide 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 27, 2013	/s/ KENT C. LUFKIN
		Kent C. Lufkin
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

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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, 2012;

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 provide 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 27, 2013	/s/ DENNIS R. STEWART
		Dennis R. Stewart
		Executive Vice President and Chief Financial Officer
		(Principal Financial & Accounting Officer)

EX-32.0

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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, 2012 (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 27, 2013	March 27, 2013

XML

REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2012

REGULATORY MATTERS [Abstract]

Regulatory Capital

The Bank's actual capital amounts and ratios are presented in the following table:

	Actual					For capital adequacy purposes					To be well capitalized under prompt corrective action provision
	Amount		Ratio			Amount		Ratio			Amount		Ratio
At December 31, 2012
Tangible capital (to tangible assets)	$	73,612		10.45	%	$	10,562		1.50	%	$	—		N/A
Core capital (to adjusted  tangible assets)		73,612		10.45	%		28,164		4.00	%		35,206		5.00	%
Tier 1 capital (to risk weighted assets)		73,612		16.63	%		17,703		4.00	%		26,555		6.00	%
Total Risk		79,161		17.89	%		35,407		8.00	%		44,259		10.00	%
At December 31, 2011
Tangible capital (to tangible assets)		69,144		10.21	%		10,154		1.50	%		—		N/A
Core capital (to adjusted  tangible assets)		69,144		10.21	%		27,078		4.00	%		33,847		5.00	%
Tier 1 capital (to risk weighted assets)		69,144		17.31	%		15,976		4.00	%		23,965		6.00	%
Total Risk		74,147		18.56	%		31,953		8.00	%		39,941		10.00	%

XML

BENEFIT PLANS, Defined Contribution Plan (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Defined Contribution Plan [Abstract]
Maximum annual contribution of pretax eligible compensation (in hundredths)	15.00%
Employer matching contribution of the initial 1,000 deferral (in hundredths)	75.00%
Initial deferral threshold for matching contribution	$ 1,000
Matching contribution amount	$ 78,000	$ 78,000

XML

INVESTMENT SECURITIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012 Security	Dec. 31, 2011 Security
Investment securities available for sale [Abstract]
Available for sale, Amortized cost	$ 96,519,000	$ 108,974,000
Available-for-sale, Gross unrealized gains	5,769,000	5,559,000
Available-for-sale, Gross unrealized losses	(4,000)	(30,000)
Available for sale, Fair value	102,284,000	114,503,000
Held-to-maturity [Abstract]
Held-to-maturity, amortized cost	1,965,000	2,588,000
Held-to-maturity, gross unrecognized gains	306,000	340,000
Held-to-maturity, gross unrecognized losses	0	0
Held-to-maturity, fair value	2,271,000	2,928,000
Total Investment Securities [Abstract]
Total investment securities, amortized cost	98,484,000	111,562,000
Total investment securities, gross unrealized gains	6,075,000	5,899,000
Total investment securities, gross unrealized losses	(4,000)	(30,000)
Total investment securities, fair value	104,555,000	117,431,000
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Fiscal Year Maturity [Abstract]
Available-for-sale securities, due in one year or less, amortized cost	602,000
Available-for-sale securities, due after one year through five years, amortized cost	9,514,000
Available-for-sale securities, due after five years through ten years, amortized cost	25,154,000
Available-for-sale securities, due after ten years, amortized cost	19,984,000
Total available for sale, amortized cost basis	55,254,000
Mortgage-back securities, available for sale, amortized cost	41,265,000
Total investment and mortgage-backed securities, available for sale, amortized cost	96,519,000
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
Available-for-sale securities, due in one year or less, fair value	608,000
Available-for-sale securities, due after one year through five years, fair value	10,040,000
Available-for-sale securities, due after five years through ten years, fair value	26,848,000
Available-for-sale securities, due after ten years, fair value	22,114,000
Total available for sale, fair value	59,610,000
Mortgage-backed securities available for sale, fair value	42,674,000
Total investment and mortgage-back securities, available for sale, fair value	102,284,000
Held-to-maturity Securities, Debt Maturities, Net Carrying Amount [Abstract]
Held to maturity, due in one year or less, amortized cost	0
Held to maturity, due after one year through five years, amortized cost	0
Held to maturity, due after five years through ten years, amortized cost	0
Held to maturity, due after ten years, amortized cost	0
Total held to maturity, amortized cost	0
Mortgage-backed securities held to maturity, amortized cost	1,965,000
Total investment and mortgage-backed securities held to maturity, amortized cost	1,965,000
Held-to-maturity Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
Held to maturity, due in one year or less, fair value	0
Held to maturity, due after one year through five years, fair value	0
Held to maturity, due after five years through ten years, fair value	0
Held to maturity, due after ten years, fair value	0
Total held to maturity, fair value	0
Mortgage-backed securities held to maturity, fair value	2,271,000
Total investment and mortgage-backed securities held to maturity, fair value	2,271,000
Investment securities pledged to secure public deposits	7,000,000	7,100,000
Securities holding threshold for analysis (in hundredths)	10.00%
Stock in the FHLB	5,431,000	7,657,000
Required FHLB holdings	4,100,000
FHLB redemptions totaled	2,226,000	1,744,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Number of securities	1	2
Continuous unrealized loss position, less than 12 months, fair value	617,000	3,442,000
Continuous unrealized loss position, less than 12 months, unrealized loss	(4,000)	(30,000)
Continuous unrealized loss position, 12 months or longer, fair value	0	0
Continuous unrealized loss position, 12 months or longer, unrealized loss	0	0
Total continuous unrealized loss position, fair value	617,000	3,442,000
Total continuous unrealized loss position, unrealized loss	(4,000)	(30,000)
US Government and federal agencies [Member]
Investment securities available for sale [Abstract]
Available for sale, Amortized cost		2,995,000
Available-for-sale, Gross unrealized gains		35,000
Available-for-sale, Gross unrealized losses		0
Available for sale, Fair value		3,030,000
State and political subdivisions [Member]
Investment securities available for sale [Abstract]
Available for sale, Amortized cost	55,254,000	51,287,000
Available-for-sale, Gross unrealized gains	4,360,000	3,804,000
Available-for-sale, Gross unrealized losses	(4,000)	0
Available for sale, Fair value	59,610,000	55,091,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Number of securities	1
Continuous unrealized loss position, less than 12 months, fair value	617,000
Continuous unrealized loss position, less than 12 months, unrealized loss	(4,000)
Continuous unrealized loss position, 12 months or longer, fair value	0
Continuous unrealized loss position, 12 months or longer, unrealized loss	0
Total continuous unrealized loss position, fair value	617,000
Total continuous unrealized loss position, unrealized loss	(4,000)
Residential mortgage-backed securities issued by Quasi-governmental agencies [Member]
Investment securities available for sale [Abstract]
Available for sale, Amortized cost	41,265,000	45,969,000
Available-for-sale, Gross unrealized gains	1,409,000	1,525,000
Available-for-sale, Gross unrealized losses	0	0
Available for sale, Fair value	42,674,000	47,494,000
Residential mortgage-backed securities privately issued [Member]
Investment securities available for sale [Abstract]
Available for sale, Amortized cost		8,723,000
Available-for-sale, Gross unrealized gains		195,000
Available-for-sale, Gross unrealized losses		(30,000)
Available for sale, Fair value		8,888,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Number of securities		2
Continuous unrealized loss position, less than 12 months, fair value		3,442,000
Continuous unrealized loss position, less than 12 months, unrealized loss		(30,000)
Continuous unrealized loss position, 12 months or longer, fair value		0
Continuous unrealized loss position, 12 months or longer, unrealized loss		0
Total continuous unrealized loss position, fair value		3,442,000
Total continuous unrealized loss position, unrealized loss		(30,000)
Investment and mortgage-backed securities available for sale [Member]
Total Investment Securities [Abstract]
Gross realized gains	112,000	760,000
Proceeds from the sale of investment and mortgage-backed securities	2,700,000	10,700,000
Mortgage-backed securities available for sale [Member]
Total Investment Securities [Abstract]
Gross realized losses	27,000
Proceeds from sale of mortgage-backed securities available for sale	$ 1,100,000

XML

BENEFIT PLANS, Defined Benefit Plan (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan [Abstract]
Vesting period for qualifying service	5 years
Reconciliation of projected benefit obligation [Roll Forward]
Benefit obligation at beginning of year	$ 8,045,000	$ 5,837,000
Service cost	736,000	565,000
Interest cost	360,000	328,000
Actuarial loss	339,000	1,411,000
Amendments	0	0
Benefits paid	(540,000)	(96,000)
Benefits obligation at end of year	8,940,000	8,045,000
Reconciliation of fair value of assets [Roll Forward]
Fair value of plan assets at beginning of year	8,006,000	7,761,000
Actual return on plan assets	801,000	(145,000)
Employer contribution	1,500,000	486,000
Benefits paid	(540,000)	(96,000)
Fair value of plan assets at end of year	9,767,000	8,006,000
Funded status at end of year	827,000	(39,000)
Accumulated benefit obligation	8,100,000	6,900,000
Expected employer contribution, next fiscal year	400,000
Amounts recognized in accumulated other comprehensive income [Abstract]
Net loss	(4,270,000)	(4,372,000)
Prior service cost	(27,000)	(28,000)
Total	(4,297,000)	(4,400,000)
The net (loss) gain recognized in accumulated other comprehensive income as an adjustment to the funded status of the plan	103,000	(2,100,000)
Expected amortization of net actuarial loss and prior service cost	264,000
Weighted-average assumptions used to determine benefit obligations: [Abstract]
Discount rate (in hundredths)	4.00%	4.50%
Rate of compensation increase (in hundredths)	3.00%	4.00%
Components of net periodic benefit cost [Abstract]
Service cost	736,000	565,000
Interest cost	360,000	328,000
Expected return on plan assets	(644,000)	(619,000)
Amortization of prior service cost	2,000	2,000
Recognized net actuarial loss	283,000	115,000
Net periodic benefit cost	737,000	391,000
Weighted-average assumptions used to determine net benefit costs [Abstract]
Discount rate (in hundredths)	4.50%	5.75%
Expected return on plan assets (in hundredths)	8.00%	8.00%
Rate of compensation increase (in hundredths)	4.00%	4.00%
Estimated future benefits payments are as follows: [Abstract]
2013	125,000
2014	213,000
2015	239,000
2016	275,000
2017	278,000
2018-2022	1,864,000
Defined Benefit Plan's Financial Assets at Fair Value Disclosure [Line Items]
Collective investment trust funds	9,767,000	8,006,000
Total Plan assets at fair value	9,767,000	8,006,000
The plan's weighted-average asset allocations [Abstract]
Total asset allocation by asset category (in hundredths)	100.00%	100.00%
Mutual funds [Member]
The plan's weighted-average asset allocations [Abstract]
Total asset allocation by asset category (in hundredths)	100.00%	100.00%
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Reconciliation of fair value of assets [Roll Forward]
Fair value of plan assets at end of year	0	0
Defined Benefit Plan's Financial Assets at Fair Value Disclosure [Line Items]
Collective investment trust funds	0	0
Total Plan assets at fair value	0	0
Significant Other Observable Inputs (Level 2) [Member]
Reconciliation of fair value of assets [Roll Forward]
Fair value of plan assets at end of year	9,767,000	8,006,000
Defined Benefit Plan's Financial Assets at Fair Value Disclosure [Line Items]
Collective investment trust funds	9,767,000	8,006,000
Total Plan assets at fair value	9,767,000	8,006,000
Significant Unobservable Inputs (Level 3) [Member]
Reconciliation of fair value of assets [Roll Forward]
Fair value of plan assets at end of year	0	0
Defined Benefit Plan's Financial Assets at Fair Value Disclosure [Line Items]
Collective investment trust funds	0	0
Total Plan assets at fair value	$ 0	$ 0

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 Segment	Dec. 31, 2011
Foreclosed Real Estate [Abstract]
Foreclosed real estate	$ 7.3	$ 11.7
Bank Owned Life Insurance [Abstract]
Cash surrender values of policies	$ 19.1	$ 18.5
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option terms	P10Y
Segment Reporting [Abstract]
Number of reportable segments	1
Number of operating segments	1
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	5 years
Pennsylvania [Member]
Entity Location [Line Items]
Full service branches	11
New Jersey [Member]
Entity Location [Line Items]
Full service branches	2

XML

LOAN SERVICING (Tables)

12 Months Ended

Dec. 31, 2012

LOAN SERVICING [Abstract]

Mortgage Loans Serviced for Others

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:

	At December 31,
	2012		2011
	(in thousands)
Mortgage loan servicing portfolios
FHLMC	$	235	$	285
FNMA		127,677		108,275
Other investors		8,294		10,434
	$	136,206	$	118,994

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BENEFIT PLANS, Stock-based Compensation Plans (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range lower limit (in dollars per share)	$ 23.53	$ 23.53
Exercise price range upper limit (in dollars per share)	$ 32.51	$ 32.51
Number of options outstanding (in shares)	89,279
Weighted average remaining contractual life (years) of options outstanding	2 years 7 months 6 days
Weighted average exercise price of options outstanding (in dollars per share)	$ 24.08
Options exercisable (in shares)	80,652
Weighted average exercise price of options exercisable (in dollars per share)	$ 24.55
Aggregate intrinsic value of [Abstract]
Options outstanding	$ 179,000	$ 133,000
Options exercisable	144,000	80,000
Options exercised	1,000	30,000
Cash receipts	7,000	211,000
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock based compensation expense	176,000	114,000
Directors fees [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock based compensation expense	149,000	69,000
Stock grant expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock based compensation expense	0	13,000
Stock option expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Tax benefit from compensation expense	9,000	11,000
Nonvested awards compensation cost not yet recognized	22,000
Nonvested awards compensation cost not yet recognized, period for recognition	10 months
Total stock based compensation expense	$ 27,000	$ 32,000
$19.67 - 28.42 [Member]
Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range lower limit (in dollars per share)	$ 19.67
Exercise price range upper limit (in dollars per share)	$ 28.42
Number of options outstanding (in shares)	73,126
Weighted average remaining contractual life (years) of options outstanding	2 years 1 month 28 days
Weighted average exercise price of options outstanding (in dollars per share)	$ 22.21
Options exercisable (in shares)	64,499
Weighted average exercise price of options exercisable (in dollars per share)	$ 22.55
$28.43 - 32.51 [Member]
Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range lower limit (in dollars per share)	$ 28.43
Exercise price range upper limit (in dollars per share)	$ 32.51
Number of options outstanding (in shares)	16,153
Weighted average remaining contractual life (years) of options outstanding	11 months 16 days
Weighted average exercise price of options outstanding (in dollars per share)	$ 32.51
Options exercisable (in shares)	16,153
Weighted average exercise price of options exercisable (in dollars per share)	$ 32.51
Stock Options [Member]
Options, Outstanding [Roll Forward]
Outstanding at beginning of year (in shares)	109,765	126,257
Options granted (in shares)	0	0
Options exercised (in shares)	(315)	(10,916)
Options forfeited (in shares)	(1,904)	(3,370)
Options expired (in shares)	(18,267)	(2,206)
Outstanding at end of year (in shares)	89,279	109,765
Options exercisable (in shares)	80,652	92,328
Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning of year weighted average exercise price beginning balance (in dollars per share)	$ 24.41	$ 24.04
Weighted average exercise price of options granted (in dollars per share)	$ 0	$ 0
Weighted average exercise price of options exercised (in dollars per share)	$ 19.67	$ 19.33
Weighted average exercise price of options forfeited (in dollars per share)	$ 28.59	$ 26.10
Weighted average exercise price of options expired (in dollars per share)	$ 25.68	$ 25.44
Outstanding at ending of year weighted average exercise price beginning balance (in dollars per share)	$ 24.08	$ 24.41
Weighted average exercise price of options exercisable (in dollars per share)	$ 24.55	$ 25.31
Restricted Stock [Member]
Non-Vested Restricted Stock, Outstanding [Roll Forward]
Total non-vested restricted stock grants at January 1 (in shares)		700
Restricted stock grant (in shares)		0
Vesting of restricted stock (in shares)		(700)
Forfeitures of restricted stock (in shares)		0
Total non-vested restricted stock grants at December 31 (in shares)		0
Nonvested Restricted Stock, Weighted Average Grant Date Fair Value [Roll Forward]
Total non-vested restricted stock grants at January 1 (in dollars per share)		$ 19.67
Restricted stock grant (in dollars per share)		$ 0
Vesting of restricted stock (in dollars per share)		$ 19.67
Forfeitures of restricted stock (in dollars per share)		$ 0
Total non-vested restricted stock grants at December 31 (in dollars per share)		$ 0

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SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE

12 Months Ended

Dec. 31, 2012

SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE [Abstract]

SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE

NOTE 17—SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE

	For the year ended December 31,
	2012		2011
	(in thousands)
Service fees, charges and other operating income
Loan servicing fees, net	$	139	$	25
Late charge income		117		110
Deposit service charges		581		666
Debit card income		539		512
Other income		395		385
	$	1,771	$	1,698
Other operating expense
Insurance and surety bond	$	178	$	192
Office supplies		184		164
Loan expense		228		310
Debit card and ATM expense		272		245
Postage		246		231
Telephone		288		261
Supervisory examination fees		73		169
Other expenses		578		625
	$	2,047	$	2,197

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LOAN SERVICING (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Mortgage loan servicing portfolios [Abstract]
Loans serviced for others	$ 136,206,000	$ 118,994,000
Custodial balances maintained in connection with the foregoing loan servicing	2,800,000	1,200,000
Net servicing (loss)	(66,000)	(98,000)
FHLMC [Member]
Mortgage loan servicing portfolios [Abstract]
Loans serviced for others	235,000	285,000
FNMA [Member]
Mortgage loan servicing portfolios [Abstract]
Loans serviced for others	127,677,000	108,275,000
Other investors [Member]
Mortgage loan servicing portfolios [Abstract]
Loans serviced for others	$ 8,294,000	$ 10,434,000

XML

FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

Assets Measured at Fair Value on a Recurring Basis

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:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
	(in thousands)
Assets
Investment securities available for sale
State and political subdivisions	$	—	$	59,610	$	—	$	59,610
Residential mortgage-backed securities issued by quasi- governmental agencies		—		42,674		—		42,674
Total investment securities available for sale	$	—	$	102,284	$	—	$	102,284
Loans receivable, held for sale	$	—	$	706	$	—	$	706
							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3			2011
	(in thousands)
Assets
Investment securities available for sale
U.S. Government and federal agencies	$	—	$	3,030	$	—	$	3,030
State and political subdivisions		—		55,091		—		55,091
Residential mortgage-backed securities issued by quasi- governmental agencies		—		47,494		—		47,494
Residential real estate mortgage-backed securities privately issued		—		8,888		—		8,888
Total investment securities available for sale	$	—	$	114,503	$	—	$	114,503
Loans receivable, held for sale	$	—	$	488	$	—	$	488

Assets Measured at Fair Value on a Nonrecurring Basis

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

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
Impaired loans	$	—	$	—	$	6,533	$	6,533
Real estate acquired through foreclosure		—		—		7,282		7,282
Mortgage servicing rights		—		956		—		956

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Bank has utilized Level 3 inputs to determine fair value at December 31, 2012:

		Fair value		Valuation	Unobservable	Range of
Description		estimate		technique	Input	inputs
	(in thousands)
Impaired loans		$	6,533	Appraisal of collateral (1)	Discount rate to reflect current market conditions and ultimate recoverability		5%-15	%
Real estate acquired through foreclosure			7,282	Appraisal of collateral (1)	Discount rate to reflect current market conditions and liquidation expenses		5%-20	%

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The fair value of impaired loans is generally determined through independent appraisals of the underlying collateral, which generally include Level 3 inputs that are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. 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. The range and weighted average of liquidation expenses are presented as a percent of the appraised value. The significant unobservable inputs used in the fair value measurements of the Company's impaired loans using discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements.  The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.

