SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended           December 31, 2000
                          ------------------------------------------------------

                                     - or -

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

For the transition period from                     to
                               -------------------    --------------------------

                         Commission file number: 0-24168

                            TF FINANCIAL CORPORATION
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

                  Delaware                                74-2705050
------------------------------------------------   -----------------------------
(State or Other Jurisdiction of Incorporation          (I.R.S. Employer
  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  common  equity  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, 2001,
was $34.751 million (2,066,956 shares at $16.8125 per share).

         As of March 19,  2001 there were  outstanding  2,787,638  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, 2000. (Parts I, II and IV)
2.   Portions  of  the  Proxy   Statement   for  the  2001  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 IMPACT OF CHANGES IN FINANCIAL SERVICES'
LAWS AND REGULATIONS  (INCLUDING LAWS CONCERNING TAXES, BANKING,  SECURITIES AND
INSURANCE);  TECHNOLOGICAL CHANGES;  ACQUISITIONS;  CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED
IN THE FOREGOING.

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

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

                             BUSINESS OF THE COMPANY

         On July 13,  1994,  the Company  consummated  its public  offering  for
5,290,000  shares of its common stock and acquired  Third  Federal  Savings Bank
(the "Bank") as part of the Bank's mutual-to-stock  conversion.  The Company was
incorporated under Delaware law in March 1994. The Company is a savings and loan
holding company and is subject to regulation by the Office of Thrift Supervision
(the "OTS"),  the Federal  Deposit  Insurance  Corporation  (the "FDIC") and the
Securities and Exchange  Commission  (the "SEC").  The Company does not transact
any material  business other than through its direct and indirect  subsidiaries:
Third Federal  Savings  Bank,  TF  Investments  Corporation,  Teragon  Financial
Corporation, Penns Trail Development Corporation and Third Delaware Corporation.
At December 31, 2000, the

                                       1
<PAGE>

Company had total assets of $723 million,  total liabilities of $670 million and
stockholders' equity of $53 million.

                              BUSINESS OF THE BANK

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

         The Bank is a community oriented savings institution offering a variety
of  financial  services to meet the needs of the  communities  it serves.  As of
December  31,  2000  the Bank  operated  fifteen  branch  offices  in Bucks  and
Philadelphia counties,  Pennsylvania and in Mercer County, New Jersey, including
a new office  opened in Bucks County,  Pennsylvania  during the first quarter of
2000,  which replaced a smaller branch facility  located in the building housing
the Corporation's  administrative  offices. At the end of January 2001, the Bank
closed its Princeton,  New Jersey branch and will service its customers from the
nearby branch located in Lawrenceville, New Jersey.

         The Bank  attracts  deposits  from the  general  public  and uses  such
deposits,  together with  borrowings  and other funds  primarily to originate or
purchase loans secured by first mortgages on owner-occupied, one- to four-family
residences in its market area and to invest in  mortgage-backed  and  investment
securities. At December 31, 2000, one- to four-family residential mortgage loans
totaled  $211 million or 58% of the Bank's  total loan  portfolio.  At that same
date, the Bank had approximately $233 million or 32% of total assets invested in
mortgage-backed  securities and $82 million or 11% of total assets in investment
securities.  To a lesser extent, the Bank also originates commercial real estate
and multi-family,  construction and consumer loans. The Bank has one subsidiary,
Third Delaware  Corporation,  which was  incorporated in 1998 for the purpose of
holding and managing investment securities for the Bank.

Market Area

         The Bank 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 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
limited opportunities, Bucks and Mercer Counties, with growing populations, have
offered the Bank much greater opportunities.


                                       2
<PAGE>


Competition

         The Bank 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.  The Bank's
share of the deposit market in  Philadelphia,  Bucks and Mercer Counties is very
small, at .70%, 1.74% and 1.23%, respectively.

Lending Activities

         General.  The 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 Bank also makes  commercial real estate
and  multi-family  loans,  construction  loans and consumer and other loans.  At
December 31, 2000, the Bank's mortgage loans  outstanding were $302 million,  of
which $211 million were one- to four-family  residential  mortgage loans. Of the
one- to four-family  residential  mortgage  loans  outstanding at that date, 17%
were ARM's and 83% were fixed-rate loans. Total ARM mortgage loans in the Bank's
portfolio at December 31, 2000, amounted to $37 million or 12% of total mortgage
loans. At that same date,  commercial real estate and  multi-family  residential
and construction loans totaled $77 million and $14 million, respectively.

         Consumer and other loans held by the Bank totaled $62 million or 17% of
total  loans  outstanding  at  December  31,  2000,  of which $21  million or 6%
consisted  of home  equity and second  mortgages.  At that same date  commercial
business  loans,  leases and other loans totaled $14 million,  $3million and $14
million, respectively.


                                       3
<PAGE>


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



                                                                            At December 31,
                              -----------------------------------------------------------------------------------------------------
                                     2000                   1999                 1998               1997                 1996
                              ------------------      ------------------  -----------------  -------------------   ----------------
                                          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         $211,065     57.90%  $168,057      58.00% $152,819    62.93%    $198,328   78.43%  $265,618    85.16%
  Commercial real estate
    and multi-family            77,486     21.26     65,346      22.55    55,208    22.73       26,653   10.54     20,427     6.55
  Construction                  13,950      3.82     12,074       4.16     5,352     2.20        5,052    2.00      4,720     1.51
                               -------    ------    -------      -----   -------   ------      -------   -----    -------   ------
      Total mortgage loans     302,501     82.98    245,477      84.71   213,379    87.86      230,033   90.97    290,765    93.22
Consumer and other loans:
  Home equity and second
    mortgage                    20,887      5.73     16,816       5.81    12,995     5.35       12,147    4.80      9,661     3.10
  Commercial business           14,630      4.02      9,339       3.22     6,666     2.74        2,798    1.11      3,126     1.00
  Leases                         3,493      0.96      3,195       1.10     2,305     0.95        1,671    0.66      3,093     0.99
  Other                         23,006      6.31     14,945       5.16     7,521     3.10        6,230    2.46      5,261     1.69
                               -------    ------    -------     ------   -------   ------      -------   -----    -------   ------
      Total consumer and
         other loans            62,016     17.02     44,295      15.29    29,487    12.14       22,846    9.03     21,141     6.78
                               -------    ------    -------     ------   -------   ------      -------   -----    -------   ------
      Total loans              364,517    100.00%   289,772     100.00%  242,866   100.00%     252,879  100.00%   311,906   100.00%
                               =======    ======    =======     ======   =======   ======      =======  ======    =======   ======
Less:
  Unearned discount, premium,
    deferred loan fees, net        997                  124                  116                   139                530
  Allowance for loan losses      1,714                1,917                1,909                 2,029              1,806
                               -------              -------              -------               -------            -------
      Total loans, net        $361,806             $287,979             $240,841              $250,711           $309,570
                               =======              =======              =======               =======            =======
Mortgage-backed securities
held-to-maturity:
  FHLMC                       $ 45,971     34.03%  $ 52,625      32.91% $ 47,239    26.10%    $ 76,523   53.12%  $ 90,016    58.54%
  FNMA                          20,756     15.36     24,983      15.63    12,726     7.03       22,927   15.91     27,547    17.92
  GNMA                          41,090     30.41     46,651      29.18    56,318    31.12        7,483    5.19      6,043     3.93
  Real estate investment
    mortgage conduit            27,043     20.02     35,271      22.06    64,180    35.47       36,389   25.26     29,220    19.00
  Other mortgage-backed
      securities                   282      0.18        358       0.22       501     0.28          752    0.52        932     0.61
                               -------    ------    -------     ------   -------   ------      -------  ------    --------  ------
    Total mortgage-backed
      and related securities
      held-to-maturity        $135,142    100.00%  $159,888     100.00% $180,964   100.00%    $144,074  100.00%  $153,758   100.00%
                               =======    ======    =======     ======   =======   ======      =======  ======    =======   ======
Mortgage-backed
securities
available-for-sale:
    FHLMC                     $  1,431      1.46%  $  7,233       5.46% $ 13,214    17.55%    $ 19,223   52.17%  $  8,905    40.43%
    FNMA                        25,679     26.23     27,963      21.10    32,178    42.74        7,863   21.34      3,240    14.71
    GNMA                         7,561      7.72      8,338       6.29    10,284    13.66           --                 --
    Real estate investment
      mortgage conduit          63,243     64.59     88,981      67.15    19,609    26.05        9,761   26.49      9,882    44.86
                               -------    ------    -------     ------   -------   ------      -------  ------    -------   ------
      Total                   $ 97,914    100.00%  $132,515     100.00% $ 75,285   100.00%    $ 36,847  100.00%  $ 22,027   100.00%
                               =======    ======    =======     ======   =======   ======      =======  ======    =======   ======
</TABLE>


