form10q.htm
 
 


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the period ended March 31, 2011
   
- 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
  
(I.R.S. Employer Identification No.)
or Organization)
    

3 Penns Trail, Newtown, Pennsylvania
  
18940
(Address of Principal Executive Offices)
  
(Zip Code)

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

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 x  NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o  NO 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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o
  
Accelerated filer o
     
Non-accelerated filer o
  
Smaller reporting company x
(Do not check if a smaller reporting company)
    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 Exchange Act). YES o  NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: May 12, 2011

Class
Outstanding
$.10 par value common stock
2,822,449 shares



 
 
 

CONTENTS

 
     
     
     
     
     
 
     
     
     
     
     
     
     
     
     
Exhibits
    
     
 
     
 
     
 



 
2
 
TF Financial Corporation and Subsidiaries

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
March 31,
2011
    
December 31,
2010
  
   
(in thousands)
  
ASSETS
            
Cash and cash equivalents
  
$
10,668
    
$
7,437
  
Investment securities
    
119,909
      
127,490
  
Loans receivable, net
    
498,664
      
501,528
  
Loans receivable held for sale
    
215
      
130
  
Federal Home Loan Bank stock—at cost
    
8,931
      
9,401
  
Accrued interest receivable
    
2,584
      
2,738
  
Premises and equipment, net
    
6,669
      
6,797
  
Goodwill
    
4,324
      
4,324
  
Bank-owned life insurance
    
18,026
      
17,868
  
Other assets
    
14,231
      
14,044
  
TOTAL ASSETS
  
$
684,221
    
$
691,757
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Liabilities
                
Deposits
  
$
547,753
    
$
550,135
  
Borrowings from the Federal Home Loan Bank
    
55,387
      
61,987
  
Advances from borrowers for taxes and insurance
    
1,824
      
2,166
  
Accrued interest payable
    
2,214
      
1,784
  
Other liabilities
    
2,773
      
2,269
  
Total liabilities
    
609,951
      
618,341
  
                 
Stockholders’ equity
                
Preferred stock, no par value; 2,000,000 shares authorized at March 31, 2011 and December 31, 2010, none issued
    
—
      
—
  
Common stock, $0.10 par value; 10,000,000 shares authorized, 5,290,000 shares issued and, 2,822,449 shares outstanding at March 31, 2011 and December 31, 2010, respectively, net of shares in treasury of 2,467,551, respectively
    
529
      
529
  
Additional paid-in capital
    
54,012
      
53,964
  
Unearned ESOP shares
    
(1,186
)
    
(1,217
)
Treasury stock-at cost
    
(51,220
)
    
(51,220
)
Retained earnings
    
71,237
      
70,749
  
Accumulated other comprehensive income
    
898
      
611
  
Total stockholders’ equity
    
74,270
      
73,416
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
684,221
    
$
691,757
  

The accompanying notes are an integral part of these statements


 
3
 

 
TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

   
For the three months
ended
March 31,
  
   
2011
    
2010
  
                 
Interest income
            
Loans, including fees
  
$
6,584
    
$
7,302
  
Investment securities
                
  Fully taxable
    
896
      
1,075
  
  Exempt from federal taxes
    
355
      
297
  
Interest-bearing deposits and other
    
—
      
1
  
                 
TOTAL INTEREST INCOME
    
7,835
      
8,675
  
                 
Interest expense
                
Deposits
    
1,460
      
1,995
  
Borrowings
    
559
      
848
  
                 
TOTAL INTEREST EXPENSE
    
2,019
      
2,843
  
                 
NET INTEREST INCOME
    
5,816
      
5,832
  
                 
Provision for loan losses
    
900
      
961
  
                 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
4,916
      
4,871
  
                 
Non-interest income
                
Service fees, charges and other operating income
    
465
      
529
  
Bank-owned life insurance
    
157
      
172
  
Gain on sale of loans
    
117
      
60
  
Gain (loss) on sale of foreclosed real estate
    
11
      
(145
)
                 
TOTAL NON-INTEREST INCOME
    
750
      
616
  
                 
Non-interest expense
                
Compensation and benefits
    
2,746
      
2,700
  
Occupancy and equipment
    
818
      
759
  
Professional fees
    
478
      
228
  
Marketing and advertising
    
67
      
120
  
FDIC insurance premiums
    
233
      
194
  
Other operating
    
634
      
591
  
                 
TOTAL NON-INTEREST EXPENSE
    
4,976
      
4,592
  
                 
INCOME BEFORE INCOME TAXES
    
690
      
895
  
                 
Income taxes
    
72
      
178
  
                 
NET INCOME
  
$
618
    
$
717
  
                 
Earnings per share—basic
  
$
0.23
    
$
0.27
  
Earnings per share—diluted
  
$
0.23
    
$
0.27
  
Dividends paid per share
  
$
0.05
    
$
0.19
  

The accompanying notes are an integral part of these statements

 
4

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the three months
ended
March 31,
  
   
2011
    
2010
  
   
(in thousands)
  
OPERATING ACTIVITIES
            
Net income
  
$
618
    
$
717
  
Adjustments to reconcile net income to net cash provided by operating activities
                
    Amortization of:
                
      Mortgage loan servicing rights                                                                                                  
    
50
      
(3
)
      Deferred loan origination fees                                                                                                     
    
67
      
51
  
      Premiums and discounts on investment securities, net
    
101
      
17
  
      Premiums and discounts on loans, net
    
2
      
43
  
Provision for loan losses
    
900
      
961
  
Depreciation of premises and equipment
    
219
      
212
  
Increase in value of bank-owned life insurance
    
(157
)
    
(172
)
Share-based compensation
    
79
      
73
  
Proceeds from sale of loans originated for sale
    
5,767
      
6,327
  
Origination of loans held for sale
    
(5,785
)
    
(6,114
)
(Gain) loss on sale of:
                
    Loans held for sale                                                                                                     
    
(117
)
    
(60
)
    Foreclosed real estate                                                                                                     
    
(11
)
    
145
  
 Decrease (increase) in:
                
   Accrued interest receivable                                                                                                     
    
154
      
76
  
   Other assets                                                                                                     
    
324
      
(225
) 
Increase (decrease) in:
                
   Accrued interest payable                                                                                                     
    
430
      
71
  
   Other liabilities                                                                                                     
    
408
      
(773
) 
 NET CASH PROVIDED BY OPERATING ACTIVITIES
    
3,049
      
1,346
  
                 
INVESTING ACTIVITIES
                
Loan originations
    
(22,525
)
    
(16,357
)
Loan principal payments
    
23,578
      
20,855
  
Principal repayments on investment securities
    
7,882
      
6,613
  
Purchase of investment securities
    
—
      
(9,942
)
Redemption of FHLB stock
    
470
      
—
  
Proceeds from the sale of foreclosed real estate
    
322
      
—
  
Purchase of premises and equipment
    
(91
)
    
(482
)
NET CASH PROVIDED BY INVESTING ACTIVITIES
    
9,636
      
687
  


 
5



   
For the three months ended
March 31,
  
   
2011
    
2010
  
   
(in thousands)
  
FINANCING ACTIVITIES
            
Net (decrease) increase in customer deposits
    
(2,382
)
    
