SECURITIES
AND EXCHANGE COMMISSION Washington, D.C.  20549  FORM 10-K  FOR ANNUAL AND TRANSITION
REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934  x
  
  ANNUAL REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year
  ended December 31, 2007oro
  
  TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934
  For the transition period
from                    to  Commission file
number:  0-24168  TF
FINANCIAL CORPORATION (Exact Name of Registrant as Specified in Its Charter)  Delaware
  
  74-2705050(State or Other Jurisdiction of Incorporation
  or Organization)
  
  (I.R.S. Employer Identification No.)3 Penns Trail, Newtown, Pennsylvania
  
  18940(Address of Principal Executive Offices)
  
  (Zip Code)
  Registrants telephone number, including area code: (215) 579-4000  Securities registered
pursuant to Section 12(b) of the Act:  Title of each class
  
  Name of
  each exchange on which registeredCommon Stock,
  par value $.10 per share
  
  The Nasdaq Stock
  Market LLC
  Securities registered
pursuant to Section 12(g) of the Act: None  Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.  YESo     NO x  Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act.  YESoNO x  Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.  YESxNO o  Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.x  Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definition of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.  Large accelerated
  filer  o
  
  Accelerated filero
  
  Non-accelerated filero
  
  Smaller reporting companyx
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).  YESoNO x  The aggregate market value of the voting common equity
held by non-affiliates of the registrant, based on the closing price of the
registrants Common Stock as quoted on the Nasdaq System on June 30, 2007,
was $60.6 million (2,004,828 shares at $30.25 per share).  As of March 19, 2008 there were outstanding 2,825,345
shares of the registrants Common Stock.  DOCUMENTS INCORPORATED BY REFERENCE  1.Portions
of the Annual Report to Stockholders for the Fiscal Year Ended December 31,
2007. (Parts I, II and IV) 2.Portions
of the Proxy Statement for the 2008 Annual Meeting of Stockholders. (Part III)


PART I  TF FINANCIAL CORPORATION (THE COMPANY) MAY FROM
TIME TO TIME MAKE WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS CONTAINED IN THE COMPANYS FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS
HERETO), IN ITS REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE
COMPANY, WHICH ARE MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE SAFE
HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.  THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANYS PLANS, OBJECTIVES,
EXPECTATIONS, ESTIMATES AND INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON
VARIOUS IMPORTANT FACTORS (SOME OF WHICH ARE BEYOND THE COMPANYS
CONTROL).  THE FOLLOWING FACTORS, AMONG
OTHERS, COULD CAUSE THE COMPANYS FINANCIAL PERFORMANCE TO DIFFER MATERIALLY
FROM THE PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN
SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN
GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
OPERATIONS; THE EFFECTS OF, AND CHANGES IN, MONETARY AND FISCAL POLICIES AND
LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY FLUCTUATIONS;
THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND SERVICES OF THE
COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND SERVICES BY
USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO COMPETITORS
PRODUCTS AND SERVICES; THE IMPACT OF CHANGES IN FINANCIAL SERVICES LAWS AND
REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS
INVOLVED IN THE FOREGOING.  THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF
IMPORTANT FACTORS IS NOT EXCLUSIVE.  THE
COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER
WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE
COMPANY.  Item 1.Business  BUSINESS OF THE COMPANY  On July 13, 1994, the Company consummated its
public offering of 5,290,000 shares of its common stock and acquired Third
Federal Bank (the Bank) as part of the Banks mutual-to-stock
conversion.  The Company was incorporated
under Delaware law in March 1994. 
The Company is a savings and loan holding company and is subject to
regulation by the Office of Thrift Supervision (the OTS), the Federal Deposit
Insurance Corporation (the FDIC) and the Securities and Exchange Commission
(the SEC).  The Company does not
transact any material business other than through its direct and indirect
subsidiaries: Third Federal Bank, TF Investments Corporation, Teragon Financial
Corporation, Penns Trail Development Corporation and Third Delaware
Corporation. At December 31, 2007, the Company had total assets of $701.7
million, total liabilities of $633.8 million and stockholders equity of $67.8
million.  BUSINESS OF THE BANK  The Bank is a federally-chartered stock savings bank,
which was originally chartered in 1921 as a Pennsylvania-chartered building and
loan association.  The Banks deposits
are insured up to the maximum amount allowable by the FDIC.  The Bank is a community oriented savings institution
offering a variety of financial services to meet the needs of the communities
it serves.  As of December 31, 2007
the Bank operated fifteen branch offices in Bucks and Philadelphia Counties,
Pennsylvania and in Mercer County, New Jersey.  The Bank attracts deposits from the general public and
uses such deposits, together with borrowings and other funds primarily to
originate or purchase loans secured by first mortgages on owner-occupied,
one-to-four family residences in its market area and to invest in
mortgage-backed and investment securities. 
At December 31, 2007, one-to-four family  2


residential mortgage loans totaled $273.9 million or
53% of the Banks total loan portfolio. 
At that same date, the Bank had approximately $104.3 million or 15% of
total assets invested in mortgage-backed securities and $32.6 million or 5% of
total assets in investment securities. The Bank also originates commercial real
estate and multi-family, construction and consumer loans. The Bank has two
subsidiaries, Third Delaware Corporation, which was incorporated in 1998 for
the purpose of holding and managing mortgage-backed securities and investment
securities for the Bank, and Teragon Financial Corporation which holds a 75%
limited partnership interest in a captive title insurance agency, Third Fed
Abstract, L. P. During 2006, Teragon Financial Corporation was granted approval
by the state of Pennsylvania to conduct business as an insurance agency.  Market Area  The Bank offers a wide range of consumer and business
products at its fifteen full service branch offices located in Bucks and
Philadelphia Counties in Pennsylvania, and Mercer County in New Jersey. Five of
the branch offices are located in Bucks County, the third wealthiest county in
Pennsylvania. Bucks County is a growing region offering opportunity for growth
for the Bank. Seven branches are located in the northeast section of
Philadelphia where the Bank was founded. Although Philadelphia County is
experiencing population decline, the Banks branches in this section of
Philadelphia represent a deposit stronghold. The remaining three branches are
in Mercer County, New Jersey which has an expanding population and represents
another growth area for the Bank.  Competition  The Bank faces varying degrees of competition from
banks, thrift institutions and credit unions at its various branch locations.  Stronger competition has come from local and
very large regional commercial banks based in and around the Philadelphia
area.  Based upon the latest available
data, at June 30, 2007 the Companys share of deposits in each of the
counties in which it operates was as follows:  County, State
  
  Market Share for 
  Entire County
  
  Market Share for ZIP Codes 
  Including Company BranchesPhiladelphia,
  Pennsylvania
  
  0.5
  %
  11.2
  %Bucks,
  Pennsylvania
  
  1.6
  %
  5.4
  %Mercer, New
  Jersey
  
  0.8
  %
  4.2
  %  Lending Activities  General.The Banks
loan portfolio composition consists primarily of adjustable-rate (ARM) and
fixed-rate first mortgage loans secured by one-to-four family residences.  The Bank also makes commercial real estate
and multi-family loans, construction loans and consumer and other loans.  At December 31, 2007, the Banks
mortgage loans outstanding were $419.1 million, of which $273.9 million were
secured by first mortgages on one-to-four family residential property.  Of the one-to-four family residential
mortgage loans outstanding at that date, 20% were ARMs and 80% were fixed-rate
loans.  At that same date, commercial
real estate and multi-family residential loans totaled $109.7 million, and
construction loans totaled $35.5 million. The construction loans are
predominately floating-rate, prime-rate-based loans.  Consumer and other loans held by the Bank totaled
$54.3 million or 10% of total loans outstanding at December 31, 2007, of
which $52.0 million consisted of home equity and second mortgage loans. At that
same date commercial business loans totaled $46.9 million or 9% of total loans.  The following table sets forth the composition of the
Banks loan portfolio and mortgage-backed and related securities portfolios in
dollar amounts and in percentages of the respective portfolios at the dates
indicated.  3


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


Loan Maturity and Repricing
Information.  The following table sets forth certain information
at December 31, 2007, regarding the dollar amount of loans maturing in the
Banks loan and mortgage-backed securities portfolios based on their maturity
date.  Demand loans, loans having no
stated schedule of repayments and no stated maturity, overdrafts and
delinquent loans maturing prior to December 31, 2008, are reported as due
in one year or less.  The table does not
include prepayments or scheduled principal repayments.  Due 1/1/08 -
  12/31/08
  
