EXHIBIT 13

<PAGE>





TO OUR STOCKHOLDERS

         The millennium Year 2000 has been one of challenge and change. Interest
rates  rose  throughout  most of the year.  Toward  year-end,  with the  economy
beginning  to soften,  rates began  their  decline.  As the  economy  turned and
technology  stocks  fell out of favor,  banks with good core  earnings  began to
experience an upturn.

         Throughout  this past year,  we have made great strides in our endeavor
to  convert  from a savings  bank to a full  service  community  bank.  Our loan
portfolio  has grown by 25.6% to $361.8  million,  enabling us to  increase  our
interest rate spread by 6.7%, while many financial  institutions saw compression
in their spreads. With non-performing assets to total assets of 0.23%, our asset
quality  continues to be very strong.  Tangible  book value per share  increased
16.79% to $18.99 at year-end.  Earnings  per diluted  share rose 12.5% to $1.71.
This has enabled us to raise the  dividend  per share to $0.14  during the first
quarter of 2001.  Our  December 31,  2000 stock  price of $16.75  represents  an
increase in trading price during the year of 26.42%.

         Many new banking products were introduced throughout the year including
Internet  Banking and Online Bill Payment.  During the first quarter of 2001, we
will  introduce  Check  Imaging.  We have  developed  many new products that are
directed toward serving the needs of the small businesses in our market area. We
believe the large regional banks have neglected this segment. Management and the
Board of Directors are committed to implementing the latest technology necessary
to further assist us in our mission to become a full service community bank.

         Our mission continues to be increasing  shareholder value while serving
the needs of our  communities.  These two priorities  complement each other very
well. The TF Financial Board and I would like to take this  opportunity to thank
you for your continued support.



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

<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") and its subsidiary
Third  Delaware  Corporation,  TF  Investments  Corporation,  Teragon  Financial
Corporation and Penns Trail Development Corporation. At December 31, 2000, total
assets  were  approximately  $723.3  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,
2000,  total  stockholders'   equity  was  approximately   $53.1  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."  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  expanded  its  operations  in  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 branch offices and  approximately  $143 million of deposits
from Cenlar Federal Savings Bank.  Third Federal added a fourth branch office in
Mercer County in December,  1999 with the  Corporation's  acquisition of Village
Financial  Corporation  ("Village").  During  the  first  quarter  of  2000  the
Corporation   closed  a  branch   facility  in  its  home  office  location  and
simultaneously  opened a larger,  freestanding  branch at a nearby  site.  As of
December 31, 2000 Third Federal  operated  fifteen  branch  offices in Bucks and
Philadelphia counties, Pennsylvania and Mercer County, New Jersey.

Third Federal attracts  deposits  (approximately  $400.9 million at December 31,
2000) from the general public and uses such deposits,  together with  borrowings
mainly  from the  Federal  Home Loan Bank of  Pittsburgh  (approximately  $244.9
million at  December  31,  2000) and other  funds,  primarily  to  originate  or
purchase loans secured by first mortgages on owner-occupied,  one-to-four family
residences,  or purchase  securities  secured by such loans.  Third Federal also
originates  and  purchases   commercial  real  estate  and  multi-family  loans,
construction   loans  and  consumer  loans,   and  purchases  other   investment
securities.

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 number of  shareholders  of record of common stock as of March 19, 2001, was
approximately  600.  This does not reflect the number of persons or

<PAGE>

entities who held stock in nominee or "street"  name through  various  brokerage
firms.

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.


Stock Price and Dividend History


                                                             Dividend paid
Quarter ended                   Quoted market price            per share
-------------                ------------------------          ---------
                               High             Low
                             -------          -------
December 31, 2000            $16.750          $13.250           $0.13
September 30, 2000           $15.000          $13.438           $0.13
June 30, 2000                $14.875          $13.250           $0.13
March 31,2000                $15.750          $12.750           $0.13
December 31, 1999            $15.375          $12.500           $0.13
September 30, 1999           $19.375          $14.500           $0.12
June 30, 1999                $21.188          $15.500           $0.12
March 31,1999                $19.000          $15.875           $0.12

<PAGE>

SELECTED FINANCIAL INFORMATION AND OTHER DATA
<TABLE>
<CAPTION>
Financial Condition                                                             At December 31,
                                                      --------------------------------------------------------------
(Dollars in thousands, except per share data)           2000          1999          1998         1997         1996
                                                      --------      --------      --------     --------     --------
<S>                                                  <C>           <C>           <C>          <C>          <C>
Total assets                                          $723,297      $721,874      $665,608     $597,047     $647,853
Loans receivable, net                                  361,806       287,979       240,841      250,711      309,570
Mortgage-backed securities available for sale,
  at fair value                                         97,914       132,515        75,285       36,847       22,027
Mortgage-backed securities held to maturity,
  at cost                                              135,142       159,888       180,964      144,074      153,758
Securities purchased under agreements to resell            ---           ---           ---       10,000       25,129
Investment securities available for sale, at
  fair value                                            18,865        21,930         9,042       32,037       12,652
Investment securities held to maturity, at cost         63,461        66,760        80,895       52,822       38,544
Cash and cash equivalents(l)                            10,618        16,715        42,703       41,625       54,132
Deposits                                               400,851       401,698       438,913      450,429      469,088
Advances from the Federal Home Loan Bank and
  other borrowings                                     259,821       264,299       163,359       88,359       98,359
Retained earnings                                       51,604        48,760        45,762       43,176       39,750
Total stockholders' equity                              53,109        48,447        52,660       50,095       72,575
Book value per common share                             $21.32        $18.81        $18.43       $17.36       $18.31
Tangible book value per common share                    $18.99        $16.26        $15.84       $14.49       $15.99

</TABLE>

<TABLE>
<CAPTION>
Summary of Operations                                                At or for the year ended December 31,
                                                      --------------------------------------------------------------
                                                        2000          1999         1998(3)       1997        1996(2)
                                                      --------      --------      --------     --------     --------
<S>                                                   <C>           <C>           <C>          <C>          <C>
Interest income                                        $48,708       $47,022       $43,579      $43,189      $38,989
Interest expense                                        28,921        27,974        26,195       24,080       20,797
Net interest income                                     19,787        19,048        17,384       19,109       18,192
Provision for loan losses                                  410           300            60          397          330
Non-interest income                                      1,432         1,589         1,535        2,327        1,794
Non-interest expense                                    14,404        13,529        12,722       13,583       13,745
Net income before cumulative effect of change
  in accounting method                                   4,482         4,422         3,830        4,874        3,479
Net income                                               4,482         4,422         4,038        4,874        3,479
Earnings per common share - basic
Continuing operations                                    $1.76         $1.60         $1.32        $1.33        $0.86
Cumulative effect of accounting changes                    ---           ---         $0.07          ---          ---
Earnings per common share - basic                        $1.76         $1.60         $1.39        $1.33        $0.86
Earnings per common share - diluted
Continuing operations                                    $1.71         $1.52         $1.20        $1.25        $0.83
Cumulative effect of accounting changes                    ---           ---         $0.06          ---          ---
Earnings per common share - diluted                      $1.71         $1.52         $1.26        $1.25        $0.83

Performance Ratios and Other Selected Data
Return on average assets                                  0.63%         0.62%         0.58%        0.77%        0.62%
Return on average equity                                  9.18%         8.60%         7.39%        7.39%        4.74%
Average equity to average assets                          6.86%         7.17%         7.74%       10.46%       12.91%
Average interest rate spread                              2.70%         2.54%         2.44%        2.72%        2.76%
Non-performing loans to total assets                      0.20%         0.18%         0.24%        0.23%        0.30%
Non-performing loans to total loans                       0.41%         0.45%         0.65%        0.55%        0.64%
Allowance for loan losses to non-performing loans       115.97%       145.56%       119.16%      146.82%       91.60%
Allowance for loan losses to total loans                  0.47%         0.66%         0.78%        0.80%        0.58%
Savings Bank regulatory capital
Core                                                      6.10%         5.76%         6.79%        7.16%        7.77%
Tangible                                                  6.10%         5.76%         6.79%        7.16%        7.77%
Risk based                                               11.81%        12.83%        17.73%       17.41%       17.68%
Dividend payout ratio (4)                                30.41%        32.24%        38.10%       32.00%       37.35%
</TABLE>

----------------
(1)  Consists  of cash,  cash due from  banks,  interest-bearing  deposits  with
     maturities of less than three months, and federal funds sold.
(2)  Includes  a  $1.4  million  after  tax  one-time   special   assessment  to
     recapitalize the Savings Association Insurance Fund ("SAIF").

<PAGE>

(3)  Income and income  related  ratios for the  year-ended  December  31,  1998
     include  the  cumulative  effect  of a change  in  accounting  for  certain
     investments of $208,000 (SFAS #133).
(4)  Payout  ratio is  dividends  paid for the period  divided by  earnings  per
     common share - diluted after cumulative effect of accounting changes.


<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.

           This document contains  statements that project the future operations
  of the Corporation  which involve risks and  uncertainties.  The Corporation's
  actual results may differ  significantly  from the results  discussed in these
  forward-looking   statements.   Statements   concerning  future   performance,
  developments,  events,  expectations for growth and market forecasts,  and any
  other guidance on future periods,  constitute forward-looking statements which
  are subject to a number of risks and  uncertainties,  including  interest rate
  fluctuations  and government  and regulatory  actions which might cause actual
  results to differ  materially  from  stated  expectations  or  estimates.  The
  Corporation  does not  undertake  to  update  any  forward-looking  statement,
  whether written or oral, that may be made from time to time by or on behalf of
  the Corporation.

           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 Third
  Federal  incurs on its deposits,  borrowings  and other  sources of funds.  In
  addition,  the  mix  of  the  Third  Federal's  interest  bearing  assets  and
  liabilities can have a significant  effect on the Third Federal's net interest
  income;  loans generally have higher yields than  securities;  retail deposits
  generally have lower interest rates than other borrowings.

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


  Changes to Financial Condition

             The  Corporation's  total  assets at December 31, 2000 and December
   31, 1999 totaled $723.3 million and $721.9 million, respectively.  During the
   year loans  receivable  increased  by $73.8  million  or 25.6%,  largely as a
   result of the purchase of $73 million of seasoned,  single-family residential
   loans during the fourth  quarter.  This loan purchase was funded in part with
   the proceeds from the sale of $41.9 million in  mortgage-backed  securities -
   available  for sale.  The  remainder of the purchase was funded with cash and
   cash equivalents and advances from the Federal Home Loan Bank.

             Investment  securities and mortgage-backed  securities decreased in
   total by $65.7  million  during  2000.  This  decrease  was the result of the
   purchase of $108.1 million in securities plus a $4.5 million gain in the fair
   value  of the  available  for  sale  portfolios,  off-set  by the

<PAGE>

   previously  mentioned  $41.9 million  sold  plus the repayment or maturity of
   an additional $136.4 million.

             Deposit balances decreased by $0.9 million; certificates of deposit
   decreased by $3.0 million,  while the remaining or "core" deposit  categories
   increased by $2.1 million.  In addition,  advances from the Federal Home Loan
   Bank and other  borrowings  (collectively,  "borrowings")  decreased  by $4.5
   million.  The  combined  net  increase in assets and decrease in deposits and
   borrowings  was  funded  by  a  $6.1  million   decrease  in  cash  and  cash
   equivalents.

           Total  consolidated  stockholders'  equity  increased $4.7 million to
  $53.1 million at December 31, 2000. The increase is largely the result of $4.4
  million  in net income  plus a $2.7  million  increase  in  accumulated  other
  comprehensive  income,  less a $1.2  million  increase in the cost of treasury
  stock.  During  the year the  Corporation  repurchased  approximately  138,000
  shares of its common stock in order to benefit from what management  perceived
  to be a depressed market value of the Corporation's common stock.

  Average Balance Sheet

           The  following  table sets forth  information  (dollars in thousands)
  relating to the Company's average balance sheet and reflects the average yield
  on assets and  average  cost of  liabilities  for the periods  indicated.  The
  yields and costs are  computed  by  dividing  income or expense by the average
  balance   of   interest-earning   assets  or   interest-bearing   liabilities,
  respectively for the periods indicated.