                                       4
<PAGE>


         Loan Maturity and Repricing Information. The following table sets forth
certain  information at December 31, 2000,  regarding the dollar amount of loans
maturing in the Bank's loan and mortgage-backed  securities  portfolios based on
their maturity date. Demand loans, loans having no stated schedule of repayments
and no stated  maturity,  overdrafts  and  delinquent  loans  maturing  prior to
December 31, 2001,  are reported as due in one year or less.  The table does not
include prepayments or scheduled principal repayments.

                                        Due 1/1/01    Due 1/1/02    Due After
                                         12/31/01      12/31/05      1/1/06
                                        ----------    ----------    ---------
                                                     (In thousands)
Available for sale:
  Mortgage-backed securities           $        --  $       838  $    97,076

Held to Maturity:
  One-to-four family                   $       553  $     4,384  $   206,128
  Commercial real estate and
    multi-family                               420       18,189       58,877
  Construction                              13,208          742           --
  Consumer and other                         8,863       30,327       22,826
                                        ----------   ----------   ----------
  Total loans receivable                    23,044       53,642      287,831
  Mortgage-backed securities                   617        1,668      132,857
                                        ----------   ----------   ----------
  Totals                               $    23,661  $    56,148  $   517,764
                                        ==========   ==========   ==========


         The  following  table  sets  forth the  dollar  amount of all loans and
mortgage-backed securities due after December 31, 2001, which have predetermined
interest rates and which have floating or adjustable interest rates.


                                              Predetermined     Floating or
                                                  Rates       Adjustable Rate
                                              -------------   ---------------

                                                    (In thousands)
Available for sale:
  Mortgage-backed securities                    $   97,914      $      --
                                                 ---------       --------
  Totals                                        $   97,914      $      --
                                                 =========       ========

Held to Maturity:
  One-to-four family                            $  174,310      $  36,755
  Commercial real estate and multi-family           26,764         50,722
  Construction                                       1,198         12,752
  Consumer and other                                46,878         15,138
                                                 ---------       --------
  Total loans receivable                           249,150        115,367
  Mortgage-backed securities                       134,974            168
                                                 ---------       --------
  Totals                                        $  482,038      $ 115,535
                                                 =========       ========

         One- to  Four-Family  Mortgage  Loans.  The Bank offers first  mortgage
loans  secured by one- to  four-family  residences  in the Bank's  lending area.
Typically,  such  residences are  single-family  homes that serve as the primary
residence of the owner.  The Bank  generally  originates  and invests in one- to
four-family residential mortgage loans in amounts up to 80% of the lesser of the
appraised

                                       5
<PAGE>


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 Bank's lending area.  Mortgage loans originated
and held by the Bank in its  portfolio  generally  include  due-on sale  clauses
which provide the 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 Bank's consent.

     At  December  31,  2000,  58%  of  mortgage  loans  consisted  of  one-  to
four-family residential loans, of which 17% were ARM loans.

         The Bank  offers a variety of ARM loans  with  terms of 30 years  which
adjust at the end of 6 months,  one, three, five, seven and ten years and adjust
by a maximum of 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 Bank offers fixed-rate mortgage loans with terms of 10 to 30 years,
which are payable monthly.  Interest rates charged on fixed-rate  mortgage loans
are  competitively  priced  based on market  conditions  and the Bank's  cost of
funds.  The origination  fees for fixed-rate loans range from 0% to 3% depending
on the  underlying  loan coupon.  Generally,  the 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.  While it does not presently do so, the
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 Bank,  however, is primarily a portfolio lender. As of December 31,
2000, the Bank's  portfolio of loans  serviced for others totaled  approximately
$9.2 million.

         Commercial   Real  Estate  and   Multi-Family   Loans.   The  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 Bank generally  originates  commercial real estate and multi-family
loans  up to 75% of the  appraised  value of the  property  securing  the  loan.
Currently,  it is the Bank's philosophy to originate  commercial real estate and
multi-family  loans only to borrowers known to the Bank and on properties in its
market area. The  commercial  real estate and  multi-family  loans in the Bank's
portfolio consist of fixed-rate,  ARM and balloon loans which were originated at
prevailing  market rates for terms of up to 25 years.  The 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 20  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


                                       6

<PAGE>

greater risks than residential  mortgage loans because payments on loans secured
by income  properties are often dependent on successful  operation or management
of the  properties.  As a result,  repayment  of such  loans may be subject to a
greater extent than residential  real estate loans to adverse  conditions in the
real  estate  market or the  economy.  In order to monitor  cash flows on income
properties,  the Bank requires borrowers and loan guarantors, if any, to provide
annual  financial  statements and rent rolls on multi-family  loans. At December
31, 2000, the five largest commercial real estate and multi-family loans totaled
$14.4  million  with no single loan larger than $4.2  million.  At December  31,
2000, all such loans were current and the properties  securing such loans are in
the Bank's market area.

