TF FINANCIAL CORPORATION


To Our Shareholders:


         In 1998,  your  company  completed  the  restructuring  of its team and
systems  necessary to take us into the next century as a full service  community
bank.

         We are very pleased to announce  that Floyd  Haggar  joined our team as
Senior Vice  President and Chief  Lending  Officer.  Floyd brings  experience in
commercial  lending for over 20 years in our local  marketplace.  With his staff
now in place, we are seeing a substantial  increase in our earning  assets.  Our
commercial loan portfolio grew by 87% for the year as a result of these efforts.

         Total assets have  increased  11.5% from $597.0 million at December 31,
1997 to $665.6  million  at the end of 1998.  During the same  period,  our book
value per share  increased  6.2% from $17.36 at  December  31, 1997 to $18.43 at
December 31, 1998. Earnings per share rose 4.5% from $1.33 for 1997 to $1.39 for
1998.  Our increased  earnings have  contributed  to our steady  improvement  to
Return on Equity. Return on Equity increased 5.4% from 7.39% in 1997 to 7.79% in
1998.

         During this past year,  we  installed  our new  client-server  computer
system.  This new  system,  which  has been  tested  extensively  for Year  2000
compliance,  has enabled us to better  serve both our  consumer  and  commercial
clientele.  In addition,  a Year 2000 Steering Committee was established to deal
with the  challenges of the  millennium  change to both our in-house  systems as
well as the systems of our vendors and customers.

         In  October  1998,  the  Board  approved  the  repurchase  of 5% of the
Company's  outstanding stock. With the depressed trading value of recent months,
this should have the effect of enhancing  stockholder value.  Management and the
Board of Directors believe that together with our employees, we have the ability
to face the  challenges  of increased  competition.  We are committed to further
increasing  earnings growth and maximizing  shareholder  value while maintaining
our traditions of community banking.

         We appreciate the opportunity to continue to serve you.


Sincerely,

/s/John R. Stranford
--------------------------
John R. Stranford
President and Chief
Executive Officer

<PAGE>


                            TF FINANCIAL CORPORATION
                                  ANNUAL REPORT
                                DECEMBER 31, 1998

--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------

Letter to Stockholders......................................   Front Cover


Corporate Profile and Stock Market Information........................   2


Selected Financial Information and Other Data.........................   4


Management's Discussion and Analysis of
  Financial Condition and Results of Operations.......................   6


Report of Independent Certified Public
  Accountants .......................................................   19


Consolidated Statements of Financial Position........................   20


Consolidated Statements of Earnings.................................... 21


Consolidated Statement of Changes in Stockholders'
  Equity and Comprehensive Income.......................................22


Consolidated Statements of Cash Flows...................................24


Notes to Consolidated Financial Statements...........................   26


Office Locations.....................................................   64


Corporate Information.........................................  Back Cover


<PAGE>


Corporate Profile and Related Information

         TF Financial  Corporation (the  "Corporation") is the parent company of
Third  Federal  Savings  Bank  ("Third  Federal"  or  the  "Savings  Bank"),  TF
Investments   Corporation,   Teragon  Financial   Corporation  and  Penns  Trail
Development  Corporation.  At December 31, 1998, total assets were approximately
$665.6 million.  The  Corporation was formed as a Delaware  corporation in March
1994 at the  direction of the Savings  Bank to acquire all of the capital  stock
that Third Federal issued upon its  conversion  from the mutual to stock form of
ownership  (the  "Conversion")  and  concurrent  $52.9  million  initial  public
offering  effective  July 13, 1994.  At December 31, 1998,  total  stockholders'
equity was approximately $52.7 million. The Corporation is a unitary savings and
loan holding company which, under existing laws,  generally is not restricted in
the types of business  activities  in which it may engage,  provided  that Third
Federal retains a specified amount of its assets in housing-related investments.

         Third Federal is a federally-chartered stock savings bank headquartered
in Newtown, Pennsylvania,  which was originally chartered in 1921 under the name
"Polish American Savings Building and Loan Association."  Third Federal became a
federally  chartered mutual savings and loan  association  under the name "Third
Federal Savings and Loan  Association of  Philadelphia" in 1935, and a federally
chartered  stock  savings  bank  under  its  present  name,  and a wholly  owned
subsidiary  of  the   Corporation,   in  July  1994,  in  connection   with  its
mutual-to-stock conversion.  Third Federal significantly expanded its operations
throughout Philadelphia and Bucks Counties,  Pennsylvania,  in June 1992 through
its   acquisition   of   Doylestown   Federal   Savings  and  Loan   Association
("Doylestown").  In September 1996,  Third Federal  expanded its operations into
Mercer County, New Jersey, through its acquisition of three branches, along with
the related deposits,  of Cenlar Federal Savings Bank. Deposits of Third Federal
have been  federally  insured  since  1935 and are  currently  insured up to the
maximum  amount  allowable by the Federal  Deposit  Insurance  Corporation  (the
"FDIC").  Third Federal is a community oriented savings  institution  offering a
variety  of  financial  services  to meet the needs of the  communities  that it
serves.  Third  Federal  conducts its business  from its main office in Newtown,
Pennsylvania,  and thirteen full service branch offices  located in Philadelphia
and Bucks Counties, Pennsylvania and Mercer County, New Jersey.

         Third  Federal  attracts  deposits  (approximately  $438.9  million  at
December 31, 1998) from the general public and uses such deposits, together with
borrowings  (approximately $163.4 million at December 31, 1998) and other funds,
primarily  to  invest  in  mortgage-backed  and  investment  securities  and  to
originate  or  purchase  loans  secured by first  mortgages  on  owner-occupied,
one-to-four  family  residences.  To a lesser  extent,  the  Savings  Bank  also
originates  and  purchases   commercial  real  estate  and  multi-family  loans,
construction loans and consumer loans.

Stock Market Information

         Since its  issuance in July 1994,  the  Corporation's  common stock has
been traded on the Nasdaq  National  Market.  The daily stock  quotation for the
Corporation is listed in the Nasdaq National Market published in The Wall Street
Journal,  The  Philadelphia  Inquirer,  and other leading  newspapers  under the
trading symbol of "THRD".  The following  table reflects the closing stock price
as published by the Nasdaq National Market  statistical  report for the past two
fiscal years.


         Fiscal 1998                        HIGH          LOW
         -----------                        ----          ---
         First Quarter                     $29.50        $24.75
         Second Quarter                    $30.00        $24.25
         Third Quarter                     $26.50        $17.38
         Fourth Quarter                    $20.38        $16.13

                                       2

<PAGE>


         Fiscal 1997                        HIGH           LOW
         -----------                        ----           ---
         First Quarter                     $19.25         $16.50
         Second Quarter                    $19.63         $13.63
         Third Quarter                     $25.69         $19.13
         Fourth Quarter                    $30.00         $23.25

The number of  shareholders  of record of common stock as of March 22, 1999, was
approximately  673.  This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At March
22, 1999,  there were  3,041,010  shares of the common stock of the  Corporation
outstanding.

Dividend Policy

         The Corporation's ability to pay dividends to stockholders is dependent
in part  upon  the  dividends  it  receives  from  Third  Federal.  Among  other
limitations,  Third Federal may not declare or pay a cash dividend on any of its
stock if the effect thereof would cause Third Federal's regulatory capital to be
reduced below (1) the amount required for the liquidation account established in
connection with Third Federal's conversion from mutual to stock form, or (2) the
regulatory  capital  requirements  imposed by the  Office of Thrift  Supervision
("OTS").  It is the  Corporation's  policy  to pay  dividends  when it is deemed
prudent to do so. The Board of Directors will consider the payment of a dividend
on a quarterly basis, after giving consideration to the level of profits for the
previous quarter and other relevant  information.  The following charts show the
Corporation's history of dividend payments.

Dividend History

                                    HISTORY
          -----------------------------------------------------------------
            Financial               Declaration             Dividend Amount
          Period Ended                  Date                  (per share)
          ------------              -----------             ---------------

          June 30, 1994                 None                     $0.00
          December 31, 1994        January 25, 1995              $0.05
          June 30, 1995            July 26, 1995                 $0.07
          March 31, 1996           April 24, 1996                $0.08
          December 31, 1996        January 22, 1997              $0.10
          December 31, 1997        January 22, 1998              $0.12
          December 31, 1998        January 22, 1999              $0.12
                                                           

Change in Accounting Period

         On August 19, 1994, the Board of Directors of TF Financial  Corporation
approved a change in the Corporation's  fiscal year end from June 30 to December
31.  This  change was  instituted  to enable  the  Corporation  to  present  its
financial  reports on a fiscal year end that is more  prevalent in the financial
services industry.

                                       3
<PAGE>
SELECTED FINANCIAL INFORMATION AND OTHER DATA
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                     At December 31,
Financial Condition                                                  ---------------
(Dollars in Thousands, except per share data)       1998       1997       1996       1995       1994
--------------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>        <C>        <C>     
Total Assets ..................................   $665,609   $597,047   $647,853   $490,358   $431,828

Loans Receivable, Net .........................    240,841    250,711    309,570    238,275    113,893
Mortgage-backed Securities available
  for sale, at fair value .....................     75,285     36,847     22,027     29,640         --

Mortgage-backed securities held to maturity 
  at cost .....................................    180,964    144,074    153,758    137,841    181,411

Securities purchased under agreements to resell         --     10,000     25,129         --         --
Investment securities available
  for sale, at fair value .....................      9,042     32,037     12,652     15,044     41,002

Investment securities held to maturity, at
  cost.........................................     80,895     52,822     38,544     23,640     36,531

Cash and cash equivalents(1) ..................     42,703     41,625     54,132     27,032     42,376

Savings deposits ..............................    438,913    450,429    469,088    337,069    347,631

Other borrowings ..............................    163,359     88,359     98,359     73,359         --

Retained earnings .............................     45,762     43,176     39,750     37,529     34,746

Total stockholders' equity ....................     52,660     50,095     72,575     73,332     79,972

Book value per common share ...................   $  18.43   $  17.36   $  18.31   $  17.08   $  16.38

Tangible book value per common share ..........   $  15.84   $  14.49   $  15.99   $  17.08   $  16.38
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                              Year ended                  Six months ended  Year ended
                                                             ------------                 ----------------  ----------
Summary of Operations                                         December 31,                   December 31,    June 30,
(Dollars in Thousands, except per                            ------------                    ------------   ----------
Share data)                                        1998 (3)      1997     1996 (2)    1995      1994 (4)      1994
----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>        <C>        <C>       <C>        <C>        <C>     
Interest income ................................     $43,579     $43,189   $38,989   $29,630   $13,901      $24,516  
                                                                                                            
Interest expense ...............................      26,195      24,080    20,797    14,403     6,271       12,789
                                                                                                            
Net interest income ............................      17,384      19,109    18,192    15,227     7,630       11,727
                                                                                                            
Provision for loan losses ......................          60         397       330        72        30         (144)
                                                                                                            
Non-interest income ............................       1,579       2,327     1,794     1,161       617        1,903
                                                                                                            
Non-interest expense ...........................      12,766      13,583    13,745     9,975     4,601        9,452
                                                                                                            
Net income before cumulative effect                                                                         
  of change in accounting method ...............       3,830       4,874     3,479     3,871     2,180        2,666
                                                                                                            
Net income .....................................       4,038       4,874     3,479     3,871     2,607        4,466
Earnings per common share - basic                                                                           
                                                                                                            
   Continuing operations .......................      $ 1.32      $ 1.33    $ 0.86    $ 0.84    $ 0.45          N/A
                                                                                                            
   Cumulative effect of accounting changes .....      $ 0.07        --        --        --      $ 0.08          N/A
                                                                                                            
   Earnings per common share - basic ...........      $ 1.39      $ 1.33    $ 0.86    $ 0.84    $ 0.53          N/A
                                                                                                            
Earnings per common share - assuming dilution                                                               
                                                                                                            
   Continuing operations .......................      $ 1.20      $ 1.25    $ 0.83        --    $ 0.45          N/A  
                                                                                                            
   Cumulative effect of accounting changes .....      $ 0.06          --        --        --    $ 0.08          N/A
                                                                                                            
   Earnings per common share - assuming dilution      $ 1.26      $ 1.25    $ 0.83    $ 0.83    $ 0.53          N/A
</TABLE>                                                   
                                       4
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Performance Ratios and Other                                     Year ended                Six months ended Year ended
Selected data                                                   December, 31                 December, 31    June, 30
                                                                ------------                  ------------  ----------
                                                  1998(3)     1997        1996(2)     1995      1994(4)(5)   1994               
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>        <C>           <C>        <C>        <C>        <C>   
Return on average assets ..................         0.61%      0.77%        0.62%      0.88%      1.00%      0.67%

Return on average equity ..................         7.79%      7.39%        4.74%      4.99%      5.40%      8.59%

Average equity to average assets ..........         7.81%     10.46%       12.91%     17.54%     18.48%      7.65%

Average interest rate spread ..............         2.44%      2.72%        2.76%      2.84%      3.15%      2.86%

Non-performing loans to total assets ......         0.25%      0.23%        0.30%      0.37%      0.42%      0.48%

Non-performing loans to total loans .......         0.66%      0.55%        0.64%      0.76%      1.48%      1.49%

Allowance for loan losses to non-performing
  loans ...................................       119.16%    146.82%       91.60%     82.31%     87.13%     84.71%

Allowance for loan losses to total loans ..         0.79%      0.80%        0.58%      0.62%      1.29%      1.19%

Savings Bank regulatory capital

    Core ..................................         6.79%      7.16%        7.77%     12.21%     13.57%      7.37%

    Tangible ..............................         6.79%      7.16%        7.77%     12.21%     13.57%      7.37%

    Risk based ............................        17.73%     17.41%       17.68%     27.07%     39.46%     21.27%

 Dividend payout ratio (6)                         38.10%     32.00%       37.35%     28.92%      N/A        N/A

</TABLE>


1.   Consists  of cash,  cash due from  banks,  interest-bearing  deposits,  and
     federal funds sold with maturities of less than three months.
2.   Includes  a  $1.4  million  after  tax  one-time   special   assessment  to
     recapitalize the Savings Association Insurance Fund ("SAIF").
3.   Income and income related ratios for the year ended 12/31/1998  include the
     cumulative  effect of a change in  accounting  for certain  investments  of
     $208,000 (SFAS #133).
4.   Income related ratios exclude the one-time cumulative effect of a change in
     accounting  for certain  investments  of $427,000  for the six months ended
     12/31/94  (SFAS  #115) and change in  accounting  for income  taxes of $1.8
     million for the fiscal year end 6/30/94 (SFAS #109).
5.   Ratios for six month periods are stated on an annualized basis. Such ratios
     are not necessarily  indicative of the results that may be expected for the
     full year.
6.   Payout  ratio is  dividends  paid for the period  divided by  earnings  per
     common  share  assuming  dilution  after  cumulative  effect of  accounting
     changes.

                                       5
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

General

         The following  discussion  and analysis  should be read in  conjunction
with the  Corporation's  consolidated  financial  statements  and is intended to
assist in  understanding  and  evaluating  the major  changes  in the  financial
condition and results of operations of the  Corporation  with a primary focus on
an analysis of operating results.

         Certain  forward-looking  statements  contained  herein are  subject to
risks and uncertainties.  The Corporation's actual results may differ materially
from those set forth in such  forward-looking  statements.  Reference is made to
the Corporation's  reports filed with the Securities and Exchange Commission for
a discussion of factors that may cause such differences to occur.

         The   Corporation's   income  on  a   consolidated   basis  is  derived
substantially from its investment in its subsidiary, Third Federal. The earnings
of Third  Federal  depend  primarily  on its net interest  income.  Net interest
income is affected by the interest  income that Third Federal  receives from its
loans and investments  and by the interest  expense that the Savings Bank incurs
on its deposits,  borrowings and other sources of funds. The difference  between
average rate of interest earned on interest  earning assets and the average rate
paid on  interest  bearing  liabilities  is the  "interest  rate  spread".  When
interest  earning  assets  equal or exceed  interest  bearing  liabilities,  any
positive interest rate spread will produce net interest income. During the years
ended  December 31, 1998,  December 31, 1997, and December 31, 1996, the average
net interest rate spread was 2.44%, 2.72% and 2.76% respectively.

         In addition,  Third Federal  receives  income from service  charges and
other fees and occasionally from sales of investment  securities and real estate
owned.  The Savings Bank incurs expenses in addition to interest  expense in the
form of salaries and benefits,  deposit insurance premiums,  property operations
and maintenance, advertising and other related business expenses.

Interest Rate Sensitivity Analysis

         The Corporation's  asset/liability strategy for 1999 is to maintain its
present  positive gap  position  (interest-earning  assets  subject to repricing
greater than  interest-bearing  liabilities subject to repricing) for periods of
up to five years so that the impact of a slightly rising rate environment on net
interest  income  will  not be  significant  to  the  Corporation's  results  of
operations.  Effective  monitoring  of these  interest  sensitivity  gaps is the
priority of the Corporation's asset/liability management committee.

         The   following   table   indicates   the   time   periods   in   which
interest-earning assets and interest-bearing  liabilities will mature or reprice
in accordance with their  contractual  terms or assumed  prepayment  rates.  The
assumptions  used in the table are  included  in the notes  thereto.  Management
believes that the assumptions used to evaluate the  vulnerability of the Savings
Bank's operations to changes in interest rates are reasonable. The interest rate
sensitivity of the Savings  Bank's assets and  liabilities as shown in the table
below could vary  substantially if differing  assumptions were used or if actual
experience differs from the assumptions used in the table. For example, although
certain  assets  and  liabilities  may have  similar  maturities  or  periods to
repricing,  they may react in  differing  degrees to changes in market  interest
rates.  The  interest  rates on  certain  types of assets  and  liabilities  may
fluctuate in advance of changes in market interest  rates,  while interest rates
on other types may lag behind changes in market rates.  Further, in the event of
a significant  change in interest rates,  prepayment and early withdrawal levels
would likely deviate significantly from those assumed in the table. Finally, the
ability of many borrowers to service their  adjustable-rate debt may decrease in
the event of an interest rate increase.