  Due 1/1/09 -
  12/31/12
  
  Due After
  12/31/12(In thousands)Available for
  sale:Mortgage-backed
  securities
  
  $
  12
  
  $
  1,694
  
  $
  96,472Loans receivable
  
  
  
  
  
  1,040Total
  
  $
  12
  
  $
  1,694
  
  $
  97,512Held to
  Maturity:One-to-four
  family
  
  $
  558
  
  $
  3,733
  
  $
  268,549Commercial real
  estate and multi-family
  
  5,475
  
  3,843
  
  100,422Construction
  
  35,507
  
  
  
  Consumer and
  other
  
  624
  
  4,910
  
  48,723Commercial loans
  
  39,181
  
  1,249
  
  6,420Total loans
  receivable
  
  81,345
  
  13,735
  
  424,114Mortgage-backed
  securities
  
  25
  
  222
  
  5,913Total
  
  $
  81,370
  
  $
  13,957
  
  $
  430,027  The following table sets
forth the dollar amount of all loans and mortgage-backed securities due after December 31,
2008, which have predetermined interest rates and which have floating or
adjustable interest rates. Loans which have rate adjustments after ten years
are considered to have predetermined rates.  Predetermined
   Rates
  
  Floating or 
  Adjustable Rate(In thousands)Available for
  sale:Mortgage-backed
  securities
  
  $
  98,166
  
  $
  Loans
  
  1,040
  
  Total
  
  $
  99,206
  
  $
  Held to Maturity:One-to-four
  family
  
  $
  208,300
  
  $
  63,982Commercial real
  estate and multi-family
  
  1,660
  
  102,605Construction
  
  37,886
  
  15,747Consumer and
  other
  
  
  
  Commercial loans
  and leases
  
  7,660
  
  9Total loans
  receivable
  
  255,506
  
  182,343Mortgage-backed
  securities
  
  6,108
  
  27Total
  
  $
  261,614
  
  $
  182,370  One-to-Four Family Mortgage
Lending.The Bank offers first mortgage loans secured
by one-to-four family residences in the Banks lending area.  Typically, such residences are single-family
homes that serve as the primary residence of the owner.  The Bank generally originates and invests in
one-to-four family residential mortgage loans in amounts up to 80% of the
lesser of the appraised value or selling price of the mortgaged property.  Loans originated in amounts over 80% of the
lesser of the appraised value or selling price of the mortgaged property, other
than loans to facilitate the sale of real estate acquired through foreclosure, must
be owner-occupied and private mortgage insurance is typically required.  5


Loan originations are
obtained through the Banks retail banking channels, the local community, and
referrals from established builders and realtors within the Banks lending area
using direct advertising in local newspapers, branch signage and promotions,
and word of mouth referrals. The Bank also has a mortgage lending department
that is separate as to its sales efforts from the consumer lending area of the
Bank. This department employs a lending manager and several commissioned loan
officers. The mortgage loan officers support the Banks branches and customers,
and additionally engage in calling efforts directed toward realtors, builders,
and others that can be sources of lending business for the Bank.  The Bank offers a variety
of ARM loans with terms of 30 years which adjust at the end of 6 months, one,
three, five, seven and ten years and adjust by a maximum of 3% to 5% per
adjustment with a lifetime cap of 5% to 6% over the life of the loan.  The Bank offers
fixed-rate mortgage loans with terms of 10 to 30 years, which are payable
monthly.  Interest rates charged on
fixed-rate mortgage loans are competitively priced based on market conditions.  The origination fees for fixed-rate loans
range from 0% to 3% depending on the underlying loan coupon. Generally, the
Banks standard underwriting guidelines for fixed-rate mortgage loans conform
to the FHLMC and FNMA guidelines. The Bank sells a portion of its conforming
fixed-rate mortgage loan originations in the secondary market to FHLMC or FNMA
while retaining the servicing rights on these loans. As of December 31,
2007, the Banks portfolio of loans serviced for FHLMC or FNMA totaled
approximately $38.0 million. The Bank also brokers a small portion of its loan
closings to correspondents on a servicing released basis. However, the Bank is
primarily a portfolio lender.  Commercial
Real Estate and Multi-Family Lending.  The Bank originates permanent loans secured
by commercial real estate including non-owner occupied residential,
multi-family dwelling units, professional office buildings and hotels/motels.
The Bank generally originates commercial real estate and multi-family loans up
to 75% of the appraised value of the property securing the loan.  Currently, it is the Banks philosophy to
originate commercial real estate and multi-family loans primarily on properties
in its general market area.  The
commercial real estate and multi-family loans in the Banks portfolio consist
of fixed-rate, ARM and balloon loans originated at prevailing market rates for
terms of up to 25 years and typically either have a scheduled interest rate
reset or are callable by the Bank, after a 5 to 10 year period.  Loans secured by
commercial and multi-family real estate are generally larger and involve a
greater degree of risk than one-to-four family residential mortgage loans.  Of primary concern in commercial and
multi-family real estate lending is the borrowers creditworthiness and the
feasibility and cash flow potential of the project.  Loans secured by income properties are
generally larger and involve greater risks than residential mortgage loans
because payments on loans secured by income properties are often dependent on
successful operation or management of the properties.  As a result, repayment of such loans may be
subject to a greater extent than residential real estate loans to adverse
conditions in the real estate market or the economy.  In order to monitor cash flows on income
properties, the Bank requires borrowers and loan guarantors, if any, to provide
annual financial statements and rent rolls on multi-family loans.  Similarly, on commercial office buildings and
hotel properties, the Bank requires minimum debt service coverage and obtains
operating statements of such properties. At December 31, 2007, the five
largest commercial real estate and multi-family loans totaled $24.7 million
with no single loan larger than $5.7 million. 
At December 31, 2007, all such loans were current and the
properties securing such loans are in the Banks market area.  Construction
Lending.  At December 31,
2007, the Banks construction loans were $35.5 million or 7% of the Banks
total loan portfolio.  Construction
financing is generally considered to involve a higher degree of risk of loss
than long-term financing on improved, occupied real estate.  Risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the propertys
value at completion of construction or development and the estimated cost
(including interest) of construction. 
During the construction phase, a number of factors could result in
delays and cost overruns.  If the estimate
of construction costs proves to be inaccurate, the Bank may be required to
advance funds beyond the amount originally committed to permit completion of
the construction.  If the estimate of
value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment. At December 31, 2007, the five largest construction
loans totaled $22.3 million with no single loan larger than $6.5 million.  Consumer
and Other Loans.  The
Bank also offers consumer and other loans in the form of home equity and second
mortgage loans (referred to hereinafter collectively as second mortgage loans),
automobile loans and student loans. 
These loans totaled $54.3 million or 10% of the Banks total loan
portfolio at December 31, 2007.  The
Bank originates consumer loans through its retail banking channel and mortgage
loan department.  6