         Construction Loans. At December 31, 2000, the Bank had $14.0 million of
construction  loans  or 4% of the  Bank's  total  loan  portfolio.  Construction
financing is  generally  considered  to involve a higher  degree of risk of loss
than long-term  financing on improved,  occupied real estate.  Risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate
of the property's  value at completion of  construction  or development  and the
estimated cost (including  interest) of  construction.  During the  construction
phase,  a number of factors  could  result in delays and cost  overruns.  If the
estimate of construction costs proves to be inaccurate, the Bank may be required
to advance funds beyond the amount originally  committed to permit completion of
the development.  If the estimate of value proves to be inaccurate, the Bank may
be confronted,  at or prior to the maturity of the loan, with a project having a
value which is insufficient to assure full repayment.

         Consumer and Other Loans. The Bank also offers consumer and other loans
in the form of home equity and second  mortgage  loans  (referred to hereinafter
collectively as "second mortgage loans"),  commercial business loans, automobile
loans and student  loans.  These loans  totaled $62 million or 17% of the Bank's
total loan portfolio at December 31, 2000. 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 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.

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

         The 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
Bank's interest rate risk management.  Consumer loans,  however,  tend to have a
higher risk of default than  residential  mortgage  loans. At December 31, 2000,
$304,000,  or 0.5%, of the Bank's  consumer loans were  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  Bank  offers  second   mortgage   loans  on  one-  to  four-family
residences.  At December 31, 2000, second mortgage and home equity loans totaled
$21 million, or 6% of the Bank's total loan portfolio.

                                       7
<PAGE>

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 Bank's
standards applicable to one- to four-family residential loans.

         The 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
Bank's  commercial  business  loans  primarily  consist of short-term  loans for
equipment, working capital, business expansion and inventory financing. The Bank
customarily  requires a personal  guaranty of payment by the  principals  of any
borrowing entity and reviews the financial  statements and income tax returns of
the  guarantors.  At December 31, 2000, the Bank had  approximately  $15 million
outstanding in commercial business loans, which represented  approximately 4% 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 are one or more
existing loans to a borrower,  the level of approval required is governed by the
proposed  total  exposure  including the new loan. A Lending Vice  President may
approve  a secured  loan up to  $100,000  and an  unsecured  loan up to  $25,000
individually.  Each In-House Loan Committee member may approve a secured loan up
to $500,000 and an unsecured loan up to $50,000. 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
$2.5 million and an unsecured  loan up to  $200,000.  Generally,  all loans over
$2.5  million,  or loans that cause the proposed  total  exposure to exceed $2.5
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 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  Bank.  The  Bank  makes   construction/permanent  loans  on  individual
properties.  Funds  advanced  during  the  construction  phase  are  held  in  a
loan-in-process  account and disbursed  based upon various stages of completion.
The  independent  appraiser or loan officer  determines  the stage of completion
based upon its physical inspection of the construction.  It is the 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 Bank makes disbursements for items such as real
estate taxes and hazard insurance premiums.

         Loans to one Borrower.  Current regulations limit loans to one borrower
in an  amount  equal to 15% of  unimpaired  capital  and  retained  income on an
unsecured basis and an additional amount equal to 10% of unimpaired  capital and
retained  income  if the  loan  is  secured  by  readily  marketable  collateral
(generally,  financial instruments,  not real estate) or $500,000,  whichever is
higher.  Penalties for  violations  of the  loan-to-one  borrower  statutory and
regulatory  restrictions  include cease and desist  orders,  the imposition of a
supervisory agreement and civil money penalties.  The Bank's maximum loan-to-one
borrower limit was approximately $7 million as of December 31, 2000.


                                       8

<PAGE>

        At  December  31,  2000,  the Bank's  five  largest  aggregate  lending
relationships had balances ranging from $5 to $6 million.  At December 31, 2000,
all of these loans were current.

Mortgage-Backed Securities

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

         The  mortgage-backed  securities  portfolio  as of December  31,  2000,
consisted of certificates  issued by the Federal Home Loan Mortgage  Corporation
("FHLMC") ($47.4 million),  Government National Mortgage  Association  ("GNMA"),
($48.7 million) Federal National Mortgage  Association ("FNMA") ($46.4 million),
real estate mortgage investment  conduits ("REMICs") ($90.3 million),  and other
mortgage-backed securities ($282,000).

         At December 31, 2000, the carrying value of mortgage-backed  securities
totaled  $233.1  million,  or 32% of  total  assets.  The  market  value of such
securities totaled approximately $231.4 million at December 31, 2000.

         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
Bank. Such quasi-governmental agencies, which guarantee the payment of principal
and interest to investors, primarily include FHLMC, FNMA and GNMA.

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

                                                    At December 31,
                                       -------------------------------------
                                       2000            1999             1998
                                       ----            ----             ----
                                                  (In thousands)
Held to maturity:
  GNMA-fixed rate                     $41,090        $ 46,651         $56,318
  FHLMC ARMs                              168             218             269
  FHLMC-fixed rate                     45,803          52,407          46,970
  FNMA-fixed rate                      20,756          24,983          12,726
  Remics                               27,043          35,271          64,180
  Other mortgage-backed securities        282             358             501
                                      -------         -------         -------
   Total mortgage-backed securities  $135,142        $159,888        $180,964
                                      =======         =======         =======
Mortgage-backed securities
Available-for-sale:
  FHLMC                               $ 1,431         $ 7,233        $ 13,214
  FNMA                                 25,679          27,963          32,178
  GNMA                                  7,561           8,338          10,284
  Remics                               63,243          88,981          19,609
                                      -------         -------         -------
    Total mortgage-backed securities
      available-for-sale             $ 97,914        $132,515        $ 75,285
                                      =======         =======         =======


                                       9
<PAGE>

         Mortgage-Backed Securities Maturity. The following table sets forth the
maturity and the weighted  average coupon ("WAC") of the Bank's  mortgage-backed
securities  portfolio at December 31, 2000. The table does not include estimated
prepayments.  Adjustable-rate  mortgage-backed  securities are shown as maturing
based on contractual maturities.

                                                          Contractual
                                 Contractural              Available
                                    Held to                -For-Sale
                                Maturities Due   WAC    Maturities Due    WAC
                                ---------------  ----   --------------   -----
                                             (Dollars in thousands)

Less than 1 year                 $     617       6.76%   $      --         --%
1 to 3 years                         1,031       7.03          161       6.91
3 to 5 years                           636       8.03          677       6.47
5 to 10 years                       12,845       7.41        9,525       6.89
10 to 20 years                      13,372       6.82       31,295       6.06
Over 20 years                      106,641       6.72       56,256       6.41
                                   -------       ----     --------       ----
Total mortgage-backed            $ 135,142       6.81%   $  97,914       6.35%
  securities                       =======       ====     ========       ====

Non-Performing and Problem Assets

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

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

         On mortgage  loans or loan  participations  purchased by the Bank,  the
Bank receives monthly reports from its loan servicers with which it monitors the
loan portfolio.  Based upon servicing agreements with the servicers of the loan,
the Bank  relies  upon the  servicer to contact  delinquent  borrowers,  collect
delinquent amounts and to initiate foreclosure proceedings,  when necessary, all
in accordance with applicable  laws,  regulations and the terms of the servicing
agreements between the Bank and its servicing agents.