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 real estate acquired through foreclosure based on appraisals prepared by qualified independent licensed appraisers contracted by the Company to perform the assessment and is therefore classified as a Level 3 hierarchy.

Assets measured at fair value on a nonrecurring basis segregated by fair value hierarchy level at December 31, 2011 are summarized below:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2011
Impaired loans	$	—	$	—	$	8,091	$	8,091
Real estate acquired through foreclosure		—		—		11,730		11,730
Mortgage servicing rights		—		763		—		763

Carrying Amounts And Fair Values

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 recorded carrying amounts and fair values segregated by fair value hierarchy level at December 31, 2012 are summarized below:

	Carrying		Fair		Fair value hierarchy levels
	value		value		Level 1		Level 2		Level 3
Assets	(in thousands)
Cash and cash equivalents	$	31,137	$	31,137	$	31,137	$	—	$	—
Investment securities		59,610		59,610		—		59,610		—
Mortgage-backed securities		44,639		44,945		—		44,945		—
Loans receivable		527,426		539,665		—		706		538,959
Liabilities
Deposits with stated maturities	$	171,417	$	175,025	$	—	$	—	$	175,025
Deposits with no stated maturities		388,898		388,898		388,898		—		—
Borrowings with stated maturities		60,656		60,939		—		—		60,939

The recorded carrying amounts and fair values at December 31, 2011 are summarized below:

	At December 31, 2011
	Carrying value		Fair value
	(in thousands)
Assets
Cash and cash equivalents	$	14,928	$	14,928
Investment securities		58,121		58,121
Mortgage-backed securities		58,970		59,310
Loans receivable		494,613		516,359
Liabilities
Deposits with stated maturities	$	181,074	$	183,306
Deposits with no stated maturities		370,214		370,214
Borrowings with stated maturities		46,908		48,092

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BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2012

BENEFIT PLANS [Abstract]

Schedule of Accumulated and Projected Benefit Obligations

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:

	At December 31,
	2012			2011
	(in thousands)
Reconciliation of projected benefit obligation
Benefit obligation at beginning of year	$	8,045		$	5,837
Service cost		736			565
Interest cost		360			328
Actuarial loss		339			1,411
Amendments		—			—
Benefits paid		(540	)		(96	)
Benefit obligation at end of year	$	8,940		$	8,045
Reconciliation of fair value of assets
Fair value of plan assets at beginning of year	$	8,006		$	7,761
Actual return on plan assets		801			(145	)
Employer contribution		1,500			486
Benefits paid		(540	)		(96	)
Fair value of plan assets at end of year	$	9,767		$	8,006
Funded status at end of year	$	827		$	(39	)

	For the year ended December 31,
	2012			2011
	(in thousands)
Components of net periodic benefit cost
Service cost	$	736		$	565
Interest cost		360			328
Expected return on plan assets		(644	)		(619	)
Amortization of prior service cost		2			2
Recognized net actuarial loss		283			115
Net periodic benefit cost	$	737		$	391

Schedule of Amounts Recognized in Other Comprehensive Income (Loss)

The following table sets forth the amounts recognized in accumulated other comprehensive income for the years ended:

	At December 31,
	2012			2011
	(in thousands)
Net loss	$	(4,270	)	$	(4,372	)
Prior service cost		(27	)		(28	)
Total	$	(4,297	)	$	(4,400	)

Weighted-average Assumptions Used to Determine Benefit Obligations and Net Benefit Costs

	At December 31,
	2012			2011
Weighted-average assumptions used to determine benefit obligations:
Discount rate		4.00	%		4.50	%
Rate of compensation increase		3.00	%		4.00	%

	For the year ended December 31,
	2012			2011
Weighted-average assumptions used to determine net benefit costs:
Discount rate		4.50	%		5.75	%
Expected return on plan assets		8.00	%		8.00	%
Rate of compensation increase		4.00	%		4.00	%

Summary of Estimated Future Benefits Payments

Estimated future benefits payments are as follows:

Year ending December 31,	Amount
	(in thousands)
2013	$	125
2014		213
2015		239
2016		275
2017		278
2018-2022		1,864

Schedule of Plan Assets at Fair Value

The following table sets forth by level, within the fair value hierarchy, the plan's financial assets at fair value as of December 31, 2012:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
	(in thousands)
Assets
Collective investment trust funds	$	—	$	9,767	$	—	$	9,767
Total plan assets at fair value	$	—	$	9,767	$	—	$	9,767

The following table sets forth by level, within the fair value hierarchy, the plan's financial assets at fair value as of December 31, 2011:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2011
	(in thousands)
Assets
Collective investment trust funds	$	—	$	8,006	$	—	$	8,006
Total plan assets at fair value	$	—	$	8,006	$	—	$	8,006

Schedule of Weighted-average Allocation of Plan Assets

The plan's weighted-average asset allocations by asset category are as follows:

	Percentage of plan assets at December 31,
	2012			2011
Asset Category
Mutual funds		100.00	%		100.00	%
Total		100.00	%		100.00	%

Summary Disclosure of ESOP Plan

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 allocated 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. ESOP compensation expense included in stock-based compensation totaled $286,000 and $222,000 for the years ended December 31, 2012 and 2011, respectively.

	At December 31,
	2012		2011
Allocated shares		184,000		177,000
Unreleased shares		103,000		115,000
Total ESOP shares		287,000		292,000
Fair value of unreleased shares (in thousands)	$	2,446	$	2,615

Summary Status of Stock Option Plan

A summary of the status of the Company's stock option plans as of December 31, 2012 and 2011, and changes for each of the years in the periods then ended, is as follows:

	2012					2011
	Number of shares			Weighted average exercise price per share		Number of shares			Weighted average exercise price per share
Outstanding at beginning of year		109,765		$	24.41		126,257		$	24.04
Options granted		—			—		—			—
Options exercised		(315	)		19.67		(10,916	)		19.33
Options forfeited		(1,904	)		28.59		(3,370	)		26.10
Options expired		(18,267	)		25.68		(2,206	)		25.44
Outstanding at end of year		89,279			24.08		109,765			24.41
Options exercisable		80,652		$	24.55		92,328		$	25.31

Summary of Stock Options Outstanding

 The following table summarizes information about stock options outstanding at December 31, 2012:

		Options outstanding						Options exercisable
Range of exercise prices		Number		Weighted average remaining contractual life (years)		Weighted average exercise price		Number		Weighted average exercise price
$	19.67 - 28.42		73,126		2.16	$	22.21		64,499	$	22.55
$	28.43 - 32.51		16,153		0.96		32.51		16,153		32.51

89,279 2.60 24.08 80,652 24.55

Summary of Aggregate Intrinsic Value of Options and Cash Receipts From Option Exercises

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

	For the year ended December 31,
	2012		2011
	(in thousands)
Aggregate intrinsic value of
Options outstanding	$	179	$	133
Options exercisable		144		80
Options exercised		1		30
Cash receipts		7		211

Summary of Stock-based Compensation Expense

The following table provides information regarding the Company's stock-based compensation expense associated with stock options and grants:

	For the year ended December 31,
	2012		2011
	(in thousands)
Stock-based compensation expense
Director fees	$	149	$	69
Stock grant expense		—		13
Stock option expense		27		32
Total stock-based compensation expense	$	176	$	114

Summary of Changes in Non-vested Restricted Stock

The table below summarizes the changes in non-vested restricted stock for the year ended December 31, 2011. There were no stock grants during 2012.

	2011
	Number of shares			Weighted average grant price per share
Total non-vested restricted stock grants at January 1, 2011		700		$	19.67
Restricted stock grant		—			—
Vesting of restricted stock		(700	)		19.67
Forfeitures of restricted stock		—			—
Total non-vested restricted stock grants at December 31, 2011		—		$	—

XML

DEPOSITS (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
DEPOSITS [Abstract]
Demand	$ 52,433,000	$ 43,910,000
NOW	76,370,000	65,677,000
Money market	153,827,000	155,010,000
Passbook savings	106,268,000	105,617,000
Total demand, transaction and passbook deposits	388,898,000	370,214,000
Certificates of deposit	171,417,000	181,074,000
Deposits	560,315,000	551,288,000
Certificates of deposit with a minimum of $100,000	50,700,000	45,300,000
Scheduled maturities of certificates of deposit [Abstract]
2013	114,386,000
2014	32,593,000
2015	12,868,000
2016	7,964,000
2017	3,441,000
Thereafter	165,000
Certificates of deposit	171,417,000	181,074,000
Related party deposits	$ 5,000,000	$ 4,200,000

XML

EARNINGS PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Earnings Per Share, Basic [Abstract]
Net income	$ 5,383	$ 3,929
Weighted average shares-basic (denominator) (in shares)	2,726,133	2,702,200
Earnings per share-basic (in dollars per share)	$ 1.97	$ 1.45
Effect of Dilutive Securities [Abstract]
Effect of dilutive securities on income from Stock options and grants	0	0
Stock options and grants (in shares)	3,629	510
Effect of dilutive securities on earnings per share options and grants (in dollars per share)	$ 0	$ 0
Earnings Per Share, Diluted [Abstract]
Net income	$ 5,383	$ 3,929
Weighted average shares-diluted (denominator) (in shares)	2,729,762	2,702,710
Earnings per share-diluted (in dollars per share)	$ 1.97	$ 1.45
Antidilutive Securities Excluded from Computation of Diluted Earnings per Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	42,462	62,057
Exercise price, lower limit (in dollars per share)	$ 23.53	$ 23.53
Exercise price, upper limit (in dollars per share)	$ 32.51	$ 32.51

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Commitments [Line Items]
Rental expense	$ 554,000	$ 574,000
Minimum annual rental commitments of the Bank under all non-cancelable leases [Abstract]
2013	470,000
2014	399,000
2015	236,000
2016	168,000
2017	133,000
Thereafter	948,000
Total	2,354,000
Contingent liability benefit reimbursement period	1 year
Change of control contingent liability	2,300,000
Maximum [Member]
Commitments [Line Items]
Lease terms	10 years
Optional commitments to sell mortgage loans to investors [Member]
Commitments [Line Items]
Commitments	$ 7,500,000	$ 5,300,000

XML

CASH AND CASH EQUIVALENTS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 31,137	$ 14,928
Cash and due from banks [Member]
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	4,697	4,498
Interest-bearing deposits in other financial institutions [Member]
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 26,440	$ 10,430

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 Commonwealth of Pennsylvania, which conducts its consumer banking operations primarily through its wholly owned subsidiary, 3rd Fed Bank ("3rd Fed" or the "Bank"). 3rd Fed is a Pennsylvania-chartered stock savings bank insured by the Federal Deposit Insurance Corporation (the "FDIC"). 3rd Fed is a community-oriented savings institution and conducts operations from its main office in Newtown, Pennsylvania, eleven 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: Penns Trail Development Corporation and 3rd Fed, including 3rd Fed'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 and mortgage-backed 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 and mortgage-backed 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 and Fair Value of Financial Instruments 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 Federal National Mortgage Association ("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.

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 and direct origination costs. Loan origination fees and costs on 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: owner and non-owner occupied commercial, multi-family real estate, construction, commercial and industrial, one-to four-family residential, and consumer which is predominately real estate secured junior liens and home equity lines of credit as well as other consumer loans. 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 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 nonaccrual 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, 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.

e.           Loans Receivable, Held-for-Sale

Mortgage loans originated and intended for sale in the secondary market are carried at fair value on an individual basis. Any resulting gain or loss is included in other operating income.

f.           Troubled Debt Restructurings

Loans whose terms are modified are classified as Troubled Debt Restructurings ("TDRs") if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring may include extending the maturity date of the loan, reducing the interest rate on the loan to a rate which is below market, a combination of rate adjustments and maturity extensions, or by other means including covenant modifications, forbearances or other concessions. Interest income is not accrued on loans that had been placed on nonaccrual prior to the troubled debt restructuring until they have performed in accordance with their restructured terms for a period of at least six months.  The Company evaluates the ALLL needed with respect to TDRs under the same policy and guidelines as all other loans, and TDRs are evaluated individually for impairment.

g.           Transfers of Financial Assets

The Company accounts for the transfers 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. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Mortgage servicing rights ("MSRs") are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Under the applicable accounting guidance regarding servicing assets and liabilities, servicing rights resulting from the sale of loans originated by the Company are initially measured at fair value at the date of transfer. Fair value is based on market prices for comparable mortgage servicing rights, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The Company subsequently recognizes mortgage servicing expense for each class of servicing assets using the amortization method. MSRs are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance charged to servicing fee income for an individual tranche, to the extent that fair value is less than the amortized cost for the tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to other operating income. These servicing rights are included in other assets in the Consolidated Balance Sheets and are discussed in Note 16-Fair Value Measurements and Fair Value of Financial Instruments.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of loan servicing rights is recorded as a reduction of service fee income.

h.           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, 2012 and 2011.

i.           Foreclosed Real Estate

Real estate acquired through, or in lieu of, loan foreclosure is carried at the fair value of the property, based on an appraisal less estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance (any direct write-down) are included in foreclosed real estate expense. Included in other assets is foreclosed real estate of $7.3 million and $11.7 million at December 31, 2012 and 2011, respectively.

j.           Goodwill

Goodwill does not require amortization but is subject to impairment testing. Goodwill impairment testing allows entities to first assess qualitative factors and circumstance to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. At December 31, 2012, the Company performed an assessment of key factors and determined that impairment of goodwill was not likely.

k.           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 $19.1 million and $18.5 million at December 31, 2012 and 2011, respectively.

l.           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.

m.           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 2012 or 2011.

n.           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.

o.           Advertising Costs

The Company expenses marketing and advertising costs as incurred.

p.           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.

q.           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.

r.           Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 16-Fair Value Measurements and Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

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SIGNIFICANT CONCENTRATIONS OF CREDIT RISK (Details) (Product Concentration Risk [Member])	12 Months Ended
	Dec. 31, 2012
Product Concentration Risk [Member]
Concentration Risk [Line Items]
Maximum amortization terms on loan origination	30 years
Loan to value ratio (in hundredths)	80.00%

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SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE (Tables)

12 Months Ended

Dec. 31, 2012

SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE [Abstract]

Service Fees, Charges And Other Operating Income And Other Operating Expense

	For the year ended December 31,
	2012		2011
	(in thousands)
Service fees, charges and other operating income
Loan servicing fees, net	$	139	$	25
Late charge income		117		110
Deposit service charges		581		666
Debit card income		539		512
Other income		395		385
	$	1,771	$	1,698
Other operating expense
Insurance and surety bond	$	178	$	192
Office supplies		184		164
Loan expense		228		310
Debit card and ATM expense		272		245
Postage		246		231
Telephone		288		261
Supervisory examination fees		73		169
Other expenses		578		625
	$	2,047	$	2,197

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Principles of Consolidation and Basis of Presentation

a.           Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Penns Trail Development Corporation and 3rd Fed, including 3rd Fed'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.

Cash and Cash Equivalents

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.

Investment and Mortgage-Backed Securities

c.           Investment and Mortgage-Backed Securities

The Company classifies its investment and mortgage-backed 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 and mortgage-backed 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 and Fair Value of Financial Instruments 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 Federal National Mortgage Association ("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.

Loans Receivable, net

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 and direct origination costs. Loan origination fees and costs on 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: owner and non-owner occupied commercial, multi-family real estate, construction, commercial and industrial, one-to four-family residential, and consumer which is predominately real estate secured junior liens and home equity lines of credit as well as other consumer loans. 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 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 nonaccrual 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, 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.

Loans Receivable, Held-for-Sale

e.           Loans Receivable, Held-for-Sale

Mortgage loans originated and intended for sale in the secondary market are carried at fair value on an individual basis. Any resulting gain or loss is included in other operating income.

Troubled Debt Restructurings

f.           Troubled Debt Restructurings

Loans whose terms are modified are classified as Troubled Debt Restructurings ("TDRs") if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring may include extending the maturity date of the loan, reducing the interest rate on the loan to a rate which is below market, a combination of rate adjustments and maturity extensions, or by other means including covenant modifications, forbearances or other concessions. Interest income is not accrued on loans that had been placed on nonaccrual prior to the troubled debt restructuring until they have performed in accordance with their restructured terms for a period of at least six months.  The Company evaluates the ALLL needed with respect to TDRs under the same policy and guidelines as all other loans, and TDRs are evaluated individually for impairment.

Transfers of Financial Assets

g.           Transfers of Financial Assets

The Company accounts for the transfers 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. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Mortgage servicing rights ("MSRs") are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Under the applicable accounting guidance regarding servicing assets and liabilities, servicing rights resulting from the sale of loans originated by the Company are initially measured at fair value at the date of transfer. Fair value is based on market prices for comparable mortgage servicing rights, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The Company subsequently recognizes mortgage servicing expense for each class of servicing assets using the amortization method. MSRs are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance charged to servicing fee income for an individual tranche, to the extent that fair value is less than the amortized cost for the tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to other operating income. These servicing rights are included in other assets in the Consolidated Balance Sheets and are discussed in Note 16-Fair Value Measurements and Fair Value of Financial Instruments.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of loan servicing rights is recorded as a reduction of service fee income.

Premises and Equipment

h.           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, 2012 and 2011.

Foreclosed Real Estate

i.           Foreclosed Real Estate

Real estate acquired through, or in lieu of, loan foreclosure is carried at the fair value of the property, based on an appraisal less estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance (any direct write-down) are included in foreclosed real estate expense. Included in other assets is foreclosed real estate of $7.3 million and $11.7 million at December 31, 2012 and 2011, respectively.

Goodwill

j.           Goodwill

Goodwill does not require amortization but is subject to impairment testing. Goodwill impairment testing allows entities to first assess qualitative factors and circumstance to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. At December 31, 2012, the Company performed an assessment of key factors and determined that impairment of goodwill was not likely.

