10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2007
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number:  0-24168

TF FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x     NO o

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.  x

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 o     NO 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, 2007, was $60.6 million (2,004,828 shares at $30.25 per share).

As of March 19, 2008 there were outstanding 2,825,345 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, 2007. (Parts I, II and IV)

2.Portions of the Proxy Statement for the 2008 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 LAWS CONCERNING TAXES, BANKING, SECURITIES AND INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED IN THE FOREGOING.

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

Item 1.Business

BUSINESS OF THE COMPANY

On July 13, 1994, the Company consummated its public offering of 5,290,000 shares of its common stock and acquired Third Federal Bank (the “Bank”) as part of the Bank’s mutual-to-stock conversion.  The Company was incorporated under Delaware law in March 1994.  The Company is a savings and loan holding company and is subject to regulation by the Office of Thrift Supervision (the “OTS”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Securities and Exchange Commission (the “SEC”).  The Company does not transact any material business other than through its direct and indirect subsidiaries: Third Federal Bank, TF Investments Corporation, Teragon Financial Corporation, Penns Trail Development Corporation and Third Delaware Corporation. At December 31, 2007, the Company had total assets of $701.7 million, total liabilities of $633.8 million and stockholders’ equity of $67.8 million.

BUSINESS OF THE BANK

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

The Bank is a community oriented savings institution offering a variety of financial services to meet the needs of the communities it serves.  As of December 31, 2007 the Bank operated fifteen 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, 2007, one-to-four family

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residential mortgage loans totaled $273.9 million or 53% of the Bank’s total loan portfolio.  At that same date, the Bank had approximately $104.3 million or 15% of total assets invested in mortgage-backed securities and $32.6 million or 5% 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 2006, Teragon Financial Corporation was granted approval by the state of Pennsylvania to conduct business as an insurance agency.

Market Area

The Bank offers a wide range of consumer and business products at its fifteen full service branch offices located in Bucks and Philadelphia Counties in Pennsylvania, and Mercer County in New Jersey. Five of the branch offices are located in Bucks County, the third wealthiest county in Pennsylvania. Bucks County is a growing region offering opportunity for growth for the Bank. Seven branches are located in the northeast section of Philadelphia where the Bank was founded. Although Philadelphia County is experiencing population decline, the Bank’s branches in this section of Philadelphia represent a deposit stronghold. The remaining three 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, 2007 the Company’s share of deposits in each of the counties in which it operates was as follows:

County, State	Market Share for  Entire County		Market Share for ZIP Codes  Including Company Branches
Philadelphia, Pennsylvania	0.5	%	11.2	%
Bucks, Pennsylvania	1.6	%	5.4	%
Mercer, New Jersey	0.8	%	4.2	%

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, 2007, the Bank’s mortgage loans outstanding were $419.1 million, of which $273.9 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, 20% were ARM’s and 80% were fixed-rate loans.  At that same date, commercial real estate and multi-family residential loans totaled $109.7 million, and construction loans totaled $35.5 million. The construction loans are predominately floating-rate, prime-rate-based loans.

Consumer and other loans held by the Bank totaled $54.3 million or 10% of total loans outstanding at December 31, 2007, of which $52.0 million consisted of home equity and second mortgage loans. At that same date commercial business loans totaled $46.9 million or 9% 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,
	2007					2006					2005					2004					2003
	Amount			Percent  of Total		Amount			Percent  of Total		Amount			Percent  of Total		Amount			Percent of Total		Amount			Percent  of Total
	(Dollars in thousands)
Loans held for investment:
Mortgage loans:
One-to-four family	$	272,840		52.55	%	$	266,789		54.91	%	$	289,678		58.76	%	$	283,965		64.08	%	$	276,849		68.22	%
Commercial real estate and multi-family	109,740			21.14		93,607			19.26		89,489			18.15		83,559			18.86		74,109			18.26
Construction	35,507			6.84		34,944			7.19		24,888			5.04		10,286			2.32		6,591			1.62
Total mortgage loans	418,087			80.53		395,340			81.36		404,055			81.95		377,810			85.26		357,549			88.10
Consumer loans:
Home equity and second mortgage	52,013			10.02		46,864			9.65		37,479			7.60		29,522			6.66		25,199			6.21
Other consumer	2,244			0.43		3,206			0.66		2,836			0.58		4,384			0.99		6,532			1.61
Total consumer and other loans	54,257			10.45		50,070			10.31		40,315			8.18		33,906			7.65		31,731			7.82
Commercial loans and leases:
Commercial loans	46,850			9.02		40,458			8.33		48,471			9.83		30,543			6.90		15,185			3.74
Commercial leases	—			—		36			—		186			0.04		857			0.19		1,371			0.34
Total commercial loans and leases	46,850			9.02		40,494			8.33		48,657			9.87		31,400			7.09		16,556			4.08
Total loans	519,194			100.00	%	485,904			100.00	%	493,027			100.00	%	443,116			100.00	%	405,836			100.00	%
Net of:
Deferred loan origination costs and unamortized premiums	675					531					505					706					924
Allowance for loan losses	(2,842		)			(2,865		)			(2,641		)			(2,307		)			(2,111		)
Total loans, held for investment, net	$	517,027				$	483,570				$	490,891				$	441,515				$	404,649
Loans held for sale:
Mortgage loans:
One-to-four family	$	1,040		100.00	%	$	969		100.00	%	$	68		100.00	%	$	680		100.00	%	—			—	%
Total loans held for sale	$	1,040		100.00	%	$	969		100.00	%	$	68		100.00	%	$	680		100.00	%	—			—	%
Mortgage-backed securities held-to-maturity:
FHLMC	$	1,657		26.90	%	$	2,297		29.84	%	$	3,161		31.06	%	$	5,195		34.87	%	$	8,407		35.58	%
FNMA	2,634			42.76		3,084			40.07		3,969			39.00		5,182			34.77		7,205			30.49
GNMA	1,869			30.34		2,316			30.09		3,040			29.87		4,516			30.31		8,007			33.88
Real estate investment mortgage conduit	—			—		—			—		7			0.07		7			0.05		11			0.05
Total mortgage-backed and related securities held-to-maturity	$	6,160		100.00	%	$	7,697		100.00	%	$	10,177		100.00	%	$	14,900		100.00	%	$	23,630		100.00	%
Mortgage-backed securities available-for-sale:
FHLMC	$	5,434		5.54	%	$	7,888		10.61	%	$	9,686		11.60	%	$	6,614		6.38	%	$	8.525		7.98	%
FNMA	11,183			11.39		10,330			13.90		12,173			14.58		15,108			14.58		18,385			17.22
Real estate investment mortgage conduit	81,561			83.07		56,120			75.49		61,652			73.82		81,888			79.04		79,864			74.80
Total mortgage-backed and related securities available-for-sale	$	98,178		100.00	%	$	74,338		100.00	%	$	83,511		100.00	%	$	103,610		100.00	%	$	106,774		100.00	%

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Loan Maturity and Repricing Information.  The following table sets forth certain information at December 31, 2007, regarding the dollar amount of loans maturing in the Bank’s loan and mortgage-backed securities portfolios 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, 2008, are reported as due in one year or less.  The table does not include prepayments or scheduled principal repayments.

	Due 1/1/08 - 12/31/08		Due 1/1/09 - 12/31/12		Due After 12/31/12
	(In thousands)
Available for sale:
Mortgage-backed securities	$	12	$	1,694	$	96,472
Loans receivable	—		—		1,040
Total	$	12	$	1,694	$	97,512
Held to Maturity:
One-to-four family	$	558	$	3,733	$	268,549
Commercial real estate and multi-family	5,475		3,843		100,422
Construction	35,507		—		—
Consumer and other	624		4,910		48,723
Commercial loans	39,181		1,249		6,420
Total loans receivable	81,345		13,735		424,114
Mortgage-backed securities	25		222		5,913
Total	$	81,370	$	13,957	$	430,027

The following table sets forth the dollar amount of all loans and mortgage-backed securities due after December 31, 2008, which have predetermined interest rates and which have floating or adjustable interest rates. Loans which have rate adjustments after ten years are considered to have predetermined rates.

	Predetermined  Rates		Floating or  Adjustable Rate
	(In thousands)
Available for sale:
Mortgage-backed securities	$	98,166	$	—
Loans	1,040		—
Total	$	99,206	$	—
Held to Maturity:
One-to-four family	$	208,300	$	63,982
Commercial real estate and multi-family	1,660		102,605
Construction	37,886		15,747
Consumer and other	—		—
Commercial loans and leases	7,660		9
Total loans receivable	255,506		182,343
Mortgage-backed securities	6,108		27
Total	$	261,614	$	182,370

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, other than loans to facilitate the sale of real estate acquired through foreclosure, must be owner-occupied and private mortgage insurance is typically required.

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

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

The Bank offers fixed-rate mortgage loans with terms of 10 to 30 years, which are payable monthly.  Interest rates charged on fixed-rate mortgage loans are competitively priced based on market conditions.  The origination fees for fixed-rate loans range from 0% to 3% depending on the underlying loan coupon. Generally, the Bank’s standard underwriting guidelines for fixed-rate mortgage loans conform to the FHLMC and FNMA guidelines. The Bank sells a portion of its conforming fixed-rate mortgage loan originations in the secondary market to FHLMC or FNMA while retaining the servicing rights on these loans. As of December 31, 2007, the Bank’s portfolio of loans serviced for FHLMC or FNMA totaled approximately $38.0 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 Real Estate and Multi-Family 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 philosophy 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 borrower’s creditworthiness and the feasibility and cash flow potential of the project.  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 subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy.  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, 2007, the five largest commercial real estate and multi-family loans totaled $24.7 million with no single loan larger than $5.7 million.  At December 31, 2007, all such loans were current and the properties securing such loans are in the Bank’s market area.

Construction Lending.  At December 31, 2007, the Bank’s construction loans were $35.5 million or 7% 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. At December 31, 2007, the five largest construction loans totaled $22.3 million with no single loan larger than $6.5 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 $54.3 million or 10% of the Bank’s total loan portfolio at December 31, 2007.  The Bank originates consumer loans through its retail banking channel and mortgage loan department.

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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 considered.  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, however, can have a higher risk of default than residential mortgage loans.  At December 31, 2007, $34,000 or 0.06% of the Bank’s consumer loans were delinquent more than 90 days, compared to $98,000 or 0.04% of residential one-to-four family loans.

The Bank offers second mortgage loans on one-to-four family residences.  At December 31, 2007, second mortgage and home equity loans totaled $52.0 million, or 10% of the Bank’s total loan portfolio.  Second mortgage loans are offered as fixed-rate loans for a term not to exceed 15 years or prime-rate-based floating rate loans with amortization periods up to 15 years and in some cases, an interest-only period of up to the first 60 months of the loan term.  Such loans are only made on owner-occupied one-to-four family residences and are subject to a 90% combined loan to value ratio.  The underwriting standards for second mortgage loans are the same as the Bank’s standards applicable to one-to-four family residential loans.

Business Lending.  The Bank makes commercial business loans predominantly on a secured or guaranteed basis.  The terms of these loans generally do not exceed five years. These loans can have floating interest rates which adjust with changes in market interest rates, usually the prime rate, or have a fixed rate related to their term to maturity.  The Bank’s commercial business loans primarily consist of short-term loans for equipment, working capital, business expansion and inventory financing, and typically have some real estate collateral.  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, 2007, the Bank had approximately $46.9 million outstanding in commercial business loans, which represented approximately 9% of its total loan portfolio. At December 31, 2007, the five largest commercial business loans totaled $19.3 million with no single loan larger than $5.1 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.  Approval authority ranges from $100,000 to $750,000 for secured loans, and $10,000 to $100,000 for unsecured loans. Members of an in-house loan committee comprising four senior members of management approve all loans over $750,000. The committee has the authority to approve secured loans up to $2.5 million and unsecured loans up to $200,000. All loans greater than $2.5 million through $5.0 million require the approval of a 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 FHLMC and FNMA guidelines.  For all loans originated by the Bank, upon receipt of a completed loan application from a prospective borrower, a credit report is ordered, income and certain other information is verified and, if necessary, additional financial information is requested.  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.  For loans in excess of 80% of the loan to value ratio, borrowers are generally required to advance funds on a monthly basis together with each payment of principal and interest to an escrow account from which the Bank makes disbursements for items such as real estate taxes and hazard insurance premiums.

Loans to One Borrower.  Current regulations limit loans to one borrower in an amount equal to 15% of unimpaired capital and retained income on an unsecured basis and an additional amount equal to 10% of unimpaired capital and retained income if the loan is secured by readily marketable collateral (generally, financial instruments, not real estate) or $500,000, whichever is higher.  Penalties for violations of the loan-to-one borrower statutory and regulatory restrictions include cease and desist orders, the imposition of a supervisory agreement and civil money penalties.  The Bank’s maximum loan-to-one borrower limit was approximately $9.7 million as of December 31, 2007.

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At December 31, 2007, the Bank’s five largest aggregate lending relationships had balances ranging from $6.8 to $8.6 million.  At December 31, 2007, all of these loans were current.

Mortgage-Backed Securities

To supplement lending activities, the Bank invests in residential mortgage-backed securities.  Although the majority of such securities are held to maturity, they can serve as collateral for borrowings and, through repayments, as a source of liquidity.

The mortgage-backed securities portfolio as of December 31, 2007, consisted of pass-through certificates issued by the Federal Home Loan Mortgage Corporation (“FHLMC”) ($7.1 million), Government National Mortgage Association (“GNMA”), ($1.9 million), Federal National Mortgage Association (“FNMA”) ($14.0 million), real estate mortgage investment conduits formed from pass-through certificates issued by these same agencies (“REMICs”) ($77.3 million), and issued by private issuers ($4.4 million).

