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 [NO FEE REQUIRED]

For the fiscal year ended      December 31, 1998     
                          ------------------------------------------------------

                                     - or -

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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                             (I.R.S. Employer 
 Incorporation or Organization)                            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:      None        
                                                             ------------

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

                     Common Stock, par value $.10 per share
                     --------------------------------------
                                (Title of Class)

         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
                                             ---   ---

         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 ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant, based on the average bid and asked prices of the Registrant's
Common Stock as quoted on the Nasdaq System on March 19, 1999,  was  $36,478,038
million (2,077,337 shares at $17.56 per share).

         As of March 19,  1999 there were  outstanding  3,041,010  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, 1998.  (Parts I, II and IV)
2.       Portions  of  the  Proxy  Statement  for  the  1999  Annual  Meeting of
         Stockholders.  (Part III)

<PAGE>

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  THERETO),  IN ITS REPORTS TO
STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY,  WHICH ARE MADE IN GOOD
FAITH BY THE COMPANY  PURSUANT TO THE "SAFE  HARBOR"  PROVISIONS  OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

         THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,  SUCH
AS STATEMENTS OF THE COMPANY'S PLANS,  OBJECTIVES,  EXPECTATIONS,  ESTIMATES AND
INTENTIONS,  THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S  FINANCIAL  PERFORMANCE TO DIFFER  MATERIALLY FROM THE
PLANS,  OBJECTIVES,  EXPECTATIONS,  ESTIMATES AND  INTENTIONS  EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND  THE  STRENGTH  OF  THE  LOCAL  ECONOMIES  IN  WHICH  THE  COMPANY  CONDUCTS
OPERATIONS;  THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
AND LAWS,  INCLUDING  INTEREST  RATE  POLICIES OF THE BOARD OF  GOVERNORS OF THE
FEDERAL  RESERVE  SYSTEM,   INFLATION,   INTEREST  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  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.

Item 1.  Business
-----------------

                             BUSINESS OF THE COMPANY

         On July  13,  1994,  the  Registrant,  TF  Financial  Corporation  (the
"Company")  consummated its public  offering for 5,290,000  shares of its common
stock and acquired  Third  Federal  Savings Bank (the  "Savings  Bank" or "Third
Federal")  as part of the  Savings  Bank's  conversion  from a mutual to a stock
federally chartered savings bank. The Registrant was incorporated under Delaware
law in March 1994.

                                        1

<PAGE>


The  Registrant  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").  Currently,  the Registrant does not transact any material business
other  than  through  its   subsidiaries,   the  Savings  Bank,  TF  Investments
Corporation,  Teragon Financial Corporation, Penns Trail Development Corporation
and Third Delaware  Corporation.  Third Delaware Corporation was incorporated in
August 1998, as a subsidiary of the Savings Bank, for the purpose of holding and
managing  investment  securities for the Savings Bank. At December 31, 1998, the
Company had total assets of $665.6 million, total deposits of $438.9 million and
stockholders' equity of $52.7 million.

         On August 19, 1994,  the Board of Directors  approved the change in the
Company's fiscal year from June 30 to December 31.

                          BUSINESS OF THE SAVINGS BANK

         Third Federal, originally organized in 1921 as a Pennsylvania-chartered
building and loan association, converted to a federally chartered mutual savings
and loan  association in 1935. The Savings Bank's deposits are insured up to the
maximum amount allowable by the FDIC.

         The Savings Bank is a community oriented savings institution offering a
variety of financial  services to meet the needs of the community it serves. The
Savings Bank significantly  expanded its operations throughout  Philadelphia and
Bucks Counties,  Pennsylvania in June 1992 through its acquisition of Doylestown
Federal  Savings and Loan  Association  ("Doylestown").  On September  20, 1996,
Third Federal acquired three branch offices,  certain assets and $143 million of
deposits from Cenlar Federal Savings Bank, Trenton, New Jersey ("Cenlar").  As a
result of the Cenlar acquisition, Third Federal currently operates eleven branch
offices  in Bucks and  Philadelphia  counties,  Pennsylvania  and  three  branch
offices in Mercer County,  New Jersey.  This acquisition was consistent with the
Savings Bank's strategic goal of growing its market share within its market area
and  reaching  into  adjacent  market  areas,   through  low-cost,   fill-in  or
market-extension acquisitions.

         The Savings 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, 1998,  one- to four-family  residential
mortgage  loans totaled $152.8 million or 62.9% of the Savings Bank's total loan
portfolio.  At that same date, the Savings Bank had approximately $256.2 million
or 38.5% of total  assets  invested  in  mortgage-backed  securities  and  $89.9
million or 13.5% of total assets in investment  securities.  To a lesser extent,
the  Savings  Bank also  originates  commercial  real  estate and  multi-family,
construction and consumer loans.

Market Area

         Third  Federal  operates  five offices in  Philadelphia  County and six
offices in Bucks  County,  Pennsylvania.  These two  counties  cover the city of
Philadelphia and the northeast suburbs of Philadelphia.  The population of these
two counties  totals over 2.1  million.  The Savings  Bank also  operates  three
branch offices in Mercer County,  New Jersey. The population of Bucks and Mercer
Counties has experienced  distinctly  different  economic and demographic trends
over recent decades.  Whereas  Philadelphia  County has experienced a population
decline and has offered very  limited  lending  opportunities,  Bucks and Mercer
Counties,  with growing  populations,  have offered  Third  Federal much greater
lending opportunities.

                                        2

<PAGE>




Competition

         Third Federal faces varying  degrees of competition  from local thrifts
and credit unions at its various branch locations. Stronger competition has come
from local and much larger  regional banks based in and around the  Philadelphia
area.  Commercial  banks  hold  approximately  80%  of  the  deposit  market  in
Philadelphia  County,  68% in  Bucks  County  and 66% in  Mercer  County.  Third
Federal's share of the deposit market in Philadelphia, Bucks and Mercer Counties
is very small, at 0.83%, 2.2% and 1.87%, respectively.

Lending Activities

         General.  The  Savings  Bank's  loan  portfolio   composition  consists
primarily of conventional  adjustable-rate ("ARM") and fixed-rate first mortgage
loans  secured by one- to  four-family  residences.  The Savings Bank also makes
commercial real estate and multi-family  loans,  construction loans and consumer
and other  loans.  At December  31,  1998,  the Savings  Bank's  mortgage  loans
outstanding  were  $213.4  million,   of  which  $152.8  million  were  one-  to
four-family  residential mortgage loans. Of the one- to four-family  residential
mortgage  loans  outstanding  at that  date,  30.4%  were  ARM's and 69.6%  were
fixed-rate  loans.  Total ARM mortgage loans in the Savings Bank's  portfolio at
December 31, 1998,  amounted to $85.7 million or 40.15% of total mortgage loans.
At that same date,  commercial  real  estate and  multi-family  residential  and
construction loans totaled $55.2 million and $5.3 million, respectively.

         Consumer and other loans held by the Savings Bank totaled $29.5 million
or 12.1% of total loans outstanding at December 31, 1998, of which $13.0 million
or 5.35%  consisted  of home  equity  and  second  mortgages.  At that same date
commercial  business  loans,  leases and other loans totaled $6.7 million,  $2.3
million and $7.5 million, respectively.


                                        3

<PAGE>


         The following  table sets forth the  composition  of the Savings 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.

<TABLE>
<CAPTION>

                                                                           At December 31,
                                  --------------------------------------------------------------------------------------------------
                                        1998                1997                 1996               1995                1994
                                  ------------------   -----------------   ------------------  -----------------   -----------------
                                            Percent             Percent              Percent            Percent             Percent
                                  Amount    of Total   Amount   of Total   Amount    of Total  Amount   of Total   Amount   of Total
                                  ------    --------   ------   --------   ------    --------  ------   --------   ------   --------
                                                                       (Dollars in thousands)
<S>                              <C>         <C>      <C>       <C>       <C>        <C>      <C>        <C>     <C>        <C>
Mortgage loans:
  One- to four-family..........   $152,819    62.93%  $198,328    78.43%   $265,618    85.16% $204,430    85.00%  $ 80,862    69.70%
  Commercial real estate and                                                                                      
    multi-family...............     55,208    22.73     26,653    10.54      20,427     6.55    10,294     4.28     11,285     9.73
  Construction.................      5,352     2.20      5,052     2.00       4,720     1.51     3,604     1.50      1,534     1.32
                                   -------   ------    -------   ------     -------   ------   -------   ------    -------   ------
     Total mortgage loans....      213,379    87.86    230,033    90.97     290,765    93.22   218,328    90.78     93,681    80.75
Consumer and other loans:                                                                                         
  Home equity and second                                                                                          
    mortgage...................     12,995     5.35     12,147     4.80       9,661     3.10    10,635     4.42     11,663    10.05
  Commercial business..........      6,666     2.74      2,798     1.11       3,126     1.00     2,887     1.20      3,679     3.17
  Leases.......................      2,305     0.95      1,671     0.66       3,093     0.99     3,590     1.49      2,194     1.89
  Other........................      7,521     3.10      6,230     2.46       5,261     1.69     5,072     2.11      4,796     4.14
                                   -------   ------    -------   ------     -------   ------   -------   ------    -------   ------
     Total consumer and other                                                                                     
       loans.................       29,487    12.14     22,846     9.03      21,141     6.78    22,184     9.22     22,332    19.25
                                   -------   ------    -------   ------     -------   ------   -------   ------    -------   ------
     Total loans.............      242,866   100.00%   252,879   100.00%    311,906   100.00%  240,512   100.00%   116,013   100.00%
                                   =======   ======    =======   ======     =======   ======   =======   ======    =======   ======
Less:                                                                                                             
  Unearned discount, premium,                                                                                     
    deferred loan fees, net....        116                 139                  530                753                 647
  Allowance for loan losses....      1,909               2,029                1,806              1,484               1,473
                                   -------             -------              -------            -------             -------         
     Total loans, net.........    $240,841            $250,711             $309,570           $238,275            $113,893
                                   =======             =======              =======            =======             =======  
Mortgage-backed securities                                                                                        
held-to-maturity:                                                                                                 
  FHLMC........................   $ 47,239    26.10%  $ 76,523    53.12%   $ 90,016    58.54% $ 65,834    47.76%  $ 85,524    47.14%
  FNMA.........................     12,726     7.03     22,927    15.91      27,547    17.92    33,150    24.05     39,713    21.89
  GNMA.........................     56,318    31.12      7,483     5.19       6,043     3.93     7,644     5.55      9,358     5.16
  Real estate investment                                                                                          
    mortgage conduit...........     64,180    35.47     36,389    25.26      29,220    19.00    30,033    21.79     46,603    25.69
  Collateralized mortgage                                                                                         
    obligations................         --                  --                   --                 19     0.01        213     0.12
  Other mortgage-backed                                                                                           
    securities.................        501     0.28        752     0.52         932     0.61     1,161     0.84         --
                                   -------   ------    -------   ------     -------   ------   -------   ------    -------   ------
    Total mortgage-backed and                                                                                     
      related securities                                                                                          
      held-to-maturity.........   $180,964   100.00%  $144,074   100.00%   $153,758   100.00% $137,841   100.00%  $181,411   100.00%
                                   =======   ======    =======   ======     =======   ======   =======   ======    =======   ======
Mortgage-backed securities                                                                                        
  available-for-sale:                                                                                             
    FHLMC......................   $ 13,214    17.55%  $ 19,223    52.17%   $  8,905    40.43% $ 15,422    52.03%           
    FNMA.......................     32,178    42.74      7,863    21.34       3,240    14.71     4,010    13.53            
    GNMA.......................     10,284    13.66         --                   --                 --            
    Real estate investment                                                                                                 
      mortgage conduit.........     19,609    26.05      9,761    26.49       9,882    44.86    10,208    34.44   
                                   -------   ------    -------   ------     -------   ------   -------   ------     
      Total....................   $ 75,285   100.00%  $ 36,847   100.00%   $ 22,027   100.00% $ 29,640   100.00%  
                                   =======   ======    =======   ======     =======   ======   =======   ======     
                                                                                                                 