                                       6
<PAGE>

Gap Table  --  As of December 31, 1998

<TABLE>
<CAPTION>

                                           3 Months     3 Months     1 to 3      3 to 5     5 to 10   10 to 20   Over 20
                                            or Less    to 1 Year     Years       Years       Years     Years      Years       Total
                                            -------    ---------     -----       -----       -----     -----      -----       -----
<S>                                       <C>         <C>         <C>         <C>         <C>       <C>         <C>       <C>     
Interest-earning assets:
  Loans receivable - net (1).......         $51,655     $69,215     $57,838     $28,769     $30,753    $2,489       $122    $240,841
  Mortgage-backed securities
available for sale (2) ............           5,426      12,311      21,619      13,087      15,792     7,050         0       75,285
  Mortgage-backed securities held
to maturity (2)....................          13,042      29,595      51,969      31,461      35,972    16,947      1,978     180,964
  Investment securities available
for sale...........................           5,007       4,035           0           0           0         0          0       9,042
  Investment securities held
to maturity........................          50,170       9,223       8,142     10,645        2,715         0          0      80,895
  Certificates of deposit-other
    Bank...........................             972       1,208          58           0           0         0          0       2,238
  Other earning assets.............          43,466       2,293       6,112           0           0         0          0      51,871
                                            -------     -------     -------      ------      ------    ------      -----     -------
      Total interest-earning assets......  $169,738    $127,880    $145,738     $83,962     $85,232   $26,486     $2,100    $641,136
                                            =======     =======     =======      ======      ======    ======      =====     =======
</TABLE>

<TABLE>
<S>                                   <C>         <C>        <C>         <C>         <C>         <C>         <C>         <C>     
Interest-bearing liabilities: (3)
  Non-interest bearing deposits....     $    795    $ 1,985    $  1,934    $    925    $    535    $     56    $      1    $  6,231
  NOW and Super NOW accounts.......        3,378     10,132      10,637       7,067       8,877       4,266         614      44,971
  Savings accounts.................        4,971     14,913      27,879      30,753      41,252      33,258      12,838     165,864
  Money market deposit accounts....        3,015      9,045      10,856       4,763       3,733       1,017         127      32,556
  Certificates of deposit                 90,910     42,822      47,832       5,282       2,128         317           0     189,291
  Borrowings ......................       10,000     15,000      30,000      20,000      85,000       3,359           0     163,359
                                          ------     ------      ------      ------      ------      ------      ------     -------
      Total interest-bearing
       Liabilities ................     $113,069    $93,897    $129,138    $ 68,790    $141,525    $ 42,273    $ 13,580    $602,272
                                         =======     ======     =======     =======     =======      ======     =======     =======
Interest sensitivity gap...........     $ 56,669    $33,983     $16,600     $15,172    $(56,293)   $(15,787)   $(11,480)   $ 38,864
                                         -------     ------      ------      ------     -------     -------     -------     -------
Cumulative interest sensitivity
  Gap..............................     $ 56,669    $90,652    $107,252    $122,424    $ 66,131    $ 50,344    $ 38,864    $ 38,864
                                         =======     ======     =======     =======     =======     =======     =======     =======
Ratio of interest-earning assets
 To interest-bearing liabilities...       150.12%    136.19%     112.85%     122.06%      60.22%      62.65%      15.46%     106.45%
                                         =======     ======     =======     =======     =======     =======     =======     =======
Ratio of cumulative gap to
 Total assets......................         8.51%     13.62%      16.11%      18.39%       9.94%       7.56%       5.84%       5.84%
                                         =======     ======     =======     =======     =======     =======     =======     =======
</TABLE>
----------------------------------
(1)      Adjustable  rate loans are  included  in the  period in which  interest
         rates are next  scheduled to adjust  rather than in the period in which
         they are due. Fixed rate loans are included in the period in which they
         are scheduled to be repaid and adjusted to take into account  estimated
         prepayments  based upon  assumptions  estimating the prepayments in the
         interest rate environment prevailing during the fourth calendar quarter
         of  1998.  The  table  assumes   prepayments  and  scheduled  principal
         amortization of fixed-rate loans and  mortgage-backed  securities,  and
         assumes that adjustable rate mortgage loans will reprice at contractual
         repricing  intervals.  There has been no  adjustment  for the impact of
         future commitments and loans in process.
(2)      Reflects  estimated   prepayments  in  the  interest  rate  environment
         prevailing during the fourth quarter of 1998
(3)      Certificates  of deposit  are  included in the period in which they are
         scheduled  to mature.  Passbook  and  statement  savings  accounts  are
         assumed  to decay  at a rate of 12%,  10% and 10% for the  first  three
         years, respectively,  and 12% per year thereafter.  Passbook, statement
         savings,  NOW,  and MMDA  accounts are  generally  subject to immediate
         withdrawal,  however,  management considers a portion of these accounts
         to be core deposits having  significantly  longer effective  maturities
         based upon the Savings Bank's historical  retention of such deposits in
         changing  interest rate environments and the presentation of run off of
         such deposits based upon the financial industry's experience.

                                       7
<PAGE>


Average Balance Sheet
The  following  tables  sets forth  information  relating  to the  Corporation's
average balance sheets and reflects the average yield on assets and average cost
of liabilities for the periods  indicated.  The yields and costs are computed by
dividing income or expense by the monthly  average  balance of  interest-earning
assets or interest-bearing liabilities, respectively, for the periods indicated,
however,  management  does not believe the use of month-end  balances has caused
any material difference in the information presented.

<TABLE>
<CAPTION>

                                                 Year Ended December 31,       Year Ended December 31,     Year ended December 31,
                                                          1998                           1997                        1996
                                                 -----------------------       -----------------------     -----------------------
                                                                   Average                       Average                     Average
                                               Average             Yield/   Average              Yield/   Average            Yield/
                                               Balance   Interest   Cost    Balance    Interest   Cost    Balance  Interest   Cost
                                               -------   --------  -------  -------    --------  -------  -------  --------  -------

<S>                                           <C>        <C>        <C>    <C>         <C>       <C>    <C>       <C>       <C> 
 Assets:
 Interest-earning assets:
   Loans receivable (4)....................    $232,924   $18,657    8.01%  $293,023    $23,050   7.87%  $298,800  $23,116   7.74%
                                               
   Mortgage-backed securities..............     251,785    16,357    6.50%   185,391     12,514   6.75%   162,973   11,041   6.77%
   Investment securities...................     115,801     6,918    5.97%    90,708      5,683   6.27%    48,359    2,888   5.97%
   Other interest-earning assets(1)........      40,413     1,647    4.08%    42,457      1,942   4.57%    43,024    1,944   4.52%
                                                 ------     -----             ------      -----      -     ------    -----
     Total interest-earning assets.........    $640,923   $43,579    6.80%  $611,579    $43,189   7.06%  $553,156  $38,989   7.05%
                                               ========   =======           ========    =======           =======   ======
 Non interest-earning assets...............      22,428                       18,987                     $ 14,714
                                                 ------                       ------                      -------
     Total assets..........................    $663,351                     $630,566                     $567,870
                                               ========                     ========                      =======
 Liabilities and Stockholders' Equity:         
   Interest-bearing liabilities:               
     Savings deposits......................     447,995   $17,397    3.88%   456,345    $18,211   3.99%  $382,511  $14,739   3.85%
     Borrowings............................     152,942     8,798    5.75%    97,942      5,869   5.99%   102,526    6,058   5.91%
                                                -------     -----             ------      -----     --    -------    -----
       Total interest-bearing liabilities..    $600,937   $26,195    4.36%  $554,287    $24,080   4.34%  $485,037  $20,797   4.29%
                                               ========   =======           ========    =======           =======   ======
 Non interest-bearing liabilities..........      10,582                       10,293                        9,498
       Total liabilities...................     611,519                      564,580                      494,535
 Stockholders' equity......................      51,832                       65,986                       73,335
                                                 ------                      -------                      -------
       Total liabilities and Stockholders'      
         equity............................    $663,351                     $630,566                     $567,870
                                               ========                     ========                      =======
 Net interest income.......................               $17,384                       $19,109                    $18,192
                                                          =======                       =======                     ======
 Interest rate spread (2)..................                          2.44%                        2.72%                      2.76%
 Net yield on interest-earning assets (3)..                          2.71%                        3.12%                      3.29%
 Ratio of interest-earning assets to           
   Average interest bearing liabilities....                           107%                         110%                       114%
</TABLE>

(1)       Includes interest-bearing deposits in other banks.
(2)       Interest-rate  spread  represents the  difference  between the average
          yield   on   interest-earning   assets   and  the   average   cost  of
          interest-bearing liabilities.
(3)       Net yield on interest-earning assets represents net interest income as
          a percentage of average interest-earning assets.
(4)       Nonaccrual  loans have been included in the  appropriate  average loan
          balance  category,  but  interest  on  nonaccrual  loans  has not been
          included for purposes of determining interest income.

                                       8
<PAGE>

Changes to Financial Condition

         The  Corporation's  total  assets at December 31, 1998 and December 31,
1997 totaled $665.6  million and $597.0  million,  respectively,  an increase of
$68.6  million or 11.5%.  This  increase was  primarily as a result of the $75.3
million or 41.6% increase in  mortgaged-backed  securities,  the $5.1 million or
6.0% increase in investment  securities,  the $4.3 million or 86.4%  increase in
Federal  Home Loan Bank  stock,  partially  offset by the $10.0  million or 100%
decrease in securities purchased under agreements to resell and the $9.9 million
or 3.9%  decrease  in loans  receivable,  net.  This net  increase in assets was
funded by the  increase  in advances  from the  Federal  Home Loan Bank of $75.0
million  or  84.9%,  the $2.6  million  or 6%  increase  in  retained  earnings,
partially  offset  by the  $11.5  million  or 2.6%  decrease  in  total  savings
deposits. The increase in mortgage-backed  securities was directly funded by the
increase in advances  from the Federal  Home Loan Bank.  The decrease in savings
deposits was primarily  the result of  management's  decision to price  deposits
less aggressively.

         Total consolidated  stockholders'  equity of the Corporation  increased
$2.6  million  to $52.7  million at  December  31,  1998 from  $50.1  million at
December 31, 1997. The 5.1% increase is primarily  attributed to the addition of
$4.0 million of net income  offset by the $1.4  million  payment of dividends to
shareholders.  The increase in total consolidated  stockholders'  equity coupled
with the  increase of $68.6  million in total  assets  resulted in a decrease in
consolidated  stockholders'  equity as a  percentage  of total assets to 7.9% at
December 31, 1998 from 8.4 % at December 31, 1997.

Comparison of Years Ended December 31, 1998 and December 31, 1997

Net Income.  Net Income of $4.0  million for the fiscal year ended  December 31,
1998  decreased  $836,000,  or 17.2%,  over net income of $4.9  million  for the
fiscal year ended  December 31, 1997.  The decrease in earnings is primarily due
to the $1.7 million, or 9.0%, decrease in net interest income, the $748,000,  or
32.1%,  decrease  in  non-interest  income,  partially  offset  by the  $817,000
decrease in non-interest  expense,  the $275,000  decrease in income tax expense
and the $208,000  cumulative effect of accounting  changes.  Net interest income
before  provision  for loan  losses was $17.4  million for the fiscal year ended
December  31, 1998 as compared to $19.1  million for the same period in 1997,  a
decrease of $1.7 million,  or 9.0%. Total interest income increased  $390,000 or
0.9% to $43.6  million at December 31, 1998,  from $43.2 million at December 31,
1997. For these same periods, total interest expense was $26.2 million and $24.1
million, respectively, an increase of $2.1 million, or 8.8%. Non-interest income
was $1.6  million and $2.3  million,  respectively,  for these same  periods,  a
decrease  of  $748,000,  or 32.1%.  The  decrease  in  non-interest  income  was
primarily  attributed to the decrease in gain on sale of servicing  rights,  the
decrease  in the  gain on sale of  loans,  the  decrease  in the gain on sale of
investment  securities,  the  decrease in service  charges  and other  operating
income  partially offset by the increase in gain on sale of real estate acquired
through foreclosure.  Operating expense (non-interest expense) was $12.8 million
and $13.6 million for the fiscal years ended  December 31, 1998 and December 31,
1997,  respectively.  The decrease in operating  expense was attributable to the
decrease in employee  compensation  and benefits,  the decrease in occupancy and
equipment and data processing expenses.

Total  Interest  Income.  For the fiscal year ended  December  31,  1998,  total
interest  income  increased to $43.6 million from $43.2 million  compared to the
fiscal year ended December 31, 1997. This increase of $390,000,  or 0.9%, is due
primarily to the $3.8 million,  or 30.7%,  increase in income on mortgage-backed
securities.  This increase was also due to the $1.2 million, or 21.7%,  increase
in interest  income on investment  securities  offset by the $295,000,  or 15.2%
decrease in interest on other interest bearing deposits and the $4.4 million, or
19.1%   decrease  in  interest   income  on  loans.   The  average   balance  of
mortgage-backed securities increased $66.4 million to $251.8 million from $185.4
million while the average yield on mortgage-backed securities decreased to 6.50%
from 6.75% when  comparing  these same periods.  The increase in total  interest
income  attributed  to  investment  and  mortgage-backed  securities  and  other
interest  earning assets of $4.8 million was offset by the decrease

                                       9
<PAGE>

in income on loans.

During  the same time  periods  the  average  balance of  investment  securities
increased  by $25.1  million  to $115.8  million  from $90.7  million,  with the
average yield decreasing to 5.97% from 6.27%. Interest on loans declined by $4.4
million,  or 19.1%,  for the fiscal year ended December 31, 1998, as compared to
the similar period in 1997 as a result of the decrease in the average balance to
$232.9  million from $293.0  million.  Interest on  securities  purchased  under
agreements  to resell  decreased to $198,000 for the fiscal year ended  December
31, 1998 from $555,000 for the fiscal year ended December 31, 1997, primarily as
the result of the  decrease in the  average  balance to $3.6  million  from $9.7
million  for the  same  periods.  Interest  on  other  interest  earning  assets
increased by $295,000 or 15.2%, to $1.6 million from $1.9 million for the fiscal
year ended  December 31, 1998 compared to the similar  period ended December 31,
1997.  This  decrease is the result of the $2.0 million  decrease in the average
balance to $40.4  million  from $32.7  million  coupled with the decrease in the
average  yield to 4.08% from 4.57% for those same  periods.  The increase in the
average  balances  of  mortgage-backed  securities  were funded  primarily  with
advances from the Federal Home Loan Bank and cash flow from repayments.

Total interest  expense.  Total interest expense  increased to $26.2 million for
the fiscal year ended  December 31, 1998 from $24.1  million for the fiscal year
ended  December 31,  1997.  This  increase of $2.1  million,  or 8.8%,  in total
interest  expense is a result of the increase in the average  balance of Federal
Home Loan Bank  advances  to $152.9  million  from $97.9  million for the fiscal
years ended December 31, 1998 and 1997, respectively, which was partially offset
by the  decrease  in the  average  rate paid on advances to 5.75% from 5.99% for
those same periods.  The increase in total  interest  expense was also partially
offset by the $814,000  decrease in interest expense on savings deposits for the
fiscal year ended  December 31, 1998.  The average  balance of savings  deposits
decreased  $8.4 million to $448.0 million for the fiscal year ended December 31,
1998 from $456.3 million for the same period in 1997 while the average rate paid
decreased  to  3.88%  from  3.99%.  The  average  balance  of   interest-bearing
liabilities  increased to $600.9  million  during the fiscal year ended December
31, 1998 from $554.3  million  during the fiscal  year ended  December  31, 1997
primarily  as a result  of the  increase  in  Federal  Home Loan  advances.  The
increase  in Federal  Home Loan Bank  advances  was used  primarily  to fund the
purchase of mortgage-backed securities.

Net Interest Income.  Net interest income for the fiscal year ended December 31,
1998 decreased by $1.7 million, or 9.0%, to $17.4 million from $19.1 million for
the same period in 1997.  This  decrease  is  primarily  due to the  increase in
interest-bearing    liabilities    partially   offset   by   the   increase   in
interest-earning  assets. The average balances of  interest-bearing  liabilities
increased  $46.7  million or 8.4% to $600.9  million  for the fiscal  year ended
December 31, 1998 from $554.3 million for the comparable  period in 1997. During
these same periods,  the average balances on  interest-earning  assets increased
$29.3 million or 4.8% to $640.9  million from $611.6  million.  The average rate
paid on  interest-bearing  liabilities  increased  from 4.34% to 4.36% while the
yield on  interest-earning  assets  decreased from 7.06% to 6.80% for the fiscal
year periods ended December 31, 1997 and 1998 respectively.

Allowance for Loan Losses. The allowance for loan losses decreased $120,000,  or
5.9% to $1.9  million at  December  31, 1998 from $2.0  million at December  31,
1997.  Non-performing  loans increased to $1.6 million at December 31, 1998 from
$1.4 million at December 31, 1997. The decrease in the allowance for loan losses
resulted from the deduction of $180,000 of net charge-offs for losses  partially
offset  by the  addition  of  $60,000  to the  provision  for loan  losses.  The
provision for losses on loans is the method by which the allowance for losses on
loans is adjusted  during the period.  At December 31, 1998,  the  allowance for
loan  losses  was  119.2%  of  non-performing  loans as  compared  to  146.8% of
non-performing  loans at December  31,  1997.  While  management  maintains  its
allowance for losses at a level which it considers to be adequate to provide for
potential  losses,  there can be no assurance that further additions will not be
made to the allowance and that such losses

                                       10

<PAGE>

will not exceed the estimated amounts.

Non-Interest Income. Total non-interest income decreased $748,000,  or 32.1%, to
$1.6  million for the fiscal year ended  December 31, 1998 from $2.3 million for
the similar  period in 1997.  This  decrease can be  attributed  to the $330,000
decrease in the gain on the sale of loan servicing rights,  the $58,000 decrease
in gain on the sale of investment  securities,  the $296,000 decrease in gain on
sale of loans and the decrease in other operating income of $108,000,  partially
offset  by the  increase  in  gain  on sale  of  real  estate  acquired  through
foreclosure of $44,000.

Non-interest Expense.  Total non-interest expense decreased to $12.8 million for
the fiscal year ended  December 31, 1998 when  compared to $13.6 million for the
similar  period in 1997.  This  decrease  of  $817,000,  or 6.0%,  is  primarily
attributable to the $244,000 decrease in employee compensation and benefits, the
$208,000  decrease  in  data  processing  and the  $125,000  decrease  in  other
operating  expense.  This decrease was also attributed to a lesser extent to the
$98,000 decrease in occupancy and equipment  expense and the $72,000 decrease in
amortization  of  goodwill  and  other  intangible   assets.   The  decrease  in
non-interest  expense is, in part, the result of management's  implementation of
certain cost cutting measures during the fiscal year ended December 31, 1998.

Income Tax Expense.  For the fiscal year ended  December 31, 1998,  income taxes
decreased to $2.3  million  from $2.6 million for the same period in 1997.  This
decrease of $275,000 is primarily  attributed  to the decrease in income  before
taxes to $6.1  million  from $7.5  million  for the fiscal  year  periods  ended
December 31, 1998 and 1997, respectively.


Comparison of Years Ended December 31, 1997 and December 31, 1996

Net Income.  Net Income of $4.9  million for the fiscal year ended  December 31,
1997 increased $1.4 million,  or 40.1%,  over net income of $3.5 million for the
fiscal year ended  December 31, 1996.  The increase in earnings is primarily due
to the $917,000,  or 5.0%,  increase in net interest  income,  the $533,000,  or
29.7%, increase in non-interest income and the $162,000 decrease in non-interest
expense,  partially offset by the $150,000  increase in income tax expense.  Net
interest  income  before  provision  for loan  losses was $19.1  million for the
fiscal year ended  December  31, 1997 as compared to $18.2  million for the same
period  in 1996,  an  increase  of  $917,000,  or 5.0%.  Total  interest  income
increased  $4.2  million  or 10.8% to $43.2  million  from  $39.0  million  from
December 31, 1996 to December  31, 1997  respectively.  For these same  periods,
total  interest  expense was $24.1 million and $20.8 million,  respectively,  an
increase of $3.3  million,  or 15.8%.  Non-interest  income was $2.3 million and
$1.8 million,  respectively for these same periods, an increase of $533,000,  or
29.7%.  The increase in non-interest  income was attributed to the gains on sale
of investment  securities,  mortgage loans and loan servicing rights.  Operating
expense  (non-interest  expense)  was $13.6  million  and $13.7  million for the
fiscal years ended  December 31, 1997 and December 31, 1996,  respectively.  The
decrease  in  operating  expense  was  attributable  to the  decrease in federal
deposit insurance  premiums and the absence of the one-time "SAIF" assessment of
$2.6 million offset by an increase in the costs associated with the operation of
the branch offices acquired from Cenlar Federal Savings Bank.

Total  Interest  Income.  For the fiscal year ended  December  31,  1997,  total
interest  income  increased to $43.2  million from $39.0  million for the fiscal
year ended December 31, 1996.  This increase of $4.2 million,  or 10.8%,  is due
primarily  to the $3.0  million,  or 108.3%,  increase  in income on  investment
securities to $5.7 million for the fiscal year ended December 31, 1997 from $2.7
million  for the same  period in 1996.  This  increase  was also due to the $1.5
million, or 13.3%, increase in interest income on mortgage-backed  securities to
$12.5 million for the fiscal year ended December 31, 1997 from $11.0 million for
the same  period in 1996.  The  average  balance of  mortgage-backed  securities
increased  $22.4 million to $185.4 million from $163.0 million while the average
yield on mortgage-backed securities decreased to 6.75% from 6.77% when comparing
these same periods. 