Bank Owned Life Insurance

k.           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 $19.1 million and $18.5 million at December 31, 2012 and 2011, respectively.

Benefit Plans

l.           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.

Stock-Based Compensation

m.           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 2012 or 2011.

Income Taxes

n.           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.

Advertising Costs

o.           Advertising Costs

The Company expenses marketing and advertising costs as incurred.

Earnings Per Share

p.           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.

Segment Reporting

q.           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.

Fair Value of Financial Instruments

r.           Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 16-Fair Value Measurements and Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

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MERGERS AND ACQUISITIONS

12 Months Ended

Dec. 31, 2012

MERGERS AND ACQUISITIONS [Abstract]

MERGERS AND ACQUISITIONS

NOTE 20—MERGERS AND ACQUISITIONS

On December 28, 2012, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Roebling Financial Corp, Inc. ("Roebling"), the parent company of Roebling Bank, under which the Company will acquire Roebling for approximately $14.5 million in stock and cash.

Under the terms of the Merger Agreement, Roebling will merge with and into the Company (the "Merger") after which Roebling Bank will merge with and into 3rd Fed.  Each outstanding share of Roebling common stock will be converted into the right to receive $8.60 per share or 0.3640 shares of the Company's common stock, at the election of Roebling shareholders, subject to proration.  The aggregate cash consideration to be paid pursuant to the Merger Agreement must not exceed 50% of the total merger consideration (including any cash paid in connection with shares held by the employee stock ownership plan and not allocated to participant accounts). Cash will be paid in lieu of fractional shares at a value based on the average closing sale price of the Company's common stock for the twenty trading days immediately prior to the closing date.

In the event of a greater than 15% decline in market value of the Company's common stock immediately prior to the announcement of the Merger, which percentage decline exceeds any decline in the NASDAQ Bank Index from its starting point by more than 15%, Roebling may be able to terminate the Merger Agreement unless the Company increases the number of shares into which Roebling common stock may be converted.

The Merger is intended to qualify as a tax-free reorganization for federal income tax purposes.  As a result, the shares of Roebling exchanged for the Company's shares will be transferred on a tax-free basis.   The Merger is expected to close during the second or third quarter of 2013.  If the Merger is not consummated under certain circumstances, Roebling has agreed to pay the Company a termination fee of $650,000.

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BENEFIT PLANS, ESOP (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
ESOP [Abstract]
Service requirement to become eligible for the ESOP	6 months
ESOP debt	$ 4,200,000
Shares purchased for the ESOP (in shares)	423,200
Employee Stock Ownership Plan (ESOP), Compensation Expense	286,000	222,000
Employee Stock Ownership Plan (ESOP), Shares in ESOP [Abstract]
Allocated shares (in shares)	184,000	177,000
Unreleased shares (in shares)	103,000	115,000
Total ESOP shares (in shares)	287,000	292,000
Fair value of unreleased shares	$ 2,446,000	$ 2,615,000

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EARNINGS PER SHARE (Tables)

12 Months Ended

Dec. 31, 2012

EARNINGS PER SHARE [Abstract]

Reconciliation of Numerators and Denominators of the Basic and Diluted Earnings per Share Computations

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

	For the year ended December 31, 2012
			Weighted
			average
	Income		shares		Per share
	(numerator)		(denominator)		Amount
	(dollars in thousands, except share data)
Basic earnings per share
Income available to common stockholders	$	5,383		2,726,133	$	1.97
Effect of dilutive securities
Stock compensation plans		—		3,629		—
Diluted earnings per share
Income available to common stockholders plus effect of dilutive securities	$	5,383		2,729,762	$	1.97

	For the year ended December 31, 2011
			Weighted
			average
	Income		shares		Per share
	(numerator)		(denominator)		Amount
	(dollars in thousands, except share data)
Basic earnings per share
Income available to common stockholders	$	3,929		2,702,200	$	1.45
Effect of dilutive securities
Stock compensation plans		—		510		—
Diluted earnings per share
Income available to common stockholders plus effect of dilutive securities	$	3,929		2,702,710	$	1.45

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CASH AND CASH EQUIVALENTS (Tables)

12 Months Ended

Dec. 31, 2012

CASH AND CASH EQUIVALENTS [Abstract]

Cash and Cash Equivalents

Cash and cash equivalents consist of the following:

	At December 31,
	2012		2011
	(in thousands)
Cash and due from banks	$	4,697	$	4,498
Interest-bearing deposits in other financial institutions		26,440		10,430
	$	31,137	$	14,928

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INVESTMENT SECURITIES (Tables)

12 Months Ended

Dec. 31, 2012

INVESTMENT SECURITIES [Abstract]

Amortized Cost, Gross Unrealized Gains and Losses and Fair Value of Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company's investment securities, are summarized as follows:

	At December 31, 2012
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(in thousands)
Available for sale
State and political subdivisions	$	55,254	$	4,360	$	(4	)	$	59,610
Residential mortgage-backed securities isued by quasi-governmental agencies		41,265		1,409		—			42,674
Total investment securities available for sale		96,519		5,769		(4	)		102,284
Held to maturity
Residential mortgage-backed securities issued by quasi-governmental agencies		1,965		306		—			2,271
Total investment securities	$	98,484	$	6,075	$	(4	)	$	104,555
	At December 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(in thousands)
Available for sale
U.S. Government and federal agencies	$	2,995	$	35	$	—		$	3,030
State and political subdivisions		51,287		3,804		—			55,091
Residential mortgage-backed securities issued by quasi-governmental agencies		45,969		1,525		—			47,494
Residential mortgage-backed securities privately issued		8,723		195		(30	)		8,888
Total investment securities available for sale		108,974		5,559		(30	)		114,503
Held to maturity
Residential mortgage-backed securities issued by quasi-governmental agencies		2,588		340		—			2,928
Total investment securities	$	111,562	$	5,899	$	(30	)	$	117,431

Investment Securities Maturities

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

	At December 31, 2012
	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
	(in thousands)
Investment securities
Due in one year or less	$	602	$	608	$	—	$	—
Due after one year through five years		9,514		10,040		—		—
Due after five years through ten years		25,154		26,848		—		—
Due after ten years		19,984		22,114		—		—
		55,254		59,610		—		—
Mortgage-backed  securities		41,265		42,674		1,965		2,271
Total investment securities	$	96,519	$	102,284	$	1,965	$	2,271

Length of Time Securities Have Been in Continuous Unrealized Loss Position

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, 2012:

	Number		Less than 12 months					12 months or longer				Total
Description of Securities	of Securities		Fair  Value		Unrealized Loss			Fair  Value		Unrealized Loss		Fair   Value		Unrealized Loss
	(dollars in thousands)
State and political subdivisions		1	$	617	$	(4	)	$	—	$	—	$	617	$	(4	)
Total temporarily impaired securities		1	$	617	$	(4	)	$	—	$	—	$	617	$	(4	)

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, 2011:

	Number		Less than 12 months					12 months or longer				Total
Description of Securities	of Securities		Fair  Value		Unrealized Loss			Fair  Value		Unrealized Loss		Fair  Value		Unrealized Loss
	(dollars in thousands)
Residential mortgage-backed securities privately issued		2	$	3,442	$	(30	)	$	—	$	—	$	3,442	$	(30	)
Total temporarily impaired securities		2	$	3,442	$	(30	)	$	—	$	—	$	3,442	$	(30	)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
OPERATING ACTIVITIES
Net income	$ 5,383	$ 3,929
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and impairment adjustment of mortgage loan servicing rights	358	353
Premiums and discounts on investment securities, net	245	135
Premiums and discounts on mortgage-backed securities, net	320	166
Deferred loan origination costs, net	150	194
Deferred income taxes	1,194	(77)
Provision for loan losses	2,400	3,728
Depreciation of premises and equipment	781	853
Increase in value of bank owned life insurance	(603)	(638)
Stock-based compensation	493	370
Proceeds from sale of loans originated for sale	53,521	26,453
Origination of loans held for sale	(52,940)	(26,525)
Loss on foreclosed real estate	471	459
Gain on:
Sale of investment securities	(85)	(760)
Sale of loans held for sale	(1,350)	(524)
Disposition of premises and equipment	(277)	0
Decrease (increase) in:
Accrued interest receivable	150	128
Other assets	(248)	419
(Decrease) increase in:
Accrued interest payable	(558)	(409)
Other liabilities	307	426
NET CASH PROVIDED BY OPERATING ACTIVITIES	9,712	8,680
INVESTING ACTIVITIES
Loan originations	(132,292)	(94,586)
Loan principal payments	93,622	92,523
Proceeds from sale of foreclosed real estate	7,626	836
Proceeds from disposition of premises and equipment	356	0
Proceeds from maturities of investment securities available for sale	5,765	6,860
Principal repayments on mortgage-backed securities held to maturity	622	583
Principal repayments on mortgage-backed securities available for sale	26,195	26,651
Proceeds from sale of investment securities available for sale	0	9,206
Proceeds from sale of mortgage-backed securities available for sale	3,822	1,518
Purchase of investment securities available for sale	(6,982)	(13,051)
Purchase of mortgage-backed securities available for sale	(16,824)	(18,646)
Purchase of premises and equipment	(409)	(615)
Redemption of Federal Home Loan Bank stock	2,226	1,744
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES	(16,273)	13,023
FINANCING ACTIVITIES
Net increase in customer deposits	9,027	1,153
Proceeds of long-term FHLB borrowings	39,197	6,573
Repayment of long-term FHLB borrowings	(25,449)	(21,652)
Net increase in advances from borrowers for taxes and insurance	558	156
Treasury stock acquired	0	(122)
Exercise of stock options	7	211
Deferred tax adjustment arising from stock compensation	(27)	0
Tax benefit arising from stock compensation	0	3
Common stock dividends paid	(543)	(534)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES	22,770	(14,212)
NET INCREASE IN CASH AND CASH EQUIVALENTS	16,209	7,491
Cash and cash equivalents at beginning of period	14,928	7,437
Cash and cash equivalents at end of period	31,137	14,928
Cash paid for:
Interest on deposits and borrowings	5,495	7,824
Income taxes	475	1,030
Noncash transactions:
Capitalization of mortgage servicing rights	551	238
Transfers from loans to foreclosed real estate	$ 3,525	$ 5,544

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LOANS RECEIVABLE (Tables)

12 Months Ended

Dec. 31, 2012

LOANS RECEIVABLE [Abstract]

Loans Receivable

Loans receivable are summarized as follows:

	At December 31,
	2012			2011
	(in thousands)
Held for investment:
Residential
Residential mortgages	$	323,665		$	277,824
Commercial
Real estate-commercial		104,766			110,743
Real estate-residential		21,570			25,801
Real estate-multi-family		19,118			19,906
Construction loans		16,288			16,336
Commercial and industrial loans		4,646			4,414
Total commercial loans		166,388			177,200
Consumer
Home equity and second mortgage		40,143			44,165
Other consumer		1,835			1,971
Total consumer loans		41,978			46,136
Total loans		532,031			501,160
Net deferred loan origination costs and unamortized premiums		1,611			1,065
Less allowance for loan losses		(6,922	)		(8,100	)
Total loans receivable	$	526,720		$	494,125
Held for sale:
Residential
Residential mortgages	$	706		$	488

Loans Receivable Credit Quality Indicators

The following tables present by credit quality indicator the composition of the commercial loan portfolio:

Commercial credit exposure-credit risk profile by internally assigned grade

	At December 31, 2012
	Pass		Special mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	91,446	$	4,192	$	9,128	$	—	$	104,766
Real estate-residential		19,244		1,018		1,308		—		21,570
Real estate-multi-family		15,751		—		3,367		—		19,118
Construction loans		7,397		4,097		4,794		—		16,288
Commercial and industrial loans		4,565		81		—		—		4,646
Total	$	138,403	$	9,388	$	18,597	$	—	$	166,388
	At December 31, 2011
	Pass		Special mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	95,719	$	6,189	$	8,835	$	—	$	110,743
Real estate-residential		21,447		2,891		1,463		—		25,801
Real estate-multi-family		12,753		3,768		3,385		—		19,906
Construction loans		4,452		4,312		7,572		—		16,336
Commercial and industrial loans		4,139		100		175		—		4,414
Total	$	138,510	$	17,260	$	21,430	$	—	$	177,200

Mortgage and Consumer Credit Exposure

Mortgage and consumer credit exposure-credit risk profile by payment activity

	At December 31, 2012
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	321,400	$	2,265	$	323,665
Home equity and second mortgage		40,000		143		40,143
Other consumer		1,827		8		1,835
Total	$	363,227	$	2,416	$	365,643
	At December 31, 2011
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	272,322	$	5,502	$	277,824
Home equity and second mortgage		43,888		277		44,165
Other consumer		1,970		1		1,971
Total	$	318,180	$	5,780	$	323,960

Financing Receivables, Non Accrual Status

The following table presents by class nonperforming loans including impaired loans and loan balances past due over 90 days for which the accrual of interest has been discontinued:  

	At December 31,
	2012		2011
	(in thousands)
Residential
Residential mortgages	$	2,265	$	5,502
Commercial
Real estate-commercial		1,098		2,711
Real estate-residential		51		—
Construction loans		4,794		4,044
Commercial and industrial loans		—		6
Consumer
Home equity and second mortgage		143		277
Other consumer		8		1
Total nonperforming loans	$	8,359	$	12,541
Total loans past due 90 days as to interest or principal and accruing interest	$	—	$	—

Loans Individually Evaluated for Impairment by Class

The following tables present by class loans individually evaluated for impairment:

	At December 31, 2012
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
With an allowance recorded:	(in thousands)
Residential
Residential mortgages	$	2,137	$	2,214	$	218	$	2,061	$	—
Commercial
Real estate-commercial		546		1,497		296		697		—
Real estate-residential		51		51		4		298		—
Construction loans		4,737		5,137		1,029		3,604		—
Commercial and industrial loans		—		—		—		2		—
		7,471		8,899		1,547		6,662		—
With no allowance recorded:
Residential
Residential mortgages		—		—		—		698		—
Commercial
Real estate-commercial		552		552		—		1,012		—
Real estate-residential		—		—		—		216		—
Construction loans		57		116		—		1,932		—
		609		668		—		3,858		—
Total	$	8,080	$	9,567	$	1,547	$	10,520	$	—
	At December 31, 2011
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
With an allowance recorded:	(in thousands)
Residential
Residential mortgages	$	1,252	$	1,252	$	388	$	751	$	—
Commercial
Real estate-commercial		1,497		1,497		877		3,581		—
Real estate-residential		—		—		—		497		—
Construction loans		3,816		3,816		1,035		4,143		—
Commercial and industrial loans		6		6		3		72		—
		6,571		6,571		2,303		9,044		—
With no allowance recorded:
Residential
Residential mortgages		2,381		2,381		—		1,497		—
Commercial
Real estate-commercial		1,214		1,214		—		1,270		—
Real estate-residential		—		—		—		459		—
Construction loans		228		228		—		1,642		—
		3,823		3,823		—		4,868		—
Total	$	10,394	$	10,394	$	2,303	$	13,912	$	—

Loans Receivable Aging

The following tables present by class the contractual aging of delinquent loans:

	At December 31, 2012
	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)
Residential
Residential mortgages	$	319,982	$	1,161	$	329	$	2,193	$	3,683	$	323,665	$	—
Commercial
Real estate-commercial		102,868		800		—		1,098		1,898		104,766		—
Real estate-residential		21,488		31		—		51		82		21,570		—
Real estate-multi-family		19,118		—		—		—		—		19,118		—
Construction loans		11,494		—		—		4,794		4,794		16,288		—
Commercial and industrial loans		4,646		—		—		—		—		4,646		—
Consumer
Home equity and second  mortgage		39,842		34		124		143		301		40,143		—
Other consumer		1,824		—		3		8		11		1,835		—
Total	$	521,262	$	2,026	$	456	$	8,287	$	10,769	$	532,031	$	—

	At December 31, 2011
	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)
Residential
Residential mortgages	$	273,231	$	98	$	153	$	4,342	$	4,593	$	277,824	$	—
Commercial
Real estate-commercial		108,382		—		—		2,361		2,361		110,743		—
Real estate-residential		25,489		312		—		—		312		25,801		—
Real estate-multi-family		19,906		—		—		—		—		19,906		—
Construction loans		9,151		—		3,141		4,044		7,185		16,336		—
Commercial and industrial loans		4,408		—		—		6		6		4,414		—
Consumer
Home equity and second mortgage		43,712		165		11		277		453		44,165		—
Other consumer		1,956		6		8		1		15		1,971		—
Total	$	486,235	$	581	$	3,313	$	11,031	$	14,925	$	501,160	$	—

Allowance for Credit Losses on Loans Receivable

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

	Balance January 1, 2012		Provision			Charge-offs			Recoveries		Balance December 31, 2012
	(in thousands)
Residential
Residential mortgages	$	2,194	$	367		$	(768	)	$	56	$	1,849
Commercial
Real estate-commercial		2,352		353			(951	)		—		1,754
Real estate-residential		369		726			(487	)		—		608
Real estate-multi-family		350		(105	)		—			—		245
Construction loans		1,830		1,049			(1,182	)		—		1,697
Commercial and industrial loans		138		115			(156	)		22		119
Consumer
Home equity and second mortgage		448		(104	)		(93	)		—		251
Other consumer		22		8			(23	)		4		11
Unallocated		397		(9	)		—			—		388
Total	$	8,100	$	2,400		$	(3,660	)	$	82	$	6,922
	Balance January 1, 2011		Provision			Charge-offs			Recoveries		Balance December 31, 2011
	(in thousands)
Residential
Residential mortgages	$	1,839	$	515		$	(172	)	$	12	$	2,194
Commercial
Real estate-commercial		3,281		82			(1,011	)		—		2,352
Real estate-residential		534		865			(1,030	)		—		369
Real estate-multi-family		399		(49	)		—			—		350
Construction loans		1,363		1,987			(1,521	)		1		1,830
Commercial and industrial loans		77		67			(44	)		38		138
Consumer
Home equity and second mortgage		607		62			(221	)		—		448
Other consumer		16		14			(16	)		8		22
Unallocated		212		185			—			—		397
Total	$	8,328	$	3,728		$	(4,015	)	$	59	$	8,100

Impairment Method for Allowance for Loan Losses and Loan Balance

The following tables present by class the ending balance of the allowance for loan losses and ending loan balance based on the impairment method as of December 31, 2012:

	Evaluated for impairment
Allowance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	218	$	1,631	$	1,849
Commercial
Real estate-commercial		296		1,458		1,754
Real estate-residential		4		604		608
Real estate-multi-family		—		245		245
Construction loans		1,029		668		1,697
Commercial and industrial loans		—		119		119
Consumer
Home equity and second mortgage		—		251		251
Other consumer		—		11		11
Unallocated		—		388		388
Total	$	1,547	$	5,375	$	6,922
	Evaluated for impairment
Loan balance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	2,137	$	321,528	$	323,665
Commercial
Real estate-commercial		1,098		103,668		104,766
Real estate-residential		51		21,519		21,570
Real estate-multi-family		—		19,118		19,118
Construction loans		4,794		11,494		16,288
Commercial and industrial loans		—		4,646		4,646
Consumer
Home equity and second mortgage		—		40,143		40,143
Other consumer		—		1,835		1,835
Total	$	8,080	$	523,951	$	532,031