In connection with
consumer loan applications, the Bank verifies the borrowers income and reviews
a credit bureau report.  In addition, the
relationship of the loan to the value of the collateral is considered.  All automobile loan applications are reviewed
and approved by the Bank.  The Bank
reviews the credit report of the borrower as well as the value of the vehicle
which secures the loan.  Consumer loans tend to be
originated at higher interest rates than conventional residential mortgage
loans and for shorter terms, thus facilitating the Banks interest rate risk
management.  Consumer loans, however, can
have a higher risk of default than residential mortgage loans.  At December 31, 2007, $34,000 or 0.06%
of the Banks consumer loans were delinquent more than 90 days, compared to
$98,000 or 0.04% of residential one-to-four family loans.  The Bank offers second
mortgage loans on one-to-four family residences.  At December 31, 2007, second mortgage
and home equity loans totaled $52.0 million, or 10% of the Banks total loan
portfolio.  Second mortgage loans are
offered as fixed-rate loans for a term not to exceed 15 years or
prime-rate-based floating rate loans with amortization periods up to 15 years
and in some cases, an interest-only period of up to the first 60 months of the
loan term.  Such loans are only made on
owner-occupied one-to-four family residences and are subject to a 90% combined
loan to value ratio.  The underwriting
standards for second mortgage loans are the same as the Banks standards
applicable to one-to-four family residential loans.  Business
Lending.  The Bank
makes commercial business loans predominantly on a secured or guaranteed
basis.  The terms of these loans
generally do not exceed five years. These loans can have floating interest
rates which adjust with changes in market interest rates, usually the prime rate,
or have a fixed rate related to their term to maturity.  The Banks commercial business loans
primarily consist of short-term loans for equipment, working capital, business
expansion and inventory financing, and typically have some real estate
collateral.  The Bank customarily requires
a personal guaranty of payment by the principals of any borrowing entity and
reviews the financial statements and income tax returns of the guarantors.  At December 31, 2007, the Bank had
approximately $46.9 million outstanding in commercial business loans, which
represented approximately 9% of its total loan portfolio. At December 31,
2007, the five largest commercial business loans totaled $19.3 million with no
single loan larger than $5.1 million.  Loan
Approval Authority and Underwriting.  The Board of Directors of the Bank sets the
authority to approve loans based on the amount, type of loan (i.e., secured or
unsecured) and total exposure to the borrower. 
Where there are one or more existing loans to a borrower, the level of
approval required is governed by the proposed total exposure including the new
loan.  The Board has approved loan
authority and limits for certain of the Banks lending personnel and senior
officers, including the president of the Bank. 
Approval authority ranges from $100,000 to $750,000 for secured loans,
and $10,000 to $100,000 for unsecured loans. Members of an in-house loan
committee comprising four senior members of management approve all loans over
$750,000. The committee has the authority to approve secured loans up to $2.5
million and unsecured loans up to $200,000. All loans greater than $2.5 million
through $5.0 million require the approval of a Board Loan Committee composed of
four members of the Board of Directors of the Bank. All loans over $5 million
or loans that cause the aggregate lending relationship to exceed $5.0 million
must be approved by the Banks Board of Directors.  One-to-four family
residential mortgage loans are generally underwritten according to FHLMC and
FNMA guidelines.  For all loans
originated by the Bank, upon receipt of a completed loan application from a
prospective borrower, a credit report is ordered, income and certain other
information is verified and, if necessary, additional financial information is
requested.  The Bank does not engage in
sub-prime, stated income or no-doc style portfolio lending. An appraisal of
the real estate intended to secure the proposed loan is required and is
performed by an independent appraiser designated and approved by the Bank.  The Bank makes construction/permanent loans
on individual properties.  Funds advanced
during the construction phase are held in a loan-in-process account and
disbursed based upon various stages of completion.  An independent appraiser or loan officer
determines the stage of completion based upon a physical inspection of the
construction and funds are advanced only for work in place.  It is the Banks policy to obtain title
insurance or a title opinion on all real estate first mortgage loans in excess
of $500,000.  Borrowers must also obtain
hazard or flood insurance (for loans on property located in a flood zone) prior
to closing the loan.  For loans in excess
of 80% of the loan to value ratio, borrowers are generally required to advance
funds on a monthly basis together with each payment of principal and interest
to an escrow account from which the Bank makes disbursements for items such as
real estate taxes and hazard insurance premiums.  Loans
to One Borrower. 
Current regulations limit loans to one borrower in an amount equal to
15% of unimpaired capital and retained income on an unsecured basis and an
additional amount equal to 10% of unimpaired capital and retained income if the
loan is secured by readily marketable collateral (generally, financial
instruments, not real estate) or $500,000, whichever is higher.  Penalties for violations of the loan-to-one
borrower statutory and regulatory restrictions include cease and desist orders,
the imposition of a supervisory agreement and civil money penalties.  The Banks maximum loan-to-one borrower limit
was approximately $9.7 million as of December 31, 2007.  7


At December 31,
2007, the Banks five largest aggregate lending relationships had balances
ranging from $6.8 to $8.6 million.  At December 31,
2007, all of these loans were current.  Mortgage-Backed
Securities  To supplement lending
activities, the Bank invests in residential mortgage-backed securities.  Although the majority of such securities are
held to maturity, they can serve as collateral for borrowings and, through
repayments, as a source of liquidity.  The mortgage-backed
securities portfolio as of December 31, 2007, consisted of pass-through
certificates issued by the Federal Home Loan Mortgage Corporation (FHLMC)
($7.1 million), Government National Mortgage Association (GNMA), ($1.9
million), Federal National Mortgage Association (FNMA) ($14.0 million), real
estate mortgage investment conduits formed from pass-through certificates
issued by these same agencies (REMICs) ($77.3 million), and issued by private
issuers ($4.4 million).  At December 31,
2007, the amortized cost of mortgage-backed securities totaled $104.7 million,
or 15% of total assets, and the market value of such securities totaled
approximately $104.5 million.  The Banks
mortgage-backed securities which are so-called pass-through represent a
participation interest in a pool of single-family or multi-family mortgages,
the principal and interest payments on which are passed through intermediaries
(generally quasi-governmental agencies) to investors such as the Bank.  Such quasi-governmental agencies, which
guarantee the payment of principal and interest to investors, include FHLMC,
FNMA and GNMA. The REMIC securities are composed of the same loan types as the
pass through certificates, but offer differing characteristics as to their
expected cash flows depending on the class of such securities purchased. The
Banks REMICs are primarily planned amortization classes (PAC) and very
accurately defined maturity (VADM) classes that, when purchased, offered a
high probability of predictable cash flows.  Mortgage-Backed
Securities Carrying Value. The following table sets forth the
carrying value of the Banks mortgage-backed securities held in portfolio at
the dates indicated.  At December 31,2007
  
  2006
  
  2005(In thousands)Held to maturity:GNMA-fixed rate
  
  $
  1,869
  
  $
  2,316
  
  $
  3,040FHLMC ARMs
  
  27
  
  40
  
  44FHLMC-fixed rate
  
  1,630
  
  2,257
  
  3,117FNMA-fixed rate
  
  2,634
  
  3,084
  
  3,969REMICs
  
  
  
  
  
  7Total mortgage-backed securities held to maturity
  
  $
  6,160
  
  $
  7,697
  
  $
  10,177Available-for-sale:FHLMC
  
  $
  5,478
  
  $
  7,888
  
  $
  9,686FNMA
  
  11,381
  
  10,330
  
  12,173REMICs
  
  81,704
  
  56,120
  
  61,652Total mortgage-backed securities available-for-sale
  
  $
  98,563
  
  $
  74,338
  
  $
  83,511
  8


Mortgage-Backed
Securities Maturity. 
The following table sets forth the maturity and the weighted average
coupon (WAC) of the Banks mortgage-backed securities portfolio at December 31,
2007.  The table does not include
estimated prepayments.  Adjustable-rate
mortgage-backed securities are shown as maturing based on contractual
maturities.  Contractual Held 
  To Maturity 
  Maturities Due
  
  WAC
  
  Contractual 
  Available
  -For-Sale 
  Maturities Due
  
  WAC(Dollars in thousands)Less than 1 year
  
  $
  25
  
  7.07
  %
  $
  12
  
  6.99
  %1 to 3 years
  
  69
  
  7.91
  
  11
  
  7.373 to 5 years
  
  153
  
  7.14
  
  1,683
  
  4.535 to 10 years
  
  129
  
  8.41
  
  36,503
  
  4.7910 to 20 years
  
  2,136
  
  5.86
  
  38,310
  
  4.50Over 20 years
  
  3,648
  
  6.26
  
  21,659
  
  4.15Total
  mortgage-backed securities
  
  $
  6,160
  
  6.21
  %
  $
  98,178
  
  4.53
  %  9


Non-Performing and Problem Assets  Loan
Collection.  When a
borrower fails to make a required payment on a loan, the Bank takes a number of
steps to have the borrower cure the delinquency and restore the loan to current
status.  In the case of residential
mortgage loans and consumer loans, the Bank generally sends the borrower a
written notice of non-payment after the loan is 15 days past due.  In the event payment is not then received,
additional letters and phone calls are made. 
If the loan is still not brought current and it becomes necessary for
the Bank to take legal action, which typically occurs after a loan is
delinquent more than 90 days, the Bank will commence foreclosure proceedings
against any real property that secures the loan and attempt to repossess any
personal property that secures a consumer loan. 
If a foreclosure action is instituted and the loan is not brought
current, paid in full, or refinanced before the foreclosure sale, the real
property securing the loan generally is obtained by the Bank at foreclosure.  In the case of commercial
real estate and multi-family loans, and construction loans, the Bank generally
attempts to contact the borrower by telephone after any loan payment is ten
days past due and a senior loan officer reviews all collection efforts made if
payment is not received after the loan is 30 days past due.  Decisions as to when to commence foreclosure
actions for commercial real estate and multi-family loans and construction
loans are made on a case by case basis. 
The Bank may consider loan work-out arrangements with these types of
borrowers in certain circumstances.  On mortgage loans or loan
participations purchased by the Bank and serviced by others, the Bank receives
monthly reports from its loan servicers with which it monitors the loan
portfolio.  Based upon servicing agreements
with the servicers of the loan, the Bank relies upon the servicer to contact
delinquent borrowers, collect delinquent amounts and to initiate foreclosure
proceedings, when necessary, all in accordance with applicable laws,
regulations and the terms of the servicing agreements between the Bank and its
servicing agents. At December 31, 2007 the Bank used third-party servicers
to service $8.5 million in mortgage loans. All of the Banks third-party
mortgage loan servicers are regulated financial institutions or are approved by
either HUD, FNMA, or FHLMC to service loans on their behalf.  Delinquent
Loans.  Generally, the
Bank reserves for uncollected interest on loans past due more than 90 days;
these loans are included in the table of nonaccrual loans below.  Loans also are placed on a nonaccrual status
when, in the judgment of management, the probability of collection of interest
is deemed to be insufficient to warrant further collection.  When a loan is placed on nonaccrual status,
previously accrued but unpaid interest is deducted from interest income and the
further accrual of interest ceases unless the underlying facts that prompted a
nonaccrual determination are deemed to have improved significantly.  Non-Performing
Assets. The following
table sets forth information regarding non-accrual loans and real estate owned
by the Bank at the dates indicated.  The
Bank had no loans contractually past due more than 90 days for which accrued
interest has been recorded.  Non-performing assets  At December 31,2007
  