</TABLE>

                                        4

<PAGE>



         The following table sets forth the Savings Bank's loan originations and
loan and mortgage-backed and related securities  purchases,  sales and principal
payments for the periods indicated:

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                     ------------------------------------------------
                                                                        1998              1997                 1996
                                                                     --------           ---------            --------
                                                                                     (In thousands)
<S>                                                                <C>                 <C>                 <C>     
Total loans receivable (gross):
  At beginning of period..................................           $252,879            $311,906            $240,512
   Mortgage loans originated:
     One- to four-family..................................             24,598              52,039              64,643
     Commercial real estate and multi-family..............             10,242               6,222               8,488
     Construction.........................................              6,759               8,090              14,465
                                                                      -------             -------             -------
         Total mortgage loans originated .................             41,599              66,351              87,596
   Mortgage loans purchased:
     One- to four-family..................................             14,144              14,224              82,363
     Other non-residential................................             26,564                  --                 358
                                                                      -------             -------             -------
         Total mortgage loans purchased...................             40,708              14,224              82,721
                                                                      -------             -------             -------
   Total mortgage loans originated and purchased .........             82,307              80,575             170,317
   Consumer loans originated .............................             14,265               6,643               4,473
   Transfer of mortgage loans to real estate owned........               (159)               (249)               (242)
   Sale of loans..........................................            (19,496)            (94,925)            (19,591)
   Loans securitized......................................                 --                  --             (28,212)
   Principal repayments...................................            (86,930)            (51,071)            (55,351)
                                                                      -------             -------             -------
   Total loans receivable at end of period................           $242,866            $252,879            $311,906
                                                                      =======             =======             =======

Mortgage-backed securities:
   Held-to-maturity:
   At beginning of period.................................            144,074             153,758            $137,841
   Mortgage-backed securities purchased...................            140,929              18,972              45,349
   Mortgage-backed securities sold........................                 --                  --                  --
   Transferred to available-for-sale......................            (42,869)                 --                  --
   Amortization and repayments............................            (61,170)            (28,656)            (29,432)
                                                                      -------             -------             -------
   At end of period.......................................           $180,964            $144,074            $153,758
                                                                      =======             =======             =======

   Available-for-sale:
   At beginning of period.................................             36,847              22,027            $ 29,640
   Transferred from held-to-maturity......................             42,869                  --                  --
   Mortgage-backed securities purchased ..................             44,506              37,129               4,952
   Mortgage-backed securities sold........................            (29,512)             (4,153)             (8,943)
   Amortization and repayments............................            (19,425)            (18,156)             (3,622)
                                                                      -------             -------             -------
   At end of period.......................................           $ 75,285            $ 36,847            $ 22,027
                                                                      =======             =======             =======
</TABLE>


                                        5

<PAGE>



         Maturity  of Loans and  Mortgage-backed  and  Related  Securities.  The
following   table  sets  forth  the  maturity  of  Third   Federal's   loan  and
mortgage-backed  securities  at December  31,  1998.  The table does not include
prepayments  or  scheduled  principal  repayments.   Prepayments  and  scheduled
principal repayments on loans totaled $167.5 million for the year ended December
31,  1998.  Adjustable-  rate  mortgage  loans  are shown as  maturing  based on
contractual maturities.

<TABLE>
<CAPTION>
                                                   Commercial                                          Mortgage-
                                         One- to   Real Estate                                          Backed
                                          Four-     and Multi-                 Consume   Total Loans  and Related
                                         Family      Family     Construction   and Other  Receivable  Securities     Total
                                         -------   -----------  ------------   ---------  ----------  -----------    -----
                                                                            (In thousands)
<S>                                  <C>            <C>          <C>          <C>        <C>        <C>            <C>     
Non-performing...................       $    896      $     7      $    --     $   609    $  1,602    $     --      $  1,602  
Amounts Due:                                          
Within 3 months..................             46           --           --          70         116         344           460
3 months to 1 Year..............             260           98        4,490         710       5,558       3,437         8,995
                                                      
After 1 year:                                         
  1 to 3 years...................          6,725          370        6,486       5,196      18,777      10,981        29,758
  3 to 5 years...................          2,927        2,431           --       8,386      13,744       9,617        23,361
  5 to 10 years..................         14,284       44,706           --       7,470      66,460      31,862        98,322
  10 to 20 years.................         45,540        7,506           --       6,274      59,320      29,985        89,305
  Over 20 years..................         82,141           --           --         772      82,913     170,023       252,936
Total due after one year.........        151,617       55,013        6,486      28,098     241,214     252,468       493,682
Total amounts due................        152,819       55,208       10,976      29,487     248,490     256,249       504,739
                                                      
Less:                                                 
Allowance for loan loss..........          1,205          508           97          99       1,909          --         1,909
Loans in process.................             --           --        5,624          --       5,624          --         5,624
Deferred loan fees...............             67           --           --          49         116          --           116
                                         -------       ------       ------      ------     -------     -------       -------
    Total........................       $151,547      $54,700      $ 5,255     $29,339    $240,841    $256,249      $497,090
                                         =======       ======       ======      ======     =======     =======       =======
</TABLE>
                                                   

                                        6

<PAGE>

         The following table sets forth the dollar amount of all loans due after
December  31,  1999,  which  have  predetermined  interest  rates and which have
floating or adjustable interest rates.

                                                         Floating or
                                              Fixed       Adjustable 
                                              Rates         Rates      Total
                                             --------    ------------ -------- 
                                                       (In thousands)

One- to four-family.......................   $106,209      $46,303    $152,512
Commercial real estate and multi-family...     21,515       33,595      55,110
Construction..............................         --        6,486       6,486
Consumer and other........................     15,797       12,910      28,707
                                              -------       ------     -------
  Total...................................   $143,521      $99,294    $242,815
                                              =======       ======     =======

         One- to  Four-Family  Mortgage  Loans.  The Savings  Bank offers  first
mortgage loans secured by one- to  four-family  residences in the Savings Bank's
lending area.  Typically,  such residences are single-family homes that serve as
the primary  residence of the owner.  The Savings 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 must be provided on the amount in excess of 80%.

         Loan  originations  are  generally   obtained  from  existing  or  past
customers,  members  of the local  community,  and  referrals  from  established
builders and realtors  within the Savings  Bank's  lending area.  Mortgage loans
originated  and held by the  Savings  Bank in its  portfolio  generally  include
due-on sale clauses which provide the Savings Bank with the contractual right to
deem the  loan  immediately  due and  payable  in the  event  that the  borrower
transfers ownership of the property without the Savings Bank's consent.

         At December  31,  1998,  62.9% of mortgage  loans  consisted of one- to
four-family residential loans, of which 30.4% were ARM loans.

         The  Savings  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 1 to 2 % per  adjustment  with a lifetime  cap of 5 to 6%
over the life of the loan.  The ARM loans acquired as a result of the Doylestown
merger  adjust at the end of one or three years and adjust by a maximum of 2.00%
per adjustment with a lifetime cap of 5.00% over the life of the loan.

         The Savings Bank offers  fixed-rate  mortgage loans with terms of 10 to
30 years, which are payable monthly. The Savings Bank has continued its emphasis
on  fixed-rate  mortgage  loans with terms of 15 years or less.  Interest  rates
charged on fixed-rate  mortgage loans are  competitively  priced based on market
conditions  and the  Savings  Bank's  cost of funds.  The  origination  fees for
fixed-rate  loans were  generally  3.0% at December  31,  1998.  Generally,  the
Savings Bank's  standard  underwriting  guideline for fixed-rate  mortgage loans
conform  to the  FHLMC  and  FNMA  guidelines  and may be sold in the  secondary
market.  The  Savings  Bank has in the past  sold a  portion  of its  conforming
fixed-rate  mortgage  loans in the secondary  market to federal  agencies  while
retaining the servicing rights certain loans.

         The Savings  Bank,  however,  is  primarily a portfolio  lender.  As of
December 31, 1998,  the Savings  Bank's  portfolio of loans  serviced for others
totaled approximately $21.2 million.


                                        7

<PAGE>

         Commercial  Real Estate and  Multi-Family  Loans.  The Savings Bank has
historically  originated a limited  number of loans secured by  commercial  real
estate including  non-owner  occupied  residential  multi-family  dwelling units
(more than four units)  primarily  secured by professional  office buildings and
apartment complexes.

         The  Savings  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 Savings Bank's  philosophy to originate  commercial
real estate and  multi-family  loans only to borrowers known to the Savings Bank
and  on  properties  in  its  market  area.  The  commercial   real  estate  and
multi-family  loans in the Savings Bank's portfolio  consist of fixed-rate,  ARM
and balloon loans which were originated at prevailing  market rates for terms of
up to 20 years.  The Savings Bank's  current  policy is to originate  commercial
real estate and multi-family loans as ARM's that are generally  amortized over a
period of 15 years or as balloon  loans  which  generally  have terms of 5 to 10
years, with 20-25 year amortizations.