         Delinquent Loans. Generally, the Bank reserves for uncollected interest
on loans past due more than 90 days;  these  loans are  included in the table of
nonaccrual  loans below.  Loans also are placed on a nonaccrual  status when, in
the judgment of management,  the probability of collection of interest is deemed
to be  insufficient  to  warrant  further  collection.  When a loan is placed on
nonaccrual  status,

                                       10
<PAGE>

previously  accrued but unpaid interest is deducted from interest income and the
further accrual of interest  ceases unless the underlying  facts that prompted a
nonaccrual determination are deemed to have improved significantly.

         Non-Performing  Assets.  The  following  table sets  forth  information
regarding  non-accrual  loans  and real  estate  owned by the Bank at the  dates
indicated.  The Bank had no loans  contractually  past due more than 90 days for
which accrued interest has been recorded.  At December 31, 2000, the Bank had no
significant impaired loans within the meaning of SFAS No. 114 and SFAS No. 118.

<TABLE>
<CAPTION>


                                                                           At December 31,
                                                       ---------------------------------------------------------
                                                       2000          1999       1998          1997         1996
                                                       ----          ----       ----          ----         ----
                                                                      (Dollars in thousands)
<S>                                                   <C>          <C>         <C>          <C>          <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One- to four-family                                    $869         $880        $896         $776         $922
  Commercial real estate and multi-family                 180           24          97           --           --
Consumer and other                                        421          413         609          606        1,050
                                                        -----        -----       -----        -----        -----
   Total non-accrual loans                              1,470        1,317       1,602        1,382        1,972
                                                        =====        =====       =====        =====        =====

Real estate owned, net                                    176          546         308          351          112
                                                        -----        -----       -----        -----        -----
Total non-performing assets                            $1,646       $1,863      $1,910       $1,733       $2,084
                                                        =====        =====       =====        =====        =====
Total non-accrual loans to net loans                     0.41%        0.46%       0.67%        0.55%        0.64%
                                                        =====        =====       =====        =====        =====
Total non-accrual loans to total assets                  0.21%        0.18%       0.24%        0.23%        0.30%
                                                        =====        =====       =====        =====        =====
Total non-performing assets to total assets              0.23%        0.26%       0.29%        0.29%        0.32%
                                                        =====        =====       =====        =====        =====

</TABLE>

         At  December  31,  2000,  the Bank  had no  foreign  loans  and no loan
concentrations  exceeding  10% of total loans not  disclosed in above the table.
"Loan concentrations" are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause them
to be similarly impacted by economic or other conditions.  Loans recorded in the
category  of other  real  estate  owned are valued at the lower of book value of
loans outstanding or fair market value less cost of disposal.

         At December 31, 2000,  the Bank was not aware of any potential  problem
loans that are not otherwise included in the foregoing table. "Potential problem
loans" are loans where  information  about possible credit problems of borrowers
has caused  management to have serious  doubts about the  borrowers'  ability to
comply with present repayment terms.

         Classified Assets. OTS regulations provide for a classification  system
for problem  assets of insured  institutions  which  covers all problem  assets.
Under this  classification  system,  problem assets of insured  institutions are
classified  as  "substandard,"  "doubtful,"  or "loss."  An asset is  considered
"substandard"  if it 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 Bank's  internal
watchlist  because  of  potential  weakness  but that do not  currently  warrant
classification in one of the aforementioned categories.


                                       11
<PAGE>

         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.

         The  following  table  provides  further  information  in regard to the
Bank's classified assets as of December 31, 2000.


                                             At December 31, 2000
                                             --------------------
                                                (In thousands)

  Special mention assets                           $ 2,528
  Substandard (1)                                    1,922
  Doubtful assets                                       --
  Loss                                                  --
                                                    ------
     Total classified assets                       $ 4,450
                                                    ======

-------------------
(1)  Substandard assets include  approximately $53,000 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 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.  If the
property  subsequently  decreases in estimated  value from the initial  recorded
amount,  the Bank will  provide an  additional  valuation  allowance,  through a
charge to earnings, if the decrease is judged by management to be temporary,  or
the Bank will write the property down, through a charge to earnings,  to the new
estimated value if the decrease is judged by management to be permanent.

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

                                       12
<PAGE>

          The Corporation's  watch list contains all loans which because of past
payment  history,  a review  of recent  financial  information,  or other  facts
regarding  the credit,  pose a higher than normal  amount of  perceived  risk of
collection.  Once a loan is deemed to pose other than a normal  level of risk of
collection,  it moves to the classified  asset list as either  special  mention,
substandard,  doubtful, or loss as required by regulatory guidelines. Classified
assets also include all loans over 90 days past due according to the contractual
repayment terms. These loans are automatically  considered at least substandard.
All loans not on the classified asset list are assigned a reserve factor that is
based on the  Corporation's  actual loss  experience  over the last three years,
with a small factor assigned to loans current as to their contractual  payments,
and an increased factor if the loan is 30 of 60 days past due.  Classified loans
with balances under $100,000 are typically  pooled according to their underlying
collateral,  and a reserve factor assigned based on historical loss  experience.
Classified  loans  are  evaluated  on an  individual  basis if the loan  balance
exceeds $100,000. In such a case, the value of the underlying collateral,  which
is ordinarily real estate because of the nature of the Corporation's predominant
past lending  activities,  the cost of  collection  and  disposition,  and other
factors  are  considered  and an  estimated  reserve  level is  established.  In
establishing  estimated  reserves,  current and projected economic conditions as
they may affect the borrower and the  collateral  are  considered.  If prospects
appear poor with respect to  collateral  disposition,  for  example,  because of
economic  factors,  a lower  disposition  value and thus a higher  reserve level
would be established.  Similarly, the credit may be guaranteed by a governmental
agency, or the collateral value may greatly exceed the loan balance such that no
reserve is indicated for these loans that are nevertheless considered classified
assets because of their delinquency.  If a loan or a portion of a loan is judged
to be  unrecoverable,  that  amount  is  charged  off.  The  calculated  reserve
determined  using the  methodologies  described  above is compared to the actual
level of reserves;  the difference  reflects the imprecision of the multitude of
assumptions  that are made combined with the  variability  that can occur with a
relatively  small amount of troubled  assets,  and the reserve is  maintained at
reasonable levels by adjusting the provision that is charged to earnings.


