SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


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

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

For the fiscal year ended        December 31, 1997
                          ------------------------------------------------------

                                     - or -

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

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

                         Commission File Number: 0-24168

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

                  Delaware                                     74-2705050
---------------------------------------------               --------------------
(State or Other Jurisdiction of Incorporation                (I.R.S. Employer
  or Organization)                                          Identification No.)

    3 Penns Trail, Newtown, Pennsylvania                          18940
----------------------------------------------               -------------------
(Address of Principal Executive Offices)                        (Zip Code)

Registrant's telephone number, including area code:     (215) 579-4000
                                                        --------------

Securities registered pursuant to Section 12(b) of the Act:      None
                                                             ------------

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

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

         Indicate  by check  mark  whether  the  Registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.    YES     X       NO
                                                   -----         ------

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant, based on the average bid and asked prices of the Registrant's
Common Stock as quoted on the Nasdaq System on March 30, 1998, was $63.2 million
(2,237,737 shares at $28.25 per share).

         As of March 30,  1998 there were  outstanding  3,188,699  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, 1997. (Parts I, II and IV)
2.       Portions  of the  Proxy  Statement  for  the  1998  Annual  Meeting  of
         Stockholders. (Part III)


<PAGE>



PART I

         TF FINANCIAL  CORPORATION  (THE  "COMPANY")  MAY FROM TIME TO TIME MAKE
WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS",  INCLUDING STATEMENTS CONTAINED IN
THE COMPANY'S  FILINGS WITH THE  SECURITIES AND EXCHANGE  COMMISSION  (INCLUDING
THIS ANNUAL  REPORT ON FORM 10-K AND THE  EXHIBITS  THERETO),  IN ITS REPORTS TO
STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY,  WHICH ARE MADE IN GOOD
FAITH BY THE COMPANY  PURSUANT TO THE "SAFE  HARBOR"  PROVISIONS  OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

         THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,  SUCH
AS STATEMENTS OF THE COMPANY'S PLANS,  OBJECTIVES,  EXPECTATIONS,  ESTIMATES AND
INTENTIONS,  THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S  FINANCIAL  PERFORMANCE TO DIFFER  MATERIALLY FROM THE
PLANS,  OBJECTIVES,  EXPECTATIONS,  ESTIMATES AND  INTENTIONS  EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND  THE  STRENGTH  OF  THE  LOCAL  ECONOMIES  IN  WHICH  THE  COMPANY  CONDUCTS
OPERATIONS;  THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
AND LAWS,  INCLUDING  INTEREST  RATE  POLICIES OF THE BOARD OF  GOVERNORS OF THE
FEDERAL  RESERVE  SYSTEM,   INFLATION,   INTEREST RATES,   MARKET  AND  MONETARY
FLUCTUATIONS;  THE TIMELY  DEVELOPMENT  OF AND  ACCEPTANCE  OF NEW  PRODUCTS AND
SERVICES OF THE COMPANY AND THE PERCEIVED  OVERALL  VALUE OF THESE  PRODUCTS AND
SERVICES BY USERS,  INCLUDING  THE  FEATURES,  PRICING  AND QUALITY  COMPARED TO
COMPETITORS'  PRODUCTS AND  SERVICES;  THE  WILLINGNESS  OF USERS TO  SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES;  THE
SUCCESS OF THE  COMPANY IN  GAINING  REGULATORY  APPROVAL  OF ITS  PRODUCTS  AND
SERVICES,  WHEN REQUIRED;  THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND
REGULATIONS   (INCLUDING  LAWS  CONCERNING   TAXES,   BANKING,   SECURITIES  AND
INSURANCE);  TECHNOLOGICAL CHANGES,  ACQUISITIONS;  CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED
IN THE FOREGOING.

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

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

                             BUSINESS OF THE COMPANY

         On July  13,  1994,  the  Registrant,  TF  Financial  Corporation  (the
"Company")  consummated its public  offering for 5,290,000  shares of its common
stock and acquired  Third  Federal  Savings Bank (the  "Savings  Bank" or "Third
Federal") as part of the Savings Bank's conversion from a mutual to a stock

                                        1

<PAGE>



federally chartered savings bank. The Registrant was incorporated under Delaware
law in March 1994. The  Registrant is a savings and loan holding  company and is
subject to  regulation  by the Office of Thrift  Supervision  (the  "OTS"),  the
Federal  Deposit  Insurance  Corporation  (the  "FDIC") and the  Securities  and
Exchange Commission (the "SEC"). Currently, the Registrant does not transact any
material  business  other than through its  subsidiaries,  the Savings  Bank, TF
Investments Corporation,  Teragon, Inc. and Penns Trail Development Corporation.
Teragon, Inc. was incorporated in May 1997 for the purpose of pursuing mortgage
banking activities. At December 31, 1997, the Company had total assets of $597.0
million,  total  deposits of $450.4  million and  stockholders'  equity of $50.1
million.

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

                          BUSINESS OF THE SAVINGS BANK

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

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

         The Savings Bank  attracts  deposits  from the general  public and uses
such deposits,  together with  borrowings and other funds primarily to originate
or  purchase  loans  secured  by  first  mortgages  on  owner-occupied,  one- to
four-family  residences in its market area and to invest in mortgage-backed  and
investment  securities.  At December 31, 1997,  one- to four-family  residential
mortgage  loans totaled $198.3 million or 78.4% of the Savings Bank's total loan
portfolio.  At that same date, the Savings Bank had approximately $180.9 million
or 30.3% of total  assets  invested  in  mortgage-backed  securities  and  $84.9
million or 14.2% of total assets in investment  securities.  To a lesser extent,
the  Savings  Bank also  originates  commercial  real  estate and  multi-family,
construction and consumer loans.

Market Area

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

                                        2

<PAGE>




Competition

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

Lending Activities

         General.  The  Savings  Bank's  loan  portfolio   composition  consists
primarily of conventional  adjustable-rate ("ARM") and fixed-rate first mortgage
loans  secured by one- to  four-family  residences.  The Savings Bank also makes
commercial real estate and multi-family  loans,  construction loans and consumer
and other  loans.  At December  31,  1997,  the Savings  Bank's  mortgage  loans
outstanding  were  $230.0  million,   of  which  $198.3  million  were  one-  to
four-family  residential mortgage loans. Of the one- to four-family  residential
mortgage  loans  outstanding  at that  date,  33.0%  were  ARM's and 67.0%  were
fixed-rate  loans.  Total ARM mortgage loans in the Savings Bank's  portfolio at
December 31, 1997,  amounted to $84.7 million or 36.8% of total mortgage  loans.
At that same date,  commercial  real  estate and  multi-family  residential  and
construction loans totaled $26.7 million and $5.1 million, respectively.

         Consumer and other loans held by the Savings Bank totaled $22.8 million
or 9.1% of total loans  outstanding at December 31, 1997, of which $12.1 million
or 53.2%  consisted  of home  equity  and  second  mortgages.  At that same date
commercial  business  loans,  leases and other loans totaled $2.8 million,  $1.7
million and $6.2 million, respectively.