<PAGE>

<TABLE>
<CAPTION>
                                           2000                                1999                                1998
                              --------------------------------   ---------------------------------  --------------------------------
                               Average                 Average    Average                 Average     Average               Average
                               Balance    Interest    Yld/Cost    Balance     Interest    Yld/Cost    Balance     Interest  Yld/Cost
                               -------    --------    --------    -------     --------    --------    -------     --------  --------
<S>                          <C>          <C>         <C>        <C>          <C>         <C>        <C>          <C>        <C>
ASSETS
Interest-earning assets:
Loans receivable (4)          $299,770     $23,756       7.92%    $285,439     $21,843       7.65%    $232,924     $18,657     8.01%
Mortgage-backed securities     278,434      18,449       6.63%     278,537      17,831       6.40%     251,785      16,357     6.50%
Investment securities          100,274       6,180       6.16%     113,731       6,646       5.84%     115,801       6,918     5.97%
Other interest-earning
assets(1)                        5,236         323       6.17%      14,331         702       4.90%      40,413       1,647     4.08%
                              --------     -------                --------     -------                  ------       -----
Total interest-earning
assets                         683,714      48,708       7.12%     692,038      47,022       6.79%     640,923      43,579     6.80%
                                           -------                             -------                              ------
Non interest-earning
assets                          28,529                              25,803                              22,428
                              --------                            --------                              ------
Total assets                   712,243                             717,841                             663,351
                              ========                            ========                             =======
LIABILITIES AND
STOCKHOLDERS'EQUITY:
Interest-bearing
liabilities
Deposits                       410,330      15,082       3.68%     416,514      14,645       3.52%     447,995      17,397     3.46%
Advances from the FHLB
and borrowings                 243,656      13,839       5.68%     240,371      13,329       5.55%     152,942       8,798     5.75%
                              --------     -------                --------     -------                 -------       -----
Total interest-bearing
liabilities                    653,986      28,921       4.42%     656,885      27,974       4.26%     600,937      26,195     4.36%
                                           -------                             -------                              ------
Non interest-bearing
liabilities                      9,432                               9,514                              10,582
                              --------                            --------                              ------
Total liabilities              663,418                             666,399                             611,519
Stockholders' equity            48,825                              51,442                              51,832
                              --------                            --------                              ------
Total liabilities and
stockholders' equity          $712,243                            $717,841                            $663,351
                              ========                            ========                            ========
Net interest income                        $19,787                             $19,048                             $17,384
                                           =======                             =======                             =======
Interest rate spread (2)                                 2.70%                               2.53%                             2.44%
Net yield on
interest-earning assets
(3)                                                      2.89%                               2.75%                             2.71%
Ratio of average
interest-earning assets
to average interest
bearing liabilities                                       105%                                105%                              107%
</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.

<PAGE>

     Rate/Volume Analysis

The following table presents, for the periods indicated,  the change in interest
income and interest  expense (in thousands)  attributed to (i) changes in volume
(changes in the weighted average balance of the total interest earning asset and
interest bearing  liability  portfolios  multiplied by the prior year rate), and
(ii) changes in rate (changes in rate multiplied by prior year volume).  Changes
attributable  to the  combined  impact  of volume  and rate have been  allocated
proportionately based on the absolute value of changes due to volume and changes
due to rate.

<TABLE>
<CAPTION>
                                                   2000 Vs 1999                     1999 Vs 1998
                                         ---------------------------------  -------------------------------
                                            Increase (decrease) due to       Increase (decrease) due to
                                         ---------------------------------  -------------------------------
                                             Volume      Rate        Net      Volume      Rate       Net
                                             ------      ----        ---      ------      ----       ---
                                         ------------------------------------------------------------------
<S>                                         <C>        <C>        <C>        <C>      <C>         <C>
Interest income:
Loans receivable, net                         $1,123     $  790     $1,913     $4,055   $  (869)    $3,186
Mortgage-backed securities                        (7)       624        617      1,727      (253)     1,474
Investment securities                           (816)       350       (466)      (123)     (149)      (272)
Other interest-earning assets                   (525)       147       (378)    (1,226)      281       (945)
                                         ------------------------------------------------------------------
Total interest-earning assets                   (225)     1,911      1,686      4,433      (990)     3,443
                                         ------------------------------------------------------------------
Interest expense:
Deposits                                        (221)       658        437     (1,186)   (1,566)    (2,752)
Advances from the FHLB and borrowings            188        322        510      4,848      (317)     4,531
                                         ------------------------------------------------------------------
Total interest-bearing liabilities               (33)       980        947      3,662    (1,883)     1,779
                                         ------------------------------------------------------------------
Net change in net interest income             $ (192)      $931       $739    $   771   $   893     $1,664
                                         ==================================================================
</TABLE>



<PAGE>

Comparison of Years Ended December 31, 2000 and December 31, 1999

Net Income. Net income was $4.482 million for the fiscal year ended December 31,
2000, an increase of $60,000 compared with the year ended December 31, 1999.

While net income is essentially  unchanged from 1999,  the  Corporation's  basic
earnings  per share  increased  by 10% to $1.76 per share during 2000 due to the
84,706  net  decrease  in shares  outstanding  during  the year.  This  decrease
occurred as a result of the Corporation's  share  repurchases  during 2000 which
resulted in the repurchase of 138,112 shares of common stock, less 41,250 shares
issued as a result of stock option exercises and less 12,156 shares allocated to
employee stock ownership plan participants at year end.

Total  Interest  Income.  For the year ended  December 31, 2000,  total interest
income  increased to $48.7 million compared to $47.0 million from the year ended
December 31, 1999. The $1.7 million  increase in interest  income was mainly the
result of a $14.3 million  increase in the average  balance of loans  receivable
combined with a 27 basis point  increase in the average rate paid on such loans.
This rate  increase  is the result of the  Corporation's  loan  origination  and
purchase  activities  during 2000, a period during which market  interest rates,
and thus the interest rates on new loans closed and purchased,  were higher than
those on the Corporation's existing portfolio.

Interest  income also  increased due to a 23 basis point increase in the average
interest  rate on  mortgage-backed  securities.  This rate  increase also is the
result of the Corporation's  securities purchases during 2000, a period in which
market  interest  rates on new purchases  exceeded  those  interest rates on the
Corporation's existing mortgage-backed securities.

Total Interest  Expense.  Total interest expense  increased to $28.9 million for
the year ended  December 31, 2000.  This increase is mainly the result of higher
market interest rates during the period and, consequently,  higher rates paid on
the Corporation's new certificates of deposit and borrowings.


Allowance for Loan Losses.  The allowance for loan losses was approximately $1.7
million  at  December   31,  2000  and  $1.9   million  at  December  31,  1999.
Non-performing  loans were  approximately  $1.5  million at  December  31,  2000
compared to $1.4 million a year earlier.  Charge-off's were $613,000 during 2000
compared to $292,000  during 1999. The increase in  charge-off's  during 2000 is
largely  the result of a  one-time,  comprehensive  review of the  Corporation's
student loan  portfolio.  At December 31, 2000 the allowance for loan losses was
116.0% of non-performing  loans as compared to 145.6% of non-performing loans at
December 31, 1999.  While  management  maintains Third  Federal's  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 was $1.4 million  during 2000
compared with $1.6 million during 1999.  During 1999 the Corporation  recorded a
one-time  gain of  $350,000  on the  sale of real  estate  held  for  investment
compared to no such gain during 2000.


<PAGE>

Non-interest  Expense.  Total non-interest  expense increased by $875,000 during
2000 compared to 1999. This increase  occurred mainly from $569,000  increase in
employee  compensation  and benefits,  the result of the full year effect of two
new  branch  offices,  lending,  sales and  support  staff  associated  with the
expansion of the  Corporation's  retail banking  facilities  throughout 1999 and
early 2000. In addition, during 2000 the Corporation intentionally increased its
advertising  expenditures  by $391,000 and  decreased  by $333,000  expenditures
related to the use of outside professional services for special projects.

Income Tax Expense.  The Corporation's  effective tax rate was 30.5% during 2000
compared to 35.1% during 1999. The decrease  occurred as a result of certain tax
reduction efforts initiated during 1998 and 1999.


Comparison of Years Ended December 31, 1999 and December 31, 1998

Net Income.  Net income was $4.4 million for the fiscal year ended  December 31,
1999, an increase of $384,000 or 9.5% compared with the year ended  December 31,
1998.

The increase in earnings is mainly the result of a $1.7 million  increase in net
interest income, offset by an increase of $240,000 in the provision for possible
loan losses,  and a $807,000  increase in  non-interest  expenses.  In addition,
during 1998 the Corporation  recorded $208,000 (after tax) income related to the
adoption of Statement of Financial  Accounting  Standards No. 133, while no such
income was recorded during 1999.

Total  Interest  Income.  For the year ended  December 31, 1999,  total interest
income  increased to $47.0 million compared to $43.6 million from the year ended
December 31, 1998. The $3.4 million  increase in interest  income was mainly the
result of a $52.5  increase in the  average  balance of loans  receivable  which
occurred as a result of the purchase of $83.6  million of loans during the year,
offset  by net  reductions  in loans  receivable  of  $35.6  million  caused  by
repayments of existing loans having exceeded new loan originations.

Interest  income also  increased due to a $26.8 million  increase in the average
balance of  mortgage-backed  securities.  Offsetting  these items  which  caused
interest income to increase was the reduction caused by a $26.1 million decrease
in the average balance of the Corporation's other  interest-earning  assets that
were low yielding and short-term in nature. Also having a negative effect on the
Corporation's  1999 interest income was the high level of loan prepayments early
in the year,  the result of  relatively  low market rates of interest that cause
borrowers to seek to refinance their existing loans.

Total Interest  Expense.  Total interest expense  increased to $28.0 million for
the year ended December 31, 1999. This increase is mainly the result of an $87.4
million  increase in the average balance of FHLB advances and other  borrowings.
Offsetting  this increase were the reductions  attributable  to a lower level of
deposits at a lower  average  cost.  Each of these  elements was the result of a
lowering of certificate of deposit  balances caused by management's  decision to
price such deposits less aggressively.


Allowance for Loan Losses.  The allowance for loan losses was approximately $1.9
million at December 31, 1999 and 1998.  Non-performing  loans were approximately
$1.4  million at December  31,

<PAGE>

1999 compared to $1.6 million a year earlier.  Charge-off's were $292,000 during
1999  compared to $180,000  during 1998.  At December 31, 1999 the allowance for
loan  losses  was  145.6%  of  non-performing  loans as  compared  to  119.2% of
non-performing  loans at December 31, 1998.  While  management  maintains  Third
Federal's  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 was $1.6 million  during 1999
compared with $1.5 million during 1998. The 1999 gains included $350,000 related
to  the  Corporation's  real  estate  held  for  investment.  During  1998,  the
Corporation recorded a total of $440,000 from the sales of loans and securities,
while there were no such gains recorded during 1999.

Non-interest  Expense.  Total non-interest  expense increased by $807,000 during
1999 compared to 1998. This increase  occurred mainly from $569,000  increase in
employee compensation and benefits, the result of a new branch office,  lending,
sales and support  staff  associated  with the  expansion  of the  Corporation's
retail banking  facilities.  In addition,  during 1998, the  Corporation  ceased
outsourcing its information  technology needs,  resulting in a shift of expenses
out of data processing and into other non-interest expense categories.

Income Tax Expense.  The Corporation's  effective tax rate was 35.1% during 1999
compared to 39.6% during 1998. The decrease  occurred as a result of certain tax
reduction efforts initiated during 1998.


Liquidity and Capital Resources

         Liquidity.  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 sources 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. As
of  December  31,  2000,  such  borrowed  funds  totaled  $244.9  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.

<PAGE>

The Savings Bank was in  compliance  with all of its liquidity  requirements  at
December 31, 2000.