  2006
  
  2005
  
  2004
  
  2003(Dollars in thousands)Loans accounted
  for on a non-accrual basis:Mortgage loans:One-to-four
  family
  
  $
  165
  
  $
  141
  
  $
  392
  
  $
  536
  
  $
  1,549Commercial real
  estate and multi-family
  
  39
  
  61
  
  877
  
  23
  
  296Construction
  
  3,280
  
  
  
  
  
  
  
  Consumer and
  other
  
  34
  
  68
  
  170
  
  84
  
  135Commercial loans
  and leases
  
  1,840
  
  1,840
  
  150
  
  317
  
  368Total
  non-accrual loans
  
  5,358
  
  2,110
  
  1,589
  
  960
  
  2,348Real estate
  owned, net
  
  
  
  
  
  700
  
  700
  
  868Total
  non-performing assets
  
  $
  5,358
  
  $
  2,110
  
  $
  2,289
  
  $
  1,660
  
  $
  3,216Total
  non-accrual loans to loans
  
  1.03
  %
  0.43
  %
  0.32
  %
  0.22
  %
  0.58
  %Total
  non-accrual loans to total assets
  
  0.76
  %
  0.32
  %
  0.24
  %
  0.15
  %
  0.39
  %Total
  non-performing assets to total assets
  
  0.76
  %
  0.32
  %
  0.35
  %
  0.26
  %
  0.53
  %  10


At December 31,
2007, the Bank had no foreign loans and no loan concentrations exceeding 10% of
total loans not disclosed in above the table. Loan concentrations are
considered to exist when there are amounts loaned to a multiple number of
borrowers engaged in similar activities that would cause them to be similarly
impacted by economic or other conditions. 
Loans recorded in the category of other real estate owned are valued at
the lower of book value of loans outstanding or fair market value less cost of
disposal.  At December 31,
2007, the Bank was not aware of any potential problem loans that are not
otherwise included in the foregoing table. 
Potential problem loans are loans where information about possible
credit problems of borrowers has caused management to have serious doubts about
the borrowers ability to comply with present repayment terms.  Classified
Assets.  OTS
regulations provide for a classification system for problem assets of insured
institutions which covers all problem assets. 
Under this classification system, problem assets of insured institutions
are classified as substandard, doubtful, or loss.  An asset is considered substandard if it may
be inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. 
Substandard assets include those characterized by the distinct
possibility that the insured institution will sustain some loss if the
deficiencies are not corrected.  Assets
classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and improbable.  Assets classified as loss are those
considered uncollectible and of such little value that the establishment of a
specific loss reserve is warranted. 
Assets designated special mention by management are assets included on
the Banks internal watchlist because of potential weakness but that do not
currently warrant classification in one of the aforementioned categories.  When an insured
institution classifies problem assets as either substandard or doubtful, it may
establish general allowances for loan losses in an amount deemed prudent by
management.  General allowances for OTS
purposes represent loss allowances which have been established to recognize the
inherent risk associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem assets.  However, when an insured institution
classifies all or a portion of a problem asset as loss, it is required either
to establish a specific allowance for losses equal to 100% of that portion of
the asset so classified or to charge off such amount.  An institutions determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which may determine that general or specific
allowances are insufficient.  A portion
of general loss allowances established to cover possible losses related to
assets classified as substandard or doubtful may be included in determining an
institutions regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital.  The following table
provides further information in regard to the Banks classified assets as of December 31,
2007.  At December 31, 2007(In thousands)Special mention
  assets
  
  $
  7,687Substandard
  
  14,372Doubtful assets
  
  Loss
  
  Total classified
  assets
  
  $
  22,059  Real
Estate Owned.  Real
estate acquired by the Bank as a result of foreclosure, judgment or by deed in
lieu of foreclosure is classified as real estate owned (REO) until it is
sold.  When property is acquired it is  11


recorded at the lower of
fair value, minus estimated cost to sell, or cost.  If the property subsequently decreases in
estimated value from the initial recorded amount, the Bank will provide a
valuation allowance, through a charge to earnings, if the decrease is judged by
management to be temporary. If the decrease is judged to be permanent, the Bank
will reduce the recorded amount, through a charge to earnings, to the new
estimated value.  Allowances
for Loan Losses.  The
Bank provides valuation allowances for estimated losses from uncollectible
loans. Management determines the adequacy of the allowance on a quarterly basis
to ensure that a provision for loan losses has been charged against earnings in
an amount necessary to maintain the allowance at a level that is appropriate
based upon managements estimate of probable losses. Several sources of data
are used in making the evaluation as to the appropriateness of the allowance.  In establishing reserves,
a specific reserve is established for loans which because of past payment
history, a review of recent financial information, or other facts regarding the
credit, pose a higher than normal amount of perceived risk of collection. In
addition, a reserve is assigned based upon qualitative and quantitative risk
factors which are inherent in segments of the loan portfolio.  Although the allowance
has been allocated to determine the appropriateness of the reserve, the total
allowance is available to absorb any and all losses from any segment of the
loan portfolio. At December 31, 2007, management believes that the
allowance for loan loss is at an acceptable level.  The following table sets
forth information with respect to the Banks allowance for loan losses at the
dates and for the periods indicated:  For the Years Ended December 31,2007
  
  2006
  
  2005
  
  2004
  
  2003(Dollars in thousands)Balance at
  beginning of period
  
  $
  2,865
  
  $
  2,641
  
  $
  2,307
  
  $
  2,111
  
  $
  2,047Provision for
  loan losses
  
  
  
  150
  
  540
  
  600
  
  330Charge-offs:One-to-four
  family
  
  (27
  )
  
  
  
  
  
  
  (16
  )Commercial and
  multi-family real estate loans
  
  
  
  
  
  
  
  (112
  )
  Consumer and
  other loans
  
  (69
  )
  (55
  )
  (122
  )
  (186
  )
  (219
  )Commercial loans
  and leases
  
  (1
  )
  (1
  )
  (286
  )
  (161
  )
  (322
  )Recoveries:One-to-four
  family
  
  
  
  
  
  
  
  
  
  Consumer and
  other loans
  
  13
  
  65
  
  39
  
  55
  
  36Commercial loans
  and leases
  
  61
  
  65
  
  163
  
  
  
  255Balance at end
  of year
  
  $
  2,842
  
  $
  2,865
  
  $
  2,641
  
  $
  2,307
  
  $
  2,111Ratio of net
  charge-offs (net recoveries) during the period to average loans outstanding
  during the period
  
  0.02
  %
  (0.01
  %)
  0.04
  %
  0.09
  %
  0.07
  %Ratio of
  allowance for loan losses to non-performing loans at the end of the period
  
  53.0
  %
  135.8
  %
  166.3
  %
  240.3
  %
  89.9
  %Ratio of
  allowance for loan losses to loans receivable at the end of the period
  
  0.55
  %
  0.59
  %
  0.54
  %
  0.52
  %
  0.52
  %Ratio of allowance
  for loan losses and foreclosed real estate to total non-performing assets at
  the end of the period
  
  53.0
  %
  135.8
  %
  115.4
  %
  139.0
  %
  65.6
  %  12


The following table sets forth the allocation of the
Banks allowance for loan losses by loan category and the percent of loans in
each category to total loans receivable, gross, at the dates indicated.  At December 31,2007
  