                                        3

<PAGE>



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

                                                At December 31,                                          At June 30,
                    -------------------------------------------------------------------------- -----------------------------------
                         1997               1996                1995               1994              1994              1993
                    -----------------  ----------------    ----------------   ---------------- -----------------  ----------------
                              Percent          Percent             Percent            Percent           Percent           Percent
                    Amount   of Total  Amount  of Total    Amount  of Total   Amount  of Total Amount   of Total  Amount  of Total
                    -----    --------  ------  --------    ------  --------   ------  -------- ------   --------  ------  --------
                                                             (Dollars in thousands)
<S>                 <C>       <C>    <C>         <C>     <C>       <C>       <C>      <C>     <C>       <C>      <C>      <C>
Mortgage loans:
  One- to four-
   family...........$198,328   78.43%$ 265,618    85.16% $204,430   85.00%   $ 80,862  69.70% $ 85,641   70.40%  $104,577  71.52%
  Commercial real
    estate
    and multi-
    family..........  26,653   10.54    20,427     6.55    10,294    4.28      11,285   9.73    12,456   10.24     16,140  11.04
  Construction......   5,052    2.00     4,720     1.51     3,604    1.50       1,534   1.32       607    0.50        542   0.37
                    --------   -----  --------   ------  --------  ------    --------  -----  --------  ------   -------- ------
       Total
        mortgage
        loans....... 230,033   90.97   290,765    93.22   218,328   90.78      93,681  80.75    98,704   81.14    121,259  82.93
Consumer and other
  loans:
  Home equity and
    second
    mortgage........  12,147    4.80     9,661     3.10    10,635    4.42      11,663  10.05    11,689    9.61     10,989   7.52
  Commercial
    business........   2,798    1.11     3,126     1.00     2,887    1.20       3,679   3.17     4,285    3.52      5,980   4.09
  Leases............   1,671    0.66     3,093     0.99     3,590    1.49       2,194   1.89     2,828    2.33      3,847   2.63
  Other.............   6,230    2.46     5,261     1.69     5,072    2.11       4,796   4.14     4,138    3.40      4,145   2.83
                    --------   -----  --------   ------  --------  ------    --------  -----  --------  ------   -------- ------
       Total
         consumer
         and other
         loans......  22,846    9.03    21,141     6.78    22,184    9.22      22,332  19.25    22,940   18.86     24,961  17.07
                    --------  ------  --------   ------  --------  ------      ------ ------  --------  ------   -------- ------
       Total loans.. 252,879  100.00%  311,906            240,512  100.00%    116,013 100.00%  121,644  100.00%   146,220 100.00%
                    ========  ======  ========           ========  ======    ======== ======  ========  ======   ======== ======
Less:
  Unearned
    discount,
    premium,
    deferred
    loan fees,
    net.............     139               530                753                 647              748              1,265
  Allowance for
    loan
    losses..........   2,029             1,806              1,484               1,473            1,450              1,656
                    --------         ---------           --------            --------         --------           --------
      Total loans,
       net..........$250,711         $ 309,570           $238,275            $113,893         $119,446           $143,299
                    ========         =========           ========            ========         ========           ========
Mortgage-backed
securities held-
to-maturity:
  FHLMC.............  76,523   53.12 $  90,016    58.54% $ 65,834   47.76%   $ 85,524  47.14% $ 68,526   44.41%  $ 54,093  56.44%
  FNMA..............  22,927   15.91    27,547    17.92    33,150   24.05      39,713  21.89    29,201   18.93      6,831   7.13
  GNMA..............   7,483    5.19     6,043     3.93     7,644    5.55       9,358   5.16     9,653    6.26      7,480   7.81
  Real estate
    investment
    mortgage
    conduit.........  36,389   25.26    29,220    19.00    30,033   21.79      46,603  25.69    46,437   30.10     26,113  27.25
  Collateralized
    mortgage
    obligations.....      --                --       --        19    0.01         213   0.12       471    0.30      1,319   1.37
  Other mortgage-
    backed
    securities......     752    0.52       932     0.61     1,161    0.84          --     --        --      --         --     --
                    --------  ------  --------  ------   --------  ------    -------- ------  --------  ------   -------- ------
    Total mortgage-
      backed and
      related
      securities
      held-to-
      maturity......$144,074  100.00% $153,758   100.00% $137,841  100.00%   $181,411 100.00% $154,288  100.00%  $ 95,836 100.00%
                    ========  ======  ========   ======  ========  ======    ======== ======  ========  ======   ======== ======




Mortgage-backed
  securities
  available-
  for-sale:
    FHLMC...........$ 19,223   52.17% $  8,905   40.43%  $ 15,422   52.03%
    FNMA............   7,863   21.34     3,240    14.71     4,010   13.53
    Real estate
      investment
      mortgage
      conduit.......   9,761   26.49     9,882    44.86    10,208   34.44
                    --------  ------  --------   ------  -------- -------

      Total.........$ 36,847  100.00% $ 22,027   100.00% $ 29,640  100.00%
                    ========  ======  ========   ======  ========  ======

</TABLE>

                                        4

<PAGE>



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

<TABLE>
<CAPTION>

                                                          Years Ended December 31,
                                                     ------------------------------------
                                                       1997         1996          1995
                                                       ----         ----          ----
                                                               (In thousands)
<S>                                                  <C>          <C>          <C>
Total loans receivable (gross):
  At beginning of period .........................   $ 311,906    $ 240,512    $ 116,013
   Mortgage loans originated:
     One- to four-family .........................      52,039       64,643       41,627
     Commercial real estate and multi-family .....       6,222        8,488          --
     Construction ................................       8,090       14,465        6,859
                                                     ---------    ---------    ---------
         Total mortgage loans originated .........      66,351       87,596       48,486
   Mortgage loans purchased:
     One- to four-family .........................      14,224       82,363       94,732
     Other non-residential .......................          --          358           --
                                                     ---------    ---------    ---------
         Total mortgage loans purchased ..........      14,224       82,721       94,732
                                                     ---------    ---------    ---------
   Total mortgage loans originated and purchased .      80,575      170,317      143,218
   Consumer loans originated .....................       6,643        4,473        6,611
   Transfer of mortgage loans to real estate owned        (249)        (242)        (136)
   Sale of loans .................................     (94,925)     (19,591)          --
   Loans securitized .............................          --      (28,212)          --
   Principal repayments ..........................     (51,071)     (55,351)     (25,194)
                                                     ---------    ---------    ---------
   Total loans receivable at end of period .......   $ 252,879    $ 311,906    $ 240,512
                                                     =========    =========    =========

Mortgage-backed securities:
   Held-to-maturity:
   At beginning of period ........................     153,758    $ 137,841    $ 181,411
   Mortgage-backed securities purchased ..........      18,972       45,349       10,198
   Mortgage-backed securities sold ...............          --           --           --
   Transferred to available-for-sale .............          --           --      (29,640)
   Amortization and repayments ...................     (28,656)     (29,432)     (24,128)
                                                       -------      -------      -------
   At end of period ..............................   $ 144,074    $ 153,758    $ 137,841
                                                     =========    =========    =========

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




                                        5

<PAGE>



         Maturity  of Loans and  Mortgage-backed  and  Related  Securities.  The
following   table  sets  forth  the  maturity  of  Third   Federal's   loan  and
mortgage-backed  securities  at December  31,  1997.  The table does not include
prepayments  or  scheduled  principal  repayments.   Prepayments  and  scheduled
principal  repayments  on loans  totaled  $86,800  million  for the  year  ended
December 31, 1997. Adjustable-rate mortgage loans are shown as maturing based on
contractual maturities.