709
  
Proceeds of long-term Federal Home Loan Bank borrowings
    
—
      
8,000
  
Repayment of long-term Federal Home Loan Bank borrowings
    
(6,600
)
    
(6,503
)
Net decrease in advances from borrowers for taxes and insurance
    
(342
)
    
(268
)
Exercise of stock options
    
—
      
72
  
Common stock dividends paid
    
(130
)
    
(505
)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
(9,454
)
    
1,505
  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    
3,231
      
3,538
  
                 
Cash and cash equivalents at beginning of period
    
7,437
      
12,801
  
                 
Cash and cash equivalents at end of period
  
$
10,668
    
$
16,339
  
                 
Supplemental disclosure of cash flow information
                
Cash paid for:
                
Interest on deposits and borrowings
  
$
1,589
    
$
2,772
  
Income taxes
  
$
300
    
$
30
  
Non-cash transactions:
                
Transfers from loans to foreclosed real estate
  
$
843
    
$
—
  

The accompanying notes are an integral part of these statements



 
6
 
TF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements as of March 31, 2011 (unaudited) and December 31, 2010 and for the three month period ended March 31, 2011 and 2010 (unaudited) include the accounts of TF Financial Corporation (the “Company”) and its wholly owned subsidiaries Third Federal Bank (the “Bank”), TF Investments Corporation and Penns Trail Development Corporation. The accompanying consolidated balance sheet at December 31, 2010, has been derived from the audited consolidated balance sheet but does not included all of the information and notes required by accounting principles generally accepted in the United States of America (“US GAAP”) for complete financial statements. The Company’s business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

NOTE 2 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all of the disclosures or footnotes required by US GAAP. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for fair presentation of the consolidated financial statements have been included. The results of operations for the period ended March 31, 2011 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

NOTE 3 - CONTINGENCIES

The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

NOTE 4 - OTHER COMPREHENSIVE INCOME

Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Total comprehensive income was $905,000 and $908,000 for the three months ended March 31, 2011 and 2010, respectively. The components of other comprehensive income are as follows for the three months ended:

   
March 31, 2011
  
   
Before tax
amount
    
Tax
(expense)
    
Net of tax
amount
  
   
(in thousands)
  
Unrealized gains on securities
                  
Unrealized holding gains arising during period
  
$
404
    
$
(137
)
  
$
267
  
Pension plan benefit adjustment related to actuarial losses
    
29
      
(9
)
    
20
  
                         
Other comprehensive income, net
  
$
433
    
$
(146
)
  
$
287
  

   
March 31, 2010
  
   
Before tax
amount
    
Tax
(expense)
    
Net of tax
amount
  
   
(in thousands)
  
Unrealized gains on securities
                  
Unrealized holding gains arising during period
  
$
257
    
$
(88
)
  
$
169
  
Pension plan benefit adjustment related to actuarial losses
    
33
      
(11
)
    
22
  
                         
Other comprehensive income, net
  
$
290
    
$
(99
)
  
$
191
  

 
NOTE 5—EARNINGS PER SHARE

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (dollars in thousands, except share and per share data):

   
Three months ended March 31, 2011
  
   
Income
(numerator)
  
Weighted
average
shares
(denominator)
  
Per share
Amount
  
Basic earnings per share
              
Income available to common stockholders
  
$
618
  
2,703,380
  
$
0.23
  
Effect of dilutive securities
              
Stock options and grants
  
—
  
209
  
—
  
               
Diluted earnings per share
              
Income available to common stockholders plus effect of dilutive securities
  
$
618
  
2,703,589
  
$
0.23
  

 There were 71,010 options to purchase shares of common stock at a price range of $24.12 to $32.51 per share which were outstanding during the three months ended March 31, 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.

   
Three months ended March 31, 2010
  
   
Income
(numerator)
  
Weighted
average
shares
(denominator)
  
Per share
Amount
  
Basic earnings per share
              
Income available to common stockholders
  
$
717
  
2,669,276
  
$
0.27
  
Effect of dilutive securities
              
Stock options and grants
  
—
  
—
  
—
  
               
Diluted earnings per share
              
Income available to common stockholders plus effect of dilutive securities
  
$
717
  
2,669,276
  
$
0.27
  


There were 269,675 options to purchase shares of common stock at a price range of $19.33 to $32.51 per share which were outstanding during the three months ended March 31, 2010 that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.

 
NOTE 6—INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities at March 31, 2011 and December 31, 2010, are summarized as follows:

   
March 31, 2011
  
   
Amortized
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
    
Fair
value
  
   
(in thousands)
  
Available for sale
                        
U.S. Government and federal agencies
  
$
6,000
    
$
37
    
$
—
    
$
6,037
  
Corporate debt securities
    
3,340
      
204
      
—
      
3,544
  
State and political subdivisions
    
47,320
      
1,598
      
(66
)
    
48,852
  
Residential mortgage-backed securities issued by quasi-governmental agencies
    
44,142
      
1,593
      
(19
)
    
45,716
  
Residential mortgage-backed securities privately issued
    
12,451
      
324
      
(1
)
    
12,774
  
Total investment securities available for sale
    
113,253
      
3,756
      
(86
)
    
116,923
  
Held to maturity
                                
Residential mortgage-backed securities issued by quasi-governmental agencies
    
2,986
      
339
      
—
      
3,325
  
Total investment securities
  
 $
116,239
    
$
4,095
    
$
(86
)
  
 $
120,248
  

   
December 31, 2010
  
   
Amortized
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
    
Fair
value
  
   
(in thousands)
  
Available for sale
                        
U.S. Government and federal agencies
  
$
6,000
    
$
59
    
$
—
    
$
6,059
  
Corporate debt securities
    
3,340
      
223
      
—
      
3,563
  
State and political subdivisions
    
47,348
      
1,120
      
(260
)
    
48,208
  
Residential mortgage-backed securities issued by quasi-governmental agencies
    
50,942
      
1,950
      
(6
)
    
52,886
  
Residential mortgage-backed securities, privately issued
    
13,425
      
224
      
(44
)
    
13,605
  
Total investment securities available for sale
    
121,055
      
3,576
      
(310
)
    
124,321
  
Held to maturity
                                
Residential mortgage-backed securities held to maturity issued by quasi-governmental agencies
    
3,169
      
341
      
—
      
3,510
  
Total investment securities
  
$
124,224
    
$
3,917
    
$
(310
)
  
$
127,831
  

 
         The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 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
  
   
(in thousands)
  
State and political subdivisions
    
7
    
$
4,352
    
$
(66
)
  
$
—
    
$
—
    
$
4,352
    
$
(66
)
Residential mortgage-backed securities issued by quasi-governmental agencies
    
1
      
2,954
      
(19
)
    
—
      
—
      
2,954
      
(19
)
Residential mortgage-backed securities privately issued
    
1
      
177
      
(1
)
    
—
      
—
      
177
      
(1
)
                                                         
Total temporarily impaired securities
    
9
    
$
7,483
    
$
(86
)
  
$
—
    
$
—
    
$
(7,483
)
  
$
(86
)


The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2010:

   
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
  
   
(in thousands)
  
State and political subdivisions
    
17
    
$
14,210
    
$
(260
)
  
$
—
    
$
—
    
$
14,210
    
$
(260
)
Residential mortgage-backed securities issued by quasi-governmental agencies
    
1
      
3,027
      
(6
)
    
—
      
—
      
3,027
      
(6
)
Residential mortgage-backed securities privately issued
    
3
      
7,048
      
(44
)
    
—
      
—
      
7,048
      
(44
)
Total temporarily impaired securities
    
21
    
$
24,285
    
$
(310
)
  
$
—
    
$
—
 
  
$
24,285
    
$
(310
)

On a quarterly basis, temporarily impaired securities are evaluated to determine whether such impairment is other-than-temporary impairment (“OTTI”). The Company has performed this evaluation and has determined that the unrealized losses at March 31, 2011 and December 31, 2010, respectively, are not considered other-than-temporary but are the results of changes in interest rates, and are therefore reflected in other comprehensive income.