  2006
  
  2005
  
  2004
  
  2003Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
   Total Loans(Dollars in thousands)At end of period
  allocated to:One-to-four
  family
  
  $
  504
  
  17.8
  %
  $
  332
  
  54.9
  %
  $
  154
  
  58.8
  %
  $
  176
  
  64.1
  %
  $
  277
  
  68.2
  %Commercial real
  estate and multi-family
  
  667
  
  23.5
  
  665
  
  19.3
  
  1,010
  
  18.2
  
  1,035
  
  18.8
  
  1,230
  
  18.3Construction
  
  1,018
  
  35.8
  
  621
  
  7.2
  
  738
  
  5.0
  
  121
  
  2.3
  
  109
  
  1.6Consumer and
  other loans
  
  246
  
  8.6
  
  248
  
  10.3
  
  115
  
  8.2
  
  554
  
  7.7
  
  246
  
  7.8Commercial loans
  and leases
  
  407
  
  14.3
  
  999
  
  8.3
  
  624
  
  9.8
  
  421
  
  7.1
  
  249
  
  4.1Total allowance
  
  $
  2,842
  
  100.0
  %
  $
  2,865
  
  100.0
  %
  $
  2,641
  
  100.0
  %
  $
  2,307
  
  100.0
  %
  $
  2,111
  
  100.0
  %  Investment
Securities  The purchase of investment securities is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement the Banks lending activities. 
In establishing its investment strategies, the Bank considers its
business and growth plans, the economic environment, the types of securities to
be held and other factors.  Federally
chartered savings institutions have the authority to invest in various types of
assets, including U.S. Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers acceptances, repurchase agreements, loans on
federal funds, and, subject to certain limits, commercial paper and mutual
funds.  The following table sets forth certain information
regarding the amortized cost and fair values of the Banks investment
securities at the dates indicated.  At December 31,2007
  
  2006
  
  2005Amortized
  Cost
  
  Fair
  Value
  
  Amortized
  Cost
  
  Fair
  Value
  
  Amortized
  Cost
  
  Fair
  Value(In thousands)Interest-earning
  deposits
  
  $
  123
  
  $
  123
  
  $
  6,860
  
  $
  6,860
  
  $
  177
  
  $
  177Investment
  securities held-to-maturity:State and
  political subdivisions
  
  $
  244
  
  $
  246
  
  $
  677
  
  $
  681
  
  $
  1,015
  
  $
  1,036Corporate debt
  securities
  
  
  
  
  
  
  
  
  
  3,675
  
  3,671Total
  
  $
  244
  
  $
  246
  
  $
  677
  
  $
  681
  
  $
  4,690
  
  $
  4,707Securities
  available-for-sale:U.S. government
  and agency obligations
  
  $
  2,996
  
  $
  2,982
  
  $
  5,990
  
  $
  5,911
  
  $
  5,982
  
  $
  5,880State and
  political subdivisions
  
  24,628
  
  24,833
  
  24,406
  
  24,429
  
  20,844
  
  20,563Corporate debt
  securities
  
  4,340
  
  4,377
  
  4,003
  
  3,982
  
  4,002
  
  3,958Equities
  
  150
  
  171
  
  150
  
  202
  
  
  
  Total
  
  $
  32,114
  
  $
  32,363
  
  $
  34,549
  
  $
  34,524
  
  $
  30,828
  
  $
  30,401  13


Investment
Portfolio Maturities  The following table sets forth certain information
regarding the amortized cost, weighted average yields and maturities of the
Banks investment securities portfolio, exclusive of interest-earning deposits,
at December 31, 2007.  Yields on tax
exempt obligations have been computed on a tax equivalent basis.  One Year or Less
  
  One to Five Years
  
  Five to Ten Years
  
  More than Ten Years
  
  Total Investment Securities(1)Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Fair
  Value(Dollars in thousands)Equities
  
  $
  150
  
  
  %
  $
  
  
  
  %
  $
  
  
  
  %
  $
  
  
  
  %
  $
  150
  
  
  %
  $
  171U.S. government
  agency
  
  2,996
  
  3.28
  
  
  
  3.40
  
  
  
  
  
  
  
  
  
  2,996
  
  3.28
  
  2,982Municipal
  obligations
  
  244
  
  8.88
  
  2,381
  
  4.78
  
  12,120
  
  5.21
  
  10,127
  
  5.79
  
  24,872
  
  5.44
  
  25,079Corporate
  obligations
  
  1,000
  
  4.24
  
  3,340
  
  5.50
  
  
  
  
  
  
  
  
  
  4,340
  
  5.21
  
  4,377Total
  
  $
  4,390
  
  3.70
  %
  $
  5,721
  
  5.20
  %
  $
  12,120
  
  5.21
  %
  $
  10,127
  
  5.79
  %
  $
  32,358
  
  5.18
  %
  $
  32,609  
 (1)
  
  Includes $32.3 million of U.S. government agency,
  municipal and corporate obligations which are carried as available-for-sale at
  December 31, 2007. Investment securities available-for-sale are carried
  at fair value.  Sources
of Funds  General.Deposits, borrowings, loan repayments and cash flows
generated from operations are the primary sources of the Banks funds for use
in lending, investing and other general purposes.  Deposits.The Bank offers a variety of deposit accounts having a range
of interest rates and terms. The Banks deposits consist of regular savings,
non-interest bearing checking, NOW checking, money market, and certificate
accounts. Of the deposit accounts, $33.3 million or 7% consist of IRA, Keogh or
SEP retirement accounts at December 31, 2007.  The flow of deposits is
influenced significantly by general economic conditions, changes in money
market and prevailing interest rates and competition. The Banks deposits are
primarily obtained from areas surrounding its offices, and the Bank relies
primarily on customer service and long-standing relationships with customers to
attract and retain these deposits. The Bank has maintained a high level of core
deposits consisting of regular savings, money market, non-interest-bearing
checking, and NOW checking, which has contributed to a low cost-of-funds. At December 31,
2007, core deposits amounted to 62% of total deposits.  14


The following table sets
forth the distribution of the Banks deposit accounts at the dates indicated
and the weighted average nominal interest rates on each category of deposits
presented. The Bank does not have significant amount of deposits from outside
its market area. Management does not believe that the use of year end balances
instead of average balances resulted in any material difference in the
information presented.  At December 31,2007
  
  2006
  
  2005Amount
  
  Percent
  of Total
  Deposits
  
  Weighted
  Average
  Nominal
  Rate
  
  Amount
  
  Percent
  of Total
  Deposits
  
  Weighted
  Average
  Nominal
  Rate
  
  Amount
  
  Percent
  of Total
  Deposits
  
  Weighted
  Average
  Nominal
  Rate(Dollars in thousands)Transaction AccountsInterest-bearing
  checking accounts
  
  $
  46,543
  
  9.85
  
  0.48
  %
  $
  51,272
  
  10.72
  
  0.48
  %
  $
  52,319
  
  11.12
  
  0.47
  %Money market
  accounts
  
  79,267
  
  16.78
  
  3.69
  
  62,914
  
  13.16
  
  3.21
  
  79,666
  
  16.93
  
  2.72Non-interest-bearing
  checking accounts
  
  35,904
  
  7.60
  
  0.00
  
  36,991
  
  7.74
  
  0.00
  
  37,138
  
  7.89
  
  0.00Total transaction
  accounts
  
  161,714
  
  34.23
  
  
  
  151,177
  
  31.62
  
  
  
  169,123
  
  35.94Passbook accounts
  
  130,423
  
  27.61
  
  1.79
  
  131,359
  
  27.48
  
  2.21
  
  151,725
  
  32.25
  
  1.11Certificates of
  deposit
  
  180,257
  
  38.16
  
  4.50
  
  195,551
  
  40.90
  
  4.35
  
  149,673
  
  31.81
  
  3.29Total deposits
  
  $
  472,394
  
  100.00
  %
  2.88
  %
  $
  478,087
  
  100.00
  %
  2.86
  %
  $
  470,521
  
  100.00
  %
  2.39
  %  At December 31,
2007, the Bank had outstanding certificates of deposit in amounts of $100,000
or more maturing as follows:  Maturing Period
  