<TABLE>
<CAPTION>

                                     Commercial                                    Mortgage-
                            One- to  Real Estate                                    Backed
                             Four-   and Multi-             Consumer   Total Loans and Related
                            Family    Family   Construction and Other  Receivable  Securities  Total
                            ------    ------   ------------ ---------  ----------  ----------  -----
                                                         (In thousands)
<S>                        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Non-performing .........   $    776   $     --   $     --   $    606   $  1,382   $     --   $  1,382
Amounts Due:
Within 3 months ........        193          7      1,253         16      1,469        776      2,245
3 months to 1 Year .....      4,721        213      6,353      2,473     13,760      1,448     15,208


After 1 year:
  1 to 3 years .........      7,612      2,369      4,703      1,219     15,903     14,160     30,063
  3 to 5 years .........     12,017      3,332         87      4,839     20,275     22,539     42,814
  5 to 10 years ........     17,648     16,965         --     10,786     45,399     31,142     76,541
  10 to 20 years .......     57,028      4,244         --      2,907     64,177     52,051    116,228
  Over 20 years ........     98,335         --         --         --     98,335     58,805    157,140
Total due after one year    192,638     26,910      4,790     19,751    244,089    178,697    422,780
Total amounts due ......    198,328     27,130     12,396     22,846    260,700    180,921    441,621

Less:
Allowance for loan loss       1,503        202         37        287      2,029         --      2,029
Loans in process .......         --        477      7,344         --      7,821         --      7,821
Deferred loan fees .....        133         --         --          6        139         --        139
                           --------   --------   --------   --------   --------   --------   --------

    Total ..............   $196,692   $ 26,451   $  5,015   $ 22,553   $250,711   $180,921   $431,632
                           ========   ========   ========   ========   ========   ========   ========
</TABLE>




                                        6

<PAGE>



         The following table sets forth the dollar amount of all loans due after
December  31,  1998,  which  have  predetermined  interest  rates and which have
floating or adjustable interest rates.

                                            Fixed       Floating or
                                            Rates     Adjustable Rates   Total
                                            -----     ----------------   -----
                                                       (In thousands)
One- to four-family ...................   $129,003       $ 63,570       $192,638
Commercial real estate and multi-family     15,520         11,382         26,910
Construction ..........................        148          4,642          4,790
Consumer and other ....................     12,796          6,955         19,751
                                          --------       --------       --------
  Total ...............................   $157,540       $ 86,549       $244,089
                                          ========       ========       ========



         One- to  Four-Family  Mortgage  Loans.  The Savings  Bank offers  first
mortgage loans secured by one- to  four-family  residences in the Savings Bank's
lending area.  Typically,  such residences are single-family homes that serve as
the primary  residence of the owner.  The Savings Bank generally  originates and
invests in one- to four-family  residential  mortgage loans in amounts up to 80%
of the lesser of the appraised value or selling price of the mortgaged property.
Loans  originated  in amounts over 80% of the lesser of the  appraised  value or
selling price of the mortgaged property, other than loans to facilitate the sale
of real estate acquired through foreclosure,  must be owner-occupied and private
mortgage insurance must be provided on the amount in excess of 80%.

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

         At December  31,  1997,  86.2% of mortgage  loans  consisted of one- to
four-family  residential  loans, of which 33.0% were ARM loans. The Savings Bank
has  historically  not originated a large amount of ARM loans.

         The  Savings  Bank offers a variety of ARM loans with terms of 30 years
which adjust at the end of 6 months,  one, three,  five, seven and ten years and
adjust by a maximum of 1 to 2 % per  adjustment  with a lifetime  cap of 5 to 6%
over the life of the loan.  The ARM loans acquired as a result of the Doylestown
merger  adjust at the end of one or three years and adjust by a maximum of 2.00%
per adjustment with a lifetime cap of 5.00% over the life of the loan

         The Savings Bank offers  fixed-rate  mortgage loans with terms of 10 to
30 years, which are payable monthly. The Savings Bank has continued its emphasis
on  fixed-rate  mortgage  loans with terms of 15 years or less.  Interest  rates
charged on fixed-rate  mortgage loans are  competitively  priced based on market
conditions  and the  Savings  Bank's  cost of funds.  The  origination  fees for
fixed-rate  loans were  generally 3.0% at December 31, 1997.  Generally,  the
Savings Bank's  standard  underwriting  guideline for fixed-rate  mortgage loans
conform  to the  FHLMC  and  FNMA  guidelines  and may be sold in the  secondary
market.  The  Savings  Bank has in the past  sold a  portion  of its  conforming
fixed-rate  mortgage  loans in the secondary  market to federal  agencies  while
retaining the servicing rights on certain loans.

                                        7

<PAGE>



The Savings Bank,  however,  is primarily a portfolio lender. As of December 31,
1997,  the  Savings  Bank's  portfolio  of loans  serviced  for  others  totaled
approximately $26.4 million.

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

         The  Savings  Bank  generally  originates  commercial  real  estate and
multi-family loans up to 75% of the appraised value of the property securing the
loan.  Currently,  it is the Savings Bank's  philosophy to originate  commercial
real estate and  multi-family  loans only to borrowers known to the Savings Bank
and  on  properties  in  its  market  area.  The  commercial   real  estate  and
multi-family  loans in the Savings Bank's portfolio  consist of fixed-rate,  ARM
and balloon loans which were originated at prevailing  market rates for terms of
up to 20 years.  The Savings Bank's  current  policy is to originate  commercial
real estate and multi-family loans as ARM's that are generally  amortized over a
period of 15 years or as balloon  loans  which  generally  have terms of 5 to 10
years, with 20-25 year amortizations.

         Loans secured by commercial and multi-family  real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary  concern in commercial and  multi-family  real estate
lending is the borrower's  creditworthiness  and the  feasibility  and cash flow
potential of the  project.  Loans  secured by income  properties  are  generally
larger  and  involve  greater  risks than  residential  mortgage  loans  because
payments on loans secured by income properties are often dependent on successful
operation or management of the properties.  As a result, repayment of such loans
may be subject to a greater extent than residential real estate loans to adverse
conditions  in the real estate  market or the economy.  In order to monitor cash
flows on  income  properties,  the  Savings  Bank  requires  borrowers  and loan
guarantors,  if any, to provide  annual  financial  statements and rent rolls on
multi-family  loans.  At December 31, 1997,  the five  largest  commercial  real
estate and  multi-family  loans  totaled $8.4 million with no single loan larger
than $2.1  million.  At December 31,  1997,  all such loans were current and the
properties securing such loans are in the Savings Bank's market area.

         Construction  Loans.  At December 31,  1997,  the Savings Bank had $5.1
million  of  construction  loans  or  2.0%  of the  Savings  Bank's  total  loan
portfolio.  Construction  financing is generally  considered to involve a higher
degree of risk of loss than  long-term  financing  on  improved,  occupied  real
estate.  Risk of loss on a  construction  loan is  dependent  largely  upon  the
accuracy  of the initial  estimate  of the  property's  value at  completion  of
construction  or  development  and the estimated  cost  (including  interest) of
construction. During the construction phase, a number of factors could result in
delays and cost  overruns.  If the estimate of  construction  costs proves to be
inaccurate,  the Savings Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate,  the Savings Bank may be confronted,  at or prior
to the maturity of the loan, with a project having a value which is insufficient
to assure full repayment.

         Consumer  and Other Loans.  The Savings  Bank also offers  consumer and
other loans in the form of home equity and second  mortgage  loans  (referred to
hereinafter collectively as "second mortgage loans"), commercial business loans,
automobile loans and student loans. These loans totaled $22.8 million or 9.1% of
the  Savings  Bank's  total  loan  portfolio  at  December  31,  1997.   Federal
regulations permit federally  chartered thrift  institutions to make secured and
unsecured  consumer loans up to 35% of an institution's  assets. In addition,  a
federal thrift has lending authority above the 35% category for

                                        8

<PAGE>



certain consumer loans, property improvement loans, and loans secured by savings
accounts.  The Savings Bank originates consumer loans in order to provide a wide
range of financial  services to its  customers and because the shorter terms and
normally higher  interest rates on such loans help maintain a profitable  spread
between its average loan yield and its cost of funds.