                                       11

<PAGE>

The  increase  in  total   interest   income   attributed  to   investment   and
mortgage-backed  securities,  $4.5 million, was partially offset by the decrease
in income  on loans and other  interest  earning  assets.  During  the same time
periods the average balance of investment  securities increased by $46.1 million
to $90.7 million from $44.6 million,  with the average yield increasing to 6.27%
from 6.12%.  Interest on loans declined by $66,000,  or .3%, for the fiscal year
ended December 31, 1997 as compared to the similar period in 1996 as a result of
the  decrease  in the average  balance to $293.0  million  from $298.8  million.
Interest  on  securities  purchased  under  agreements  to resell  increased  to
$555,000  for the fiscal  year ended  December  31, 1997 from  $160,000  for the
fiscal year ended December 31, 1996,  primarily as the result in the increase in
the average  balance to $9.7  million  from $3.8  million for the same  periods.
Interest on other interest earning assets declined by $557,000 or 28.7%, to $1.4
million from $1.9 million for the fiscal year ended  December 31, 1997  compared
to the similar  period  ended  December  31,  1996,  primarily  as a result of a
decrease in the average  yield to 4.24% from 4.52%  coupled with the decrease in
the average balance of other interest earning assets to $32.7 million from $43.0
million  for those same  periods.  The  increases  in the  average  balances  of
mortgage-backed  and investment  securities are a result of the  reinvestment of
the cash proceeds received from the acquisition of the $137.6 million in deposit
balances from Cenlar Savings Bank on September 20, 1996.

Total interest  expense.  Total interest expense  increased to $24.1 million for
the fiscal year ended  December 31, 1997 from $20.8  million for the fiscal year
ended  December 31, 1996.  This  increase of $3.3  million,  or 15.8%,  in total
interest  expense is a result of the increase in the average  balance of savings
deposits  to $456.3  million  from  $382.5  million  for the fiscal  years ended
December  31, 1997 and 1996,  respectively,  together  with the  increase in the
average  rate paid to 3.99% from 3.85% for those same  periods.  The increase in
average  savings  deposits was primarily the result of the acquisition of $137.6
million in deposit  balances during 1996. The increase in total interest expense
was  partially  offset by the $189,000  decrease in interest  expense on Federal
Home Loan Bank advances for the fiscal year ended December 31, 1997. The average
balance of  Federal  Home Loan Bank  advances  decreased  $4.6  million to $97.9
million for the fiscal year ended  December 31, 1997 from $102.5 million for the
same period in 1996 while the average  rate paid  increased to 5.99% from 5.91%.
The average balance of total  interest-bearing  liabilities  increased to $554.3
million  during the fiscal year ended  December  31,  1997 from  $485.0  million
during the fiscal  year ended  December  31, 1996  primarily  as a result of the
acquisition  of $137.6  million in deposit  balances.  The  increase  in average
balances of savings  deposits  was  utilized  primarily  to fund the purchase of
investment and mortgage-backed securities.

Net Interest Income.  Net interest income for the fiscal year ended December 31,
1997  increased by $917,000,  or 5%, to $19.1 million from $18.2 million for the
same  period  in  1996.  This  increase  is  primarily  due to the  increase  in
interest-earning  assets  partially  offset by the increase to  interest-bearing
liabilities.  The average  balances of  interest-earning  assets increased $58.4
million or 10.6% to $611.6  million for the fiscal year ended  December 31, 1997
from  $553.2  million  for the  comparable  period in 1996.  During  these  same
periods,  the average balances on interest-bearing  liabilities  increased $69.3
million or 14.3% to $554.3 million from $485.0 million. The average rate paid on
interest-bearing  liabilities  increased  from 4.29% to 4.34% while the yield on
interest-earning  assets  increased  from  7.05% to 7.06%  for the  fiscal  year
periods ended December 31, 1996 and 1997 respectively.

Allowance for Loan Losses. The allowance for loan losses increased $223,000,  or
12.3% to $2.0  million at December  31, 1997 from $1.8  million at December  31,
1996. Such totals correlate to non-performing  loans of $1.4 million at December
31, 1997 and $2.0 million at December 31,  1996.  The increase in the  allowance
for loan losses resulted from the addition of $397,000 to the provision for loan
losses and the deduction of $174,000 of net charge offs for losses on loans. The
provision for losses on loans is the method by which the allowance for losses is
adjusted during the period.  At December 31, 1997, the allowance for loan losses
was 146.8% of non-performing  loans as compared

                                       12
<PAGE>

to  91.6% of  non-performing  loans  at  December  31,  1996.  While  management
maintains  its allowance for losses at a level which it considers to be adequate
to  provide  for  potential  losses,  there  can be no  assurance  that  further
additions will not be made to the allowance and that such losses will not exceed
the estimated amounts.

Non-Interest Income. Total non-interest income increased $533,000,  or 29.7%, to
$2.3  million for the fiscal year ended  December 31, 1997 from $1.8 million for
the similar  period in 1996.  This increase can be attributed to the gain on the
sale of loan servicing rights of $330,000,  the increase in the gain on the sale
of  investment  securities  of $77,000,  the increase in the gain on the sale of
loans of $308,000, partially offset by the decrease in other operating income of
$67,000 in 1997,  and the absence of the gain on the sale real  estate  acquired
through foreclosure of $115,000 in 1996.

Non-interest Expense.  Total non-interest expense decreased to $13.6 million for
the fiscal year ended  December  31,  1997 as compared to $13.7  million for the
similar  period in 1996.  This  decrease  of  $162,000,  or 1.2%,  is  primarily
attributable  to the  decrease  in federal  deposit  insurance  premiums of $2.6
million offset by a $617,000 increase in employee compensation and benefits, the
$520,000  increase  in  occupancy  and  equipment,   the  $713,000  increase  in
amortization  of  intangibles,  and the  $323,000  increase  in other  operating
expense. The decrease in federal deposit insurance premiums was primarily due to
the absence of the "SAIF"  assessment  previously  discussed.  The  increases in
compensation  and benefit  costs were  primarily a result of increased  staffing
necessary to support the operation of the three branch offices  associated  with
the acquisition of the $137.6 million of deposit  balances,  coupled with salary
increases resulting from annual performance  reviews.  The increase in occupancy
and equipment  expenses are due to the  continued  operation of the three branch
offices purchased from Cenlar Federal Savings Bank. The increase in amortization
of  intangibles  was the  result of the  acquisition  of the  $137.6  million in
deposit balances.  The increase in other operating expenses are primarily due to
costs associated with the acquisition of the three branch offices purchased from
Cenlar Federal Savings Bank.

Income Tax Expense.  For the fiscal year ended  December 31, 1997,  income taxes
increased to $2.6  million  from $2.4 million for the same period in 1996.  This
increase of  $150,000  is  primarily  attributed  to the  increase in net income
before taxes to $7.5 million from $5.9 million for the fiscal year periods ended
December 31, 1997 and 1996, respectively, while partially offset by the reversal
of certain deferred tax liabilities.

Liquidity and Capital Resources

         Under  current  regulations,  the Savings  Bank must have core  capital
equal to 4% of  adjusted  total  assets and  risk-based  capital  equal to 8% of
risk-weighted assets, of which 1.5% must be tangible capital, excluding goodwill
and certain other intangible assets.

         On December 31, 1998,  the Savings Bank  exceeded its three  regulatory
capital requirements as follows:

                                               Amount         Percent
                                               ------         -------

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

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

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

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

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

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

                                       13
<PAGE>

         Management  believes that under current  regulations,  the Savings Bank
will  continue  to meet its  minimum  capital  requirements  in the  foreseeable
future.  Events  beyond  the  control of the  Savings  Bank,  such as  increased
interest  rates or a downturn in the economy in areas in which the Savings  Bank
operates, could adversely affect future earnings and as a result, the ability of
the Savings Bank to meet its future minimum capital requirements.

         The Savings Bank's liquidity is a measure of its ability to fund loans,
pay  withdrawals  of  deposits,   and  other  cash  outflows  in  an  efficient,
cost-effective  manner. The Savings Bank's primary source of funds are deposits,
borrowings,   and   scheduled   amortization   and   prepayment   of  loan   and
mortgage-backed  security principal.  During the past several years, the Savings
Bank has used such funds  primarily to fund maturing time deposits,  pay savings
withdrawals, fund lending commitments, purchase new investments,  repurchase its
common stock,  and increase the Savings  Bank's,  along with the  Corporation's,
liquidity.  The Savings Bank is currently able to fund its operations internally
but has, when deemed prudent,  borrowed funds from the Federal Home Loan Bank of
Pittsburgh.  As of December 31, 1998,  such borrowed funds total $163.4 million.
Loan prepayments,  maturing investments and mortgage-backed security prepayments
are greatly  influenced  by general  interest  rates,  economic  conditions  and
competition.

         The Savings  Bank is required  under  federal  regulations  to maintain
certain specified levels of "liquid  investments",  which include certain United
States   government   obligations  and  other  approved   investments.   Current
regulations  require the Savings Bank to maintain liquid assets of not less than
4% of its net  withdrawable  accounts  plus  short term  borrowings.  Short term
liquid assets must consist of not less than 1% of such accounts and  borrowings,
which amount is also  included  within the 4%  requirement.  These levels may be
changed  from  time  to time  by the  regulators  to  reflect  current  economic
conditions. The Savings Bank has generally maintained liquidity far in excess of
regulatory  requirements.  The Savings Bank's  regulatory  liquidity was 28.69%,
21.01% and 24.16% at December 31,  1998,  1997 and 1996,  respectively,  and its
short term liquidity was 19.9%, 11.3%, and 19.8%, at such dates, respectively.

         The amount of certificate accounts which are scheduled to mature during
the twelve months ending December 31, 1999, is approximately  $133.7 million. To
the extent that these  deposits do not remain at the Savings Bank upon maturity,
the Savings Bank believes that it can replace these funds with deposits,  excess
liquidity,  FHLB advances or other  borrowings.  It has been the Savings  Bank's
experience  that  substantial  portions of such maturing  deposits remain at the
Savings Bank.

         At December 31, 1998, the Savings Bank had  outstanding  commitments to
originate  loans of $12.2  million.  Also  outstanding at December 31, 1998 were
commitments  to  fund  unused  lines  of  credit  and  undisbursed  balances  of
construction  loans of $21.7 million.  Funds required to fill these  commitments
are derived primarily from current excess liquidity, deposit inflows or loan and
security  repayments.  At December 31, 1998, the Savings Bank had no outstanding
commitments to sell loans.

                                       14

<PAGE>

Impact of Inflation and Changing Prices

         The  consolidated  financial  statements  and  related  data  have been
prepared in accordance  with  generally  accepted  accounting  principles  which
require the measurement of financial  position and operating results in terms of
historical dollars, without consideration for changes in the relative purchasing
power of money over time caused by inflation.

         Unlike industrial  companies,  nearly all of the assets and liabilities
of a financial  institution are monetary in nature. As a result,  interest rates
have a more  significant  impact on a financial  institution's  performance than
general levels of inflation.  Interest rates do not necessarily move in the same
direction  or in the same  magnitude as the price of goods and  services,  since
such goods and services are affected by inflation.  In the current interest rate
environment,  liquidity and the maturity  structure of the Savings Bank's assets
and  liabilities  are  critical to the  maintenance  of  acceptable  performance
levels.

Year 2000 Issue

Readiness Efforts

         In 1998, a comprehensive project plan ("Plan") to address the Year 2000
problem and related issues as those relate to the  Corporation's  operations was
developed, approved by the Board of Directors and implemented. The Corporation's
Year 2000 effort is  proceeding in  accordance  with the written Plan.  Progress
reports are provided to the Board at least monthly.

         The Year 2000 issue is the result of potential  problems  with software
and computer  systems or any equipment  with computer  chips that store the year
portion of the date as just  two-digits.  Systems using this two-digit  approach
may not be able to determine  whether 00 represents  the year 2000 or 1900.  The
problem,  if not  corrected,  will make those systems fail  altogether  or, even
worse,  allow them to generate  incorrect  calculations  causing a disruption of
normal computer and related operations.

         The  Corporation's  Plan is divided  into four broad  areas of concern:
hardware,  software,  service  providers and  customers.  Year 2000 issues being
addressed in each of these areas include both information related technology and
non-information related technology.  A project team that consists of key members
of The Corporation's  technology staff,  representatives of functional  business
units and senior management was developed. From the assessment,  The Corporation
identified and prioritized  those systems deemed to be mission critical or those
that have a significant impact on normal operations.  Formal communications with
those  providers of data  processing  capabilities  and other  external  counter
parties  were  initiated  in 1997 and 1998 to assess the Year 2000  readiness of
their  products and  services.  Thus far,  responses  indicate  that most of the
significant  providers  are  currently  following  plans  developed  to  address
processing of transactions beginning January 1, 2000.

Costs

         The  total  cost to The  Corporation  of  these  Year  2000  compliance
activities  has not been and is not  anticipated to be material to its financial
position or results of operations in any given year. In total,  The  Corporation
estimates  that  its  costs,   excluding  personnel  expenses,   for  Year  2000
remediation  and testing of its computer  systems  amounted to less than $25,000
for the twelve month period  ending  December 31, 1998.  At September  31, 1998,
there are no material, incomplete tasks pursuant to the Corporation's Plan.


                                       15

<PAGE>


Risk Assessment

         Based upon  current  information  related to the  progress of its major
vendors and service  providers,  management  has  determined  that the Year 2000
issue will not pose significant  operational  problems for its computer systems.
The determination is based on the ability of those vendors and service providers
to  renovate,  in a timely  manner,  the  products  and  services  on which  The
Corporation's systems rely. However, The Corporation can give no assurances that
the systems of these  suppliers  will be timely  renovated.  The  Corporation is
exposed to operational  disruptions  from external  entities that have direct or
indirect business relationships with the Corporation,  such as telecommunication
service  providers,  customers,  vendors,  payment system  providers and others.
Despite the best efforts of management to address these issues,  the vast number
of external business  relationships makes it impossible to assure that a failure
to achieve compliance by one or more of these entities would not have a material
adverse impact on the operations the Corporation.

Contingency Plan

         Realizing that some disruption may occur despite its best efforts,  The
Corporation is in the process of developing  contingency plans for each critical
system in the event  that one or more of those  systems  fail.  While this is an
ongoing  process,   The  Corporation   expects  to  have  the  contingency  plan
substantially completed by July 31, 1999.

                                       16

<PAGE>

        FINANCIAL STATEMENTS AND REPORT OF
     INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

     TF FINANCIAL CORPORATION AND SUBSIDIARIES

            December 31, 1998 and 1997

<PAGE>


                                    CONTENTS

                                                                          Page
                                                                          ----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                         19
                                                                           
                                                                           
FINANCIAL STATEMENTS                                                       
                                                                           
         CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                     20
                                                                           
         CONSOLIDATED STATEMENTS OF EARNINGS                               21
                                                                           
         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY         
              AND COMPREHENSIVE INCOME                                     22
                                                                           
         CONSOLIDATED STATEMENTS OF CASH FLOWS                             24
                                                                           
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        26
                                                                       
<PAGE>

               Report of Independent Certified Public Accountants
               --------------------------------------------------


Board of Directors
TF Financial Corporation


         We have audited the accompanying  consolidated  statements of financial
position of TF Financial  Corporation  and  Subsidiaries as of December 31, 1998
and 1997,  and the  related  consolidated  statements  of  earnings,  changes in
stockholders'  equity  and  comprehensive  income and cash flows for each of the
three years in the period ended December 31, 1998.  These  financial  statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the consolidated  financial  position of TF
Financial Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  1998,  in  conformity
with generally accepted accounting principles.


/s/Grant Thornton LLP
---------------------------
GRANT THORNTON LLP

Philadelphia, Pennsylvania
January 15, 1999

                                       19
<PAGE>

                    TF Financial Corporation and Subsidiaries

                  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

                                  December 31,

<TABLE>
<CAPTION>
                  ASSETS                                                              1998              1997    
                                                                                   ---------         ---------      
                                                                                          (in thousands)
<S>                                                                              <C>               <C>      
Cash and cash equivalents                                                          $  42,703         $  41,625
Certificates of deposit in other financial institutions                                2,238             2,737
Securities purchased under agreements to resell                                          -              10,000
Investment securities available for sale - at market value                             9,042            32,037
Investment securities held to maturity (market value of $81,094 and
    $53,026 as of December 31, 1998 and 1997, respectively)                           80,895            52,822
Mortgage-backed securities available for sale - at market value                       75,285            36,847
Mortgage-backed securities held to maturity (market value of $182,560
    and $145,723 as of December 31, 1998 and 1997, respectively)                     180,964           144,074
Loans receivable, net                                                                240,841           250,711
Federal Home Loan Bank stock - at cost                                                 9,168             4,918
Accrued interest receivable                                                            4,558             3,957
Premises and equipment, net                                                            9,017             7,889
Goodwill and other intangible assets                                                   7,389             8,274
Real estate held for investment                                                        2,348               -
Other assets                                                                           1,160             1,156
                                                                                     -------           -------
              TOTAL ASSETS                                                          $665,608          $597,047
                                                                                     =======           =======
              LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
  Deposits                                                                          $438,913          $450,429
  Advances from the Federal Home Loan Bank                                           163,359            88,359
  Advances from borrowers for taxes and insurance                                      1,204             1,591
  Accrued interest payable                                                             4,166             2,470
  Other liabilities                                                                    5,306             4,103
                                                                                     -------            ------
            Total liabilities                                                        612,948           546,952
                                                                                     -------           -------
Stockholders' equity
    Preferred stock, no par value; 2,000,000 shares authorized
      at December 31, 1998 and 1997, none issued                                         -                 -
    Common stock, $0.10 par value; 10,000,000 shares authorized,
      5,290,000 shares issued, 2,857,932 and 2,886,251 shares
      outstanding at December 31, 1998 and 1997, respectively,
      net of shares in treasury:  1998 - 2,143,319; 1997 - 2,102,767                     529               529
    Retained earnings                                                                 45,762            43,176
    Additional paid-in capital                                                        51,957            51,775
    Unearned ESOP shares                                                              (2,888)           (3,010)
    Shares acquired by MSBP                                                             (468)             (895)
    Treasury stock - at cost                                                         (42,386)          (41,649)
    Accumulated other comprehensive income                                               154               169
                                                                                    --------          --------
              Total stockholders' equity                                              52,660            50,095
                                                                                    --------          --------
              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $665,608          $597,047
                                                                                     =======           =======

</TABLE>

The accompanying notes are an integral part of these statements.