 
NOTE 7—LOANS RECEIVABLE

Loans receivable are summarized as follows:

       
 
March 31, 2011
  
December 31, 2010
    
 
(in thousands)
    
Held for investment:
                
First mortgage loans
                
Secured by one-to four-family residences
$ 
267,265
    
$
269,077
    
Secured by non-residential properties or non—owner occupied residential properties
  
140,905
      
137,307
    
Construction loans
  
18,462
      
18,799
    
Total first mortgage loans
  
426,632
      
425,183
    
                 
Other loans
                
Commercial-business, real estate secured
  
24,628
      
26,603
    
Commercial-business, non-real estate secured
  
5,114
      
5,575
    
Home equity and second mortgage
  
48,150
      
49,430
    
Other consumer
  
2,408
      
2,407
    
Total other loans
  
80,300
      
84,015
    
                 
Total loans
  
506,932
      
509,198
    
Net deferred loan origination costs and unamortized premiums
  
638
      
658
    
Less allowance for loan losses
  
(8,906
)
    
(8,328
)
  
Total loans receivable
$
498,664
    
$
501,528
    
                 
Held for sale:
                
First mortgage loans
                
Secured by one-to four-family residences
$
215
    
$
130
    

 
The following table presents the composition of the commercial loan portfolio by credit quality indicators:


Commercial credit exposure-credit risk profile by internally assigned grade
March 31, 2011
 
     
Pass
      
Special
mention
      
Substandard
      
Doubtful
      
Total
     
(in thousands)
Secured by non-residential properties or
non—owner occupied residential properties
  
$
111,328
    
$
19,561
    
$
10,016
    
$
—
    
$
140,905
Construction loans
    
3,102
      
5,849
      
9,511
      
—
      
18,462
Commercial-business, real estate secured
    
13,827
      
1,001
      
9,800
      
—
      
24,628
Commercial-business, non-real estate secured
    
5,114
      
—
      
—
      
—
      
5,114
  Total
  
$
133,371
    
$
26,411
    
$
29,327
    
$
—
    
$
189,109
 


Commercial credit exposure-credit risk profile by internally assigned grade
December 31, 2010
 
     
Pass
      
Special
mention
      
Substandard
      
Doubtful
      
Total
     
(in thousands)
Secured by non-residential properties or
non—owner occupied residential properties
  
$
108,484
    
$
19,299
    
$
9,524
    
$
—
    
$
137,307
Construction loans
    
3,482
      
6,269
      
9,048
      
—
      
18,799
Commercial-business, real estate secured
    
15,778
      
1,007
      
9,818
      
—
      
26,603
Commercial-business, non-real estate secured
    
5,531
      
—
      
—
      
44
      
5,575
  Total
  
$
133,275
    
$
26,575
    
$
28,390
    
$
44
    
$
188,284
 
In order to assess and monitor the credit risk associated with commercial loans, the Company employs a risk rating methodology whereby each commercial loan is initially assigned a risk grade. At least annually, all risk ratings are reviewed in light of information received such as tax returns, rent rolls, cash flow statements, appraisals, and any other information which may affect the then current risk rating, which is adjusted upward or downward as needed.  At the end of each quarter the risk ratings are summarized and become a component of the evaluation of the allowance for loan losses. The Company’s risk rating definitions mirror those promulgated by banking regulators and are as follows:
 
Pass: Good quality loan characterized by satisfactory liquidity; reasonable debt capacity and coverage; acceptable management in all critical positions and normal operating results for its peer group.  The Company has grades 1 through 6 within the Pass category which reflect the increasing amount of attention paid to the individual loan because of, among other things, trends in debt service coverage, management weaknesses, or collateral values.
 
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 borrower’s future credit position.  Potential weaknesses include: weakening financial condition; an unrealistic repayment program; inadequate sources of funds; lack of adequate collateral; credit information; or documentation.  There is currently the capacity to meet interest and principal payments, but further adverse business, financial, or economic conditions may impair capacity or willingness to pay interest and repay principal.
 
Substandard:  A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged.  Although no loss of principal or interest is presently apparent, there is the distinct possibility that a partial loss of interest and/or principal will be sustained if the deficiencies are not corrected.  There is a current identifiable vulnerability to default and the dependence upon favorable business, financial, or economic conditions to meet timely payment of interest and repayment of principal.
 
 
12
 
Doubtful: A loan which has all the weaknesses inherent in a substandard asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to strengthen the asset, classification as an estimated loss if deferred until a more exact status is determined.  Pending factors include: proposed merger, acquisition, liquidation, capital injection, perfecting liens on additional collateral, and refinancing plans.
 
Loss: Loans which are considered uncollectible and have been charged off. The Company has charged-off all loans classified as loss.
 
Loans classified as special mention, substandard or doubtful are evaluated for potential impairment. All impaired loans are placed on non-accrual status and are classified as substandard or doubtful.
 
The following table presents the composition of the residential mortgage and consumer loan portfolios by credit quality indicators:

Mortgage and consumer credit exposure-credit risk profile by payment activity
March 31, 2011
     
Performing
      
Non-performing
    
Total
     
(in thousands)
Secured by one-to four-family residences
  
$
262,314
    
$
4,951
    
$
267,265
Home equity and second mortgage
    
47,520
      
630
      
48,150
Other
    
2,408
      
—
      
2,408
  Total
  
$
312,242
    
$
5,581
    
$
317,823
 

 
Mortgage and consumer credit exposure-credit risk profile by payment activity
December 31, 2010
     
Performing
      
Non-performing
    
Total
     
(in thousands)
Secured by one-to four- family residences
  
$
265,459
    
$
3,618
    
$
269,077
Home equity and second mortgage
    
48,018
      
1,412
      
49,430
Other
    
2,404
      
3
      
2,407
  Total
  
$
315,881
    
$
5,033
    
$
320,914
 
In order to assess and monitor the credit risk associated with one-to four-family residential loans and consumer loans which include second mortgage loans and home equity secured lines of credit, the Company relies upon the payment status of the loan. Loans 90 days or more past due are placed on non-accrual status and evaluated for impairment on a pooled basis.