                                       13

<PAGE>



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

<TABLE>
<CAPTION>


                                                              For the Years Ended December 31,
                                                ------------------------------------------------------------
                                                  2000           1999        1998           1997          1996
                                                --------       --------    -------        -------       -------
                                                                 (Dollars in thousands)

<S>                                           <C>           <C>          <C>           <C>           <C>
Balance at beginning of period                   $1,917         $1,909      $2,029        $1,806        $1,484
Provision for loan losses                           410            300          60           397           330
Charge-offs:
  One- to four-family                                --             --          --           (1)            --
  Commercial and multi-family
  real estate loans                                  --             --          --            --            --
  Consumer and other loans                         (634)          (296)       (180)         (173)           (8)
Recoveries:
  Commercial and multi-family
  real estate loans                                  --             --          --            --            --
  Consumer and other loans                           21              4          --            --            --
                                                  -----          -----       -----         -----         -----
Balance at end of year                           $1,714         $1,917      $1,909        $2,029        $1,806
                                                  =====          =====       =====         =====         =====
Ratio of net charge-offs during
  the period to average loans
  outstanding during the period                    0.20%          0.10%       0.08%         0.06%        0.003%
Ratio of allowance for loan
  losses to non-performing
  loans at the end of the period                  116.6%         145.6%      119.2%        147.0%         91.6%
Ratio of allowance for loan
  losses to net loans receivable
  at the end of period                             0.48%          0.67%       0.79%         0.81%         0.58%
Ratio of allowance for loan
  losses and foreclosed real
  estate to total non-performing
  assets at the end of period                     114.8%         132.2%      116.1%        137.3%         92.0%

</TABLE>



                                       14
<PAGE>


         The following  table sets forth the allocation of the Bank's  allowance
for loan losses by loan  category  and the percent of loans in each  category to
total loans receivable,  gross, at the dates indicated.  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,
                          ---------------------------------------------------------------------------------------------------------
                                   2000                    1999              1998                   1997               1996
                          ----------------------   -------------------- ------------------- --------------------  -----------------

                                     Percent of            Percent of          Percent of             Percent of         Percent of
                                      Loans to              Loans to            Loans to               Loans to           Loans to
                           Amount    Total Loans   Amount  Total Loans Amount  Total Loans   Amount  Total Loans  Amount Total 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         $  301      57.9%    $1,098      58.0%     $1,205      62.9%      $1,503      78.4%    $1,330     73.7%
Commercial real estate
 and multi-family              672      21.3        426      22.5         508      22.8          202      10.5        102      5.7
Construction                   121       3.8         79       4.2          97       2.2           37       2.0         24      1.3
Consumer and
  other loans                  620      17.0        314      15.3          99      12.1          287       9.1        350     19.3
                             -----     -----      -----     -----       -----     -----        -----     -----      -----    -----
Total allowance             $1,714     100.0%    $1,917     100.0%     $1,909     100.0%      $2,029     100.0%    $1,806    100.0%
                             =====     =====      =====     =====       =====     =====        =====     =====     ======    =====

</TABLE>


                                       15
<PAGE>



Investment Activities

         The investment policy of the 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  Bank's  lending  activities.  In  establishing  its  investment
strategies,  the Bank  considers  its  business and growth  plans,  the economic
environment,  the types of  securities to be held and other  factors.  Federally
chartered savings  institutions have the authority to invest in various types of
assets,  including  U.S.  Treasury  obligations,  securities of various  federal
agencies,   certain  certificates  of  deposit  of  insured  banks  and  savings
institutions,  certain  bankers  acceptances,  repurchase  agreements,  loans on
federal  funds,  and,  subject to certain  limits,  commercial  paper and mutual
funds.

         The  following  table  sets forth  certain  information  regarding  the
amortized cost and fair values of the Bank's investments at the dates indicated.
<TABLE>
<CAPTION>


                                                                 At December 31,
                                 --------------------------------------------------------------------------------
                                            2000                       1999                         1998
                                 ------------------------  -----------------------   ----------------------------
                                  Amortized       Fair       Amortized      Fair        Amortized         Fair
                                     Cost         Value         Cost        Value          Cost           Value
                                 -----------     --------  -----------    --------   -------------       --------
                                                                 (In thousands)

<S>                              <C>         <C>          <C>          <C>            <C>            <C>
Interest-earning deposits           $   1,965   $   1,964    $   5,984    $   5,984      $  19,267      $  19,267
                                     ========    ========     ========     ========       ========       ========

Investment securities
held-to-maturity:
  U.S. government and agency
    obligations                     $  52,499   $  51,016    $  57,455    $  55,500      $  73,612      $  73,747
  State and political
    subdivisions                        5,958       5,979        4,284        4,168          4,283          4,361
  Corporate debt securities         $   5,004       4,924        5,021        4,870          3,000          2,986
                                     --------    --------     --------     --------       --------       --------

    Total                           $  63,461   $  61,919    $  66,760    $  64,538      $  80,895      $  81,094
                                     ========    ========     ========     ========       ========       ========


Securities available-for-sale
  U.S. government and agency
    obligations                     $  12,003   $  11,967    $  11,994    $  11,558      $   8,000      $   8,045
  State and political
    subdivisions                           --          --        3,783        3,696             --             --
  Corporate Debt
     Securities                         6,034       6,004        6,053        5,833             --             --

  Equity securities
    (SLMA stock)                           --          --           --           --             --             --
  Mutual funds                            500         494          500          493            500            497
    Other                                 500         400          500          350            500            500
                                     --------    --------     --------     --------       --------       --------

    Total                           $ 19,037    $  18,865    $  22,830    $  21,930      $   9,000      $   9,042
                                     ========    ========     ========     ========       ========       ========

</TABLE>

                                       16
<PAGE>



Investment Portfolio Maturities

         The  following  table  sets forth  certain  information  regarding  the
amortized cost,  weighted average yields and maturities of the Bank's investment
securities  portfolio,  exclusive of interest-earning  deposits, at December 31,
2000.Yields  on tax exempt  obligations  have been computed on a tax  equivalent
basis.

<TABLE>
<CAPTION>


                        One Year or Less    One to Five Years    Five to Ten Years    More than Ten Years     Total Investment
                       -------------------  -----------------   -------------------  --------------------  -----------------------
                        Amortized  Average  Amortized   Average   Amortized  Average Amortized  Average  Amortized   Average   Fair
                          Cost      Yield     Cost       Yield       Cost     Yield    Cost       Yield     Cost      Yield   Value
                          ----      -----     ----       -----       ----     -----    ----       -----     ----      -----   -----
                                                                     (Dollars in thousands)

<S>                    <C>        <C>     <C>          <C>      <C>         <C>    <C>        <C>      <C>        <C>    <C>
U.S. agency obligations $     3     5.80%   $54,999      5.80%    $ 9,500     6.72%  $    --       --%   $64,502     5.94%  $62,984
Municipal obligations        --       --        330      5.97       3,359     8.27     2,269     7.20      5,958     7.74     5,978
Corporate obligations     5,004     5.51      6,034      5.73          --       --        --       --     11,038     5.63    10,928
Other securities(1)       1,000     4.14         --                    --       --        --       --      1,000     4.14       894
                         ------    -----     ------      ----      ------     ----    ------     ----     ------     ----    ------
  Total                 $ 6,007     5.27%   $61,363      5.80%    $12,859     7.13%  $ 2,269     7.20%   $82,498     6.01%  $80,784
                         ======    =====     ======      ====      ======     ====    ======     ====     ======     ====    ======
</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 $18.9 million of U.S.  government and agency obligations and other
     investments which are carried as  available-for-sale  at December 31, 2000.
     Investment securities available-for-sale are carried at fair value.