At December 31, 2007, the amortized cost of mortgage-backed securities totaled $104.7 million, or 15% of total assets, and the market value of such securities totaled approximately $104.5 million.

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

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,
	2007		2006		2005
	(In thousands)
Held to maturity:
GNMA-fixed rate	$	1,869	$	2,316	$	3,040
FHLMC ARMs	27		40		44
FHLMC-fixed rate	1,630		2,257		3,117
FNMA-fixed rate	2,634		3,084		3,969
REMICs	—		—		7
Total mortgage-backed securities held to maturity	$	6,160	$	7,697	$	10,177
Available-for-sale:
FHLMC	$	5,478	$	7,888	$	9,686
FNMA	11,381		10,330		12,173
REMICs	81,704		56,120		61,652
Total mortgage-backed securities available-for-sale	$	98,563	$	74,338	$	83,511

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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, 2007.  The table does not include estimated prepayments.  Adjustable-rate mortgage-backed securities are shown as maturing based on contractual maturities.

	Contractual Held  To Maturity  Maturities Due		WAC		Contractual  Available -For-Sale  Maturities Due		WAC
	(Dollars in thousands)
Less than 1 year	$	25	7.07	%	$	12	6.99	%
1 to 3 years	69		7.91		11		7.37
3 to 5 years	153		7.14		1,683		4.53
5 to 10 years	129		8.41		36,503		4.79
10 to 20 years	2,136		5.86		38,310		4.50
Over 20 years	3,648		6.26		21,659		4.15
Total mortgage-backed securities	$	6,160	6.21	%	$	98,178	4.53	%

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Non-Performing and Problem Assets

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

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

On mortgage loans or loan participations purchased by the Bank and serviced by others, the Bank receives monthly reports from its loan servicers with which it monitors the loan portfolio.  Based upon servicing agreements with the servicers of the loan, the Bank relies upon the servicer to contact delinquent borrowers, collect delinquent amounts and to initiate foreclosure proceedings, when necessary, all in accordance with applicable laws, regulations and the terms of the servicing agreements between the Bank and its servicing agents. At December 31, 2007 the Bank used third-party servicers to service $8.5 million in mortgage loans. All of the Bank’s third-party mortgage loan servicers are regulated financial institutions or are approved by either HUD, FNMA, or FHLMC to service loans on their behalf.

Delinquent Loans.  Generally, the Bank reserves 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 collection.  When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income and the further accrual of interest ceases unless the underlying facts that prompted a nonaccrual determination are deemed to have improved significantly.

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

Non-performing assets

	At December 31,
	2007			2006			2005			2004			2003
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to-four family	$	165		$	141		$	392		$	536		$	1,549
Commercial real estate and multi-family	39			61			877			23			296
Construction	3,280			—			—			—			—
Consumer and other	34			68			170			84			135
Commercial loans and leases	1,840			1,840			150			317			368
Total non-accrual loans	5,358			2,110			1,589			960			2,348
Real estate owned, net	—			—			700			700			868
Total non-performing assets	$	5,358		$	2,110		$	2,289		$	1,660		$	3,216
Total non-accrual loans to loans	1.03		%	0.43		%	0.32		%	0.22		%	0.58		%
Total non-accrual loans to total assets	0.76		%	0.32		%	0.24		%	0.15		%	0.39		%
Total non-performing assets to total assets	0.76		%	0.32		%	0.35		%	0.26		%	0.53		%

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At December 31, 2007, the Bank had no foreign loans and no loan concentrations exceeding 10% of total loans not disclosed in above the table. “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.  Loans recorded in the category of other real estate owned are valued at the lower of book value of loans outstanding or fair market value less cost of disposal.

At December 31, 2007, the Bank was not aware of any potential problem loans that are not otherwise included in the foregoing table.  “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.

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

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

The following table provides further information in regard to the Bank’s classified assets as of December 31, 2007.

	At December 31, 2007
	(In thousands)
Special mention assets	$	7,687
Substandard	14,372
Doubtful assets	—
Loss	—
Total classified assets	$		22,059

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

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recorded at the lower of fair value, minus estimated cost to sell, or cost.  If the property subsequently decreases in estimated value from the initial recorded amount, the Bank will provide a valuation allowance, through a charge to earnings, if the decrease is judged by management to be temporary. If the decrease is judged to be permanent, the Bank will reduce the recorded amount, through a charge to earnings, to the new estimated value.

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

In establishing reserves, a specific 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, a reserve is assigned based upon qualitative and quantitative risk factors which are inherent in segments of the loan portfolio.

Although the allowance has been allocated to determine the appropriateness of the reserve, the total allowance is available to absorb any and all losses from any segment of the loan portfolio. At December 31, 2007, management believes that the allowance for loan loss is at an acceptable level.

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

	For the Years Ended December 31,
	2007			2006			2005			2004			2003
	(Dollars in thousands)
Balance at beginning of period	$	2,865		$	2,641		$	2,307		$	2,111		$	2,047
Provision for loan losses	—			150			540			600			330
Charge-offs:
One-to-four family	(27		)	—			—			—			(16		)
Commercial and multi-family real estate loans	—			—			—			(112		)	—
Consumer and other loans	(69		)	(55		)	(122		)	(186		)	(219		)
Commercial loans and leases	(1		)	(1		)	(286		)	(161		)	(322		)
Recoveries:
One-to-four family	—			—			—			—			—
Consumer and other loans	13			65			39			55			36
Commercial loans and leases	61			65			163			—			255
Balance at end of year	$	2,842		$	2,865		$	2,641		$	2,307		$	2,111
Ratio of net charge-offs (net recoveries) during the period to average loans outstanding during the period	0.02		%	(0.01		%)	0.04		%	0.09		%	0.07		%
Ratio of allowance for loan losses to non-performing loans at the end of the period	53.0		%	135.8		%	166.3		%	240.3		%	89.9		%
Ratio of allowance for loan losses to loans receivable at the end of the period	0.55		%	0.59		%	0.54		%	0.52		%	0.52		%
Ratio of allowance for loan losses and foreclosed real estate to total non-performing assets at the end of the period	53.0		%	135.8		%	115.4		%	139.0		%	65.6		%

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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,
	2007				2006				2005				2004				2003
	Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to Total Loans		Amount		Percent of Loans to  Total Loans
	(Dollars in thousands)
At end of period allocated to:
One-to-four family	$	504	17.8	%	$	332	54.9	%	$	154	58.8	%	$	176	64.1	%	$	277	68.2	%
Commercial real estate and multi-family	667		23.5		665		19.3		1,010		18.2		1,035		18.8		1,230		18.3
Construction	1,018		35.8		621		7.2		738		5.0		121		2.3		109		1.6
Consumer and other loans	246		8.6		248		10.3		115		8.2		554		7.7		246		7.8
Commercial loans and leases	407		14.3		999		8.3		624		9.8		421		7.1		249		4.1
Total allowance	$	2,842	100.0	%	$	2,865	100.0	%	$	2,641	100.0	%	$	2,307	100.0	%	$	2,111	100.0	%

Investment Securities

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

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,
	2007				2006				2005
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Interest-earning deposits	$	123	$	123	$	6,860	$	6,860	$	177	$	177
Investment securities held-to-maturity:
State and political subdivisions	$	244	$	246	$	677	$	681	$	1,015	$	1,036
Corporate debt securities	—		—		—		—		3,675		3,671
Total	$	244	$	246	$	677	$	681	$	4,690	$	4,707
Securities available-for-sale:
U.S. government and agency obligations	$	2,996	$	2,982	$	5,990	$	5,911	$	5,982	$	5,880
State and political subdivisions	24,628		24,833		24,406		24,429		20,844		20,563
Corporate debt securities	4,340		4,377		4,003		3,982		4,002		3,958
Equities	150		171		150		202		—		—
Total	$	32,114	$	32,363	$	34,549	$	34,524	$	30,828	$	30,401

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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, 2007.  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(1)
	Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Fair Value
	(Dollars in thousands)
Equities	$	150	—	%	$	—	—	%	$	—	—	%	$	—	—	%	$	150	—	%	$	171
U.S. government agency	2,996		3.28		—		3.40		—		—		—		—		2,996		3.28		2,982
Municipal obligations	244		8.88		2,381		4.78		12,120		5.21		10,127		5.79		24,872		5.44		25,079
Corporate obligations	1,000		4.24		3,340		5.50		—		—		—		—		4,340		5.21		4,377
Total	$	4,390	3.70	%	$	5,721	5.20	%	$	12,120	5.21	%	$	10,127	5.79	%	$	32,358	5.18	%	$	32,609

(1) Includes $32.3 million of U.S. government agency, municipal and corporate obligations which are carried as available-for-sale at December 31, 2007. Investment securities available-for-sale are carried at fair value.

Sources of Funds

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

Deposits. The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank’s deposits consist of regular savings, non-interest bearing checking, NOW checking, money market, and certificate accounts. Of the deposit accounts, $33.3 million or 7% consist of IRA, Keogh or SEP retirement accounts at December 31, 2007.

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 maintained a high level of core deposits consisting of regular savings, money market, non-interest-bearing checking, and NOW checking, which has contributed to a low cost-of-funds. At December 31, 2007, core deposits amounted to 62% of total deposits.

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The following table sets forth the distribution of the Bank’s deposit accounts at the dates indicated and the weighted average nominal interest rates on each category of deposits presented. The Bank does not have significant amount of deposits from outside its 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,
	2007						2006						2005
	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	$	46,543	9.85		0.48	%	$	51,272	10.72		0.48	%	$	52,319	11.12		0.47	%
Money market accounts	79,267		16.78		3.69		62,914		13.16		3.21		79,666		16.93		2.72
Non-interest-bearing checking accounts	35,904		7.60		0.00		36,991		7.74		0.00		37,138		7.89		0.00
Total transaction accounts	161,714		34.23				151,177		31.62				169,123		35.94
Passbook accounts	130,423		27.61		1.79		131,359		27.48		2.21		151,725		32.25		1.11
Certificates of deposit	180,257		38.16		4.50		195,551		40.90		4.35		149,673		31.81		3.29
Total deposits	$	472,394	100.00	%	2.88	%	$	478,087	100.00	%	2.86	%	$	470,521	100.00	%	2.39	%

At December 31, 2007, 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	$	31,363
Over three through six months	—
Over six through 12 months	101
Over 12 months	7,331
Total	$		38,795

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 FHLB of Pittsburgh to supplement its supply of lendable funds. Advances from the FHLB of Pittsburgh are typically secured by a pledge of the Bank’s stock in the FHLB of Pittsburgh and a portion of the Bank’s first mortgage loans and certain other assets. The Bank, if the need arises, 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,
	2007			2006			2005
	(Dollars in thousands)
FHLB advances	$	153,221		$	101,701		$	121,260
Weighted average interest rate	4.19		%	3.93		%	3.79		%

	Years Ended December 31,
	2007			2006			2005
	(Dollars in thousands)
Maximum balance of FHLB advances	$	153,221		$	148,538		$	123,908
Weighted average balance of FHLB advances	$	112,277		$	124,013		$	111,628
Weighted average interest rate of FHLB advances	4.17		%	4.02		%	3.52		%

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Subsidiary Activity

The Bank is permitted to invest up to 2% of its assets in the capital stock of, or secured or unsecured loans to, subsidiary corporations, with an additional investment of 1% of assets when such additional investment is utilized primarily for community development purposes. Under such limitations, as of December 31, 2007, the Bank was authorized to invest up to approximately $14.0 million in the stock of, or loans to, service corporations (based upon the 2% limitation). In addition, the Bank can designate a subsidiary as an operating subsidiary, in which there is no percentage of assets investment limitation, if it engages only in activities in which it would be permissible for the Bank to engage. At December 31, 2007, the Bank had two wholly-owned subsidiaries, Third Delaware Corporation and Teragon Financial Corporation. Third Delaware Corporation was formed in 1998 for the purpose of investing in marketable securities. At December 31, 2007, the Bank had $133.5 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, 2007 the Bank had an investment of $111,000 in Teragon. During 2006, Teragon was granted approval by the state of Pennsylvania to conduct business as an insurance agency, and during 2007, Teragon received $20,000 of insurance commissions.

Personnel

As of December 31, 2007, the Company had 172 full-time and 37 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.

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Company Regulation

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

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

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

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

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

Bank Regulation

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

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

The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework of

17

activities in which an institution can engage and is intended primarily for the protection of the FDIC and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulations, whether by the OTS, the FDIC or the Congress could have a material adverse impact on the Company, the Bank and their operations. The Company is also required to file certain reports with, and otherwise comply with, the rules and regulations of the OTS and the SEC.

Loan Limitations.  Regulations limit the amount of non-residential mortgage loans a savings institution may hold as a percentage of assets or capital.  Separate from the qualified thrift lender test, regulations limit a savings institution to a maximum of 10% of its assets in large commercial loans (defined as loans in excess of $2 million), with another 10% of assets permissible in “small business loans.”  Commercial loans secured by real estate can be made in an amount up to four times an institution’s capital.  An institution can also have commercial leases, in addition to the above items, up to 10% of its assets. Commercial paper, corporate bonds, and consumer loans cannot collectively exceed 35% of an institution’s assets.  For this purpose, however, residential mortgage loans (including securities backed by such loans) and credit card loans are not considered consumer loans, and are both unlimited in amount.