The following tables present by class the ending balance of the allowance for loan losses and ending loan balance based on impairment method as of December 31, 2011:

	Evaluated for impairment
Allowance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	388	$	1,806	$	2,194
Commercial
Real estate-commercial		877		1,475		2,352
Real estate-residential		—		369		369
Real estate-multi-family		—		350		350
Construction loans		1,035		795		1,830
Commercial and industrial loans		3		135		138
Consumer
Home equity and second mortgage		—		448		448
Other consumer		—		22		22
Unallocated		—		397		397
Total	$	2,303	$	5,797	$	8,100
	Evaluated for impairment
Loan balance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	3,633	$	274,191	$	277,824
Commercial
Real estate-commercial		2,711		108,032		110,743
Real estate-residential		—		25,801		25,801
Real estate-multi-family		—		19,906		19,906
Construction loans		4,044		12,292		16,336
Commercial and industrial loans		6		4,408		4,414
Consumer
Home equity and second mortgage		—		44,165		44,165
Other consumer		—		1,971		1,971
Total	$	10,394	$	490,766	$	501,160

Troubled Debt Restructurings on Loans Receivable

The following table presents by class loans classified as TDRs segregated for the periods indicated:

	For the year ended December 31, 2012						For the year ended December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment
Residential	(dollars in thousands)
Residential mortgage		2	$	950	$	923		2	$	510	$	507
Total		2	$	950	$	923		2	$	510	$	507

The following table presents loans classified as TDRs that subsequently defaulted:

	For the year ended December 31, 2011
	Number of Contracts		Recorded Investment
Residential	(dollars in thousands)
Residential mortgage		1	$	169
Total		1	$	169

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Tables)

12 Months Ended

Dec. 31, 2012

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK [Abstract]

Schedule of Off-balance Sheet Risks

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

	At December 31,
	2012		2011
	(in thousands)
Commitments to extend credit	$	74,571	$	67,435
Standby letters of credit		780		710
Loans sold with recourse		50		52
	$	75,401	$	68,197

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ADVANCES FROM THE FHLB (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
ADVANCES FROM THE FHLB [Abstract]
Weighted average interest rate on principal payments due (in hundredths)	1.88%	3.37%
Federal Home Loan Bank, Advances, Principal Payments Due [Abstract]
Amount of principal due during the next twelve months	$ 14,754,000	$ 25,259,000
Year two	4,287,000	10,187,000
Year three	3,669,000	3,398,000
Year four	10,887,000	2,767,000
Year five	14,895,000	3,969,000
Year six		961,000
Thereafter	12,164,000	367,000
Advances total	60,656,000	46,908,000
Federal Home Loan Bank, Advances, Maturities Weighted Average Interest Rate [Abstract]
One year (in hundredths)	2.79%	3.88%
Two years (in hundredths)	2.40%	3.30%
Three years (in hundredths)	2.16%	2.52%
Four years (in hundredths)	1.38%	2.28%
Five years (in hundredths)	1.12%	2.22%
Six years (in hundredths)		2.19%
Thereafter (in hundredths)	2.43%	2.08%
FHLB Advance Disclosures [Abstract]
Advances collateralized totaling approximately	337,000,000
Maximum borrowing capacity	251,500,000
Total unused lines of credit at the FHLB	$ 60,000,000

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 31,137	$ 14,928
Investment securities
Available for sale	102,284	114,503
Held to maturity (fair value of $2,271 and $2,928 as of December 31, 2012 and 2011, respectively)	1,965	2,588
Loans receivable, net	526,720	494,125
Loans receivable, held for sale	706	488
Federal Home Loan Bank stock-at cost	5,431	7,657
Accrued interest receivable	2,460	2,610
Premises and equipment, net	6,108	6,559
Goodwill	4,324	4,324
Bank owned life insurance	19,109	18,506
Other assets	11,592	15,641
TOTAL ASSETS	711,836	681,929
Liabilities
Deposits	560,315	551,288
Advances from the FHLB	60,656	46,908
Advances from borrowers for taxes and insurance	2,880	2,322
Accrued interest payable	817	1,375
Other liabilities	4,223	2,628
Total liabilities	628,891	604,521
Stockholders' equity
Preferred stock, no par value; 2,000,000 shares authorized at December 31, 2012 and 2011, none issued	0	0
Common stock, $0.10 par value; 10,000,000 shares authorized, 5,290,000 shares issued, 2,838,493 and 2,831,874 shares outstanding at December 31, 2012 and 2011, respectively, net of shares in treasury: 2012-2,451,507; 2011-2,458,126.	529	529
Additional paid-in capital	54,328	54,118
Unearned ESOP shares	(970)	(1,097)
Treasury stock-at cost	(50,896)	(51,032)
Retained earnings	78,984	74,144
Accumulated other comprehensive income	970	746
Total stockholders' equity	82,945	77,408
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 711,836	$ 681,929

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CONDENSED FINANCIAL INFORMATION-PARENT COMPANY ONLY (Tables)

12 Months Ended

Dec. 31, 2012

CONDENSED FINANCIAL INFORMATION-PARENT COMPANY ONLY [Abstract]

Schedule of Condensed Financial Statements

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

BALANCE SHEETS
	At December 31,
	2012		2011
	(in thousands)
ASSETS
Cash	$	2,031		$	1,414
Investment in 3rd Fed		78,032			73,117
Investment in Penns Trail Development		1,077			1,087
Notes receivable ESOP		1,208			1,352
Other assets		723			465
Total assets	$	83,071		$	77,435
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities	$	126		$	27
Stockholders' equity		82,945			77,408
Total liabilities and stockholders' equity	$	83,071		$	77,435

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
	For the year ended December 31,
		2012		2011
	(in thousands)
INCOME
Equity in earnings of subsidiaries	$	5,963	$	4,432
Interest and dividend income		22		6
Total income		5,985		4,438
EXPENSES
Other		602		509
Total expenses		602		509
NET INCOME		5,383		3,929
Total other comprehensive income (2)		224		135
Total comprehensive income	$	5,607	$	4,064

(2) See Consolidated Statements of Comprehensive Income for other comprehensive income detail.

STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2012			2011
	(in thousands)
Cash flows from operating activities
Net income	$	5,383		$	3,929
Adjustments to reconcile net income to net cash used in operating activities
Stock compensation plans		176			114
Equity in earnings of subsidiaries		(5,963	)		(4,432	)
Net change in assets and liabilities		(16	)		(300	)
Net cash used in operating activities		(420	)		(689	)
Cash flows from investing activities
Capital distribution from subsidiaries		1,600			1,548
Net cash provided by investing activities		1,600			1,548
Cash flows from financing activities
Common stock dividends paid		(543	)		(534	)
Treasury stock acquired		—			(122	)
Exercise of stock options		7			211
Deferred tax adjustment arising from stock compensation		(27	)		—
Tax benefit arising from stock compensation		—			3
Net cash used in financing activities		(563	)		(442	)
NET INCREASE IN CASH		617			417
Cash at beginning of year		1,414			997
Cash at end of year	$	2,031		$	1,414

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Common Stock [Member]	Additional Paid-in Capital [Member]	Unearned ESOP shares [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2010	$ 529	$ 53,964	$ (1,217)	$ (51,220)	$ 70,749	$ 611	$ 73,416
Balance (in shares) at Dec. 31, 2010	2,694,676
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Allocation of ESOP shares	0	136	120	0	0	0	256
Allocation of ESOP shares (in shares)	12,018
Purchase of treasury stock	0	0	0	(122)	0	0	(122)
Purchase of treasury stock (in shares)	(5,439)
Cash dividends-common stock	0	0	0	0	(534)	0	(534)
Director compensation	0	0	0	69	0	0	69
Director compensation (in shares)	3,248
Compensation expense restricted shares	0	13	0	0	0	0	13
Exercise of options	0	(16)	0	227	0	0	211
Exercise of options (in shares)	10,916
Income tax benefit arising from stock compensation	0	3	0	0	0	0	3
Stock option expense	0	32	0	0	0	0	32
Vesting of restricted stock grant	0	(14)	0	14	0	0	0
Vesting of restricted stock grant (in shares)	700
Unrealized gains on securities, net of tax	0	0	0	0	0	1,493	1,493
Adjustment to record funded status of pension, net of tax	0	0	0	0	0	(1,358)	(1,358)
Net income	0	0	0	0	3,929	0	3,929
Balance at Dec. 31, 2011	529	54,118	(1,097)	(51,032)	74,144	746	77,408
Balance (in shares) at Dec. 31, 2011	2,716,119
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Allocation of ESOP shares	0	190	127	0	0	0	317
Allocation of ESOP shares (in shares)	13,104
Cash dividends-common stock	0	0	0	0	(543)	0	(543)
Director compensation	0	20	0	129	0	0	149
Director compensation (in shares)	6,304
Exercise of options	0	0	0	7	0	0	7
Exercise of options (in shares)	315
Deferred tax adjustment arising from stock compensation	0	(27)	0	0	0	0	(27)
Stock option expense	0	27	0	0	0	0	27
Unrealized gains on securities, net of tax	0	0	0	0	0	156	156
Adjustment to record funded status of pension, net of tax	0	0	0	0	0	68	68
Net income	0	0	0	0	5,383	0	5,383
Balance at Dec. 31, 2012	$ 529	$ 54,328	$ (970)	$ (50,896)	$ 78,984	$ 970	$ 82,945
Balance (in shares) at Dec. 31, 2012	2,735,842

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REGULATORY MATTERS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Actual Amount [Abstract]
Tangible capital (to tangible assets)	$ 73,612	$ 69,144
Core capital (to adjusted tangible assets)	73,612	69,144
Tier 1 capital (to risk weighted assets)	73,612	69,144
Total Risk	79,161	74,147
Actual Ratio [Abstract]
Tangible capital (to tangible assets) (in hundredths)	10.45%	10.21%
Core capital (to adjusted tangible assets) (in hundredths)	10.45%	10.21%
Tier 1 capital (to risk weighted assets) (in hundredths)	16.63%	17.31%
Total Risk (in hundredths)	17.89%	18.56%
For Capital Adequacy Purposes Amount [Abstract]
Tangible capital (to tangible assets)	10,562	10,154
Core capital (to adjusted tangible assets)	28,164	27,078
Tier 1 capital (to risk weighted assets)	17,703	15,976
Total Risk	35,407	31,953
For Capital Adequacy Purposes Ratio [Abstract]
Tangible capital (to tangible assets) (in hundredths)	1.50%	1.50%
Core capital (to adjusted tangible assets) (in hundredths)	4.00%	4.00%
Tier 1 capital (to risk weighted assets) (in hundredths)	4.00%	4.00%
Total Risk (in hundredths)	8.00%	8.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions Amount [Abstract]
Tangible capital (to tangible assets)	0	0
Core capital (to adjusted tangible assets)	35,206	33,847
Tier 1 capital (to risk weighted assets)	26,555	23,965
Total Risk	$ 44,259	$ 39,941
To Be Well Capitalized Under Prompt Corrective Action Provision Ratio [Abstract]
Core capital (to adjusted tangible assets) (in hundredths)	5.00%	5.00%
Tier 1 capital (to risk weighted assets) (in hundredths)	6.00%	6.00%
Total Risk (in hundredths)	10.00%	10.00%

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DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2012

DEPOSITS [Abstract]

Deposits Summary

Deposits are summarized as follows:

	At December 31,
	2012		2011
	(in thousands)
Deposit Type
Demand	$	52,433	$	43,910
NOW		76,370		65,677
Money market		153,827		155,010
Passbook savings		106,268		105,617
Total demand, transaction and passbook deposits		388,898		370,214
Certificates of deposit		171,417		181,074
	$	560,315	$	551,288

Deposit Maturities By Year

At December 31, 2012, scheduled maturities of certificates of deposit by year are as follows:

Maturity year
2013		2014		2015		2016		2017		Thereafter		Total
(in thousands)
$	114,386	$	32,593	$	12,868	$	7,964	$	3,441	$	165	$	171,417

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FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Part III (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets [Abstract]
Mortgage-backed securities	$ 2,271
Liabilities [Abstract]
Borrowings with stated maturities	60,656	46,908
Carrying Value [Member]
Assets [Abstract]
Cash and cash equivalents	31,137	14,928
Investment securities	59,610	58,121
Mortgage-backed securities	44,639	58,970
Loans receivable	527,426	494,613
Liabilities [Abstract]
Deposits with stated maturities	171,417	181,074
Deposits with no stated maturities	388,898	370,214
Borrowings with stated maturities	60,656	46,908
Fair Value [Member]
Assets [Abstract]
Cash and cash equivalents	31,137	14,928
Investment securities	59,610	58,121
Mortgage-backed securities	44,945	59,310
Loans receivable	539,665	516,359
Liabilities [Abstract]
Deposits with stated maturities	175,025	183,306
Deposits with no stated maturities	388,898	370,214
Borrowings with stated maturities	60,939	48,092
Level 1 [Member]
Assets [Abstract]
Cash and cash equivalents	31,137
Investment securities	0
Mortgage-backed securities	0
Loans receivable	0
Liabilities [Abstract]
Deposits with stated maturities	0
Deposits with no stated maturities	388,898
Borrowings with stated maturities	0
Level 2 [Member]
Assets [Abstract]
Cash and cash equivalents	0
Investment securities	59,610
Mortgage-backed securities	44,945
Loans receivable	706
Liabilities [Abstract]
Deposits with stated maturities	0
Deposits with no stated maturities	0
Borrowings with stated maturities	0
Level 3 [Member]
Assets [Abstract]
Cash and cash equivalents	0
Investment securities	0
Mortgage-backed securities	0
Loans receivable	538,959
Liabilities [Abstract]
Deposits with stated maturities	175,025
Deposits with no stated maturities	0
Borrowings with stated maturities	$ 60,939

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 14—COMMITMENTS AND CONTINGENCIES

The Bank had optional commitments of $7.5 million and $5.3 million to sell mortgage loans to investors at December 31, 2012 and 2011, 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 $554,000 and $574,000 for the years ended December 31, 2012 and 2011, respectively.

The minimum annual rental commitments of the Bank under all noncancelable leases with terms of one year or more at December 31, 2012 are as follows:

Year ending December 31,	2012
	(in thousands)
2013	$	470
2014		399
2015		236
2016		168
2017		133
Thereafter		948
Total	$	2,354

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, 2012 was approximately $2.3 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.

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ADVANCES FROM THE FHLB (Tables)

12 Months Ended

Dec. 31, 2012

ADVANCES FROM THE FHLB [Abstract]

Schedule of Advances from the FHLB

Advances from the FHLB consist of the following:

	At December 31,
	2012					2011
Principal payments due during			Weighted					Weighted
	Amount		average rate			Amount		average rate
	(in thousands)
2012	$	—		—	%	$	25,259		3.88	%
2013		14,754		2.79	%		10,187		3.30	%
2014		4,287		2.40	%		3,398		2.52	%
2015		3,669		2.16	%		2,767		2.28	%
2016		10,887		1.38	%		3,969		2.22	%
2017		14,895		1.12	%		961		2.19	%
Thereafter		12,164		2.43	%		367		2.08	%
	$	60,656		1.88	%	$	46,908		3.37	%

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FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2012

FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS [Abstract]

FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 16—FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011. 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:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
	(in thousands)
Assets
Investment securities available for sale
State and political subdivisions	$	—	$	59,610	$	—	$	59,610
Residential mortgage-backed securities issued by quasi- governmental agencies		—		42,674		—		42,674
Total investment securities available for sale	$	—	$	102,284	$	—	$	102,284
Loans receivable, held for sale	$	—	$	706	$	—	$	706
							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3			2011
	(in thousands)
Assets
Investment securities available for sale
U.S. Government and federal agencies	$	—	$	3,030	$	—	$	3,030
State and political subdivisions		—		55,091		—		55,091
Residential mortgage-backed securities issued by quasi- governmental agencies		—		47,494		—		47,494
Residential real estate mortgage-backed securities privately issued		—		8,888		—		8,888
Total investment securities available for sale	$	—	$	114,503	$	—	$	114,503
Loans receivable, held for sale	$	—	$	488	$	—	$	488

Investment and mortgage-backed securities available for sale are valued primarily by a third party pricing agent. U.S. Government and federal agency securities are primarily priced through a multidimensional 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.

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

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
Impaired loans	$	—	$	—	$	6,533	$	6,533
Real estate acquired through foreclosure		—		—		7,282		7,282
Mortgage servicing rights		—		956		—		956

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Bank has utilized Level 3 inputs to determine fair value at December 31, 2012:

		Fair value		Valuation	Unobservable	Range of
Description		estimate		technique	Input	inputs
	(in thousands)
Impaired loans		$	6,533	Appraisal of collateral (1)	Discount rate to reflect current market conditions and ultimate recoverability		5%-15	%
Real estate acquired through foreclosure			7,282	Appraisal of collateral (1)	Discount rate to reflect current market conditions and liquidation expenses		5%-20	%

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The fair value of impaired loans is generally determined through independent appraisals of the underlying collateral, which generally include Level 3 inputs that are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. 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. The range and weighted average of liquidation expenses are presented as a percent of the appraised value. The significant unobservable inputs used in the fair value measurements of the Company's impaired loans using discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements.  The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.

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 real estate acquired through foreclosure based on appraisals prepared by qualified independent licensed appraisers contracted by the Company to perform the assessment and is therefore classified as a Level 3 hierarchy.

Assets measured at fair value on a nonrecurring basis segregated by fair value hierarchy level at December 31, 2011 are summarized below:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2011
Impaired loans	$	—	$	—	$	8,091	$	8,091
Real estate acquired through foreclosure		—		—		11,730		11,730
Mortgage servicing rights		—		763		—		763

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 $1.3 million and $1.0 million at December 31, 2012 and 2011, respectively. The fair value of the mortgage servicing rights was $956,000 and $763,000 at December 31, 2012 and 2011, respectively.

In addition to financial instruments recorded at fair value in the Company's financial statements, disclosure of the estimated fair value of all of an entity's assets and liabilities considered to be financial instruments is also required. 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 and to not engage in trading or significant sales activities. For fair value disclosure purposes, the Company substantially utilized the established fair value measurement hierarchy.

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.