           The  amount of  certificate  accounts  that are  scheduled  to mature
during the twelve  months  ending  December 31, 2001,  is  approximately  $126.2
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, 2000, the Savings Bank had outstanding commitments to
originate loans or fund unused lines of credit of $42.5 million.  Funds required
to fill  these  commitments  will  be  derived  primarily  from  current  excess
liquidity,  deposit  inflows or loan and  security  repayments.  At December 31,
2000, the Savings Bank had no outstanding commitments to sell loans.

            Capital. 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, 2000, the Savings
Bank met its three regulatory capital requirements.

           Management believes that under current regulations,  the Savings Bank
will  continue  to meet its  minimum  capital  requirements  in the  foreseeable
future.  However,  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.


ASSET AND LIABILITY MANAGEMENT


The Savings Bank has established an Asset/Liability  Management Committee (ALCO)
for the purpose of monitoring and managing market risk,  which is defined as the
risk of loss of net interest  income or economic  value  arising from changes in
market rates and prices.

The  type  of  market  risk  which  most  affects  the  Corporation's  financial
instruments  is interest  rate risk,  which is best  quantified by measuring the
change in net  interest  income  that  would  occur  under  specific  changes in
interest rates.  Substantially all of the Savings Bank's interest bearing assets
and  liabilities  are exposed to interest rate risk.  Loss of economic  value is
measured using reports  generated by the OTS wherein the current market value of
portfolio  equity,  or economic  value,  is measured at  different  hypothetical
interest rate levels  centered on the current term structure of interest  rates.
Gap  reports  are used to measure the amount of, and  expected  change  during a
one-year  forward period,  the net amount of assets and  liabilities  repricing,
pre-paying and maturing during future periods.

         Because the  Corporation's  bank  subsidiary  is a savings  bank and is
regulated  by the OTS, it has  policies  or  procedures  in place for  measuring
interest rate risk. These policies and procedures stipulate acceptable levels of
interest rate risk.

<PAGE>

         Interest Rate Risk Measurements. In order to measure interest rate risk
internally,  the Corporation uses computer  programs which enable it to simulate
the changes that will occur to the Savings  Bank's net interest  income  ("NII")
over several  interest rate scenarios  which are developed by "shocking"  market
interest rates (i.e. moving them immediately and permanently) up and down in 100
basis point  increments  from their current  levels,  and by "ramping"  interest
rates in such a manner as to adversely  affect the Savings Bank's  simulated net
interest  income.  In addition to the level of interest rates, the most critical
assumption  regarding  the  estimated  amount of the  Savings  Bank's NII is the
expected  prepayment speed of the Savings Bank's 1-4 family  residential  loans,
and  related  mortgage  backed  securities,  the book  value of which  comprises
approximately 61% of the Corporation's  total assets.  For this prepayment speed
assumption the  Corporation  uses median  expected  prepayment  speeds which are
obtained from a reliable third party source.  The Corporation also  incorporates
into its  simulations  the effects of the interest  rate caps and interest  rate
floors that are part of the majority of the Savings Bank's variable rate loans.


The  Corporation  uses its business  planning  forecast as the basis for its NII
simulations.  Therefore,  planned business  activities are incorporated into the
measurement  horizon.  Such activities include assumptions about substantial new
loan and deposit volumes,  the pricing of loan and deposit  products,  and other
assumptions about future activities that may or may not be realized. In order to
quantify  the  Corporation's  NII  exposure,  the  Corporation  focuses  on  the
simulation of net interest income in the "shocked up 200 basis points" scenario.
The  Corporation  also uses the  results of the OTS  model's  forecast of market
value of portfolio equity under different interest rate scenarios.  In addition,
the Corporation  prepares  current period and one-year  forward "gap" reports in
order  to show  potential  mis-matches  of  repricing  or cash  flows  from  the
Corporation's   current  and  projected   interest  rate  sensitive  assets  and
liabilities.  ALCO evaluates the simulation  results,  the OTS model results and
the "gap" reports and makes adjustments to the Savings Bank's planned activities
if in its view there is a need to do so.


At December 31, 2000, the change in net interest income over a one-year  horizon
using simulation methodologies was a $600,000 or a 3.1% decrease in expected net
interest income. The market value of portfolio equity decreased by $16.4 million
in the "up  200  basis  points"  interest  rate  scenario,  and the  Corporation
estimated  its one-year  negative gap (i.e.  liabilities  repricing/maturing  in
excess  of  assets  repricing/maturing)  to be  $57.3  million.  However,  these
measurements  are  highly  subjective  in nature  and are not  intended  to be a
forecast  interest income or economic value under any rate scenario for the year
2001 or for any other period.

Impact of Inflation and Changing Prices

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

Unlike  industrial  companies,  nearly all of the assets  and  liabilities  of a
financial institution are monetary in nature. As a result,

<PAGE>

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.

Impact of Future Accounting Pronouncements

         Future  accounting  pronouncements  being presently  discussed have not
been  formulated in detail  sufficient to enable the Corporation to assess their
impact on the  future  financial  condition  or  results  of  operations  of the
Corporation.
<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, 2000
and 1999,  and the  related  consolidated  statements  of  earnings,  changes in
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America.  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 following consolidated financial statements present
fairly,  in all material  respects,  the consolidated  financial  position of TF
Financial Corporation and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  2000,  in  conformity
with accounting principles generally accepted in the United States of America.


                                        /s/Grant Thornton LLP


Philadelphia, Pennsylvania
January 25, 2001





<PAGE>

                    TF Financial Corporation and Subsidiaries

                  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


<TABLE>
<CAPTION>
                                                                                                  December 31,
                  ASSETS                                                                   2000              1999
                                                                                       ------------      ------------
                                                                                             (in thousands)
<S>                                                                                   <C>              <C>
Cash and cash equivalents                                                               $ 10,618         $  16,715
Certificates of deposit in other financial institutions                                      191               847
Investment securities available for sale - at fair value                                  18,865            21,930
Investment securities held to maturity (fair value of $61,919 and
    $64,538 as of December 31, 2000 and 1999, respectively)                               63,461            66,760
Mortgage-backed securities available for sale - at fair value                             97,914           132,515
Mortgage-backed securities held to maturity (fair value of $133,458
    and $154,188 as of December 31, 2000 and 1999, respectively)                         135,142           159,888
Loans receivable, net                                                                    361,806           287,979
Federal Home Loan Bank stock - at cost                                                    13,042            13,042
Accrued interest receivable                                                                5,523             4,958
Premises and equipment, net                                                                9,410             9,177
Goodwill and other intangible assets, net                                                  5,809             6,570
Other assets                                                                               1,516             1,493
                                                                                       ---------         ---------
                  TOTAL ASSETS                                                         $ 723,297         $ 721,874
                                                                                       =========         =========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Deposits                                                                           $ 400,851          $401,698
    Advances from the Federal Home Loan Bank                                             244,859           248,533
    Other borrowings                                                                      14,962            15,766
    Advances from borrowers for taxes and insurance                                        1,158             1,198
    Accrued interest payable                                                               4,670             3,749
    Other liabilities                                                                      3,688             2,483
                                                                                       ---------         ---------
                Total liabilities                                                        670,188           673,427
                                                                                       ---------         ---------
Stockholders' equity
    Preferred stock, no par value; 2,000,000 shares authorized
        at December 31, 2000 and 1999, none issued                                             -                 -
    Common stock, $0.10 par value; 10,000,000 shares authorized,
        5,290,000 shares issued, 2,491,454 and 2,576,160 shares
        outstanding at December 31, 2000 and 1999, respectively,
        net of shares in treasury:  2000 - 2,534,088; 1999 - 2,437,226                       529               529
    Retained earnings                                                                     51,604            48,760
    Additional paid-in capital                                                            52,161            52,076
    Unearned ESOP shares                                                                  (2,644)           (2,766)
    Shares acquired by MSBP                                                                   (4)              (71)
    Treasury stock - at cost                                                             (48,173)          (46,996)
    Accumulated other comprehensive loss                                                    (364)           (3,085)
                                                                                       ---------         ---------
                  Total stockholders' equity                                              53,109            48,447
                                                                                       ---------         ---------
                  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $ 723,297         $ 721,874
                                                                                       =========         =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       4
<PAGE>

                   TF Financial Corporation and Subsidiaries

                       CONSOLIDATED STATEMENTS OF EARNINGS

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                                          2000             1999              1998
                                                                      ------------     ------------      ------------
                                                                          (in thousands, except per share data)
<S>                                                                <C>               <C>               <C>
Interest income
    Loans, including fees                                            $  23,756         $  21,843         $  18,657
    Mortgage-backed securities                                          18,449            17,831            16,357
    Investment securities                                                6,180             6,646             6,918
    Interest-bearing deposits and other                                    323               702             1,647
                                                                     ---------         ---------         ---------
           TOTAL INTEREST INCOME                                        48,708            47,022            43,579
                                                                     ---------         ---------         ---------
Interest expense
    Deposits                                                            15,082            14,645            17,397
    Borrowings                                                          13,839            13,329             8,798
                                                                     ---------         ---------         ---------
           TOTAL INTEREST EXPENSE                                       28,921            27,974            26,195
                                                                     ---------         ---------         ---------
           NET INTEREST INCOME                                          19,787            19,048            17,384
Provision for possible loan losses                                         410               300                60
                                                                     ---------         ---------         ---------
           NET INTEREST INCOME AFTER PROVISION
               FOR POSSIBLE LOAN LOSSES                                 19,377            18,748            17,324
                                                                     ---------         ---------         ---------
Non-interest income
    Gain on sale of real estate held for investment                          -               350                 -
    Gain on sale of investment and mortgage-backed securities               46               -                 349
    Gain on sale of loans                                                   33               -                  91
    Service fees, charges and other operating income                     1,353             1,239             1,095
                                                                     ---------         ---------         ---------
           TOTAL NON-INTEREST INCOME                                     1,432             1,589             1,535
                                                                     ---------         ---------         ---------
Non-interest expense
    Employee compensation and benefits                                   7,339             6,770             6,201
    Occupancy and equipment                                              2,392             2,055             1,854
    Federal deposit insurance premium                                       85               258               275
    Data processing                                                         14                19               459
    Professional fees                                                      385               718               554
    Advertising                                                            711               320               333
    Other operating                                                      2,717             2,568             2,161
    Amortization of goodwill and other intangible assets                   761               821               885
                                                                     ---------         ---------         ---------
           TOTAL NON-INTEREST EXPENSE                                   14,404            13,529            12,722
                                                                     ---------         ---------         ---------
           INCOME BEFORE INCOME TAXES AND
               CUMULATIVE EFFECT OF ACCOUNTING CHANGE                    6,405             6,808             6,137
Income taxes                                                             1,923             2,386             2,307
                                                                     ---------         ---------         ---------
           INCOME BEFORE CUMULATIVE EFFECT OF
               ACCOUNTING CHANGE                                         4,482             4,422             3,830
Cumulative effect of accounting change                                       -                 -               208
                                                                     ---------         ---------         ---------
           NET INCOME                                                $   4,482         $   4,422         $   4,038
                                                                     =========         =========         =========
Earnings per share - basic                                           $    1.76         $    1.60         $    1.39
                                                                     =========         =========         =========
Earnings per share - diluted                                         $    1.71         $    1.52         $    1.26
                                                                     =========         =========         =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       5
<PAGE>
                              TF Financial Corporation and Subsidiaries

                      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                            Years ended December 31, 2000, 1999 and 1998