<PAGE>

         Investment  securities include  approximately $64.5 million in callable
securities.  If the security is called, the Corporation will receive a return of
its  investment  prior to the  contractual  maturity  date,  usually when market
interest rates are lower than they were when the securities were purchased.  The
following  table  sets  forth  information  with  respect  to the  Corporation's
callable securities:
<TABLE>
<CAPTION>

                                                                At December 31, 2000
                                                                --------------------
                                                               (Dollars in thousands)
              Date first callable       Contractual Maturity                          Contractual Interest
                 (month/year)             Date (month/year)           Amount                   Rate
              -------------------       --------------------          ------          ---------------------

<S>            <C>                        <C>                    C>                       <C>
                    Jan 01                     Feb 02               $  5,000                    5.42%
                    Jan 01                     Mar 02                  2,000                    5.67
                    Jan 01                     Apr 02                  1,000                    5.67
                    Jan 01                     Feb 03                  6,000                    5.61
                    Jan 01                     Mar 03                  3,000                    5.88
                    Jan 01                     May 03                  1,000                    6.16
                    Jan 01                     Jul 03                  2,000                    6.16
                    Jan 01                     Sep 03                  2,000                    5.96
                    Jan 01                     Jan 04                  3,999                    5.50
                    Jan 01                     Feb 04                  6,000                    5.75
                    Jan 01                     Mar 04                  5,000                    6.05
                    Jan 01                     Apr 04                  3,000                    5.90
                    Jan 01                     Jan 06                  2,000                    6.13
                    Jan 01                     Jun 07                  1,000                    7.31
                    Jan 01                     Feb 08                  2,000                    6.50
                    Jan 01                     Apr 08                  2,000                    6.61
                    Mar 01                     Sep 02                  3,000                    5.63
                    Mar 01                     Sep 08                  2,500                    6.54
                    Mar 01                     Mar 04                  4,000                    6.00
                    Apr 01                     Oct 07                  2,000                    7.00
                    Apr 01                     Apr 04                  2,000                    5.90
                    Apr 01                     Oct 03                  2,000                    5.87
                    May 01                     May 04                  2,000                    6.00
                                                                     -------                    ----
                                                                    $ 64,499                    5.93%
                                                                     =======                    ----
</TABLE>

Sources of Funds

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

         Deposits.  The Bank offers a variety of deposit accounts having a range
of interest rates and terms.  The Bank's  deposits  consist of regular  savings,
non-interest  bearing  checking,  NOW checking,  money market,  and  certificate
accounts.  Of the deposit  accounts,  $30 million or 8% consist of IRA, Keogh or
SEP retirement accounts at December 31, 2000.

         The flow of deposits is influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.  The Bank's deposits are primarily  obtained from


                                       18
<PAGE>

areas surrounding its offices, and the Bank relies primarily on customer service
and  long-standing  relationships  with  customers  to attract and retain  these
deposits.  The Bank has  maintained a high level of core deposits  consisting of
regular savings, money market,  non-interest-bearing checking, and NOW checking,
which has  contributed  to a low  cost-of-funds.  At  December  31,  2000,  core
deposits amounted to 62% of total deposits.

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

                                                   2000                           1999                            1998
                                   -------------------------------   -----------------------------   -----------------------------
                                                         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                         $ 35,127       8.76       1.02%   $37,926       9.41%    1.06%  $ 44,971    10.24%      1.12%
Money market accounts                 44,325      11.05       3.13     40,799      10.16     3.64     32,556     7.42       3.37
Non-interest-bearing checking
   accounts                           12,096       3.02       0.00      7,025       1.75     0.00      6,231     1.42       0.00
                                     -------      -----       ----     ------      -----     ----    -------    -----       ----
   Total transaction accounts         91,548      22.83                85,630      21.32              83,758    19.08

 Passbook accounts                   155,699      38.85       3.48    159,370      39.70     3.41    165,864    37.79       2.93

Certificates of deposit              153,604      38.32       5.32    156,578      38.98     4.90    189,291    43.13       5.02
                                     -------     ------       ----    -------     ------     ----    -------   ------       ----
    Total deposits                  $400,851     100.00%      3.66%  $401,698     100.00%    3.47%  $438,913   100.00%      3.64%
                                     =======     ======       ====    =======     ======     ====    =======   ======       ====

</TABLE>


         At December 31, 2000, the 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                              $ 5,388
Over three through six months                       3,776
Over six through 12 months                          5,953
Over 12 months                                      2,369
                                                   ------
    Total                                         $17,486
                                                   ======


                                       19


<PAGE>

Borrowings

         Deposits  are the  primary  source of funds of the Bank's  lending  and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Pittsburgh to supplement its supply of lendable funds.
Advances  from the FHLB of Pittsburgh  are typically  secured by a pledge of the
Bank's  stock  in the FHLB of  Pittsburgh  and a  portion  of the  Bank's  first
mortgage loans and certain other assets.  The Bank, if the need arises, may also
access the Federal Reserve Bank discount window.  The following tables set forth
the maximum  month-end  balance,  period ending  balance,  and weighted  average
balance of outstanding FHLB advances at the dates and for the periods indicated,
together with the applicable weighted average interest rates.
<TABLE>
<CAPTION>

                                                         At December 31,
                                            -------------------------------------
                                               2000         1999          1998
                                            -------------------------------------

                                                    (Dollars in thousands)

<S>                                     <C>             <C>           <C>
FHLB advances and other borrowings         $ 259,821       $264,299      $163,359
                                            ========        =======       =======

Weighted average interest rate                  5.78%          5.37%         5.77%

</TABLE>


<TABLE>
<CAPTION>

                                                     Years Ended December 31,
                                                     ------------------------
                                                 2000              1999               1998
                                           ---------------------------------------------------
                                                           (Dollars in thousands)
<S>                                        <C>                 <C>                <C>
Maximum balance of  FHLB advances and
  other borrowings outstanding                $ 259,889           $268,128           $163,359
                                               ========            =======            =======
Weighted average balance of FHLB
  advances and other borrowings
  outstanding                                 $ 243,656           $240,371           $163,359
                                               ========            =======            =======
Weighted average interest rate of FHLB
  advances and other borrowings                    5.68%              5.37%              5.77%
                                               ========            =======            =======

</TABLE>

                                       20

<PAGE>



         The Bank uses  convertible  FHLB  advances for a portion of its funding
needs.  These  borrowings  are  fixed  rate,  fixed  term  advances  that can be
converted to  LIBOR-based  floating  rate advances at the option of the FHLB, on
each quarterly  interest  payment date,  after an initial period.  The following
table sets forth information related to these convertible advances.