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 recorded carrying amounts and fair values segregated by fair value hierarchy level at December 31, 2012 are summarized below:

	Carrying		Fair		Fair value hierarchy levels
	value		value		Level 1		Level 2		Level 3
Assets	(in thousands)
Cash and cash equivalents	$	31,137	$	31,137	$	31,137	$	—	$	—
Investment securities		59,610		59,610		—		59,610		—
Mortgage-backed securities		44,639		44,945		—		44,945		—
Loans receivable		527,426		539,665		—		706		538,959
Liabilities
Deposits with stated maturities	$	171,417	$	175,025	$	—	$	—	$	175,025
Deposits with no stated maturities		388,898		388,898		388,898		—		—
Borrowings with stated maturities		60,656		60,939		—		—		60,939

The recorded carrying amounts and fair values at December 31, 2011 are summarized below:

	At December 31, 2011
	Carrying value		Fair value
	(in thousands)
Assets
Cash and cash equivalents	$	14,928	$	14,928
Investment securities		58,121		58,121
Mortgage-backed securities		58,970		59,310
Loans receivable		494,613		516,359
Liabilities
Deposits with stated maturities	$	181,074	$	183,306
Deposits with no stated maturities		370,214		370,214
Borrowings with stated maturities		46,908		48,092

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 as discussed earlier.

The fair value of loans receivable has been estimated using the present value of cash flows, discounted at the approximate current market rates, and giving consideration to estimated prepayment risk. Loans receivable also includes loans receivable held for sale.

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.

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

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.

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CONDENSED FINANCIAL INFORMATION-PARENT COMPANY ONLY (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
ASSETS [Abstract]
Other assets	$ 11,592		$ 15,641
TOTAL ASSETS	711,836		681,929
LIABILITIES AND STOCKHOLDERS' EQUITY [Abstract]
Total liabilities	628,891		604,521
Stockholders' equity	82,945		77,408		73,416
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	711,836		681,929
EXPENSE [Abstract]
NET INCOME	5,383		3,929
Total other comprehensive income	224		135
Comprehensive income	5,607		4,064
Cash flows from operating activities [Abstract]
Net income	5,383		3,929
Adjustments to reconcile net income to net cash provided by operating activities [Abstract]
Stock-based compensation	493		370
Net cash used in operating activities	9,712		8,680
Cash flows from investing activities [Abstract]
Net cash provided by investing activities	(16,273)		13,023
Cash flows from financing activities [Abstract]
Common stock dividends paid	(543)		(534)
Payments for Repurchase of Common Stock	0		(122)
Proceeds from Stock Options Exercised	7		211
Deferred tax adjustment arising from stock compensation	(27)		0
Employee Service Share-based Compensation, Tax Benefit Realized from Exercise of Stock Options	0		3
Net cash used in financing activities	22,770		(14,212)
NET INCREASE IN CASH AND CASH EQUIVALENTS	16,209		7,491
Cash and cash equivalents at beginning of period	14,928		7,437
Cash and cash equivalents at end of period	31,137		14,928
Parent Company Only - TF Financial Corporation [Member]
ASSETS [Abstract]
Cash	2,031		1,414
Notes receivable ESOP	1,208		1,352
Other assets	723		465
TOTAL ASSETS	83,071		77,435
LIABILITIES AND STOCKHOLDERS' EQUITY [Abstract]
Total liabilities	126		27
Stockholders' equity	82,945		77,408
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	83,071		77,435
INCOME [Abstract]
Equity in earnings of subsidiaries	5,963		4,432
Interest and dividend income	22		6
Total income	5,985		4,438
EXPENSE [Abstract]
Other	602		509
Total expenses	602		509
NET INCOME	5,383		3,929
Total other comprehensive income	224	[1]	135	[1]
Comprehensive income	5,607		4,064
Cash flows from operating activities [Abstract]
Net income	5,383		3,929
Adjustments to reconcile net income to net cash provided by operating activities [Abstract]
Stock-based compensation	176		114
Equity in earnings of subsidiaries	(5,963)		(4,432)
Increase (Decrease) in Operating Capital, Total	(16)		(300)
Net cash used in operating activities	(420)		(689)
Cash flows from investing activities [Abstract]
Capital distribution from subsidiaries	1,600		1,548
Net cash provided by investing activities	1,600		1,548
Cash flows from financing activities [Abstract]
Common stock dividends paid	(543)		(534)
Payments for Repurchase of Common Stock	0		(122)
Proceeds from Stock Options Exercised	7		211
Deferred tax adjustment arising from stock compensation	(27)		0
Employee Service Share-based Compensation, Tax Benefit Realized from Exercise of Stock Options	0		3
Net cash used in financing activities	(563)		(442)
NET INCREASE IN CASH AND CASH EQUIVALENTS	617		417
Cash and cash equivalents at beginning of period	1,414		997
Cash and cash equivalents at end of period	2,031		1,414
Parent Company Only - TF Financial Corporation [Member] | Investment in 3rd Fed [Member]
ASSETS [Abstract]
Equity Method Investments	78,032		73,117
Parent Company Only - TF Financial Corporation [Member] | Investment in Penns Trail Development [Member]
ASSETS [Abstract]
Equity Method Investments	$ 1,077		$ 1,087

[1] See Consolidated Statements of Comprehensive Income for other comprehensive income detail.

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [Abstract]
Cash dividends for common stock (in dollars per share)	$ 0.20	$ 0.20

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Investment securities
Mortgage-backed securities held to maturity, fair value	$ 2,271	$ 2,928
Stockholders' equity
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, authorized (in shares)	2,000,000	2,000,000
Preferred stock, issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	5,290,000	5,290,000
Common stock, outstanding (in shares)	2,838,493	2,831,874
Common stock, in treasury (in shares)	2,451,507	2,458,126

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ADVANCES FROM THE FHLB

12 Months Ended

Dec. 31, 2012

ADVANCES FROM THE FHLB [Abstract]

ADVANCES FROM THE FHLB

NOTE 9—ADVANCES FROM THE FHLB

Advances from the FHLB consist of the following:

	At December 31,
	2012					2011
Principal payments due during			Weighted					Weighted
	Amount		average rate			Amount		average rate
	(in thousands)
2012	$	—		—	%	$	25,259		3.88	%
2013		14,754		2.79	%		10,187		3.30	%
2014		4,287		2.40	%		3,398		2.52	%
2015		3,669		2.16	%		2,767		2.28	%
2016		10,887		1.38	%		3,969		2.22	%
2017		14,895		1.12	%		961		2.19	%
Thereafter		12,164		2.43	%		367		2.08	%
	$	60,656		1.88	%	$	46,908		3.37	%

The advances are collateralized by certain first mortgage loans totaling approximately $337.0 million and the FHLB stock owned by the Bank which allow for a maximum borrowing capacity of $251.5 million. Total unused lines of credit at the FHLB were $60.0 million at December 31, 2012. All of the advances from the FHLB are fixed rate, fixed term.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 10, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	TF FINANCIAL CORP
Entity Central Index Key	0000921051
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 48,400,000
Entity Common Stock, Shares Outstanding		2,839,931
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012

XML

BENEFIT PLANS

12 Months Ended

Dec. 31, 2012

BENEFIT PLANS [Abstract]

BENEFIT PLANS

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 $78,000 in both 2012 and 2011.

b.           Defined Benefit Plan

The Bank has a noncontributory 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:

	At December 31,
	2012			2011
	(in thousands)
Reconciliation of projected benefit obligation
Benefit obligation at beginning of year	$	8,045		$	5,837
Service cost		736			565
Interest cost		360			328
Actuarial loss		339			1,411
Amendments		—			—
Benefits paid		(540	)		(96	)
Benefit obligation at end of year	$	8,940		$	8,045
Reconciliation of fair value of assets
Fair value of plan assets at beginning of year	$	8,006		$	7,761
Actual return on plan assets		801			(145	)
Employer contribution		1,500			486
Benefits paid		(540	)		(96	)
Fair value of plan assets at end of year	$	9,767		$	8,006
Funded status at end of year	$	827		$	(39	)

The accumulated benefit obligation at December 31, 2012 and 2011 was $8.1 million and $6.9 million, respectively.

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 2013 is $400,000.

The following table sets forth the amounts recognized in accumulated other comprehensive income for the years ended:

	At December 31,
	2012			2011
	(in thousands)
Net loss	$	(4,270	)	$	(4,372	)
Prior service cost		(27	)		(28	)
Total	$	(4,297	)	$	(4,400	)

The net gain (loss) recognized in accumulated other comprehensive income as an adjustment to the funded status of the plan was $103,000 and $(2.1) million at December 31, 2012 and 2011, respectively. The amounts expected to be amortized from accumulated other comprehensive income in 2013 is $264,000 of net actuarial loss and prior service cost.

	At December 31,
	2012			2011
Weighted-average assumptions used to determine benefit obligations:
Discount rate		4.00	%		4.50	%
Rate of compensation increase		3.00	%		4.00	%

	For the year ended December 31,
	2012			2011
	(in thousands)
Components of net periodic benefit cost
Service cost	$	736		$	565
Interest cost		360			328
Expected return on plan assets		(644	)		(619	)
Amortization of prior service cost		2			2
Recognized net actuarial loss		283			115
Net periodic benefit cost	$	737		$	391

	For the year ended December 31,
	2012			2011
Weighted-average assumptions used to determine net benefit costs:
Discount rate		4.50	%		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 2012 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)
2013	$	125
2014		213
2015		239
2016		275
2017		278
2018-2022		1,864

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 and Fair Value of Financial Instruments. 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.

The following table sets forth by level, within the fair value hierarchy, the plan's financial assets at fair value as of December 31, 2012:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2012
	(in thousands)
Assets
Collective investment trust funds	$	—	$	9,767	$	—	$	9,767
Total plan assets at fair value	$	—	$	9,767	$	—	$	9,767

The following table sets forth by level, within the fair value hierarchy, the plan's financial assets at fair value as of December 31, 2011:

							Balance as of
	Fair value hierarchy levels						December 31,
	Level 1		Level 2		Level 3		2011
	(in thousands)
Assets
Collective investment trust funds	$	—	$	8,006	$	—	$	8,006
Total plan assets at fair value	$	—	$	8,006	$	—	$	8,006

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.

The plan's weighted-average asset allocations by asset category are as follows:

	Percentage of plan assets at December 31,
	2012			2011
Asset Category
Mutual funds		100.00	%		100.00	%
Total		100.00	%		100.00	%

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.

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 allocated 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. ESOP compensation expense included in stock-based compensation totaled $286,000 and $222,000 for the years ended December 31, 2012 and 2011, respectively.

	At December 31,
	2012		2011
Allocated shares		184,000		177,000
Unreleased shares		103,000		115,000
Total ESOP shares		287,000		292,000
Fair value of unreleased shares (in thousands)	$	2,446	$	2,615

 d.           Stock-Based Compensation Plans

A summary of the status of the Company's stock option plans as of December 31, 2012 and 2011, and changes for each of the years in the periods then ended, is as follows:

	2012					2011
	Number of shares			Weighted average exercise price per share		Number of shares			Weighted average exercise price per share
Outstanding at beginning of year		109,765		$	24.41		126,257		$	24.04
Options granted		—			—		—			—
Options exercised		(315	)		19.67		(10,916	)		19.33
Options forfeited		(1,904	)		28.59		(3,370	)		26.10
Options expired		(18,267	)		25.68		(2,206	)		25.44
Outstanding at end of year		89,279			24.08		109,765			24.41
Options exercisable		80,652		$	24.55		92,328		$	25.31

 The following table summarizes information about stock options outstanding at December 31, 2012:

		Options outstanding						Options exercisable
Range of exercise prices		Number		Weighted average remaining contractual life (years)		Weighted average exercise price		Number		Weighted average exercise price
$	19.67 - 28.42		73,126		2.16	$	22.21		64,499	$	22.55
$	28.43 - 32.51		16,153		0.96		32.51		16,153		32.51

89,279 2.60 24.08 80,652 24.55

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

	For the year ended December 31,
	2012		2011
	(in thousands)
Aggregate intrinsic value of
Options outstanding	$	179	$	133
Options exercisable		144		80
Options exercised		1		30
Cash receipts		7		211

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 related to stock options resulted in a tax benefit of $9,000 and $11,000, for the year ended December 31, 2012 and 2011, respectively. There was $22,000 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested options under the stock option plans at December 31, 2012. That cost is expected to be recognized over a weighted average period of 10 months at December 31, 2012.

The following table provides information regarding the Company's stock-based compensation expense associated with stock options and grants:

	For the year ended December 31,
	2012		2011
	(in thousands)
Stock-based compensation expense
Director fees	$	149	$	69
Stock grant expense		—		13
Stock option expense		27		32
Total stock-based compensation expense	$	176	$	114

The table below summarizes the changes in non-vested restricted stock for the year ended December 31, 2011. There were no stock grants during 2012.

	2011
	Number of shares			Weighted average grant price per share
Total non-vested restricted stock grants at January 1, 2011		700		$	19.67
Restricted stock grant		—			—
Vesting of restricted stock		(700	)		19.67
Forfeitures of restricted stock		—			—
Total non-vested restricted stock grants at December 31, 2011		—		$	—

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Interest income
Loans, including fees	$ 25,205	$ 26,373
Investment securities
Fully taxable	2,315	3,406
Exempt from federal taxes	1,692	1,506
Interest-bearing deposits and other	8	3
TOTAL INTEREST INCOME	29,220	31,288
Interest expense
Deposits	3,532	5,467
Borrowings	1,405	1,948
TOTAL INTEREST EXPENSE	4,937	7,415
NET INTEREST INCOME	24,283	23,873
Provision for loan losses	2,400	3,728
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	21,883	20,145
Noninterest income
Service fees, charges and other operating income	1,771	1,698
Gain on sale of investment securities	85	760
Bank owned life insurance	603	638
Gain on sale of loans	1,350	524
Gain on disposition of premises and equipment	277	0
TOTAL NONINTEREST INCOME	4,086	3,620
Noninterest expense
Compensation and benefits	10,982	10,525
Occupancy and equipment	2,795	2,972
Federal deposit insurance premiums	596	675
Professional fees	1,284	1,331
Marketing and advertising	346	312
Foreclosed real estate expense	811	805
Other operating	2,047	2,197
TOTAL NONINTEREST EXPENSE	18,861	18,817
INCOME BEFORE INCOME TAXES	7,108	4,948
Income tax expense	1,725	1,019
NET INCOME	$ 5,383	$ 3,929
Earnings per share-basic (in dollars per share)	$ 1.97	$ 1.45
Earnings per share-diluted (in dollars per share)	$ 1.97	$ 1.45
Weighted average shares outstanding:
Basic (in shares)	2,726,133	2,702,200
Diluted (in shares)	2,729,762	2,702,710

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INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2012

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

NOTE 4—INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of the Company's investment securities, are summarized as follows:

	At December 31, 2012
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(in thousands)
Available for sale
State and political subdivisions	$	55,254	$	4,360	$	(4	)	$	59,610
Residential mortgage-backed securities isued by quasi-governmental agencies		41,265		1,409		—			42,674
Total investment securities available for sale		96,519		5,769		(4	)		102,284
Held to maturity
Residential mortgage-backed securities issued by quasi-governmental agencies		1,965		306		—			2,271
Total investment securities	$	98,484	$	6,075	$	(4	)	$	104,555
	At December 31, 2011
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(in thousands)
Available for sale
U.S. Government and federal agencies	$	2,995	$	35	$	—		$	3,030
State and political subdivisions		51,287		3,804		—			55,091
Residential mortgage-backed securities issued by quasi-governmental agencies		45,969		1,525		—			47,494
Residential mortgage-backed securities privately issued		8,723		195		(30	)		8,888
Total investment securities available for sale		108,974		5,559		(30	)		114,503
Held to maturity
Residential mortgage-backed securities issued by quasi-governmental agencies		2,588		340		—			2,928
Total investment securities	$	111,562	$	5,899	$	(30	)	$	117,431

Gross realized gains were $112,000 and $760,000 for the years ended December 31, 2012 and 2011, respectively. These gains resulted from the sale proceeds of investment and mortgage-backed securities available for sale of $2.7 million and $10.7 million for the years ended December 31, 2012 and 2011, respectively. Gross realized losses for the year ended were $27,000, which resulted from the sale proceeds of mortgage-backed securities available for sale of $1.1 million for the year ended December 31, 2012. There were no gross losses resulting from security sales for the year ended December 31, 2011.

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

	At December 31, 2012
	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
	(in thousands)
Investment securities
Due in one year or less	$	602	$	608	$	—	$	—
Due after one year through five years		9,514		10,040		—		—
Due after five years through ten years		25,154		26,848		—		—
Due after ten years		19,984		22,114		—		—
		55,254		59,610		—		—
Mortgage-backed  securities		41,265		42,674		1,965		2,271
Total investment securities	$	96,519	$	102,284	$	1,965	$	2,271

Investment securities having an aggregate amortized cost of approximately $7.0 million and $7.1 million were pledged to secure public deposits at December 31, 2012 and 2011, 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 FHLB totaling $5.4 million and $7.7 million as of December 31, 2012 and 2011, 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, 2012 the Company was required to hold $4.1 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. 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. Redemptions of FHLB stock totaled $2.2 million and $1.7 million for the years ended December 31, 2012 and 2011, respectively. 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, 2012 or 2011.

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, 2012:

	Number		Less than 12 months					12 months or longer				Total
Description of Securities	of Securities		Fair  Value		Unrealized Loss			Fair  Value		Unrealized Loss		Fair   Value		Unrealized Loss
	(dollars in thousands)
State and political subdivisions		1	$	617	$	(4	)	$	—	$	—	$	617	$	(4	)
Total temporarily impaired securities		1	$	617	$	(4	)	$	—	$	—	$	617	$	(4	)

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, 2011:

	Number		Less than 12 months					12 months or longer				Total
Description of Securities	of Securities		Fair  Value		Unrealized Loss			Fair  Value		Unrealized Loss		Fair  Value		Unrealized Loss
	(dollars in thousands)
Residential mortgage-backed securities privately issued		2	$	3,442	$	(30	)	$	—	$	—	$	3,442	$	(30	)
Total temporarily impaired securities		2	$	3,442	$	(30	)	$	—	$	—	$	3,442	$	(30	)

The Company evaluates debt securities on a quarterly basis to determine whether OTTI exists. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns. The Company does not intend to sell these securities and it is not more likely than not that it will be required to sell these securities. Accordingly, unrealized losses at December 31, 2012 and 2011 are not considered other-than-temporary and are therefore reflected in other comprehensive income.

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CASH AND CASH EQUIVALENTS

12 Months Ended

Dec. 31, 2012

CASH AND CASH EQUIVALENTS [Abstract]

CASH AND CASH EQUIVALENTS

NOTE 3—CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

	At December 31,
	2012		2011
	(in thousands)
Cash and due from banks	$	4,697	$	4,498
Interest-bearing deposits in other financial institutions		26,440		10,430
	$	31,137	$	14,928

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SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

12 Months Ended

Dec. 31, 2012

SIGNIFICANT CONCENTRATIONS OF CREDIT RISK [Abstract]

SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

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.