                                  (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                                                     Accumu
                                                                                                     lated
                              Common stock        Addi-                                              other
                         -----------------------  tional  Unearned    Shares                         compre-              Compre-
                                          Par     paid-in   ESOP    acquired by  Treasury   Retained hensive              hensive
                           Shares        value    capital  shares       MSBP       stock    earnings  (loss)   Total      income
                         ---------      --------  -------  -------   -------     --------   -------- -------  -------   -----------
<S>                    <C>            <C>       <C>      <C>         <C>       <C>        <C>       <C>     <C>         <C>
Balance at
  January 1, 1998        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
  expense                        -             -       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
  loss, 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
Allocation of ESOP
  shares                    12,156             -       86      122         -            -         -       -       208
Amortization of MSBP
  expense                        -             -       33        -       397            -         -       -       430
Purchase of treasury
  stock                   (303,578)            -        -        -         -       (4,800)        -       -    (4,800)
Cash dividends on
  common stock                   -             -        -        -         -            -    (1,359)      -    (1,359)
Exercise of options          9,650             -        -        -         -          190       (65)      -       125
Other comprehensive
  loss, net of taxes             -             -        -        -         -            -         -  (3,239)   (3,239)       (3,239)
Net income for the
  year ended
  December 31, 1999              -             -        -        -         -            -     4,422       -     4,422         4,422
                         ---------     ---------  -------  -------    ------     --------  -------- -------   -------       -------
Comprehensive income                                                                                                        $ 1,183
                                                                                                                            =======
Balance at
  December 31, 1999      2,576,160           529   52,076   (2,766)      (71)     (46,996)   48,760  (3,085)   48,447

</TABLE>

                                                                   (Continued)


<PAGE>

                         TF Financial Corporation and Subsidiaries

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED

                       Years ended December 31, 2000, 1999 and 1998

                             (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                      Accumu
                                                                                                      lated
                              Common stock        Addi-                                               other
                         -----------------------  tional  Unearned    Shares                          compre-                Compre-
                                          Par     paid-in   ESOP    acquired by  Treasury   Retained  hensive                hensive
                           Shares        value    capital  shares       MSBP       stock    earnings   (loss)     Total      income
                         ---------      --------  -------  -------   -------     --------   --------  -------    -------   ---------
<S>                    <C>            <C>       <C>      <C>         <C>       <C>        <C>       <C>        <C>        <C>
Balance at
  December 31, 1999      2,576,160      $    529  $52,076  $(2,766)    $ (71)    $(46,996)  $48,760   $(3,085)  $48,447
Allocation of ESOP
  shares                    12,156             -       52      122         -            -         -         -       174
Amortization of MSBP
  expense                        -             -       33        -        67            -         -         -       100
Purchase of treasury
  stock                   (138,112)            -        -        -         -       (1,972)        -         -    (1,972)
Cash dividends on
  common stock                   -             -        -        -         -            -    (1,326)        -    (1,326)
Exercise of stock
  options                   41,250             -        -        -         -          795      (312)        -       483
Other comprehensive
  income, net of
  reclassification
  adjustments and
  taxes                          -             -        -        -         -            -         -     2,721     2,721     $2,721
Net income for the
  year ended
  December 31, 2000              -             -        -        -         -            -     4,482         -     4,482      4,482
                         ---------      --------  -------  -------     -----     --------   -------   -------   -------     ------
Comprehensive income                                                                                                        $7,203
                                                                                                                            ======
Balance at
  December 31, 2000      2,491,454    $      529  $52,161  $(2,644)    $  (4)    $(48,173)  $51,604   $  (364)  $53,109
                         ========= =============  =======  =======     =====     ========   =======   =======   =======

</TABLE>
                  The accompanying notes are an integral part of this statement.

                                       7
<PAGE>


                    TF Financial Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                          2000             1999              1998
                                                                      ------------     ------------      ------------
                                                                                     (in thousands)
<S>                                                                 <C>              <C>               <C>
OPERATING ACTIVITIES
    Net income                                                        $  4,482         $   4,422         $   4,038
    Adjustments to reconcile net income to net cash provided
           by operating activities
        Amortization of
           Mortgage loan servicing rights                                   13                14                16
           Deferred loan origination fees                                 (119)              (75)             (118)
           Premiums and discounts on investment securities, net             65                36               100
           Premiums and discounts on mortgage-backed securities
               and loans, net                                             (544)              607               705
           Goodwill and other intangibles                                  761               821               677
        Deferred income taxes                                             (122)               99              (135)
        Provision for loan losses and provision for losses on real estate  459               306                60
        Depreciation of premises and equipment                           1,040               903               847
        Stock-based benefit programs                                       274               637               748
        Gain on sale of
           Investment securities                                           (46)              -                (681)
           Real estate acquired through foreclosure                        (48)               (5)              (44)
           Sale of real estate held for investment                           -              (350)              -
           Mortgage loans                                                  (33)              -                 (91)
        (Increase) decrease in
           Accrued interest receivable                                    (565)             (400)             (601)
           Other assets                                                   (283)             (210)               30
        Increase (decrease) in
           Accrued interest payable                                        921              (417)            1,696
           Other liabilities                                              (122)           (2,822)            1,338
                                                                   ------------        ---------         ---------
               NET CASH PROVIDED BY OPERATING
                   ACTIVITIES                                            6,133             3,566             8,585
                                                                   -----------         ---------         ---------
INVESTING ACTIVITIES
    Loan originations and principal payments on loans, net              (2,831)           35,634            30,983
    Principal repayments on mortgage-backed securities
        held to maturity                                                24,827            56,448            60,899
    Principal repayments on mortgage-backed securities available
        for sale                                                        11,925            20,258            19,292
    Purchases of loans                                                 (72,990)          (83,643)          (40,708)
    Proceeds from loan sales                                             1,669               -              19,496
    Purchases and maturities of certificates of deposit in other
        financial institutions, net                                        656             1,391               499
    Purchases of investment and mortgage-backed securities
        held to maturity                                               (96,595)         (189,650)         (293,959)
    Purchase of investment securities and mortgage-backed
        securities available for sale                                  (11,508)         (108,882)         (251,164)

</TABLE>
                                   (Continued)

                                       8
<PAGE>

                    TF Financial Corporation and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                         2000             1999              1998
                                                                      ------------     ------------      ------------
                                                                                      (in thousands)
<S>                                                                 <C>              <C>               <C>
    Purchase and maturities of securities purchased under
        agreement to resell, net                                      $      -         $     -           $  10,000
    Proceeds from maturities of investment securities
        held to maturity                                                99,726           174,104           123,842
    Proceeds from maturities of investment securities
        available for sale                                                   -             6,000           223,376
    Proceeds from the sale of investment and mortgage-backed
        securities available for sale                                   41,892             3,145            37,373
    Purchase of Federal Home Loan Bank stock                                 -            (3,874)           (4,250)
    Sale (purchase) of real estate held for investment                       -             2,698            (2,348)
    Proceeds from sales of real estate acquired through foreclosure        452               195               246
    Purchase of premises and equipment                                  (1,273)           (1,063)           (1,975)
                                                                      --------         ---------          --------
               NET CASH USED IN
                     INVESTING ACTIVITIES                               (4,050)          (87,239)          (68,398)
                                                                      --------         ---------          --------
FINANCING ACTIVITIES
    Net decrease in demand deposit/NOW accounts, passbook
        savings accounts and certificates of deposit                      (847)          (37,215)          (11,516)
    Net increase (decrease) in advances from Federal Home
        Loan Bank                                                       (3,674)           85,174            75,000
    Net increase (decrease) in securities sold under
        agreements to repurchase                                          (804)           15,766                 -
    Net decrease in advances from borrowers for taxes and insurance        (40)               (6)             (387)
    Treasury stock acquired                                             (1,972)           (4,800)             (941)
    Exercise of stock options                                              483               125               122
    Common stock dividends paid                                         (1,326)           (1,359)           (1,387)
                                                                      --------         ---------          --------
               NET CASH PROVIDED BY (USED IN)
                     FINANCING ACTIVITIES                               (8,180)           57,685            60,891
                                                                      --------         ---------          --------
               NET INCREASE (DECREASE) IN CASH AND
                     CASH EQUIVALENTS                                   (6,097)          (25,988)            1,078
Cash and cash equivalents at beginning of year                          16,715            42,703            41,625
                                                                      --------         ---------          --------
Cash and cash equivalents at end of year                              $ 10,618         $  16,715          $ 42,703
                                                                      ========         =========          ========
Supplemental disclosure of cash flow information
    Cash paid for
        Interest on deposits and advances                             $ 28,122         $  28,391          $ 24,498
        Income taxes                                                  $  1,675         $   1,940          $  2,651
    Non-cash transactions
        Transfers from loans to real estate acquired through
           foreclosure                                                $    127         $     434          $    159
</TABLE>

The accompanying notes are an integral part of these statements.

                                       9
<PAGE>

                    TF Financial Corporation and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2000 and 1999



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 that
    conducts  operations from its main office in Newtown,  Pennsylvania,  eleven
    full-service  branch offices  located in  Philadelphia  and Bucks  counties,
    Pennsylvania, and four full-service branch offices located in Mercer County,
    New Jersey. The Bank competes with other banking and financial  institutions
    in its primary market  communities,  including  financial  institutions with
    resources  substantially  greater than its own.  Commercial  banks,  savings
    banks,  savings and loan associations,  credit unions and money market funds
    actively compete for savings and time deposits and loans. Such institutions,
    as well as  consumer  finance and  insurance  companies,  may be  considered
    competitors  of the Bank  with  respect  to one or more of the  services  it
    renders.

    The Bank is subject to  regulations  of certain  state and federal  agencies
    and, accordingly, those regulatory authorities periodically examine it. 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,  and its wholly  owned
    subsidiary,  Third Delaware Corporation,  TF Investments,  Teragon Financial
    Corporation  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 accounting  principles
    generally accepted in the United States of America (US GAAP) and predominant
    practices  within  the  banking  industry.   The  preparation  of  financial
    statements in conformity with US GAAP requires  management to make estimates
    and assumptions  that affect the reported  amounts of assets and liabilities
    and  disclosure  of  contingent  assets and  liabilities  at the date of the
    financial  statements,  and the  reported  amounts of revenues  and expenses
    during  the  reporting  period.  Actual  results  could  differ  from  those
    estimates. The more significant accounting policies are summarized below.

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

    The  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.

    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.  The
    Corporation classifies 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 presently  engage in security
    trading activities.

                                   (Continued)

                                       10
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    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.  The Corporation has the ability
    and it is management's intention to hold such assets to maturity.

    In June 1998,  the SFAS No. 133,  ("SFAS 133")  "Accounting  for  Derivative
    Instruments  and Hedging  Activities" as amended in June,  1999 by SFAS 137,
    "Accounting for Derivative  Instruments and Hedging Activities - Deferral of
    the Effective  Date of FASB  Statement No. 133," and in June,  2000, by SFAS
    138,  "Accounting  for Certain  Derivative  Instruments  and Certain Hedging
    Activities,"  (collectively  SFAS  133).  SFAS 133  requires  that  entities
    recognize all  derivatives  as either assets or liabilities in the statement
    of financial  condition and measure those  instruments at fair value.  Under
    SFAS 133 an entity may  designate  a  derivative  as a hedge of  exposure to
    either changes in: (a) fair value of a recognized asset or liability or firm
    commitment, (b) cash flows of a recognized or forecasted transaction, or (c)
    foreign  currencies  of  a  net  investment  in  foreign  operations,   firm
    commitments,  available-for-sale  securities  or a  forecasted  transaction.
    Depending upon the  effectiveness of the hedge and/or the transaction  being
    hedged, any changes in the fair value of the derivative instrument is either
    recognized in earnings in the current year,  deferred to future periods,  or
    recognized in other comprehensive  income.  Changes in the fair value of all
    derivative  instruments not recognized as hedge accounting are recognized in
    current year earnings.  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.

    Statement  of  Financial  Accounting  Standards  No. 119  "Disclosure  About
    Derivative  Financial  Instruments and Fair Value of Financial  Instruments"
    ("SFAS 119") requires  disclosures  about financial  instruments,  which are
    defined as futures,  forwards, swap and option contracts and other financial
    instruments with similar  characteristics.  On balance sheet receivables and
    payables are  excluded  from this  definition.  The Company did not hold any
    derivative  financial  instruments  as defined by SFAS 119 at  December  31,
    2000, 1999 or 1998.


    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-off's (net of recoveries).