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

     
March  31, 2011
  
December 31, 2010
  
 
(in thousands)
Secured by one-to four-family residences
  
$
4,951
  
$
3,618
  
Secured by non-residential properties or non—owner occupied residential properties
    
4,756
    
4,993
  
Construction loans
    
6,126
    
4,307
  
Commercial-business, real estate secured
    
4,601
    
4,601
  
Commercial-business, non-real estate secured
    
—
    
44
  
Home equity and second mortgage
    
630
    
1,412
  
Other consumer
    
—
    
3
  
Total non-performing loans
  
$
21,064
  
$
18,978
  
Total loans past due 90 days as to interest or principal and accruing interest
  
$
—
  
$
—
  


 
13

The following table presents loans individually evaluated for impairment by class:
 
   
March 31,  2011
     
Recorded investment
      
Unpaid principal balance
      
Related allowance
      
Average recorded investment
      
Interest income recognized
     
(in thousands)
With an allowance recorded:
                                      
Secured by non-residential properties or non—owner occupied residential properties
  
$
2,510
    
$
2,510
    
$
224
    
 $
2,183
    
$
—
Construction loans
    
5,706
      
5,706
      
2,496
      
4,797
      
—
Commercial-business, real estate secured
    
2,605
      
2,605
      
467
      
2,605
      
—
Commercial-business, non-real estate secured
    
—
      
—
      
—
      
21
      
—
                                       
With no allowance recorded:
                                      
Secured by non-residential properties or non—owner occupied residential properties
  
 $
1,941
    
 $
1,941
    
$
—
    
$
2,385
      
—
Construction loans
    
420
      
420
      
—
      
420
      
—
Commercial-business, real estate secured
    
1,996
      
1,996
      
—
      
1,996
      
—
Total
  
$
15,178
    
$
15,178
    
$
3,187
    
$
14,407
    
$
—

 
   
December 31, 2010
     
Recorded investment
      
Unpaid principal balance
      
Related allowance
      
Average recorded investment
      
Interest income recognized
     
(in thousands)
With an allowance recorded:
                                      
Secured by non-residential properties or non—owner occupied residential properties
  
$
1,855
    
$
1,855
    
$
218
    
 $
925
    
$
—
Construction loans
    
3,887
      
3,887
      
1,627
      
3,887
      
—
Commercial-business, real estate secured
    
2,605
      
2,605
      
373
      
1,563
      
—
Commercial-business, non-real estate secured
    
44
      
44
      
44
      
18
      
—
                                       
With no allowance recorded:
                                      
Secured by non-residential properties or non—owner occupied residential properties
    
2,830
      
2,830
      
—
      
3,479
      
—
Construction loans
    
420
      
420
      
—
      
492
      
—
Commercial-business, real estate secured
    
1,996
      
1,996
      
—
      
4,717
      
—
Commercial-business, non-real estate secured
    
—
      
—
      
—
      
22
      
—
Total
  
$
13,637
    
$
13,637
    
$
2,262
    
$
15,103
    
$
—


 
14

The following table presents the contractual aging of delinquent loans by class at March 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)
  
Secured by one-to four- family residences
  
$
263,144
    
$
—
    
$
—
    
$
4,121
    
$
4,121
    
$
267,265
    
$
—
  
Secured by non-residential properties or non—owner occupied residential properties
    
136,149
      
—
      
—
      
4,756
      
4,756
      
140,905
      
—
  
Construction loans
    
14,156
      
—
      
—
      
4,306
      
4,306
      
18,462
      
 —
  
Commercial-business, real estate secured
    
20,027
      
—
      
—
      
4,601
      
4,601
      
24,628
      
—
  
Commercial-business, non-real estate secured
    
5,114
      
—
      
—
      
—
      
—
      
5,114
      
—
  
Home equity and second mortgage
    
47,492
      
28
      
—
      
630
      
658
      
48,150
      
 —
  
Other
    
2,408
      
—
      
—
      
—
      
—
      
2,408
      
—
  
  Total
  
 $
488,490
    
$
28
    
$
—
    
$
18,414
    
$
18,442
    
$
506,932
    
$
—
  


The following table presents the contractual aging of delinquent loans by class at December 31, 2010:
 
   
Current
    
30-59 days past due
    
60-89 days past due
    
Loans past due 90 days or more
    
Total past due
    
Total loans
    
Recorded investment over 90 days and accruing interest
  
   
(in thousands)
  
Secured by one-to four-family residences
  
$
267,885
    
$
424
    
$
26
    
$
742
    
$
1,192
    
$
269,077
    
$
—
  
Secured by non-residential properties or non—owner occupied residential properties
    
131,566
      
748
      
754
      
4,239
      
5,741
      
137,307
      
—
  
Construction loans
    
14,492
      
—
      
—
      
4,307
      
4,307
      
18,799
          
Commercial-business, real estate secured
    
18,877
      
3,125
      
—
      
4,601
      
7,726
      
26,603
      
—
  
Commercial-business, non-real estate secured
    
5,531
      
—
      
—
      
44
      
44
      
5,575
      
—
  
Home equity and second mortgage
    
48,285
      
60
      
9
      
1,076
      
1,145
      
49,430
          
Other
    
2,381
      
13
      
10
      
3
      
26
      
2,407
      
—
  
  Total
  
 $
489,017
    
$
4,370
    
$
799
    
$
15,012
    
$
20,181
    
$
509,198
    
$
—
  

 
15

Activity in the allowance for loan losses for the three months ended March 31, 2011 is summarized as follows:

     
     
Balance
January 1, 2011
      
Provision
      
Charge- offs
      
Recoveries
      
Balance
March 31, 2011
     
(in thousands)
Secured by one-to four- family residences
  
 $
  1,839
    
 $
  268
    
 $
  (57
 )
  
 $
 —
    
 $
  2,050
Secured by non-residential properties or non—owner occupied residential properties
    
2,124
      
(154
) 
    
 —
      
 —
      
1,970
Construction loans
    
2,479
      
564
      
 —
      
 —
      
3,043
Commercial-business, real estate secured
    
974
      
167
      
 —
      
 —
      
1,141
Commercial-business, non-real estate secured
    
77
      
67
      
(44
)
    
3
      
103
Home equity and second mortgage
    
607
      
193
      
(221
)
            
579
Other consumer
    
16
      
7
      
(7
)
    
4
      
20
Unallocated
    
  212
      
  (212
) 
    
  —
      
  —
      
  —
Total
  
$
8,328
    
$
900
    
$
(329
) 
  
$
7
    
$
8,906

Despite the above allocation, the allowance for credit losses is general in nature and is available to absorb losses from any portfolio segment. Changes in the allowance for credit losses for the three months ended March 31, 2010 were as follows:

   
2010
  
   
(in thousands)
  
Balance at January 1,
  
$
5,215
  
Provision charged to income
    
961
  
Charge-offs:
        
Commercial-business, non-real estate secured
    
(7
)
Home equity and second mortgage
    
(6
)
Recoveries:
        
Other consumer
    
2
  
Balance at March 31,
  
$
6,165
  


 
16
 
The following tables present the ending balance of the allowance for loan losses and ending loan balance by portfolio by class based on impairment method as of March 31, 2011:
 
     
Evaluated for impairment
        
Allowance
    
Individually
     
Collectively
     
Total
     
(in thousands)
Secured by one-to-four family residences
  
$
—
    
$
2,050
    
 
 
$
2,050
Secured by non-residential properties or non—owner occupied residential properties
    
224
      
1,746
      
1,970
Construction loans
    
2,496
      
547
      
3,043
Commercial-business, real estate secured
    
467
      
674
      
1,141
Commercial-business, non-real estate secured
    
—
      
103
      
103
Home equity and second mortgage
    
—
      
579
      
579
Other consumer
    
—
      
20
      
20
Unallocated
    
—
      
—
      
—
Total
  
$
3,187
    
$
5,719
    
$
8,906

  
     