Deposit Insurance. The Bank’s deposits are insured to applicable limits by the FDIC.  As an FDIC-insured bank, the Bank is subject to FDIC insurance assessments.  Following enactment of the Federal Deposit Insurance Reform Act of 2005, the FDIC adopted a revised risk-based assessment system to determine assessment rates to be paid by FDIC-insured institutions.  Under this revised assessment system, risk is defined and measured using an institution’s supervisory ratings as well as certain other risk measures, including certain financial ratios.  The annual rates for 2008 for institutions in Risk Category I range from 5 to 7 basis points and the rates for institutions in Risk Categories II, III and IV are 10, 28 and 43 basis points, respectively.  These rates may be offset by a one-time assessment credit held by an institution, based on the assessment base of that institution as of December 31, 1996, and in the future by dividends that may be declared by the FDIC if the reserve ratio of the Deposit Insurance Fund increases above a certain amount. The FDIC may raise or lower these assessment rates based on various factors to achieve reserve ratio, which the FDIC currently has set at 1.25 percent of insured deposits.

In addition to deposit insurance assessments, all FDIC-insured institutions are required to pay special assessments to the FDIC to fund the repayment of debt obligations of the Financing Corporation (FICO), a government-sponsored entity that was formed in 1987 to recapitalize the Federal Savings and Loan Insurance Corporation.  At December 31, 2007, the annualized rate established by the FDIC for the FICO assessment was 1.14 basis points per $100 of insured deposits.  These assessments will continue until the FICO bonds mature in 2017.

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

At December 31, 2007, the Bank was in compliance with all of its regulatory capital requirements.

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

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

Qualified Thrift Lender Test. The Home Owners’ Loan Act (“HOLA”), as amended, requires savings institutions to meet a QTL test. If the Bank maintains an appropriate level of Qualified Thrift Investments (primarily residential mortgages and related investments, including certain mortgage-backed securities) (“QTIs”) and otherwise qualifies as a QTL, it will continue to enjoy full borrowing privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65% of portfolio assets (defined as all assets minus intangible assets, property used by the institution in conducting its business and liquid assets equal to 10% of total assets). Certain assets are subject to a percentage limitation of 20% of portfolio assets. In addition, savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. The method for measuring compliance with the QTL test requires an institution to be in compliance nine out of every 12 months. As of December 31, 2007, the Bank was in compliance with its QTL requirement with 73% 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 4.55% of its advances outstanding from the FHLB plus 0.55% of its unused borrowing capacity. At December 31, 2007, the Bank had $9 million in FHLB stock, which was in compliance with this requirement.

Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the OTS. At December 31, 2007, the Bank’s total transaction accounts required a reserve level of $386,000 which was offset by the Bank’s vault cash on hand and cash on deposit at the Federal Reserve Bank of Philadelphia.

Savings associations have authority to borrow from the Federal Reserve Bank “discount window,” but Federal Reserve policy generally requires savings associations to exhaust all other sources before borrowing from the Federal Reserve System. The Bank had no such borrowings at December 31, 2007.

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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, 2007, the Bank operated from its administrative offices and fifteen branch offices located in Philadelphia and Bucks Counties, Pennsylvania and Mercer County, New Jersey. The Bank also owns two parcels of land and a building behind its Doylestown branch office. The parcel with the building is available to be leased to a third-party and the other parcel is used as a parking lot for employees of the Bank and tenants. The net book value of the two lots was $100,000. In addition, a subsidiary of the Company, Penns Trail Development Corporation, owns investment property with a book value of $738,000.

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

Location	Leased or Owned	Location	Leased or Owned
ADMINISTRATIVE OFFICE	Owned
Newtown Office
3 Penns Trail
Newtown, PA 18940
DEPOSIT OPERATIONS	Leased	PROCESSING OPERATIONS	Owned
828C Newtown-Yardley Road		Operations Center
Suite 301B		62 Walker Lane
Newtown, PA 18940		Newtown, PA 18940(1)
BRANCH AND LOAN OFFICES	Leased	Newtown Office	Leased
Frankford Office		950 Newtown Yardley Road
4625 Frankford Avenue		Newtown, PA 18940
Philadelphia, PA 19124
Ewing Office	Owned	Mayfair Office	Owned
2075 Pennington Road		Roosevelt Blvd. at Unruh
Ewing, NJ 08618		Philadelphia, PA 19149
Hamilton Office	Owned	Doylestown Office	Owned
1850 Route 33		60 North Main Street
Hamilton Square, NJ 08690		Doylestown, PA 18901
Fishtown Office	Owned	Feasterville Office	Leased
York & Memphis Streets		Buck Hotel Complex
Philadelphia, PA 19125		Feasterville, PA 19053
Cross Keys Office	Owned	Quakerbridge Office	Leased
834 North Easton Highway		590 Lawrence Square Blvd
Doylestown, PA 18901		Lawrenceville, NJ 08648
Bridesburg Office	Owned	Woodhaven Office	Leased
Orthodox & Almond Streets		4014 Woodhaven Road
Philadelphia, PA 19137		Philadelphia, PA 19154

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New Britain Office	Leased	Northern Liberties Office	Leased
600 Town Center		905 North 2nd Street
New Britain, PA 18901		Philadelphia, PA 19123
Girard Office	Leased
136 West Girard Avenue
Philadelphia, PA 19123

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

Item 4.Submission of Matters to a Vote of Security Holders

None.

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 “Stock Market Information” in the Registrant’s 2007 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, 2007:

Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
October 1, 2007 - October 31, 2007	—	—		—	218,773
November 1, 2007 - November 30, 2007	15,800	$	26.34	15,800	202,973
December 1, 2007 - December 31, 2007	42,016	$	25.93	42,016	160,957

Item 6.Selected Financial Data

The above-captioned information appears under the section captioned “Selected Financial and Other Data” in the Registrant’s 2007 Annual Report to Stockholders and is incorporated herein by reference.

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 2007 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 2007 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 2007 Annual Report to Stockholders are incorporated herein by reference.

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

None.

Item 9A(T).  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 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, 2007.

The 2007 Annual Report to Shareholders does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report  in this annual report.

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(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 1 - Election of Directors — General Information and Nominees” and “— Biographical Information” 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 2007 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

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

Item 11.Executive Compensation

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

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

(a)Security Ownership of Certain Beneficial Owners

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

(b)Security Ownership of Management

Information required by this item is incorporated herein by reference to the sections captioned “Security Ownership of Certain Beneficial Owners and Management” and Proposal 1 — Election of Directors” in the Registrant’s Proxy Statement.

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

(d)Securities Authorized for Issuance Under Equity Compensation Plans

Set forth below is information as of December 31, 2007 with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.

24

EQUITY COMPENSATION PLAN INFORMATION

	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by shareholders(1)	252,576	$	26.56	31,951
Equity compensation plans not approved by shareholders	—	—		—
TOTAL	252,576	$	26.56	31,951

(1)Plans approved by stockholders include: TF Financial Corporation 1997 Stock Option Plan, and TF Financial Corporation 2005 Stock-Based Incentive Plan.

For information regarding the material features of these plans, see Notes A10, A11, J3 and J4 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 “Principal Accounting Firm Fees” in the Registrant’s Proxy Statement.

PART IV

Item 15.Exhibits and Financial Statement Schedules

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

(1)  The following financial statements and the report of the independent auditor of the Company included in the Company’s 2007 Annual Report to Stockholders are incorporated herein by reference.

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition as of December 31, 2007 and 2006

Consolidated Statements of Income For the Years Ended December 31, 2007 and 2006

Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2007 and 2006

Consolidated Statements of Cash Flows for the Years Ended December 31, 2007 and 2006

Notes to Consolidated Financial Statements

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(2)  All 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.

3.1	Certificate of Incorporation of TF Financial Corporation (1)
3.2	Bylaws of TF Financial Corporation (1)
4.0	Stock Certificate of TF Financial Corporation (1)
10.1	Third Federal Savings and Loan Association Management Stock Bonus Plan (1)
10.2	Third Federal Savings Bank Directors Consultation and Retirement Plan (2)
10.3	Severance Agreement with Kent C. Lufkin (3)
10.4	Severance Agreement with Floyd P. Haggar (3)
10.5	Severance Agreement with Dennis R. Stewart (4)
10.6	TF Financial Corporation 1997 Stock Option Plan (5)
10.7	Severance Agreement with Robert N. Dusek (6)
10.8	TF Financial Corporation 1996 Directors Stock Option Plan (7)
10.9	Retirement and Non-Competition Agreement with John R. Stranford (8)
10.10	Employment Agreement with John R. Stranford (8)
10.11	TF Financial Corporation Incentive Compensation Plan (9)
10.12	TF Financial Corporation 2005 Stock-Based Incentive Plan (10)
10.13	Severance Agreement with Elizabeth Kaspern (11)
10.14	TF Financial Corporation Stock Repurchase Plan (12)
10.15	TF Financial Corporation Amended and Restated Bylaws (13)
13.0	2007 Annual Report to Stockholders
21.0	Subsidiary Information
23.0	Consent of Independent Registered Public Accounting Firm
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

(1)Incorporated herein by reference to the Exhibits to Form S-1, Registration Statement, File No. 33-76960.

(2)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995.

(3)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

(4)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

(5)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997.

(6)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

(7)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

(8)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

(9)Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 20, 2004.

26

(10)Incorporated herein by reference to the Registrant’s Form S-8 filed with the Securities and Exchange Commission on May 20, 2005.

(11)Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

(12)Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 25, 2007.

(13)Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 26, 2007.

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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 26, 2008	By:	/s/ Kent C. Lufkin
		Kent C. Lufkin
		President, Chief Executive Officer
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of Dated: March 26, 2008.

By:	/s/ Kent C. Lufkin	By:	/s/ Dennis R. Stewart
	Kent C. Lufkin		Dennis R. Stewart
	President, Chief Executive Officer		Executive Vice President, Chief Financial Officer and Treasurer
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)
By:	/s/ Carl F. Gregory	By:	/s/ Robert N. Dusek
	Carl F. Gregory		Robert N. Dusek
	Director		Chairman of the Board
By:	/s/ Dennis L. McCartney	By:	/s/ George A. Olsen
	Dennis L. McCartney		George A. Olsen
	Director		Director
By:	/s/ Albert M. Tantala, Sr.	By:	/s/ John R. Stranford
	Albert M. Tantala, Sr.		John R. Stranford
	Director		Director

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EX-13

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CONTENTS

CORPORATE PROFILE AND RELATED INFORMATION		1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		12
FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS	13
	CONSOLIDATED STATEMENTS OF INCOME	14
	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME	15
	CONSOLIDATED STATEMENTS OF CASH FLOWS	16
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	18
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS		INSIDE BACK COVER

CORPORATE PROFILE AND RELATED INFORMATION

        TF Financial Corporation (the "Company") is the parent company of Third Federal Bank and its subsidiaries Third Delaware Corporation and Teragon Financial Corporation (collectively, "Third Federal" or the "Bank"), TF Investments Corporation, and Penns Trail Development Corporation. At December 31, 2007, total assets were approximately $701.7 million. The Company was formed as a Delaware corporation in March 1994 at the direction of the Bank to acquire all of the capital stock that Third Federal issued upon its conversion from the mutual to stock form of ownership (the "Conversion") and concurrent $52.9 million initial public offering effective July 13, 1994. At December 31, 2007, total stockholders' equity was approximately $67.8 million. The Company is a unitary savings and loan holding company which, under existing laws, generally is not restricted in the types of business activities in which it may engage, provided that Third Federal retains a specified amount of its assets in housing-related investments. Third Federal is a federally chartered stock savings bank headquartered in Newtown, Pennsylvania, which was originally chartered in 1921 under the name "Polish American Savings Building and Loan Association." Deposits of Third Federal have been federally insured since 1935 and are currently insured up to the maximum amount allowable by the Federal Deposit Insurance Corporation (the "FDIC"). Third Federal is a community-oriented institution offering a variety of financial services to meet the needs of the communities that it serves. As of December 31, 2007, Third Federal operated branch offices in Bucks and Philadelphia counties, Pennsylvania and Mercer County, New Jersey. Third Federal attracts deposits (approximately $472.4 million at December 31, 2007) from the general public and uses such deposits, together with borrowings mainly from the Federal Home Loan Bank of Pittsburgh (approximately $153.2 million at December 31, 2007) and other funds, to originate loans secured by first mortgages and junior liens on owner-occupied, one-to-four family residences, and to originate loans secured by commercial real estate, including construction loans.

Stock Market Information

        Since its issuance in July 1994, the Company's common stock has been traded on the Nasdaq Global Market. The daily stock quotation for the Company is listed on the Nasdaq Global Market published in The Wall Street Journal, The Philadelphia Inquirer, and other leading newspapers under the trading symbol of "THRD." The number of shareholders of record of common stock as of March 3, 2008, was approximately 457. 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's ability to pay dividends to stockholders is dependent in part upon the dividends it receives from Third Federal. Among other limitations, Third Federal may not declare or pay a cash dividend on any of its stock if the effect thereof would cause Third Federal's regulatory capital to be reduced below (1) the amount required for the liquidation account established in connection with Third Federal's conversion from mutual to stock form, or (2) the regulatory capital requirements imposed by the Office of Thrift Supervision ("OTS"). It is the Company's policy to pay dividends when it is deemed prudent to do so. The Board of Directors will consider the payment of a dividend on a quarterly basis, after giving consideration to the level of profits for the previous quarter and other relevant information.