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INCOME TAXES

12 Months Ended

Dec. 31, 2012

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 11—INCOME TAXES

 The components of income tax expense are summarized as follows:

	For the year ended December 31,
	2012		2011
	(in thousands)
Federal
Current	$	524	$	1,085
Charge in lieu of income tax relation to stock compensation		0		3
Deferred		1,194		(77	)
		1,718		1,011
State and local—current		7		8
Income tax provision	$	1,725	$	1,019

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

	For the year ended December 31,
	2012			2011
Statutory federal income tax		34.0	%		34.0	%
(Decrease) increase resulting from
Tax-exempt income		(10.3)			(14.0)
State tax, net of federal benefit		0.1			0.1
Other		0.5			0.4
		24.3	%		20.5	%

Deferred taxes are included as other liabilities in the accompanying consolidated balance sheets at December 31, 2012 and 2011, 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 established at December 31, 2012 and 2011, in view of the Company's ability to carry back to taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company's earnings potential.

The Company's net deferred tax liability was as follows:

	At December 31,
	2012			2011
	(in thousands)
Deferred tax assets
Deferred compensation	$	138		$	137
Allowance for loan losses, net		2,353			2,754
Stock compensation		78			106
Adjustment to record funded status of pension plan		1,462			1,497
Nonaccrual interest		333			336
Adjustment for real estate acquired thru foreclosure		20			182
Other		5			34
	$	4,389		$	5,046
Deferred tax liabilities
Accrued pension expense	$	1,704		$	1,444
Unrealized gain on securities available for sale		1,960			1,880
Prepaid expenses		151			180
Deferred loan costs		1,172			831
Amortization of goodwill		1,470			1,470
Other		296			296
		6,753			6,101
Net deferred tax liability	$	(2,364	)	$	(1,055	)

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, with the majority of activity residing in Pennsylvania. The statute of limitations for the federal return has expired on years prior to 2009. 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 2013 through 2017. There are no material uncertain tax positions at December 31, 2012.

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.

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2012

PREMISES AND EQUIPMENT [Abstract]

PREMISES AND EQUIPMENT

NOTE 7—PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

		At December 31,
	Estimated useful lives	2012		2011
		(in thousands)
Buildings	30 years	$	7,614	$	7,669
Leasehold improvements	5-10 years		3,243		3,262
Furniture, fixtures and equipment	3-7 years		7,292		8,688
			18,149		19,619
Less accumulated depreciation			13,640		14,752
			4,509		4,867
Land			1,599		1,692
		$	6,108	$	6,559

The Company recognized depreciation expense of $781,000 and $853,000 for the years ended December 31, 2012 and 2011, respectively.

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Credit risk of off-balance sheet risks [Line Items]
Contract amounts of which represent credit risk	$ 75,401	$ 68,197
Commitments to Extend Credit [Member]
Credit risk of off-balance sheet risks [Line Items]
Contract amounts of which represent credit risk	74,571	67,435
Standby Letters of Credit [Member]
Credit risk of off-balance sheet risks [Line Items]
Contract amounts of which represent credit risk	780	710
Loans Sold with Recourse [Member]
Credit risk of off-balance sheet risks [Line Items]
Contract amounts of which represent credit risk	$ 50	$ 52

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LOANS RECEIVABLE

12 Months Ended

Dec. 31, 2012

LOANS RECEIVABLE [Abstract]

LOANS RECEIVABLE

NOTE 5—LOANS RECEIVABLE

Loans receivable are summarized as follows:

	At December 31,
	2012			2011
	(in thousands)
Held for investment:
Residential
Residential mortgages	$	323,665		$	277,824
Commercial
Real estate-commercial		104,766			110,743
Real estate-residential		21,570			25,801
Real estate-multi-family		19,118			19,906
Construction loans		16,288			16,336
Commercial and industrial loans		4,646			4,414
Total commercial loans		166,388			177,200
Consumer
Home equity and second mortgage		40,143			44,165
Other consumer		1,835			1,971
Total consumer loans		41,978			46,136
Total loans		532,031			501,160
Net deferred loan origination costs and unamortized premiums		1,611			1,065
Less allowance for loan losses		(6,922	)		(8,100	)
Total loans receivable	$	526,720		$	494,125
Held for sale:
Residential
Residential mortgages	$	706		$	488

The following tables present by credit quality indicator the composition of the commercial loan portfolio:

Commercial credit exposure-credit risk profile by internally assigned grade

	At December 31, 2012
	Pass		Special mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	91,446	$	4,192	$	9,128	$	—	$	104,766
Real estate-residential		19,244		1,018		1,308		—		21,570
Real estate-multi-family		15,751		—		3,367		—		19,118
Construction loans		7,397		4,097		4,794		—		16,288
Commercial and industrial loans		4,565		81		—		—		4,646
Total	$	138,403	$	9,388	$	18,597	$	—	$	166,388
	At December 31, 2011
	Pass		Special mention		Substandard		Doubtful		Total
	(in thousands)
Real estate-commercial	$	95,719	$	6,189	$	8,835	$	—	$	110,743
Real estate-residential		21,447		2,891		1,463		—		25,801
Real estate-multi-family		12,753		3,768		3,385		—		19,906
Construction loans		4,452		4,312		7,572		—		16,336
Commercial and industrial loans		4,139		100		175		—		4,414
Total	$	138,510	$	17,260	$	21,430	$	—	$	177,200

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 may be adjusted upward or downward as a result of this review. 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: A 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.

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 the borrower's 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 should be charged off. The Company has charged-off all loans classified as loss.

Loans classified as special mention, substandard or doubtful are monitored individually on a monthly basis. Loans which require impairment evaluation are placed on nonaccrual status and are classified as substandard or doubtful.

The following tables present by credit quality indicator the composition of the residential mortgage and consumer loan portfolios:

Mortgage and consumer credit exposure-credit risk profile by payment activity

	At December 31, 2012
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	321,400	$	2,265	$	323,665
Home equity and second mortgage		40,000		143		40,143
Other consumer		1,827		8		1,835
Total	$	363,227	$	2,416	$	365,643
	At December 31, 2011
	Performing		Nonperforming		Total
	(in thousands)
Residential mortgages	$	272,322	$	5,502	$	277,824
Home equity and second mortgage		43,888		277		44,165
Other consumer		1,970		1		1,971
Total	$	318,180	$	5,780	$	323,960

In order to assess and monitor the credit risk associated with residential mortgage 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. Residential mortgage and other consumer loans 90 days or more past due are placed on nonaccrual status and evaluated for impairment on a pooled basis with the exception of loans with balances in excess of $1 million and loans that have been modified as TDRs. An individual impairment analysis is performed using a recent appraisal or current sales contract for TDRs as well as nonperforming mortgage and consumer loans with balances in excess of $1 million.

The following table presents by class nonperforming loans including impaired loans and loan balances past due over 90 days for which the accrual of interest has been discontinued:  

	At December 31,
	2012		2011
	(in thousands)
Residential
Residential mortgages	$	2,265	$	5,502
Commercial
Real estate-commercial		1,098		2,711
Real estate-residential		51		—
Construction loans		4,794		4,044
Commercial and industrial loans		—		6
Consumer
Home equity and second mortgage		143		277
Other consumer		8		1
Total nonperforming loans	$	8,359	$	12,541
Total loans past due 90 days as to interest or principal and accruing interest	$	—	$	—

Additional interest income that would have been recorded under the original terms of theloan agreements amounted to $413,000 and $616,000, for the years ended December 31, 2012 and 2011, respectively.

The following tables present by class loans individually evaluated for impairment:

	At December 31, 2012
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
With an allowance recorded:	(in thousands)
Residential
Residential mortgages	$	2,137	$	2,214	$	218	$	2,061	$	—
Commercial
Real estate-commercial		546		1,497		296		697		—
Real estate-residential		51		51		4		298		—
Construction loans		4,737		5,137		1,029		3,604		—
Commercial and industrial loans		—		—		—		2		—
		7,471		8,899		1,547		6,662		—
With no allowance recorded:
Residential
Residential mortgages		—		—		—		698		—
Commercial
Real estate-commercial		552		552		—		1,012		—
Real estate-residential		—		—		—		216		—
Construction loans		57		116		—		1,932		—
		609		668		—		3,858		—
Total	$	8,080	$	9,567	$	1,547	$	10,520	$	—
	At December 31, 2011
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized
With an allowance recorded:	(in thousands)
Residential
Residential mortgages	$	1,252	$	1,252	$	388	$	751	$	—
Commercial
Real estate-commercial		1,497		1,497		877		3,581		—
Real estate-residential		—		—		—		497		—
Construction loans		3,816		3,816		1,035		4,143		—
Commercial and industrial loans		6		6		3		72		—
		6,571		6,571		2,303		9,044		—
With no allowance recorded:
Residential
Residential mortgages		2,381		2,381		—		1,497		—
Commercial
Real estate-commercial		1,214		1,214		—		1,270		—
Real estate-residential		—		—		—		459		—
Construction loans		228		228		—		1,642		—
		3,823		3,823		—		4,868		—
Total	$	10,394	$	10,394	$	2,303	$	13,912	$	—

The following tables present by class the contractual aging of delinquent loans:

	At December 31, 2012
	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)
Residential
Residential mortgages	$	319,982	$	1,161	$	329	$	2,193	$	3,683	$	323,665	$	—
Commercial
Real estate-commercial		102,868		800		—		1,098		1,898		104,766		—
Real estate-residential		21,488		31		—		51		82		21,570		—
Real estate-multi-family		19,118		—		—		—		—		19,118		—
Construction loans		11,494		—		—		4,794		4,794		16,288		—
Commercial and industrial loans		4,646		—		—		—		—		4,646		—
Consumer
Home equity and second  mortgage		39,842		34		124		143		301		40,143		—
Other consumer		1,824		—		3		8		11		1,835		—
Total	$	521,262	$	2,026	$	456	$	8,287	$	10,769	$	532,031	$	—

	At December 31, 2011
	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)
Residential
Residential mortgages	$	273,231	$	98	$	153	$	4,342	$	4,593	$	277,824	$	—
Commercial
Real estate-commercial		108,382		—		—		2,361		2,361		110,743		—
Real estate-residential		25,489		312		—		—		312		25,801		—
Real estate-multi-family		19,906		—		—		—		—		19,906		—
Construction loans		9,151		—		3,141		4,044		7,185		16,336		—
Commercial and industrial loans		4,408		—		—		6		6		4,414		—
Consumer
Home equity and second mortgage		43,712		165		11		277		453		44,165		—
Other consumer		1,956		6		8		1		15		1,971		—
Total	$	486,235	$	581	$	3,313	$	11,031	$	14,925	$	501,160	$	—

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

	Balance January 1, 2012		Provision			Charge-offs			Recoveries		Balance December 31, 2012
	(in thousands)
Residential
Residential mortgages	$	2,194	$	367		$	(768	)	$	56	$	1,849
Commercial
Real estate-commercial		2,352		353			(951	)		—		1,754
Real estate-residential		369		726			(487	)		—		608
Real estate-multi-family		350		(105	)		—			—		245
Construction loans		1,830		1,049			(1,182	)		—		1,697
Commercial and industrial loans		138		115			(156	)		22		119
Consumer
Home equity and second mortgage		448		(104	)		(93	)		—		251
Other consumer		22		8			(23	)		4		11
Unallocated		397		(9	)		—			—		388
Total	$	8,100	$	2,400		$	(3,660	)	$	82	$	6,922
	Balance January 1, 2011		Provision			Charge-offs			Recoveries		Balance December 31, 2011
	(in thousands)
Residential
Residential mortgages	$	1,839	$	515		$	(172	)	$	12	$	2,194
Commercial
Real estate-commercial		3,281		82			(1,011	)		—		2,352
Real estate-residential		534		865			(1,030	)		—		369
Real estate-multi-family		399		(49	)		—			—		350
Construction loans		1,363		1,987			(1,521	)		1		1,830
Commercial and industrial loans		77		67			(44	)		38		138
Consumer
Home equity and second mortgage		607		62			(221	)		—		448
Other consumer		16		14			(16	)		8		22
Unallocated		212		185			—			—		397
Total	$	8,328	$	3,728		$	(4,015	)	$	59	$	8,100

The following tables present by class the ending balance of the allowance for loan losses and ending loan balance based on the impairment method as of December 31, 2012:

	Evaluated for impairment
Allowance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	218	$	1,631	$	1,849
Commercial
Real estate-commercial		296		1,458		1,754
Real estate-residential		4		604		608
Real estate-multi-family		—		245		245
Construction loans		1,029		668		1,697
Commercial and industrial loans		—		119		119
Consumer
Home equity and second mortgage		—		251		251
Other consumer		—		11		11
Unallocated		—		388		388
Total	$	1,547	$	5,375	$	6,922
	Evaluated for impairment
Loan balance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	2,137	$	321,528	$	323,665
Commercial
Real estate-commercial		1,098		103,668		104,766
Real estate-residential		51		21,519		21,570
Real estate-multi-family		—		19,118		19,118
Construction loans		4,794		11,494		16,288
Commercial and industrial loans		—		4,646		4,646
Consumer
Home equity and second mortgage		—		40,143		40,143
Other consumer		—		1,835		1,835
Total	$	8,080	$	523,951	$	532,031

The following tables present by class the ending balance of the allowance for loan losses and ending loan balance based on impairment method as of December 31, 2011:

	Evaluated for impairment
Allowance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	388	$	1,806	$	2,194
Commercial
Real estate-commercial		877		1,475		2,352
Real estate-residential		—		369		369
Real estate-multi-family		—		350		350
Construction loans		1,035		795		1,830
Commercial and industrial loans		3		135		138
Consumer
Home equity and second mortgage		—		448		448
Other consumer		—		22		22
Unallocated		—		397		397
Total	$	2,303	$	5,797	$	8,100
	Evaluated for impairment
Loan balance	Individually		Collectively		Total
	(in thousands)
Residential
Residential mortgages	$	3,633	$	274,191	$	277,824
Commercial
Real estate-commercial		2,711		108,032		110,743
Real estate-residential		—		25,801		25,801
Real estate-multi-family		—		19,906		19,906
Construction loans		4,044		12,292		16,336
Commercial and industrial loans		6		4,408		4,414
Consumer
Home equity and second mortgage		—		44,165		44,165
Other consumer		—		1,971		1,971
Total	$	10,394	$	490,766	$	501,160

The following table presents by class loans classified as TDRs segregated for the periods indicated:

	For the year ended December 31, 2012						For the year ended December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment
Residential	(dollars in thousands)
Residential mortgage		2	$	950	$	923		2	$	510	$	507
Total		2	$	950	$	923		2	$	510	$	507

The following table presents loans classified as TDRs that subsequently defaulted:

	For the year ended December 31, 2011
	Number of Contracts		Recorded Investment
Residential	(dollars in thousands)
Residential mortgage		1	$	169
Total		1	$	169

There were no TDRs modified during 2012 that subsequently defaulted. However, a TDR identified in 2011 as in default of its modified terms was subsequently discharged in a short sale during 2012 with a $40,000 loss charged to the allowance for loan losses.

The Bank had no concentration of loans to borrowers engaged in similar activities that exceeded 10% of loans at December 31, 2012 and 2011. 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 $125,000 and $138,000 at December 31, 2012 and 2011, respectively. New loans to related parties of $35,000 were made during 2012. For the year ended December 31, 2012, principal repayments of $48,000 of related party loans were received. Unused lines of credit available were $360,000 at December 31, 2012 and 2011.

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LOAN SERVICING

12 Months Ended

Dec. 31, 2012

LOAN SERVICING [Abstract]

LOAN SERVICING

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:

	At December 31,
	2012		2011
	(in thousands)
Mortgage loan servicing portfolios
FHLMC	$	235	$	285
FNMA		127,677		108,275
Other investors		8,294		10,434
	$	136,206	$	118,994

Custodial balances maintained in connection with the foregoing loan servicing totaled approximately $2.8 million and $1.2 million and are included as deposits at December 31, 2012 and 2011, respectively. Net servicing (loss) on mortgage loans serviced for others was $(66,000) and $(98,000) for the years ended December 31, 2012 and 2011, respectively.

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DEPOSITS

12 Months Ended

Dec. 31, 2012

DEPOSITS [Abstract]

DEPOSITS

NOTE 8—DEPOSITS

Deposits are summarized as follows:

	At December 31,
	2012		2011
	(in thousands)
Deposit Type
Demand	$	52,433	$	43,910
NOW		76,370		65,677
Money market		153,827		155,010
Passbook savings		106,268		105,617
Total demand, transaction and passbook deposits		388,898		370,214
Certificates of deposit		171,417		181,074
	$	560,315	$	551,288

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $50.7 million and $45.3 million at December 31, 2012 and 2011, respectively.

At December 31, 2012, scheduled maturities of certificates of deposit by year are as follows:

Maturity year
2013		2014		2015		2016		2017		Thereafter		Total
(in thousands)
$	114,386	$	32,593	$	12,868	$	7,964	$	3,441	$	165	$	171,417

Related party deposits are on substantially the same terms as are comparable transactions with unrelated persons. Related parties include certain executive officers, directors and their related interests. The aggregate dollar amount of these deposits was approximately $5.0 million and $4.2 million at December 31, 2012 and 2011, respectively.