<TABLE>
<CAPTION>

                                                         At December 31, 2000
                                                         --------------------
                                                        (Dollars in thousands)
     Date first convertible      Contractual Maturity                                  Contractual Interest
          (month/year)             Date (month/year)               Amount                     Rate
          ------------             -----------------               ------                     ----

<S>        <C>                        <C>                     <C>                        <C>
             Feb 01                     Feb 04                      $20,000                    4.94%
             Apr 01                     Apr 03                        5,000                    5.75
             Feb 02                     Feb 09                       15,000                    4.74
             Feb 02                     Feb 04                       25,000                    5.10
             Apr 02                     Apr 08                       10,000                    5.41
             Jun 02                     Jun 08                       15,000                    5.63
             Jun 02                     Jun 08                       10,000                    5.61
             Feb 03                     Feb 06                       20,000                    5.15
             Mar 03                     Mar 08                       25,000                    5.70
             Mar 03                     Mar 08                       10,000                    5.61
             Feb 04                     Feb 09                       10,000                    5.05
                                                                   --------                   -----
                                                                  $ 165,000                    5.29%
                                                                   ========                   -----
</TABLE>


Subsidiary Activity

         The Bank is  permitted  to invest up to 2% of its assets in the capital
stock of, or secured or unsecured  loans to,  subsidiary  corporations,  with an
additional  investment  of 1% of  assets  when  such  additional  investment  is
utilized primarily for community development  purposes.  Under such limitations,
as of December 31, 2000, the Bank was  authorized to invest up to  approximately
$14 million in the stock of, or loans to, service  corporations  (based upon the
2% limitation). In addition, the Bank can designate a subsidiary as an operative
subsidiary if it engages only in activities in which it would be permissible for
the Bank to engage.  At December 31, 2000,  the Bank had one  subsidiary,  Third
Delaware  Corporation.  Third Delaware  Corporation is a wholly-owned  operating
subsidiary  of the Bank and was formed in 1998 for the purpose of  investing  in
marketable  securities.  At December 31, 2000, the Bank had $83 million invested
in Third Delaware Corporation.

Personnel

         As of December 31, 2000,  the Bank had 154  full-time  and 21 part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Bank believes that its relationship with its employees is
good.

                                       21
<PAGE>



Executive Officers of the Registrant

     Executive Officers of the Bank and the Company:

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

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

     Dennis R.  Stewart  has been  Senior  Vice  President  and Chief  Financial
Officer of the Bank and the Company since May 1999.  Prior to that,  Mr. Stewart
served as Executive Vice President and Chief Financial  Officer of First Coastal
Bank in Virginia Beach, Virginia, where he had been employed since 1990.

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

     Kent C. Lufkin has been with the Bank since 2000.  He  currently  serves as
Senior  Vice  President  and  Retail  Banking  Officer.   Mr.  Lufkin's's  prior
experience includes 4 years as Chief Executive Officer at Roebling Bank.

     Earl A. Pace, Jr. is Senior Vice President and Chief Information Officer of
the  Bank.  Mr.  Pace has been  with the Bank  since  1997.  Previously,  he was
President and CEO of Pace Data Systems,  an  information  technology  consulting
firm.

     Floyd P. Haggar has been with the Bank since  1998.  Mr.  Haggar  currently
serves as Senior Vice President and Chief Lending Officer of the Bank. His prior
experience  includes four years as Senior Vice President and Senior Loan Officer
at Carnegie 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 2000 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 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.

     On   November   12,   1999,   President   Clinton   signed   into  law  the
Gramm-Leach-Bliley  Act (the "Act")  which,  effective  March 11, 2000,  permits
qualifying  bank holding  companies to become  financial  holding  companies and
thereby  affiliate with securities  firms and insurance  companies and engage in
other  activities  that are financial in nature.  The Act defines  "financial in
nature"  to  include  securities

                                       22
<PAGE>

underwriting,  dealing and market making; sponsoring mutual funds and investment
companies;  insurance underwriting and agency; merchant banking activities;  and
activities  that the Federal  Reserve Board has determined to be closely related
to banking. A qualifying  national bank also may engage,  subject to limitations
on investment,  in activities that are financial in nature, other than insurance
underwriting,  insurance company portfolio investment,  real estate development,
and real estate investment, through a financial subsidiary of the bank.

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

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 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 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  holding
company,  and the activities of the Company and any of its  subsidiaries  (other
than  the 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.

Bank Regulation

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

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

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


                                       23
<PAGE>

policies,  including  policies with respect to the  classification of assets and
the  establishment of adequate loan loss reserves for regulatory  purposes.  Any
change in such  regulations,  whether by the OTS, the FDIC or the Congress could
have a material  adverse impact on the Company,  the Bank and their  operations.
The Company is also required to file certain reports with, and otherwise  comply
with, the rules and regulations of the OTS and the SEC.

         Insurance of Deposit Accounts.  The 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 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.

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

         At  December  31,  2000,  the  Bank was in  compliance  with all of its
regulatory capital requirements.

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

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

                                       24


<PAGE>

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,  must file a notice with OTS prior to making
the capital distribution.

         Qualified  Thrift Lender Test.  The Home Owners' Loan Act ("HOLA"),  as
amended, requires savings institutions to meet a QTL test. If the Bank maintains
an appropriate  level of Qualified  Thrift  Investments  (primarily  residential
mortgages and related investments, including certain mortgage-backed securities)
("QTIs")  and  otherwise  qualifies  as a QTL,  it will  continue  to enjoy full
borrowing  privileges  from the FHLB of Pittsburgh.  The required  percentage of
QTIs is 65% of portfolio assets (defined as all assets minus intangible  assets,
property used by the  institution  in conducting  its business and liquid assets
equal to 10% of total  assets).  Certain  assets  are  subject  to a  percentage
limitation of 20% of portfolio  assets.  In addition,  savings  associations may
include  shares of stock of the FHLBs,  FNMA and FHLMC as qualifying  QTIs.  The
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, 2000, the Bank was in compliance with
its QTL requirement with 95% of its assets invested in QTIs.

         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, 2000, the Bank's liquidity ratio was 19%.

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

         As a member, the Bank is required to purchase and maintain 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, 2000,  the Bank had $13 million in
FHLB stock, which was in compliance with this requirement.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity  requirements  that are imposed by the OTS. At December
31, 2000,  the Bank's total  transaction  accounts  required a reserve  level of
$2.857  million  which was offset by the  Bank's  vault cash on hand and cash on
deposit at the Federal Reserve Bank of Philadelphia.

         Savings  associations have authority to borrow from the Federal Reserve
Bank "discount  window," but Federal Reserve policy  generally  requires savings
associations  to exhaust  all OTS  sources  before  borrowing  from the  Federal
Reserve System. The Bank had no such borrowings at December 31, 2000.

                                       25
<PAGE>

Item  2.  Properties
--------------------

         The  Company is located and  conducts  its  business at 3 Penns  Trail,
Newtown,  Pennsylvania.  At December 31, 2000,  the Bank  operated from its main
office and fifteen branch offices  located in  Philadelphia  and Bucks Counties,
Pennsylvania and Mercer County, New Jersey. At the end of January 2001, the Bank
closed its  Princeton,  New Jersey  branch and will serve the  customers of that
branch from its nearby Lawrenceville branch office. The 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 the Bank.  The net book value of the two lots was  $102,000  at
December 31, 2000.  In addition,  the 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 $1.3 million at December 31, 2000.