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

         The Savings Bank intends to continue to emphasize  the  origination  of
consumer  loans.  Consumer loans tend to be originated at higher  interest rates
than  conventional  residential  mortgage  loans  and for  shorter  terms  which
benefits  the Savings  Bank's  interest  rate gap  management.  Consumer  loans,
however,  tend to have a higher risk of default than residential mortgage loans.
At December 31, 1997, the Savings Bank had $541,034 in consumer loans delinquent
more than 90 days.

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

         The Savings Bank offers second  mortgage  loans on one- to  four-family
residences.  At December 31, 1997, second mortgage and home equity loans totaled
$12.1  million,  or 4.9% of the  Savings  Bank's  total loan  portfolio.  Second
mortgage  loans  are  offered  as  fixed-rate  loans for a term not to exceed 15
years. Such loans are only made on owner-occupied one- to four-family residences
and  are  subject  to a 75%  combined  loan to  value  ratio.  The  underwriting
standards for second mortgage loans are the same as the Savings Bank's standards
applicable to one- to four-family residential loans.

         The Savings Bank makes commercial business loans on a secured basis and
generally requires additional collateral consisting of real estate. The terms of
such loans generally do not exceed five years.  The majority of these loans have
floating interest rates which adjust with changes in market driven indices.  The
Savings Bank's  commercial  business loans primarily consist of short-term loans
for equipment,  working capital, business expansion and inventory financing. The
Savings  Bank  customarily  requires  a  personal  guaranty  of  payment  by the
principals of any  borrowing  entity and reviews the  financial  statements  and
income tax returns of the guarantors. At December 31, 1997, the Savings Bank had
approximately  $2.8 million  outstanding  in commercial  business  loans,  which
represented approximately 1.1% of its total loan portfolio.

         Loan Approval Authority and Underwriting. All loans must be approved by
either  two or more  loan  officers  specifically  designated  by the  Board  of
Directors  or by the Board of  Directors,  depending  on the  amount and type of
loan. Any two designated  underwriters  may approve loans on one- to four-family
residences,  not to exceed FHLMC and FNMA conforming single-family limits, which
at December 31, 1997,  was $227,150 or consumer  loans up to $100,000  providing
the loan meets all of the Savings  Bank's  underwriting  guidelines for consumer
loans.  All other loans up to $500,000  must be approved by the Loan  Committee.
All loans that exceed  $500,000  must be submitted to the Board of Directors for
approval.

         One-  to   four-family   residential   mortgage   loans  are  generally
underwritten according to FHLMC and FNMA guidelines. For all loans originated by
the  Savings  Bank,  upon  receipt  of  a  completed  loan  application  from  a
prospective  borrower,  a credit  report is ordered,  income and  certain  other
information

                                        9

<PAGE>



is verified and, if necessary, additional financial information is requested. An
appraisal of the real estate  intended to secure the  proposed  loan is required
which currently is performed by an independent appraiser designated and approved
by the Savings  Bank.  The Savings  Bank makes  construction/permanent  loans on
individual properties.  Funds advanced during the construction phase are held in
a loan-in-process account and disbursed based upon various stages of completion.
The  independent  appraiser or loan officer  determines  the stage of completion
based upon its physical inspection of the construction. It is the Savings Bank's
policy to obtain  title  insurance  or a title  opinion on all real estate first
mortgage loans.  Borrowers must also obtain hazard or flood insurance (for loans
on property  located in a flood  zone)  prior to closing the loan.  For loans in
excess of 80% of the loan to value ratio,  borrowers are  generally  required to
advance  funds on a monthly  basis  together  with each payment of principal and
interest to an escrow  account from which the Savings  Bank makes  disbursements
for items such as real estate taxes and hazard insurance premiums.

         Loans to one Borrower.  Current regulations limit loans to one borrower
in an  amount  equal to 15% of  unimpaired  capital  and  retained  income on an
unsecured basis and an additional amount equal to 10% of unimpaired  capital and
retained  income  if the  loan  is  secured  by  readily  marketable  collateral
(generally,  financial instruments,  not real estate) or $500,000,  whichever is
higher.  Penalties for  violations  of the  loan-to-one  borrower  statutory and
regulatory  restrictions  include cease and desist  orders,  the imposition of a
supervisory  agreement and civil money  penalties.  The Savings  Bank's  maximum
loan- to-one  borrower limit was  approximately  $6.7 million as of December 31,
1997.

         At December 31, 1997, the Savings Bank's five largest aggregate lending
relationships  had balances  ranging from $2.1 to $6.2 million.  At December 31,
1997, all of these loans were current.

Mortgage-Backed Securities

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

         The  mortgage-backed  securities  portfolio  as of December  31,  1997,
consisted  primarily of fixed-rate  certificates issued by the Federal Home Loan
Mortgage  Corporation  ("FHLMC") ($95.7 million),  Government  National Mortgage
Association  ("GNMA"),  ($7.4 million)  Federal  National  Mortgage  Association
("FNMA") ($30.8 million),  real estate  investment  mortgage conduit  ("REMICs")
($46.2 million), and other mortgage-backed securities ($.8 million).

         At December 31, 1997, the carrying value of mortgage-backed  securities
totaled  $180.9  million,  or 30.3% of total  assets.  The market  value of such
securities totaled approximately $182.6 million at December 31, 1997.

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

         FHLMC  issues   participation   certificates   backed   principally  by
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate return of principal  within one year. FHLMC securities are indirect
obligations  of the  United  States  Government.  FNMA is a private  corporation
chartered  by  Congress  with a mandate  to  establish  a  secondary  market for
conventional

                                       10

<PAGE>



mortgage  loans.  FNMA  guarantees the timely payment of principal and interest,
and FNMA  securities are indirect  obligations of the United States  Government.
GNMA  is a  government  agency  within  the  Department  of  Housing  and  Urban
Development  ("HUD")  which is  intended  to help  finance  government  assisted
housing programs.  GNMA guarantees the timely payment of principal and interest,
and GNMA securities are backed by the full faith and credit of the United States
Government.  Since FHLMC,  FNMA and GNMA were established to provide support for
low- and  middle-income  housing,  there are limits to the maximum size of loans
that qualify for these programs. Currently, GNMA limits its maximum loan size to
$144,000 for Veterans  Administration  ("VA") loans and on average  $137,750 for
Federal  Housing  Authority  ("FHA") loans.  FNMA and FHLMC limit their loans to
$214,600. To accommodate  larger-sized loans, and loans that, for other reasons,
do not conform to the agency  programs,  a number of private  institutions  have
established their own home-loan origination and securitization programs.

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

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

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

         The CMOs and REMICs held by the  Savings  Bank at  December  31,  1997,
consisted solely of fixed-rate notes and adjustable-rate  notes with contractual
maturities  ranging  from 1 to 27 years.  The  portfolio of CMOs and REMICs held
within the Savings Bank's  mortgage-backed  securities portfolio at December 31,
1997, did not include any residual interests. Further, at December 31, 1997, the
Savings  Bank's  mortgage-backed   securities  portfolio  did  not  include  any
"stripped" CMOs and REMICs, i.e.

                                       11

<PAGE>



CMOs and REMICs that pay interest  only and do not repay  principal or CMOs that
repay principal only and do not pay interest.