         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  Savings  Bank  requires  borrowers  and loan
guarantors,  if any, to provide  annual  financial  statements and rent rolls on
multi-family  loans.  At December 31, 1998,  the five  largest  commercial  real
estate and  multi-family  loans  totaled $8.3 million with no single loan larger
than $2.1  million.  At December 31,  1998,  all such loans were current and the
properties securing such loans are in the Savings Bank's market area.

         Construction  Loans.  At December 31,  1998,  the Savings Bank had $5.3
million  of  construction  loans  or  2.2%  of the  Savings  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 Savings Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate,  the Savings 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.

         Consumer  and Other Loans.  The Savings  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"), commercial business loans,
automobile  loans and student loans.  These loans totaled $29.5 million or 12.1%
of the Savings  Bank's  total loan  portfolio  at  December  31,  1998.  Federal
regulations permit federally  chartered thrift  institutions to make secured and
unsecured  consumer loans up to 35% of an institution's  assets. In addition,  a
federal thrift has lending authority above the 35% category for certain consumer
loans,  property  improvement loans, and loans secured by savings accounts.  The
Savings  Bank  originates  consumer  loans in order to  provide a wide  range of
financial  services to its  customers and because the shorter terms and normally
higher  interest  rates on such loans help maintain a profitable  spread between
its average loan yield and its cost of funds.


                                        8

<PAGE>


         In  connection  with  consumer  loan  applications,  the  Savings  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 Savings Bank. The
Savings Bank  reviews the credit  report of the borrower as well as the value of
the unit which secures the loan.

         The Savings Bank intends to continue to emphasize  the  origination  of
consumer  loans.  Consumer loans tend to be originated at higher  interest rates
than  conventional  residential  mortgage  loans  and for  shorter  terms  which
benefits  the Savings  Bank's  interest  rate gap  management.  Consumer  loans,
however,  tend to have a higher risk of default than residential mortgage loans.
At December 31, 1998, the Savings Bank had $609,000 in consumer loans delinquent
more than 90 days.

         Federal thrift  institutions are permitted to make secured or unsecured
loans for commercial,  corporate,  business or agricultural purposes,  including
the issuance of letters of credit  secured by real estate,  business  equipment,
inventories,  accounts receivable and cash equivalents.  The aggregate amount of
such loans outstanding may not exceed 10% of such institution's assets.

         The Savings Bank offers second  mortgage  loans on one- to  four-family
residences.  At December 31, 1998, second mortgage and home equity loans totaled
$13.0  million,  or 5.4% of the  Savings  Bank's  total loan  portfolio.  Second
mortgage  loans  are  offered  as  fixed-rate  loans for a term not to exceed 15
years. Such loans are only made on owner-occupied one- to four-family residences
and  are  subject  to a 75%  combined  loan to  value  ratio.  The  underwriting
standards for second mortgage loans are the same as the Savings Bank's standards
applicable to one- to four-family residential loans.

         The Savings Bank makes commercial business loans on a secured basis and
generally requires additional collateral consisting of real estate. The terms of
such loans generally do not exceed five years.  The majority of these loans have
floating interest rates which adjust with changes in market driven indices.  The
Savings Bank's  commercial  business loans primarily consist of short-term loans
for equipment,  working capital, business expansion and inventory financing. The
Savings  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, 1998, the Savings Bank had
approximately  $6.7 million  outstanding  in commercial  business  loans,  which
represented approximately 2.7% of its total loan portfolio.

         Loan Approval  Authority and Underwriting.  The Board of Directors 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 is an existing
loans[s]  to a  borrower,  the level of  approval  required  is  governed by the
proposed  total  exposure  including the new loan. A Lending Vice  President may
approve  a secured  loan up to  $250,000  and an  unsecured  loan up to  $50,000
individually.  Each In-House Loan Committee member may approve a secured loan up
to  $500,000  and an  unsecured  loan  up to  $100,000.  Any two  In-House  Loan
Committee  members  may  combine  their  secured  lending  authority  up to $1.0
million. A majority of the In-House Loan Committee members may approve a secured
loan up to $1.5 million and an unsecured  loan up to  $250,000.  Generally,  all
loans over $1.5  million,  or loans that cause the  proposed  total  exposure to
exceed $1.5 million, require approval by the Board Loan Committee.

         One-  to   four-family   residential   mortgage   loans  are  generally
underwritten according to FHLMC and FNMA guidelines. For all loans originated by
the  Savings  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.  An appraisal of the real estate intended to secure the proposed loan
is required which currently is performed by an independent  appraiser designated
and approved by the Savings Bank. The Savings Bank makes  construction/permanent
loans

                                        9

<PAGE>


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.  The independent  appraiser or loan officer  determines the stage of
completion  based upon its physical  inspection of the  construction.  It is the
Savings  Bank's policy to obtain title  insurance or a title opinion on all real
estate  first  mortgage  loans.  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 Savings
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 Savings  Bank's  maximum
loan- to-one  borrower limit was  approximately  $7.1 million as of December 31,
1998.

         At December 31, 1998, the Savings Bank's five largest aggregate lending
relationships  had balances  ranging from $6.1 to $2.5 million.  At December 31,
1998, 100% of these loans were current.

Mortgage-Backed Securities

         To supplement lending activities,  Third Federal 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,  1998,
consisted  primarily of fixed-rate  certificates issued by the Federal Home Loan
Mortgage  Corporation  ("FHLMC") ($60.4 million),  Government  National Mortgage
Association  ("GNMA"),  ($66.5 million)  Federal National  Mortgage  Association
("FNMA") ($44.8 million), real estate mortgage investment conduits ("REMICs")
($83.8 million), and other mortgage-backed securities ($500,000).

         At December 31, 1998, the carrying value of mortgage-backed  securities
totaled  $256.2  million,  or 38.5% of total  assets.  The market  value of such
securities totaled approximately $257.8 million at December 31, 1998.

         Mortgage-backed securities represent a participation interest in a pool
of single-family or multi-family mortgages,  the principal and interest payments
on which  are  passed  from the  mortgage  originators,  through  intermediaries
(generally   quasi-governmental   agencies)   that   pool  and   repackage   the
participation  interests in the form of  securities,  to  investors  such as the
Savings Bank. Such quasi-governmental  agencies,  which guarantee the payment of
principal and interest to investors, primarily include FHLMC, FNMA and GNMA.

         FHLMC  issues   participation   certificates   backed   principally  by
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate return of principal  within one year. FHLMC securities are indirect
obligations  of the  United  States  Government.  FNMA is a private  corporation
chartered  by  Congress  with a mandate  to  establish  a  secondary  market for
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest,  and FNMA  securities  are indirect  obligations  of the United States
Government.  GNMA is a government  agency  within the  Department of Housing and
Urban Development ("HUD") which is intended to help finance government

                                       10

<PAGE>


assisted housing  programs.  GNMA guarantees the timely payment of principal and
interest,  and GNMA  securities  are  backed by the full faith and credit of the
United States Government. Since FHLMC, FNMA and GNMA were established to provide
support for low- and middle-income housing, there are limits to the maximum size
of loans that  qualify for these  programs.  Currently,  GNMA limits its maximum
loan size to $240,050  for Veterans  Administration  ("VA") loans and on average
$240,050 for Federal Housing Authority ("FHA") loans. FNMA and FHLMC limit their
loans to $240,000. To accommodate  larger-sized loans, and loans that, for other
reasons, do not conform to the agency programs, a number of private institutions
have established their own home-loan origination and securitization programs.

         Mortgage-backed  securities  typically are issued with stated principal
amounts,  and the  securities  are backed by pools of mortgages  that have loans
with  interest  rates that are within a range and have varying  maturities.  The
underlying  pool of  mortgages  are  primarily  composed  of  either  fixed-rate
mortgages or adjustable-rate mortgage ("ARM") loans.  Mortgage-backed securities
are generally referred to as mortgage participation certificates or pass-through
certificates.  As a  result,  the  interest  rate  risk  characteristics  of the
underlying pool of mortgages,  i.e.,  fixed-rate or adjustable-rate,  as well as
prepayment  risk,  are  passed  on to the  certificate  holder.  The  life  of a
mortgage-backed  pass-through  security  is equal to the life of the  underlying
mortgages.  Mortgage-backed  securities issued by FHLMC, FNMA and GNMA make up a
majority of the pass-through market.

         CMOs and REMICs are typically issued by a  special-purpose  entity (the
"issuer"),  which may be organized in a variety of legal forms, such as a trust,
a corporation,  or a partnership.  The entity  aggregates  pools of pass-through
securities,  which are used to collateralize  the mortgage  related  securities.
Once  combined,  the cash flows can be divided into  "tranches"  or "classes" of
individual  securities,  thereby creating more predictable average durations for
each security than the underlying  pass-through pools.  Accordingly,  under this
security they structure all principal pay downs from the various  mortgage pools
are allocated to a mortgage-related class or classes structured to have priority
until it has been paid off.  Thus these  securities  are intended to address the
reinvestment concerns associated with mortgage-backed  securities  pass-through,
namely that (i) they tend to pay off when interest  rates fall,  thereby  taking
their relatively high coupon with them, and (ii) their expected average life may
vary significantly among the different tranches.

         Some  CMO  and  REMIC   instruments  are  most  like  traditional  debt
instruments because they have stated principal amounts and traditionally defined
interest-rate  terms.  Purchasers of certain other CMO and REMIC instruments are
entitled  to the  excess,  if  any,  of the  issuer's  cash  inflows,  including
reinvestment   earnings,   over  the  cash   outflows   for  debt   service  and
administrative   expenses.   These  mortgage  related  instruments  may  include
instruments designated as residual interests, and are riskier in that they could
result in the loss of a portion  of the  original  investment.  Cash  flows from
residual  interests are very sensitive to prepayments and, thus,  contain a high
degree of interest-rate risk. Residual interests represent an ownership interest
in the  underlying  collateral,  subject to the first lien of the CMO and REMICs
investors.

         The CMOs and REMICs held by the  Savings  Bank at  December  31,  1998,
consisted solely of fixed-rate notes and adjustable-rate  notes with contractual
maturities  ranging from .1 to 29.6 years. The portfolio of CMOs and REMICs held
within the Savings Bank's  mortgage-backed  securities portfolio at December 31,
1998, did not include any residual interests. Further, at December 31, 1998, the
Savings  Bank's  mortgage-backed   securities  portfolio  did  not  include  any
"stripped"  CMOs and REMICs,  i.e. CMOs and REMICs that pay interest only and do
not repay principal or CMOs that repay principal only and do not pay interest.


                                       11

<PAGE>


         The following table sets forth the carrying value of the Savings Bank's
mortgage-backed securities held in portfolio at the dates indicated.