  Amount(In thousands)Three months or
  less
  
  $
  31,363Over three
  through six months
  
  Over six through
  12 months
  
  101Over 12 months
  
  7,331Total
  
  $
  38,795  Borrowings  Deposits are the primary source of funds of the Banks
lending and investment activities and for its general business purposes. The
Bank may obtain advances from the FHLB of Pittsburgh to supplement its supply
of lendable funds. Advances from the FHLB of Pittsburgh are typically secured
by a pledge of the Banks stock in the FHLB of Pittsburgh and a portion of the
Banks first mortgage loans and certain other assets. The Bank, if the need
arises, may also access the Federal Reserve Bank discount window. The following
tables set forth the maximum month-end balance, period ending balance, and
weighted average balance of outstanding FHLB advances at the dates and for the
periods indicated, together with the applicable weighted average interest
rates.  At December 31,2007
  
  2006
  
  2005(Dollars in thousands)FHLB advances
  
  $
  153,221
  
  $
  101,701
  
  $
  121,260Weighted average
  interest rate
  
  4.19
  %
  3.93
  %
  3.79
  %  Years Ended December 31,2007
  
  2006
  
  2005(Dollars in thousands)Maximum balance
  of FHLB advances
  
  $
  153,221
  
  $
  148,538
  
  $
  123,908Weighted average
  balance of FHLB advances
  
  $
  112,277
  
  $
  124,013
  
  $
  111,628Weighted average
  interest rate of FHLB advances
  
  4.17
  %
  4.02
  %
  3.52
  %  15


Subsidiary
Activity  The Bank is permitted to
invest up to 2% of its assets in the capital stock of, or secured or unsecured
loans to, subsidiary corporations, with an additional investment of 1% of
assets when such additional investment is utilized primarily for community
development purposes. Under such limitations, as of December 31, 2007, the
Bank was authorized to invest up to approximately $14.0 million in the
stock of, or loans to, service corporations (based upon the 2% limitation). In
addition, the Bank can designate a subsidiary as an operating subsidiary, in
which there is no percentage of assets investment limitation, if it engages
only in activities in which it would be permissible for the Bank to engage. At December 31,
2007, the Bank had two wholly-owned subsidiaries, Third Delaware Corporation
and Teragon Financial Corporation. Third Delaware Corporation was formed in
1998 for the purpose of investing in marketable securities. At December 31,
2007, the Bank had $133.5 million invested in Third Delaware Corporation.
During 2004, Teragon Financial Corporation (Teragon) invested $7,500 in a
limited partnership entitled Third Fed Abstract, L. P., whose purpose is to
operate a title insurance agency, primarily to capture certain title insurance
premiums generated by the Banks lending activities. At December 31, 2007
the Bank had an investment of $111,000 in Teragon. During 2006, Teragon was
granted approval by the state of Pennsylvania to conduct business as an
insurance agency, and during 2007, Teragon received $20,000 of insurance
commissions.  Personnel  As of December 31, 2007, the Company had 172
full-time and 37 part-time employees. None of the Companys employees are
represented by a collective bargaining group. The Company believes that its
relationship with its employees is good.  REGULATION  Set forth below is a brief description of all material
laws and regulations which relate to the regulation of the Bank and the
Company. The description does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.  16


Company
Regulation  General.The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, which also permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings association. This regulation and oversight is
intended primarily for the protection of the depositors of the Bank and not for
the benefit of stockholders of the Company. The Company is also required to
file certain reports with, and otherwise comply with, the rules and
regulations of the OTS and the SEC.  Sarbanes-Oxley
Act of 2002. The Sarbanes-Oxley Act of 2002 (the Act)
implemented legislative reforms intended to address corporate and accounting
fraud and improve public company reporting. The Securities and Exchange
Commission (the SEC) has promulgated new regulations pursuant to the Act and
may continue to propose additional implementing or clarifying regulations as
necessary in furtherance of the Act. The passage of the Act by Congress and the
implementation of new regulations by the SEC subject publicly-traded companies
to additional and more cumbersome reporting regulations and disclosure.
Compliance with the Act and corresponding regulations may increase the Companys
expenses.  Financial
Modernization.The Gramm-Leach-Bliley Act (GLB) permits
qualifying bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. GLB defines financial in nature
to include securities underwriting, dealing and market making; sponsoring
mutual funds and investment companies; insurance underwriting and agency;
merchant banking activities; and activities that the Federal Reserve Board has
determined to be closely related to banking. A qualifying national bank also
may engage, subject to limitations on investment, in activities that are
financial in nature, other than insurance underwriting, insurance company
portfolio investment, real estate development, and real estate investment,
through a financial subsidiary of the bank.  GLB also prohibits new
unitary thrift holding companies from engaging in nonfinancial activities or
from affiliating with a nonfinancial entity. As a grandfathered unitary thrift
holding company, the Company has retained its authority to engage in
nonfinancial activities.  Qualified
Thrift Lender Test.As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions,
provided the Bank satisfies the QTL test. See Bank Regulation  Qualified Thrift Lender Test.  If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple
savings and loan holding company, and the activities of the Company and any of
its subsidiaries (other than the Bank) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition.  Bank
Regulation  General.As a federally chartered, FDIC-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.  The OTS, in conjunction
with the FDIC, regularly examines the Bank and prepares reports for the
consideration of the Banks Board of Directors on any deficiencies that they
find in the Banks operations. The Banks relationship with its depositors and
borrowers is also regulated to a great extent by federal law, especially in
such matters as the ownership of savings accounts and the form and content of
the Banks mortgage documents.  The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with or acquisitions of other savings
institutions. This regulation and supervision establishes a comprehensive
framework of  17


activities in which an
institution can engage and is intended primarily for the protection of the FDIC
and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulations, whether by the OTS,
the FDIC or the Congress could have a material adverse impact on the Company,
the Bank and their operations. The Company is also required to file certain
reports with, and otherwise comply with, the rules and regulations of the
OTS and the SEC.  Loan
Limitations. 
Regulations limit the amount of non-residential mortgage loans a savings
institution may hold as a percentage of assets or capital.  Separate from the qualified thrift lender
test, regulations limit a savings institution to a maximum of 10% of its assets
in large commercial loans (defined as loans in excess of $2 million), with
another 10% of assets permissible in small business loans.  Commercial loans secured by real estate can
be made in an amount up to four times an institutions capital.  An institution can also have commercial
leases, in addition to the above items, up to 10% of its assets. Commercial
paper, corporate bonds, and consumer loans cannot collectively exceed 35% of an
institutions assets.  For this purpose,
however, residential mortgage loans (including securities backed by such loans)
and credit card loans are not considered consumer loans, and are both unlimited
in amount.  Deposit
Insurance.The Banks deposits are insured to applicable
limits by the FDIC.  As an FDIC-insured
bank, the Bank is subject to FDIC insurance assessments.  Following enactment of the Federal Deposit
Insurance Reform Act of 2005, the FDIC adopted a revised risk-based assessment
system to determine assessment rates to be paid by FDIC-insured institutions.  Under this revised assessment system, risk is
defined and measured using an institutions supervisory ratings as well as
certain other risk measures, including certain financial ratios.  The annual rates for 2008 for institutions in
Risk Category I range from 5 to 7 basis points and the rates for institutions
in Risk Categories II, III and IV are 10, 28 and 43 basis points, respectively.  These rates may be offset by a one-time
assessment credit held by an institution, based on the assessment base of that
institution as of December 31, 1996, and in the future by dividends that may be
declared by the FDIC if the reserve ratio of the Deposit Insurance Fund
increases above a certain amount. The FDIC may raise or lower these assessment
rates based on various factors to achieve reserve ratio, which the FDIC
currently has set at 1.25 percent of insured deposits.  In addition to deposit insurance assessments, all
FDIC-insured institutions are required to pay special assessments to the FDIC
to fund the repayment of debt obligations of the Financing Corporation (FICO),
a government-sponsored entity that was formed in 1987 to recapitalize the
Federal Savings and Loan Insurance Corporation. 
At December 31, 2007, the annualized rate established by the FDIC for
the FICO assessment was 1.14 basis points per $100 of insured deposits.  These assessments will continue until the
FICO bonds mature in 2017.  18