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

                                                                   At December 31,
                                                 -------------------------------------------------------
                                                     1997                 1996                   1995
                                                 ------------          -----------            ----------
                                                                   (In thousands)
<S>                                                <C>                  <C>                    <C>
Held to maturity:
  GNMA-fixed rate.......................           $  7,483             $   6,043              $  7,644
  FHLMC ARMs............................                281                   364                   407
  FHLMC-fixed rate......................             76,242                89,652                65,427
  FNMA-fixed rate.......................             22,927                27,547                33,150
  CMOs..................................                 --                    --                    19
  Remics................................             36,389                29,220                30,033
  Other mortgage-backed securities......                752                   932                 1,161
                                                   --------             ---------              --------
   Total mortgage-backed securities.....           $144,074             $ 153,758              $137,841
                                                   ========             =========              ========
Mortgage-backed securities
Available-for-sale:
  FHLMC                                            $ 19,223             $   8,905              $ 15,422
  FNMA                                                7,863                 3,240                 4,010
  Remics................................              9,761                 9,882                10,208
                                                   --------             ---------              --------
    Total mortgage-backed securities
      available-for-sale................           $ 36,847             $  22,027              $ 29,640
                                                    =======               =======                ======
</TABLE>


         Mortgage-Backed Securities Maturity. The following table sets forth the
maturity  and  the  weighted  average  coupon  ("WAC")  of  the  Savings  Bank's
mortgage-backed  securities  portfolio at December 31, 1997.  The table does not
include estimated prepayments.  Adjustable-rate  mortgage-backed  securities are
shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>

                                                                                     Contractural
                                                 Contractual                        Available-For-
                                                   Held To                               Sale
                                               Maturities Due         WAC           Maturities Due            WAC
                                               --------------         ---           --------------            ---
                                                                   (Dollars in thousands)
<S>                                                <C>                <C>              <C>                     <C>
Less than 1 year.........................          $  1,816           6.37%            $    408                6.0 %
1 to 3 years.............................            11,992           6.44                2,168                6.0
3 to 5 years.............................            13,114           6.96                9,425                7.0
5 to 10 years............................            24,732           7.15                6,410                6.44
10 to 20 years...........................            44,404           7.05                7,647                6.92
Over 20 years............................            48,016           7.14               10,789                6.92
                                                   --------           ----              -------                ----
Total mortgage-backed securities.........          $144,074           7.03%             $36,847                6.79%
                                                   ========           ====              =======                ====
</TABLE>


Non-Performing and Problem Assets

         Loan Collection.  When a borrower fails to make a required payment on a
loan,  the Savings  Bank takes a number of steps to have the  borrower  cure the
delinquency and restore the loan to current  status.  In the case of residential
mortgage loans and consumer loans, the Savings Bank generally sends the borrower
a written notice of non-payment after the loan is 15 days past due. In the event
payment is not then  received,  additional  letters and phone calls are made. If
the loan is still not brought current

                                       12

<PAGE>



and it  becomes  necessary  for the  Savings  Bank to take legal  action,  which
typically  occurs after a loan is delinquent  90 days or more,  the Savings Bank
will commence foreclosure proceedings against any real property that secures the
loan and attempt to  repossess  any  personal  property  that secures a consumer
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full,  or  refinanced  before the  foreclosure  sale,  the real property
securing the loan generally is sold at foreclosure.

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

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

         Delinquent Loans. Generally,  the Savings Bank reserves for uncollected
interest  on  loans  past  due 90 days or  more.  Loans  also  are  placed  on a
nonaccrual  status  when,  in the judgment of  management,  the  probability  of
collection  of  interest  is  deemed  to  be  insufficient  to  warrant  further
collection.  When a loan is placed on nonaccrual status,  previously accrued but
unpaid interest is deducted from interest income.



                                       13

<PAGE>



         Non-Performing  Assets.  The  following  table sets  forth  information
regarding  non-accrual  loans and real estate  owned by the Savings  Bank at the
dates indicated. The Savings Bank had no loans contractually past due 90 days or
more or for which accrued interest has been recorded.  At December 31, 1997, the
Savings Bank had no restructured loans within the meaning of SFAS No. 15.

<TABLE>
<CAPTION>
                                                              At December 31,            At June 30,
                                              -------------------------------------   ----------------
                                               1997      1996      1995      1994      1994     1993
                                              ------    -------   -------   -------   -------   ------
                                                               (Dollars in thousands)
<S>                                           <C>       <C>       <C>       <C>       <C>       <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One- to four-family .....................   $  776    $  922    $  999    $  928    $1,041    $1,782
  Commercial real estate and multi-family .       --        --        28       119       120       994
Consumer and other ........................      606     1,050       776       639       552       685
                                              ------    ------    ------    ------    ------    ------
   Total non-accrual loans ................   $1,382    $1,972    $1,803    $1,686    $1,713    $3,461
                                              ======    ======    ======    ======    ======    ======

Real estate owned, net ....................   $  351    $  112    $  129    $  139    $  376    $1,687
Other non-performing assets(1) ............       --        --        --        --        --       609
                                              ------    ------    ------    ------    ------    ------
Total non-performing assets ...............   $1,733    $2,084    $1,932    $1,825    $2,089    $5,757
                                              ======    ======    ======    ======    ======    ======
Total non-accrual loans to net loans ......      .55%     0.64%     0.76%     1.48%     1.43%     2.42%
                                              ======    ======    ======    ======    ======    ======
Total non-accrual loans to total assets ...      .23%     0.30%     0.37%     0.39%     0.39%     0.89%
                                              ======    ======    ======    ======    ======    ======
Total non-performing assets to total assets      .29%     0.32%     0.39%     0.42%     0.48%     1.48%
                                              ======    ======    ======    ======    ======    ======
</TABLE>

----------------
(1)      Other  non-performing  assets consists of Third Federal's investment in
         an  administrative  building.  Such  building  was sold  subsequent  to
         December 31, 1993.

         At December  31,  1997,  the  Company had no foreign  loans and no loan
concentrations  exceeding  10% of total loans not  disclosed in above the table.
"Loan concentrations" are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause them
to be similarly impacted by economic or other conditions.  Loans recorded in the
category  of other  real  estate  owned are valued at the lower of book value of
loans outstanding or fair market value less cost of disposal.

         At  December  31,  1997,  the  Company  was not aware of any  potential
problem loans that are not otherwise included in the foregoing table. "Potential
problem loans" are loans where  information  about possible  credit  problems of
borrowers  has caused  management  to have serious  doubts about the  borrowers'
ability to comply with present repayment terms.

         Classified Assets. OTS regulations provide for a classification  system
for problem  assets of insured  institutions  which  covers all problem  assets.
Under this  classification  system,  problem assets of insured  institutions are
classified  as  "substandard,"  "doubtful,"  or "loss."  An asset is  considered
"substandard"  if it is  inadequately  protected  by the  current  net worth and
paying  capacity  of  the  obligor  or  of  the  collateral   pledged,  if  any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that the insured  institution  will sustain "some loss" if the  deficiencies are
not  corrected.  Assets  classified  as  "doubtful"  have all of the  weaknesses
inherent in those classified  "substandard," with the added  characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently  existing  facts,  conditions  and values,  "highly  questionable  and
improbable."  Assets  classified as "loss" are those considered  "uncollectible"
and  of  such  little  value  that  their  continuance  as  assets  without  the
establishment  of a specific loss reserve is not  warranted.  Assets  designated
"special mention"

                                       14

<PAGE>



by  management  are assets  included on the Savings  Bank's  internal  watchlist
because of potential  weakness but that do not currently warrant  classification
in one of the aforementioned categories.