1

Stock Price and Dividend History

	Quoted market price
Quarter ended					Dividend paid per share
	High		Low
December 31, 2007	$	28.75	$	24.64	$	0.20
September 30, 2007	$	30.25	$	25.82	$	0.20
June 30, 2007	$	31.00	$	29.50	$	0.20
March 31, 2007	$	30.81	$	29.50	$	0.20
December 31, 2006	$	32.00	$	30.25	$	0.19
September 30, 2006	$	33.00	$	27.00	$	0.19
June 30, 2006	$	30.86	$	28.40	$	0.19
March 31, 2006	$	30.99	$	27.90	$	0.19

2

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, in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

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

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

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

        Third Federal also receives income from service charges and other fees and occasionally from sales of investment securities and real estate owned. Third Federal incurs expenses in addition to interest expense in the form of 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

3

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 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, or both. All of these evaluation factors are subject to a high degree of uncertainty. If the financial condition and collateral values of a significant amount of debtors should deteriorate more than the Company has estimated, present allowances for loan losses may be insufficient and additional provisions for loan losses may be required. In addition, a single loan may result in the loss of a substantial amount and may significantly reduce the allowance. The allowance for loan losses was $2,842,000 at December 31, 2007.

Financial Condition and Changes in Financial Condition

        Assets.    The Company's total assets at December 31, 2007 were $701.7 million, an increase of $49.1 million during the year. This increase in total assets was mainly the combined result of the net change in various asset and liability categories discussed below.

        The Company's loans receivable held for investment at December 31, 2007 were $517.0 million, a $33.5 million or 6.9% increase since December 31, 2006. During 2007, there were originations of $121.3 million in predominately commercial real estate loans and single-family residential first and second mortgage loans. Offsetting these originations were $85.9 million of principal payments of existing loans in the loans receivable portfolio and the sale of $2.0 million of commercial loan participations. Mortgage loans available for sale at December 31, 2007 were $1.0 million, an increase of $0.1 million during the year which is the result of loan originations of $17.8 million and related sale proceeds of $17.7 million.

        Mortgage-backed securities available for sale increased by $23.8 million during 2007 due to purchases of $33.4 million and an increase of $1.5 million in the fair value of the securities. Offsetting this increase was the repayment of $11.1 million of the underlying mortgages comprising such securities. Mortgage-backed securities held to maturity decreased by $1.5 million during 2007 due to principal repayment of the underlying mortgages in the securities.

        Investment securities available for sale decreased by $2.2 million during the year due to maturities of agency and corporate notes totaling $6.5 million and the amortization of net premiums of $0.1 million. The remaining net change was attributable to purchases of $4.1 million and increases of $0.3 million to the fair value of these investment securities.

        The Company's cash and cash equivalents were $5.7 million at December 31, 2007. It is the Company's current intent to keep cash and cash equivalents at a minimal level and use its line of credit at the FHLB to fund its day-to-day cash needs.

        Liabilities.    Advances from the FHLB increased by $51.5 million, a result of new long term advances of $64.2 million and a $12.4 million increase of short-term borrowings, less scheduled amortization payments of $25.1 million. It is the current intent of the Company to fund a portion of its interest-bearing assets, not funded by deposits, with longer term advances from the FHLB, and 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 $30 million of which $12.4 million was drawn at December 31, 2007.

        Deposit balances decreased by $5.7 million during 2007. Money market accounts increased $16.4 million while non-interest checking, interest-bearing checking, and savings decreased a combined $6.8 million during the period. Retail certificates of deposit decreased $3.6 million during the year and,

4

when combined with maturities of broker originated certificates of deposit that totaled $11.7 million, there was an overall decrease of $15.3 million in the certificate of deposit balances during 2007.

        Stockholders' equity.    Total consolidated stockholders' equity increased by $2.2 million to $67.8 million at December 31, 2007. The increase is largely the result of $4.8 million in net income less $2.2 million in cash dividends paid to the Company's common stockholders. Accumulated other comprehensive loss decreased by $1.1 million as a result of a $1.2 million unrealized gain due to the fair value adjustment on available for sale securities offset by a $0.1 million adjustment related to the pension plan. In addition there was a $1.8 million increase in stockholders' equity attributable to the exercise of stock options for 110,035 shares. The Company also purchased 166,375 shares of common stock, held in treasury, reducing stockholders' equity by $4.7 million. Finally, there was a $0.3 million increase due to the allocation of 11,912 shares to participants in the Company's employee stock ownership plan, and an increase of $1.1 million attributable to stock grants and stock options.

5

        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.

	2007						2006
	Average balance		Interest		Average yld/cost		Average balance		Interest		Average yld/cost
ASSETS
Interest-earning assets:
Loans receivable(1)	$	501,112	$	32,272	6.46	%	$	502,048	$	32,342	6.44	%
Mortgage-backed securities		86,816		4,086	4.72	%		81,750		3,722	4.55	%
Investment securities(2)		38,666		2,141	5.55	%		41,984		2,295	5.47	%
Other interest-earning assets(3)		2,180		105	4.83	%		1,653		94	5.69	%
Total interest-earning assets		628,774		38,604	6.16	%		627,435		38,453	6.13	%
Non interest-earning assets		35,937						35,050
Total assets	$	664,711					$	662,485
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits		477,299		13,687	2.88	%		468,933		10,923	2.33	%
Advances from the FHLB		112,277		4,668	4.17	%		122,671		4,938	4.03	%
Total interest-bearing liabilities		589,576		18,355	3.12	%		591,604		15,861	2.68	%
Non interest-bearing liabilities		8,189						7,332
Total liabilities		597,765						598,936
Stockholders' equity		66,946						63,549
Total liabilities and stockholders' equity	$	664,711					$	662,485
Net interest income			$	20,249					$	22,592
Interest rate spread(4)					3.04	%					3.45	%
Net yield on interest-earning assets(5)					3.23	%					3.60	%
Ratio of average interest-earning assets to average interest-bearing liabilities					107	%					106	%

(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 $476,000 and $434,000 for the years ended December 31, 2007 and 2006 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.

6

        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.

	2007 vs 2006 Increase (decrease) due to
	Volume			Rate			Net
Interest income:
Loans receivable, net	$	(99	)	$	29		$	(70	)
Mortgage-backed securities		229			135			364
Investment securities(1)		(189	)		35			(154	)
Other interest-earning assets		27			(16	)		11
Total interest-earning assets		(32	)		183			151
Interest expense:
Deposits		195			2,569			2,764
Advances from the FHLB		(438	)		168			(270	)
Total interest-bearing liabilities		(243	)		2,737			2,494
Net change in net interest income	$	211		$	(2,554	)	$	(2,343	)

(1)

Tax equivalent adjustments to interest on investment securities were $476,000 and $434,000 for the years ended December 31, 2007 and 2006 respectively. Tax equivalent interest income is based upon a marginal effective rate of 34%.

Comparison of Years Ended December 31, 2007 and December 31, 2006

        Net Income.    Net income was $4.8 million for the year ended December 31, 2007 compared with net income of $5.5 million for the year ended December 31, 2006. The decrease in pre-tax net income of $1.0 million when comparing the year 2007 with 2006 is largely attributable to a $2.5 million increase in interest expense offset by a $0.9 million increase in non-interest income and a $0.3 million decrease in non-interest expense during the year.

        Total Interest Income.    For the year ended December 31, 2007, total interest income, on a taxable equivalent basis, increased by $151,000 to $38.6 million. Net loans outstanding increased by $33.5 million due to the Company's highly successful new loan production efforts in 2007. As a result, the Company was able to bring the 2007 average loan balances in the portfolio to comparable average loan balance levels of 2006, a year in which $16.3 million of previously purchased portfolio loans were sold. Additionally, loan yields increased by 2 basis points to 6.46% despite of a 100 basis point decrease in the prime rate during the year. At December 31, 2007, the Company had $79.7 million in floating rate, prime based construction, home equity and other loans. Interest income from mortgage-backed securities increased as a result of purchases of $33.0 million that had yields higher than those securities in the portfolio prior to the purchase.

        Total Interest Expense.    Total interest expense increased to $18.4 million from $15.9 million for the year ended December 31, 2007 compared to 2006. During 2007, largely due to competitive pressure, the Company's deposit composition shifted away from low cost savings and passbook accounts toward higher cost money market accounts and other products. Additionally, interest rates on certificates of deposit remained high despite continuously lower U.S. Treasury interest rates throughout the year. Accordingly, the average interest rate paid on deposits rose by 55 basis points during 2007 compared with 2006, and produced a $2.8 million increase in the interest expense of deposits. Interest

7

on advances from the Federal Home Loan Bank decreased by $0.3 million during 2007 versus 2006 as a result of a $10.4 million decrease in the average balance of advances, although total FHLB advances increased by $51.5 million between the periods. The increases in advances during 2007 occurred late in the third and fourth quarter of 2007 largely because of the need to borrow from the FHLB in order to fund the Company's lending activities from sources other than deposit growth.

        Allowance for Loan Losses.    The allowance for loan losses was approximately $2.8 million at December 31, 2007 and $2.9 million at December 31, 2006. The provision for loan losses was $0 during 2007 compared with $150,000 during 2006. Net loan charge-offs were $23,000 during 2007 compared to net recoveries of $74,000 during 2006. While management maintains the allowance for losses at a level which it considers to be adequate to provide for probable losses, there can be no assurance that further additions will not be made to the allowance and that such losses will not exceed the estimated amounts.

        Non-Interest Income.    Total non-interest income was $3.7 million during 2007 compared with $2.8 million for the same period in 2006. The increase is mainly attributable to a $777,000 settlement award related to a lease fraud which occurred prior to 2003. The increase in the value of the bank-owned life insurance of $104,000 during 2007 versus 2006 is due to the additional $2.0 million purchase during November of 2006. Additionally, loss on sale of mortgage- backed securities in the second quarter of 2006 totaled $51,000 while there was no such loss in 2007.

        Non-Interest Expense.    Total non-interest expense decreased by $266,000 to $16.9 million during 2007 compared to 2006. Employee compensation and benefits decreased $246,000 largely due to a $221,000 reduction in management incentive compensation and bonus expense. Also, expenses associated with the Company's retirement plans decreased $128,000 during the period as a result of Company contributions to the defined benefit plan made early in 2007 which reduced the pension expense. Costs related to the employee stock ownership plan also decreased because the cost per share and the number of shares allocated declined. During 2007, the Bank significantly curtailed marketing-related expenditures in an effort to reduce non-interest related expenses. This resulted in a decrease in marketing expenses of $81,000 in 2007 in contrast to 2006. Additionally, core deposit intangible amortization expense of $83,000 is included in other non-interest in 2006; however, the asset was fully amortized in 2006 and there was no such charge during 2007. Offsetting total decreases was a $306,000 expense related to the bankruptcy of one of the Company's loan servicing agents. On February 2, 2007, the Company's became aware that one of its loan servicers which was servicing 43 loans for the Company totaling $15.4 million had filed for protection and reorganization under Chapter 11 of the United States Bankruptcy Code on December 20, 2006. On March 2, 2007 the bankruptcy filing was converted to a Chapter 7 liquidation and the Company shortly thereafter obtained the servicing and began to directly service the loans.

        Income Tax Expense.    The Company's effective tax rate was 26.7% during 2007 compared to 27.9% during 2006. 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.

Liquidity and Capital Resources

        Liquidity.    The Company's liquidity is a measure of its ability to fund loans, pay withdrawals of deposits and other cash outflows, and pay dividends in an efficient, cost-effective manner. The Company's primary sources of funds are cash on hand and dividends from its wholly-owned Bank. The Bank's primary sources of funds are deposits, borrowings, and scheduled amortization and prepayment of loan and mortgage-backed security principal.

        The Bank endeavors to fund its operations internally but has, when deemed prudent, borrowed funds from the Federal Home Loan Bank. As of December 31, 2007, such borrowed funds totaled $153.2 million. The amount of these borrowings that will mature during the twelve months ending December 31, 2008 is $28.9 million. At December 31, 2007 the Bank had a $30 million line of credit,

8

$17.6 million of which was unused, and up to approximately $241.6 million of additional collateral-based borrowing capacity at the Federal Home Loan Bank.

        The amount of certificate accounts that are scheduled to mature during the twelve months ending December 31, 2008, is approximately $141.1 million. To the extent that these deposits do not remain at the Bank upon maturity, the Bank believes that it can replace these funds with other deposits, excess liquidity, and advances from the FHLB or other borrowings. It has been the Bank's experience that substantial portions of such maturing deposits remain at the Bank.

        At December 31, 2007, the Bank had outstanding commitments to originate loans or fund unused lines of credit of $70.7 million. The loan commitments will be funded during the twelve months ending December 31, 2008. The unused lines of credit can be funded at any time. Funds required to fill these commitments will be derived primarily from current excess liquidity, deposit inflows or loan and security repayments. At December 31, 2007, the Bank had $2.3 million commitments to sell loans.

        The Company also has obligations under lease agreements. Payments required under such lease agreements will be approximately $435,000 during the year ending December 31, 2008.

        Capital Resources.    Under current regulations, the Bank must have core capital equal to 4% of adjusted total assets and risk-based capital equal to 8% of risk-weighted assets, of which 1.5% must be tangible capital, excluding goodwill and certain other intangible assets. On December 31, 2007, 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. Change in economic value is measured using reports generated by the Office of Thrift Supervision ("OTS"), using input from the Bank, wherein the current net portfolio value of the Bank's interest-sensitive assets and liabilities is measured at different hypothetical interest rate levels centered on the current term structure of interest rates. The Bank's exposure to interest rate risk results from, among other things, the difference in maturities in interest-

9

earning assets and interest-bearing liabilities. Since the Bank's assets currently have a longer maturity than its liabilities, the Bank's earnings could be negatively impacted during a period of rising interest rates. Alternatively, in periods of falling interest rates the Bank's mortgage loans will repay at an increasing rate and cause the Bank to reinvest these cash flows in periods of low interest rates, also negatively affecting the Bank's earnings. The relationship between the interest rate sensitivity of the Bank's assets and liabilities is continually monitored by management and ALCO.