<TABLE>
<CAPTION>

                                                                 At December 31,
                                                  -----------------------------------------
                                                    1998             1997           1996
                                                  ---------        ---------     ---------- 
                                                                   (In thousands)
<S>                                              <C>             <C>           <C>      
Held to maturity:
  GNMA-fixed rate.......................           $ 56,318        $  7,483      $   6,043
  FHLMC ARMs............................                269             281            364
  FHLMC-fixed rate......................             46,970          76,242         89,652
  FNMA-fixed rate.......................             12,726          22,927         27,547
  CMOs..................................                 --              --             --
  Remics................................             64,180          36,389         29,220
  Other mortgage-backed securities......                501             752            932
                                                    -------         -------        -------
   Total mortgage-backed securities.....           $180,964        $144,074       $153,758
                                                    =======         =======        =======
Mortgage-backed securities
Available-for-sale:
  FHLMC.................................           $ 13,214        $ 19,223       $  8,905
  FNMA..................................             32,178           7,863          3,240
  GNMA..................................             10,284              --             --
  Remics................................             19,609           9,761          9,882
                                                    -------          ------        -------
    Total mortgage-backed securities
      available-for-sale................           $ 75,285        $ 36,847       $ 22,027
                                                    =======         =======        =======
</TABLE>


         Mortgage-Backed Securities Maturity. The following table sets forth the
maturity  and  the  weighted  average  coupon  ("WAC")  of  the  Savings  Bank's
mortgage-backed  securities  portfolio  at December  31, 1998 The table does not
include estimated prepayments.  Adjustable-rate  mortgage-backed  securities are
shown as maturing based on contractual maturities.

<TABLE>
<CAPTION>
                                                    Contractual                         Contractual
                                                      Held to                           Available-For-
                                                     Maturity                               Sale
                                                   Maturities Due        WAC          Maturities Due         WAC
                                                   --------------        ---          --------------         ---
                                                                      (Dollars in thousands)

<S>                                                <C>                 <C>              <C>                <C> 
Less than 1 year.........................            $  2,355            6.57%            $ 1,426            6.0%
1 to 3 years.............................               8,431            6.45               2,550            7.0
3 to 5 years.............................               2,399            7.22               7,218            6.96
5 to 10 years............................              23,635            7.36               8,227            6.74
10 to 20 years...........................              27,260            6.88               2,725            6.42
Over 20 years............................             116,884            6.85              53,139            6.53
                                                      -------            ----              ------            ----
Total mortgage-backed securities.........            $180,964            6.90%            $75,285            6.60%
                                                      =======            ====              ======            ====
</TABLE>

Non-Performing and Problem Assets

         Loan Collection.  When a borrower fails to make a required payment on a
loan,  the Savings  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 Savings 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 Savings
Bank to take legal action,  which typically occurs after a loan is delinquent 90
days or more, the Savings Bank will commence foreclosure proceedings against any
real

                                       12

<PAGE>

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 sold at foreclosure.

         In the case of  commercial  real  estate and  multi-family  loans,  and
construction  loans, the Savings 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  Savings  Bank may  consider  loan  work-out
arrangements with these types of borrowers in certain circumstances.

         On mortgage loans or loan participations purchased by the Savings Bank,
the Savings 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 Savings  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 Savings Bank and its  servicing
agents.

         Delinquent Loans. Generally,  the Savings Bank reserves for uncollected
interest  on  loans  past  due 90 days or  more.  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.

         Non-Performing  Assets.  The  following  table sets  forth  information
regarding  non-accrual  loans and real estate  owned by the Savings  Bank at the
dates indicated. The Savings Bank had no loans contractually past due 90 days or
more or for which accrued interest has been recorded.  At December 31, 1998, the
Savings Bank had no restructured loans within the meaning of SFAS No. 15.

<TABLE>
<CAPTION>

                                                                                 At December 31,
                                                    ---------------------------------------------------------------------------
                                                      1998              1997            1996            1995            1994
                                                    --------          --------        ---------       ---------       ---------
                                                                              (Dollars in thousands)
<S>                                                 <C>               <C>              <C>             <C>             <C>   
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One- to four-family...........................     $  896            $  776           $  922          $  999          $  928
  Commercial real estate and multi-family.......         97                --               --              28             119
Consumer and other..............................        609               606            1,050             776             639
                                                      -----             -----            -----           -----           -----
   Total non-accrual loans......................     $1,602            $1,382           $1,972          $1,803          $1,686
                                                      =====             =====            =====           =====           =====

Real estate owned, net..........................     $  308            $  351           $  112          $  129          $  139
Other non-performing assets.....................         --                --               --              --              --
                                                      -----             -----            -----           -----           -----
Total non-performing assets.....................     $1,910            $1,733           $2,084          $1,932          $1,825
                                                      =====             =====            =====           =====           =====
Total non-accrual loans to net loans............       0.67%             0.55%            0.64%           0.76%           1.48%
                                                      =====             =====            =====           =====           =====

Total non-accrual loans to total assets.........       0.24%             0.23%            0.30%           0.37%           0.39%
                                                      =====             =====            =====           =====           =====

Total non-performing assets to total assets.....       0.29%             0.29%            0.32%           0.39%           0.42%
                                                      =====             =====            =====           =====           =====
</TABLE>


                                       13

<PAGE>


         At December  31,  1998,  the  Company 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,  1998,  the  Company  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 is  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  their  continuance  as  assets  without  the
establishment  of a specific loss reserve is not  warranted.  Assets  designated
"special  mention"by  management  are  assets  included  on the  Savings  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  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. When an insured  institution  classifies
problem  assets 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 order the  establishment  of additional
general or  specific  loss  allowances.  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.


                                       14

<PAGE>


         The  following  table  provides  further  information  in regard to the
Savings Bank's classified assets as of December 31, 1998.

                                                             At
                                                        December 31,
                                                            1998
                                                       --------------
                                                       (In thousands)

  Special mention assets....................               $    0
  Substandard...............................                2,357
  Doubtful assets...........................                    0
  Loss .....................................                    0
                                                            -----
     Total classified assets................               $2,357
                                                            =====
---------------------
(1)      Substandard assets include approximately  $447,000 of performing assets
         that are less than 90 days delinquent,  that are classified for reasons
         other than delinquency.

         Real Estate Owned. Real estate acquired by the Savings Bank as a result
of foreclosure, judgment or by deed in lieu of foreclosure is classified as real
estate owned ("REO") until it is sold.  When property is acquired it is recorded
at the lower of fair value, minus estimated cost to sell, or cost.

         The Savings Bank  records  loans as in  substance  foreclosures  if the
borrower  has  little or no equity in the  property  based  upon its  documented
current fair value and if the borrower has effectively  abandoned control of the
collateral or has continued to retain  control of the  collateral but because of
the current financial status of the borrower it is doubtful the borrower will be
able to repay the loan in the foreseeable future. In substance, foreclosures are
accounted for as loans until such time that title to the  collateral is acquired
by the Savings Bank.  There may be significant  other expenses  incurred such as
attorney and other  extraordinary  servicing  costs  involved  with in substance
foreclosures.

         Allowances  for Loan Losses and Real Estate  Acquired in  Settlement of
Loans. The Savings Bank provides valuation  allowances for estimated losses from
uncollectible   loans  and  real  estate   acquired  in   settlement  of  loans.
Management's  periodic  evaluation  of the  adequacy of the  allowance  for loan
losses is based on loss  experience,  known and inherent risk in the  portfolio,
prevailing market  conditions,  and management's  judgment as to collectibility.
The Savings  Bank's  determination  as to the amount of its  allowance  for loan
losses is  subject to review of the  federal  regulatory  agencies,  the OTS and
FDIC, which can order the  establishment of additional  general or specific loan
loss reserves. The allowance for loan losses is increased by charges to earnings
and  decreased by  charge-offs  (net of  recoveries).  The Savings Bank provides
valuation  allowances for losses on real estate  acquired in settlement of loans
based on the lower of fair value, minus estimated cost to sell, or cost.

         The  allowance for loan losses is  established  through a provision for
loan losses based on  management's  evaluation  of the risk inherent in its loan
portfolio and the general economy.  Such evaluation,  which includes a review of
all loans on which full collectibility may not be reasonably assured,  considers
among other  matters,  the estimated  fair value of the  underlying  collateral,
economic  conditions,  historical  loan loss  experience  and other factors that
warrant recognition in providing for an adequate loan loss allowance.


                                       15

<PAGE>



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

<TABLE>
<CAPTION>
                                                                                                        For the          For the
                                                                                                      Six Months          Year
                                                                                                        Ended             Ended
                                                       For the Years Ended December 31,               December 31,       June 30,
                                            -----------------------------------------------------     ------------      ---------
                                               1998           1997           1996        1995             1994            1994
                                            ----------     ----------      ---------   ----------      ----------       ---------
                                                                          (Dollars in thousands)
<S>                                        <C>             <C>           <C>          <C>             <C>                 <C>   
Balance at beginning of period......          $2,029          $1,806        $1,484       $1,473          $1,450           $1,656

Provision for loan losses...........              60             397           330           72              30             (144)
Charge-offs:
  One- to four-family...............              --              (1)           --         (48)              --               --
  Commercial and multi-family
  real estate loans.................              --              --            --           --              --              (31)
  Consumer and other loans(1).......            (180)           (173)           (8)         (13)             (7)             (31)
Recoveries:
  Commercial and multi-family
  real estate loans.................              --              --            --           --              --               --
  Consumer and other loans(1).......              --              --            --           --              --               --
                                               -----           -----         -----        -----           -----            -----

Balance at end of year(2)...........          $1,909          $2,029        $1,806       $1,484          $1,473           $1,450
                                               =====           =====         =====        =====           =====            =====

Ratio of net charge-offs during
  the period to average loans
  outstanding during the period.....            0.08%           0.06%        0.003%        0.04%           0.01%            0.04%

Ratio of allowance for loan
  losses to non-performing                                                                         
  loans at the end of the period....          119.16%          147.0%         91.6%        82.3%           87.3%            84.6%

Ratio of allowance for loan
  losses to net loans receivable
  at the end of period..............            0.79%           0.81%         0.58%        0.62%            1.3%             1.2%

Ratio of allowance for loan
  losses and foreclosed real
  estate to total non-performing                                                                   
  assets at the end of period.......          116.07%         137.33%        92.03%        76.8%            81.3%           69.4%

</TABLE>

---------------
(1)      Consumer  and other loan  charge-offs  for all  periods  presented  are
         almost solely comprised of commercial business loan losses.
(2)      Third Federal had not incurred any material charge-offs or received any
         material  recoveries  on  the  one-to  four-family  and  consumer  loan
         portfolios for any of the periods presented.