Regulatory
Capital Requirements.OTS capital regulations require savings
institutions to meet three capital standards:  (1) tangible capital
equal to 1.5% of total adjusted assets, (2) a leverage ratio (core
capital) equal to at least 4% of total adjusted assets and (3) a
risk-based capital requirement equal to 8.0% of total risk-weighted assets. In
addition, the OTS prompt corrective action regulation provides that a savings
institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest examination rating) will be deemed to be undercapitalized
and may be subject to certain restrictions.  At December 31,
2007, the Bank was in compliance with all of its regulatory capital
requirements.  Dividend
and Other Capital Distribution Limitations.The Bank may not
declare or pay a cash dividend on its capital stock if the effect thereof would
be to reduce the regulatory capital of the Bank below the amount required for
the liquidation account established at the time of the Banks mutual-to-stock
conversion.  Savings associations that
would remain at least adequately capitalized following the capital
distribution, and that meet other specified requirements, are not required to
file a notice or application for capital distributions (such as cash dividends)
declared below specified amounts. Savings associations which are eligible for
expedited treatment under current OTS regulations are not required to file an
application with the OTS if (i) the savings association would remain at
least adequately capitalized following the capital distribution and (ii) the
amount of capital distribution does not exceed an amount equal to the savings
associations net income for that year to date, plus the savings associations
retained net income for the previous two calendar years. Thus, only
undistributed net income for the prior two years may be distributed in addition
to the current years undistributed net income without the filing of an
application with the OTS. Savings associations which do not qualify for
expedited treatment or which desire to make a capital distribution in excess of
the specified amount, must file an application with, and obtain the approval
of, the OTS prior to making the capital distribution. A savings association
such as the Bank that is a subsidiary of a savings and loan holding company,
and under certain other circumstances, must file a notice with OTS prior to
making the capital distribution.  Qualified
Thrift Lender Test.The Home Owners Loan Act (HOLA), as
amended, requires savings institutions to meet a QTL test. If the Bank
maintains an appropriate level of Qualified Thrift Investments (primarily
residential mortgages and related investments, including certain
mortgage-backed securities) (QTIs) and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Pittsburgh. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC
as qualifying QTIs. The method for measuring compliance with the QTL test
requires an institution to be in compliance nine out of every 12 months. As of December 31,
2007, the Bank was in compliance with its QTL requirement with 73% of its
assets invested in QTIs.  Federal
Home Loan Bank System.The Bank is a member of the FHLB of
Pittsburgh, one of 12 regional FHLBs that administer the home financing credit
function of savings associations. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB System.
It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board
of Directors of the FHLB.  As a member, the Bank is
required to purchase and maintain an investment in the capital stock of the
FHLB of Pittsburgh in an amount equal to 4.55% of its advances outstanding from
the FHLB plus 0.55% of its unused borrowing capacity. At December 31,
2007, the Bank had $9 million in FHLB stock, which was in compliance with this
requirement.  Federal
Reserve System.The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At December 31,
2007, the Banks total transaction accounts required a reserve level of $386,000
which was offset by the Banks vault cash on hand and cash on deposit at the
Federal Reserve Bank of Philadelphia.  Savings associations have
authority to borrow from the Federal Reserve Bank discount window, but
Federal Reserve policy generally requires savings associations to exhaust all
other sources before borrowing from the Federal Reserve System. The Bank had no
such borrowings at December 31, 2007.  19


Item 1A.Risk Factors  Not applicable.  Item 1B.Unresolved Staff
Comments  None.  Item 2.Properties  The Company is located
and conducts its business at 3 Penns Trail, Newtown, Pennsylvania. At December 31,
2007, the Bank operated from its administrative offices and fifteen branch
offices located in Philadelphia and Bucks Counties, Pennsylvania and Mercer
County, New Jersey. The Bank also owns two parcels of land and a building
behind its Doylestown branch office. The parcel with the building is available
to be leased to a third-party and the other parcel is used as a parking lot for
employees of the Bank and tenants. The net book value of the two lots was
$100,000. In addition, a subsidiary of the Company, Penns Trail Development
Corporation, owns investment property with a book value of $738,000.  The following table sets
forth certain information regarding the Banks operating properties:  Location
  
  Leased or
  Owned
  
  Location
  
  Leased or
  OwnedADMINISTRATIVE
  OFFICE
  
  OwnedNewtown Office3 Penns TrailNewtown, PA
  18940DEPOSIT
  OPERATIONS
  
  Leased
  
  PROCESSING OPERATIONS
  
  Owned828C
  Newtown-Yardley Road
  
  
  
  Operations CenterSuite 301B
  
  
  
  62 Walker LaneNewtown, PA
  18940
  
  
  
  Newtown, PA 18940(1)BRANCH
  AND LOAN OFFICES
  
  Leased
  
  Newtown Office
  
  LeasedFrankford Office
  
  
  
  950 Newtown Yardley Road4625 Frankford
  Avenue
  
  
  
  Newtown, PA 18940Philadelphia, PA
  19124Ewing Office
  
  Owned
  
  Mayfair Office
  
  Owned2075 Pennington
  Road
  
  
  
  Roosevelt Blvd. at UnruhEwing, NJ 08618
  
  
  
  Philadelphia, PA 19149Hamilton Office
  
  Owned
  
  Doylestown Office
  
  Owned1850 Route 33
  
  
  
  60 North Main StreetHamilton Square,
  NJ 08690
  
  
  
  Doylestown, PA 18901Fishtown Office
  
  Owned
  
  Feasterville Office
  
  LeasedYork &
  Memphis Streets
  
  
  
  Buck Hotel ComplexPhiladelphia, PA
  19125
  
  
  
  Feasterville, PA 19053Cross Keys
  Office
  
  Owned
  
  Quakerbridge Office
  
  Leased834 North Easton
  Highway
  
  
  
  590 Lawrence Square BlvdDoylestown, PA
  18901
  
  
  
  Lawrenceville, NJ 08648Bridesburg
  Office
  
  Owned
  
  Woodhaven Office
  
  LeasedOrthodox &
  Almond Streets
  
  
  
  4014 Woodhaven RoadPhiladelphia, PA
  19137
  
  
  
  Philadelphia, PA 19154  20


New Britain
  Office
  
  Leased
  
  Northern Liberties Office
  
  Leased600 Town Center
  
  
  
  905 North 2nd StreetNew Britain, PA
  18901
  
  
  
  Philadelphia, PA 19123Girard Office
  
  Leased136 West Girard
  AvenuePhiladelphia, PA
  19123  21


Item 3.Legal
Proceedings  Neither the Company nor
its subsidiaries are involved in any pending legal proceedings, other than
routine legal matters occurring in the ordinary course of business that in the
aggregate involve amounts which are believed by management to be immaterial to
the consolidated financial condition or results of operations of the Company.  Item 4.Submission
of Matters to a Vote of Security Holders  None.  PART II  Item 5.Market
for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities  Information relating to
the market for Registrants common equity and related stockholder matters
appears under the section captioned Stock Market Information in the
Registrants 2007 Annual Report to Stockholders and is incorporated herein by
reference.  The
following table provides information on repurchases by the Company of its
common stock in each month for the three months ended December 31, 2007:  Month
  
  Total Number of
  Shares Purchased
  
  Average Price
  Paid per Share
  
  Total Number of
  Shares Purchased as
  Part of Publicly
  Announced Plan or
  Program
  
  Maximum Number of
  Shares that may yet
  be Purchased Under
  the Plans or
  ProgramsOctober 1, 2007 - October 31, 2007
  
  
  
  
  
  
  
  218,773November 1, 2007 - November 30, 2007
  
  15,800
  
  $
  26.34
  
  15,800
  
  202,973December 1, 2007 - December 31, 2007
  
  42,016
  
  $
  25.93
  
  42,016
  
  160,957  Item 6.Selected
Financial Data  The above-captioned
information appears under the section captioned Selected Financial and Other
Data in the Registrants 2007 Annual Report to Stockholders and is
incorporated herein by reference.  Item 7.Managements
Discussion and Analysis of Financial Condition and Results of Operations  The information under the
section captioned Managements Discussion and Analysis of Financial Condition
and Results of Operations in the Registrants 2007 Annual Report to
Stockholders is incorporated herein by reference.  Item 7A.Quantitative and
Qualitative Disclosures about Market Risk  The information under the
section captioned Managements Discussion and Analysis of Financial Condition
and Results of Operations in the Registrants 2007 Annual Report to Stockholders
is incorporated herein by reference.  Item 8.Financial
Statements and Supplementary Data  The Consolidated
Financial Statements of TF Financial Corporation and its subsidiaries included
in the Registrants 2007 Annual Report to Stockholders are incorporated herein
by reference.  22