                                       11
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    The Bank provides an allowance for accrued but uncollected interest when the
    loan  becomes more than ninety days past due or is  identified  as impaired.
    The  allowance is  established  by a charge to interest  income equal to all
    interest previously accrued,  and income is subsequently  recognized only to
    the extent that cash payments are received until, in management's  judgment,
    the borrower's  ability to make periodic interest and principal  payments is
    no longer impaired, in which case the loan is returned to accrual status.

    The  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.  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 identifies 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.

    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.

    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.

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

    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. Amortization expense
    for 2000, 1999 and 1998 was $761,000, $819,000 and $677,000, respectively.

    The  Corporation  accounts for impairment of assets in accordance  with 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. No impaired assets existed at December 31, 2000 and 1999.

                                   (Continued)

                                       12
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued


    7.  Transfers of Financial Assets
        -----------------------------

    The Corporation accounted for the transfer of financial assets in accordance
    with 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.

    In September 2000, the Financial  Accounting Standards Board issued SFAS No.
    140  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets  and
    Extinguishments of Liabilities,"  replacing SFAS No. 125. This new statement
    revises  the  standard  for  accounting  and  reporting  for  transfers  and
    servicing of financial assets and  extinguishments  of liabilities.  The new
    standard  is  based  on  consistent  application  of a  financial-components
    approach that recognizes the financial and servicing  assets it controls and
    the liabilities it has incurred,  derecognizes financial assets when control
    has been surrendered and derecognizes  liabilities  when  extinguished.  The
    standard  provides  consistent  guidelines for  distinguishing  transfers of
    financial  assets from  transfers that are secured  borrowings.  SFAS 140 is
    effective   for   transfers   and   servicing   of   financial   assets  and
    extinguishments of liabilities  occurring after March 31, 2001. However, for
    recognition and  reclassification of collateral and for disclosures relating
    to  securitizations  transactions and collateral this statement is effective
    for fiscal years ending after December 15, 2000 with earlier application not
    allowed and is to be applied prospectively.  Management does not expect this
    new  standard  to have a material  impact  upon the  Company's  consolidated
    financial statements.


    8.  Benefit Plans
        -------------

    The  Corporation  has  established an Employee  Stock  Ownership Plan (ESOP)
    covering  eligible  employees with six months 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 directors and key personnel.

                                   (Continued)

                                       13
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    The  Corporation  accounts for  stock-based  compensation in accordance with
    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.

    The corporation  follows 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.

    9.  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.

    10.  Advertising Costs
         -----------------

    The Corporation expenses advertising costs as incurred.

    11.  Earnings Per Share
         ------------------

    The Corporation  follows 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.

                                   (Continued)

                                       14
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    12.  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.  The Corporation's
    other  comprehensive  income consists of net unrealized  gains and losses on
    investment  securities  available for sale.  Comprehensive  income for 2000,
    1999 and 1998 was $7,203,000, $1,183,000, and $4,023,000,  respectively. The
    components of other comprehensive income (loss) are as follows:

<TABLE>
<CAPTION>
                                                                                   December 31, 2000
                                                                     -----------------------------------------------
                                                                                           Tax
                                                                     Before tax        (expense)         Net of tax
                                                                        amount           benefit           amount
                                                                     -----------      -------------     -----------
                                                                                     (in thousands)
<S>                                                                <C>              <C>                  <C>
       Unrealized gains on securities
          Unrealized holding gains arising during period             $  4,165         $   (1,414)          $  2,751
       Reclassification adjustment for gains realized
          in net income                                                   (46)                16                (30)
                                                                     ---------        ----------           --------
       Other comprehensive income, net                               $  4,119         $   (1,398)          $  2,721
                                                                     ========         ==========           ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                   December 31, 1999
                                                                     -----------------------------------------------
                                                                                           Tax
                                                                     Before tax        (expense)         Net of tax
                                                                        amount           benefit           amount
                                                                     -----------      -------------     -----------
                                                                                     (in thousands)
<S>                                                                <C>              <C>                  <C>
       Unrealized losses on securities
          Unrealized holding losses arising during period           $  (4,927)         $   1,688         $  (3,239)
                                                                    ---------          ---------         ---------
       Other comprehensive loss, net                                $  (4,927)         $   1,688         $  (3,239)
                                                                    =========          =========         =========
</TABLE>
<TABLE>
<CAPTION>
                                                                                   December 31, 1998
                                                                     -----------------------------------------------
                                                                                           Tax
                                                                     Before tax        (expense)         Net of tax
                                                                        amount           benefit           amount
                                                                     -----------      -------------     -----------
                                                                                     (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)

                                       15
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    13.  Segment Reporting
         ------------------

         On January 1, 1998, the Corporation  adopted SFAS No. 131,  Disclosures
    about  Segments  of  an  Enterprise  and  Related   Information.   SFAS  131
    established  standards  for  the  way  public  business  enterprises  report
    information  about  operating  segments in annual  financial  statements and
    requires that those enterprises report selected  information about operating
    segments in subsequent interim financial reports issued to shareholders.  It
    also  establishes  standards  for  related  disclosure  about  products  and
    services, geographic areas, and major customers. The statement requires that
    a public business  enterprise  report financial and descriptive  information
    about its reportable  operating segments.  Operating segments are components
    of an enterprise  about which  separate  financial  information is available
    that  is  evaluated  regularly  by the  chief  operating  decision-maker  in
    deciding how to allocate  resources  and assess  performance.  The statement
    also requires that public  enterprises report a measure of segment profit or
    loss, certain specific revenue and expense items and segment assets. It also
    requires  that  information  be reported  about  revenues  derived  from the
    enterprises'  products  or  services,  or about the  countries  in which the
    enterprises  earn  revenues  and holds  assets,  and about major  customers,
    regardless  of  whether  that   information  is  used  in  making  operating
    decisions.

    The Corporation has one reportable segment,  "Community Banking." All of the
    Corporation's  activities are  interrelated,  and each activity is dependent
    and assessed based on how each of the activities of the Corporation supports
    the others. For example, commercial lending is dependent upon the ability of
    the Bank to fund itself with retail  deposits  and other  borrowings  and to
    manage  interest  rate and credit risk.  This  situation is also similar for
    consumer and  residential  mortgage  lending.  Accordingly,  all significant
    operating  decisions  are based  upon  analysis  of the  Corporation  as one
    operating segment or unit.

    14.  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:

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                         -------------------------------
                                                                             2000              1999
                                                                         ------------      -------------
                                                                                 (in thousands)

<S>                                                                    <C>                <C>
           Cash and due from banks                                       $    8,744         $  11,578
           Interest-bearing deposits in other financial institutions          1,774             5,037
           Federal funds sold                                                   100               100
                                                                         ----------         ---------
                                                                         $   10,618         $  16,715
                                                                         ==========         =========
</TABLE>
                                   (Continued)

                                       16
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



NOTE C - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

    The Bank enters into  purchases of  securities  under  agreements  to resell
    substantially  identical  securities.  There were no outstanding  securities
    purchased under agreements to resell at December 31, 2000 or 1999.

    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.  Securities purchased under agreements to resell averaged
    $0 and $1.4  million  during  2000 and 1999,  respectively,  and the maximum
    amounts  outstanding at any month-end during 2000 and 1999 were $0 and $10.3
    million, respectively.

NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES

    The amortized cost, gross unrealized gains and losses, and fair value of the
    Corporation's investment and mortgage-backed securities at December 31, 2000
    and 1999, are summarized as follows:
<TABLE>
                                                                             December 31,  2000
                                                   ----------------------------------------------------------------
                                                                        Gross            Gross
                                                    Amortized        unrealized       unrealized          Fair
                                                       cost             gains            losses           value
                                                   ---------------   -------------    ------------      -----------
                                                                           (in thousands)
<S>                                              <C>            <C>              <C>                <C>
        Investment securities held to maturity
           U.S. Government and federal agencies    $   52,499     $         11     $      (1,494)     $     51,016
           State and political subdivisions             5,958              133              (112)            5,979
           Corporate debt securities                    5,004                -               (80)            4,924
                                                   ----------     ------------     --------------     ------------
                                                       63,461              144            (1,686)           61,919
        Mortgage-backed securities
           held to maturity                           135,142              339            (2,023)          133,458
                                                   ----------     ------------     --------------     ------------

                                                   $  198,603     $        483     $      (3,709)     $    195,377
                                                   ==========     ============     ==============     ============

        Investment securities available for sale
           U.S. Government and federal agencies    $   12,003     $          -     $         (36)     $     11,967
           Corporate debt securities                    6,034                -               (30)            6,004
           Mutual funds                                   500                -                (6)              494
           Other                                          500                -              (100)              400
                                                   ----------     ------------     --------------     ------------
                                                       19,037                -              (172)           18,865
        Mortgage-backed securities
           available for sale                          98,298              173              (557)           97,914
                                                   ----------     ------------     --------------     ------------
                                                   $  117,335     $        173     $        (729)     $    116,779
                                                   ==========     ============     ==============     ============
</TABLE>
                                   (Continued)

                                       17
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

<TABLE>
<CAPTION>
                                                                           December 31, 1999
                                                   --------------------------------------------------------------
                                                                       Gross          Gross
                                                   Amortized       unrealized       unrealized           Fair
                                                      cost             gains          losses             value
                                                   ----------      -------------    ------------      -----------
                                                                         (in thousands)
<S>                                               <C>           <C>               <C>                <C>
        Investment securities held to maturity
           U.S. Government and federal agencies     $  57,455     $       12        $   (1,967)        $  55,500
           State and political subdivisions             4,284             22              (138)            4,168
           Corporate debt securities                    5,021              -              (151)            4,870
                                                    ---------     ----------        ----------         ---------
                                                       66,760             34            (2,256)           64,538
        Mortgage-backed securities
           held to maturity                           159,888            159            (5,859)          154,188
                                                    ---------     ----------        ----------         ---------

                                                    $ 226,648     $      193        $   (8,115)        $ 218,726
                                                    =========     ==========        ==========         =========

        Investment securities available for sale
           U.S. Government and federal agencies     $  11,994     $        -        $     (436)        $  11,558
           State and political subdivisions             3,783              -               (87)            3,696
           Corporate debt securities                    6,053              -              (220)            5,833
           Mutual funds                                   500              -                (7)              493
           Other                                          500              -              (150)              350
                                                   ----------     ----------        ----------         ---------
                                                       22,830              -              (900)           21,930
        Mortgage-backed securities
           available for sale                         136,291             16            (3,792)          132,515
                                                   ----------     ----------        ----------         ---------
                                                   $  159,121     $       16        $   (4,692)        $ 154,445
                                                   ==========     ==========        ==========         =========
</TABLE>

    Gross realized  gains were  $151,000,  $-0- and $379,000 for the years ended
    December 31, 2000,  1999 and 1998,  respectively.  These gains resulted from
    the sale of investment and mortgage-backed securities of $18.9 million, $3.1
    million and $31.5  million for the years ended  December 31, 2000,  1999 and
    1998, respectively.

    Gross realized  losses were  $105,000,  $-0- and $30,000 for the years ended
    December 31, 2000, 1999 and 1998,  respectively.  These losses resulted from
    the sale of investment and mortgage-backed securities of $23.0 million, $-0-
    and $5.9  million  for the years ended  December  31,  2000,  1999 and 1998,
    respectively.