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

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

        The nature of the Bank's current operations is such that it is not subject to foreign currency exchange or commodity price risk. Additionally, neither the Company nor the Bank owns any trading assets. At December 31, 2007, 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 Company's bank subsidiary is a savings bank regulated by the OTS and has policies or procedures in place for measuring interest rate risk. These policies and procedures stipulate acceptable levels of interest rate risk. As part of its interest rate risk management, the Bank uses the Interest Rate Risk Exposure Report, which is generated quarterly by the OTS. This report forecasts the interest rate sensitivity of net portfolio value ("NPV") under alternative interest rate environments. The NPV is defined as the net present value of the Bank's existing assets, liabilities and off-balance sheet instruments. The calculated estimates of change in NPV at December 31, 2007 are as follows:

Change in Interest Rates	NPV Amount		% Change		Policy Limitation
	(In Thousands)
+300 Basis Points	$	62,031	-30	%	-50	%
+200 Basis Points	$	71,370	-19	%	-35	%
+100 Basis Points	$	80,983	-8	%	-25	%
+50 Basis Points	$	84,724	-4	%	-15	%
Flat Rates	$	88,033	0	%	0	%
-50 Basis Points	$	89,434	+2	%	-10	%
-100 Basis Points	$	90,846	+3	%	-20	%
-200 Basis Points	$	90,230	+2	%	-30	%

        Management believes that the assumptions utilized by OTS in evaluating the vulnerability of the Company's net portfolio value to changes in interest rates are reasonable; however, the interest rate sensitivity of the Bank's assets and liabilities as well as the estimated effect of changes in interest rates on NPV could vary substantially if different assumptions are used or actual experience differs from the experience on which the assumptions were based. At December 31, 2007, the Bank's interest rate risk using the OTS methodologies was determined to be "minimal".

Recent Accounting Pronouncements

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

10

FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TF FINANCIAL CORPORATION AND SUBSIDIARIES

December 31, 2007 and 2006

11

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 (a Delaware Corporation) and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TF Financial Corporation and subsidiaries as of December 31, 2007 and 2006, and the consolidated results of their operations and their consolidated cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note A to the consolidated financial statements, the Company has adopted Financial Accounting Standards Board Statement (FASB) No. 123(R), Share-Based Payment and FASB No. 158, Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans, and amendment of FASB Statements No. 87, 88, 106 and 132(R) in 2006.

Philadelphia, Pennsylvania
March 21, 2008

12

TF Financial Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

			December 31
			2007			2006
			(in thousands)
ASSETS
Cash and cash equivalents			$	5,680		$	12,364
Certificates of deposit in other financial institutions				—			40
Investment securities available for sale—at fair value				32,363			34,524
Investment securities held to maturity (fair value of $246 and $681 as of December 31, 2007 and 2006, respectively)				244			677
Mortgage-backed securities available for sale—at fair value				98,178			74,338
Mortgage-backed securities held to maturity (fair value of $6,343 and $7,788 as of December 31, 2007 and 2006, respectively)				6,160			7,697
Loans receivable, net				517,027			483,570
Loans receivable, held for sale				1,040			969
Federal Home Loan Bank stock—at cost				8,782			7,130
Accrued interest receivable				3,036			3,030
Premises and equipment, net				6,267			6,544
Goodwill				4,324			4,324
Bank owned life insurance				15,881			15,274
Other assets				2,691			2,122
		TOTAL ASSETS	$	701,673		$	652,603
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
	Deposits		$	472,394		$	478,087
	Advances from the Federal Home Loan Bank			153,221			101,701
	Advances from borrowers for taxes and insurance			2,193			1,866
	Accrued interest payable			3,415			3,177
	Other liabilities			2,607			2,133
		Total liabilities		633,830			586,964
Stockholders' equity
	Preferred stock, no par value; 2,000,000 shares authorized at December 31, 2007 and 2006, none issued			—			—
	Common stock, $0.10 par value; 10,000,000 shares authorized, 5,290,000 shares issued, 2,671,083 and 2,702,845 shares outstanding at December 31, 2007 and 2006, respectively, net shares in treasury: 2007—2,459,440; 2006—2,415,766			529			529
	Additional paid-in capital			53,337			52,700
	Unearned ESOP shares			(1,595	)		(1,703	)
	Treasury stock—at cost			(51,216	)		(48,980	)
	Retained earnings			67,735			65,075
	Accumulated other comprehensive loss			(947	)		(1,982	)
		Total stockholders' equity		67,843			65,639
		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	701,673		$	652,603

The accompanying notes are an integral part of these statements.

13

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

			Year ended December 31,
			2007		2006
			(in thousands, except per share data)
Interest income
	Loans, including fees		$	32,272	$	32,342
	Mortgage-backed securities			4,086		3,722
	Investment securities			1,665		1,861
	Interest-bearing deposits and other			105		94
		TOTAL INTEREST INCOME		38,128		38,019
Interest expense
	Deposits			13,687		10,923
	Borrowings			4,668		4,938
		TOTAL INTEREST EXPENSE		18,355		15,861
		NET INTEREST INCOME		19,773		22,158
Provision for loan losses				—		150
		NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		19,773		22,008
Non-interest income
	Service fees, charges and other operating income			2,138		2,091
	Bank owned life insurance			607		503
	Gain on sale of real estate			—		29
	Loss on sale of mortgage-backed securities			—		(51	)
	Gain on sale of loans			214		238
	Other income			777		—
		TOTAL NON-INTEREST INCOME		3,736		2,810
Non-interest expense
	Employee compensation and benefits			10,390		10,636
	Occupancy and equipment			2,812		2,834
	Professional fees			698		739
	Marketing and advertising			419		500
	Other operating			2,583		2,376
	Amortization of core deposit intangible asset			—		83
		TOTAL NON-INTEREST EXPENSE		16,902		17,168
		INCOME BEFORE INCOME TAXES		6,607		7,650
Income tax expense				1,762		2,136
		NET INCOME	$	4,845	$	5,514
Earnings per share—basic			$	1.78	$	2.04
Earnings per share—diluted			$	1.78	$	2.03

The accompanying notes are an integral part of these statements.

14

TF Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
Years ended December 31, 2007 and 2006
(in thousands, except share data)

	Common Stock
																				Accumulated other comprehensive income (loss)
	Shares		Par value		Additional paid-in capital			Unearned restricted stock			Unearned ESOP shares			Treasury stock			Retained Earnings						Total			Comprehensive income (loss)
Balance at December 31, 2005	2,714,173		$	529	$	53,048			(1,080	)	$	(1,849	)	$	(47,920	)	$	61,610		$	(1,690	)	$	62,648
Allocation of ESOP shares	13,495			—		228			—			146			—			—			—			374
Purchase of treasury stock	(58,904	)		—		—			—			—			(1,749	)		—			—			(1,749	)
Cash dividends—common stock	—			—		—			—			—			—			(2,049	)		—			(2,049	)
Restricted stock grant	—			—		(1,080	)		1,080			—			—			—			—			—
Compensation expense—Restricted shares	—			—		361			—			—			—			—			—			361
Exercise of options	21,415			—		(108	)		—			—			433			—			—			325
Income tax benefit arising from stock compensation	—			—		121			—			—			—			—			—			121
Stock option expense.	—			—		386			—			—			—			—			—			386
Vesting of stock grant	12,666					(256	)		—			—			256			—			—			—
Unrealized gains on securities, net of tax	—			—		—			—			—			—			—			421			421			421
Adjustment to record funded status of pension (net of tax of $367)	—			—		—			—			—			—			—			(713	)		(713	)
Net income for the year ended December 31, 2006	—			—		—			—			—			—			5,514			—			5,514			5,514
Comprehensive income																										$	5,935
Balance at December 31, 2006	2,702.845		$	529	$	52,700		$	—		$	(1,703	)	$	(48,980	)	$	65,075		$	(1,982	)	$	65,639
Allocation of ESOP shares	11,912			—		198			—			108			—			—			—			306
Purchase of treasury stock	(166,375	)		—		—			—			—			(4,745	)		—			—			(4,745	)
Cash dividends—common stock	—			—		—			—			—			—			(2,185	)		—			(2,185	)
Compensation expense—restricted shares	—			—		361			—			—			—			—			—			361
Exercise of options	110,035			—		(417	)		—			—			2,246			—			—			1,829
Income tax benefit arising from stock compensation	—			—		367			—			—			—			—			—			367
Stock option expense	—			—		391			—			—			—			—			—			391
Vesting of stock grant	12,666			—		(263	)		—			—			263			—			—			—
Unrealized gains on securities, net of tax	—			—		—			—			—			—			—			1,180			1,180		$	1,180
Adjustment to record funded status of pension (net of tax of $75)	—			—		—			—			—			—			—			(145	)		(145	)		(145	)
Net income for the year ended December 31, 2007	—			—		—			—			—			—			4,845			—			4,845			4,845
Comprehensive income																										$	5,880
Balance at December 31, 2007	2,671,083		$	529	$	53,337		$	—		$	(1,595	)	$	(51,216	)	$	67,735		$	(947	)	$	67,843

The accompanying notes are an integral part of this statement

15

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Year ended December 31,
					2007			2006
					(in thousands)
OPERATING ACTIVITIES
	Net income				$	4,845		$	5,514
	Adjustments to reconcile net income to net cash provided by
		operating activities
		Amortization of
			Mortgage loan servicing rights			61			42
			Deferred loan origination fees			(133	)		(303	)
			Premiums and discounts on investment securities, net			89			69
			Premiums and discounts on mortgage-backed securities, net			14			252
			Premiums and discounts on loans, net			120			167
			Core deposit intangibles			—			83
			Discounts on wholesale deposits			14			20
		Deferred income taxes				318			327
		Provision for loan losses and provision for losses on real estate				—			150
		Depreciation of premises and equipment				915			954
		Increase in value of bank-owned life insurance				(607	)		(502	)
		Stock grant expense				361			361
		Stock option expense				391			386
		Stock based benefit programs: ESOP				306			374
		Proceeds from sale of loans originated for sale				17,708			13,044
		Origination of loans held for sale				(17,810	)		(14,033	)
		(Gain) loss on sale of
			Investment and mortgage-backed securities			—			51
			Real estate acquired through foreclosure			—			(29	)
			Mortgage loans available for sale			(213	)		(104	)
			Mortgage loans held to maturity			(1	)		(134	)
			(Income) expense from mortgage loan derivatives			(1	)		7
			Expense (income) associated with forward loan sales			2			(5	)
		(Increase) decrease in
			Accrued interest receivable			(6	)		18
			Other assets			(738	)		(639	)
		Increase (decrease) in
			Accrued interest payable			238			890
			Other liabilities			(242	)		(75	)
				NET CASH PROVIDED BY OPERATING ACTIVITIES	$	5,631		$	6,885

16

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

			Year ended December 31,
			2007			2006
			(in thousands)
INVESTING ACTIVITIES
	Loan originations		$	(121,299	)	$	(125,660	)
	Loan principal payments			85,884			109,589
	Principal repayments on mortgage-backed securities held to maturity			1,530			2,472
	Principal repayments on mortgage-backed securities available for sale			11,067			14,263
	Proceeds from loan sales			1,969			23,512
	Maturities of certificates of deposit in other financial institutions, net			40			—
	Purchase of investment securities available for sale			(4,111	)		(3,795	)
	Purchase of mortgage-backed securities available for sale			(33,401	)		(10,120	)
	Purchase of bank-owned life insurance			—			(2,000	)
	Proceeds from maturities of investment securities held to maturity			435			4,018
	Proceeds from maturities of investment securities available for sale			6,455			—
	Proceeds from the sale of mortgage-backed securities available for sale			—			4,971
	(Purchase) redemption of Federal Home Loan Bank stock			(1,652	)		302
	Proceeds from sale of real estate			—			729
	Purchase of premises and equipment			(638	)		(1,209	)
		NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES	$	(53,721	)	$	17,072
FINANCING ACTIVITIES
	Net (decrease) increase in deposits			(5,707	)		7,546
	Net increase (decrease) in short-term Federal Home Loan Bank advances			12,383			(16,190	)
	Proceeds from long-term Federal Home Loan Bank advances			64,235			15,535
	Repayment of long-term Federal Home Loan Bank advances			(25,098	)		(18,904	)
	Net increase (decrease) in advances from borrowers for taxes and insurance			327			(49	)
	Treasury stock acquired			(4,745	)		(1,749	)
	Exercise of stock options			1,829			325
	Tax benefit arising from stock compensation			367			121
	Common stock dividends paid			(2,185	)		(2,049	)
		NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		41,406			(15,414	)
		NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(6,684	)		8,543
Cash and cash equivalents at beginning of year				12,364			3,821
Cash and cash equivalents at end of year			$	5,680		$	12,364
Supplemental disclosure of cash flow information
	Cash paid for
		Interest on deposits and advances from Federal Home Loan Bank	$	18,117		$	14,971
		Income taxes	$	1,380		$	1,645
		Capitalization of mortgage servicing rights	$	244		$	191

The accompanying notes are an integral part of these statements.

17

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        TF Financial Corporation (the "Company") is a unitary savings and loan holding company, organized under the laws of the State of Delaware, which conducts its consumer banking operations primarily through its wholly owned subsidiary, Third Federal Bank (Third Federal or the Bank). Third Federal is a federally chartered-stock savings bank insured by the Federal Deposit Insurance Corporation. Third Federal is a community-oriented savings institution that conducts operations from its main office in Newtown, Pennsylvania, twelve full-service branch offices located in Philadelphia and Bucks Counties, Pennsylvania, and three 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.

1.

Principles of Consolidation and Basis of Presentation

        The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: TF Investments, Penns Trail Development Corporation and Third Federal, and its 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.

2.

Cash and Cash Equivalents

        The Company considers cash, due from banks, federal funds sold 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 statements of financial position 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.

3.