Evaluated for impairment
        
Loan balance
    
Individually
     
Collectively
     
Total
     
(in thousands)
Secured by one-to-four family residences
  
$
—
    
$
267,265
    
 
 
$
267,265
Secured by non-residential properties or non—owner occupied residential properties
    
4,451
      
136,454
      
140,905
Construction loans
    
6,127
      
12,335
      
18,462
Commercial-business, real estate secured
    
4,601
      
20,027
      
24,628
Commercial-business, non-real estate secured
    
—
      
5,114
      
5,114
Home equity and second mortgage
    
—
      
48,150
      
48,150
Other consumer
    
—
      
2,408
      
2,408
Total
  
$
15,179
    
$
491,753
    
$
506,932
 
           
 
17
 
The following tables present the ending balance of the allowance for loan losses and ending loan balance by portfolio by class based on impairment method as of December 31, 2010:
 
     
Evaluated for impairment
        
Allowance
    
Individually
     
Collectively
     
Total
     
(in thousands)
Secured by one-to-four family residences
  
$
—
    
$
1,839
    
 
 
$
1,839
Secured by non-residential properties or non—owner occupied residential properties
    
218
      
1,906
      
2,124
Construction loans
    
1,627
      
852
      
2,479
Commercial-business, real estate secured
    
373
      
601
      
974
Commercial-business, non-real estate secured
    
44
      
33
      
77
Home equity and second mortgage
    
—
      
607
      
607
Other consumer
    
—
      
16
      
16
Unallocated
    
—
      
212
      
212
Total
  
$
2,262
    
$
6,066
    
$
8,328

  
     
Evaluated for impairment
        
Loan balance
    
Individually
     
Collectively
     
Total
     
(in thousands)
Secured by one-to-four family residences
  
$
—
    
$
269,077
    
 
 
$
269,077
Secured by non-residential properties or non—owner occupied residential properties
    
4,685
      
132,622
      
137,307
Construction loans
    
4,307
      
14,492
      
18,799
Commercial-business, real estate secured
    
4,601
      
22,002
      
26,603
Commercial-business, non-real estate secured
    
44
      
5,531
      
5,575
Home equity and second mortgage
    
—
      
49,430
      
49,430
Other consumer
    
—
      
2,407
      
2,407
Total
  
$
13,637
    
$
495,561
    
$
509,198

 
NOTE 8- FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 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 assessing the fair value of the asset or liability.

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

At March 31, 2011
  
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
    
Balance as of
March 31,
2011
  
   
(in thousands)
  
Assets
                        
Investment securities available for sale
                        
U.S. Government and federal agencies
  
$
—
    
$
6,037
    
$
—
    
$
6,037
  
Corporate debt securities
    
—
      
3,544
      
—
      
3,544
  
State and political subdivisions
    
—
      
48,852
      
—
      
48,852
  
    Residential mortgage-backed securities issued by quasi-governmental agencies
    
—
      
45,716
      
—
      
45,716
  
    Residential real estate mortgage - backed securities privately issued
    
—
      
12,774
      
—
      
12,774
  
Total investment securities available for sale
  
$
—
    
$
116,923
    
$
—
    
$
116,923
  
Liabilities
                                
Forward loan sales
  
$
—
    
$
—
    
$
2
    
$
2
  
 
 
19
 
At December 31, 2010
  
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
    
Balance as of
December 31,
2010
  
   
(in thousands)
Assets
                        
Investment securities available for sale
                        
U.S. Government and federal agencies
  
$
—
    
$
6,059
    
$
—
    
$
6,059
  
Corporate debt securities
    
—
      
3,563
      
—
      
3,563
  
State and political subdivisions
    
—
      
48,208
      
—
      
48,208
  
    Residential mortgage-backed securities issued by quasi-governmental agencies
    
—
      
52,886
      
—
      
52,886
  
    Residential real estate mortgage - backed securities privately issued
    
—
      
13,605
      
—
      
13,605
  
Total investment securities available for sale
  
$
—
    
$
124,321
    
$
—
    
$
124,321
  
                                 
Forward loan sales
  
$
—
    
$
—
    
$
3
    
$
3
  


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

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

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

   
Forward
loan sales
  
   
(in thousands)
  
Beginning balance, January 1, 2011
  
$
3
  
Total gains (losses) — realized/unrealized:
      
Included in earnings
  
(5
)
Included in other comprehensive income
  
—
  
Purchases, issuances, and settlements
  
—
  
Ending balance, March 31, 2011
  
$
(2
)

 
20
 
Assets and liabilities measured at fair value on a nonrecurring basis segregated by fair value hierarchy level are summarized below:

At March 31, 2011
  
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
    
Balance as of
March 31,
2011
  
   
(in thousands)
  
Assets
                        
Impaired loans
  
$
—
    
$
—
    
$
11,992
    
$
11,992
  
Real estate acquired through foreclosure
  
$
—
    
$
—
    
$
8,002
    
$
8,002
  
Mortgage servicing rights
  
$
—
    
$
878
    
$
—
    
$
878
  

At December 31, 2010
  
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
    
Balance as of
December 31, 2010
  
   
(in thousands)
  
Assets
                        
Impaired loans
  
$
—
    
$
—
    
$
11,375
    
$
11,375
  
Real estate acquired through foreclosure
  
$
—
    
$
—
    
$
7,482
    
$
7,482
  
Mortgage servicing rights
  
$
—
    
$
878
    
$
—
    
$
878
  

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

The Company initially recognizes and measures servicing assets based on the fair value of the servicing right at the time the loan is sold. The Company uses the amortized cost method for subsequent measurement of its servicing assets and evaluates the recorded value for impairment quarterly. The Company retains a qualified valuation service to calculate the amortized cost and to determine the fair value of the mortgage servicing rights. The valuation service utilizes discounted cash flow analyses adjusted for prepayment speeds, market discount rates and conditions existing in the secondary servicing market. Hence, the fair value of mortgage servicing rights is deemed a Level 2 hierarchy. The amortized cost basis of the Company’s mortgage servicing rights was $949,000 and $997,000 at March 31, 2011 and December 31, 2010, respectively. The fair value of the mortgage servicing rights was $878,000 at March 31, 2011 and December 31, 2010, respectively and was included in other assets in the consolidated balance sheets.
 
 
 
21
 
NOTE 9- FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Bank, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments. However, many such instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Also, it is the Company’s general practice and intent to hold its financial instruments to maturity or available for sale and to not engage in trading or significant sales activities. For fair value disclosure purposes, the Company substantially utilized the fair value measurement criteria as explained in Note 8- Fair Value Measurements. Additionally, the Company used significant estimations and present value calculations to prepare this disclosure.

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

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

The fair value of cash and cash equivalents equals historical book value. The fair value of investment securities is described and presented under fair value measurement guidelines as amended.

   
March 31, 2011
    
December 31, 2010
  
   
Fair
value
    
Carrying
value
    
Fair
value
    
Carrying
value
  
   
(in thousands)
  
Cash and cash equivalents
  
$
10,668
    
$
10,668
    
$
7,437
    
$
7,437
  
Investment securities
    
120,248
      
119,909
      
127,831
      
127,490
  

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

   
March 31, 2011
    
December 31, 2010
  
   
Fair
value
    
Carrying
value
    
Fair
value
    
Carrying
value
  
   
(in thousands)
  
Loans receivable, net
  
$
515,578
    
$
498,879
    
$
518,324
    
$
501,658
  

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.