                                   (Continued)

                                       18
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999

NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

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

<TABLE>
<CAPTION>
                                                                          December 31, 2000
                                                   -------------------------------------------------------------------
                                                            Held to maturity                  Available for sale
                                                   --------------------------------   --------------------------------
                                                   Amortized              Fair        Amortized              Fair
                                                      cost                value          cost                value
                                                   ---------------   --------------   --------------    --------------
                                                                           (in thousands)
<S>                                              <C>               <C>              <C>               <C>
        Investment securities
           Due in one year or less                 $    5,004        $   4,924        $    1,003        $      897
           Due after one year through five years       45,329           44,044            16,034            15,969
           Due after five years through 10 years       10,859           10,736             2,000             1,999
           Due after 10 years                           2,269            2,215                 -                 -
                                                   ----------        ---------        ----------        -----------
                                                       63,461           61,919            19,037            18,865
       Mortgage-backed securities                     135,142          133,458            98,298            97,914
                                                   ----------        ---------        ----------        -----------
                                                   $  198,603        $ 195,377        $  117,335        $  116,779
                                                   ==========        =========        ==========        ==========
</TABLE>

    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, 2000
                                                   ------------------------------------------------------------------
                                                                          Gross           Gross
                                                   Amortized           unrealized       unrealized         Fair
                                                        cost              gains           losses           value
                                                   ---------------   -------------    ------------      -------------
                                                                            (in thousands)
<S>                                              <C>                <C>             <C>               <C>
       Mortgage-backed securities held to
             maturity
         FHLMC certificates                        $   45,971         $    251        $     (420)       $   45,802
         FNMA certificates                             20,756               26              (378)           20,404
         GNMA certificates                             41,090               48              (620)           40,518
         Real estate mortgage investment conduit       27,043               14              (603)           26,454
         Other mortgage-backed securities                 282                -                (2)              280
                                                   ----------         --------        -----------       ----------
                                                   $  135,142         $    339        $   (2,023)       $  133,458
                                                   ==========         ========        ===========       ==========
       Mortgage-backed securities available for
             sale
         FHLMC certificates                        $    1,419         $     17        $       (5)       $    1,431
         FNMA certificates                             26,097               16              (434)           25,679
         GNMA certificates                              7,593                -               (32)            7,561
         Real estate mortgage investment conduit       63,189              140               (86)           63,243
                                                   ----------         --------        ----------        ----------
                                                   $   98,298         $    173        $     (557)       $   97,914
                                                   ==========         ========        ===========       ==========
</TABLE>
                                   (Continued)

                                       19
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999


NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

<TABLE>
<CAPTION>
                                                                                        December 31, 1999
                                                   ------------------------------------------------------------------
                                                                       Gross            Gross
                                                   Amortized         unrealized       unrealized           Fair
                                                        cost           gains            losses             value
                                                   ---------------   -------------    ------------      -------------
                                                                            (in thousands)
<S>                                               <C>            <C>                 <C>               <C>
       Mortgage-backed securities held to
             maturity
         FHLMC certificates                        $   52,625     $         94        $   (1,742)       $   50,977
         FNMA certificates                             24,983               28            (1,066)           23,945
         GNMA certificates                             46,651               37            (2,011)           44,677
         Real estate mortgage investment conduit       35,271                -            (1,036)           34,235
         Other mortgage-backed securities                 358                -                (4)              354
                                                   ----------     ------------        ----------        ----------
                                                   $  159,888     $        159        $   (5,859)       $  154,188
                                                   ==========     ============        ==========        ==========
       Mortgage-backed securities available for
             sale
         FHLMC certificates                        $    7,331     $          5        $     (103)       $    7,233
         FNMA certificates                             29,780               10            (1,827)           27,963
         GNMA certificates                              8,759                -              (421)            8,338
         Real estate mortgage investment conduit       90,421                1            (1,441)           88,981
                                                   ----------     ------------         ---------        ----------
                                                   $  136,291     $         16         $  (3,792)       $  132,515
                                                   ==========     ============         =========        ==========
</TABLE>

    Investment  securities  having an aggregate  amortized cost of approximately
    $21.0  million and $5.0 million were  pledged to secure  public  deposits at
    December 31, 2000 and 1999, 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,
                                                                                      -------------------------------
                                                                                          2000              1999
                                                                                      ------------      -------------
                                                                                                  (in thousands)
<S>                                                                                  <C>               <C>
       First mortgage loans (principally conventional)
          Secured by one-to-four family residences                                    $  211,065        $  168,057
          Secured by other non-residential properties                                     77,486            65,346
          Construction loans                                                              13,950            12,074
                                                                                      ----------        ----------
                                                                                         302,501           245,477
       Less net deferred loan origination fees and unamortized premiums                   (1,430)              (99)
                                                                                      ----------        -----------
              Total first mortgage loans                                              $  301,071        $  245,378
                                                                                      ==========        ==========
</TABLE>

                                   (Continued)

                                       20
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE E - LOANS RECEIVABLE - Continued

<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                      -------------------------------
                                                                                          2000              1999
                                                                                      ------------      -------------
                                                                                                  (in thousands)
<S>                                                                                 <C>               <C>
       Consumer and other loans
          Commercial                                                                  $   14,630        $    9,339
          Home equity and second mortgage                                                 20,887            16,816
          Leases                                                                           3,493             3,195
          Other                                                                           23,006            14,945
                                                                                      ----------        ----------
                                                                                          62,016            44,295
          Unearned premiums                                                                  433               223
                                                                                      ----------        ----------
                      Total consumer and other loans                                      62,449            44,518

          Less allowance for loan losses                                                  (1,714)           (1,917)
                                                                                      ----------        ----------
                      Total loans receivable                                          $  361,806        $  287,979
                                                                                      ==========        ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                     ----------------------------------------------
                                                                         2000             1999              1998
                                                                     ------------     ------------      -----------
                                                                                            (in thousands)
<S>                                                                <C>              <C>               <C>
       Balance at beginning of year                                  $   1,917        $    1,909        $    2,029
       Provision charged to income                                         410               300                60
       Charge-off's, net                                                  (613)             (292)             (180)
                                                                     ----------       ----------        ----------
       Balance at end of year                                        $   1,714        $    1,917        $    1,909
                                                                     =========        ==========        ==========
</TABLE>

    Non-performing  loans, which include non-accrual loans for which the accrual
    of interest has been  discontinued  and loan  balances past due over 90 days
    that are not on a  non-accrual  status  but  that  management  expects  will
    eventually  be paid in full,  totaled  approximately  $1.5  million and $1.4
    million at December 31, 2000, and 1999,  respectively.  Interest income that
    would have been  recorded  under the  original  terms of such loans  totaled
    approximately $112,000, $70,000 and $43,000 for the years ended December 31,
    2000, 1999 and 1998, respectively. No interest income has been recognized on
    non-accrual loans for any of the periods presented.

                                   (Continued)

                                       21
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



NOTE E - LOANS RECEIVABLE - Continued


    The Bank has no  concentration  of loans to  borrowers  engaged  in  similar
    activities which exceeded 10% of loans at December 31, 2000 and 1999. 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  $1,290,000  and  $402,000 at December 31, 2000 and
    1999,  respectively.  For  the  year  ended  December  31,  2000,  principal
    repayments of approximately $27,000 were received and funds of $915,000 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,
                                                -----------------------------
                                                    2000              1999
                                                ------------      -----------
                                                            (in thousands)
       Mortgage loan servicing portfolios
          FHLMC                                 $    9,209         $  11,944
          Other investors                            4,894             3,933
                                                ----------         ---------
                                                $   14,103         $  15,877
                                                ==========          ========


    Custodial  balances   maintained  in  connection  with  the  foregoing  loan
    servicing totaled  approximately  $240,000 and $437,000 at December 31, 2000
    and 1999, respectively. The net servicing revenue on mortgage loans serviced
    for others is immaterial for all periods presented.


                                   (Continued)

                                       22
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999

NOTE G - PREMISES AND EQUIPMENT

    Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                     Estimated        ----------------------------------
                                                                     useful lives         2000              1999
                                                                     ------------     ------------      ------------
                                                                                              (in thousands)

<S>                                                                <C>              <C>               <C>
        Buildings                                                       30 years      $    5,747        $    5,723
        Leasehold improvements                                           5 years           1,263             1,004
        Furniture, fixtures and equipment                              3-7 years           7,849             7,077
                                                                                      -----------       ----------
                                                                                          14,859            13,804
        Less accumulated depreciation                                                      9,166             8,128
                                                                                      -----------       ----------
                                                                                           5,693             5,676
        Land                                                                               3,717             3,501
                                                                                      -----------       ----------
                                                                                      $    9,410        $    9,177
                                                                                      ==========        ==========
</TABLE>

NOTE H - DEPOSITS

    Deposits are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                      ------------------------------
                        Deposit type                                                      2000              1999
      -------------------------------------------------                               ------------      ------------
                                                                                              (in thousands)
<S>                                                                                   <C>               <C>
       Demand                                                                         $   12,096        $    7,025
       NOW                                                                                35,127            37,926
       Money Market                                                                       44,325            40,799
       Passbook savings                                                                  155,699           159,370
                                                                                         -------        ----------
              Total demand, transaction and
                    passbook deposits                                                    247,247           245,120
       Certificates of deposit                                                           153,604           156,578
                                                                                      ----------        ----------
                                                                                      $  400,851        $  401,698
                                                                                      ==========        ==========
</TABLE>

The aggregate  amount of certificates of deposit with a minimum  denomination of
    $100,000 was  approximately  $17.5 million and $12.2 million at December 31,
    2000 and 1999, respectively.

    At December 31, 2000, scheduled maturities of certificates of deposit are as
follows:

                           Year ending December 31,
   ------------------------------------------------------------------------
      2001     2002      2003      2004       2005    Thereafter    Total
   --------  --------  --------  --------   --------  ----------  ---------
                               (in thousands)
   $126,205  $ 16,421  $  7,514  $  1,576   $  1,559  $      329  $ 153,604
   ========  ========  ========  ========   ========  --========  =========

                                   (Continued)

                                       23
<PAGE>


                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999





NOTE I - ADVANCES FROM THE FEDERAL HOME LOAN BANK AND OTHER BORROWINGS

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

                                             December 31,
                       -------------------------------------------------------
                                 2000                         1999
                       ---------------------------   -------------------------
         Contractual                    Weighted                    Weighted
        maturity date    Amount       average rate   Amount       average rate
        -------------  ----------     ------------   --------     ------------
                                    (in thousands)

           2000        $        -             -%     $ 35,174         5.53%
           2001            47,500          6.75         5,000         6.52
           2002             5,000          6.05        10,000         4.85
           2003            12,000          6.18        20,000         5.60
           2004            52,000          5.23        45,000         5.03
           2005             5,000          6.58        15,000         5.35
           2006            25,000          5.44        20,000         5.15
           2008            70,000          5.62        70,000         5.62
           2009            25,000          4.86        25,000         4.86
           2010             3,359          6.70         3,359         6.70
                       ----------                    --------
                       $  244,859          5.73      $248,533         5.37
                       ==========                    ========

    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 $13.5 million at December 31, 2000.

    Other borrowings comprise repurchase  agreements entered into with a primary
    broker-dealer.  These  agreements  totaled $15.0 million and $15.8  million,
    matured  within one year at each year end,  were at interest  rates of 6.61%
    and  5.49%,  and  were  collateralized  by  investment  and  mortgage-backed
    securities  of $20.8 and $19.1  million as of  December  31,  2000 and 1999,
    respectively.

NOTE J - BENEFIT PLANS

    The Bank  maintains a 401(k)  profit-sharing  plan for  eligible  employees.
    Participants may contribute up to 15% of pretax eligible  compensation.  The
    Bank makes discretionary  matching  contributions equal to 100% of the first
    $600 deferred. Contributions to the 401(k) plan totaled $48,000, $40,000 and
    $43,000 in 2000, 1999 and 1998, respectively.

                                   (Continued)

                                       24
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE J - BENEFIT PLANS - Continued

    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.