                                       20
<PAGE>

                    TF Financial Corporation and Subsidiaries

                       CONSOLIDATED STATEMENTS OF EARNINGS

                             Year ended December 31,
<TABLE>
<CAPTION>
                                                                         1998             1997              1996    
                                                                     ----------        ----------        ----------
                                                                        (in thousands, except per share data)
<S>                                                               <C>               <C>               <C>      
Interest income
    Loans, including fees                                            $  18,657         $  23,050         $  23,116
    Mortgage-backed securities                                          16,357            12,514            11,041
    Investment securities                                                6,918             5,683             2,728
    Interest-bearing deposits and other                                  1,647             1,942             2,104
                                                                      --------          --------          --------
           TOTAL INTEREST INCOME                                        43,579            43,189            38,989
                                                                      --------          --------          --------
Interest expense
    Deposits                                                            17,397            18,211            14,739
    Borrowings                                                           8,798             5,869             6,058
                                                                      --------          --------          --------
           TOTAL INTEREST EXPENSE                                       26,195            24,080            20,797
                                                                      --------          --------          --------
           NET INTEREST INCOME                                          17,384            19,109            18,192
Provision for possible loan losses                                          60               397               330
                                                                      --------          --------          --------
           NET INTEREST INCOME AFTER PROVISION
               FOR POSSIBLE LOAN LOSSES                                 17,324            18,712            17,862
                                                                      --------          --------          --------
Non-interest income
    Gain on sale of real estate acquired through foreclosure                44               -                 115
    Gain on sale of investment and mortgage-backed securities              349               407               330
    Gain on sale of loans                                                   91               387                79
    Gain on sale of loan servicing rights                                  -                 330               -
    Service fees, charges and other operating income                     1,095             1,203             1,270
                                                                      --------          --------          --------
           TOTAL NON-INTEREST INCOME                                     1,579             2,327             1,794
                                                                      --------          --------          --------
Non-interest expense
    Employee compensation and benefits                                   6,201             6,445             5,828
    Occupancy and equipment                                              1,854             1,952             1,432
    Federal deposit insurance premium                                      275               299             2,929
    Data processing                                                        459               667               505
    Professional fees                                                      554               579               508
    Advertising                                                            333               354               292
    Other operating                                                      2,205             2,330             2,007
    Amortization of goodwill and other intangible assets                   885               957               244
                                                                      --------          --------          --------
           TOTAL NON-INTEREST EXPENSE                                   12,766            13,583            13,745
                                                                      --------          --------          --------
           INCOME BEFORE INCOME TAXES AND
               CUMULATIVE EFFECT OF ACCOUNTING CHANGE                    6,137             7,456             5,911
Income taxes                                                             2,307             2,582             2,432
                                                                      --------          --------          --------
           INCOME BEFORE CUMULATIVE EFFECT OF
               ACCOUNTING CHANGE                                         3,830             4,874             3,479
Cumulative effect of accounting change                                     208               -                 -  
                                                                      --------          --------          --------
           NET INCOME                                                $   4,038         $   4,874         $   3,479
                                                                      ========          ========          ========

Earnings per common share - basic                                    $    1.39         $    1.33         $    0.86
Earnings per common share - assuming dilution                        $    1.26         $    1.25         $    0.83

</TABLE>

The accompanying notes are an integral part of these statements.

                                       21
<PAGE>


                    TF Financial Corporation and Subsidiaries

                      CONSOLIDATED STATEMENT OF CHANGES IN
                  STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                                       Accumulated                
                                        Common stock                                                      other      
                                      ---------------- Additional Unearned  Shares                       Compre-             Compre-
                                                 Par     paid-in   ESOP  acquired by Treasury  Retained  hensive             hensive
                                      Shares     value   capital   shares   MSBP      stock    earnings   income     Total    income
                                      ------     -----   -------   ------   ----      -----    --------   ------     -----    ------
                                                               (dollars in thousands)
<S>                                 <C>          <C>   <C>       <C>      <C>       <C>       <C>       <C>      <C>        <C> 
Balance at January 1, 1996            4,164,942   $529  $51,475   (3,491)  (1,731)   $(11,116) $37,529   $ 137     $ 73,332       
Allocation of ESOP shares                30,319     -       147      303       -           -        -       -           450
Shares awarded by MSBP                    9,308     -        -        -        -           -        -       -            -
Amortization of MSBP expense                -       -        23       -       409          -        -       -           432
Purchase of treasury stock             (242,025)    -        -        -        -       (3,596)      -       -        (3,596)
Cash dividends on common stock              -       -        -        -        -           -    (1,258)     -        (1,258)
Other comprehensive income, net                                                                                     
    of reclassification adjustments                                                                                 
    and taxes                               -       -        -        -        -           -        -     (264)        (264) $ (264)
Net income for the year ended                                                                                       
    December 31, 1996                       -       -        -        -        -           -     3,479      -         3,479   3,479
                                      ---------    ---   ------   -------  -------    --------  ------    -----      ------   -----
Comprehensive income                                                                                                         $3,215
                                                                                                                              =====
Balance at December 31, 1996          3,962,544    529   51,645   (3,188)  (1,322)    (14,712)  39,750    (127)      72,575
Allocation of ESOP shares                17,860     -       173      178       -           -        -       -           351
Amortization of MSBP expense                -       -        31       -       427          -        -       -           458
Purchase of treasury stock           (1,100,068)    -       (74)      -        -      (27,027)      -       -       (27,101)
Cash dividends on common stock              -       -        -        -        -           -    (1,433)     -        (1,433)
Exercise of stock options                 5,915     -        -        -        -           90      (15)     -            75
Other comprehensive income, net                                                                                     
    of reclassification adjustments                                                                                 
    and taxes                               -       -        -        -        -           -        -      296          296     296
Net income for the year                                                                                             
    ended December 31, 1997                 -       -        -        -        -           -     4,874      -         4,874   4,874
                                      ---------    ---   ------   -------  -------    --------  ------    -----      ------   -----
Comprehensive income                                                                                                         $5,170
                                                                                                                              =====
Balance at December 31, 1997          2,886,251    529   51,775   (3,010)    (895)    (41,649)  43,176     169       50,095
                                                                                                                    
</TABLE>
                                                                        
                                   (Continued)
  
                                       22
<PAGE>

                    TF Financial Corporation and Subsidiaries

               CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
                   EQUITY AND COMPREHENSIVE INCOME - CONTINUED

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                                        Accumulated                
                                          Common stock                                                      other      
                                      ------------------ Additional Unearned  Shares                       Compre-           Compre-
                                                   Par    paid-in    ESOP    acquired  Treasury  Retained  hensive           hensive
                                        Shares     value  capital   shares   by MSBP   stock    earnings   income   Total    income
                                        ------     -----  -------   ------   --------  -----    --------   ------   -----    ------
                                                               (dollars in thousands)
<S>                                 <C>           <C>    <C>       <C>       <C>    <C>       <C>        <C>     <C>        <C> 
Balance at December 31, 1997           $2,886,251   $529  $51,775   $(3,010) $(895) $(41,649)  $43,176     $169   $ 50,095   
                                                                                                          
Allocation of ESOP shares                  12,233     -       166       122     -         -         -        -         288
                                                                                                          
Amortization of MSBP                           -      -        33        -     427        -         -        -         460
                                                                                                          
Purchase of treasury stock                (50,000)    -       (17)       -      -       (924)       -        -        (941)
                                                                                                          
Cash dividends - common stock                  -      -        -         -      -         -     (1,387)      -      (1,387)
                                                                                                          
Exercise of options                         9,448     -        -         -      -        187       (65)      -         122
                                                                                                          
Other comprehensive income, net                                                                           
    of reclassification adjustments                                                                       
    and taxes                                                                                               (15)       (15)  $  (15)
                                                                                                          
Net income for the year ended                                                                             
    December 31, 1998                          -      -        -         -      -         -      4,038       -       4,038    4,038
                                        ---------    ---   ------    -------  -----  --------   ------      ---     ------    -----
Comprehensive income                                                                                                         $4,023
                                                                                                                              =====
Balance at December 31, 1998           $2,857,932   $529  $51,957   $(2,888) $(468) $(42,386)  $45,762     $154    $52,660
                                        =========    ===   ======     =====    ===    ======    ======      ===     ====== 
</TABLE>
                                                                            

The accompanying  notes are an integral part of this statement.

                                       23
<PAGE>

                    TF Financial Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

<TABLE>
<CAPTION>

                                                                               1998              1997              1996    
                                                                           ------------      ------------      ------------
                                                                                            (in thousands)
<S>                                                                       <C>               <C>                <C>     
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                              $   4,038         $   4,874         $   3,479     
    Adjustments to reconcile net income to net cash provided                
           by operating activities                                          
        Amortization of                                                     
           Mortgage loan servicing rights                                          16                68                21
           Deferred loan origination fees                                        (118)             (156)             (197)
           Premiums and discounts on investment securities, net                   100                63               (69)
           Premiums and discounts on mortgage-backed securities             
               and loans, net                                                     705               208               139
           Goodwill and other intangibles                                         677               957               244
        Deferred income taxes                                                    (135)             (233)              (84)
        Provision for loan losses and provision for                         
           losses on real estate                                                   60               402               333     
        Depreciation of premises and equipment                                    847               708               560
        Stock-based benefit programs                                              748               809               882
        Gain on sale of                                                     
           Investment securities                                                 (681)             (407)             (330)
           Real estate acquired through foreclosure                               (44)              -                (115)
           Mortgage loans                                                         (91)             (387)              (79)
           Loan servicing rights                                                  -                (330)              -
        (Increase) decrease in                                              
           Accrued interest receivable                                           (601)              290              (817)
           Other assets                                                            30               (56)             (580)
        Increase in                                                         
           Accrued interest payable                                             1,696               440               267
           Other liabilities                                                    1,338               477               723
                                                                            ---------         ---------         ---------
               NET CASH PROVIDED BY OPERATING                               
                   ACTIVITIES                                                   8,585             7,727             4,377
                                                                            ---------         ---------         ---------
                                                                            
CASH FLOWS FROM INVESTING ACTIVITIES                                        
    Loan originations and principal payments on loans, net                     30,983           (22,672)          (38,475)
    Principal repayments on mortgage-backed securities                      
        held to maturity                                                       60,899            33,732            28,450
    Principal repayments on mortgage-backed securities available            
        for sale                                                               19,292             2,746             3,050
    Purchases of loans                                                        (40,708)          (13,927)          (83,704)
    Proceeds from loan sales                                                   19,496            95,261            22,648
    Purchases and maturities of certificates of deposit in other            
        financial institutions, net                                               499             1,483                 1
    Purchases of investment and mortgage-backed securities                  
        held to maturity                                                     (293,959)         (125,219)          (49,069)
    Purchase of investment securities and mortgage-backed                   
        securities available for sale                                        (251,164)         (140,694)          (22,917)

</TABLE>

                                   (Continued)
                                       24

<PAGE>

                    TF Financial Corporation and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             Year ended December 31,
<TABLE>
<CAPTION>

                                                                          1998             1997              1996    
                                                                      ------------     ------------      ------------
                                                                                     (in thousands)
<S>                                                                 <C>              <C>               <C>       
    Purchase and maturities of securities purchased under
        agreement to resell, net                                     $  10,000         $  15,129        $  (25,129)
    Proceeds from maturities of investment securities
        held to maturity                                               123,842            83,007            17,551
    Proceeds from maturities of investment securities
        available for sale                                             223,376            86,225            20,500
    Proceeds from the sale of investment and mortgage-backed
        securities available for sale                                   37,373            22,126             9,279
    Proceeds from the sale of loan servicing rights                        -                 981               -
    Purchase of Federal Home Loan Bank stock                            (4,250)              -              (1,250)
    Purchase of real estate held for investment                         (2,348)              -                 -
    Proceeds from sales of real estate acquired through foreclosure        246               -                 722
    Purchase of premises and equipment                                  (1,975)             (595)           (2,007)
    Premium paid for deposit liabilities                                   -                 -              (9,476)
                                                                      --------          --------          --------
               NET CASH (USED IN) PROVIDED BY
                     INVESTING ACTIVITIES                              (68,398)           37,583          (129,826)
                                                                      --------          --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES
    Net (decrease) increase in demand deposit/NOW accounts,
        passbook savings accounts and certificates of deposit          (11,516)          (18,659)          132,019
    Net increase (decrease) in advances from Federal Home
        Loan Bank                                                       75,000           (10,000)           25,000
    Net (decrease) increase in advances from borrowers for
        taxes and insurance                                               (387)             (773)              384
    Treasury stock acquired                                               (941)          (27,027)           (3,596)
    Exercise of stock options                                              122                75               -
    Common stock dividends paid                                         (1,387)           (1,433)           (1,258)
                                                                      --------          --------          --------
               NET CASH PROVIDED BY (USED IN)
                     FINANCING ACTIVITIES                               60,891           (57,817)          152,549
                                                                      --------          --------          --------
               NET INCREASE (DECREASE) IN CASH AND
                     CASH EQUIVALENTS                                    1,078           (12,507)           27,100
Cash and cash equivalents at beginning of year                          41,625            54,132            27,032
                                                                      --------          --------         ---------
Cash and cash equivalents at end of year                             $  42,703         $  41,625        $   54,132
                                                                      ========          ========         =========
Supplemental disclosure of cash flow information
    Cash paid for
        Interest on deposits and advances                            $  24,498        $  23,640         $   20,530
        Income taxes                                                 $   2,651        $   2,436         $    2,235
    Non-cash transactions
        Transfers from loans to real estate acquired through
           foreclosure                                               $     159        $     231         $      327
        Securitization of mortgage loans held for investment         $      -         $      -          $   27,854

</TABLE>

The accompanying notes are an integral part of these statements.

                                       25

<PAGE>

                    TF Financial Corporation and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1998 and 1997




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    TF  Financial  Corporation  (TF  Financial)  is a unitary  savings  and loan
    holding  company,  organized under the laws of the State of Delaware,  which
    conducts its consumer banking operations  primarily through its wholly owned
    subsidiaries,  Third Federal Savings Bank (Third Federal or the Bank) and TF
    Investments  Corporation  (TF  Investments).  Third  Federal is a  federally
    chartered-stock  savings  bank  insured  by the  Federal  Deposit  Insurance
    Corporation. Third Federal is a community-oriented savings institution which
    conducts  operations  from its main  office in  Newtown,  Pennsylvania,  ten
    full-service  branch offices  located in  Philadelphia  and Bucks  counties,
    Pennsylvania,  and  three  full-service  branch  offices  located  in Mercer
    County,  New Jersey.  The Bank  competes  with other  banking and  financial
    institutions  in  its  primary  market   communities,   including  financial
    institutions with resources  substantially  greater than its own. Commercial
    banks, savings banks, savings and loan associations, credit unions and money
    market funds actively compete for savings and time deposits and loans.  Such
    institutions,  as well as consumer finance and insurance  companies,  may be
    considered  competitors  of the  Bank  with  respect  to one or  more of the
    services it renders.

    The Bank is subject to  regulations  of certain  state and federal  agencies
    and,   accordingly,   it  is  periodically   examined  by  those  regulatory
    authorities.  As a  consequence  of the  extensive  regulation of commercial
    banking activities, the Bank's business is particularly susceptible to being
    affected by state and federal legislation and regulations.

    1.  Principles of Consolidation and Basis of Presentation
        -----------------------------------------------------
  
    The consolidated  financial  statements include the accounts of TF Financial
    and its wholly owned subsidiaries:  Third Federal, TF Investments,  Teragon,
    Inc.,   and  Penns  Trail   Development   Corporation   (collectively,   the
    Corporation).  All material intercompany balances and transactions have been
    eliminated in consolidation.

    The accounting  policies of the  Corporation  conform to generally  accepted
    accounting principles and predominant practices within the banking industry.
    The  preparation  of  financial  statements  in  conformity  with  generally
    accepted  accounting  principles  requires  management to make estimates and
    assumptions  that affect the reported  amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of the financial
    statements,  and the reported  amounts of revenues  and expenses  during the
    reporting period. Actual results could differ from those estimates. The more
    significant accounting policies are summarized below.

    2.  Cash and Cash Equivalents
        -------------------------

    The  Corporation  considers  cash,  due from banks,  federal  funds sold and
    interest-bearing  deposits in other  financial  institutions,  with original
    terms to  maturity  of less  than  three  months,  as cash  equivalents  for
    presentation  purposes in the consolidated  statements of financial position
    and cash flows.

                                   (Continued)

                                       26

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    3.  Investment and Mortgage-Backed Securities
        -----------------------------------------

    The Corporation  accounts for investment and  mortgage-backed  securities in
    accordance with Statement of Financial  Accounting Standards (SFAS) No. 115,
    Accounting  for  Certain  Investments  in Debt and Equity  Securities.  This
    statement requires the Bank to classify its investment,  mortgage-backed and
    marketable equity  securities in one of three categories:  held to maturity,
    trading,  or available for sale. The Corporation does not engage in security
    trading activities.

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

    Investment and  mortgage-backed  securities  held to maturity are carried at
    cost,  net of unamortized  premiums and  discounts,  which are recognized in
    interest income using the interest  method over the period to maturity.  The
    Corporation  has the ability and it is  management's  intention to hold such
    assets to maturity.

    4.  Loans Receivable
        ----------------

    Loans receivable are stated at unpaid principal  balances less the allowance
    for loan  losses and net  deferred  loan  origination  fees and  unamortized
    premiums.  Loan origination fees and unamortized  premiums on mortgage loans
    are amortized to income using the interest method over the remaining  period
    to contractual maturity, adjusted for actual prepayments.

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

    Uncollectible  interest on loans that are contractually  past due is charged
    off,  or  an  allowance  is  established  based  on  management's   periodic
    evaluation.  The  allowance is  established  by a charge to interest  income
    equal  to all  interest  previously  accrued,  and  income  is  subsequently
    recognized  only to the extent that cash  payments  are received  until,  in
    management's  judgment, the borrower's ability to make periodic interest and
    principal  payments is back to normal, in which case the loan is returned to
    accrual status.

    The  Corporation  accounts  for  loans in  accordance  with  SFAS  No.  114,
    Accounting  by Creditors  for  Impairment  of a Loan, as amended by SFAS No.
    118,  Accounting by Creditors for Impairment of a Loan - Income  Recognition
    and Disclosures.

                                   (Continued)
  
                                       27
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    5.  Premises and Equipment
        ----------------------

    Land is carried at cost. Buildings and furniture, fixtures and equipment are
    carried at cost less accumulated  depreciation.  Depreciation is provided by
    the straight-line method over the estimated useful lives of the assets.

    On January 1, 1996, the Corporation adopted SFAS No. 121, Accounting for the
    Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
    which provides  guidance on when to recognize and how to measure  impairment
    losses of long-lived assets and certain identifiable intangibles, and how to
    value long-lived  assets to be disposed of. The adoption of SFAS No. 121 did
    not have a  material  impact  on the  Corporation's  consolidated  financial
    position or results of operations.

    6.  Goodwill and Other Intangible Assets
        ------------------------------------

    On September 20, 1996,  the Bank acquired  three Mercer  County,  New Jersey
    offices  and related  deposits  of Cenlar  Federal  Savings  Bank.  The Bank
    assumed  $137.6  million in deposits in exchange for $126.5 million in cash.
    As a result of the acquisition, the Bank recorded core deposit intangible of
    $2.9 million and goodwill of $6.6 million.

    The core deposit  intangible  acquired is being  amortized on an accelerated
    basis  over  10  years.  The  goodwill  acquired  is  being  amortized  on a
    straight-line basis over 15 years.

    7.  Real Estate Held for Investment
        -------------------------------
    Real  estate held for  investment  is carried at the lower of cost or market
    value.

    8.  Transfers of Financial Assets
        -----------------------------

    On January 1, 1997,  the  Corporation  adopted SFAS No. 125,  Accounting for
    Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments   of
    Liabilities,  as amended by SFAS No. 127,  Deferral of the Effective Date of
    Certain Provisions of SFAS No. 125. SFAS No. 125 applies a control-oriented,
    financial  components  approach to  financial  asset  transfer  transactions
    whereby the  Corporation:  (1) recognizes the financial and servicing assets
    it controls and the liabilities it has incurred;  (2) derecognizes financial
    assets when control has been surrendered;  and (3) derecognizes  liabilities
    once they are  extinguished.  Under SFAS No. 125,  control is  considered to
    have been surrendered only if: (i) the transferred assets have been isolated
    from  the  transferor  and  its  creditors,  even  in  bankruptcy  or  other
    receivership;  (ii) the  transferee  has the right to pledge or exchange the
    transferred  assets  or is a  qualifying  special-purpose  entity,  and  the
    holders of  beneficial  interests in that entity have the right to pledge or
    exchange  those  interests;  and  (iii)  the  transferor  does not  maintain
    effective  control over the  transferred  assets through an agreement  which
    both entitles and obligates it to repurchase or redeem those assets prior to
    maturity,  or through an agreement which entitles it to repurchase or redeem
    those assets if they were not readily obtainable elsewhere.  If any of these
    conditions  are not met,  the  Corporation  accounts  for the  transfer as a
    secured  borrowing.  The adoption of this  statement did not have a material
    impact on the Corporation's  consolidated  financial  position or results of
    operations.