         When  an  insured  institution  classifies  problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets. When an insured  institution  classifies
problem  assets as  "loss,"  it is  required  either  to  establish  a  specific
allowance for losses equal to 100% of that portion of the asset so classified or
to  charge  off  such  amount.   An   institution's   determination  as  to  the
classification  of its  assets  and the amount of its  valuation  allowances  is
subject to review by the OTS,  which may order the  establishment  of additional
general or  specific  loss  allowances.  A portion of  general  loss  allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's  regulatory capital,
while specific valuation  allowances for loan losses generally do not qualify as
regulatory capital.

         The  following  table  provides  further  information  in regard to the
Savings Bank's classified assets as of December 31, 1997.

                                                        At
                                                   December 31,
                                                       1997
                                                   ------------
                                                  (In thousands)

  Special mention assets....................          $    --
  Substandard...............................            2,384
  Doubtful assets...........................               --
  Loss .....................................               --
                                                       ------
     Total classified assets................           $2,384
                                                       ======

---------------------
(1)      Substandard  assets  include  approximately  $1,002,000  of  performing
         assets that are less than 90 days  delinquent,  that are classified for
         reasons other than delinquency.

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

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

         Allowances  for Loan Losses and Real Estate  Acquired in  Settlement of
Loans. The Savings Bank provides valuation  allowances for estimated losses from
uncollectible   loans  and  real  estate   acquired  in   settlement  of  loans.
Management's  periodic  evaluation  of the  adequacy of the  allowance  for loan
losses is based on loss  experience,  known and inherent risk in the  portfolio,
prevailing market conditions, and

                                       15

<PAGE>



management's judgment as to collectibility.  The Savings Bank's determination as
to the  amount of its  allowance  for loan  losses is  subject  to review of the
federal regulatory agencies, the OTS and FDIC, which can order the establishment
of  additional  general or specific loan loss  reserves.  The allowance for loan
losses is increased by charges to earnings and decreased by charge-offs  (net of
recoveries).  The Savings Bank provides valuation  allowances for losses on real
estate  acquired in settlement of loans based on the lower of fair value,  minus
estimated cost to sell, or cost.

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


                                       16

<PAGE>



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

<TABLE>
<CAPTION>

                                          For the Years Ended          For the Six Months   For the Years Ended
                                              December 31,             Ended December 31,       June 30,
                                     -------------------------------   ------------------ ---------------------
                                     1997         1996          1995         1994           1994         1993
                                     ----         ----          ----         ----           ----         ----
                                                                (Dollars in thousands)

<S>                                <C>         <C>            <C>         <C>             <C>         <C>
Balance at beginning of period .   $ 1,806     $    1,484     $ 1,473     $   1,450       $ 1,656     $ 1,800
Provision for loan losses ......       397            330          72            30          (144)         48
Charge-offs:
  One- to four-family ..........        (1)            --         (48)           --            --          --
  Commercial and multi-family
  real estate loans ............        --             --          --            --           (31)       (380)
  Consumer and other loans(1) ..      (173)            (8)        (13)           (7)          (31)       (300)
Recoveries:
  Commercial and multi-family
  real estate loans ............        --             --          --            --            --         413
  Consumer and other loans(1) ..        --             --          --            --            --          75
                                   -------     ----------     -------     ---------       -------     -------
Balance at end of year(2) ......   $ 2,029     $    1,806     $ 1,484     $   1,473       $ 1,450     $ 1,656
                                   =======     ==========     =======     =========       =======     =======


Ratio of net charge-offs during
  the period to average loans
  outstanding during the period        0.6%         0.003%       0.04%         0.01%          .04%        .12%
Ratio of allowance for loan
  losses to non-performing
  loans at the end of the period     147.0%          91.6%       82.3%         87.3%         84.6%       47.8%
Ratio of allowance for loan
  losses to net loans receivable
  at the end of period .........       .81%          0.58%       0.62%          1.3%          1.2%        1.2%
Ratio of allowances for loan
  losses and foreclosed real
  estate to total non-performing
  assets at the end of period ..    137.33%         92.03%       76.8%         81.3%         69.4%       29.5%
</TABLE>

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

                                       17

<PAGE>



         The following  table sets forth the  allocation  of the Savings  Bank's
allowance  for loan  losses by loan  category  and the  percent of loans in each
category to total loans receivable,  gross, at the dates indicated.  The portion
of the loan loss  allowance  allocated to each loan  category does not represent
the total  available  for future losses which may occur within the loan category
since the total loan loss  allowance is a valuation  reserve  applicable  to the
entire loan portfolio.

<TABLE>
<CAPTION>

                                           At December 31,                                                 At June 30,
             ------------------------------------------------------------------------------- ---------------------------------------
                 1997                 1996                1995               1994                 1994                1993
             ------------------  -------------------  ------------------- ------------------ -------------------- ------------------

                    Percent of           Percent of            Percent of        Percent of           Percent of         Percent of
                     Loans to             Loans to              Loans to          Loans to             Loans to           Loans to
             Amount Total Loans  Amount  Total Loans  Amount  Total Loans Amount Total Loans  Amount  Total Loans Amount Total Loans
             ------ -----------  ------  -----------  ------  ----------- ------ -----------  ------  ----------- ------ -----------

                                               (Dollars in thousands)
<S>          <C>     <C>       <C>          <C>     <C>         <C>       <C>      <C>       <C>      <C>         <C>     <C>
At end of
 period
 allocated
 to:
One- to
 four-
 family......$1,503   78.4     $  1,330      73.7%  $1,042       85.1%    $  990    67.2%    $  958    70.4%      $ 788    72.0%
Commercial
 real estate
 and
 multi-
 family......   202   10.5          102       5.7       46        4.1        134     9.1        132    10.2         422    10.9
Construction.    37    2.0           24       1.3       24        1.6          8     0.5         12     0.5           2     0.4
Consumer
 and other
 loans.......   287    9.1          350      19.3      372        9.2        341    23.2        348    18.9         490    17.1
             ------  -----      -------     -----   ------      -----     ------   -----     ------   -----      ------   -----
Total
 allowance...$2,029  100.0%     $ 1,806     100.0%  $1,484      100.0%    $1,473   100.0%    $1,450   100.0%     $1,656   100.0%
             ======  =====      =======     =====   ======      =====     ======   =====     ======   =====      ======   =====


</TABLE>


                                       18

<PAGE>



Analysis of the Allowance for Real Estate Owned

                                    At December 31,
                                 ----------------------
                                 1997    1996     1995
                                 ----------------------
                                 (Dollars in thousands)
Total real estate owned and in
  judgment....... ............   $ 359   $ 116   $ 129
                                 =====   =====   =====

Allowance balances - beginning   $   3   $  --   $  11

Provision ....................       5       3       2

Charge-offs ..................      --      --     (13)
                                 -----   -----   -----

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

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


Investment Activities

         The investment  policy of the Savings Bank, which is established by the
Board of Directors and implemented by the Asset Liability Committee, is designed
primarily to provide and maintain  liquidity,  to generate a favorable return on
investments  without  incurring  undue  interest  rate and credit  risk,  and to
complement the Savings Bank's lending activities. In establishing its investment
strategies,  the Savings  Bank  considers  its business  and growth  plans,  the
economic  environment,  the types of  securities  to be held and other  factors.
Federally chartered savings institutions have the authority to invest in various
types of assets,  including  U.S.  Treasury  obligations,  securities of various
federal agencies,  certain  certificates of deposit of insured banks and savings
institutions,  certain  bankers  acceptances,  repurchase  agreements,  loans on
federal  funds,  and,  subject to certain  limits,  commercial  paper and mutual
funds.