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FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS, Part II (Details) (USD $)			12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 Minimum [Member]	Dec. 31, 2012 Maximum [Member]	Dec. 31, 2012 Nonrecurring [Member]	Dec. 31, 2011 Nonrecurring [Member]	Dec. 31, 2012 Nonrecurring [Member] Level 1 [Member]	Dec. 31, 2011 Nonrecurring [Member] Level 1 [Member]	Dec. 31, 2012 Nonrecurring [Member] Level 2 [Member]	Dec. 31, 2011 Nonrecurring [Member] Level 2 [Member]	Dec. 31, 2012 Nonrecurring [Member] Level 3 [Member]	Dec. 31, 2011 Nonrecurring [Member] Level 3 [Member]
Fair Value, Assets Measured on Nonrecurring Basis [Abstract]
Impaired loans					$ 6,533,000	$ 8,091,000	$ 0	$ 0	$ 0	$ 0	$ 6,533,000	$ 8,091,000
Real estate acquired through foreclosure					7,282,000	11,730,000	0	0	0	0	7,282,000	11,730,000
Mortgage servicing rights					956,000	763,000	0	0	956,000	763,000	0	0
Impaired loans, range of inputs (in hundredths)			5.00%	15.00%
Real estate acquired through foreclosure, range of inputs (in hundredths)			5.00%	20.00%
Mortgage servicing rights, amortized cost basis	1,300,000	1,000,000
Mortgage servicing rights, fair value	$ 956,000	$ 763,000

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SERVICE FEES, CHARGES AND OTHER OPERATING INCOME AND OTHER OPERATING EXPENSE (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Service fees, charges and other operating income [Abstract]
Loan servicing fees, net	$ 139	$ 25
Late charge income	117	110
Deposit service charges	581	666
Debit card income	539	512
Other income	395	385
Service fees, charges and other operating income	1,771	1,698
Other operating expense [Abstract]
Insurance and surety bond	178	192
Office supplies	184	164
Loan expense	228	310
Debit card and ATM expense	272	245
Postage	246	231
Telephone	288	261
Supervisory examination fees	73	169
Other expenses	578	625
Other operating expense	$ 2,047	$ 2,197

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FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Investment securities available for sale [Abstract]
Available for sale, Fair value	$ 102,284	$ 114,503
Recurring [Member]
Investment securities available for sale [Abstract]
U.S. Government and Federal Agencies		3,030
State and Political Subdivisions	59,610	55,091
Residential mortgage-backed securities issued by quasi- governmental agencies	42,674	47,494
Residential Real Estate Mortgage-back Securities Privately Issued		8,888
Available for sale, Fair value	102,284	114,503
Loans available for sale, Residential mortgages	706	488
Level 1 [Member] | Recurring [Member]
Investment securities available for sale [Abstract]
U.S. Government and Federal Agencies		0
State and Political Subdivisions	0	0
Residential mortgage-backed securities issued by quasi- governmental agencies	0	0
Residential Real Estate Mortgage-back Securities Privately Issued		0
Available for sale, Fair value	0	0
Loans available for sale, Residential mortgages	0	0
Level 2 [Member] | Recurring [Member]
Investment securities available for sale [Abstract]
U.S. Government and Federal Agencies		3,030
State and Political Subdivisions	59,610	55,091
Residential mortgage-backed securities issued by quasi- governmental agencies	42,674	47,494
Residential Real Estate Mortgage-back Securities Privately Issued		8,888
Available for sale, Fair value	102,284	114,503
Loans available for sale, Residential mortgages	706	488
Level 3 [Member] | Recurring [Member]
Investment securities available for sale [Abstract]
U.S. Government and Federal Agencies		0
State and Political Subdivisions	0	0
Residential mortgage-backed securities issued by quasi- governmental agencies	0	0
Residential Real Estate Mortgage-back Securities Privately Issued		0
Available for sale, Fair value	0	0
Loans available for sale, Residential mortgages	$ 0	$ 0

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PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2012

PREMISES AND EQUIPMENT [Abstract]

Premises and Equipment Summary

Premises and equipment are summarized as follows:

		At December 31,
	Estimated useful lives	2012		2011
		(in thousands)
Buildings	30 years	$	7,614	$	7,669
Leasehold improvements	5-10 years		3,243		3,262
Furniture, fixtures and equipment	3-7 years		7,292		8,688
			18,149		19,619
Less accumulated depreciation			13,640		14,752
			4,509		4,867
Land			1,599		1,692
		$	6,108	$	6,559

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PREMISES AND EQUIPMENT (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 18,149,000	$ 19,619,000
Less accumulated depreciation	13,640,000	14,752,000
Premises and equipment subtotal	4,509,000	4,867,000
Property, Plant and Equipment, Net, Total	6,108,000	6,559,000
Depreciation expense	781,000	853,000
Buildings [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Estimated useful lives	30 years
Premises and equipment	7,614,000	7,669,000
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	3,243,000	3,262,000
Leasehold improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Estimated useful lives	5 years
Leasehold improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Estimated useful lives	10 years
Furniture, fixtures and equipment [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	7,292,000	8,688,000
Furniture, fixtures and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Estimated useful lives	3 years
Furniture, fixtures and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Estimated useful lives	7 years
Land [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 1,599,000	$ 1,692,000

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

12 Months Ended

Dec. 31, 2012

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK [Abstract]

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

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 nonperformance 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:

	At December 31,
	2012		2011
	(in thousands)
Commitments to extend credit	$	74,571	$	67,435
Standby letters of credit		780		710
Loans sold with recourse		50		52
	$	75,401	$	68,197

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.

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EARNINGS PER SHARE

12 Months Ended

Dec. 31, 2012

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

NOTE 18—EARNINGS PER SHARE

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

	For the year ended December 31, 2012
			Weighted
			average
	Income		shares		Per share
	(numerator)		(denominator)		Amount
	(dollars in thousands, except share data)
Basic earnings per share
Income available to common stockholders	$	5,383		2,726,133	$	1.97
Effect of dilutive securities
Stock compensation plans		—		3,629		—
Diluted earnings per share
Income available to common stockholders plus effect of dilutive securities	$	5,383		2,729,762	$	1.97

There were options to purchase 42,462 shares of common stock at a price at a range of $23.53 to $32.51 per share which were outstanding during 2012 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.

	For the year ended December 31, 2011
			Weighted
			average
	Income		shares		Per share
	(numerator)		(denominator)		Amount
	(dollars in thousands, except share data)
Basic earnings per share
Income available to common stockholders	$	3,929		2,702,200	$	1.45
Effect of dilutive securities
Stock compensation plans		—		510		—
Diluted earnings per share
Income available to common stockholders plus effect of dilutive securities	$	3,929		2,702,710	$	1.45

There were options to purchase 62,057 shares of common stock at a price at a range of $23.53 to $32.51 per share which were outstanding during 2011 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.

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LOANS RECEIVABLE (Details) (USD $)	12 Months Ended
	Dec. 31, 2012 Contracts	Dec. 31, 2011 Contracts
Held for Investment [Abstract]
Total loans	$ 532,031,000	$ 501,160,000
Net deferred loans origination costs and unamortized premiums	1,611,000	1,065,000
Less allowance for loan losses	(6,922,000)	(8,100,000)
Total loans receivable	526,720,000	494,125,000
Held-for-sale [Abstract]
Loans Held-for-sale, Mortgages	706,000	488,000
Number of days residential mortgages and consumer loans are placed on non accrual status	90 days
Minimum amount of loan balances excluded from evaluation for impairment	1,000,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	8,359,000	12,541,000
Loans and Leases Receivable, Nonperforming, Accrual of Interest	0	0
Additional interest that would have been recorded	413,000	616,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment, with related allowance, recorded investment	7,471,000	6,571,000
Loans individually evaluated for impairment, with no related allowance, recorded investment	609,000	3,823,000
Loans individually evaluated for impairment, recorded investment, total	8,080,000	10,394,000
Loans individually evaluated for impairment, with related allowance, unpaid principal balance	8,899,000	6,571,000
Loans individually evaluated for impairment, with no related allowance, unpaid principal balance	668,000	3,823,000
Impaired Financing Receivable, Unpaid Principal Balance, Total	9,567,000	10,394,000
Impaired Financing Receivable, Related Allowance	1,547,000	2,303,000
Impaired Financing Receivable, related allowance unrecorded	0	0
Loans individually evaluated for impairment related allowance	1,547,000	2,303,000
Loans individually evaluated for impairment, with related allowance, average recorded investment	6,662,000	9,044,000
Loans individually evaluated for impairment, with no related allowance, average recorded investment	3,858,000	4,868,000
Loans individually evaluated for impairment , average recorded investment	10,520,000	13,912,000
Loans individually evaluated for impairment, with related allowance, interest income recognized	0	0
Loans individually evaluated for impairment, with no related allowance, interest income recognized	0	0
Loans individually evaluated for impairment, interest income recognized	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	521,262,000	486,235,000
Loans receivable, 30 to 59 days past due	2,026,000	581,000
Loans receivable, 60 to 89 days past due	456,000	3,313,000
Loans receivable past due 90 days or more	8,287,000	11,031,000
Loans receivable, total past due	10,769,000	14,925,000
Total loans	532,031,000	501,160,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	8,100,000	8,328,000
Provision	2,400,000	3,728,000
Charge-offs	(3,660,000)	(4,015,000)
Recoveries	82,000	59,000
Balance, end of period	6,922,000	8,100,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	1,547,000	2,303,000
Loans receivable, allowance for credit losses, collectively evaluated for impairment	5,375,000	5,797,000
Loans receivable, allowance for credit losses, evaluated for impairment	6,922,000	8,100,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	8,080,000	10,394,000
Loans balance, collectively evaluated for impairment	523,951,000	490,766,000
Loan balance, evaluated for impairment	532,031,000	501,160,000
Troubled Debt Restructuring Segregated by Class [Abstract]
Financing Receivable, Modifications, Number of Contracts2	2	2
Pre-Modification Outstanding Recorded Investment	950,000	510,000
Post Modification Outstanding Recorded Investment	923,000	507,000
Contracts classified and TDR's that subsequently defaulted		1
Recorded investment of loans classified as TDR's and subsequently defaulted		169,000
Loans Receivable, Troubled Debt Restructuring, Allowance for Credit Losses Charge-off	40,000
Concentration of loans threshold percentage (in hundredths)	10.00%
Aggregate dollar amount of loans with related parties	125,000	138,000
New loans to related parties	35,000
Principal repayments from related parties	48,000
Unused lines of credit available	360,000	360,000
Pass [Member]
Held for Investment [Abstract]
Total loans	138,403,000	138,510,000
Loans Receivable, Aging [Abstract]
Total loans	138,403,000	138,510,000
Special Mention [Member]
Held for Investment [Abstract]
Total loans	9,388,000	17,260,000
Loans Receivable, Aging [Abstract]
Total loans	9,388,000	17,260,000
Substandard [Member]
Held for Investment [Abstract]
Total loans	18,597,000	21,430,000
Loans Receivable, Aging [Abstract]
Total loans	18,597,000	21,430,000
Doubtful [Member]
Held for Investment [Abstract]
Total loans	0	0
Loans Receivable, Aging [Abstract]
Total loans	0	0
Residential Mortgages [Member]
Held for Investment [Abstract]
Total loans	323,665,000	277,824,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	2,265,000	5,502,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment, with related allowance, recorded investment	2,137,000	1,252,000
Loans individually evaluated for impairment, with no related allowance, recorded investment	0	2,381,000
Loans individually evaluated for impairment, with related allowance, unpaid principal balance	2,214,000	1,252,000
Loans individually evaluated for impairment, with no related allowance, unpaid principal balance	0	2,381,000
Impaired Financing Receivable, Related Allowance	218,000	388,000
Impaired Financing Receivable, related allowance unrecorded	0	0
Loans individually evaluated for impairment related allowance	218,000	388,000
Loans individually evaluated for impairment, with related allowance, average recorded investment	2,061,000	751,000
Loans individually evaluated for impairment, with no related allowance, average recorded investment	698,000	1,497,000
Loans individually evaluated for impairment, with related allowance, interest income recognized	0	0
Loans individually evaluated for impairment, with no related allowance, interest income recognized	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	319,982,000	273,231,000
Loans receivable, 30 to 59 days past due	1,161,000	98,000
Loans receivable, 60 to 89 days past due	329,000	153,000
Loans receivable past due 90 days or more	2,193,000	4,342,000
Loans receivable, total past due	3,683,000	4,593,000
Total loans	323,665,000	277,824,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	2,194,000	1,839,000
Provision	367,000	515,000
Charge-offs	(768,000)	(172,000)
Recoveries	56,000	12,000
Balance, end of period	1,849,000	2,194,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	218,000	388,000
Loans receivable, allowance for credit losses, collectively evaluated for impairment	1,631,000	1,806,000
Loans receivable, allowance for credit losses, evaluated for impairment	1,849,000	2,194,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	2,137,000	3,633,000
Loans balance, collectively evaluated for impairment	321,528,000	274,191,000
Loan balance, evaluated for impairment	323,665,000	277,824,000
Troubled Debt Restructuring Segregated by Class [Abstract]
Financing Receivable, Modifications, Number of Contracts2	2	2
Pre-Modification Outstanding Recorded Investment	950,000	510,000
Post Modification Outstanding Recorded Investment	923,000	507,000
Contracts classified and TDR's that subsequently defaulted		1
Recorded investment of loans classified as TDR's and subsequently defaulted		169,000
Residential Mortgages [Member] | Performing [Member]
Held for Investment [Abstract]
Total loans	321,400,000	272,322,000
Loans Receivable, Aging [Abstract]
Total loans	321,400,000	272,322,000
Residential Mortgages [Member] | Nonperforming [Member]
Held for Investment [Abstract]
Total loans	2,265,000	5,502,000
Loans Receivable, Aging [Abstract]
Total loans	2,265,000	5,502,000
Real estate-commercial [Member]
Held for Investment [Abstract]
Total loans	104,766,000	110,743,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	1,098,000	2,711,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment, with related allowance, recorded investment	546,000	1,497,000
Loans individually evaluated for impairment, with no related allowance, recorded investment	552,000	1,214,000
Loans individually evaluated for impairment, with related allowance, unpaid principal balance	1,497,000	1,497,000
Loans individually evaluated for impairment, with no related allowance, unpaid principal balance	552,000	1,214,000
Impaired Financing Receivable, Related Allowance	296,000	877,000
Impaired Financing Receivable, related allowance unrecorded	0	0
Loans individually evaluated for impairment related allowance	296,000	877,000
Loans individually evaluated for impairment, with related allowance, average recorded investment	697,000	3,581,000
Loans individually evaluated for impairment, with no related allowance, average recorded investment	1,012,000	1,270,000
Loans individually evaluated for impairment, with related allowance, interest income recognized	0	0
Loans individually evaluated for impairment, with no related allowance, interest income recognized	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	102,868,000	108,382,000
Loans receivable, 30 to 59 days past due	800,000	0
Loans receivable, 60 to 89 days past due	0	0
Loans receivable past due 90 days or more	1,098,000	2,361,000
Loans receivable, total past due	1,898,000	2,361,000
Total loans	104,766,000	110,743,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	2,352,000	3,281,000
Provision	353,000	82,000
Charge-offs	(951,000)	1,011,000
Recoveries	0	0
Balance, end of period	1,754,000	2,352,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	296,000	877,000
Loans receivable, allowance for credit losses, collectively evaluated for impairment	1,458,000	1,475,000
Loans receivable, allowance for credit losses, evaluated for impairment	1,754,000	2,352,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	1,098,000	2,711,000
Loans balance, collectively evaluated for impairment	103,668,000	108,032,000
Loan balance, evaluated for impairment	104,766,000	110,743,000
Real estate-commercial [Member] | Pass [Member]
Held for Investment [Abstract]
Total loans	91,446,000	95,719,000
Loans Receivable, Aging [Abstract]
Total loans	91,446,000	95,719,000
Real estate-commercial [Member] | Special Mention [Member]
Held for Investment [Abstract]
Total loans	4,192,000	6,189,000
Loans Receivable, Aging [Abstract]
Total loans	4,192,000	6,189,000
Real estate-commercial [Member] | Substandard [Member]
Held for Investment [Abstract]
Total loans	9,128,000	8,835,000
Loans Receivable, Aging [Abstract]
Total loans	9,128,000	8,835,000
Real estate-commercial [Member] | Doubtful [Member]
Held for Investment [Abstract]
Total loans	0	0
Loans Receivable, Aging [Abstract]
Total loans	0	0
Real estate-residential [Member]
Held for Investment [Abstract]
Total loans	21,570,000	25,801,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	51,000	0
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment, with related allowance, recorded investment	51,000	0
Loans individually evaluated for impairment, with no related allowance, recorded investment	0	0
Loans individually evaluated for impairment, with related allowance, unpaid principal balance	51,000	0
Loans individually evaluated for impairment, with no related allowance, unpaid principal balance	0	0
Impaired Financing Receivable, Related Allowance	4,000	0
Impaired Financing Receivable, related allowance unrecorded	0	0
Loans individually evaluated for impairment related allowance	4,000	0
Loans individually evaluated for impairment, with related allowance, average recorded investment	298,000	497,000
Loans individually evaluated for impairment, with no related allowance, average recorded investment	216,000	459,000
Loans individually evaluated for impairment, with related allowance, interest income recognized	0	0
Loans individually evaluated for impairment, with no related allowance, interest income recognized	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	21,488,000	25,489,000
Loans receivable, 30 to 59 days past due	31,000	312,000
Loans receivable, 60 to 89 days past due	0	0
Loans receivable past due 90 days or more	51,000	0
Loans receivable, total past due	82,000	312,000
Total loans	21,570,000	25,801,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	369,000	534,000
Provision	726,000	865,000
Charge-offs	(487,000)	(1,030,000)
Recoveries	0	0
Balance, end of period	608,000	369,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	4,000	0
Loans receivable, allowance for credit losses, collectively evaluated for impairment	604,000	369,000
Loans receivable, allowance for credit losses, evaluated for impairment	608,000	369,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	51,000	0
Loans balance, collectively evaluated for impairment	21,519,000	25,801,000
Loan balance, evaluated for impairment	21,570,000	25,801,000
Real estate-residential [Member] | Pass [Member]
Held for Investment [Abstract]
Total loans	19,244,000	21,447,000
Loans Receivable, Aging [Abstract]
Total loans	19,244,000	21,447,000
Real estate-residential [Member] | Special Mention [Member]
Held for Investment [Abstract]
Total loans	1,018,000	2,891,000
Loans Receivable, Aging [Abstract]
Total loans	1,018,000	2,891,000
Real estate-residential [Member] | Substandard [Member]
Held for Investment [Abstract]
Total loans	1,308,000	1,463,000
Loans Receivable, Aging [Abstract]
Total loans	1,308,000	1,463,000
Real estate-residential [Member] | Doubtful [Member]
Held for Investment [Abstract]
Total loans	0	0
Loans Receivable, Aging [Abstract]
Total loans	0	0
Real estate-multi-family [Member]
Held for Investment [Abstract]
Total loans	19,118,000	19,906,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment related allowance	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	19,118,000	19,906,000
Loans receivable, 30 to 59 days past due	0	0
Loans receivable, 60 to 89 days past due	0	0
Loans receivable past due 90 days or more	0	0
Loans receivable, total past due	0	0
Total loans	19,118,000	19,906,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	350,000	399,000
Provision	(105,000)	(49,000)
Charge-offs	0	0
Recoveries	0	0
Balance, end of period	245,000	350,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	0	0
Loans receivable, allowance for credit losses, collectively evaluated for impairment	245,000	350,000
Loans receivable, allowance for credit losses, evaluated for impairment	245,000	350,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	0	0
Loans balance, collectively evaluated for impairment	19,118,000	19,906,000
Loan balance, evaluated for impairment	19,118,000	19,906,000
Real estate-multi-family [Member] | Pass [Member]
Held for Investment [Abstract]
Total loans	15,751,000	12,753,000
Loans Receivable, Aging [Abstract]
Total loans	15,751,000	12,753,000
Real estate-multi-family [Member] | Special Mention [Member]
Held for Investment [Abstract]
Total loans	0	3,768,000
Loans Receivable, Aging [Abstract]
Total loans	0	3,768,000
Real estate-multi-family [Member] | Substandard [Member]
Held for Investment [Abstract]
Total loans	3,367,000	3,385,000
Loans Receivable, Aging [Abstract]
Total loans	3,367,000	3,385,000
Real estate-multi-family [Member] | Doubtful [Member]
Held for Investment [Abstract]
Total loans	0	0
Loans Receivable, Aging [Abstract]
Total loans	0	0
Construction loans [Member]
Held for Investment [Abstract]
Total loans	16,288,000	16,336,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	4,794,000	4,044,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment, with related allowance, recorded investment	4,737,000	3,816,000
Loans individually evaluated for impairment, with no related allowance, recorded investment	57,000	228,000
Loans individually evaluated for impairment, with related allowance, unpaid principal balance	5,137,000	3,816,000
Loans individually evaluated for impairment, with no related allowance, unpaid principal balance	116,000	228,000
Impaired Financing Receivable, Related Allowance	1,029,000	1,035,000
Impaired Financing Receivable, related allowance unrecorded	0	0
Loans individually evaluated for impairment related allowance	1,029,000	1,035,000
Loans individually evaluated for impairment, with related allowance, average recorded investment	3,604,000	4,143,000
Loans individually evaluated for impairment, with no related allowance, average recorded investment	1,932,000	1,642,000
Loans individually evaluated for impairment, with related allowance, interest income recognized	0	0
Loans individually evaluated for impairment, with no related allowance, interest income recognized	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	11,494,000	9,151,000
Loans receivable, 30 to 59 days past due	0	0
Loans receivable, 60 to 89 days past due	0	3,141,000
Loans receivable past due 90 days or more	4,794,000	4,044,000
Loans receivable, total past due	4,794,000	7,185,000
Total loans	16,288,000	16,336,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	1,830,000	1,363,000
Provision	1,049,000	1,987,000
Charge-offs	(1,182,000)	(1,521,000)
Recoveries	0	1,000
Balance, end of period	1,697,000	1,830,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	1,029,000	1,035,000
Loans receivable, allowance for credit losses, collectively evaluated for impairment	668,000	795,000
Loans receivable, allowance for credit losses, evaluated for impairment	1,697,000	1,830,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	4,794,000	4,044,000
Loans balance, collectively evaluated for impairment	11,494,000	12,292,000
Loan balance, evaluated for impairment	16,288,000	16,336,000
Construction loans [Member] | Pass [Member]
Held for Investment [Abstract]
Total loans	7,397,000	4,452,000
Loans Receivable, Aging [Abstract]
Total loans	7,397,000	4,452,000
Construction loans [Member] | Special Mention [Member]
Held for Investment [Abstract]
Total loans	4,097,000	4,312,000
Loans Receivable, Aging [Abstract]
Total loans	4,097,000	4,312,000
Construction loans [Member] | Substandard [Member]
Held for Investment [Abstract]
Total loans	4,794,000	7,572,000
Loans Receivable, Aging [Abstract]
Total loans	4,794,000	7,572,000
Construction loans [Member] | Doubtful [Member]
Held for Investment [Abstract]
Total loans	0	0
Loans Receivable, Aging [Abstract]
Total loans	0	0
Commercial and Industrial Loans [Member]
Held for Investment [Abstract]
Total loans	4,646,000	4,414,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	0	6,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment, with related allowance, recorded investment	0	6,000
Loans individually evaluated for impairment, with related allowance, unpaid principal balance	0	6,000
Impaired Financing Receivable, Related Allowance	0	3,000
Loans individually evaluated for impairment related allowance	0	3,000
Loans individually evaluated for impairment, with related allowance, average recorded investment	2,000	72,000
Loans individually evaluated for impairment, with related allowance, interest income recognized	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	4,646,000	4,408,000
Loans receivable, 30 to 59 days past due	0	0
Loans receivable, 60 to 89 days past due	0	0
Loans receivable past due 90 days or more	0	6,000
Loans receivable, total past due	0	6,000
Total loans	4,646,000	4,414,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	138,000	77,000
Provision	115,000	67,000
Charge-offs	(156,000)	(44,000)
Recoveries	22,000	38,000
Balance, end of period	119,000	138,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	0	3,000
Loans receivable, allowance for credit losses, collectively evaluated for impairment	119,000	135,000
Loans receivable, allowance for credit losses, evaluated for impairment	119,000	138,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	0	6,000
Loans balance, collectively evaluated for impairment	4,646,000	4,408,000
Loan balance, evaluated for impairment	4,646,000	4,414,000
Commercial and Industrial Loans [Member] | Pass [Member]
Held for Investment [Abstract]
Total loans	4,565,000	4,139,000
Loans Receivable, Aging [Abstract]
Total loans	4,565,000	4,139,000
Commercial and Industrial Loans [Member] | Special Mention [Member]
Held for Investment [Abstract]
Total loans	81,000	100,000
Loans Receivable, Aging [Abstract]
Total loans	81,000	100,000
Commercial and Industrial Loans [Member] | Substandard [Member]
Held for Investment [Abstract]
Total loans	0	175,000
Loans Receivable, Aging [Abstract]
Total loans	0	175,000
Commercial and Industrial Loans [Member] | Doubtful [Member]
Held for Investment [Abstract]
Total loans	0	0
Loans Receivable, Aging [Abstract]
Total loans	0	0
Total commercial loans [Member]
Held for Investment [Abstract]
Total loans	166,388,000	177,200,000
Loans Receivable, Aging [Abstract]
Total loans	166,388,000	177,200,000
Home equity and second mortgage [Member]
Held for Investment [Abstract]
Total loans	40,143,000	44,165,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	143,000	277,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment related allowance	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	39,842,000	43,712,000
Loans receivable, 30 to 59 days past due	34,000	165,000
Loans receivable, 60 to 89 days past due	124,000	11,000
Loans receivable past due 90 days or more	143,000	277,000
Loans receivable, total past due	301,000	453,000
Total loans	40,143,000	44,165,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	448,000	607,000
Provision	(104,000)	62,000
Charge-offs	(93,000)	(221,000)
Recoveries	0	0
Balance, end of period	251,000	448,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	0	0
Loans receivable, allowance for credit losses, collectively evaluated for impairment	251,000	448,000
Loans receivable, allowance for credit losses, evaluated for impairment	251,000	448,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	0	0
Loans balance, collectively evaluated for impairment	40,143,000	44,165,000
Loan balance, evaluated for impairment	40,143,000	44,165,000
Home equity and second mortgage [Member] | Performing [Member]
Held for Investment [Abstract]
Total loans	40,000,000	43,888,000
Loans Receivable, Aging [Abstract]
Total loans	40,000,000	43,888,000
Home equity and second mortgage [Member] | Nonperforming [Member]
Held for Investment [Abstract]
Total loans	143,000	277,000
Loans Receivable, Aging [Abstract]
Total loans	143,000	277,000
Other consumer [Member]
Held for Investment [Abstract]
Total loans	1,835,000	1,971,000
Non-performing loans [Abstract]
Loans and Leases Receivable, Nonperforming, Nonaccrual of Interest	8,000	1,000
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment related allowance	0	0
Loans Receivable, Aging [Abstract]
Loans receivable, current	1,824,000	1,956,000
Loans receivable, 30 to 59 days past due	0	6,000
Loans receivable, 60 to 89 days past due	3,000	8,000
Loans receivable past due 90 days or more	8,000	1,000
Loans receivable, total past due	11,000	15,000
Total loans	1,835,000	1,971,000
Loans receivable, 90 days and accruing interest	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	22,000	16,000
Provision	8,000	14,000
Charge-offs	(23,000)	(16,000)
Recoveries	4,000	8,000
Balance, end of period	11,000	22,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	0	0
Loans receivable, allowance for credit losses, collectively evaluated for impairment	11,000	22,000
Loans receivable, allowance for credit losses, evaluated for impairment	11,000	22,000
Loan Balance [Abstract]
Loan balance, individually evaluated for impairment	0	0
Loans balance, collectively evaluated for impairment	1,835,000	1,971,000
Loan balance, evaluated for impairment	1,835,000	1,971,000
Other consumer [Member] | Performing [Member]
Held for Investment [Abstract]
Total loans	1,827,000	1,970,000
Loans Receivable, Aging [Abstract]
Total loans	1,827,000	1,970,000
Other consumer [Member] | Nonperforming [Member]
Held for Investment [Abstract]
Total loans	8,000	1,000
Loans Receivable, Aging [Abstract]
Total loans	8,000	1,000
Total consumer loans [Member]
Held for Investment [Abstract]
Total loans	41,978,000	46,136,000
Loans Receivable, Aging [Abstract]
Total loans	41,978,000	46,136,000
Total residential and consumer Loans [Member]
Held for Investment [Abstract]
Total loans	365,643,000	323,960,000
Loans Receivable, Aging [Abstract]
Total loans	365,643,000	323,960,000
Total residential and consumer Loans [Member] | Performing [Member]
Held for Investment [Abstract]
Total loans	363,227,000	318,180,000
Loans Receivable, Aging [Abstract]
Total loans	363,227,000	318,180,000
Total residential and consumer Loans [Member] | Nonperforming [Member]
Held for Investment [Abstract]
Total loans	2,416,000	5,780,000
Loans Receivable, Aging [Abstract]
Total loans	2,416,000	5,780,000
Unallocated [Member]
Loans Individually Evaluated for Impairment by Class [Abstract]
Loans individually evaluated for impairment related allowance	0	0
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance, beginning of period	397,000	212,000
Provision	(9,000)	185,000
Charge-offs	0	0
Recoveries	0	0
Balance, end of period	388,000	397,000
Allowance [Abstract]
Loans receivable, allowance for credit losses, individually evaluated for impairment	0	0
Loans receivable, allowance for credit losses, collectively evaluated for impairment	388,000	397,000
Loans receivable, allowance for credit losses, evaluated for impairment	$ 388,000	$ 397,000