   
March 31, 2011
    
December 31, 2010
  
   
Fair
value
    
Carrying
value
    
Fair
value
    
Carrying
value
  
   
(in thousands)
  
Liabilities
                        
Deposits with stated maturities
  
$
199,378
    
$
197,247
    
$
206,791
    
$
204,159
  
Borrowings with stated maturities
    
56,911
      
55,387
      
63,811
      
61,987
  


 
22
 
The fair value of deposits and borrowings with no stated maturities is generally presumed to approximate the carrying amount (the amount payable on demand). The fair value of deposits and borrowings with floating interest rates is generally presumed to approximate the recorded carrying amount.

   
March 31, 2011
    
December 31, 2010
  
   
Fair
value
    
Carrying
value
    
Fair
value
    
Carrying
value
  
   
(in thousands)
  
Deposits with no stated maturities
  
$
350,506
    
$
350,506
    
$
345,976
    
$
345,976
  

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

NOTE 10- SHARE-BASED COMPENSATION

The Company has stock benefit plans that allow the Company to grant options and restricted stock to employees and directors. The awards, which have a term of up to 10 years when issued, vest over a three to five year period. The exercise price of each award equals the market price of the Company’s stock on the date of the grant. At March 31, 2011, there was $73,000 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested awards under the Plan. That cost is expected to be recognized over a weighted average period of 17.8 months. Option activity under the Company’s stock option plan as of March 31, 2011 was as follows:

 
2011
  
 
Number
of shares
  
Weighted
average
exercise
price per
share
Weighted
average
remaining
contractual
term (in
years)
  
Aggregate
intrinsic
value ($ 000)
  
Outstanding at January 1, 2011
126,257
  
$
24.04
        
Options granted
—
  
—
        
Options exercised
—
  
—
        
Options forfeited
—
  
—
        
Options expired
—
  
—
        
Outstanding at March 31, 2011
126,257
  
$
24.04
3.05
  
$
68
  
Options exercisable at March 31, 2011
98,149
  
$
25.19
2.65
  
$
37
  

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter and the exercise price, multiplied by the number of in-the-money options).

   
Three months ended
March 31,
  
   
2011
    
2010
  
   
(in thousands)
  
Options Exercised
            
   Aggregate intrinsic value of options exercised
  
$—
    
$27
  
   Cash receipts from options exercised
  
—
    
72
  
             
Share-based compensation expense
            
Stock grant expense
  
$
3
    
$
4
  
Stock option expense
    
8
      
13
  
Employee Stock Ownership Plan ("ESOP")expense
    
59
      
45
  
Total share-based compensation expense
  
$
70
    
$
62
  
 
The Bank reports ESOP expense in an amount equal to the fair value of shares released from the ESOP to employees less dividends received on the allocated shares in the plan  used for debt service. Dividends on allocated shares used to reduce ESOP expense totaled $9,000 and $11,000 for the three months ended March 31, 2011 and 2010, respectively.
 
Share-based compensation expense related to stock options resulted in a tax benefit of $3,000 and $5,000 for the periods ended March 31, 2011 and 2010, respectively.

 
23

NOTE 11- EMPLOYEE BENEFIT PLANS

Net periodic defined benefit pension cost included the following (in thousands):

   
Three months ended
March 31,
  
   
2011
    
2010
  
   
(in thousands)
  
Components of net periodic benefit cost
            
Service cost
  
$
141
    
$
142
  
Interest cost
    
82
      
74
  
Expected return on plan assets
    
(154
)
    
(136
)
Amortization of prior service cost
    
—
      
—
  
Recognized net actuarial loss
    
29
      
33
  
                 
Net periodic benefit cost
  
$
98
    
$
113
  


There was no employer contribution for the three months ended March 31, 2011 and 2010.

NOTE 12 — ACCOUNTING STANDARDS UPDATE
 
In April 2011, the FASB issued an amendment to provide additional guidance or clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring.  The amendments are effective for the first interim or annual reporting period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning annual period of adoption.  As a result of applying these amendments, an entity may identify receivables that are newly considered impaired.  For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011.  The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
 

 
24
 
TF FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

GENERAL

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 Quarterly Report on Form 10-Q and the exhibits thereto), 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.

Financial Position

The Company’s total assets at March 31, 2011 and December 31, 2010 were $684.2 million and $691.8 million, respectively, representing a decrease of $7.5 million, or 1.1% during the three-month period. Loans receivable net decreased by $2.9 million during the first three months of 2011. Principal repayments of loans receivable totaled $23.6 million which were offset by originations of consumer and single-family residential mortgage loans totaling $10.2 million and of commercial loans totaling $12.3 million. In addition, during this period the Company increased the allowance for loan losses by $900,000 and transferred $843,000 from loans to real estate acquired through foreclosure. Loans receivable held for sale remained steady as proceeds of $5.8 million from the sale of loans in the secondary market were offset by loans originated for sale of $5.8 million. Investment securities decreased by $7.6 million due to principal repayments received of $7.9 million and amortization of $100,000 offset by increases in the fair value of available for sale securities of $400,000. As a result of the Company’s cash-related activities, cash and cash equivalents decreased by $3.2 million during the first three months of 2011.

Total liabilities decreased by $8.4 million during the first three months of 2011. Advances from the Federal Home Loan Bank decreased by $6.6 million, the result of scheduled amortization and maturities. Deposit balances decreased $2.4 million during the period with checking and savings accounts increasing by $5.5 million while money market accounts decreased $1.0 million and retail certificates of deposit decreased $6.9 million.

Total consolidated stockholders’ equity of the Company was $74.3 million or 10.9% of total assets at March 31, 2011.  At March 31, 2011, there were approximately 102,000 shares available for repurchase under the previously announced share repurchase plan.


 
25
 
Asset Quality

Non-performing loans include impaired loans and loan balances past due over 90 days for which the accrual of interest has been discontinued.  The following table sets forth information regarding the Company’s non performing assets:

  Non-Performing Assets
  
March 31,
2011
    
December 31,
2010
  
                 
             
Mortgage secured by:
                
One-to four- family residences
  
 $
4,951
    
 $
3,618
  
Non-residential properties or non—owner occupied residential properties
    
4,756
      
4,993
  
Construction loans
    
6,126
      
4,307
  
Commercial-business, real estate secured
    
4,601
      
4,601
  
Commercial-business, non-real estate secured
    
—
      
44
  
Home equity and second mortgage
    
630
      
1,412
  
Other consumer
    
—
      
3
  
Total non-performing loans
    
21,064
      
18,978
  
Real estate owned
    
8,002
      
7,482
  
Total non-performing assets
  
$
29,066
    
$
26,460
  
Total loans past due 90 days as to interest or principal and accruing interest
  
$
—
    
$
—
  
Ratio of non-performing loans to gross loans
    
4.15
%
    
3.72
%
Ratio of non-performing loans to total assets
    
3.08
%
    
2.74
%
Ratio of total non-performing assets to total assets
    
4.25
%
    
3.83
%

Loans secured by one-to four-family residential properties include two loans with a combined balance of $2.9 million to a single borrower secured by two residential properties. The borrower has listed both properties for sale and will apply the proceeds toward the outstanding loan balance. Recent appraisals of both properties indicate a fair value in excess of the recorded investment in the loans.  Additionally, the Bank has initiated foreclosure proceedings on both properties.