                                   (Continued)

                                       28
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    9.  Benefit Plans
        -------------

    The  Corporation  has  established an Employee  Stock  Ownership Plan (ESOP)
    covering  eligible  employees  with one year of  service,  as defined by the
    ESOP. The Corporation  accounts for the ESOP in accordance with the American
    Institute of Certified Public Accountants' Statement of Position (SOP) 93-6,
    Employers' Accounting for Employee Stock Ownership Plans. SOP 93-6 addresses
    the  accounting for shares of stock issued to employees by an ESOP. SOP 93-6
    requires that the employer record  compensation  expense in the amount equal
    to the fair  value  of  shares  committed  to be  released  from the ESOP to
    employees. In addition, the Corporation established a Management Stock Bonus
    Plan (MSBP) for key directors and personnel.

    On January 1, 1996,  the  Corporation  adopted SFAS No. 123,  Accounting for
    Stock-Based  Compensation,  which  contains  a fair  value-based  method for
    valuing  stock-based  compensation  that  entities may use,  which  measures
    compensation  cost at the grant  date  based on the fair value of the award.
    Compensation is then  recognized  over the service period,  which is usually
    the vesting period. Alternatively, the standard permits entities to continue
    accounting  for  employee  stock  options  and  similar   instruments  under
    Accounting  Principles  Board  (APB)  Opinion No. 25,  Accounting  for Stock
    Issued to  Employees.  Entities  that  continue to account for stock options
    using APB Opinion No. 25 are required to make pro forma  disclosures  of net
    income  and  earnings  per  share,  as if the  fair  value-based  method  of
    accounting  defined  in SFAS No.  123 had been  applied.  The  Corporation's
    employee stock option plan is accounted for under APB Opinion No. 25.

    On  January  1, 1998,  the  corporation  adopted  SFAS No.  132,  Employers'
    Disclosures about Pensions and Other Postretirement  Benefits.  SFAS No. 132
    revises  employers'  disclosures  about  pension  and  other  postretirement
    benefit plans. It eliminates  certain  disclosures  and requires  additional
    information  about changes in the benefit  obligation and the fair values of
    plan  assets.  The  financial  statement  disclosures  have been  revised to
    reflect the provisions of SFAS No. 132.

    10.  Income Taxes
         ------------

    The  Corporation  accounts  for  income  taxes  under the  liability  method
    specified in SFAS No. 109,  Accounting for Income Taxes. Under SFAS No. 109,
    deferred income taxes are recognized for the tax  consequences of "temporary
    differences" by applying  enacted  statutory tax rates  applicable to future
    years to differences  between the financial  statement  carrying amounts and
    the tax bases of existing  assets and  liabilities.  Under SFAS No. 109, the
    effect on deferred taxes of a change in tax rates is recognized in income in
    the period that includes the enactment date.

    11.  Advertising Costs
         -----------------

    The Corporation expenses advertising costs as incurred.

                                   (Continued)

                                       29

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    12.  Earnings Per Share
         ------------------

    On December 15, 1997,  the  Corporation  adopted the  provisions of SFAS No.
    128, Earnings Per Share.  SFAS No. 128 eliminates  primary and fully diluted
    earnings per share and requires  presentation of basic and diluted  earnings
    per share in  conjunction  with the  disclosure of the  methodology  used in
    computing  such  earnings  per  share.  Basic  earnings  per share  excludes
    dilution and is computed by dividing income available to common shareholders
    by the weighted average common shares outstanding during the period. Diluted
    earnings  per share takes into  account the  potential  dilution  that could
    occur if securities or other  contracts to issue common stock were exercised
    and  converted  into  common  stock.   Prior  periods'  earnings  per  share
    calculations have been restated to reflect the adoption of SFAS No. 128.

    13.  Comprehensive Income
         --------------------

    On  January  1,  1998,  the  Corporation  adopted  SFAS No.  130,  Reporting
    Comprehensive  Income.  SFAS 130 establishes  standards to provide prominent
    disclosure of comprehensive income items. Comprehensive income is the change
    in equity of a business  enterprise  during a period from  transactions  and
    other events and circumstances from non-owner sources.  Other  comprehensive
    income consists of net unrealized gains and losses on investment  securities
    available  for  sale.  Comprehensive  income  for  1998,  1997  and 1996 was
    $4,023,000, $5,170,000 and $3,215,000, respectively. The components of other
    comprehensive income are as follows:

<TABLE>
<CAPTION>

                                                                 December 31, 1998   
                                                    ----------------------------------------------  
                                                                         Tax
                                                    Before tax        (expense)        Net of tax
                                                      amount           benefit           amount  
                                                    ----------         --------        ----------  
                                                                (dollars in thousands)
<S>                                               <C>              <C>               <C>       
       Unrealized gains on securities
          Unrealized holding gains arising
          during period                             $     324        $     (126)       $      198
       Reclassification adjustment for
          gains realized in net income                   (349)              136              (213)
                                                     --------         ---------         ---------

       Other comprehensive income, net              $     (25)       $       10        $      (15)
                                                     ========         =========         =========


</TABLE>

                                   (Continued)

                                       30
<PAGE>


                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

<TABLE>
<CAPTION>

                                                                 December 31, 1997   
                                                    ----------------------------------------------    
                                                                         Tax
                                                    Before tax        (expense)        Net of tax
                                                      amount           benefit           amount  
                                                    ----------         --------        ----------  
                                                                (dollars in thousands)
<S>                                               <C>              <C>               <C>       
       Unrealized gains on securities
          Unrealized holding gains arising
          during period                             $     892        $     (348)       $      544
       Reclassification adjustment for
          gains realized in net income                   (407)              159              (248)
                                                     --------         ---------         ---------

       Other comprehensive income, net              $     485        $     (189)       $      296 
                                                     ========         =========         =========
</TABLE>

<TABLE>
<CAPTION>

                                                                 December 31, 1996
                                                    ----------------------------------------------   
                                                                         Tax
                                                    Before tax        (expense)        Net of tax
                                                      amount           benefit           amount  
                                                    ----------         --------        ----------  
                                                                (dollars in thousands)
<S>                                               <C>              <C>               <C>       
       Unrealized gains on securities
          Unrealized holding gains arising
          during period                             $    (103)       $       40        $      (63)
       Reclassification adjustment for
          gains realized in net income                   (330)              129              (201)
                                                     --------         ---------         ---------

       Other comprehensive income, net              $    (433)       $      169        $     (264)
                                                     ========         =========         =========
</TABLE>


    14.  New Financial Accounting Standards
         ----------------------------------
    On January 1, 1998, the Corporation adopted SFAS No. 131,  Disclosures about
    Segments of an Enterprise  and Related  Information.  SFAS No. 131 redefines
    how operating  segments are determined  and requires  disclosures of certain
    financial and descriptive  information about a company's operating segments.
    Management has determined  that under current  conditions,  the  Corporation
    will report one business segment.

                                   (Continued)

                                       31

<PAGE>


                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS
    No. 133,  Accounting for Derivative  Instruments and Hedging Activity.  SFAS
    No. 133  establishes  accounting  and  reporting  standards  for  derivative
    instruments,  including  certain  derivative  instruments  imbedded in other
    contracts, and for hedging activities.  It requires that an entity recognize
    all  derivatives  as  either  assets  or  liabilities  in the  statement  of
    financial  position and measure those  instruments at fair value. If certain
    conditions are met, a derivative may be specifically  designated as a hedge.
    The  accounting  for  changes in the fair value of a  derivative  instrument
    (gains  and  losses)  depends  on the  intended  use of the  derivative  and
    resulting designation.  SFAS No. 133 is effective for all fiscal quarters of
    fiscal years beginning after June 15, 1999. Earlier application is permitted
    only as of the  beginning  of any fiscal  quarter.  On October 1, 1998,  the
    Corporation  adopted  SFAS  No.  133.  Concurrent  with  the  adoption,  the
    Corporation transferred  $23,198,000 of mortgage-backed  securities from the
    held to maturity  category to the  available  for sale category and recorded
    $349,000,  net of taxes, of unrealized holding gains in other  comprehensive
    income.  The Corporation  also  transferred  $19,671,000 of  mortgage-backed
    securities  to  the  trading  category  and  reported  a  cumulative  effect
    adjustment of $208,000, net of taxes, resulting from the accounting change.

    15.  Reclassifications
         -----------------

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

NOTE B - CASH AND CASH EQUIVALENTS

    Cash and cash equivalents consist of the following:

                                                         December 31,
                                             -----------------------------------
                                                1998         1997        1996  
                                             ----------   ----------  ----------
                                                       (in thousands)

           Cash and due from banks           $  25,509    $  14,222   $  14,737
           Interest-bearing deposits in
             other financial institutions       16,444       25,628      38,120
           Federal funds sold                      750        1,775       1,275
                                            ----------    ---------   ---------

                                             $  42,703    $  41,625   $  54,132
                                              ========     ========    ========

                                       32
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE C - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

    The Bank enters into  purchases of  securities  under  agreements  to resell
    substantially identical securities. Securities purchased under agreements to
    resell at December 31, 1997, consist of mortgage-backed securities.

    The amounts advanced under these agreements  represent  short-term loans and
    are  reflected as a receivable in the  consolidated  statements of financial
    position.   The   securities   underlying   the  agreements  are  book-entry
    securities.  During the period, the securities were delivered by appropriate
    entry into a third-party  custodian's account designated by the Bank under a
    written custodial  agreement that explicitly  recognizes the Bank's interest
    in the securities.  At December 31, 1997, these agreements matured within 30
    days and substantially  all agreements to resell  securities  purchased were
    outstanding with one dealer. Securities purchased under agreements to resell
    averaged $3.6 million and $9.7 million  during 1998 and 1997,  respectively,
    and the maximum amounts  outstanding at any month-end  during 1998 and 1997,
    was $10 million and $25.3 million, respectively.

NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES

    The amortized cost, gross unrealized gains and losses,  and estimated market
    value of the  Corporation's  investment  and  mortgage-backed  securities at
    December 31, 1998 and 1997, are summarized as follows:

<TABLE>
<CAPTION>
                                                                           December 31, 1998                                 
                                                    ----------------------------------------------------------------
                                                                         Gross            Gross           Estimated
                                                    Amortized         unrealized       unrealized           market
                                                      cost               gains           losses             value     
                                                    ---------         ----------       ----------         ---------     
                                                                           (in thousands)
<S>                                                <C>              <C>              <C>              <C>      
        Investment securities held to maturity
           U.S. Government and federal agencies      $ 73,612          $   197          $    (62)        $  73,747
           State and political subdivisions             4,283               78               -               4,361
           Corporate debt securities                    3,000              -                 (14)            2,986
                                                      -------           ------           -------           -------
                                                       80,895              275               (76)           81,094
        Mortgage-backed securities
           held to maturity                           180,964            1,937              (341)          182,560
                                                      -------           ------           -------           -------
                                                     $261,859          $ 2,212          $   (417)         $263,654
                                                      =======           ======           =======           =======
        Investment securities available for sale
           U.S. Government and federal agencies      $  8,000          $    45          $    -               8,045
           Mutual funds                                   500              -                  (3)              497
           Other                                          500              -                 -                 500
                                                      -------           ------           -------           -------
                                                        9,000               45                (3)            9,042
        Mortgage-backed securities
           available for sale                          75,075              316              (106)           75,285
                                                      -------           ------           -------          --------
                                                     $ 84,075          $   361          $   (109)        $  84,327
                                                      =======           ======           =======          ========
</TABLE>
                                   (Continued)

                                       33

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued
<TABLE>
<CAPTION>
                                                                           December 31, 1997                                 
                                                    ----------------------------------------------------------------
                                                                         Gross            Gross           Estimated
                                                    Amortized         unrealized       unrealized           market
                                                      cost               gains           losses             value     
                                                    ---------         ----------       ----------         ---------     
                                                                           (in thousands)
<S>                                                <C>              <C>              <C>              <C>      
        Investment securities held to maturity
           U.S. Government and federal agencies      $ 50,278         $    190          $    (35)         $ 50,433
           State and political subdivisions             2,544               49               -               2,593
                                                      -------           ------           -------           -------
                                                       52,822              239               (35)           53,026
        Mortgage-backed securities held to maturity   144,074            2,096              (447)          145,723
                                                      -------           ------           -------           -------
                                                     $196,896          $ 2,335          $   (482)         $198,749
                                                      =======           ======           =======           =======
        Investment securities available for sale
           U.S. Government and federal agencies      $ 31,254          $    75          $     (2)         $ 31,327
           Equity securities (SLMA stock)                  10              200               -                 210
           Mutual funds                                   500              -                 -                 500
                                                      -------           ------           -------           -------
                                                       31,764              275                (2)           32,037
        Mortgage-backed securities available for sale  36,843              182              (178)           36,847
                                                      -------           ------           -------           -------
                                                     $ 68,607          $   457          $   (180)         $ 68,884
                                                      =======           ======           =======           =======
</TABLE>
    Gross  realized  gains were  $349,000,  $407,000  and $330,000 for the years
    ended December 31, 1998, 1997 and 1996,  respectively.  These gains resulted
    from the sale of investment and mortgage-backed securities of $37.4 million,
    $22.1 million and $9.3 million for the years ended  December 31, 1998,  1997
    and 1996, respectively.

                                       34
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

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

<TABLE>
<CAPTION>
                                                                           December 31, 1998                                 
                                                    ----------------------------------------------------------------
                                                            Held to maturity                   Available for sale
                                                    ----------------------------       -----------------------------
                                                                       Estimated                          Estimated
                                                    Amortized           market         Amortized            market
                                                      cost              value             cost              value     
                                                    ---------         ----------       ----------         ---------     
                                                                           (in thousands)
<S>                                               <C>              <C>              <C>              <C>      
        Investment securities
           Due in one year or less                   $ 32,829         $ 32,781          $  1,000          $    997
           Due after one year through five years       23,961           24,085             8,000             8,045
           Due after five years through 10 years       19,077           19,106               -                 -
           Due after 10 years                           5,028            5,122               -                 -  
                                                      -------          -------           -------           -------
                                                       80,895           81,094             9,000             9,042
       Mortgage-backed securities                     180,964          182,560            75,075            75,285
                                                      -------          -------           -------           -------
                                                     $261,859         $263,654          $ 84,075          $ 84,327
                                                      =======          =======           =======           =======
</TABLE>

                                   (Continued)

                                       35
<PAGE>


                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997




NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

    The amortized cost, gross unrealized gains and losses,  and estimated market
    value of mortgage-backed securities, by issuer, are summarized as follows:

<TABLE>
<CAPTION>
                                                                           December 31, 1998                                 
                                                    ----------------------------------------------------------------
                                                                         Gross            Gross           Estimated
                                                    Amortized         unrealized       unrealized           market
                                                      cost               gains           losses             value     
                                                    ---------         ----------       ----------         ---------     
                                                                           (in thousands)
<S>                                                <C>              <C>              <C>              <C>      
       Mortgage-backed securities held to
             maturity
         FHLMC certificates                          $ 47,239       $    1,172       $        (7)         $ 48,404
         FNMA certificates                             12,726              143               (13)           12,856
         GNMA certificates                             56,318              474               -              56,792
         Real estate mortgage investment conduit       64,180              148              (312)           64,016
         Other mortgage-backed securities                 501              -                  (9)              492
                                                      -------        ---------        ----------           -------
                                                     $180,964       $    1,937       $      (341)         $182,560
                                                      =======        =========        ==========           =======
       Mortgage-backed securities available for
             sale
         FHLMC certificates                          $ 13,110       $      106       $        (2)         $ 13,214
         FNMA certificates                             32,119               81               (22)           32,178
         GNMA certificates                             10,194               90               -              10,284
         Real estate mortgage investment conduit       19,652               39               (82)           19,609
                                                      -------        ---------        ----------           -------
                                                     $ 75,075       $      316       $      (106)         $ 75,285
                                                      =======        =========        ==========           =======
</TABLE>

<TABLE>
<CAPTION>
                                                                           December 31, 1997                                 
                                                    ----------------------------------------------------------------
                                                                         Gross            Gross           Estimated
                                                    Amortized         unrealized       unrealized           market
                                                      cost               gains           losses             value     
                                                    ---------         ----------       ----------         ---------     
                                                                           (in thousands)
<S>                                                <C>              <C>              <C>              <C>      
      Mortgage-backed securities held to
             maturity
         FHLMC certificates                          $ 76,523        $   1,508          $    (44)         $ 77,987
         FNMA certificates                             22,927              340               (71)           23,196
         GNMA certificates                              7,483              213               -               7,696
         Real estate mortgage investment conduit       36,389               35              (319)           36,105
         Other mortgage-backed securities                 752              -                 (13)              739
                                                      -------         --------           -------           -------
                                                     $144,074        $   2,096          $   (447)         $145,723
                                                      =======         ========           =======           =======
</TABLE>
                                   (Continued)

                                       36

<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

<TABLE>
<CAPTION>

                                                                           December 31, 1997                                 
                                                    ----------------------------------------------------------------
                                                                         Gross            Gross           Estimated
                                                    Amortized         unrealized       unrealized           market
                                                      cost               gains           losses             value     
                                                    ---------         ----------       ----------         ---------     
                                                                           (in thousands)
<S>                                                <C>              <C>              <C>              <C>      
       Mortgage-backed securities available for
             sale
         FHLMC certificates                         $  19,099      $       142        $      (18)        $  19,223
         FNMA certificates                              7,851               36               (24)            7,863
         Real estate mortgage investment conduit        9,893                4              (136)            9,761
                                                     -------        ----------         ---------          --------
                                                    $  36,843      $       182        $     (178)        $  36,847
                                                     ========       ==========         =========          ========
</TABLE>


    Investment  securities  having an aggregate  amortized cost of approximately
    $5.0  million and $7.0 million  were  pledged to secure  public  deposits at
    December 31, 1998 and 1997, respectively.

    There were no securities held other than U.S. Government and agencies from a
    single issuer that represented more than 10% of stockholders' equity.