                                       19

<PAGE>



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

                                                                 At December 31,
                                          -----------------------------------------------------------
                                                   1997              1996                  1995
                                          -----------------   -----------------   -------------------
                                          Amortized   Market  Amortized  Market   Amortized   Market
                                            Cost      Value     Cost     Value      Cost      Value
                                          ---------   ------  ---------  ------   ---------   ------
                                                                               (In thousands)

<S>                                        <C>       <C>       <C>       <C>       <C>       <C>
Interest-earning deposits ..............   $25,628   $25,628   $38,120   $38,120   $15,606   $15,606
                                           =======   =======   =======   =======   =======   =======

Investment securities held-to- maturity:
  U.S. government and agency
    obligations ........................    50,278    50,433   $34,976   $34,854   $14,475   $14,739
  State and political
    subdivisions .......................     2,544     2,593     3,068     3,040     3,140     3,139
  Corporate debt securities ............         0         0       500       499     6,025     6,002
                                           -------   -------   -------   -------   -------   -------
    Total ..............................   $52,822   $53,026   $38,544   $38,393   $23,640   $23,880
                                           =======   =======   =======   =======   =======   =======

Securities available-for-sale:
  U.S. government and agency
    obligations ........................   $31,254    31,327   $11,976   $12,015   $14,489   $14,448
  Equity securities
    (SLMA stock) .......................        10       210        10       139        10        98
                                                               -------   -------   -------   -------
  Mutual funds .........................       500       500       500       498       500       498
                                           -------   -------   -------   -------   -------   -------
    Total ..............................   $31,764   $32,037   $12,486   $12,652   $14,999   $15,044
                                           =======   =======   =======   =======   =======   =======
</TABLE>




                                       20

<PAGE>



Investment Portfolio Maturities

         The  following  table  sets forth  certain  information  regarding  the
carrying  values,  weighted  average yields and maturities of the Savings Bank's
investment  securities  portfolio,  exclusive of interest-earning  deposits,  at
December 31, 1997.

<TABLE>
<CAPTION>

                       One Year or Less  One to Five Years   Five to Ten Years  More than Ten Years Total Investment Securities (2)
                     ------------------- ------------------- ------------------ ------------------- -------------------------------
                     Carrying    Average Carrying    Average  Carrying  Average Carrying    Average Carrying  Average      Market
                       Value      Yield    Value      Yield     Value    Yield    Value      Yield    Value    Yield       Value
                       -----      -----    -----      -----     -----    -----    -----      -----    -----    -----       -----
                                                       (Dollars in thousands)
<S>                  <C>          <C>    <C>          <C>    <C>          <C>    <C>         <C>   <C>          <C>     <C>
U.S. government
 obligations......... $7,015,781  5.85%  $ 7,076,660  6.56%  $          0   %    $        0      % $14,092,441  6.20%   $14,152,344
U. S. agency
 obligations......... 19,991,911  5.58    28,006,892  6.33     16,768,000 7.07    2,955,992  8.22   67,722,795  6.56     67,817,767
Municipal obligations          0             725,000  4.71              0         1,818,963  5.28    2,543,963  5.12      2,592,900
Corporate obligations          0                   0                    0                 0            500,000  5.66              0
Other securities(1)..    500,000  5.66             0                    0                 0                  0              499,499
                     -----------  ----   -----------  ----   ------------ ----   ----------  ----  -----------  ----   -----------
  Total..............$27,507,692  5.65%  $35,808,552  6.35%  $ 16,768,000 7.07%  $4,774,955  7.10% $84,859,199  6.46%  $ 85,062,510
                     ===========  ====   ===========  ====   ============ ====   ==========  ====  ===========  ====   ===========
</TABLE>

------------
(1)      Other   securities   consists  of  an  investment  in   adjustable-rate
         mortgage-backed securities mutual funds. Such investments do not have a
         stated  maturity and are  considered  in the one year or less  category
         based on quarterly repricing of the investment.
(2)      Includes $32.0 million of U.S.  government and agency  obligations  and
         other investments which are carried as  available-for-sale  at December
         31,  1997.  Investment  securities  available-for-sale  are  carried at
         market value.

                                       21

<PAGE>



Sources of Funds

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

         Deposits.  The Savings Bank offers a variety of deposit accounts having
a range of interest  rates and terms.  The Savings  Bank's  deposits  consist of
regular savings,  non-interest bearing checking, NOW checking, money market, and
certificate accounts. Of the deposit accounts,  $32,497 million or 7.21% consist
of IRA, Keogh or SEP retirement accounts at December 31, 1997.

         The flow of deposits is influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.  The Savings  Bank's  deposits are  primarily  obtained  from areas
surrounding  its  offices,  and the Savings  Bank relies  primarily  on customer
service and  long-standing  relationships  with  customers to attract and retain
these  deposits.  The Savings Bank has  maintained a high level of core deposits
consisting of regular savings, money market,  non-interest-bearing checking, and
NOW checking,  which has  contributed  to a low  cost-of-funds.  At December 31,
1997, core deposits amounted to 56.04% of total deposits.


                                       22

<PAGE>



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

<TABLE>
<CAPTION>



                                                                    At December 31,
                                ----------------------------------------------------------------------------------------
                                          1997                           1996                          1995
                                ---------------------------   ---------------------------   ----------------------------
                                                  Weighted                       Weighted                      Weighted
                                        Percent   Average               Percent  Average              Percent  Average
                                        of Total  Nominal              of Total  Nominal             of Total  Nominal
                                Amount  Deposits    Rate       Amount  Deposits    Rate     Amount   Deposits   Rate
                                ------  --------  -------     -------  --------   ------    ------   --------  -------
                                                                       (Dollars in thousands)

<S>                            <C>         <C>       <C>     <C>        <C>         <C>   <C>         <C>        <C>
Transaction accounts:
  Interest-bearing checking
   accounts..................    40,360      9.00    1.01    $ 42,513     9.06%     0.98% $ 33,581      9.96%    1.57%

  Money market accounts......    32,777      7.28    3.32      29,970     6.39      3.54    10,481      3.11     2.75
  Non-interest-bearing
 checking accounts...........     5,037      1.12      --       3,741     0.80        --     1,573      0.47       --
                               --------    ------            --------   ------            --------    ------     ----
Total transaction accounts...    78,174     17.35              76,224    16.25              45,635     13.54
Fixed-rate passbook accounts.   122,952     27.30    2.50     127,213    27.12      3.00   120,387     35.72     3.00
Adjustable-rate passbook
 accounts....................    51,277      4.38    4.97      60,452    12.89      4.88    68,247     20.25     4.74
      Total                     174,229     38.68             187,665    40.01             234,269     69.51
                               --------    ------            --------   ------            --------    ------
Certificate accounts:
  90-day certificates........     1,340       .30    3.49       2,354     0.50      3.96     4,541      1.35     4.05
  Six-month certificates.....    10,743      2.38    4.04      18,861     4.02      4.44    10,351      3.07     4.10
  Seven-month certificates...       480       .11    4.27       3,555     0.76      4.93        --        --       --
  Eight-month certificates...    33,155      7.38    5.49          --       --        --        --        --       --
  Nine-month certificates....     2,936       .65    4.07      13,116     2.80      4.96     5,144      1.53     5.86
  Ten-month certificates.....     3,300       .73    4.33      19,341     4.12      5.29        --        --       --
  One-year certificates......    19,599      4.35    4.69      55,586    11.85      5.28    17,409      5.16     5.08
  15-month certificates......    28,433      6.31    5.70       1,450     0.31      5.54        --        --       --
  17-month certificates......     5,770      1.28    5.74       8,801     1.88      5.53     7,515      2.23     5.75
  18-month certificates......     6,807      1.51    5.50       5,052     1.08      4.83    12,004      3.56     6.07
  21-month certificates......       256       .06    5.07         677     0.14      5.20        --        --       --
  Two-year certificates......    30,445      6.76    5.84      22,632     4.82      5.65     6,139      1.82     4.99
  25-month certificates......    12,537      2.78    5.91       8,666     1.85      5.81        --        --       --
  30-month certificates......     6,419      1.42    5.06       8,539     1.82      5.45     7,371      2.19     4.54
  Three-year certificates....    10,780      2.39    5.85       9,628     2.05      5.55     5,442      1.61     4.55
  Four year certificates.....     2,575       .57    5.66       2,645     0.56      5.48       929      0.27     5.33
  54 month certificates......     1,974       .44    5.92       1,975     0.42      5.83     1,921      0.57     5.80
  Five year certificates.....    18,341      4.07    5.49      19,356     4.13      5.35    18,274      5.42     5.66
  Six-year certificates......       165       .04    5.48         211     0.04      5.34        --        --       --
  Seven-year certificates....         1        --    7.40           1       --      7.30        --        --       --
  Eight-year certificates....        88       .02    5.92          99     0.02      5.80       105      0.03     5.83
  10-year....................     1,072       .24    7.71       1,398     0.30      7.85     1,050      0.31     7.88
  Jumbo certificates(1)......       810       .18    5.00       1,256     0.27      5.40     4,436      1.32     5.12
                               --------    ------            --------   ------      ----  --------    ------     ----
     Total certificate
      accounts...............   198,026     43.97    5.38     205,199    43.74      5.30   102,800     30.49     5.22
                               --------    ------    ----    --------   ------      ----  --------    ------     ----
Total deposits...............  $450,429    100.00%   3.95%   $469,088   100.00%     4.08% $337,069    100.00%    3.87%
                               ========    ======    ====    ========   ======      ====  ========    ======     ====
</TABLE>