                                                               December 31,
                                                           --------------------
                                                            2000         1999
                                                           -------      -------
                                                               (in thousands)

Change in benefit obligation
   Benefit obligation at beginning of year                 $ 2,898      $ 3,132
   Service cost                                                 68           46
   Interest cost                                               210          203
   Actuarial gain (loss)                                       (81)        (394)
   Benefits paid                                               (78)         (89)
                                                           -------      -------
   Benefits obligation at end of year                      $ 3,017      $ 2,898
                                                           =======      =======

Change in plan assets
   Fair value of plan assets at beginning of year          $ 2,382      $ 1,961
   Actual return on plan assets                                 61           41
   Employer contribution                                       348          469
   Benefits paid                                               (78)         (89)
                                                           -------      -------
   Fair value of plan assets at end of year                $ 2,713      $ 2,382
                                                           =======      =======
Funded status
   Unfunded accumulated benefits                           $  (304)     $  (516)
   Unrecognized transition obligation                           20           25
   Unrecognized net actuarial loss (gain)                        3          (59)
   Unrecognized prior service cost                             424          305
                                                           -------      -------
   Prepaid (accrued) benefit cost                          $   143      $  (245)
                                                           =======      =======


                                   (Continued)

                                       25
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE J - BENEFIT PLANS - Continued

<TABLE>
<CAPTION>
                                                                         2000             1999              1998
                                                                      ------------     ------------      ------------
<S>                                                                <C>               <C>              <C>
       Weighted-average assumptions as of December 31
          Discount rate                                                   7.50%             6.50%            7.25%
          Expected return on plan assets                                  8.00              8.00             8.00
          Rate of compensation increase                                   4.00              4.00             4.00

       Components of net periodic benefit cost
          Service cost                                                $     68         $      47         $      62
          Interest cost                                                    210               203               201
          Expected return on plan assets                                  (204)             (176)             (157)
          Amortization of prior service cost                                65                65                52
                                                                      --------         ---------         ---------

          Net periodic benefit cost                                   $    139         $     139         $     158
                                                                      ========         =========         =========
</TABLE>

    The Corporation also maintains the following benefit plans:

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

    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 $112,000,  $151,000 and $288,000 in
    2000, 1999 and 1998, respectively.

                                                      2000              1999
                                                  ----------        ----------

       Allocated shares                              124,700           122,000
       Unreleased shares                             264,400           276,600
                                                  ----------        ----------
             Total ESOP shares                       389,100           398,600
                                                  ==========        ==========
       Fair value of unreleased shares            $4,428,700        $3,665,000
                                                  ==========        ==========

                                   (Continued)

                                       26
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE J - BENEFIT PLANS - Continued

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

    The  Board  of  Directors  also  adopted  a MSBP  that 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  directors  and key 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, 1998,  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; $100,000,  $430,000 and $460,000 was amortized to expense in
    2000,  1999 and 1998,  respectively.  At December  31,  2000,  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.

                                            2000          1999           1998
                                         ---------     ----------     ----------
Net income
   As reported                           $   4,482     $    4,422     $    4,038
   Pro forma                             $   4,306     $    4,243     $    3,885

Basic earnings per share
   As reported                           $    1.76     $     1.60     $     1.39
   Pro forma                             $    1.70     $     1.53     $     1.34

Diluted earnings per share
   As reported                           $    1.71     $     1.52     $     1.26
   Pro forma                             $    1.65     $     1.46     $     1.21



                                   (Continued)

                                       27
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




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 2000, 1999 and 1998, respectively: a dividend
    yield of  3.20%,  3.73% and 0%;  expected  volatility  of 30%,  30% and 34%,
    risk-free  interest rate of 6.20%,  5.87% and 5.25%,  and expected  lives of
    six, six and five years for all options.

    A summary of the status of the Corporation's  fixed stock option plans as of
    December  31,  2000,  and  changes  for each of the years in the  three-year
    period then ended was as follows:

<TABLE>
<CAPTION>
                                                   2000                     1999                   1998
                                            ---------------------    --------------------  ----------------------
                                                        Weighted                Weighted                Weighted
                                                        average                 average                 average
                                             Number     exercise       Number   exercise    Number      exercise
                                               of       price per        of     price per     of        price per
                                             shares      share         share     shares     shares        share
                                            ---------  ----------    --------            -----------  -----------
<S>                                        <C>         <C>         <C>         <C>         <C>         <C>
       Outstanding at beginning of year       697,867     $13.26      696,019     $13.24      695,875     $13.08
       Options granted                         45,930      13.82       17,515      16.31       13,325      22.46
       Options exercised                      (41,250)     11.72       (9,650)     13.00      (10,486)     12.85
       Options forfeited                      (42,737)     15.62       (6,017)     20.24       (2,695)     15.78
                                            ---------                 -------                 -------
       Outstanding at end of year             659,810     $13.22      697,867     $13.26      696,019     $13.24
                                            =========                 =======                 =======
       Weighted average fair value of
          options granted during year       $    3.73                 $  4.57                 $  8.72
</TABLE>

    The following table summarizes  information about stock options  outstanding
at December 31, 2000:

<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               2000            price          life (years)       2000            price
       --------------------  --------------   ------------     --------------  ---------------  ----------
<S>   <C>                      <C>            <C>                <C>             <C>            <C>
       $11.50-14.125            437,346        4.16 years         11.64           407,846        $  11.50
       $14.50-18.00             207,139        6.24 years         15.89           134,011           15.84
       $19.00-28.00              15,325        7.75 years         22.33             5,436           22.56
</TABLE>

                                   (Continued)

                                       28
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE J - BENEFIT PLANS - Continued

    Total  compensation  cost recognized for stock-based  employee  compensation
    awards was approximately $110,000,  $117,000 and $116,000 for 2000, 1999 and
    1998, respectively.

NOTE K - INCOME TAXES

    The components of income tax expense are summarized as follows:

                                                     Year ended December 31,
                                                   ----------------------------
                                                    2000       1999      1998
                                                   -------    -------   -------
                                                            (in thousands)

 Federal
    Current                                        $ 1,875    $ 2,254   $ 2,162
    Change in lieu of income tax relating
        to stock compensation                          170          -         -
    Deferred                                          (122)        99      (152)
                                                   -------    -------   -------
                                                     1,923      2,353     2,010

 State and local - current                               -         33       297
                                                   -------    -------   -------
 Continuing operations                                          2,386     2,307

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

 Income tax provision                              $ 1,923    $ 2,386   $ 2,432
                                                   =======    =======   =======

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

                                                  Year ended December 31,
                                               -------------------------------
                                                 2000        1999        1998
                                                ------      ------      ------

Statutory federal income tax                     34.0%       34.0%       34.0%
Increase (decrease) resulting from
   Tax-exempt income                             (6.7)       (5.1)       (3.6)
   State tax, net of federal benefit              0.0         0.3         3.1
   Other                                          3.2         5.9         6.1
                                                ------      ------      ------
                                                 30.5%       35.1%       39.6%
                                                ======      ======      ======

                                   (Continued)

                                       29
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE K - INCOME TAXES - Continued

    Deferred taxes are included in the accompanying  consolidated  statements of
    financial  position at December 31, 2000 and 1999, 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, 2000 and 1999.  The  Corporation's  net
    deferred  tax asset at  December  31,  2000 and 1999,  was  composed  of the
    following:

                                                                   December 31,
                                                               -----------------
                                                                2000       1999
                                                               ------     ------
                                                                 (in thousands)
  Deferred tax assets
     Deferred loan origination fees                            $   59     $   83
     Deferred compensation                                        288        288
     Allowance for loan losses, net                               494        202
     Amortization                                                 334        290
     Unrealized loss on securities available for sale             192      1,590
     Other                                                          1          -
                                                               ------     ------
                                                                1,368      2,453
                                                               ------     ------
  Deferred tax liabilities
     Accrued pension expense                                      582        391
                                                               ------     ------
                                                                  582        391
                                                               ------     ------
      Deferred tax asset                                       $  786     $2,062
                                                               ======     ======

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

    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 six-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.

                                       30

<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



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, 2000.

    As of December 31, 2000,  management  believes that the Bank met all capital
adequacy requirements to which it was subject.

<TABLE>
<CAPTION>
                                                                           Regulatory capital
                                                 ------------------------------------------------------------------------
                                                                           December 31, 2000
                                                 ------------------------------------------------------------------------
                                                  Tangible                  Core                 Risk-based
                                                  capital    Percent       capital     Percent      capital      Percent
                                                  -------    -------      --------    --------   ----------     ---------
                                                                         (dollars in thousands)
<S>                                            <C>          <C>        <C>           <C>        <C>           <C>
       Capital under generally accepted
          accounting principles                   $49,976      6.95%      $49,976       6.95%      $49,976       12.96%

       Unrealized (loss) on certain
          available-for-sale securities              (309)    (0.04)         (309)     (0.04)         (309)      (0.08)

       Goodwill and other intangible assets        (5,809)    (0.81)       (5,809)     (0.81)       (5,809)      (1.51)

       Additional capital items
          General valuation allowances -
              limited                                   -         -             -          -         1,714        0.44
                                                  -------     -----       -------      -----       -------       -----
       Regulatory capital computed                 43,858      6.10        43,858       6.10        45,572       11.81

       Minimum capital requirement                 10,792      1.50        28,778       4.00        30,836        8.00
                                                  -------     -----       -------      -----       -------       -----
       Regulatory capital - excess                $33,066      4.60%      $15,080       2.10%      $14,736        3.81%
                                                  =======     =====       =======      =====       =======       =====
</TABLE>

                                   (Continued)

                                       31
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE L - REGULATORY MATTERS - Continued

<TABLE>
<CAPTION>
                                                                           Regulatory capital
                                                 ------------------------------------------------------------------------
                                                                           December 31, 2000
                                                 ------------------------------------------------------------------------
                                                  Tangible                  Core                 Risk-based
                                                  capital    Percent       capital     Percent      capital      Percent
                                                  -------    -------      --------    --------   ----------     ---------
                                                                         (dollars in thousands)
<S>                                            <C>          <C>        <C>           <C>          <C>           <C>
       Capital under generally accepted
          accounting principles                 $45,246        6.26%     $45,246         6.26%      $45,246       13.33%

       Unrealized (loss) on certain
          available-for-sale securities           2,987        0.41        2,987         0.41         2,987        0.88

       Goodwill and other intangible assets      (6,570)      (0.91)      (6,570)       (0.91)       (6,570)      (1.94)

       Additional capital items
          General valuation allowances -
              limited                                 -           -            -            -         1,917        0.56
                                                -------       -----      -------        -----       -------       -----
       Regulatory capital computed               41,663        5.76       41,663         5.76        43,580       12.83

       Minimum capital requirement               10,843        1.50       28,916         4.00        27,156        8.00
                                                -------       -----      -------        -----       -------       -----
       Regulatory capital - excess              $30,820        4.26%     $12,747         1.76%      $16,424        4.83%
                                                =======       =====      =======        =====       =======       =====
</TABLE>

    At  December  31,  2000,  the  Bank  met  all  regulatory  requirements  for
    classification as a  "well-capitalized"  institution.  A  "well-capitalized"
    institution must have risk-based  capital of 10% and core capital of 5%. The
    Bank's capital exceeded the minimum required amounts for classification as a
    "well-capitalized"  institution. There are no conditions or events that have
    occurred that management believes have changed the Bank's  classification as
    a "well-capitalized" institution.

    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.


                                   (Continued)

                                       32
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



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.  These financial  instruments are primarily commitments to extend
    credit and  standby  letters  of  credit.  Such  financial  instruments  are
    recorded  in  the  consolidated   financial   statements  when  they  become
    receivable  or  payable.  Those  instruments  involve,  to varying  degrees,
    elements of credit and interest rate risk in excess of the amount recognized
    in the  consolidated  statements  of  financial  position.  The  contract or
    notional  amounts  of those  instruments  reflect  the  extent of the Bank's
    involvement in particular classes of financial instruments.

    The 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  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 amounts of which represent credit risk,
    are as follows:

                                                            December 31,
                                                  ------------------------------
                                                      2000              1999
                                                  ------------      ------------
                                                          (in thousands)

        Commitments to extend credit              $   42,455        $   54,778
        Standby letters of credit                      3,656             3,687
        Loans sold with recourse                         268               278
                                                  ----------        ----------
                                                  $   46,379        $   58,743
                                                  ==========        ==========

    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
    borrower. 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.

                                       33
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




NOTE N - COMMITMENTS AND CONTINGENCIES

    The Bank had no  commitments to sell mortgage loans to investors at December
    31, 2000 and 1999.

    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 $343,000,  $298,000
    and  $315,000  for the  years  ended  December  31,  2000,  1999  and  1998,
    respectively.