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

Loans secured by non-residential properties or non—owner occupied residential properties include three loans with a combined balance of $2.3 million to a single borrower secured by 34 residential rental properties located in the greater Philadelphia area. Subsequent to quarter end, the Bank acquired ownership of all the properties as a result of a sheriff’s sale.  Presently, the Bank is in the process of obtaining appraisals and has retained the services of a company to assist in the management and liquidation of the properties.

Construction loans include a loan with a balance of $2.4 million, secured by a largely completed and partially occupied commercial office building, and the personal guarantee of the borrowers. The Bank has allocated $1.2 million of the allowance for loan losses to this loan, equal to the difference between the loan balance plus other acquisition costs and the fair value based upon a recent appraisal less estimated costs to sell. The Bank has initiated foreclosure proceedings.

Also included in construction loans is a loan with a balance of $1.5 million secured by two contiguous parcels of commercial real estate and a lien on the guarantor’s personal residence.  The Bank has allocated to this loan $847,000 of the allowance for loan losses, equal to the difference between the loan balance plus other acquisition costs and the fair value based upon a recent appraisal less estimated costs to sell. The Bank has initiated foreclosure proceedings and the borrower has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.

Construction loans also include a loan with a balance of $1.8 million secured by five contiguous lots approved for construction of commercial and residential buildings. The Bank allocated $0.5 million of the allowance for loan losses equal to the difference between the loan balance and a recent appraisal. The borrower is attempting to sell the properties and apply the proceeds towards the outstanding loan balance.

Commercial-business loans secured by real estate include a loan with a balance of $2.6 million secured by a parcel of vacant land approved for townhome development. The Bank has allocated $467,000 of the allowance for loan losses to the loan, equal to the difference between the loan balance plus other acquisition costs and the fair value based upon a recent appraisal less estimated costs to sell. The Bank has initiated foreclosure proceedings.

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

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

Foreclosed property at March 31, 2011 included six parcels of real estate with a combined carrying value of $8.0 million. During the first quarter of 2011, the Bank completed foreclosure proceedings on a home equity loan secured by a single family dwelling valued at $0.8 million which resulted in a charge to the allowance of $0.2 million.  In addition, the Bank sold a single family home acquired through foreclosure with a recorded value of $0.3 million that resulted in a gain on sale of $11,000 during the quarter. All properties are listed or are in the process of being listed with real estate agents for sale in a timely manner. Foreclosed real estate is included in other assets in the consolidated balance sheet.

 
26
 
Allowance for Loan Losses

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 Company prepares an allowance for loan losses (ALLL) analysis. In the analysis, the loan portfolio is segmented into groups of homogeneous loans that share similar risk characteristics: non-residential or non-owner occupied residential real estate, commercial construction, commercial business, single family residential, and consumer which is predominately real estate secured junior liens and home equity lines of credit. Each segment is assigned reserve factors based on quantitative and qualitative measurements. In addition, the Bank reviews its internally classified loans, its loans classified for regulatory purposes, delinquent loans, and other relevant information in order to isolate loans for further scrutiny as potentially impaired loans.

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

Qualitative factors are based upon: (1) changes in lending policies and procedures, including but not limited to changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; (3) changes in the nature and volume of the portfolio and in the terms of loans; (4) changes in the experience, ability, and depth of lending management and other relevant staff; (5) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; (6) changes in the quality of the loan review system; (7) changes in the value of underlying collateral for collateral dependent loans; (8) the existence and effect of any concentration of credit, and changes in the level of such concentrations; and (9) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio.
 
Potentially impaired loans selected for individual evaluation are reviewed in accordance with US GAAP which governs the accounting for impaired assets, and consideration of regulatory guidance regarding treatment of troubled, collateral dependent loans. Each potentially impaired loan is evaluated using all available information such as recent appraisals, whether the loan is currently on accrual or non-accrual status, discounted cash flow analyses, guarantor financial strength, the value of additional collateral, and the loan’s and borrower’s past performance to determine whether in management’s best judgment it is probable that the Bank will be unable to collect all contractual interest and principal in accordance with the loan’s terms. Loans deemed impaired are generally assigned a reserve derived from the value of the underlying collateral. Loans deemed not to be impaired are assigned a reserve factor based upon the segment from which they were selected.

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


 
27
 
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

Net Income. The Company recorded net income of $618,000, or $0.23 per diluted share, for the three months ended March 31, 2011 as compared to net income of $717,000, or $0.27 per diluted share, for the three months ended March 31, 2010.

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. Yield and cost are computed by dividing income or expense by the average daily balance of interest-earning assets or interest-bearing liabilities, respectively, for the three-month periods indicated.

   
Three Months Ended March 31,
  
   
2011
    
2010
  
   
Average
balance
    
Interest
    
Average
yld/cost
    
Average
balance
    
Interest
    
Average
yld/cost
  
ASSETS
                                    
Interest-earning assets:
                                    
Loans receivable(1)
  
$
501,543
    
$
6,584
      
5.32
%
  
$
529,817
    
$
7,302
      
5.59
%
Mortgage-backed securities
    
66,401
      
695
      
4.24
%
    
81,839
      
967
      
4.79
%
Investment securities(2)
    
67,035
      
719
      
4.35
%
    
53,282
      
541
      
4.12
%
Other interest-earning assets(3)
    
3,237
      
—
*
    
—
%
    
6,728
      
1
      
0.06
%
Total interest-earning assets
    
638,216
      
7,998
      
5.08
%
    
671,666
      
8,811
      
5.32
%
Non interest-earning assets
    
48,984
                      
41,204
                  
Total assets
  
$
687,200
                    
$
712,870
                  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                
Interest-bearing liabilities:
                                                
Deposits
  
$
546,055
      
1,460
      
1.08
%
  
$
549,257
      
1,995
      
1.47
%
Borrowings from the FHLB
    
60,446
      
559
      
3.75
%
    
82,536
      
848
      
4.17
%
Total interest-bearing liabilities
    
606,501
      
2,019
      
1.35
%
    
631,793
      
2,843
      
1.82
%
Non interest-bearing liabilities
    
6,482
                      
8,611
                  
Total liabilities
    
612,983
                      
640,404
                  
Stockholders’ equity
    
74,217
                      
72,466
                  
Total liabilities and stockholders’
equity
  
$
687,200
                    
$
712,870
                  
Net interest income—tax equivalent basis
            
5,979
                      
5,968
          
Interest rate spread(4)-tax equivalent basis
                    
3.73
%
                    
3.50
%
Net yield on interest-earning assets(5)
—tax equivalent basis
                    
3.80
%
                    
3.60
%
Ratio of average interest-earning assets to average interest-bearing liabilities
                    
105.23
%
                    
106.31
%
Less: tax—equivalent interest
adjustment
            
(163
)
                    
(136
)
        
Net interest income
          
$
5,816
                    
$
5,832
          
Interest rate spread(4)
                    
3.63
%
                    
3.41
%
Net yield on interest-earning
assets(5)
                    
3.70
%
                    
3.52
%

 
 
(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 $163,000 and $136,000 for the quarter ended March 31, 2011 and 2010, 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.
 