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

<TABLE>
<CAPTION>

                                    Leased or                                         Leased or
    Location                          Owned              Location                       Owned
    --------                          -----              --------                      -------

<S>                              <C>               <C>                               <C>
ADMINISTRATIVE OFFICE                                 OPERATIONS OFFICE
  Newtown Office                                      Operations Center
  3 Penns Trail                                       62 Walker Lane
  Newtown, PA 18940                   Owned           Newtown, PA  18940(1)              Owned

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

  Warminster Office                                   Ewing Office
  601 Louis Drive                                     2075 Pennington Road
  Warminster, PA 18974                Leased          Trenton, NJ 08618                  Owned

  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                                   Feasterville Office
  834 North Easton Highway                            Buck Hotel Complex
  Doylestown, PA 18901                Owned           Feasterville, PA 19053             Leased

  Bridesburg Office                                   Quakerbridge Office
  Orthodox & Almond Streets                           590 Lawrence Square Blvd.
  Philadelphia, PA 19137              Owned           Lawrenceville, NJ 08648            Leased

  New Britain Office                                  Woodhaven Office
  600 Town Center                                     Knights Road Center
  New Britain, PA 18901               Leased          4014 Woodhaven Road
                                                      Philadelphia, PA 19154             Leased

</TABLE>

--------------------------------------
(1)      This office serves as the computer operations center,  check processing
         area, training center, mail processing and storage center for the Bank.


                                       26
<PAGE>


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.

                                     PART II

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

         Information  relating to the market for Registrant's  common equity and
related  stockholder  matters appears under the section  captioned "Stock Market
Information"  in the  Registrant's  2000 Annual  Report to  Stockholders  and is
incorporated herein by reference.

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

         The  above-captioned  information  appears under the section  captioned
"Selected  Financial and Other Data" in the  Registrant's  2000 Annual Report to
Stockholders and is incorporated herein by reference.

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

         The information  under the section captioned  "Management's  Discussion
and  Analysis  of  Financial   Condition  and  Results  of  Operations"  in  the
Registrant's  2000  Annual  Report to  Stockholders  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 Bank'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.

                                       27
<PAGE>


         The  Bank  utilizes  its   investment  and   mortgage-backed   security
portfolios to generate additional interest income and in managing its liquidity.
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. At December 31, 2000, approximately 38% 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, 2000,
the Bank did not have any hedging  transactions  in place such as interest  rate
swaps, caps, or floors.

         As part of its  interest  rate  risk  management,  the  Bank  uses  the
Interest Rate Risk  Exposure  Report,  which is generated  quarterly by the OTS.
This report  forecasts  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,
2000 are as follows:

                                            MVPE

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

                  +300 Basis Points         $25,283           -50%
                  +200 Basis Points         $34,529           -32%
                  +100 Basis Points         $43,525           -15%
                   Flat Rates               $50,925             0%
                  -100 Basis Points         $52,267            +3%
                  -200 Basis Points         $48,923            -4%
                  -300 Basis Points         $46,640            -8%

         Management believes that the assumptions  utilized by OTS in evaluating
the  vulnerability  of the  Company's  capital to changes in interest  rates are
reasonable;  however,  the interest  rate  sensitivity  of the Bank's assets and
liabilities as well as the estimated effect of changes in interest rates on 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  measure an excessive  decline in its MVPE
as the result of an immediate  and sustained  change in interest  rate, it has a
number of options  which it could  utilize to remedy  that  situation.  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.


                                       28
<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

         The Consolidated  Financial Statements of TF Financial  Corporation and
its subsidiaries included in the Registrant's 2000 Annual Report to Stockholders
are incorporated herein by reference.

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

--------------------------------------------------------------------------------

         None.

                                    PART III

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

         The information  contained under the sections  captioned  "Proposal 1 -
Election of Directors -- General  Information and Nominees" and "-- Biographical
Information" and "Additional  Information About Directors and Executive Officers
-- Section 16(a) Beneficial Ownership Reporting  Compliance" in the Registrant's
definitive  proxy  statement  for  the  Registrant's   2001  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  information  contained  under the section  captioned
"Director  and  Executive  Officer   Compensation"  in  the  Registrant's  Proxy
Statement.

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  information
contained under the section captioned  "Voting  Securities and Principal Holders
Thereof"  and in the first  table  under the  section  captioned  "Proposal  1 -
Election of Directors" in the Registrant's Proxy Statement.

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

         The  information   relating  to  certain   relationships   and  related
transactions  is incorporated  herein by reference to the information  contained
under  the  section  captioned  "Additional   Information  About  Directors  and
Executive  Officers -- Certain  Relationships  and Related  Transactions" in the
Registrant's Proxy Statement.


                                       29

<PAGE>


                                     PART IV

Item 14.  Exhibits, Financial Statements and Reports on Form 8-K
----------------------------------------------------------------

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

         (1)  The  following   financial   statements  and  the  report  of  the
independent  auditor of the Company included in the Company's 2000 Annual Report
to Stockholders are incorporated herein by reference.

Independent Auditors' Report
Consolidated Statements of Financial Position as of December 31, 2000 and 1999
Consolidated Statements of Earnings For the Years Ended
  December 31, 2000, 1999 and 1998
Consolidated Statement of Changes in Stockholders' Equity and Comprehensive
  Income for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements

         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.
<TABLE>
<CAPTION>

<S>   <C>
         (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 Kent C. Lufkin
         10.7     Severance Agreement with Floyd P. Haggar
         10.8     Severance Agreement with Earl A. Pace, Jr.*****
         10.9     Severance Agreement with Dennis R. Stewart******
         10.10    TF Financial Corporation 1997 Stock Option Plan****
         13.0     2001 Annual Report to Stockholders
</TABLE>

                                       30

<PAGE>

         21.0     Subsidiary Information
         23.0     Consent of Independent Auditor

-------------------------
<TABLE>
<CAPTION>

<S>    <C>
*         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.
*****     Incorporated herein by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended December 31, 1998.
******    Incorporated herein by reference to the Registrant's Annual Report on Form
          10-K for the fiscal year ended December  31, 1999.

         (b)      Reports on Form 8-K.

                  None
</TABLE>


                                       31
<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 28, 2001                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, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated as of March 28, 2001.

<TABLE>
<CAPTION>


<S>    <C>                                  <C>      <C>
By:      /s/ John R. Stranford                   By:      /s/ Dennis R. Stewart
         -------------------------------------            -----------------------------------------------
         John R. Stranford                                Dennis R. Stewart
         President, Chief Executive Officer               Senior Vice President, Chief
          and Director                                    Financial Officer and Treasurer
         (Principal Executive Officer)                    (Principal Financial and Accounting
                                                            Officer)


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



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


</TABLE>