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

         Year ending December 31,
         ------------------------

                  2001                            $  268,555
                  2002                               142,540
                  2003                               130,495
                  2004                               109,255
                  2005                                67,967
                  Thereafter                         115,425
                                                  ----------
                                                  $  834,237
                                                  ==========

    The Bank has a contract with a third-party  computer processor 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,  2000,  was
    approximately $2,003,000.

    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 that 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.

                                       34
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




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,
                                           ------------------------------------------------
                                                      2000                 1999
                                           -----------------------  -----------------------
                                               Fair      Carrying      Fair       Carrying
                                               value       value       value        value
                                            ----------  ----------  ---------    ----------
                                                              (in thousands)
<S>                                      <C>          <C>         <C>           <C>
       Cash and cash equivalents           $  10,618    $  10,618   $  16,715     $  16,715
       Investment securities                  80,784       82,326      86,468        88,690
       Mortgage-backed securities            231,372      233,056     286,703       292,403

</TABLE>


                                   (Continued)

                                       35
<PAGE>
                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999

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,
                                                   ------------------------------------------------
                                                              2000                 1999
                                                   -----------------------  -----------------------
                                                    Estimated                Estimated
                                                       Fair      Carrying      Fair       Carrying
                                                       value       value       value        value
                                                    ----------  ----------  ---------    ----------
                                                                      (in thousands)
<S>                                                <C>          <C>         <C>          <C>
       Assets
          Interest-bearing deposits with banks      $     190    $      191   $     845   $     847
       Liabilities
          Deposits with stated maturities             153,296       153,604     155,952     156,578
          Borrowings with stated maturities
             Short-term (due within 6 months)          62,486        62,462      40,937      40,940
             Long-term                                198,493       197,359     216,737     223,359
</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,
                                           ------------------------------------------------
                                                      2000                 1999
                                           -----------------------  -----------------------
                                             Estimated              Estimated
                                               Fair      Carrying      Fair       Carrying
                                               value       value       value        value
                                            ----------  ----------  ---------    ----------
                                                              (in thousands)
<S>                                      <C>          <C>         <C>           <C>
       Deposits with no stated
          maturities                       $  247,247   $ 247,247   $  245,120    $  245,120
                                           ==========   =========   ==========    ==========
</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,
                                           ------------------------------------------------
                                                      2000                 1999
                                           -----------------------  -----------------------
                                             Estimated              Estimated
                                               Fair      Carrying      Fair       Carrying
                                               value       value       value        value
                                            ----------  ----------  ---------    ----------
                                                              (in thousands)
<S>                                        <C>         <C>         <C>           <C>
       Net loans                             $ 367,667  $ 361,806    $ 285,800     $ 287,979
                                             =========  =========    =========     =========
</TABLE>

                                   (Continued)

                                       36
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



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 totaling approximately $46.4
    million and $58.7 million at December 31, 2000 and 1999, 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

                                                         Year ended December 31,
                                                        ------------------------
                                                         2000     1999     1998
                                                        ------   ------   ------
                                                              (in thousands)

  Service fees, charges and other operating income
     Loan servicing fees                                $  329   $  358   $  317
     Late charge income                                    126       74       85
     Deposit service charges                               548      548      435
     Other income                                          350      259      258
                                                        ------   ------   ------
                                                        $1,353   $1,239   $1,095
                                                        ======   ======   ======
  Other operating expense
     Employee education                                 $   37   $   36   $   34
     Insurance and surety bond                             120      127      142
     Office supplies                                       202      202      233
     Loan expense                                          342      238      207
     Loan servicing fees                                   258      284      140
     Postage                                               140      137      163
     Telephone                                             242      187      173
     Service charges on bank accounts                      423      385      280
     Supervisory examination fees                          138      139      140
     Other expenses                                        815      833      649
                                                        ------   ------   ------
                                                        $2,717   $2,568   $2,161
                                                        ======   ======   ======

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 Corporation earlier redeems the Rights.

                                   (Continued)

                                       37
<PAGE>



                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




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

<TABLE>
<CAPTION>
                                                                        Year ended December 31, 2000
                                                            -----------------------------------------------
                                                                               Weighted
                                                                               average
                                                               Income          shares           Per share
                                                            (numerator)     (denominator)         amount
                                                            -----------     -------------      ------------
<S>                                                      <C>                 <C>             <C>
       Basic earnings per share
          Income available to common stockholders          $    4,482          2,540,242       $   1.76
                                                                                               ========
       Effect of dilutive securities
          Stock options                                             -             82,657
                                                            ---------        -----------
       Diluted earnings per share
          Income available to common stockholders plus
              effect of dilutive securities                $    4,482          2,622,899       $   1.71
                                                            =========          =========       ========
</TABLE>

    There were options to purchase  207,929 shares of common stock at a range of
    $14.75 to $28.00 per share which were outstanding during 2000 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.


                                   (Continued)

                                       38
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999


NOTE S - EARNINGS PER SHARE - Continued

<TABLE>
<CAPTION>
                                                                  Year ended December 31, 1999
                                                          ------------------------------------------------
                                                                              Weighted
                                                                              average
                                                              Income          shares           Per share
                                                           (numerator)     (denominator)         amount
                                                           -----------     -------------      ------------
<S>                                                     <C>                 <C>           <C>
          Basic earnings per share
              Income available to common stockholders     $    4,422          2,759,690     $     1.60
                                                                                             =========
       Effect of dilutive securities
          Stock options                                            -            158,666
                                                          ----------          ---------
       Diluted earnings per share
          Income available to common stockholders
              plus effect of dilutive securities          $    4,422          2,918,356     $     1.52
                                                          ==========          =========      =========
</TABLE>

    There were options to purchase  246,109 shares of common stock at a range of
    $14.50 to $28.00 per share which were outstanding during 1999 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.

<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>

    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.

                                       39
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



NOTE T - SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATE (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Three months ended
                                        ----------------------------------------
                                         Dec. 31,   Sept. 30,   June 30,  March 31,
                                           2000       2000       2000       2000
                                         -------    -------    -------    -------
                                          (in thousands, except per share data)

<S>                                    <C>        <C>        <C>        <C>
 Total interest income                   $12,103    $12,249    $12,326    $12,029

 Total interest expense                    7,096      7,294      7,352      7,179
                                         -------    -------    -------    -------
    Net interest income                    5,007      4,955      4,974      4,850

 Provision for possible loan losses          145        100        120         44
                                         -------    -------    -------    -------

    Net interest income after provision    4,862      4,855      4,854      4,806

 Other income                                369        367        349        347
 Other expenses                            3,382      3,735      3,690      3,597
                                         -------    -------    -------    -------
    Income before income taxes             1,849      1,487      1,513      1,556

 Income taxes                                523        417        456        527
                                         -------    -------    -------    -------
    Net income                           $ 1,326    $ 1,070    $ 1,057    $ 1,029
                                         =======    =======    =======    =======

 Earnings per share - basic              $  0.53    $  0.42    $  0.42    $  0.40
 Earnings per share - assuming dilution  $  0.51    $  0.41    $  0.40    $  0.39

</TABLE>

                                   (Continued)

                                       40
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999



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

<TABLE>
<CAPTION>
                                                  Three months ened
                                        ----------------------------------------
                                         Dec. 31,     Sept. 30,    June 30,     March 31,
                                          1999          1999        1999         1999
                                         -------      -------      -------      ---------
                                              (in thousands, except per share data)

<S>                                    <C>          <C>          <C>          <C>
Total interest income                    $12,103      $11,882      $11,944      $11,093
Total interest expense                     7,169        7,028        7,145        6,632
                                         -------      -------      -------      -------
   Net interest income                     4,934        4,854        4,799        4,461

Provision for possible loan losses           120           90           60           30
                                         -------      -------      -------      -------
   Net interest income after provision     4,814        4,764        4,739        4,431

Other income                                 670          298          297          324
Other expenses                             3,419        3,456        3,434        3,220
                                         -------      -------      -------      -------

       Income before income taxes          2,065        1,606        1,602        1,535

Income taxes                                 707          551          577          551
                                         -------      -------      -------      -------

   Net income                            $ 1,358      $ 1,055      $ 1,025      $   984
                                         =======      =======      =======      =======

Earnings per share - basic               $  0.50      $  0.38      $  0.37      $  0.35
Earnings per share - assuming dilution   $  0.49      $  0.36      $  0.35      $  0.33

</TABLE>

                                       41
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999

NOTE U - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

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

                                  BALANCE SHEET
<TABLE>
<CAPTION>
                                                                         December 31 ,
                                                               ----------------------------
                                                                   2000            1999
                                                               ------------    ------------
                                                                       (in thousands)
                  ASSETS
<S>                                                          <C>               <C>
Cash                                                           $    2,354        $  2,387
Certificates of deposit - other institutions                          190             181
Investment securities available-for-sale                              400             350
Investment in Third Federal                                        47,328          42,409
Investment in TF Investments                                        2,245           2,564
Investment in Teragon                                                  14              19
Investment in Penns Trail Development                                 404             412
Other assets                                                          174             125
                                                               ----------        --------
                  Total assets                                 $   53,109        $ 48,447
                                                               ==========        ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Total liabilities                                              $        -        $    -
Stockholders' equity                                               53,109          48,447
                                                               ----------        --------

                  Total liabilities and stockholders' equity   $   53,109       $  48,447
                                                               ==========       =========
</TABLE>


                              STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
                                                                       Year ended December 31,
                                                             ----------------------------------------------
                                                                2000             1999              1998
                                                             -----------     ------------      ------------
                                                                            (in thousands)
<S>                                                        <C>              <C>               <C>
        INCOME
           Equity in earnings of subsidiaries               $   4,573        $    4,528        $    4,203
           Interest and dividend income                           140               125                13
                                                            ---------        ----------        ----------
                  Total income                                  4,713             4,653             4,216
                                                            ---------        ----------        =---------
        EXPENSES
           Interest                                                 -               -                   8
           Other                                                  231               231               170
                                                            ---------        ----------        ----------
                  Total expenses                                  231               231               178
                                                            ---------        ----------        ----------
                  NET INCOME                                $   4,482        $    4,422        $    4,038
                                                            =========        ==========        ==========
</TABLE>

                                   (Continued)

                                       42
<PAGE>

                    TF Financial Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999




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

                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                          -----------------------------
                                                            2000       1999       1998
                                                          -------    -------    -------
                                                                 (in thousands)
<S>                                                     <C>        <C>        <C>
Cash flows from operating activities
   Net income                                             $ 4,482    $ 4,422    $ 4,038
   Adjustments to reconcile net income to net cash
       provided by (used in) operating activities
          Equity in earnings of subsidiaries               (4,573)    (4,528)    (4,203)
          Net change in assets and liabilities                (56)      (954)       841
                                                          -------    -------    -------
              Net cash provided by (used in) operating
                   activities                                (147)    (1,060)       676
                                                          -------    -------    -------
Cash flows from investing activities
   Capital distribution from subsidiaries                   2,938      8,500      2,998
   Purchase of investment securities available for sale         -          -       (501)
   Purchase and maturities of certificates of deposit
       in other financial institutions, net                    (9)        (9)        (1)
                                                          -------    -------    -------
              Net cash provided by investing
                   activities                               2,929      8,491      2,496
                                                          -------    -------    -------
Cash flows from financing activities
   Cash dividends paid to stockholders                     (1,326)    (1,359)    (1,387)
   Net (decrease) increase in borrowings from
       TF Investments                                           -          -       (103)
   Treasury stock acquired                                 (1,972)    (4,800)      (941)
   Exercise of stock options                                  483        125        122
                                                          -------    -------    -------
              Net cash used in financing activities        (2,815)    (6,034)    (2,309)
                                                          -------    -------    -------
              NET INCREASE IN CASH                            (33)     1,397        863

Cash at beginning of year                                   2,387        990        127
                                                          -------    -------    -------
Cash at end of year                                       $ 2,354    $ 2,387    $   990
                                                          =======    =======    =======
Supplemental disclosure of cash flow information
   Cash paid during the year for income taxes             $     -    $     -    $    63
                                                          =======    =======    =======
</TABLE>

                                       43