*
  
Is less than $500 for period indicated

 
28
 
Rate/Volume Analysis

The following table presents, for the periods indicated, the change in interest income and interest expense (in thousands) 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.

   
Three months ended March 31
  
   
2011 vs 2010
Increase (decrease) due to
  
   
Volume
    
Rate
    
Net
  
Interest income:
                  
Loans receivable, net
  
$
(380
)
  
$
(338
)
  
$
(718
)
Mortgage-backed securities
    
(169
)
    
(103
)
    
(272
)
Investment securities (1)
    
146
      
32
      
178
  
Other interest-earning assets
    
—
      
(1
)
    
(1
)
Total interest-earning assets
    
(403
)
    
(410
)
    
(813
)
Interest expense:
                        
Deposits
    
(12
)
    
(523
)
    
(535
)
Borrowings from the FHLB and other borrowings
    
(210
)
    
(79
)
    
(289
)
                         
Total interest-bearing liabilities
    
(222
)
    
(602
)
    
(824
)
Net change in net interest income
  
$
(181
)
  
$
192
    
$
11
  

 
 
(1
)
  
Tax equivalent adjustments to interest on investment securities were $163,000 and $136,000 for the quarters ended March 31, 2011 and 2010, respectively. Tax equivalent interest income is based upon a marginal effective tax rate of 34%.

Total Interest Income. Total interest income, on a taxable equivalent basis, decreased by $813,000 or 9.2% to $8.0 million for the quarter ended March 31, 2011 compared with the first quarter of 2010. Interest income from loans receivable decreased by $718,000, the result of a $28.3 million decrease in the average balance of loans outstanding plus a decrease in the average yield on loans of 27 basis points. The decrease in the yield was caused by an increase in non-performing loans between the periods which reduced interest income from loans by $134,000. Interest income from mortgage-backed securities was lower in the first quarter of 2011 in comparison to the same period of 2010 mainly because principal repayments of $30.4 million exceeded purchases of $14.1 million during the intervening period. Additionally, the yield associated with repayments was higher than the yield on newly purchased mortgage-backed securities. Interest income from investment securities was higher as a result of purchases of $10.9 million of investments during the intervening period which resulted in an increase in the yield of 23 basis points.

Total Interest Expense. Total interest expense decreased by $824,000 to $2.0 million during the three-month period ended March 31, 2011 as compared with the first quarter of 2010. The average interest rates paid on the Bank’s deposits were 39 basis points lower in 2011 due to the maturity of certificates of deposit with higher interest rates than current market rates offered on the products into which the maturing CDs were renewed or reinvested. Interest expense associated with borrowings from the Federal Home Loan Bank decreased $289,000 between the first quarter of 2011 and 2010. During the intervening period, the Bank reduced its average outstanding borrowings by $22.1 million which resulted in a decrease of cost of funds of 42 basis points.

Non-interest income. Total non-interest income was $750,000 for the first quarter of 2011 compared with $616,000 for the same period in 2010. The sale of foreclosed real estate produced a gain of $11,000 in the first quarter of 2011 as compared to a loss of $145,000 recorded during the first quarter of 2010. During the first quarter of 2011, gain on sale of loans increased $57,000 as a result of a higher level of residential loan sales activity in the quarter. Service fees and other charges decreased $64,000 between the quarters mainly the result of a decrease in overdraft fees.

 
29
 
Non-interest expense. Total non-interest expense increased by $384,000 to $5.0 million for the three months ended March 31, 2011 compared to the same period in 2010. Professional fees increased $250,000 between the two periods as legal costs associated with non-performing loans and foreclosures increased $169,000.  Additionally, legal and professional costs were incurred in connection with the Company’s reincorporation in Pennsylvania and the cost of distributing a 5% stock dividend in the first quarter of 2011. Occupancy and equipment costs increased $59,000, which was mainly the result of costs associated with a relocated and renovated branch office which occurred in the second quarter of 2010. Other operating expense increased $43,000 mainly because of increased appraisal costs associated with nonperforming loans and costs to maintain and liquidate real estate acquired through foreclosure.  FDIC insurance premiums increased by $39,000 between the two quarters due to an increased assessment rate.  Marketing and advertising expenses decreased between the two quarters as marketing-related activities were streamlined during the period.

Income tax expense. The Company’s effective tax rate was 10.4% for the quarter ended March 31, 2011 compared to 19.9% for the quarter ended March 31, 2010. 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 tax-exempt municipal bonds and bank-owned life insurance.

 
30

LIQUIDITY AND CAPITAL RESOURCES
 

Liquidity

The Bank’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The Bank’ short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, broker deposits, other borrowings, and new borrowings from the Federal Home Loan Bank and the Federal Reserve Bank. There has been no material adverse change during the three-month period ended March 31, 2011 in the ability of the Bank and its subsidiaries to fund their operations.

At March 31, 2011, the Bank’s had commitments outstanding under letters of credit of $0.7 million, commitments to originate loans of $20.1 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit of $44.0 million. At March 31, 2011, the Bank had $1.4 million in outstanding commitments to sell loans. There has been no material change during the three months ended March 31, 2011 in any of the Bank’s other contractual obligations or commitments to make future payments.

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, and tax benefits arising from the use of the Company’s tax deductions by other members of its consolidated group pursuant to a tax sharing agreement. The Company is dependent upon these sources and cash on hand which totaled approximately $1.3 million at March 31, 2011 in order to fund its operations and pay the dividend to its shareholders. There has been no material adverse change in the ability of the Company to fund its operations during the three-month period ended March 31, 2011.

Capital Requirements

The Bank was in compliance with all of its capital requirements as of March 31, 2011.


 
31
 
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 accounting estimates and judgment is the determination of the allowance for loan losses. If the financial position of a significant amount of debtors or the value of the collateral securing the loans should deteriorate more than the Company has estimated, the present allowance for loan losses may be insufficient and additional provisions for loan losses may be required. The allowance for loan losses was approximately $8.9 million at March 31, 2011.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this item.


 
32
 
ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 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 Quarterly Report on Form 10-Q such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files and submits pursuant to the rules and forms of the SEC is accumulated and communicated to the Company’s management including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting

During the quarter 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.



 
33

 
TF FINANCIAL CORPORATION AND SUBSIDIARIES

PART II

ITEM 1.
  
     
   
Neither the Company nor its subsidiaries are involved in any pending legal proceedings, other than routine legal matters occurring in the ordinary course of business that in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company.
     
ITEM 1A.
  
     
   
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this item.
     
ITEM 2.
  
     
   
None.
     
ITEM 3.
  
     
   
Not applicable.
     
ITEM 4.
  
     
ITEM 5.
  
     
   
None.
     
ITEM 6.
  
     
   
(a)  
Exhibits
     
31.1 
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


 
34

 
TF FINANCIAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:
May 13, 2011
  
/s/ Kent C. Lufkin
     
Kent C. Lufkin
     
President and CEO
     
(Principal Executive Officer)
       
       
Date:
May 13, 2011
  
/s/ Dennis R. Stewart
     
Dennis R. Stewart
     
Executive Vice President and Chief Financial Officer
     
(Principal Financial & Accounting Officer)


 
 
 
35