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES [Abstract]

Schedule of Minimum Annual Rental Commitments

The minimum annual rental commitments of the Bank under all noncancelable leases with terms of one year or more at December 31, 2012 are as follows:

Year ending December 31,	2012
	(in thousands)
2013	$	470
2014		399
2015		236
2016		168
2017		133
Thereafter		948
Total	$	2,354

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) [Abstract]
Net income	$ 5,383	$ 3,929
Investment securities available for sale:
Unrealized holding gains	321	3,023
Tax effect	(109)	(1,028)
Reclassification adjustment for gains realized in net income	(85)	(760)
Tax effect	29	258
Net of tax amount	156	1,493
Pension plan benefit adjustment:
Related to actuarial losses and prior service cost	103	(2,059)
Tax effect	(35)	701
Net of tax amount	68	(1,358)
Total other comprehensive income	224	135
Comprehensive income	$ 5,607	$ 4,064

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RECENT ACCOUNTING PRONOUNCEMENTS

12 Months Ended

Dec. 31, 2012

RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the FASB issued an accounting update, "Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment". The update give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance. The update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. This update is not expected to have a significant impact on the Company's financial statements.

In October 2012, the FASB issued an accounting update, " Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution". The update requires that when a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). The update is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. This update is not expected to have a significant impact on the Company's financial statements.

In January 2013, the FASB issued an accounting update, "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities". The amendment clarifies that the scope of Update 2011-11 as it applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. This update is not expected to have a significant impact on the Company's financial statements.

In February 2013, the FASB issued an accounting update, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income". The amendments in this update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under US GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The Company is currently evaluating the impact that these disclosures will have on its financial statements.

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INCOME TAXES (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Federal [Abstract]
Current	$ 524,000	$ 1,085,000
Tax benefit arising from stock compensation	0	3,000
Deferred	1,194,000	(77,000)
Total Federal income tax component	1,718,000	1,011,000
Sate and local-current	7,000	8,000
Income tax provision	1,725,000	1,019,000
Effective income tax rate reconciliation [Abstract]
Statutory federal income tax (in hundredths)	34.00%	34.00%
(Decrease) increase resulting from Tax-exempt income (in hundredths)	(10.30%)	(14.00%)
State tax, net of federal benefit (in hundredths)	0.10%	0.10%
Other (in hundredths)	0.50%	0.40%
Effective income tax rate (in hundredths)	24.30%	20.50%
Deferred tax assets [Abstract]
Deferred compensation	138,000	137,000
Allowance for loan losses, net	2,353,000	2,754,000
Stock compensation	78,000	106,000
Adjustment to record funded status of pension plan	1,462,000	1,497,000
Non accrual interest	333,000	336,000
Adjustment for real estate acquired thru foreclosure	20,000	182,000
Other	5,000	34,000
Total deferred tax assets	4,389,000	5,046,000
Deferred tax liabilities [Abstract]
Accrued pension expense	1,704,000	1,444,000
Unrealized gain on securities available for sale	1,960,000	1,880,000
Prepaid expenses	151,000	180,000
Deferred loan costs	1,172,000	831,000
Amortization of goodwill	1,470,000	1,470,000
Other	296,000	296,000
Total deferred tax liabilities	6,753,000	6,101,000
Net deferred tax liability	(2,364,000)	(1,055,000)
Non recapture of bad debt deductions	5,700,000
Amount of unrecognized deferred tax liability	$ 1,900,000

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MERGERS AND ACQUISITIONS (Details) (USD $)	0 Months Ended	12 Months Ended
	Dec. 28, 2012	Dec. 31, 2012
Business Acquisition [Line Items]
Cash consideration to be paid, not to exceed total merger consideration (in hundredth)	50.00%
Roebling Financial Corp, Inc [Member]
Business Acquisition [Line Items]
Cost of acquired entity, purchase price	$ 14,500,000
Share price after conversion	$ 8.60
Common stock converted (in shares)	0.3640
Number of trading days	20 days
Market value decline trigger rate leading to agreement termination (in hundredth)	15.00%
Termination Fee		$ 650,000

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CONDENSED FINANCIAL INFORMATION-PARENT COMPANY ONLY

12 Months Ended

Dec. 31, 2012

CONDENSED FINANCIAL INFORMATION-PARENT COMPANY ONLY [Abstract]

CONDENSED FINANCIAL INFORMATION-PARENT COMPANY ONLY

NOTE 19—CONDENSED FINANCIAL INFORMATION- PARENT COMPANY ONLY

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

BALANCE SHEETS
	At December 31,
	2012		2011
	(in thousands)
ASSETS
Cash	$	2,031		$	1,414
Investment in 3rd Fed		78,032			73,117
Investment in Penns Trail Development		1,077			1,087
Notes receivable ESOP		1,208			1,352
Other assets		723			465
Total assets	$	83,071		$	77,435
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities	$	126		$	27
Stockholders' equity		82,945			77,408
Total liabilities and stockholders' equity	$	83,071		$	77,435

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
	For the year ended December 31,
		2012		2011
	(in thousands)
INCOME
Equity in earnings of subsidiaries	$	5,963	$	4,432
Interest and dividend income		22		6
Total income		5,985		4,438
EXPENSES
Other		602		509
Total expenses		602		509
NET INCOME		5,383		3,929
Total other comprehensive income (2)		224		135
Total comprehensive income	$	5,607	$	4,064

(2) See Consolidated Statements of Comprehensive Income for other comprehensive income detail.

STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2012			2011
	(in thousands)
Cash flows from operating activities
Net income	$	5,383		$	3,929
Adjustments to reconcile net income to net cash used in operating activities
Stock compensation plans		176			114
Equity in earnings of subsidiaries		(5,963	)		(4,432	)
Net change in assets and liabilities		(16	)		(300	)
Net cash used in operating activities		(420	)		(689	)
Cash flows from investing activities
Capital distribution from subsidiaries		1,600			1,548
Net cash provided by investing activities		1,600			1,548
Cash flows from financing activities
Common stock dividends paid		(543	)		(534	)
Treasury stock acquired		—			(122	)
Exercise of stock options		7			211
Deferred tax adjustment arising from stock compensation		(27	)		—
Tax benefit arising from stock compensation		—			3
Net cash used in financing activities		(563	)		(442	)
NET INCREASE IN CASH		617			417
Cash at beginning of year		1,414			997
Cash at end of year	$	2,031		$	1,414

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

INCOME TAXES [Abstract]

Components of Income Tax Expense

 The components of income tax expense are summarized as follows:

	For the year ended December 31,
	2012		2011
	(in thousands)
Federal
Current	$	524	$	1,085
Charge in lieu of income tax relation to stock compensation		0		3
Deferred		1,194		(77	)
		1,718		1,011
State and local—current		7		8
Income tax provision	$	1,725	$	1,019

Effective Income Tax Rate Reconciliation

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

	For the year ended December 31,
	2012			2011
Statutory federal income tax		34.0	%		34.0	%
(Decrease) increase resulting from
Tax-exempt income		(10.3)			(14.0)
State tax, net of federal benefit		0.1			0.1
Other		0.5			0.4
		24.3	%		20.5	%

Deferred Tax Assets and Liabilities

The Company's net deferred tax liability was as follows:

	At December 31,
	2012			2011
	(in thousands)
Deferred tax assets
Deferred compensation	$	138		$	137
Allowance for loan losses, net		2,353			2,754
Stock compensation		78			106
Adjustment to record funded status of pension plan		1,462			1,497
Nonaccrual interest		333			336
Adjustment for real estate acquired thru foreclosure		20			182
Other		5			34
	$	4,389		$	5,046
Deferred tax liabilities
Accrued pension expense	$	1,704		$	1,444
Unrealized gain on securities available for sale		1,960			1,880
Prepaid expenses		151			180
Deferred loan costs		1,172			831
Amortization of goodwill		1,470			1,470
Other		296			296
		6,753			6,101
Net deferred tax liability	$	(2,364	)	$	(1,055	)

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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2012

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

NOTE 12—REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by the FDIC and the Pennsylvania Department of Banking.  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.

The Bank's actual capital amounts and ratios are presented in the following table:

	Actual					For capital adequacy purposes					To be well capitalized under prompt corrective action provision
	Amount		Ratio			Amount		Ratio			Amount		Ratio
At December 31, 2012
Tangible capital (to tangible assets)	$	73,612		10.45	%	$	10,562		1.50	%	$	—		N/A
Core capital (to adjusted  tangible assets)		73,612		10.45	%		28,164		4.00	%		35,206		5.00	%
Tier 1 capital (to risk weighted assets)		73,612		16.63	%		17,703		4.00	%		26,555		6.00	%
Total Risk		79,161		17.89	%		35,407		8.00	%		44,259		10.00	%
At December 31, 2011
Tangible capital (to tangible assets)		69,144		10.21	%		10,154		1.50	%		—		N/A
Core capital (to adjusted  tangible assets)		69,144		10.21	%		27,078		4.00	%		33,847		5.00	%
Tier 1 capital (to risk weighted assets)		69,144		17.31	%		15,976		4.00	%		23,965		6.00	%
Total Risk		74,147		18.56	%		31,953		8.00	%		39,941		10.00	%

At December 31, 2012 and 2011, the Bank exceeded 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%. 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 at the time the Bank converted to a stock form of ownership and who continue as depositors. 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.