NOTE E - LOANS RECEIVABLE

    Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                December 31,            
                                                                                        -------------------------            
                                                                                          1998             1997     
                                                                                        --------         --------     
                                                                                               (in thousands)
     <S>                                                                             <C>               <C>
          First mortgage loans (principally conventional)
          Secured by one-to-four family residences                                      $152,819          $198,328
          Secured by other non-residential properties                                     55,208            26,653
          Construction loans                                                               5,352             5,052
                                                                                         -------           -------
                                                                                         213,379           230,033
          Less net deferred loan origination fees and unamortized premiums                    67               133
                                                                                         -------           -------

              Total first mortgage loans                                                $213,312          $229,900
                                                                                         -------           -------

</TABLE>

                                   (Continued)

                                       37

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE E - LOANS RECEIVABLE - Continued

<TABLE>
<CAPTION>
                                                                                                December 31,            
                                                                                        -------------------------            
                                                                                          1998             1997     
                                                                                        --------         --------     
                                                                                               (in thousands)
     <S>                                                                            <C>               <C>
       Consumer and other loans
          Commercial                                                                    $  6,666          $  2,798
          Home equity and second mortgage                                                 12,995            12,147
          Leases                                                                           2,305             1,671
          Other                                                                            7,521             6,230
                                                                                         -------           -------
                                                                                          29,487            22,846
          Less unearned discount                                                              49                 6
                                                                                         -------           -------

                      Total consumer and other loans                                      29,438            22,840

          Less allowance for loan losses                                                   1,909             2,029
                                                                                         -------           -------

                      Total loans receivable                                            $240,841          $250,711
                                                                                         =======           =======
</TABLE>

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

<TABLE>
<CAPTION>

                                                                                       December 31,                         
                                                                     ------------------------------------------------  
                                                                         1998             1997              1996     
                                                                     ------------     ------------      -------------
                                                                                     (in thousands)

<S>                                                               <C>               <C>               <C>       
       Balance at beginning of year                                 $    2,029        $    1,806        $    1,484
       Provision charged to income                                          60               397               330
       Charge-offs, net                                                   (180)             (174)               (8)
                                                                     ---------         ---------         ---------
       Balance at end of year                                       $    1,909        $    2,029        $    1,806
                                                                     =========         =========         =========
</TABLE>

    Non-performing  loans, which include non-accrual loans for which the accrual
    of interest has been discontinued and loan balances past due 90 days or more
    that are not on a  non-accrual  status  but  that  management  expects  will
    eventually  be paid in full,  totalled  approximately  $1.6 million and $1.4
    million at December  31,  1998,  and 1997,  respectively.  Of such  amounts,
    approximately  $900,000  and  $800,000  at December  31, 1998 and 1997,  are
    residential  mortgage  loans secured by  one-to-four  family  residences for
    which management has experienced insignificant charge-offs.  Interest income
    that  would  have been  recorded  under  the  original  terms of such  loans
    totalled  approximately  $43,000,  $19,000  and  $30,000 for the years ended
    December 31, 1998, 1997 and 1996, respectively.  No interest income has been
    recognized on non-accrual loans for any of the periods presented.

                                   (Continued)

                                       38
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE E - LOANS RECEIVABLE - Continued

    The  Corporation  accounts  for loans in  accordance  with SFAS No.  114, as
    amended by SFAS No.  118.  SFAS No.  114  requires  that a creditor  measure
    impairment  based  on the  present  value  of  expected  future  cash  flows
    discounted at the loan's effective interest rate, except that as a practical
    expedient,  a creditor may measure  impairment based on a loan's  observable
    market price,  or the fair value of the collateral if the loan is collateral
    dependent.  Regardless of the  measurement  method,  a creditor must measure
    impairment  based on the  fair  value of the  collateral  when the  creditor
    determines that  foreclosure is probable.  SFAS No. 118 allows  creditors to
    use existing methods for recognizing interest income on impaired loans.

    The Bank has identified a loan as impaired when it is probable that interest
    and principal will not be collected  according to the  contractual  terms of
    the loan  agreement.  The accrual of interest is  discontinued on such loans
    and cash  payments  received  are applied to reduce  principal to the extent
    necessary  to  eliminate  any  doubt as to the  ultimate  collectibility  of
    principal either in whole or in part.

    Loan impairment is measured by estimating the expected future cash flows and
    discounting them at the respective effective interest rate or by valuing the
    underlying  collateral.  An allowance for credit losses has been established
    for all loans identified as impaired.  As of December 31, 1998 and 1997, the
    recorded investment in impaired loans was immaterial.

    The Bank has no  concentration  of loans to  borrowers  engaged  in  similar
    activities which exceeded 10% of loans at December 31, 1998 and 1997. In the
    ordinary course of business, the Bank has granted loans to certain executive
    officers,  directors  and their related  interests.  Related party loans are
    made on  substantially  the same terms as those  prevailing  at the time for
    comparable  transactions with unrelated persons and do not involve more than
    the normal risk of  collectibility.  The  aggregate  dollar  amount of these
    loans was approximately $385,000 and $401,000 at December 31, 1998 and 1997,
    respectively.  For the year ended December 31, 1998, principal repayments of
    approximately $16,000 were received and no funds were disbursed to executive
    officers, directors or their related interests.

NOTE F - LOAN SERVICING

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

                                                        December 31,            
                                                ---------------------------  
                                                   1998              1997     
                                                ---------          --------     
                                                       (in thousands)
      Mortgage loan servicing portfolios
        FHLMC                                   $  15,116         $  18,775
        Other investors                             6,103             7,630
                                                 --------          --------
                                                $  21,219         $  26,405
                                                 ========          ========

                                   (Continued)

                                       39
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE F - LOAN SERVICING - Continued

    Custodial  balances   maintained  in  connection  with  the  foregoing  loan
    servicing totalled  approximately $408,000 and $523,000 at December 31, 1998
    and 1997, respectively. The net servicing revenue on mortgage loans serviced
    for others is immaterial for all periods presented.

NOTE G - PREMISES AND EQUIPMENT

    Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                   December 31,                      
                                                Estimated     ----------------------  
                                              useful lives    1998              1997    
                                              ------------    ----              ----    
                                                                          (in thousands)

<S>                                             <C>      <C>               <C>  

        Buildings                                   30     $    5,906        $    5,790
        Leasehold improvements                       5            709               322
        Furniture, fixtures and equipment          3-7          6,436             4,955
                                                            ---------         ---------
                                                               13,051            11,067
        Less accumulated depreciation                           7,293             6,437
                                                            ---------         ---------
                                                                5,758             4,630
        Land                                                    3,259             3,259
                                                            ---------         ---------
                                                           $    9,017        $    7,889
                                                            =========         =========
</TABLE>


NOTE H - DEPOSITS

    Deposits are summarized as follows:


<TABLE>
<CAPTION>
                                                                   December 31,                      
                                                              ----------------------  
                                                              1998              1997    
                                                              ----              ----    
                                                                  (in thousands)

<S>                                                      <C>               <C>      
      Demand                                                $    6,231        $   5,037
      NOW                                                       44,971           40,360
      Money Market                                              32,556           32,777
      Passbook savings - fixed rate                            122,213          122,952
      Passbook savings - adjustable rate                        43,651           51,277
                                                              --------         --------
             Total demand, transaction and
                   passbook deposits                           249,622          252,403
      Certificates of deposit                                  189,291          198,026
                                                               -------          -------
                                                              $438,913         $450,429
                                                               =======          =======
</TABLE>

                                   (Continued)

                                       40
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE H - DEPOSITS - Continued

    The aggregate amount of certificates of deposit with a minimum  denomination
    of $100,000 was approximately $13.3 million and $9.4 million at December 31,
    1998 and 1997, respectively.


    At December 31, 1998, scheduled maturities of certificates of deposit are as
follows:

<TABLE>
<CAPTION>
                                               Year ending December 31,                               
    --------------------------------------------------------------------------------------------------------------     
       1999           2000            2001             2002               2003        Thereafter         Total    
    -----------    ------------     ------------     ------------      ------------   ----------      ------------
                                                   (in thousands)

<S>              <C>           <C>             <C>                  <C>             <C>            <C>  
     $133,732      $  23,582       $  24,250        $    3,282         $    4,128     $      317        $189,291
      =======       ========        ========         =========          =========      =========         =======

</TABLE>

NOTE I - ADVANCES FROM THE FEDERAL HOME LOAN BANK

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

<TABLE>
<CAPTION>

                                                          December 31,                                    
                              --------------------------------------------------------------------   
                                          1998                                   1997                
                              -----------------------------           ----------------------------       
                                                  Weighted                             Weighted
           Due date               Amount       average rate             Amount       average rate
           --------               ------       ------------             ------       ------------
                                                        (in thousands)
<S>                              <C>             <C>                 <C>            <C> 

           1998                    $     -             - %            $  30,000         5.85%
           1999                      30,000          6.05                30,000         6.05
           2000                      25,000          6.13                25,000         6.13
           2003                      20,000          5.60                   -            -
           2005                      15,000          5.37                   -            -
           2008                      70,000          5.61                   -            -
           2010                       3,359          6.70                 3,359         6.70
                                    -------                            --------

                                   $163,359          5.77             $  88,359         6.03
                                    =======                            ========
</TABLE>

    The advances are  collateralized by Federal Home Loan Bank stock and certain
    first mortgage loans and mortgage-backed securities.  Unused lines of credit
    at the Federal Home Loan Bank were $30 million at December 31, 1998.

                                       41

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE J - BENEFIT PLANS

    The Bank  maintains a 401(k)  profit-sharing  plan for  eligible  employees.
    Contributions  to the plan are at the  discretion of the Board of Directors.
    There were no profit-sharing plan contributions for the years ended December
    31, 1998, 1997 and 1996.

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

    The following  table sets forth the pension plan's funded status and amounts
    recognized in the consolidated statements of financial position at the dates
    indicated.

<TABLE>
<CAPTION>
                                                                     December 31,            
                                                            ------------------------------
                                                                1998              1997     
                                                            -----------        -----------
                                                                    (in thousands)
<S>                                                       <C>               <C> 
       Change in benefit obligation                       
          Benefit obligation at beginning of year            $    2,609        $    3,004
          Service cost                                               62               157
          Interest cost                                             201               160
          Actual gain                                               250              (670)
          Increase due to plan amendments                           171               -
          Benefits paid                                            (161)              (42)
                                                             ----------         ---------

          Benefits obligation at end of year                 $    3,132        $    2,609
                                                              =========         =========

       Change in plan assets
          Fair value of plan assets at beginning of year     $    1,762        $    1,338
          Actual return on plan assets                              (50)              244
          Employer contribution                                     410               222
          Benefits paid                                            (161)              (42)
                                                              ---------         ---------

          Fair value of plan assets at end of year           $    1,961        $    1,762
                                                              =========         =========

       Funded status
          Unrecognized transaction asset                     $   (1,171)       $     (847)
          Unrecognized net actuarial loss                            31                36
          Unrecognized prior service cost                           543               419
          Prepaid (accrued) benefit cost                            201              (256)
                                                              ---------         ---------

                                                             $     (396)       $     (648)
                                                              =========         =========

</TABLE>
                                   (Continued)

                                       42
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE J - BENEFIT PLANS - Continued

<TABLE>
<CAPTION>
                                                                          1998             1997              1996    
                                                                      ------------     ------------      ------------

<S>                                                               <C>              <C>                <C>
       Weighted-average assumptions as of December 31
          Discount rate                                                   7.25%             6.00%            6.00%
          Expected return on plan assets                                  8.00              8.00             8.00
          Rate of compensation increase                                   4.00              6.00             6.00

       Components of net periodic benefit cost
          Service cost                                             $        62       $       157       $      173
          Interest cost                                                    201               160              196
          Expected return on plan assets                                  (157)             (116)            (143)
          Amortization of prior service cost                                52                52               56
                                                                    ----------        ----------        ---------

          Net periodic benefit cost                                $       158       $       253       $      282
                                                                    ==========        ==========        =========

</TABLE>

    The Corporation also maintains the following benefit plans:

    1.  Employee Stock Ownership Plan
        -----------------------------

    In 1994,  the  Corporation  established  an  internally  leveraged  ESOP for
    eligible  employees  who have  completed  six  months  of  service  with the
    Corporation  or its  subsidiaries.  The ESOP  borrowed $4.2 million from the
    Corporation  to purchase  423,200 newly issued  shares of common stock.  The
    Corporation  makes  discretionary  contributions  to the  ESOP in  order  to
    service the ESOP's debt. Any dividends  received by the ESOP will be used to
    pay debt service.  The ESOP shares  initially were pledged as collateral for
    its debt.  As the debt is repaid,  shares are released from  collateral  and
    allocated to qualifying  employees  based on the  proportion of debt service
    paid in the year. The  Corporation  accounts for its ESOP in accordance with
    SOP  93-6.  Accordingly,  the debt of the ESOP is  recorded  as debt and the
    shares  pledged as  collateral  are reported as unearned  ESOP shares in the
    consolidated  statements of financial position.  As shares are released from
    collateral,  the  Corporation  reports  compensation  expense  equal  to the
    current market price of the shares, and the allocated shares are included in
    outstanding  shares  for  earnings  per  share  computations.  Dividends  on
    allocated  ESOP shares are  recorded as a  reduction  of retained  earnings;
    dividends on unallocated ESOP shares are recorded as a reduction of debt and
    accrued  interest.  ESOP  compensation  expense was  $288,000,  $351,000 and
    $450,000 in 1998, 1997 and 1996, respectively.


       Allocated shares                                 119,500
       Unreleased shares                                288,800
                                                      ---------
             Total ESOP shares                          408,300
                                                      =========
       Fair value of unreleased shares               $4,981,800
                                                      =========

                                   (Continued)

                                       43
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE J - BENEFIT PLANS - Continued

    2.  Management Stock Bonus Plan
        ---------------------------

    The Board of  Directors  also  adopted  a MSBP  which  was  approved  by the
    Corporation's stockholders on October 13, 1994. The MSBP provides that up to
    211,600  shares of common  stock may be granted,  at the  discretion  of the
    Board,  to key  directors  and officers at no cost to the  individuals.  The
    Corporation  granted  178,292 shares on November 18, 1994,  24,000 shares on
    December  18, 1995,  and 9,308  shares on December 15, 1997,  in the form of
    restricted  stock  payable  over  five  years  from the date of  grant.  The
    recipients  of the  restricted  stock are  entitled  to all voting and other
    stockholder  rights,  except that the shares,  while restricted,  may not be
    sold,  pledged  or  otherwise  disposed  of and are  required  to be held in
    escrow.  In  the  event  the  recipient  terminates   association  with  the
    Corporation  for reasons other than death,  disability or change in control,
    the recipient  forfeits all rights to the allocated shares under restriction
    which are cancelled and revert to the Corporation  for reissuance  under the
    plan.  Shares  acquired by MSBP of $2.1 million were recorded at the date of
    award  based on the  market  value of shares  acquired  by the  Corporation.
    Shares  acquired  by the MSBP,  which are shown as a separate  component  of
    stockholders'  equity,  are being  amortized to expense  over the  five-year
    vesting period; $460,000,  $458,000 and $432,000 was amortized to expense in
    1998,  1997 and 1996,  respectively.  At December  31,  1998,  there were no
    shares reserved for future grants under the plan.

    3.  Stock Option Plans
        ------------------

    The Corporation has fixed stock option plans accounted for under APB Opinion
    No. 25 and related interpretations. The plans allow the Corporation to grant
    options to employees and directors for up to 794,000 shares of common stock.
    The  options,  which  have a term  of 10  years  when  issued,  vest  either
    immediately or over a three to five year period.  The exercise price of each
    option  equals the market  price of the  Corporation's  stock on the date of
    grant. Had compensation cost for the plans been determined based on the fair
    value of options at the grant dates  consistent  with the method of SFAS No.
    123, Accounting for Stock-Based  Compensation,  the Corporation's net income
    and  earnings  per share  would have been  reduced to the pro forma  amounts
    indicated below.

                                            1998         1997         1996    
                                          --------     --------      --------
       Net income
          As reported                     $  4,038     $  4,874      $  3,479
          Pro forma                       $  3,885     $  4,726      $  3,365

       Basic earnings per share
          As reported                     $   1.39     $   1.33      $   0.86
          Pro forma                       $   1.34     $   1.29      $   0.83

       Diluted earnings per share
          As reported                     $   1.26     $   1.25      $   0.83
          Pro forma                       $   1.21     $   1.21      $   0.80


                                   (Continued)

                                       44
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE J - BENEFIT PLANS - Continued

    These pro forma  amounts  may not be  representative  of future  disclosures
    because  they do not take into  effect  the pro forma  compensation  expense
    related to grants before 1995.

    The fair value of each option  grant is estimated on the date of grant using
    the Black-Scholes  option-pricing  model with the following weighted average
    assumptions  used for  grants  in  1998,  1997 and  1996,  respectively:  no
    dividend  yield for all years;  expected  volatility  of 34%, 21% and 12.1%,
    risk-free  interest rate of 5.25%, 6.4% and 6.4%; and expected lives of five
    years for all options.

    A summary of the status of the Corporation's  fixed stock option plans as of
    December  31,  1998,  and  changes  for each of the years in the  three-year
    period then ended was as follows:

<TABLE>
<CAPTION>
                                                    1998                      1997                  1996             
                                            ---------------------     --------------------   ----------------------             
                                                       Weighted                  Weighted                Weighted
                                                         average                 average                 average
                                               Number   exercise      Number     exercise     Number     exercise
                                                 of     price per       of       price per      of       price per
                                              shares      share       shares      share        shares      share    
                                            ----------   --------     -------    ---------    ------     ---------    
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>   
       Outstanding at beginning of year       695,875     $13.08      551,833     $12.06      514,480     $11.82
       Options granted                         13,325      22.46      170,155      16.62       41,103      15.09
       Options exercised                      (10,486)     12.85       (5,915)     11.50       (1,667)     11.50
       Options forfeited                       (2,695)     15.78      (20,198)     16.50       (2,083)     11.50    
                                              -------                 -------                 -------             

       Outstanding at end of year             696,019     $13.24      695,875     $13.08      551,833     $12.06
                                              =======                 =======                 =======

       Options exercisable at year-end        524,813                 478,919                 461,285
                                              =======                 =======                 =======
       Weighted average fair value of
          options granted during year        $   8.72                $   5.42                $   4.34
</TABLE>

    The following table summarizes  information about stock options  outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
                                                  Options outstanding                      Options exercisable       
                                       ---------------------------------------------   ---------------------------       
                                                         Weighted
                                            Number        average         Weighted        Number         Weighted
                                       outstanding at    remaining         average     exercisable at    average
       Range of exercise               December 31,      contractual       exercise     December 31,     exercise
           prices                        1998            life (years)       price         1998            price    
       ----------------                --------------    -----------      ----------   --------------    ---------    
<S>                                    <C>              <C>              <C>             <C>          <C>   
       $11.50 to $17.25                   675,154          6.8 years       $12.97         522,482        $12.14
       $18.00 to $19.25                    15,615          9.2 years        18.73           2,248         18.32
       $26.00 to $27.88                     5,250          9.5 years        27.79              83         26.00

</TABLE>
                                   (Continued)

                                       45

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE J - BENEFIT PLANS - Continued

    Total  compensation  cost recognized for stock-based  employee  compensation
    awards was  approximately  $116,000,  $99,000 and $28,000 for 1998, 1997 and
    1996, respectively.

NOTE K - INCOME TAXES

    The components of income tax expense are summarized as follows:

<TABLE>
<CAPTION>
                                                                     Year ended December 31,                
                                                        ----------------------------------------------
                                                          1998             1997              1996     
                                                          ----             ----              ----     
                                                                       (in thousands)
       Federal
<S>                                                  <C>               <C>               <C>       
          Current                                      $    2,162        $    2,420        $    2,173
          Deferred                                           (152)             (233)              (84)
                                                        ---------         ---------         ---------
                                                            2,010             2,187             2,089

       State and local - current                              297               395               343
                                                        ---------         ---------         ---------
       Continuing operations                                2,307             2,582             2,432

       Cumulative effect of accounting change                 125               -                 -  
                                                        ---------         ---------         ---------

       Income tax provision                            $    2,432        $    2,582        $    2,432
                                                        =========         =========         =========

</TABLE>


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

                                                      Year ended December 31,
                                                   ---------------------------
                                                   1998         1997      1996
                                                   ----         ----      ----
                                                         (in thousands)

        Statutory federal income tax               34.0%        34.0%     34.0%
        Increase (decrease) resulting from
           Tax-exempt income                       (3.6)        (1.8)     (2.7)
           State tax, net of federal benefit        3.1          3.5       3.8
           Other                                    6.1         (1.1)      5.9
                                                 ------       ------    ------

                                                   39.6%        34.6%     41.0%
                                                 ======       ======    ======


                                   (Continued)

                                       46
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE K - INCOME TAXES - Continued

    Deferred taxes are included in the accompanying  consolidated  statements of
    financial  position at December 31, 1998 and 1997, for the estimated  future
    tax effects of  differences  between  the  financial  statement  and federal
    income tax bases of assets and  liabilities  according to the  provisions of
    currently  enacted tax laws.  No valuation  allowance  was recorded  against
    deferred tax assets at December  31, 1998 and 1997.  The  Corporation's  net
    deferred  tax asset at December  31,  1998 and 1997,  was  comprised  of the
    following:

                                                            December 31,  
                                                      -----------------------
                                                         1998          1997
                                                      ----------    ---------
                                                           (in thousands)
        Deferred tax assets
           Deferred loan origination fees             $      107    $    130
           Deferred compensation                             176         135
           Allowance for loan losses, net                     79          68
           Amortization                                      226         123
           Other                                               3         -  
                                                       ---------    --------
                                                             591         456
                                                       ---------    --------
        Deferred tax liabilities
           Accrued pension expense                            20          37
           Unrealized gain on securities
             available for sale                               98         108
                                                       ---------    --------
                                                             118         145
                                                       ---------    --------

               Deferred tax asset                     $      473   $     311
                                                       =========    ========

    The  Corporation  files its income tax  returns on the basis of a fiscal tax
year ending June 30.