Investment and Mortgage-Backed Securities

        The Company accounts for investment and mortgage-backed securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company classifies its investment, mortgage-backed and marketable

18

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

equity securities in one of three categories: held to maturity, trading, or available for sale. The Company does not presently engage in security trading activities.

        Investment, mortgage-backed and marketable equity securities available for sale are stated at fair value, with net unrealized gains and losses excluded from income and reported in other comprehensive income. Decreases in fair value deemed to be other than temporary are reported as a component of income. Realized gains and losses on the sale of securities are recognized using the specific identification method.

        Investment and 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. Decreases in fair value deemed to be other than temporary are reported as a component of income. The Company has the ability and it is management's intention to hold such assets to maturity.

4.

Loans Receivable Held-for-Investment

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

        Management's periodic evaluation of the adequacy of the loan loss allowance is based on the Bank's historical loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current economic conditions. Actual losses may be higher or lower than historical trends, which vary. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).

        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.

        The Company accounts for impaired loans in accordance with SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS 118, "Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures." SFAS 114 requires a creditor to measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable.

        The Company accounts for loans acquired in a transfer in accordance with the American Institute of Certified Public Accountants' Statement of Position No. 03-3, "Accounting for Certain Loans or

19

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Debt Securities Acquired in a Transfer" (SOP 03-3). SOP 03-3 requires that acquired impaired loans for which it is probable that the investor will be unable to collect all contractually required payments receivable be recorded at the present value of amounts expected to be received and prohibits carrying over or creation of valuation allowances in the initial accounting for these loans.

5.

Loans Receivable Held-for-Sale

        Mortgages loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Any resulting unrealized losses are included in other income. The fair value of the Bank's loans held as available for sale was in excess of cost at December 31, 2007 and 2006.

6.

Transfers of Financial Assets

        The Company accounts for the transfer of financial assets in accordance with SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The standard is based on consistent application of a financial-components approach that 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. The standard provides consistent guidelines for distinguishing transfers of financial assets from transfers that are secured borrowings.

7.

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 accounts for the impairment of long-lived assets in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The standard requires recognition and measurement for the 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, 2007 and 2006.

8.

Goodwill and Other Intangible Assets

        Goodwill does not require amortization but is subject to annual impairment testing. The Company has tested the goodwill for impairment prior to its fiscal year ending December 31, 2007. No impairment has been recognized.

        Core deposit intangible asset is the result of the Company's 1996 acquisition of certain branches and deposits of Cenlar Federal Savings Bank. The core deposit intangible acquired was amortized over 10 years and became fully amortized during September 30, 2006.

9.

Bank Owned Life Insurance

        The Company purchased $10.5 million in life insurance policies on the lives of its executives and officers prior to 2006 and an additional $2.0 million in November 2006. The Company is the owner and beneficiary of the policies. The cash surrender values of the policies were approximately $15.9 million and $15.3 million at December 31, 2007 and 2006, respectively.

20

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

10.

Benefit Plans

        The Company has established an Employee Stock Ownership Plan (ESOP) covering eligible employees with six months of service, as defined by the ESOP. The Company accounts for the ESOP in accordance with the American Institute of Certified Public Accountants' Statement of Position (SOP) 93-6, "Employers' Accounting for Employee Stock Ownership Plans." SOP 93-6 addresses the accounting for shares of stock issued to employees by an ESOP. SOP 93-6 requires that the employer record 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 in excess of 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 accounts for the defined benefit plan in accordance with SFAS 87, "Employers' Accounting for Pensions" which provides guidance for the various components of pension expense recognized in the income statement and any related employer pension assets or liabilities. Additionally, the Company includes reporting disclosures required by SFAS 132R, "Employers' Disclosures about Pensions and Other Postretirement Benefits". The Company adopted SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)". SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize 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 pursuant to SFAS 87 in the year in which the changes occur through comprehensive income. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The Company was required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006.

11.

Stock-Based Compensation

        The Company has stock benefit plans that allow the Company to grant options and stock to employees and directors. 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 fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model.

        On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") 123R, "Share-Based Payment," using the modified prospective transition method. Under this transition method, compensation cost to be recognized beginning in the first quarter of 2006 included: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

21

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

12.

Income Taxes

        The Company accounts for income taxes under the liability method specified in SFAS 109, "Accounting for Income Taxes" 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.

13.

Advertising Costs

        The Company expenses marketing and advertising costs as incurred.

14.

Earnings Per Share

        The Company follows the provisions of SFAS 128, "Earnings Per Share." Basic earnings per share excludes dilution and 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.

15.

Comprehensive Income

        The Company follows SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes standards to provide prominent disclosure of comprehensive income items. 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. The components of other comprehensive income are as follows:

		December 31, 2007
		Before tax amount			Tax (expense) benefit			Net of tax amount
		(in thousands)
Unrealized gains on securities
	Unrealized holding gains arising during period	$	1,787		$	(607	)	$	1,180
Pension plan benefit adjustment related to prior service costs and actuarial losses			(220	)		75			(145	)
Other comprehensive income, net		$	1,567		$	(532	)	$	1,035

		December 31, 2006
		Before tax amount		Tax (expense) benefit			Net of tax amount
		(in thousands)
Unrealized gains on securities
	Unrealized holding gains arising during period	$	586	$	(198	)	$	388
	Reclassification adjustment for losses realized		51		(18	)		33
Other comprehensive income, net		$	637	$	(216	)	$	421

22

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

16.

Segment Reporting

        The Company follows SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." 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.

17.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current period presentation.

NOTE B—RECENT ACCOUNTING PRONOUNCEMENTS

        In September 2006, the Financial Accounting Standards Board (FASB) Issued Statement No. 157 (SFAS 157), "Fair Value Measurements" which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. In February 2008, FASB issued FASB Staff Position (FSP) FAS 157-2 which provides a one-year deferral of the effective date for SFAS 157 with respect to all nonfinancial assets and liabilities, except those items recognized or disclosed in the financial statements on a recurring basis (that is at least annually). The Company will adopt SFAS 157 effective January 1, 2008 which will result in increased disclosures regarding fair value measurement.

        In September 2006, the Emerging Issues Task Force (EITF) finalized Issue No. 06-5, "Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance)". This issue requires that a policyholder consider contractual terms of a life insurance policy in determining the amount that could be realized under the insurance contract. It also requires that if the contract provides for a greater surrender value if all individual policies in a group are surrendered at the same time, that the surrender value be determined based on the assumption that policies will be surrendered on an individual basis. Lastly, the issue discusses whether the cash surrender value should be discounted when the policyholder is contractually limited in its ability to surrender a policy. This issue is effective for fiscal years beginning after December 15, 2006. Application of this issue did not have a material impact on the Company's consolidated financial statements.

        The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes", on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with SFAS 5, "Accounting for Contingencies". As required by FIN 48, which clarifies SFAS 109, "Accounting for Income Taxes", the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the

23

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE B—RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

relevant tax authority. The Company is subject to income taxes in the U.S. federal jurisdiction, and the states of Pennsylvania and New Jersey. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. The adoption of FIN 48 did not have a material impact on the results of operations or financial condition of the Company.

        In February 2007, FASB issued Statement No. 159 (SFAS 159), "The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115". The statement permits entities to choose to measure many financial instruments at fair value. SFAS 159 provides an opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently, without having to apply complex hedge accounting provisions. This statement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157, "Fair Value Measurements". Although the Company has decided against early adoption, the Company is currently evaluating whether it will adopt SFAS 159 and elect to carry any assets or liabilities at fair value.

        In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) 109 "Written Loan Commitments Recorded at Fair Value Through Earnings", which superseded SAB 105 "Loan Commitments Accounted for as Derivative Instruments", which requires a company to include expected net future cash flows related to the associated servicing of the loan in the measurement of its written loan commitments that are accounted for at fair value through earnings. SAB 109 emphasizes the SEC's view that internally developed intangible assets should not be included in the fair value of a derivative loan commitment accounted through earnings. The guidance should be applied prospectively to commitments accounted for at fair value that are issued or modified in fiscal quarters beginning after December 15, 2007. The Company does not anticipate a material impact as a result of this guidance on its consolidated statements.

        In December 2007, FASB issued Statement No. 141R (SFAS 141R), "Business Combinations". The statement will change how a reporting enterprise accounts for the acquisition of a business. Underlying SFAS 141R is the fundamental principle that an acquirer should measure almost all assets acquired and liabilities assumed at fair value as of the acquisition date. It is effective for acquisitions occurring in fiscal periods beginning after December 15, 2008. The Company does not anticipate a material impact as a result of this statement on its consolidated statements.

        In December 2007, FASB issued Statement No. 160 (SFAS 160), "Noncontrolling Interests in Consolidated Financial Statements: an amendment of ARB No. 51". The statement will change the accounting for, and the financial presentation of, noncontrolling equity interests in a consolidated subsidiary. SFAS 160 requires entities to apply the presentation and disclosure requirements retrospectively (e.g. by reclassifying noncontrolling interests to appear in equity) to comparative financial statements, if presented. It is effective for fiscal years beginning on or after December 15, 2008 and interim period in those fiscal years. The Company does not anticipate a material impact as a result of this statement on its consolidated statements.

24

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE C—CASH AND CASH EQUIVALENTS

        Cash and cash equivalents consist of the following:

	December 31,
	2007		2006
	(in thousands)
Cash and due from banks	$	5,557	$	5,544
Interest-bearing deposits in other financial institutions		123		6,820
	$	5,680	$	12,364

NOTE D—INVESTMENT AND MORTGAGE-BACKED SECURITIES

        The amortized cost, gross unrealized gains and losses, and fair value of the Company's investment securities at December 31, 2007 and 2006, are summarized as follows:

		December 31, 2007
		Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
		(in thousands)
Investment securities held to maturity
	State and political subdivisions	$	244	$	2	$	—		$	246
		$	244	$	2	$	—		$	246
Investment securities available for sale
	U.S. Government and federal agencies	$	2,996	$	—	$	(14	)	$	2,982
	Corporate debt securities		4,340		44		(7	)		4,377
	State and political subdivisions		24,628		268		(63	)		24,833
	Equities		150		21		—			171
		$	32,114	$	333	$	(84	)	$	32,363
Mortgage-backed securities held to maturity
	FHLMC certificates	$	1,657	$	86	$	—		$	1,743
	FNMA certificates		2,634		48		(41	)		2,641
	GNMA certificates		1,869		90		—			1,959
		$	6,160	$	224	$	(41	)	$	6,343
Mortgage-backed securities available for sale
	FHLMC certificates	$	5,478	$	1	$	(45	)	$	5,434
	FNMA certificates		11,381		22		(220	)		11,183
	Real estate mortgage investment conduit		81,704		345		(488	)		81,561
		$	98,563	$	368	$	(753	)	$	98,178

25

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE D—INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)

		December 31, 2006
		Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
		(in thousands)
Investment securities held to maturity
	State and political subdivisions	$	677	$	4	$	—		$	681
		$	677	$	4	$	—		$	681
Investment securities available for sale
	U.S. Government and federal agencies	$	5,990	$	—	$	(79	)	$	5,911
	Corporate debt securities		4,003		—		(21	)		3,982
	State and political subdivisions		24,406		177		(154	)		24,429
	Equities		150		52		—			202
		$	34,549	$	229	$	(254	)	$	34,524
Mortgage-backed securities held to maturity
	FHLMC certificates	$	2,297	$	79	$	—		$	2,376
	FNMA certificates		3,084		34		(69	)		3,049
	GNMA certificates		2,316		47		—			2,363
		$	7,697	$	160	$	(69	)	$	7,788
Mortgage-backed securities available for sale
	FHLMC certificates	$	8,106	$	1	$	(219	)	$	7,888
	FNMA certificates		10,765		—		(435	)		10,330
	Real estate mortgage investment conduit		57,365		8		(1,253	)		56,120
		$	76,236	$	9	$	(1,907	)	$	74,338

        There were no sales of securities during the year 2007. Gross realized losses were $51,000 for the year ended December 31, 2006. These losses resulted from the sale of mortgage-backed securities of $5.0 million during the year ended December 31, 2006.

26

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE D—INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)

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

		December 31, 2007
		Available for sale				Held to maturity
		Amortized cost		Fair value		Amortized cost		Fair value
		(in thousands)
Investment securities
	Due in one year or less	$	3,996	$	3,975	$	244	$	246
	Due after one year through five years		5,721		5,774		—		—
	Due after five years through 10 years		12,120		12,218		—		—
	Due after 10 years		10,277		10,396		—		—
			32,114		32,363		244		246
Mortgage-backed securities			98,563		98,178		6,160		6,343
		$	130,677	$	130,541	$	6,404	$	6,589

        Investment securities having an aggregate amortized cost of approximately $3.0 million were pledged to secure public deposits at December 31, 2007 and 2006.

        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 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, 2007:

		Less than 12 months					12 months or longer					Total
Description of Securities	Number of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair value		Unrealized Loss
	(in thousands)
U.S. Government and federal agencies	1	$	—	$	—		$	2,982	$	(14	)	$	2,982	$	(14	)
Corporate debt securities	1		—		—			993		(7	)		993		(7	)
State and political subdivisions	9		—		—			5,763		(63	)		5,763		(63	)
Mortgage-backed securities	25		1,193		(14	)		55,082		(780	)		56,275		(794	)
Total temporarily impaired securities	36	$	1,193	$	(14	)	$	64,820	$	(864	)	$	66,013	$	(878	)

27

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE D—INVESTMENT AND MORTGAGE-BACKED 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, 2006:

		Less than 12 months					12 months or longer					Total
Description of Securities	Number of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair value		Unrealized Loss
	(in thousands)
U.S. Government and federal agencies	2	$	—	$	—		$	5,911	$	(79	)	$	5,911	$	(79	)
Corporate debt securities	3		—		—			3,982		(21	)		3,982		(21	)
State and political subdivisions	19		976		(4	)		13,375		(150	)		14,351		(154	)
Mortgage-backed securities	38		7,298		(53	)		65,827		(1,923	)		73,125		(1,976	)
Total temporarily impaired securities	62	$	8,274	$	(57	)	$	89,095	$	(2,173	)	$	97,369	$	(2,230	)

        The unrealized losses on investments in securities issued by the U.S. Treasury and Government agencies, U.S. Government sponsored agencies and agency mortgage-backed securities were caused by changes in market interest rates. The contractual terms and contractual cash flows of these securities do not permit the issuer to settle at a price less than the amortized cost of the investment. The Company has the ability and intent to hold these investments until a market price recovery or maturity. Accordingly, the Company has evaluated relevant factors and has determined that the unrealized losses at December 31, 2007 and 2006, respectively are not considered other-than-temporary.