                                       16

<PAGE>



         The following  table sets forth the  allocation  of the Savings  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.  The portion
of the loan loss  allowance  allocated to each loan  category does not represent
the total  available  for future losses which may occur within the loan category
since the total loan loss  allowance is a valuation  reserve  applicable  to the
entire loan portfolio.

<TABLE>
<CAPTION>

                                                                          At December 31,
                              ------------------------------------------------------------------------------------------------------
                                     1998                 1997                 1996                  1995                1994
                              --------------------  -------------------   -----------------    ------------------   ----------------
                                         Percent              Percent              Percent               Percent            Percent 
                                         of Loans             of Loans             of Loans              of Loans           of Loans
                                         to Total             to Total             to Total              to Total           to Total
                               Amount     Loans     Amount     Loans      Amount    Loans      Amount     Loans     Amount   Loans  
                               ------    --------   ------    --------    ------   --------    ------    --------   ------  --------
                                                                                                                           
                                                                      (Dollars in thousands)
<S>                            <C>        <C>      <C>         <C>      <C>       <C>        <C>         <C>      <C>        <C>  
At end of period
 allocated to:
One- to four-family.......      $1,205      62.9%    $1,503      78.4%    $1,330    73.7%      $1,042      85.1%    $  990     67.2%
Commercial real estate
 and multi-family.........         508      22.8        202      10.5        102     5.7           46       4.1        134      9.1
Construction..............          97       2.2         37       2.0         24     1.3           24       1.6          8      0.5
Consumer and
  other loans.............          99      12.1        287       9.1        350    19.3          372       9.2        341     23.2
                                 -----     -----      -----     -----      -----   -----        -----     -----      -----    -----
Total allowance...........      $1,909     100.0%    $2,029     100.0%    $1,806   100.0%      $1,484     100.0%    $1,473    100.0%
                                 =====     =====      =====     =====      =====   =====        =====     =====      =====    =====
</TABLE>

                                       17

<PAGE>



Analysis of the Allowance for Real Estate Owned

                                                       At December 31,
                                            ------------------------------------
                                                1998        1997         1996
                                            -----------  -----------  ----------
                                                    (Dollars in thousands)
Total real estate owned and in
  judgment.............................         $308         $359         $116
                                                 ===          ===          ===

Allowance balances - beginning.........            8            3           --

Provision..............................           --            5            3

Charge-offs............................            8           --           --
                                                 ---          ---          ---

Allowance balances - ending............         $  0         $  8         $  3
                                                 ===          ===          ===

Allowance for losses on real
estate owned and in judgment
to net real estate owned and in
judgment...............................            0%         2.2%         2.5%
                                                 ===          ===          ===


Investment Activities

         The investment  policy of the Savings Bank, which is established by the
Board of Directors and implemented by the Asset Liability Committee, 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 Savings Bank's lending activities. In establishing its investment
strategies,  the Savings  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.



                                       18

<PAGE>


         The  following  table  sets forth  certain  information  regarding  the
amortized cost and market values of the Savings Bank's  investments at the dates
indicated.

<TABLE>
<CAPTION>

                                                                               At December 31,
                                         -------------------------------------------------------------------------------------------
                                                     1998                            1997                             1996
                                           -----------------------        -------------------------       --------------------------
                                           Amortized       Market         Amortized         Market          Amortized        Market
                                             Cost          Value            Cost            Value            Cost            Value
                                           ---------      --------        ---------        --------        ---------       ---------
                                                                               (In thousands)
<S>                                       <C>            <C>             <C>              <C>              <C>            <C>     
Interest-earning deposits.........         $ 19,267       $ 19,267        $ 25,628         $ 25,628         $ 38,120       $ 38,120
                                            =======        =======         =======          =======          =======        =======
                                          
Investment securities held-to- maturity:  
  U.S. government and agency              
    obligations...................         $ 73,612       $ 73,747        $ 50,278         $ 50,433         $ 34,976       $ 34,854
  State and political                     
    subdivisions..................            4,283          4,361           2,544            2,593            3,068          3,040
  Corporate debt securities.......            3,000          2,986               0                0              500            499
                                            -------        -------         -------          -------          -------        -------
    Total.........................         $ 80,895       $ 81,094        $ 52,822         $ 53,026         $ 38,544       $ 38,393
                                            =======        =======         =======          =======          =======        =======
                                          
Securities available-for-sale:            
  U.S. government and agency              
    obligations...................         $  8,000       $  8,045        $ 31,254         $ 31,327         $ 11,976       $ 12,015
  Corporate Debt                          
     Securities...................              500            500              --               --               --             --
  Equity securities                       
    (SLMA stock)..................               --             --              10              210               10            139
  Mutual funds....................              500            497             500              500              500            498
                                            -------        -------         -------          -------          -------        -------
    Total.........................         $  9,000       $  9,042        $ 31,764         $ 32,037         $ 12,486       $ 12,652
                                            =======        =======         =======          =======          =======        =======

</TABLE>


                                       19

<PAGE>


Investment Portfolio Maturities

         The  following  table  sets forth  certain  information  regarding  the
carrying  values,  weighted  average yields and maturities of the Savings Bank's
investment  securities  portfolio,  exclusive of interest-earning  deposits,  at
December 31, 1998.

<TABLE>
<CAPTION>
                                      One Year            One to            Five to          More than              Total    
                                      or Less           Five Years         Ten Years         Ten Years     Investment Securities(2)
                                 -----------------  -----------------  ----------------  ----------------  ------------------------
                                 Carrying  Average  Carrying  Average  Carrying Average  Carrying Average  Carrying Average  Market
                                   Value    Yield     Value    Yield    Value    Yield    Value    Yield    Value    Yield   Value
                                   -----    -----     -----    -----    -----    -----    -----    -----    -----    -----   -----
                                                                         (Dollars in thousands)
<S>                              <C>       <C>      <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>    
U.S. government obligations...    $    --      --%   $ 5,037    6.25%  $    --      --%   $   --      --%  $ 5,037    6.25%  $ 5,130
U.S. agency obligations.......     32,829    5.04     23,544    6.15    18,247    6.22     2,000    8.33    76,620    5.75    76,662
Municipal obligations.........         --     --         425    4.50       830    4.46     3,028    5.19     4,283    4.98     4,361
Corporate obligations.........        500    2.25      3,000    5.50        --      --        --      --     3,500    5.04     3,486
Other securities(1)...........        497    5.58         --      --        --      --        --      --       497    5.58       497
                                   ------    ----     ------    ----    ------   -----     -----  ------  --------   -----   -------
  Total.......................    $33,826    5.01%   $32,006    6.08%  $19,077    6.14%   $5,028   6.44%   $89,937   5.71%   $90,136
                                   ======    ====     ======    ====    ======    ====     =====   ====     ======   ====     ======
</TABLE>


------------
(1)      Other   securities   consists  of  an  investment  in   adjustable-rate
         mortgage-backed securities mutual funds. Such investments do not have a
         stated  maturity and are  considered  in the one year or less  category
         based on quarterly repricing of the investment.
(2)      Includes $9.0 million of U.S.  government  and agency  obligations  and
         other investments which are carried as  available-for-sale  at December
         31,  1998.  Investment  securities  available-for-sale  are  carried at
         market value.

                                       20

<PAGE>


Sources of Funds

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

         Deposits.  The Savings Bank offers a variety of deposit accounts having
a range of interest  rates and terms.  The Savings  Bank's  deposits  consist of
regular savings,  non-interest bearing checking, NOW checking, money market, and
certificate accounts. Of the deposit accounts, $32.3 million or 7.37% consist of
IRA, Keogh or SEP retirement accounts at December 31, 1998.

         The flow of deposits is influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.  The Savings  Bank's  deposits are  primarily  obtained  from areas
surrounding  its  offices,  and the Savings  Bank relies  primarily  on customer
service and  long-standing  relationships  with  customers to attract and retain
these  deposits.  The Savings 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,
1998, core deposits amounted to 56.87% of total deposits.


                                       21

<PAGE>



         The following  table sets forth the  distribution of the Savings Bank's
deposit  accounts  at the  dates  indicated  and the  weighted  average  nominal
interest rates on each category of deposits presented. The Savings Bank does not
have a significant amount of deposits from out-of state sources. Management does
not  believe  that the use of year end  balances  instead  of  average  balances
resulted in any material difference in the information presented.

<TABLE>
<CAPTION>

                                                                            At December 31,
                                   -------------------------------------------------------------------------------------------------
                                                 1998                            1997                             1996
                                   --------------------------------  -----------------------------    ------------------------------
                                                           Weighted                       Weighted                         Weighted
                                                Percent    Average              Percent   Average               Percent     Average
                                                of Total    Nominal             of Total  Nominal               of Total    Nominal
                                    Amount      Deposits     Rate     Amount    Deposits    Rate      Amount    Deposits     Rate
                                    ------      --------   --------  --------   --------  --------   --------   --------   --------

                                                                         (Dollars in thousands)
<S>                                <C>         <C>        <C>       <C>         <C>       <C>      <C>          <C>       <C>  
Transaction accounts:
  Interest-bearing checking
   accounts..................       $ 44,971     10.25%      1.12%   $ 40,360      9.00%    1.01%    $ 42,513       9.06%     0.98%
  Money market accounts......         32,556      7.42       3.37      32,777      7.28     3.32       29,970       6.39      3.54
  Non-interest-bearing
 checking accounts...........          6,231      1.42         --       5,037      1.12       --        3,741       0.80        --
                                     -------    ------                -------    ------               -------      -----
Total transaction accounts...         83,758     19.09                 78,174     17.35                76,224      16.25