    Prior to 1996,  the Bank was permitted to deduct a percentage of its taxable
    income as an addition to a bad debt reserve for tax purposes  regardless  of
    the Bank's  charge-off  experience.  This special deduction was repealed for
    taxable years  following  1995.  The Bank is now required to compute its bad
    debt  deductions  for tax  purposes  using the specific  charge-off  method.
    Moreover,   the  Bank  is  required,   beginning   in  1998,   to  recapture
    approximately   $2.4   million  of  its  total  tax  bad  debt   reserve  of
    approximately  $8.1  million into  taxable  income over a four-year  period.
    Deferred tax  liabilities  have been accrued in respect of the amount of the
    reserve to be recaptured.

    The Bank is not required to recapture  approximately $5.7 million of its tax
    bad debt reserve,  attributable to bad debt deductions  taken by it prior to
    1988,  as long as the Bank  continues to operate as a bank under federal tax
    law and does not use the reserve for any other purpose.  In accordance  with
    SFAS No. 109, the Bank has not  recorded any deferred tax  liability on this
    portion  of its tax bad debt  reserve.  The tax that  would be paid were the
    Bank  ultimately  required to recapture  that portion of the reserve,  would
    amount to approximately $1.9 million.

                                   (Continued)

                                       47

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE K - INCOME TAXES - Continued

    Deferred tax expense (benefit) results from temporary or timing  differences
    in the  recognition  of revenue and expense for tax and financial  reporting
    purposes.  The sources and effect of these temporary and timing  differences
    are as follows:

<TABLE>
<CAPTION>

                                                                                  Year ended December 31,              
                                                                       --------------------------------------------    
                                                                         1998             1997              1996     
                                                                       --------        ---------         ----------  
                                                                                    (in thousands)
<S>                                                                   <C>                <C>              <C>    
    Recognition of deferred tax  expenses (benefits)
       Loan losses                                                     $  (118)           $  (111)         $     2
       Deferred compensation                                               (40)               (24)            (110)
       Deferred loan origination fees                                       24                 24               24
       Amortization                                                       (103)              (122)             -
       Pension                                                              88                -                -
       Reserves                                                             (3)               -                -  
                                                                        ------             ------           ------

                                                                       $  (152)           $  (233)         $   (84)
                                                                        ======             ======           ======
</TABLE>

NOTE L - REGULATORY MATTERS

    The Bank is subject to minimum regulatory  capital standards  promulgated by
    the Office of Thrift  Supervision  (OTS).  Failure to meet  minimum  capital
    requirements  can  initiate  certain  mandatory  - and  possible  additional
    discretionary  - actions by  regulators  that, if  undertaken,  could have a
    direct  material  effect  on  the   Corporation's   consolidated   financial
    statements.  Under capital adequacy guidelines and the regulatory  framework
    for prompt corrective action, the Bank must meet specific capital guidelines
    that involve quantitative  measures of the Bank's assets,  liabilities,  and
    certain  off-balance  sheet items as calculated under regulatory  accounting
    practices.  The Corporation's  capital amounts and  classification  are also
    subject to qualitative  judgments by the regulators about  components,  risk
    weightings,  and other factors.  Such minimum  capital  standards  generally
    require the  maintenance  of regulatory  capital  sufficient to meet each of
    three tests, hereinafter described as the tangible capital requirement,  the
    core  capital  requirement  and  the  risk-based  capital  requirement.  The
    tangible capital requirement  provides for minimum tangible capital (defined
    as  stockholders'  equity  less  all  intangible  assets)  equal  to 1.5% of
    adjusted  total assets.  The core capital  requirement  provides for minimum
    core capital  (tangible  capital plus certain forms of supervisory  goodwill
    and other qualifying intangible assets) equal to 4% of adjusted total assets
    at December 31, 1998.

                                   (Continued)

                                       48
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE L - REGULATORY MATTERS - Continued

    As of December 31, 1998,  management  believes that the Bank met all capital
adequacy requirements to which it was subject.

<TABLE>
<CAPTION>
                                                                       Regulatory capital                                        
                                               ---------------------------------------------------------------------- 
                                                                        December 31, 1998                        
                                               ---------------------------------------------------------------------- 
                                               Tangible                  Core                   Risk-based
                                                capital    Percent      capital     Percent      capital      Percent
                                               --------    -------      -------     -------     ----------    -------
<S>                                          <C>           <C>       <C>            <C>       <C>           <C>  
      Capital under generally accepted
          accounting principles
             Corporation                      $ 52,660      8.00%     $ 52,660       8.00%     $ 52,660       19.68%
             Bank                               52,577      7.93        52,577       7.93        52,577       19.86

      Unrealized gain on certain
         available-for-sale securities
             Corporation                          (154)    (0.02)         (154)     (0.02)         (154)      (0.06)
             Bank                                 (154)    (0.02)         (154)     (0.02)         (154)      (0.06)

      Goodwill and other intangible assets
             Corporation                        (7,389)    (1.12)       (7,389)     (1.12)       (7,389)      (2.76)
             Bank                               (7,389)    (1.12)       (7,389)     (1.12)       (7,389)      (2.79)

      Additional capital items
         General valuation allowances-limited
             Corporation                           -         -             -          -           1,909        0.72
             Bank                                  -         -             -          -           1,909        0.72
                                               -------    ------       -------     ------       -------      ------
      Regulatory capital computed
             Corporation                        45,117      6.86        45,117       6.86        47,026       17.58
             Bank                               45,034      6.79        45,034       6.79        46,943       17.73

      Minimum capital requirement
             Corporation                         9,871      1.50        26,323       4.00        21,405        8.00
             Bank                                9,943      1.50        26,515       4.00        21,178        8.00
                                               -------    ------       -------     ------       -------      ------
      Regulatory capital - excess
             Corporation                      $ 35,246      5.36%     $ 18,794       2.86%     $ 25,621        9.58%
                                               =======    ======       =======     ======       =======      ======

             Bank                             $ 35,091      5.29%     $ 18,519       2.79%     $ 25,765        9.73%
                                               =======    ======       =======     ======       =======      ======
</TABLE>

                                   (Continued)

                                       49
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE L - REGULATORY MATTERS - Continued

<TABLE>
<CAPTION>
                                                                           Regulatory capital            
                                                  ----------------------------------------------------------------------
                                                                            December 31, 1997                   
                                                  ---------------------------------------------------------------------- 
                                                  Tangible                  Core                  Risk-based
                                                   capital     Percent     capital     Percent      capital      Percent
                                                  --------     -------     -------     -------      -------      -------
<S>                                              <C>           <C>      <C>             <C>      <C>             <C>   
      Capital under generally accepted
          accounting principles
             Corporation                          $ 50,095      8.51%     $ 50,095       8.51%     $ 50,095       19.56%
             Bank                                   50,987      8.58        50,987       8.58        50,987       19.91

   Unrealized gain on certain
          available-for-sale securities
             Corporation                              (169)    (0.03)         (169)     (0.03)         (169)      (0.06)
             Bank                                     (169)    (0.03)         (169)     (0.03)         (169)      (0.06)

      Goodwill and other intangible assets
             Corporation                            (8,274)    (1.41)       (8,274)     (1.41)       (8,274)      (3.23)
             Bank                                   (8,274)    (1.39)       (8,274)     (1.39)       (8,274)      (3.23)

      Additional capital items
          General valuation allowances-limited
             Corporation                                -        -              -          -          2,029        0.79
             Bank                                       -        -              -          -          2,029        0.79
                                                   -------     -----       -------      -----       -------       -----

      Regulatory capital computed
             Corporation                            41,652      7.07        41,652       7.07        43,681       17.06
             Bank                                   42,544      7.16        42,544       7.16        44,573       17.41

      Minimum capital requirement
             Corporation                             8,831      1.50        17,662       3.00        20,491        8.00
             Bank                                    8,902      1.50        17,804       3.00        20,487        8.00
                                                   -------     -----       -------      -----       -------       -----
      Regulatory capital - excess
             Corporation                          $ 32,821      5.57%     $ 23,990       4.07%     $ 23,190        9.06%
                                                   =======     =====       =======      =====       =======       =====
             Bank                                 $ 33,642      5.66%     $ 24,740       4.16%     $ 24,086        9.41%
                                                   =======     =====       =======      =====       =======       =====

</TABLE>
                                   (Continued)

                                       50
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE L - REGULATORY MATTERS - Continued

    At  December  31,  1998,  the  Bank  met  all  regulatory  requirements  for
    classification as a  "well-capitalized"  institution.  A  "well-capitalized"
    institution must have risk-based  capital of 10% and core capital of 5%. The
    Bank's capital exceeded the minimum required amounts for classification as a
    "well-capitalized" institution by $20 million and $12 million, respectively.
    There are no  conditions  or events  which  have  occurred  that  management
    believes  have  changed the Bank's  classification  as a  "well-capitalized"
    institution.

    On September 30, 1996, the President  signed into law the Deposit  Insurance
    Funds Act of 1996 to  recapitalize  the Savings  Association  Insurance Fund
    (SAIF) administered by the Federal Deposit Insurance  Corporation (FDIC) and
    to provide for the repayment of Financial Institution  Collateral Obligation
    (FICO) bonds issued by the United States  Treasury  Department.  Pursuant to
    this law, the FDIC levied a one-time  special  assessment  of SAIF  deposits
    equal to $0.657 per $100 of the SAIF-assessable deposit base as of March 31,
    1995.  Based on the Bank's  deposits as of March 31,  1995,  the Bank paid a
    special  assessment of $2.2 million to  recapitalize  the SAIF. This expense
    was  accrued  for in the  third  quarter  of  1996.  During  1999,  the Bank
    Insurance  Funds (BIF) will pay $322 million of FICO debt service,  and SAIF
    will pay $458 million.

    During 1999,  the average  regular annual  deposit  insurance  assessment is
    estimated  at $0.0129 per $100 of deposits  for BIF deposits and $0.0644 per
    $100 of deposits for SAIF deposits.  Individual institution assessments will
    continue to vary  according  to their  capital and  management  ratings.  As
    always,  the FDIC  will be able to raise the  assessments  as  necessary  to
    maintain the funds at their target  capital  ratios  provided by law.  After
    1999,  BIF and  SAIF  will  share  the  FICO  cost  equally.  Under  current
    estimates,  BIF and SAIF assessment bases would each be assessed at the rate
    of approximately $0.024 per $100 of deposits.

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

NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

    The Corporation is a party to financial  instruments with  off-balance-sheet
    risk in the normal  course of  business to meet the  financing  needs of its
    customers and to reduce its own exposure to  fluctuations in interest rates.
    These financial  instruments include  commitments to extend credit,  standby
    letters of credit,  interest rate caps and floors  written.  Such  financial
    instruments are recorded in the consolidated  financial statements when they
    become payable.  Those instruments involve, to varying degrees,  elements of
    credit  and  interest  rate risk in excess of the amount  recognized  in the
    consolidated  statements  of  financial  position.  The contract or notional
    amounts of those instruments reflect the extent of the Bank's involvement in
    particular classes of financial instruments.

                                   (Continued)

                                       51
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - Continued

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

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

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

                                                           December 31, 
                                                 ----------------------------
                                                    1998              1997    
                                                 ----------        ----------
                                                        (in thousands)

        Commitments to extend credit             $  30,341         $  22,720
        Commitments to purchase loans                  -                 304
        Standby letters of credit                    3,604               787
        Loans sold with recourse                       364               572
                                                  --------          --------
                                                 $  34,309         $  24,383
                                                  ========          ========

    Commitments to extend credit are agreements to lend to a customer as long as
    there  is no  violation  of  any  condition  established  in  the  contract.
    Commitments  generally  have  fixed  expiration  dates or other  termination
    clauses and may require  payment of a fee. The  Corporation  evaluates  each
    customer's   creditworthiness   on  a  case-by-case  basis.  The  amount  of
    collateral  obtained,  if it is deemed  necessary  by the  Corporation  upon
    extension  of credit,  is based on  management's  credit  evaluation  of the
    counterparty.  Collateral  held  generally  includes  residential  and  some
    commercial property.

    Standby letters of credit are conditional  commitments issued by the Bank to
    guarantee the  performance  of a customer to a third party.  The credit risk
    involved  in  issuing  letters  of  credit is  essentially  the same as that
    involved in extending  loan  facilities  to customers.  Typically,  the Bank
    issues letters of credit to other financial  institutions and generally does
    not require collateral for standby letters of credit.

NOTE N - COMMITMENTS AND CONTINGENCIES

    The Bank had no commitments  to sell mortgage loans to investors at December
    31, 1998 compared to $6.9 million  outstanding at December 31, 1997.

    The Bank leases  branch  facilities  for periods  ranging up to seven years.
    These leases are classified as operating leases and contain options to renew
    for additional periods. Rental expense was approximately $315,000,  $296,000
    and  $229,000  for the  years  ended  December  31,  1998,  1997  and  1996,
    respectively.

                                   (Continued)

                                       52
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE N - COMMITMENTS AND CONTINGENCIES - Continued

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

         Year ending December 31,

                  1999                                  $  280
                  2000                                     159
                  2001                                     124
                                                         -----
                                                        $  563
                                                         =====   

    The Bank has a contract with a third-party  computer processing center which
    expires in 2002 with an annual commitment of approximately $109,000.

    The Corporation  has employment  agreements with certain key executives that
    provide  severance  pay  benefits  if there is a change  in  control  of the
    Corporation.  The agreements will continue in effect on a year-to-year basis
    until terminated or not renewed by the Corporation or key executives. Upon a
    change in control, the Corporation shall continue to pay the key executives'
    salary per the  agreements  and certain  benefits for one year.  The maximum
    contingent  liability  under  the  agreements  at  December  31,  1998,  was
    approximately $1,956,000.

    From time to time,  the  Corporation  and its  subsidiaries  are  parties to
    routine  litigation,  which arises in the normal course of business.  In the
    opinion of  management,  the  resolution of these  lawsuits would not have a
    material adverse effect on the Corporation's consolidated financial position
    or results of operations.

NOTE O - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

    The Bank is principally  engaged in originating and investing in one-to-four
    family residential and commercial real estate loans in eastern  Pennsylvania
    and New Jersey.  The Bank offers both fixed and adjustable rates of interest
    on these loans which have amortization  terms ranging to 30 years. The loans
    are generally  originated or purchased on the basis of an 80%  loan-to-value
    ratio,  which has  historically  provided  the Bank with more than  adequate
    collateral coverage in the event of default. Nevertheless, the Bank, as with
    any lending institution, is subject to the risk that residential real estate
    values in the primary  lending area will  deteriorate,  thereby  potentially
    impairing collateral values in the primary lending area. However, management
    believes that  residential  and commercial  real estate values are presently
    stable in its primary  lending area and that loan loss  allowances have been
    provided  for in amounts  commensurate  with its current  perception  of the
    foregoing risks in the portfolio.

                                       53

<PAGE>


                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS

    SFAS  No.  107,  Disclosures  about  Fair  Value of  Financial  Instruments,
    requires all entities to disclose the  estimated  fair value of their assets
    and liabilities considered to be financial instruments. For the Bank, as for
    most financial institutions,  the majority of its assets and liabilities are
    considered financial  instruments as defined in SFAS No. 107. However,  many
    such  instruments  lack an available  trading market as  characterized  by a
    willing buyer and willing seller engaging in an exchange transaction.  Also,
    it is the  Corporation's  general  practice and intent to hold its financial
    instruments  to maturity or available  for sale and to not engage in trading
    or significant sales activities. Therefore, the Corporation and the Bank had
    to use  significant  estimations  and present value  calculations to prepare
    this disclosure.

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

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

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

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

<TABLE>
<CAPTION>

                                                                           December 31,                                    
                                                    ---------------------------------------------------------------
                                                                1998                              1997                 
                                                    --------------------------        -----------------------------      
                                                     Estimated                         Estimated
                                                       fair           Carrying            fair           Carrying
                                                       value            value             value            value    
                                                     ---------        --------         ---------         --------   
                                                                              (in thousands)   
<S>                                                <C>              <C>               <C>               <C>      
      Cash and cash equivalents                     $  42,703        $  42,703         $  41,625         $  41,625
      Investment securities                            90,136           89,937            85,063            84,859
      Mortgage-backed securities                      257,845          256,249           182,570           180,921
      Securities purchased under
         agreements to resell                              -                -             10,000            10,000

</TABLE>

                                   (Continued)

                                       54
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

    The fair value of  financial  instruments  with stated  maturities  has been
    estimated  using  the  present  value  of cash  flows,  discounted  at rates
    approximating current market rates for similar assets and liabilities.
<TABLE>
<CAPTION>
                                                                             December 31,       
                                                    -------------------------------------------------------------- 
                                                               1998                                1997                 
                                                    --------------------------        ---------------------------- 
                                                    Estimated                          Estimated
                                                      fair            Carrying           fair             Carrying
                                                      value            value             value             value    
                                                    ---------         --------         ---------          --------
                                                                            (in thousands)
<S>                                               <C>              <C>               <C>               <C>      
      Assets
         Interest-bearing deposits with banks       $   2,244        $   2,238         $   2,740         $   2,737
      Liabilities
         Deposits with stated maturities              187,816          189,291           197,345           198,026
         Borrowings with stated maturities
             Short-term (due within 6 months)          14,978           15,000             5,000             5,000
             Long-term                                145,303          148,359            83,178            83,359
</TABLE>

    The fair value of financial instrument liabilities with no stated maturities
    is generally presumed to approximate the carrying amount (the amount payable
    on demand).
<TABLE>
<CAPTION>
                                                                             December 31,                                    
                                                    -------------------------------------------------------------- 
                                                              1998                                 1997                 
                                                    --------------------------        ---------------------------- 
                                                    Estimated                          Estimated
                                                      fair            Carrying           fair             Carrying
                                                      value            value             value             value    
                                                    ---------         --------         ---------          --------
                                                                            (in thousands)
<S>                                               <C>              <C>               <C>               <C>      
      Deposits with no stated
         maturities                                 $ 249,622        $ 249,622         $ 252,403         $ 252,403
                                                      =======          =======           =======           =======
</TABLE>
    The fair  value of the net loan  portfolio  has  been  estimated  using  the
    present value of cash flows,  discounted at the  approximate  current market
    rates adjusted for non-interest operating costs, and giving consideration to
    estimated prepayment risk and credit loss factors.
<TABLE>
<CAPTION>

                                                                             December 31,     
                                                    -------------------------------------------------------------- 
                                                              1998                                 1997                 
                                                    --------------------------        ---------------------------- 
                                                    Estimated                          Estimated
                                                      fair            Carrying           fair             Carrying
                                                      value            value             value             value    
                                                    ---------         --------         ---------          --------
                                                                            (in thousands)
<S>                                               <C>              <C>               <C>               <C>      
      Net loans                                     $ 245,375        $ 240,841         $ 254,568         $ 250,711
                                                      =======          =======           =======           =======
</TABLE>
                                   (Continued)

                                       55
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

    There  is no  material  difference  between  the  carrying  amount  and  the
    estimated  fair value of  off-balance-sheet  items  totalling  approximately
    $34.3 million and $24.4 million at December 31, 1998 and 1997, respectively,
    which are primarily  comprised of floating rate loan  commitments  priced to
    market at funding.