Item 9.Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure  None.  Item 9A(T).  Controls and Procedures  (a)Disclosure
Controls and Procedures  Based on their evaluation
of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934 (the Exchange Act)), the Companys
principal executive officer and principal financial officer have concluded that
as of the end of the period covered by this Annual Report on Form 10-K
such disclosure controls and procedures are effective.  (b)Internal
Control Over Financial Reporting  Management is responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The
Companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorization of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a
material effect on the financial statements.  Internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
prepared for external purposes in accordance with generally accepted accounting
principles. Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.  Under supervision and
with the participation of management, including our principal executive officer
and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation
under the framework in Internal Control- Integrated Framework, management
concluded that our internal control over financial reporting was effective as
of December 31, 2007.  The 2007 Annual Report to
Shareholders does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting.  Managements report was not subject to
attestation by the Companys registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
company to provide only managements report 
in this annual report.   23


(c)  Changes in Internal Control Over Financial
Reporting.  During the last quarter
of the year under report, there was no change in the Companys internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.  Item 9B.Other Information  None.  PART III  Item 10.Directors,
Executive Officers and Corporate Governance  The information contained
under the sections captioned Proposal 1 - Election of Directors  General
Information and Nominees and  Biographical Information and Additional
Information About Directors and Executive Officers  Section 16(a) Beneficial
Ownership Reporting Compliance in the Registrants definitive proxy statement
for the Registrants 2007 Annual Meeting of Stockholders (the Proxy Statement)
is incorporated herein by reference.  The Company has adopted a
Code of Ethics that applies to its principal executive officer, principal
financial officer, principal accounting officer or persons performing such
functions. The Code of Ethics can be obtained without charge by sending a
written request to the Corporate Secretary, TF Financial Corporation, 3 Penns
Trail, Newtown, Pennsylvania 18940.  Item 11.Executive
Compensation  The information relating
to executive compensation is incorporated herein by reference to the
information contained under the sections captioned Executive Compensation and
Director Compensation in the Registrants Proxy Statement.  Item 12.Security
Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters  (a)Security
Ownership of Certain Beneficial Owners  Information required by
this item is incorporated herein by reference to the Section captioned Voting
Securities and Principal Holders Thereof in the Registrants Proxy Statement.  (b)Security
Ownership of Management  Information required by
this item is incorporated herein by reference to the sections captioned Security
Ownership of Certain Beneficial Owners and Management and Proposal 1 
Election of Directors in the Registrants Proxy Statement.  (c)Management
of the Company knows of no arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the registrant.  (d)Securities
Authorized for Issuance Under Equity Compensation Plans  Set forth below is
information as of December 31, 2007 with respect to compensation plans
under which equity securities of the Registrant are authorized for issuance.  24


EQUITY COMPENSATION PLAN INFORMATION  (a)
  Number of securities
  to be issued upon
  exercise of
  outstanding options,
  warrants and rights
  
  (b)
  Weighted-average
  exercise price of
  outstanding
  options, warrants
  and rights
  
  (c)
  Number of securities
  remaining available for
  future issuance under
  equity compensation plans
  (excluding securities
  reflected in column (a))Equity
  compensation plans approved by shareholders(1)
  
  252,576
  
  $
  26.56
  
  31,951Equity
  compensation plans not approved by shareholders
  
  
  
  
  
  TOTAL
  
  252,576
  
  $
  26.56
  
  31,951  
 (1)Plans
approved by stockholders include: TF Financial Corporation 1997 Stock Option
Plan, and TF Financial Corporation 2005 Stock-Based Incentive Plan.  For information regarding the material features of
these plans, see Notes A10, A11, J3 and J4 to the Consolidated Financial Statements included as part of Exhibit 13 to this
report.  Item 13.Certain
Relationships and Related Transactions, and Director Independence  The information relating
to certain relationships and related transactions is incorporated herein by
reference to the information contained under the section captioned Additional
Information About Directors and Executive Officers  Certain Relationships and
Related Transactions and Director Independence in the Registrants Proxy
Statement.  Item 14.Principal
Accountant Fees and Services  The information relating
to this item is incorporated herein by reference to the information contained
under the section captioned Principal Accounting Firm Fees in the Registrants
Proxy Statement.  PART IV  Item 15.Exhibits and
Financial Statement Schedules  (a)The
following documents are filed as a part of this report:  (1)  The
following financial statements and the report of the independent auditor of the
Company included in the Companys 2007 Annual Report to Stockholders are
incorporated herein by reference.  Report of Independent
  Registered Public Accounting FirmConsolidated
  Statements of Financial Condition as of December 31, 2007 and 2006Consolidated
  Statements of Income For the Years Ended December 31, 2007 and 2006Consolidated
  Statement of Changes in Stockholders Equity and Comprehensive Income for the
  Years Ended December 31, 2007 and 2006Consolidated
  Statements of Cash Flows for the Years Ended December 31, 2007 and 2006Notes to Consolidated
  Financial Statements  25


(2)  All schedules are omitted because they
are not required or applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.  (3)  Exhibits  (a)        The
following exhibits are filed as part of this report.  3.1
  
  Certificate of
  Incorporation of TF Financial Corporation (1)3.2
  
  Bylaws of TF
  Financial Corporation (1)4.0
  
  Stock
  Certificate of TF Financial Corporation (1)10.1
  
  Third Federal
  Savings and Loan Association Management Stock Bonus Plan (1)10.2
  
  Third Federal
  Savings Bank Directors Consultation and Retirement Plan (2)10.3
  
  Severance
  Agreement with Kent C. Lufkin (3)10.4
  
  Severance
  Agreement with Floyd P. Haggar (3)10.5
  
  Severance
  Agreement with Dennis R. Stewart (4)10.6
  
  TF Financial
  Corporation 1997 Stock Option Plan (5)10.7
  
  Severance
  Agreement with Robert N. Dusek (6)10.8
  
  TF Financial
  Corporation 1996 Directors Stock Option Plan (7)10.9
  
  Retirement and
  Non-Competition Agreement with John R. Stranford (8)10.10
  
  Employment
  Agreement with John R. Stranford (8)10.11
  
  TF Financial
  Corporation Incentive Compensation Plan (9)10.12
  
  TF Financial
  Corporation 2005 Stock-Based Incentive Plan (10)10.13
  
  Severance
  Agreement with Elizabeth Kaspern (11)10.14
  
  TF Financial
  Corporation Stock Repurchase Plan (12)10.15
  
  TF Financial
  Corporation Amended and Restated Bylaws (13)13.0
  
  2007 Annual
  Report to Stockholders21.0
  
  Subsidiary
  Information23.0
  
  Consent of
  Independent Registered Public Accounting Firm31.1
  
  Certification
  pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
  
  Certification
  pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.0
  
  Certification pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002  
 (1)Incorporated
herein by reference to the Exhibits to Form S-1, Registration Statement,
File No. 33-76960.  (2)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.  (3)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.  (4)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.  (5)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.  (6)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.  (7)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.  (8)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2003.  (9)Incorporated
herein by reference to the Registrants Form 8-K filed with the Securities
and Exchange Commission on October 20, 2004.  26


(10)Incorporated
herein by reference to the Registrants Form S-8 filed with the Securities
and Exchange Commission on May 20, 2005.  (11)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2006.  (12)Incorporated herein
by reference to the Registrants Form 8-K filed with the Securities and
Exchange Commission on October 25, 2007.  (13)Incorporated
herein by reference to the Registrants Form 8-K filed with the Securities
and Exchange Commission on October 26, 2007.  27


SIGNATURES  Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.  TF FINANCIAL CORPORATIONDated: March 26,
  2008
  By:
  /s/ Kent C. LufkinKent C. LufkinPresident, Chief
  Executive Officer(Duly Authorized Representative)  Pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, this Report has been signed
below by the following persons on behalf of the Registrant and in the
capacities indicated as of Dated: March 26, 2008.   By:
  /s/ Kent C. Lufkin
  
  By:
  /s/ Dennis R. StewartKent C. Lufkin
  
  
  Dennis R. StewartPresident, Chief
  Executive Officer
  
  
  Executive Vice
  President, Chief Financial Officer and Treasurer(Principal Executive
  Officer)
  
  
  (Principal Financial
  and Accounting Officer)By:
  /s/ Carl F. Gregory
  
  By:
  /s/ Robert N. DusekCarl F. Gregory
  
  
  Robert N. DusekDirector
  
  
  Chairman of the BoardBy:
  /s/ Dennis L. McCartney
  
  By:
  /s/ George A. OlsenDennis L. McCartney
  
  
  George A. OlsenDirector
  
  
  DirectorBy:
  /s/ Albert M. Tantala, Sr.
  
  By:
  /s/ John R. StranfordAlbert M.
  Tantala, Sr.
  
  
  John R. StranfordDirector
  
  
  Director  28