Fixed-rate passbook accounts.        122,213     27.84       2.50     122,952     27.30     2.50      127,213      27.12      3.00
Adjustable-rate passbook
 accounts....................         43,651      9.95       4.13      51,277     11.38     4.97       60,452      12.89      4.88
                                     -------    ------                -------     -----               -------     ------    
      Total..................        165,864     37.79                174,229     38.68               187,665      40.01
                                     -------    ------                -------     -----               -------     ------
Certificate accounts:
  90-day certificates........          1,350      0.31       3.41       1,340      0.30     3.49        2,354       0.50      3.96
  Six-month certificates.....         29,257      6.66       4.03      10,743      2.38     4.04       18,861       4.02      4.44
  Seven-month certificates...            203      0.05       3.92         480      0.11     4.27        3,555       0.76      4.93
  Eight-month certificates...             61      0.01       5.40      33,155      7.38     5.49           --         --        --
  Nine-month certificates....          3,824      0.87       4.40       2,936      0.65     4.07       13,116       2.80      4.96
  Ten-month certificates.....         11,881      2.71       5.20       3,300      0.73     4.33       19,341       4.12      5.29
  One-year certificates......         36,288      8.26       4.68      19,599      4.35     4.69       55,586      11.85      5.28
  15-month certificates......         16,365      3.73       5.63      28,433      6.31     5.70        1,450       0.31      5.54
  17-month certificates......             --        --         --       5,770      1.28     5.74        8,801       1.88      5.53
  18-month certificates......          3,966      0.90       4.80       6,807      1.51     5.50        5,052       1.08      4.83
  21-month certificates......            166      0.04       4.44         256      0.06     5.07          677       0.14      5.20
  Two-year certificates......         22,774      5.19       5.22      30,445      6.76     5.84       22,632       4.82      5.65
  25-month certificates......          7,683      1.75       5.00      12,537      2.78     5.91        8,666       1.85      5.81
  30-month certificates......          5,385      1.23       4.86       6,419      1.42     5.06        8,539       1.82      5.45
  Three-year certificates....         29,228      6.66       5.80      10,780      2.39     5.85        9,628       2.05      5.55
  Four year certificates.....          2,434      0.55       5.57       2,575      0.57     5.66        2,645       0.56      5.48
  54 month certificates......          2,995      0.68       5.41       1,974      0.44     5.92        1,975       0.42      5.83
  Five year certificates.....         13,722      3.13       5.58      18,341      4.07     5.49       19,356       4.13      5.35
  Six-year certificates......            210      0.05       5.48         165      0.04     5.48          211       0.04      5.34
  Seven-year certificates....             --        --         --           1        --     7.40            1         --      7.30
  Eight-year certificates....             91      0.02       5.92          88      0.02     5.92           99       0.02      5.80
  10-year....................            800      0.18       6.50       1,072      0.24     7.71        1,398       0.30      7.85
  Jumbo certificates(1)......            608      0.14       6.39         810      0.18     5.00        1,256       0.27      5.40
                                     -------    ------       ----     -------     -----     ----      -------      -----     -----
     Total certificate accounts      189,291     43.12       5.02     198,026     43.97     5.38      205,199      43.74      5.30
                                     -------    ------       ----     -------     -----     ----      -------      -----     -----
Total deposits...............       $438,913    100.00%      3.66%   $450,429    100.00%    3.95%    $469,088     100.00%     4.08%
                                     =======    ======       ====     =======    ======     ====      =======     ======      ====
</TABLE>


(1) The  $608,000 in jumbo  certificates  of deposit  shown at December 31, 1998
does not  include  certificate  deposits  in excess of  $100,000  with  interest
compounded  on a daily  basis.  The jumbo  certificate  category  includes  only
certificate  deposits in excess of  $100,000  with  simple  interest  paid on an
annual basis at a premium of .25% over posted interest rates.

                                       22

<PAGE>


         At December 31, 1998, the Savings Bank had outstanding  certificates of
deposit in amounts of $100,000 or more maturing as follows:

                                                         Amount            
                                                     --------------
          Maturing Period                            (In thousands)
          ---------------
          Three months or less....................       $ 2,696
          Over three through six months...........         2,633
          Over six through 12 months..............         3,139
          Over 12 months..........................         4,785
                                                          ------
              Total...............................       $13,253
                                                          ======
          

         The following table presents, by various rate categories, the amount of
time deposits  outstanding at December 31, 1998,  1997 and 1996, and the periods
to maturity of the certificate accounts outstanding at December 31, 1998.

<TABLE>
<CAPTION>
                                          Period to Maturity from
                                             December 31, 1998
                                  ---------------------------------------- 
                                    Within                                                     At December 31,
                                      One         One to                        ------------------------------------------
                                     Year       Three Years     Thereafter         1998           1997             1996 
                                  ----------    ------------    ----------      -----------    ----------      -----------
                                                                      (In thousands)
<S>                               <C>           <C>            <C>            <C>            <C>              <C>     
Time deposits:
  2.00% to 2.99%..........         $     --       $    --         $   --         $     --       $     18         $     17
  3.00% to 3.99%..........           22,430           394             --           22,824         16,897            2,927
  4.00% to 4.99%..........           47,736         8,922          1,075           57,733         37,455           61,355
  5.00% to 5.99%..........           59,853        27,528          6,829           94,210        136,860          129,935
  6.00% to 6.99%..........            2,666        10,790            592           14,048          5,944            9,633
  7.00% to 7.99%..........               39            95             74              208            314              628
  8.00% to 8.99%..........              221            --             --              221            453              596
  9.00% to 9.99%..........               47            --             --               47             85              108
                                    -------        ------          -----          -------        -------          -------
       Total..............         $132,992       $47,729         $8,570         $189,291       $198,026         $205,199
                                    =======        ======          =====          =======        =======          =======

</TABLE>

                                       23

<PAGE>

Borrowings

         Deposits are the primary  source of funds of the Savings Bank's lending
and investment  activities and for its general  business  purposes.  The Savings
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 Savings  Bank's stock in the FHLB of  Pittsburgh  and a portion of
the Savings Bank's first  mortgage  loans and certain other assets.  The Savings
Bank,  if the need arises,  may also access the Federal  Reserve  Bank  discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements.  The  following  table sets forth the  maximum  month-end  balance
period and 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,
                                       ----------------------------------
                                         1998         1997          1996
                                       --------     --------      ------- 
                                             (Dollars in thousands)

FHLB advances......................    $163,359     $88,359       $98,359
                                        =======      ======        ======


Weighted average interest rate.....        5.77%       6.03%         5.98%




                                                Years Ended December 31,
                                        --------------------------------------- 
                                          1998           1997           1996
                                        --------       --------       --------
                                                 (Dollars in thousands)
Maximum balance of
 FHLB advances outstanding........      $163,359       $ 98,359       $ 98,359
                                         =======        =======        =======
Weighted average balance of
FHLB advances outstanding.........      $163,359       $ 97,837       $ 89,343
                                         =======        =======        =======
Weighted average interest rate
of FHLB advances..................          5.77%           6.0%          5.99%
                                         =======        =======        =======


Subsidiary Activity

         Third  Federal  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,  1998,  Third  Federal  was  authorized  to  invest  up to
approximately  $13.4 million in the stock of, or loans to, service  corporations
(based upon the 2%  limitation).  At December 31, 1998, the Savings Bank had one
active subsidiary.

Personnel

         As of December 31,  1998,  the Savings  Bank had 137  full-time  and 12
part-time  employees.  None of the Savings Bank's employees are represented by a
collective  bargaining  group.  The Savings Bank believes that its  relationship
with its employees is good.

                                       24

<PAGE>


Executive Officers of the Registrant

         Executive  Officers of the Savings Bank and Company (these  individuals
have held their respective positions with the Company since March 1994):

         Carl F. Gregory is Chairman of the Savings Bank.  Mr. Gregory was Chief
Executive  Officer of the Savings  Bank and of the Company from April 1982 until
December 1994. He has been with the Savings Bank since 1962 and will continue to
represent Third Federal  throughout the communities that the Savings Bank serves
in his role as Chairman of the Savings Bank and Director of the Company.

         John R.  Stranford  has been  with the  Savings  Bank  since  1968.  He
presently serves as President,  Chief Executive Officer, Chief Operating Officer
and Director of the Savings Bank and Company.  Mr. Stranford has served as Chief
Operating  Officer of the Savings  Bank since 1984 and  President of the Savings
Bank since January 1994.  Prior to that time he served in various  capacities as
an officer of the Savings Bank.

         William C. Niemczura has been with the Savings Bank as an officer since
1987. Prior to his current position as Senior Vice President and Chief Financial
Officer, Mr. Niemczura was Assistant Vice President and Vice  President-Lending.
Mr. Niemczura is Senior Vice President, Treasurer and Chief Financial Officer of
the Company.

         Elizabeth  Davidson Maier is Senior Vice President and Secretary of the
Savings Bank and the Company and has been with the Savings Bank since 1964.  Ms.
Maier has been an officer of the Savings Bank since 1974. Prior to that, Ms.
Maier held various positions at the Savings Bank.

         The remaining  information relating to Directors and Executive Officers
of the Registrant is incorporated  herein by reference to the Registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders.

                                   REGULATION

         Set  forth  below  is a brief  description  of all  material  laws  and
regulations  which relate to the regulation of the Savings 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.

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,  should such subsidiaries
be formed,  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 Savings 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.

         QTL Test. As a unitary  savings and loan holding  company,  the Company
generally  is not subject to activity  restrictions,  provided  the Savings Bank
satisfies  the QTL test.  If the  Company  acquires  control of another  savings
association  as a separate  subsidiary,  it would become a multiple  savings and
loan

                                       25

<PAGE>


holding  company,  and the activities of the Company and any of its subsidiaries
(other  than the Savings  Bank or any other  SAIF-insured  savings  association)
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.

Savings Bank Regulation

         General. As a federally  chartered,  SAIF-insured  savings association,
the Savings  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 Savings  Bank is also  subject to
certain reserve requirements promulgated by the Federal Reserve Board.

         The OTS, in conjunction with the FDIC,  regularly  examines the Savings
Bank and prepares  reports for the  consideration of the Savings Bank's Board of
Directors on any deficiencies  that they find in the Savings Bank's  operations.
The Savings  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 Savings  Bank's
mortgage documents.

         The Savings Bank must file reports with the OTS and the FDIC concerning
its  activities  and financial  condition,  in addition to obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF 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 Savings 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.

         Insurance of Deposit Accounts.  The Savings Bank's deposit accounts are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law  and  regulation).  The  FDIC  has  the  authority,  should  it  initiate
proceedings  to terminate an  institution's  deposit  insurance,  to suspend the
insurance  of any such  institution  without  tangible  capital.  However,  if a
savings association has positive capital when it includes qualifying  intangible
assets,  the FDIC cannot  suspend  deposit  insurance  unless  capital  declines
materially, the institution fails to enter into and remain in compliance with an
approved  capital plan or the  institution  is operating in an unsafe or unsound
manner.

         Regardless of an institution's capital level, insurance of deposits may
be  terminated  by the FDIC upon a finding that the  institution  has engaged in
unsafe or unsound  practices,  is in an unsafe or unsound  condition to continue
operations  or has violated  any  applicable  law,  regulation,  rule,  order or
condition  imposed  by the  FDIC or the  institution's  primary  regulator.  The
management  of the  Savings  Bank  is  unaware  of any  practice,  condition  or
violation that might lead to termination of its deposit insurance.