    The Bank's  remaining  assets and liabilities  are not considered  financial
    instruments.  No disclosure of the relationship value of the Bank's deposits
    is required by SFAS No. 107.

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

<TABLE>
<CAPTION>
                                                                                     Year ended December 31,                 
                                                                                     -----------------------                 
                                                                         1998             1997              1996     
                                                                         ----             ----              ----     
                                                                                      (in thousands)
<S>                                                              <C>               <C>               <C>        

       Service fees, charges and other operating income
          Loan servicing fees                                       $      317        $      512        $      577
          Late charge income                                                85                92                98
          Deposit service charges                                          435               471               439
          Other income                                                     258               128               156
                                                                     ---------         ---------         ---------

                                                                    $    1,095        $    1,203        $    1,270
                                                                     =========         =========         =========
       Other operating expense
          Employee education                                        $       34        $       49        $       22
          Insurance and surety bond                                        142               149               129
          Office supplies                                                  233               318               272
          Postage                                                          163               218               207
          Telephone                                                        173               130               103
          Service charges on bank accounts                                 280               111                83
          Supervisory examination fees                                     140               144               112
          Other expenses                                                 1,040             1,211             1,079
                                                                     ---------         ---------         ---------

                                                                    $    2,205        $    2,330        $    2,007
                                                                     =========         =========         =========
</TABLE>

NOTE R - SHAREHOLDER RIGHTS PLAN

    The  Corporation  adopted a  Shareholder  Rights Plan (the  Rights  Plan) to
    protect  shareholders from attempts to acquire control of the Corporation at
    an inadequate  price.  Under the Rights Plan, the Corporation  distributed a
    dividend of one Preferred  Share  Purchase Right (a Right) for each share of
    outstanding  common stock. The rights are currently not exercisable and will
    expire on  November  22,  2005,  unless the  expiration  date is extended or
    unless the Rights are earlier redeemed by the Corporation.

                                   (Continued)

                                       56
<PAGE>
                                                               
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE R - SHAREHOLDER RIGHTS PLAN - Continued

    After the Rights become exercisable, under certain circumstances, the Rights
    (other than rights held by a 15% beneficial owner or an "acquiring  person")
    will entitle the holders to purchase one  one-hundredth  of a share of a new
    series of junior  participating  preferred stock at an exercise price of $45
    or purchase either the  Corporation's  common shares or the common shares of
    the potential acquirer at a substantially reduced price.

    The Corporation is entitled to redeem the Rights at $0.01 per Right prior to
    the acquisition by a person or group of beneficial  ownership of 15% or more
    of the Corporation's common stock.  Following the acquisition by a person or
    group of  beneficial  ownership of 15% or more of the  Corporation's  common
    stock and prior to an acquisition of 50% or more, the Board of Directors may
    exchange the Rights  (other than Rights  owned by such person or group),  in
    whole or in part, at an exchange  ratio of one share of common stock (or one
    one-hundredth of a share of the new series of junior participating preferred
    stock) per Right.

    The  Rights  Plan was not  adopted in  response  to any  specific  effort to
    acquire control of the  Corporation.  The issuance of rights has no dilutive
    effect,  did not affect the  Corporation's  reported earnings per share, and
    was not taxable to the Corporation or its shareholders.

NOTE S - EARNINGS PER SHARE

    The following  table  illustrates the  reconciliation  of the numerators and
    denominators of the basic and diluted earnings per share computations.

<TABLE>
<CAPTION>
                                                                               Year ended December 31, 1998             
                                                                     ---------------------------------------------             
                                                                                        Weighted
                                                                                          average
                                                                        Income             shares        Per share
                                                                     (numerator)     (denominator)         amount   
                                                                      ---------       -----------        ---------
<S>                                                                <C>                <C>              <C>    
       Basic earnings per share
          Income before cumulative effect of accounting change      $    3,830                           $  1.32
          Cumulative effect of accounting change                           208                              0.07
                                                                     ---------                            ------
          Income available to common stockholders                   $    4,038          2,894,651        $  1.39
                                                                     =========                            ======
       Effect of dilutive securities
          Stock options                                                                   300,844
                                                                                        ---------                      
       Diluted earnings per share
          Income before cumulative effect of accounting change      $    3,830                           $  1.20
          Cumulative effect of accounting change                           208                              0.06
                                                                     ---------                            ------
          Income available to common stockholders
              plus effect of dilutive securities                    $    4,038          3,195,495        $  1.26
                                                                     =========          =========         ======

</TABLE>

                                   (Continued)

                                       57
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE S - EARNINGS PER SHARE - Continued

    There were  options to purchase  5,250  shares of common stock at a range of
    $26.00 to $28.00 per share which were outstanding during 1998 which were not
    included  in the  computation  of diluted  earnings  per share  because  the
    options'  exercise  prices were greater than the average market price of the
    common shares.  The options,  which expire through  December 31, 2008,  were
    still outstanding at December 31, 1998.

<TABLE>
<CAPTION>
                                                                            Year ended December 31, 1997              
                                                                 --------------------------------------------------              
                                                                                       Weighted
                                                                                        average
                                                                     Income             shares        Per share
                                                                  (numerator)        (denominator)         amount   
                                                                   ---------          -----------        ---------
<S>                                                             <C>                   <C>              <C>    
       Net income                                                 $ 4,874,000
                                                                   ==========
       Basic earnings per share
          Income available to common stockholders                 $ 4,874,000           3,656,924        $  1.33
                                                                                                          ======
       Effect of dilutive securities
          Stock options                                                   -               251,667
                                                                   ----------          ----------
       Diluted earnings per share
          Income available to common stockholders plus
              effect of dilutive securities                       $ 4,874,000           3,908,591        $  1.25
                                                                   ==========          ==========         ======
</TABLE>

<TABLE>
<CAPTION>
                                                                            Year ended December 31, 1996              
                                                                 --------------------------------------------------              
                                                                                        Weighted
                                                                                        average
                                                                    Income              shares           Per share
                                                                  (numerator)        (denominator)         amount   
                                                                   ---------          -----------        ---------
<S>                                                             <C>                   <C>              <C>    
       Net income                                                 $ 3,479,000
                                                                   ==========
       Basic earnings per share
          Income available to common stockholders                 $ 3,479,000           4,066,615        $  0.86
                                                                                                          ======
       Effect of dilutive securities
          Stock options                                                   -               127,372
                                                                   ----------           ---------
       Diluted earnings per share
          Income available to common stockholders plus
              effect of dilutive securities                       $ 3,479,000           4,193,987        $  0.83
                                                                   ==========           =========         ======
</TABLE>

                                   (Continued)

                                       58
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE S - EARNINGS PER SHARE - Continued

    There were options to purchase  13,103  shares of common stock at $15.88 per
    share  which were  outstanding  during  1996 which were not  included in the
    computation  of diluted  earnings per share  because the  options'  exercise
    price was greater than the average  market price of the common  shares.  The
    options,  which  expire on December  18,  2006,  were still  outstanding  at
    December 31, 1996.

NOTE T - SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATE (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        Three months ended                                    
                                                   ---------------------------------------------------------------
                                                     Dec. 31,          Sept. 30,        June 30,         March 31,
                                                       1998              1998             1998             1998    
                                                     --------         ---------         --------         ---------
                                                                (in thousands, except per share data)
<S>                                               <C>              <C>               <C>               <C>      
    Total interest income                           $  11,061        $  11,379         $  10,998         $  10,141
    Total interest expense                              6,851            7,092             6,590             5,662

          Net interest income                           4,210            4,287             4,408             4,479

    Provision for possible loan losses                     15               15                15                15
                                                     --------         --------          --------          --------
          Net interest income after provision           4,195            4,272             4,393             4,464

    Other income                                          135              338               686               420
    Other expenses                                      2,730            3,208             3,453             3,375
                                                     --------         --------          --------          --------
          Income before income taxes and
              cumulative effect of accounting
              change                                    1,600            1,402             1,626             1,509

    Income taxes                                          620              534               637               516
                                                     --------         --------          --------          --------
          Income before cumulative effect
              of accounting change                        980              868               989               993

    Cumulative effect of accounting change                208              -                 -                 -  
                                                     --------         --------          --------          --------
          Net income                                $   1,188        $     868         $     989         $     993
                                                     ========         ========          ========          ========
</TABLE>

                                   (Continued)

                                       59


<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE T - SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED) - Continued

<TABLE>
<CAPTION>
                                                                        Three months ended                                    
                                                   ---------------------------------------------------------------
                                                     Dec. 31,          Sept. 30,        June 30,         March 31,
                                                       1998              1998             1998             1998    
                                                     --------         ---------         --------         ---------
                                                                (in thousands, except per share data)
<S>                                              <C>              <C>               <C>              <C>      
    Earnings per common share before cumulative
          effect of accounting change
       Basic                                       $     0.34       $     0.30        $     0.34      $     0.34
       Diluted                                     $     0.32       $     0.27        $     0.30      $     0.31

    Cumulative effect of accounting change
       Basic                                             0.07           -                    -              -
       Diluted                                           0.06           -                    -              -

    Earnings per common share
       Basic                                       $     0.41       $     0.30        $     0.34      $     0.34
       Diluted                                     $     0.38       $     0.27        $     0.30      $     0.31

</TABLE>

<TABLE>
<CAPTION>
                                                                        Three months ended                                    
                                                   ---------------------------------------------------------------
                                                     Dec. 31,          Sept. 30,        June 30,         March 31,
                                                       1998              1998             1998             1998    
                                                     --------         ---------         --------         ---------
                                                                (in thousands, except per share data)
<S>                                              <C>              <C>               <C>               <C>      
    Total interest income                          $    9,990        $  10,918         $  11,106       $  11,175
    Total interest expense                              5,845            5,985             6,136           6,114
                                                    ---------        ---------         ---------       ---------
             Net interest income                        4,145            4,933             4,970           5,061

    Provision for possible loan losses                     15              202                75             105
                                                    ---------        ---------         ---------       ---------
             Net interest income after provision        4,130            4,731             4,895           4,956

    Other income                                          504              945               488             390
    Other expenses                                      3,351            3,506             3,318           3,408
                                                    ---------        ---------         ---------       ---------
             Income before income taxes                 1,283            2,170             2,065           1,938

    Income taxes                                          205              803               800             774
                                                    ---------        ---------         ---------       ---------
             Net income                            $    1,078       $    1,367        $    1,265      $    1,164
                                                    =========        =========         =========       =========

    Earnings per common share - basic              $     0.34       $     0.36        $     0.33      $     0.30
    Earnings per common share - assuming dilution  $     0.30       $     0.34        $     0.32      $     0.29

</TABLE>
                                       60
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE U - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

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

                                  BALANCE SHEET

                                                               December 31, 
                                                          ---------------------
                                                           1998         1997 
                                                           ----         ---- 
                                                              (in thousands)
             ASSETS

Cash                                                      $   990     $    127 
Certificates of deposit - other institutions                  172          171
Investment securities available-for-sale                      500           -
Investment in Third Federal                                49,221       47,081
Investment in TF Investments                                2,439        2,832
Investment in Teragon                                         219           28
Other assets                                                   14            8
                                                           ------       ------

                  Total assets                            $53,555      $50,247
                                                           ======       ======

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
    Loan payable to TF Investments                        $    -       $   103
    Payable to Third Federal and other liabilities            895           49
                                                           ------       ------
       Total liabilities                                      895          152
                                                           
Stockholders' equity                                       52,660       50,095
                                                           ------       ------

       Total liabilities and stockholders' equity         $53,555      $50,247
                                                           ======       ======

                                   (Continued)

                                       61
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997



NOTE U - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - Continued

                              STATEMENT OF EARNINGS

<TABLE>
<CAPTION>
                                                                               Year ended December 31,               
                                                                    ----------------------------------------------               
                                                                        1998             1997             1996    
                                                                    ----------       -----------       -----------    
                                                                                   (in thousands)
<S>                                                                <C>               <C>            <C>        
        INCOME
           Dividend income from subsidiaries                        $    3,198        $    1,276     $         -
           Interest income                                                  13                10                10
                                                                     ---------         ---------         ---------

                  Total income                                           3,211             1,286                10
                                                                     ---------         ---------         ---------
        EXPENSES
           Interest                                                          8               256               722
           Other                                                           170               226               257
                                                                     ---------         ---------         ---------

                  Total expenses                                           178               482               979
                                                                     ---------         ---------         ---------
                  Income (loss) before undistributed earnings
                      of subsidiaries                                    3,033               804              (969)

        Undistributed earnings of subsidiaries                           1,005             4,070             4,448
                                                                     ---------         ---------         ---------

                  NET INCOME                                        $    4,038        $    4,874        $    3,479
                                                                     =========         =========         =========
</TABLE>

                                   (Continued)

                                       62
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997


NOTE U - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - Continued

                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                 Year ended December 31,  
                                                                      --------------------------------------------
                                                                         1998             1997              1996    
                                                                      --------         ---------          --------
                                                                                     (in thousands)
<S>                                                                <C>               <C>               <C>     
        Cash flows from operating activities
           Net income                                                 $  4,038          $  4,874          $  3,479
           Adjustments to reconcile net income to net cash
               provided by (used in) operating activities
                  Undistributed earnings from subsidiaries              (1,005)           (4,070)           (4,448)
                  Net change in assets and liabilities                     857            (4,733)            4,676
                                                                        ------           -------           -------
                      Net cash provided by (used in) operating
                           activities                                    3,890            (3,929)            3,707
                                                                        ------           -------           -------
        Cash flows from investing activities
           Capital distribution (to) from subsidiaries                    (217)           42,025               -
           Purchase of investment securities available for sale           (500)              -                 -
           Purchase and maturities of certificates of deposit
               in other financial institutions, net                         (1)              (17)               (4)
                                                                        ------           -------           -------
                      Net cash (used in) provided by investing
                           activities                                     (718)           42,008                (4)
                                                                        ------           -------           -------
        Cash flows from financing activities
           Cash dividends paid to stockholders                          (1,387)           (1,433)           (1,258)
           Net (decrease) increase in borrowings from
               TF Investments                                             (103)           (9,637)            1,022
           Treasury stock acquired                                        (941)          (27,027)           (3,596)
           Exercise of stock options                                       122                75               -  
                                                                       -------           -------           -------
                      Net cash used in financing activities             (2,309)          (38,022)           (3,832)
                                                                       -------           -------           -------
                      NET INCREASE (DECREASE) IN CASH                      863                57              (129)

        Cash at beginning of year                                          127                70               199
                                                                       -------           -------           -------
        Cash at end of year                                           $    990          $    127          $     70
                                                                       =======           =======           =======
        Supplemental disclosure of cash flow information
           Cash paid during the year for income taxes                 $     36          $     63          $     80
                                                                       =======           =======           =======
</TABLE>

  
                                     63
<PAGE>

                           THIRD FEDERAL SAVINGS BANK

                                OFFICE LOCATIONS

                                CORPORATE OFFICE

                                  3 Penns Trail
                             Newtown, PA 18940-3433
                                 (215) 579-4000

                                   OPERATIONS

                                 (215) 579-4600

                       BUCKS COUNTY, PENNSYLVANIA BRANCHES

<TABLE>
<CAPTION>
<S>                                <C>                                     <C>    
Newtown Office                           Feasterville Office                      Doylestown Office
3 Penns Trail                            Buck Hotel Complex                       60 North Main St.
Newtown, PA 18940-3433                   Feasterville, PA 19053-2209              Doylestown, PA 18901-3730
(215) 579-4607                           (215) 364-7096                           (215) 348-9021

Newtown Office                           New Britain Office                       Cross Keys Office
950 Newtown-Yardley Road                 600 Town Center                          834 North Easton Highway
Newtown, PA 18940-4018                   New Britain, PA 18901-5199               Doylestown, PA 18901-1007
(215) 968-4444                           (215) 345-5800                           (215) 348-5566

                                         Warminster Office
                                         601 Louis Drive
                                         Warminster, PA 18974-2843
                                         (215) 672-7900
</TABLE>

                   PHILADELPHIA COUNTY, PENNSYLVANIA BRANCHES
<TABLE>
<CAPTION>
<S>                                   <C>                                     <C>
Frankford Office                         Mayfair Office                           Bridesburg Office
4625 Frankford Ave.                      Roosevelt Blvd. at Unruh                 Orthodox & Almond Sts.
Philadelphia, PA 19124-5889              Philadelphia, PA 19149-2494              Philadelphia, PA 19137-1626
(215) 289-1400                           (215) 332-7650                           (215) 743-6673

Fishtown Office                          Woodhaven Office
York & Memphis Sts.                      Knights Road Center
Philadelphia, PA 19125-3029              Knights & Woodhaven Rds.
(215) 423-2314                           Philadelphia, PA 19154-2810
                                         (215) 824-0151
</TABLE>
                       MERCER COUNTY, NEW JERSEY BRANCHES
<TABLE>
<CAPTION>
<S>                                  <C>                                     <C> 
Ewing Office                             Princeton Office                         Hamilton Square Office
2075 Pennington Road                     Princeton Shopping Center                1850 Route 33
Trenton, NJ 08618-1003                   301 N. Harrison St.                      Hamilton Square, NJ 08690-1712
(609) 883-7033                           Princeton, NJ 08540-3512                 (609) 890-1333
                                         (609) 683-4488

</TABLE>

                                       64
<PAGE>

                            TF Financial Corporation

                               Board of Directors

<TABLE>
<S>                                     <C>                                          <C> 
Carl F. Gregory                             Robert N. Dusek                             John R. Stranford
Thomas J. Gola                              Chairman of the Board                       George A. Olsen
</TABLE>

                               Executive Officers
<TABLE>
<S>                                     <C>                                          <C> 
William C. Niemczura                        John R. Stranford                           Elizabeth Davidson Maier
Senior Vice President                       President and Chief                         Senior Vice President and
and Treasurer                               Executive Officer                           Corporate Secretary
</TABLE>

                           Third Federal Savings Bank

                               Board of Directors
<TABLE>
<S>                                     <C>                                          <C> 
John R. Stranford                           Carl F. Gregory                             Thomas J. Gola
Robert N. Dusek                             Chairman of the Board                       William H. Yerkes, III
George A. Olsen                                                                         William J. Happ, Jr.
Albert M. Tantala
</TABLE>

                               Executive Officers
<TABLE>
<S>                                     <C>                                          <C> 
William C. Niemczura                        John R. Stranford                           Elizabeth Davidson Maier
Senior Vice President and                   President and Chief                         Senior Vice President and
Chief Financial Officer                     Executive Officer                           Corporate Secretary

Thomas J. Sposito, II                       Earl A. Pace, Jr.                           Floyd P. Haggar
Senior Vice President and                   Senior Vice President                       Senior Vice President and
Retail Banking Officer                      Chief Information Officer                   Chief Lending Officer

Independent Auditors                        Special Counsel                             Transfer Agent and Registrar
Grant Thornton, LLP                         Malizia, Spidi, Sloane & Fisch, P.C.        American Securities Transfer &
Two Commerce Square                         One Franklin Square                         Trust, Inc.
2001 Market Street                          1301 K Street, N.W., Ste. 700 East          938 Quail Street, Suite 101
Philadelphia, PA 19103-7080                 Washington, DC 20005                        Lakewood, CO 80215-5513
</TABLE>