28

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE E—LOANS RECEIVABLE

        Loans receivable are summarized as follows:

				December 31,
				2007			2006
				(in thousands)
Held for investment:
	First mortgage loans
		Secured by one-to-four residences		$	272,840		$	266,789
		Secured by other non-residential properties			109,740			93,607
		Construction loans			35,507			34,944
			Total first mortgage loans		418,087			395,340
	Other loans
		Commercial non-real estate			46,850			40,458
		Home equity and second mortgage			52,013			46,864
		Other			2,244			3,242
			Total other loans		101,107			90,564
	Total loans				519,194			485,904
	Net deferred loan origination costs and unamortized premiums				675			531
	Less allowance for loan losses				(2,842	)		(2,865	)
			Total loans receivable	$	517,027		$	483,570
Held for sale:
	First mortgage loans
		Secured by one-to-four family residences		$	1,040		$	969

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

	December 31,
	2007			2006
	(in thousands)
Balance at beginning of year	$	2,865		$	2,641
Provision charged to income		—			150
(Charge-offs), net of recoveries		(23	)		74
Balance at end of year	$	2,842		$	2,865

29

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE E—LOANS RECEIVABLE (Continued)

        Non-performing loans, which include non-accrual loans for which the accrual of interest has been discontinued and loan balances past due over 90 days that are not on a non-accrual status but that management expects will eventually be paid in full, are summarized as follows:

	December 31,
	2007		2006
	(in thousands)
Impaired loans with a related allowance	$	—	$	—
Impaired loans without a related allowance	$	5,358	$	—
Total impaired loans	$	5,358	$	—
Allowance for impaired loans	$	—	$	—
Total non-accrual loans	$	5,358	$	2,110
Total loans past due 90 days as to interest or principal and accruing interest	$	—	$	—

        Interest income that would have been recorded under the original terms of such loans totaled approximately $301,000 and $130,000 for the years ended December 31, 2007 and 2006. No interest income has been recognized on non-accrual loans for any of the periods presented.

        The Bank has no concentration of loans to borrowers engaged in similar activities that exceeded 10% of loans at December 31, 2007 and 2006. 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 collectibility. The aggregate dollar amount of these loans was approximately $178,000 and $252,000 at December 31, 2007 and 2006, respectively. New loans to related parties of $105,000 were made during 2007. For the year ended December 31, 2007, principal repayments of approximately $179,000 were received.

NOTE F—LOAN SERVICING

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

		December 31,
		2007		2006
		(in thousands)
Mortgage loan servicing portfolios
	FHLMC	$	632	$	903
	FNMA		37,396		21,918
	Other investors		12,231		10,841
		$	50,259	$	33,662

        Custodial balances maintained in connection with the foregoing loan servicing totaled approximately $390,000 and $238,000 at December 31, 2007 and 2006 respectively. Net servicing

30

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE F—LOAN SERVICING (Continued)

revenue on mortgage loans serviced for other was $30,000 and $19,000 for the years ended December 31, 2007 and 2006 respectively. Mortgage servicing rights of $460,000 and $279,000 are reported as a component of other assets at December 31, 2007 and 2006.

NOTE G—PREMISES AND EQUIPMENT

        Premises and equipment are summarized as follows:

		December 31,
	Estimated useful lives
		2007		2006
		(in thousands)
Buildings	30 years	$	6,462	$	6,207
Leasehold improvements	5-10 years		1,974		1,932
Furniture, fixtures and equipment	3-7 years		10,569		10,257
			19,005		18,396
Less accumulated depreciation			14,430		13,544
			4,575		4,852
Land			1,692		1,692
		$	6,267	$	6,544

NOTE H—DEPOSITS

        Deposits are summarized as follows:

	December 31,
Deposit type
	2007		2006
	(in thousands)
Demand	$	35,904	$	36,991
NOW		46,543		51,272
Money market		79,267		62,914
Passbook savings		130,423		131,359
Total demand, transaction and passbook deposits		292,137		282,536
Certificates of deposit		180,257		195,551
	$	472,394	$	478,087

        The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $38.8 million and $42.4 million at December 31, 2007 and 2006, respectively. The Bank had broker-originated certificates of deposit $11.7 million at December 31, 2006.

31

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE H—DEPOSITS (Continued)

        At December 31, 2007, scheduled maturities of certificates of deposit are as follows:

Year ending December 31,
2008		2009		2010		2011		2012		Thereafter		Total
(in thousands)
$	141,130	$	31,084	$	5,322	$	1,323	$	970	$	428	$	180,257

        Related party deposits are on substantially the same terms as for comparable transactions with unrelated persons. The aggregate dollar amount of these deposits was approximately $2.2 million and $2.5 million at December 31, 2007 and 2006, respectively.

NOTE I—ADVANCES FROM THE FEDERAL HOME LOAN BANK

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

	December 31,
	2007				2006
Principal payments due during	Amount		Weighted average rate		Amount		Weighted average rate
	(in thousands)				(in thousands)
2007	$	—	—	%		25,122	3.92	%
2008		28,851	4.00	%		23,144	3.76	%
2009		44,495	4.01	%		34,566	3.84	%
2010		28,845	4.53	%		13,074	4.41	%
2011		18,392	4.23	%		2,776	4.17	%
2012		30,950	4.29	%		2,004	4.22	%
Thereafter		1,688	4.54	%		1,015	4.26	%
	$	153,221	4.19	%	$	101,701	3.93	%

        The advances are collateralized by Federal Home Loan Bank stock and certain first mortgage loans and mortgage-backed securities. Total unused lines of credit at the Federal Home Loan Bank were $17.6 million at December 31, 2007. The advances from the Federal Home Loan Bank are fixed rate, fixed term.

NOTE J—BENEFIT PLANS

1.

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. Contributions to the 401(k) plan totaled $62,000 and $65,000 in 2007 and 2006 respectively.

32

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE J—BENEFIT PLANS (Continued)

2.

Defined Benefit Plan

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

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

		December 31,
		2007			2006
		(in thousands)
Reconciliation of Projected Benefit Obligation
	Benefit obligation at beginning of year	$	3,560		$	3,621
	Service cost		336			308
	Interest cost		211			211
	Plan amendments		—			—
	Actuarial loss (gain)		44			(82	)
	Benefits paid		(558	)		(498	)
Benefits obligation at end of year		$	3,593		$	3,560
Reconciliation of Fair Value of Assets
	Fair value of plan assets at beginning of year	$	3,860		$	3,174
	Actual return on plan assets		117			364
	Employer contribution		1,107			820
	Benefits paid		(558	)		(498	)
	Fair value of plan assets at end of year	$	4,526		$	3,860
Prepaid benefit cost at end of year		$	933		$	300

        The amount recognized in accumulated other comprehensive income at December 31, 2007 was $220,000 which included an adjustment of $280,000 to record the funded status of the plan less amortization of prior service cost of $60,000. The amount recognized in accumulated other comprehensive income at December 31, 2006 was $1,080,000 which included a net actuarial loss of $987,000 and prior service cost of $93,000. During 2008, the amounts expected to be amortized from accumulated other comprehensive income include $59,000 of net actuarial loss and $31,000 of prior service cost.

        The accumulated benefit obligation at December 31, 2007 and 2006 was $3,003,000 and $3,036,000 respectively.

33

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE J—BENEFIT PLANS (Continued)

        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 2008 is $218,000.

	December 31,
	2007		2006
Weighted-average assumptions used to determine benefit obligations, end of year
Discount rate	5.75	%	5.75	%
Rate of compensation increase	4.00		4.00

		December 31,
		2007			2006
		(in thousands)
Components of net periodic benefit cost
	Service cost	$	336		$	308
	Interest cost		211			211
	Expected return on plan assets		(399	)		(324	)
	Amortization of prior service cost		63			63
	Amortization of transition obligation (asset)		—			—
	Recognized net actuarial loss		46			51
	Net periodic benefit cost	$	257		$	309

		December 31,
		2007		2006
Weighted-average assumptions used to determine net benefit costs as of December 31
	Discount rate	5.75	%	5.75	%
	Expected return on plan assets	9.00		9.00
	Rate of compensation increase	4.00		4.00

        The expected rate of return was determined by applying the average rates of return over the past ten years on the assets which the Plan is currently invested.

        Estimated future benefits payments are as follows:

	(in thousands)
2008	$	36
2009		58
2010		58
2011		59
2012		105
2013-2017		1,142

34

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE J—BENEFIT PLANS (Continued)

        The Plan's weighted-average asset allocations by asset category is as follows:

		Percentage of Plan Assets at December 31,
		2007		2006
Asset Category
	Equity securities	52	%	59	%
	Debt securities	24	%	21	%
	Other	24	%	20	%
	Total	100	%	100	%

        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 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. The asset allocation for the Plan is targeted at 60% equity securities and 40% debt and other securities.

3..

Employee Stock Ownership Plan (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. The Company makes discretionary contributions to the ESOP in order to service the ESOP's debt. Any dividends received by the ESOP will be used to pay debt service. 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. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the allocated shares are included in outstanding shares for earnings per share computations. ESOP compensation expense was $247,000 and $332,000 in 2007 and 2006 respectively.

		2007		2006
Allocated shares			167,000		169,000
Unreleased shares			160,000		171,000
	Total ESOP shares		327,000		340,000
Fair value of unreleased shares (in thousands)		$	3,942	$	5,301

35

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE J—BENEFIT PLANS (Continued)

4.

Stock-Based Compensation Plans

        A summary of the status of the Company's stock option plans as of December 31, 2007 and 2006, and changes for each of the years in the two-year period then ended is as follows:

	2007				2006
	Number of shares		Weighted average exercise price per share		Number of shares		Weighted average exercise price per share
Outstanding at beginning of year	365,734		$	23.62	384,848		$	23.18
Options granted	—			—	11,000			27.20
Options exercised	(110,035	)		16.62	(21,415	)		15.25
Options forfeited	(3,123	)		31.93	(8,699	)		29.72
Options expired	—			—	—			—
Outstanding at end of year	252,576		$	26.56	365,734		$	23.62

        The following table summarizes information about stock options outstanding at December 31, 2007:

	Options outstanding				Options exercisable
Range of exercise prices	Number outstanding at December 31, 2007	Weighted average remaining contractual life (years)	Weighted average exercise price		Number exercisable at December 31, 2007	Weighted average exercise price
$13.25-19.88	26,017	2.21	$	13.81	26,017	$	13.81
$19.89-29.84	208,371	3.57		27.49	142,908		27.16
$29.85-34.14	18,188	5.97		34.14	14,550		34.14
	252,576	3.60	$	26.56	183,475	$	25.82

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

		December 31,
		2007		2006
		(in thousands)
Aggregate value of:
	Options outstanding	$	349	$	2,641
	Options exercisable	$	349	$	2,340
	Options exercised	$	1,481	$	320
Cash receipts from options exercised		$	1,829	$	325

        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 2007 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.

36

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE J—BENEFIT PLANS (Continued)

        Stock-based compensation expense included in net income related to stock options was $391,000 and $386,000, resulting in a tax benefit of $120,000 and $116,000, for the year ended December 31, 2007 and 2006 respectively. There was $418,000 and $810,000 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested options under the Plan at December 31, 2007 and 2006, respectively. That cost is expected to be recognized over a weighted average period of 14.4 months and 26.8 months at December 31, 2007 and 2006, respectively.

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

	2007				2006
	Number of shares		Weighted average exercise price per share		Number of shares		Weighted average exercise price per share
Total non-vested restricted stock at December 31	25,334		$	28.48	39,000		$	28.48
Restricted stock grant	—			—	—			—
Vesting of restricted stock	(12,666	)	$	28.48	(12,666	)	$	28.48
Forfeitures of restricted stock	—			—	(1,000	)	$	28.48
Total non-vested restricted stock at December 31	12,668		$	28.48	25,334		$	28.48

        Stock-based compensation expense related to stock grants was $361,000 for each the years ended December 31, 2007 and 2006. The expected compensation expense for 2008 is $346,000.