         The FDIC  charges an annual  assessment  for the  insurance of deposits
based on the risk a particular  institution poses to its deposit insurance fund.
This  risk  classification  is  based  on an  institution's  capital  group  and
supervisory subgroup assignment.


                                       26

<PAGE>


         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.

         The following  table sets forth the Savings Bank's  compliance with its
regulatory capital requirements as of December 31, 1998:


                                                       Amount          Percent
                                                       ------          -------
                                                       (Dollars in thousands)

Tangible capital.............................         $45,034           6.79%
Tangible capital requirement.................           9,943           1.50
                                                       ------          -----

Excess over requirement......................         $35,091           5.29%
                                                       ======          =====

Core Capital.................................         $45,034           6.79%
Core Capital requirement.....................          26,515           4.00
                                                       ------          -----

Excess over requirement......................         $18,519           2.79%
                                                       ======          =====

Risk-based capital...........................         $46,943          17.73%
Risk-based capital requirement...............          21,178           8.00
                                                       ------          -----

Excess over requirement......................         $25,765           9.73%
                                                       ======          =====


         Dividend and Other Capital  Distribution  Limitations.  OTS regulations
require the Savings Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory  powers to prohibit  the payment of  dividends  to the  Company.  In
addition, the Savings 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
Savings  Bank  below the  amount  required  for the  liquidation  account  to be
established pursuant to the Savings Bank's Plan of Conversion.

         In January 1999, the OTS issued an amendment to its current regulations
with  respect to capital  distributions  by savings  associations.  The  amended
regulations will be effective April 1, 1999.  Under the new regulation,  savings
associations  that would remain at least  adequately  capitalized  following the
capital distribution,  and that meet other specified requirements,  would not be
required to file a notice or application for capital distributions (such as cash
dividends) declared below specified amounts.  Under the new regulation,  savings
associations  which are  eligible  for  expedited  treatment  under  current OTS
regulations are not required to file a notice or 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 years.  Thus,  under the new  regulation,  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

                                       27

<PAGE>


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  that is a  subsidiary  of a savings and loan holding  company,  and
under  certain other  circumstances,  will be required to file a notice with OTS
prior to making the capital  distribution.  The new OTS  limitations  on capital
distributions are similar to the limitations imposed upon national banks.

         Qualified  Thrift Lender Test.  The Home Owners' Loan Act ("HOLA"),  as
amended,  requires savings  institutions to meet a QTL test. If the Savings 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
FDICIA also amended the method for measuring  compliance with the QTL test to be
on a monthly  basis in nine out of every 12 months,  as opposed to on a daily or
weekly  average of QTIs.  As of  December  31,  1998,  the  Savings  Bank was in
compliance with its QTL requirement with 83.0% of its assets invested in QTIs.

         A savings association that does not meet a QTL test must either convert
to a bank charter or comply with the following  restrictions  on its operations:
(i) the savings  association  may not engage in any new activity or make any new
investment,  directly or  indirectly,  unless such  activity  or  investment  is
permissible  for a  national  bank;  (ii) the  branching  powers of the  savings
association  shall be restricted to those of a national bank;  (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of  dividends by the savings  association  shall be subject to the rules
regarding  payment of dividends by a national bank. Upon the expiration of three
years from the date the  savings  association  ceases to be a QTL, it must cease
any activity and not retain any investment not  permissible  for a national bank
and  immediately  repay any  outstanding  FHLB  advances  (subject to safety and
soundness considerations).

         Liquidity  Requirements.  All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At the present  time,  the required  liquid
asset ratio is 4%. At December 31, 1998, the Savings Bank's  liquidity ratio was
28.69%.

         Federal Home Loan Bank System. The Savings Bank is a member of the FHLB
of  Pittsburgh,  which is 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 Savings  Bank is required  to purchase  and  maintain
stock  in the  FHLB of  Pittsburgh  in an  amount  equal  to at  least 1% of its
aggregate unpaid residential  mortgage loans, home purchase contracts or similar
obligations  at the  beginning of each year.  At December 31, 1998,  the Savings
Bank  had  $9.2  million  in FHLB  stock,  which  was in  compliance  with  this
requirement.

                                       28

<PAGE>


         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, 1998, the Savings Bank's total transaction accounts required a reserve level
of $1,788,000 which was entirely offset by the Bank's vault cash on hand.

         Savings  associations have authority to borrow from the Federal Reserve
Bank "discount  window," but Federal Reserve policy  generally  requires savings
associations  to exhaust  all OTS  sources  before  borrowing  from the  Federal
Reserve System. The Savings Bank had no such borrowings at December 31, 1998.

Item  2.  Description of Property
---------------------------------

         The  Company is located and  conducts  its  business at 3 Penns  Trail,
Newtown,  Pennsylvania.  The Savings Bank  operates  from its main office and 13
branch offices located in  Philadelphia  and Bucks  Counties,  Pennsylvania  and
Mercer County, New Jersey. The Savings Bank also owns two lots, one of which has
a building,  behind its Doylestown  branch  office.  The building is leased to a
third-party  and the other is used as a parking lot for employees and tenants of
Third  Federal.  The net book value of the two lots was $102,000 at December 31,
1998.  In addition,  the Savings Bank owns a vacant lot at Newtown  Yardley Road
and Friends  Lane,  Newtown,  Pennsylvania.  This lot was  purchased in 1993 for
future expansion and had a net book value of $1.1 million at December 31, 1998.

         The  following  table  sets forth  certain  information  regarding  the
Savings Bank's properties:

<TABLE>
<CAPTION>
                               Leased or                                           Leased or
    Location                     Owned                  Location                     Owned
------------------            ------------        ------------------             --------------         
<S>                           <C>               <C>                              <C>
MAIN OFFICE                                      
  Newtown Office
  3 Penns Trail
  Newtown, PA 18940               Owned


 BRANCH OFFICES                                  
  Frankford Office                                Newtown Office
  4625 Frankford Avenue                           950 Newtown Yardley Road
  Philadelphia, PA 19124          Owned           Newtown, PA 18940                 Leased


  Princeton Office                                Ewing Office
  Princeton Shopping Center                       2075 Pennington Road
  301 N. Harrison Street          Leased          Trenton, NJ 08618                  Owned
  Princeton, NJ 08540

</TABLE>


                                       29

<PAGE>

<TABLE>
<CAPTION>
                               Leased or                                           Leased or
    Location                     Owned                  Location                     Owned
  ----------------            ------------        ------------------             --------------         
<S>                           <C>                <C>                              <C>
  Hamilton Office                                  Mayfair Office                 
  1850 Route 33                                    Roosevelt Blvd. at Unruh
  Hamilton Square, NJ 08690      Owned             Philadelphia, PA 19149             Owned


  Fishtown Office                                  Doylestown Office
  York & Memphis Streets                           60 North Main Street
  Philadelphia, PA 19125         Owned             Doylestown, PA 18901               Owned

  Cross Keys Office                                Administrative Office
  834 North Easton Highway                         62 Walker Lane
  Doylestown, PA 18901           Owned             Newtown, PA 18940(1)               Owned

  Woodhaven Office
  Knights Road Center                              Warminster Office
  4014 Woodhaven Road                              601 Louis Drive
  Philadelphia, PA 19154         Leased            Warminster, PA 18974               Leased

  Bridgesburg Office                               Feasterville Office
  Orthodox & Almond Streets                        Buck Hotel Complex
  Philadelphia, PA 19137         Owned             Feasterville, PA 19053             Leased


  New Britain Office
  100 Town Center
  New Britain, PA 18901          Leased

</TABLE>
------------------------
(1)      This  office  serves  as  administrative   offices,  check  processing,
         training  center,  mail  processing  and storage center for the Savings
         Bank


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, which 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.

                                       30

<PAGE>


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

         Information  relating to the market for Registrant's  common equity and
related  stockholder  matters  appears under "Stock Market  Information"  in the
Registrant's  1998  Annual  Report  to  Stockholders  on  pages 2 and 3,  and is
incorporated herein by reference.

Item 6.  Selected Financial Data
--------------------------------

         The  above-captioned  information appears under "Selected Financial and
Other Data" in the  Registrant's  1998 Annual Report to  Stockholders on pages 4
and 5, and is incorporated herein by reference.


                                       31

<PAGE>


Item 7. Management's Discussion and Analysis of Financial Conditions and Results
        of Operations
--------------------------------------------------------------------------------

Rate/Volume Analysis

         The table below sets forth  certain  information  regarding  changes in
interest  income  and  interest  expense  of the  Savings  Bank for the  periods
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
volume (changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate  multiplied  by old  average  volume);  (iii) total  changes in
rate-volume.  The  combined  effects of changes in both  volume and rate,  which
cannot be separately  identified,  have been  allocated  proportionately  to the
change due to volume and the change due to rate.

<TABLE>
<CAPTION>

                                       Years Ended                        Years Ended                     Years Ended
                                 ------------------------            -----------------------         ----------------------     
                                 December 31  December 31            December 31 December 31         December 31,  June 30
                                     1998  vs   1997                     1997  vs  1996                  1996   vs  1995
                                 ------------------------            -----------------------         ----------------------
                                    Increase (Decrease)                Increase (Decrease)             Increase (Decrease)
                                          Due to                             Due to                          Due to
                                   --------------------               --------------------             ------------------  
                                     Volume     Rate        Net        Volume        Rate      Net      Volume     Rate        Net
                                    --------   -------    --------    ---------    -------   --------  ---------  -------   --------
                                                                               (In thousands)
<S>                                <C>        <C>       <C>          <C>          <C>      <C>       <C>         <C>      <C>    
Interest income:                                                               
 Loans receivable...............     (4,810)      417      (4,393)     $ (510)        443       (67)   $11,645     $ (30)   $11,615
 Mortgage-backed securities(1)..      3,483       360       3,843       1,443          31     1,474       (699)     (137)      (836)
 Investment securities(1).......      1,053       182       1,235       2,887          68     2,955       (982)       --       (982)
 Securities purchased under
 agreements to resell...........                                          325          70       395         --        --         --
 Other interest-earning assets..         91      (386)       (295)        443       (1000)     (557)       (14)     (424)      (438)
                                     ------    ------      ------       -----       -----    ------      ------     -----    ------

    Total interest-earning assets   $  (183)  $   573     $   390      $4,588      $ (388)   $4,200     $ 9,950    $(591)   $ 9,359
                                     ======    ======      ======       =====       =====     =====      ======     =====    ======
Interest expense:
 Savings deposits...............    $   325   $(1,139)    $  (814)     $2,922      $  550    $3,472     $ 1,734    $(363)   $ 1,371
 Borrowed money.................      2,734       195       2,929         145        (334)     (189)      4,866       157     5,023
                                     ------    ------      ------       -----       -----     -----      ------     -----    ------
    Total interest bearing
      liabilities...............    $ 3,059      (944)    $ 2,115      $3,067         216    $3,283     $ 6,600    $(206)   $ 6,394
                                     ======    ======      ======       =====       =====    ======      ======     =====    ======

Net change in interest income...    $(3,242)    1,517     $(1,725)     $1,521        (604)   $  917     $ 3,350    $(385)   $ 2,965
                                     ======    ======      ======       =====       =====     =====      ======     =====    ======

</TABLE>

------------------------
(1)  Includes interest income on investment securities held-for-sale.


                                       32

<PAGE>


         The remaining  above-captioned  information  appears under Management's
Discussion and Analysis of Financial  Condition and Results of Operations in the
Registrant's  1998  Annual  Report to  Stockholders  on pages 6 through 8 and is
incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------

Asset and Liability Management

         Managing  Interest  Rate  Risk.  Interest  rate risk is  defined as the
sensitivity of the Company's  current and future earnings as well as its capital
to  changes  in the level of market  interest  rates.  The  Bank's  exposure  to
interest  rate  risk  results  from,  among  other  things,  the  difference  in
maturities in interest-earning  assets and interest-bearing  liabilities.  Since
the Bank's assets  currently have a longer  maturity than its  liabilities,  the
Bank's earnings could be negatively  impacted during a period of rising interest
rates and conversely,  positively  impacted during a period of falling  interest
rates.  The  relationship  between the interest rate  sensitivity  of the Bank's
assets and liabilities is continually  monitored by management.  In this regard,
the Bank  emphasizes the  origination of shorter term or adjustable  rate assets
for portfolio  while  originating  longer term fixed rate assets for resale.  At
December  31,  1998,  approximately  84.73% of the Bank's  loan  portfolio  were
comprised  of loans  with  original  maturities  of less than 15 years,  balloon
mortgages or adjustable rate loans. Additionally, the origination level of fixed
rate assets are continually  monitored and if deemed appropriate,  the Bank will
enter into forward  commitments  for the sale of these assets to ensure the Bank
is not exposed to undue interest rate risk.

         The Bank utilizes its investment and mortgage-backed security portfolio
in managing  its  liquidity  and  therefore  seeks  securities  with a stated or
average  estimated  maturities  of less than five years.  These  securities  are
readily  marketable  and  provide the Bank with a cash flow stream to fund asset
growth or liability maturities.

         A  significant  portion of the Bank's  assets has been  funded with CDs
including jumbo CDs. Unlike other deposit  products such as checking and savings
accounts,  CDs carry a high degree of interest rate  sensitivity  and therefore,
their  renewal  will vary based on the  competitiveness  of the Bank's  interest
rates.  The Bank has attempted to price its CDs to be competitive at the shorter
maturities (i.e., maturities of less than one year) in order to better match the
repricing   characteristics   of   portfolio   loans.   At  December  31,  1998,
approximately 43.13% of the Bank's deposits were CDs.

         The Bank  utilizes  borrowings  from the FHLB in managing  its interest
rate risk and as a tool to augment  deposits in funding asset  growth.  The Bank
may utilize  these  funding  sources to better  match its longer term  repricing
assets (i.e., between one and five years).

         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, 1998,
the Bank did not have any hedging  transactions  in place such as interest  rate
swaps, caps, or floors.


                                       33

<PAGE>


         GAP analysis is a useful measurement of asset and liability management.
However,  it is difficult to predict the effect of changing interest rates based
solely on this measure. An additional analysis required by the OTS and generated
quarterly  is the OTS  Interest  Rate  Exposure  Report.  This report  forecasts
changes  in  the  Bank's  market  value  of  portfolio   equity  ("MVPE")  under
alternative  interest rate environments.  The MVPE 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 MVPE at December 31, 1998 are
as follows:

                                      MVPE
--------------------------------------------------------------------------------
                                  Amount
Change in Interest Rate       (In Thousands)             % Change


+400 Basis Points                $45,844                  -11.78%
+300 Basis Points                 48,983                   -5.74%
+200 Basis Points                 51,579                    -.74%
+100 Basis Points                 52,888                    1.78%
Flat Rate                         51,965                       0
-100 Basis Points                 48,612                   -6.45%
-200 Basis Points                 43,472                  -16.34%
-300 Basis Points                 38,944                  -25.06%
-400 Basis Points                 32,593                  -37.28%

         Management  believes that the  assumptions  utilized in evaluating  the
vulnerability of the Company's earnings and capital to changes in interest rates
approximate  actual  experience;  however,  the interest rate sensitivity of the
Bank's  assets and  liabilities  as well as the  estimated  effect of changes in
interest rates on MVPE could vary  substantially  if different  assumptions  are
used or actual  experience  differs from the experience on which the assumptions
were based.

         In the event the Bank should  experience  a mismatch in its desired GAP
ranges or an  excessive  decline  in its MVPE  subsequent  to an  immediate  and
sustained  change in interest  rate,  it has a number of options  which it could
utilize to remedy  such  mismatch.  The Bank could  restructure  its  investment
portfolio  through sale or purchase of securities with more favorable  repricing
attributes. It could also emphasize loan products with appropriate maturities or
repricing  attributes,  or it could attract  deposits or obtain  borrowings with
desired maturities.

Item 8.  Financial Statements
-----------------------------

         The Consolidated  Financial Statements of TF Financial  Corporation and
its  subsidiaries  are  included  in the  Registrant's  1998  Annual  Report  to
Stockholders on ages  20  through 62 and are  incorporated herein  by reference.

Item 9. Change In and Disagreements with Accountants on Accounting and Financial
        Disclosure
--------------------------------------------------------------------------------

         None.


                                       34

<PAGE>


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

         The information contained under the section captioned "Information with
Respect to Nominees for Director,  Directors  Continuing in Office and Executive
Officers  --  General  Information  and  Nominees"  at  pages  3  to  5  of  the
Registrant's definitive proxy statement for the Registrant's 1999 Annual Meeting
of Stockholders (the "Proxy Statement") is incorporated herein by reference.

         Additional  information concerning executive officers is included under
"Item 1. Business -- Executive Officers of the Registrant."


Item 11.  Executive Compensation
--------------------------------

         The  information  relating to executive  compensation  is  incorporated
herein by reference to the Registrant's Proxy Statement at pages 6 through 9.


Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         The information  relating to security  ownership of certain  beneficial
owners and management is  incorporated  herein by reference to the  Registrant's
Proxy Statement at pages 2 and 3.


Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  information   relating  to  certain   relationships   and  related
transactions  is  incorporated  herein by  reference to the  Registrant's  Proxy
Statement at page 15.


                                       35

<PAGE>

                                     PART IV

Item 14.  Exhibits and Reports on Form 8-K
------------------------------------------
(a)      The following documents are filed as a part of this report:

         (1) Financial  Statements of the Company are  incorporated by reference
to the following indicated pages of the 1998 Annual Report to Stockholders.

<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                    <C>
Independent Auditors' Report..........................................................   19
Consolidated Statements of Financial Position as of December 31, 1998 and 1997........   20
Consolidated Statements of Earnings For the Years Ended
  December 31, 1998, 1997 and 1996....................................................   21
Consolidated Statement of Changes in Stockholders' Equity and Comprehensive
Income for the Years Ended December 31, 1998, 1997 and 1996...........................   22
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1998, 1997 and 1996....................................................   24
Notes to Consolidated Financial Statements............................................   26

</TABLE>

         The   remaining   information   appearing  in  the  Annual   Report  to
Stockholders  is not  deemed  to be  filed  as part of this  report,  except  as
expressly provided herein.

         (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*
          3.2     Bylaws of TF Financial Corporation*  
          4.0     Stock Certificate of TF Financial  Corporation*  
          4.1     The  Company's Rights Agreement dated November 22, 1995**
         10.1     Third  Federal  Savings  and Loan Association Management Stock
                  Bonus Plan*
         10.2     TF Financial Corporation 1994 Stock Option Plan*
         10.3     Third  Federal  Savings   Bank   Directors  Consultation   and
                  Retirement Plan***
         10.4     TF Financial Corporation Incentive Compensation Plan***
         10.5     Severance Agreement with John R. Stranford***
         10.6     Severance Agreement with Thomas J. Sposito II****
         10.7     Severance Agreement with William C. Niemczura***
         10.8     Severance Agreement with Earl A. Pace, Jr.
         10.9     TF Financial Corporation 1997 Stock Option Plan****
         11.0     Statement re Computation of Per Share Earnings
         13.0     1998 Annual Report to Stockholders
         21.0     Subsidiary Information

                                       36

<PAGE>



         23.0     Consent of Independent Auditor
         27.0     Financial Data Schedule

                  (b)   Reports on Form 8-K.

                        None.

------------------------
*        Incorporated  herein  by  reference  from  the  Exhibits  to Form  S-1,
         Registration Statement, File No. 33-76960.
**       Incorporated herein by reference to the Registrants Form 8-A filed with
         the Securities and Exchange Commission on November 22, 1995.
***      Incorporated  herein by reference to the Registrant's  Annual Report on
         Form 10-K for the fiscal year ended December 31, 1995.
****     Incorporated  herein by reference to the Registrant's  Annual Report on
         Form 10-K for the fiscal year ended December 31, 1997.

                                       37

<PAGE>

                                   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 24, 1999                      By: /s/ John R. Stranford  
                                                --------------------------------
                                                John R. Stranford
                                                President, Chief Executive
                                                Officer and Director
                                                (Duly Authorized Representative)

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.



By:   /s/ John R. Stranford                By:   /s/ William C. Niemczura   
      -----------------------------------        -------------------------------
      John R. Stranford                          William C. Niemczura
      President, Chief Executive Officer         Senior Vice President, Chief
       and Director                              Financial Officer and Treasurer
      (Principal Executive Officer)              (Principal Financial and
                                                  Accounting Officer)

Date: March 24, 1999                       Date: March 24, 1999



By:   /s/ Carl F. Gregory                  By:   /s/ Robert N. Dusek
      -----------------------------------        -------------------------------
      Carl F. Gregory                            Robert N. Dusek
      Director                                   Chairman of the Board

Date: March 24, 1999                       Date: March 24, 1999



By:   /s/ Thomas J. Gola                   By:   /s/ George A. Olsen 
      -----------------------------------        -------------------------------
      Thomas J. Gola                             George A. Olsen
      Director                                   Director

Date: March 24, 1999                       Date: March 24, 1999