NOTE K—INCOME TAXES

        The components of income tax expense are summarized as follows:

		Year ended December 31,
		2007		2006
		(in thousands)
Federal
	Current	$	1,071	$	1,687
	Charge in lieu of income tax relating to stock compensation		367		121
	Deferred		318		327
			1,756		2,135
State and local—current			6		1
Income tax provision		$	1,762	$	2,136

37

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE K—INCOME TAXES (Continued)

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

		Year ended December 31,
		2007		2006
Statutory federal income tax		34.0	%	34.0	%
(Decrease) increase resulting from
	Tax-exempt income	(8.2	)	(6.4	)
	State tax, net of federal benefit	(0.0	)	(0.0	)
	Other	0.9		0.3
		26.7	%	27.9	%

        Deferred taxes are included in the accompanying consolidated statements of financial position at December 31, 2007 and 2006, for the estimated future tax effects of differences between the financial statement and federal income tax bases of assets and liabilities according to the provisions of currently enacted tax laws. No valuation allowance was recorded against deferred tax assets at December 31, 2007 and 2006. The Company's net deferred tax (liability)/asset at December 31, 2007 and 2006, was comprised of the following:

		December 31,
		2007			2006
		(in thousands)
Deferred tax assets
	Deferred compensation	$	131		$	202
	Allowance for loan losses, net		966			974
	Unrealized loss on securities available for sale		46			653
	Stock compensation		241			121
	Adjustment to record funded status of pension		442			367
	Other		25			41
			1,851			2,358
Deferred tax liabilities
	Accrued pension expense		827			843
	Prepaid expenses		44			44
	Deferred loan costs		656			492
	Amortization of goodwill		665			450
	Other		373			393
			2,565			2,222
	Net deferred tax (liability)/asset	$	(714	)	$	136

38

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE K—INCOME TAXES (Continued)

        The Company files consolidated income tax returns on the basis of a calendar year. The Company is subject to income taxes in the U.S. federal jurisdiction, and various state and local jurisdictions, the majority of activity residing in Pennsylvania. The statue of limitations for the federal return has expired on years prior to 2004. The expirations of the statutes of limitations related to the various state income tax returns that the Corporation and its subsidiaries file, vary by state, and are expected to expire over the term of 2008 through 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. In accordance with SFAS 109, 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.

NOTE L—REGULATORY MATTERS

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

39

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE L—REGULATORY MATTERS (Continued)

        As of December 31, 2007, management believes that the Bank met all capital adequacy requirements to which it was subject.

		Regulatory capital December 31, 2007
		Tangible					Core					Risk-based
		Capital			Percent		Capital			Percent		Capital			Percent
		(in thousands)
Capital under generally accepted accounting principles		$	64,960		9.29	%	$	64,960		9.29	%	$	64,960		16.33	%
Unrealized loss on certain available-for-sale securities			103		0.01	%		103		0.01	%		103		0.03	%
Adjustment to record funded status of pension			858		0.12	%		858		0.12	%		858		0.22	%
Goodwill and other intangible assets			(4,324	)	(0.61	)%		(4,324	)	(0.61	)%		(4,324	)	(1.09	)%
Additional capital items
	General valuation allowances—limited		—		—			—		—			2,842		0.71	%
Regulatory capital computed			61,597		8.81	%		61,597		8.81	%		64,439		16.20	%
Minimum capital requirement			10,492		1.50	%		27,980		4.00	%		31,814		8.00	%
Regulatory capital—excess		$	51,105		7.31	%	$	33,617		4.81	%	$	32,625		8.20	%

		Regulatory capital December 31, 2006
		Tangible					Core					Risk-based
		Capital			Percent		Capital			Percent		Capital			Percent
		(in thousands)
Capital under generally accepted accounting principles		$	60,593		9.29	%	$	60,593		9.29	%	$	60,593		16.14	%
Unrealized loss on certain available-for-sale securities			1,304		0.20	%		1,304		0.20	%		1,304		0.35	%
Adjustment to record funded status of pension			713		0.11	%		713		0.11	%		713		0.19	%
Goodwill and other intangible assets			(4,324	)	(0.66	)		(4,324	)	(0.66	)%		(4,324	)	(1.15	)%
Additional capital items
	General valuation allowances—limited		—		—			—		—			2,865		0.76	%
Regulatory capital computed			58,286		8.94	%		58,286		8.94	%		61,151		16.29	%
Minimum capital requirement			9,779		1.50	%		26,078		4.00	%		30,035		8.00	%
Regulatory capital—excess		$	48,507		7.44	%	$	32,208		4.94	%	$	31,116		8.29	%

        At December 31, 2007, the Bank met all regulatory requirements for classification as a "well-capitalized" institution. A "well-capitalized" institution must have risk-based capital of 10% and core capital of 5%. The Bank's capital exceeded the minimum required amounts for classification as a "well-capitalized" institution. There are no conditions or events that have occurred that management believes have changed the Bank's classification as a "well-capitalized" institution.

40

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE L—REGULATORY MATTERS (Continued)

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

NOTE M—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 financial statements 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 statements of financial position. The contract or notional amounts of those instruments reflect the extent of the Bank's involvement in particular classes of financial instruments.

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

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

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

	December 31,
	2007		2006
	(in thousands)
Commitments to extend credit	$	69,063	$	85,199
Standby letters of credit		1,566		2,151
Loans sold with recourse		68		71
	$	70,697	$	87,421

        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.

41

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE N—COMMITMENTS AND CONTINGENCIES

        The Bank had optional commitments of $2,314,000 and $2,910,000 to sell mortgage loans to investors at December 31, 2007 and 2006, 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 $517,000 and $481,000 for the years ended December 31, 2007 and 2006 respectively.

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

Year ending December 31,	(in thousands)
2008	$	435
2009		332
2010		207
2011		167
2012		112
Thereafter		290
	$	1,543

        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 shall 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, 2007 was approximately $2.8 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 O—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 residential real estate values in the primary lending area will deteriorate, thereby potentially impairing underlying collateral values. However, management believes that residential and commercial real estate values are presently stable in its primary lending area and that loan loss allowances have been provided for in amounts commensurate with its current perception of the foregoing risks in the portfolio.

42

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE P—FAIR VALUE OF FINANCIAL INSTRUMENTS

        SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires all entities to disclose the estimated fair value of their assets and liabilities considered to be financial instruments. For the Bank, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in SFAS No. 107. 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. Therefore, the Company and the Bank use 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:

        Fair value of loans and deposits with floating interest rates is generally presumed to approximate the recorded carrying amounts.

        Fair value of financial instruments actively traded in a secondary market has been estimated using quoted market prices.

	December 31,
	2007				2006
	Fair value		Carrying value		Fair value		Carrying value
	(in thousands)
Cash and cash equivalents	$	5,680	$	5,680	$	12,364	$	12,364
Investment securities		32,609		32,607		35,205		35,201
Mortgage-backed securities		104,521		104,338		82,126		82,035

43

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE P—FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

        The fair value of financial instruments with stated maturities has been estimated using the present value of cash flows, discounted at rates approximating current market rates for similar assets and liabilities.

		December 31,
		2007				2006
		Fair value		Carrying value		Fair Value		Carrying value
		(in thousands)
Assets
	Certificates of deposit	$	—	$	—	$	40	$	40
Liabilities
	Deposits with stated maturities		180,651		180,257		194,441		195,551
	Borrowings with stated maturities		154,302		153,221		99,179		101,701

        The fair value of financial instrument liabilities with no stated maturities is generally presumed to approximate the carrying amount (the amount payable on demand).

	December 31,
	2007				2006
	Fair value		Carrying Value		Fair value		Carrying value
	(in thousands)
Deposits with no stated maturities	$	292,137	$	292,137	$	282,536	$	282,536

        The fair value of the net loan portfolio has been estimated using the present value of cash flows, discounted at the approximate current market rates, and giving consideration to estimated prepayment risk and credit loss factors.

	December 31,
	2007				2006
	Fair value		Carrying value		Fair value		Carrying value
	(in thousands)
Net loans	$	520,079	$	518,067	$	480,660	$	484,539

        The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments including commitments to extend credit and the fair value of letters of credit are immaterial.

        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 by SFAS 107.

44

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

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

		Year ended December 31,
		2007		2006
		(in thousands)
Service fees, charges and other operating income
	Loan servicing fees	$	168	$	245
	Late charge income		101		94
	Deposit service charges		1,118		1,100
	Debit card income		307		266
	Other income		444		386
		$	2,138	$	2,091
Other operating expense
	Insurance and surety bond	$	214	$	194
	Office supplies		181		193
	Loan expense		188		252
	MAC expense		320		309
	Postage		262		285
	Telephone		273		298
	Supervisory examination fees		150		146
	Other expenses		995		699
		$	2,583	$	2,376

45

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE R—EARNINGS PER SHARE

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

		Year ended December 31, 2007
		Income (numerator)		Weighted average shares (denominator)	Per share Amount
Basic earnings per share
	Income available to common stockholders	$	4,845	2,728,204	$	1.78
Effect of dilutive securities
	Stock compensation plans		—	1,590		—
Diluted earnings per share
	Income available to common stockholders plus effect of dilutive securities	$	4,845	2,729,794	$	1.78

        There were options to purchase 181,188 shares of common stock at a price at a range of $28.00 to $34.14 per share which were outstanding during 2007 that were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares.

		Year ended December 31, 2006
		Income (numerator)		Weighted average shares (denominator)	Per share Amount
Basic earnings per share
	Income available to common stockholders	$	5,514	2,697,460	$	2.04
Effect of dilutive securities
	Stock compensation plans		—	22,782		(0.01	)
Diluted earnings per share
	Income available to common stockholders plus effect of dilutive securities	$	5,514	2,720,242	$	2.03

        There were options to purchase 20,638 shares of common stock at a price of $34.14 per share which were outstanding during 2006 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.

46

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE S—CONDENSED FINANCIAL INFORMATION—PARENT COMPANY ONLY

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

BALANCE SHEETS

		December 31,
		2007		2006
		(in thousands)
ASSETS
Cash		$	1,087	$	2,959
Certificates of deposit—other institutions			—		40
Investment in Third Federal			63,364		58,995
Investment in TF Investments			2,544		2,463
Investment in Penns Trail Development			1,063		1,007
Investment securities available for sale			171		203
Other assets			49		12
	Total assets	$	68,278	$	65,679
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities		$	435	$	40
Stockholders' equity			67,843		65,639
	Total liabilities and stockholders' equity	$	68,278	$	65,679

STATEMENTS OF INCOME

			Year ended December 31,
			2007		2006
			(in thousands)
INCOME
	Equity in earnings of subsidiaries		$	5,637	$	6,448
	Interest and dividend income			52		54
		Total income		5,689		6,502
EXPENSES
	Other			844		988
		Total expenses		844		988
		NET INCOME	$	4,845	$	5,514

47

TF Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007 and 2006

NOTE S—CONDENSED FINANCIAL INFORMATION—PARENT COMPANY ONLY (Continued)

STATEMENTS OF CASH FLOWS

			Year ended December 31,
			2007			2006
			(in thousands)
Cash flows from operating activities
	Net income		$	4,845		$	5,514
	Adjustments to reconcile net income to net cash provided by (used in) operating activities
		Stock compensation plans		752			747
		Equity in earnings of subsidiaries		(5,637	)		(6,448	)
		Net change in assets and liabilities		359			199
		Net cash provided by operating activities		319			12
Cash flows from investing activities
	Capital distribution from subsidiaries			2,870			3,118
	Maturities of certificates of deposit in other financial institutions, net			40			—
	Purchases of investment of securities available for sale			—			(150	)
		Net cash provided by investing activities		2,910			2,968
Cash flows from financing activities
	Cash dividends paid to stockholders			(2,185	)		(2,049	)
	Treasury stock acquired			(4,745	)		(1,749	)
	Exercise of stock options			1,829			325
		Net cash used in financing activities		(5,101	)		(3,473	)
		NET DECREASE IN CASH		(1,872	)		(493	)
Cash at beginning of year				2,959			3,452
Cash at end of year			$	1,087		$	2,959
Supplemental disclosure of cash flow information
	Cash paid during the year for income taxes		$	—		$	—

48

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

TF Financial Corporation

Board of Directors

Robert N. Dusek
Chairman of the Board

Carl F. Gregory

Dennis L. McCartney

George A. Olsen

John R. Stranford

Albert M. Tantala, Sr.

Kent C. Lufkin

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

QuickLinks

CONTENTS
CORPORATE PROFILE AND RELATED INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TF FINANCIAL CORPORATION AND SUBSIDIARIES December 31, 2007 and 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TF Financial Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS
TF Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
TF Financial Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
TF Financial Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 and 2006
BALANCE SHEETS
STATEMENTS OF INCOME
STATEMENTS OF CASH FLOWS
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

EX-21.0

Exhibit 21.0

SUBSIDIARIES OF THE REGISTRANT

Parent

TF Financial Corporation

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

(a)The operations of this subsidiary are included in the consolidated financial statements contained in the 2007 Annual Report to Stockholders incorporated herein by reference.

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

EX-23.0

Exhibit 23.0

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 21, 2008 (which includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standard No. 123(R) and FASB No.158 in 2006), accompanying the consolidated financial statements incorporated by reference in the Annual Report of TF Financial Corporation on Form 10-K for the year ended December 31, 2007. We hereby consent to the incorporation by reference of said report in the Registration Statements of TF Financial Corporation on Forms S-8 (File No. 333-87176, effective December 7, 1994, File No. 333-09235, effective July 31, 1996, File No. 333-27085, effective May 14, 1997, and File No. 333-125116, effective May 20, 2005).

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

March 21, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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

1.I have reviewed this annual report on Form 10-K of TF Financial Corporation (Registrant);

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 Rule 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) for the Registrant and we have:

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

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

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

d)disclosed in this report any change in the Registrant’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the Registrant’s most recent fiscal quarter 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:

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 26, 2008	/s/ KENT C. LUFKIN
		Kent C. Lufkin
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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

1.I have reviewed this annual report on Form 10-K of TF Financial Corporation (Registrant);

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 Rule 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f) for the Registrant and we have:

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

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

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

d)disclosed in this report any change in the Registrant’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the Registrant’s most recent fiscal quarter 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:

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 26, 2008	/s/ DENNIS R. STEWART
		Dennis R. Stewart
		Executive Vice President and Chief Financial Officer
		(Principal Financial & Accounting Officer)

EX-32

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, 2007 (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 (Principal Accounting 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 26, 2008	March 26, 2008