(1)      The  $810,000 in jumbo  certificates  of deposit  shown at December 31,
         1997 does not include  certificate  deposits in excess of $100,000 with
         interest  compounded on a daily basis. The jumbo  certificate  category
         includes  only  certificate  deposits in excess of $100,000 with simple
         interest  paid on an  annual  basis at a premium  of .25%  over  posted
         interest rates.

                                       23

<PAGE>



         At December 31, 1997, the Savings Bank had outstanding  certificates of
deposit in amounts of $100,000 or more maturing as follows:

                                                  Amount
                                                  ------
Maturing Period                               (In thousands)
---------------
Three months or less.....................          $1,199
Over three through six months............           1,806
Over six through 12 months...............           3,420
Over 12 months...........................           2,953
                                                    -----
    Total................................          $9,378
                                                    =====


         The following table presents, by various rate categories, the amount of
time deposits  outstanding at December 31, 1997,  1996 and 1995, and the periods
to maturity of the certificate accounts outstanding at December 31, 1997.

<TABLE>
<CAPTION>

                     Period to Maturity from
                         December 31, 1997
                   --------------------------------
                   Within                                  At December 31,
                     One      One to                 ------------------------------
                     Year   Three Years  Thereafter    1997       1996       1995
                   -------- ----------  ----------   --------   --------   --------
                                      (In thousands)
Time deposits:
<S>                <C>        <C>        <C>        <C>        <C>        <C>
  2.00% to 2.99%   $      1   $     17   $      0   $     18   $     17   $    273
  3.00% to 3.99%     16,830         67          0     16,897      2,927     11,711
  4.00% to 4.99%     29,277      7,636        542     37,455     61,355     27,319
  5.00% to 5.99%     88,605     44,119      4,136    136,860    129,935     49,298
  6.00% to 6.99%      1,307      4,073        564      5,944      9,633     11,578
  7.00% to 7.99%         65         82        167        314        628      1,886
  8.00% to 8.99%        280        173          0        453        596        735
  9.00% to 9.99%         39         46          0         85        108         --
                   --------   --------   --------   --------   --------   --------
       Total ...   $136,404   $ 56,213   $  5,409   $198,026   $205,199   $102,800
                   ========   ========   ========   ========   ========   ========
</TABLE>





                                       24

<PAGE>



Borrowings

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


                                             At December 31,
                                 ---------------------------------------
                                    1997          1996          1995
                                 ----------    ----------    -----------
                                          (Dollars in thousands)

FHLB advances ................   $   88,359    $   98,359    $   73,359
                                 ==========    ==========    ==========


Weighted average interest rate         6.03%         5.98%         6.07%




                                     Years Ended December 31,
                                 -------------------------------
                                   1997        1996       1995
                                 --------    --------    -------
                                     (Dollars in thousands)
Maximum balance of
 FHLB advances outstanding ...   $ 98,359    $ 98,359    $73,359
                                 ========    ========    =======
Weighted average balance of
FHLB advances outstanding ....   $ 97,837    $ 89,343    $16,171
                                 ========    ========    =======
Weighted average interest rate
of FHLB advances .............        6.0%       5.99%      6.22%
                                 ========    ========    =======


Subsidiary Activity

         Third  Federal  is  permitted  to invest up to 2% of its  assets in the
capital  stock of, or secured or unsecured  loans to,  subsidiary  corporations,
with an additional investment of 1% of assets when such additional investment is
utilized primarily for community development  purposes.  Under such limitations,
as  of  December  31,  1997,  Third  Federal  was  authorized  to  invest  up to
approximately  $12.0 million in the stock of, or loans to, service  corporations
(based upon the 2%  limitation).  At December 31, 1997,  the Savings Bank had no
active subsidiaries.




                                       25

<PAGE>



Personnel

         As of December 31,  1997,  the Savings  Bank had 144  full-time  and 17
part-time  employees.  None of the Savings Bank's employees are represented by a
collective  bargaining  group.  The Savings Bank believes that its  relationship
with its employees is good.

Executive Officers of the Registrant

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

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

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

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

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

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

                                   REGULATION

         Set  forth  below  is a brief  description  of all  material  laws  and
regulations  which relate to the regulation of the Savings Bank and the Company.
The description does not purport to be complete and is qualified in its entirety
by reference to applicable laws and regulations.

Company Regulation

         General.  The  Company is a unitary  savings and loan  holding  company
subject to regulatory  oversight by the OTS. As such, the Company is required to
register  and  file  reports  with  the OTS and is  subject  to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Company and its non-savings association  subsidiaries,  should such subsidiaries
be formed,  which also permits the OTS to restrict or prohibit  activities  that
are determined to be a serious risk to the subsidiary savings association.  This
regulation  and  oversight  is  intended  primarily  for the  protection  of the
depositors  of the Savings Bank and not for the benefit of  stockholders  of the
Company. The

                                       26

<PAGE>



Company is also  required to file certain  reports with,  and  otherwise  comply
with, the rules and regulations of the OTS and the SEC.

         QTL Test. As a unitary  savings and loan holding  company,  the Company
generally  is not subject to activity  restrictions,  provided  the Savings Bank
satisfies  the QTL test.  If the  Company  acquires  control of another  savings
association  as a separate  subsidiary,  it would become a multiple  savings and
loan  holding  company,  and  the  activities  of  the  Company  and  any of its
subsidiaries  (other than the  Savings  Bank or any other  SAIF-insured  savings
association)  would become  subject to  restrictions  applicable to bank holding
companies  unless such other  associations  each also  qualify as a QTL and were
acquired in a supervisory acquisition.

Savings Bank Regulation

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

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

         The Savings Bank must file reports with the OTS and the FDIC concerning
its  activities  and financial  condition,  in addition to obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.  Any change in such  regulations,  whether by the OTS, the FDIC or the
Congress could have a material  adverse impact on the Company,  the Savings Bank
and their operations. The Company is also required to file certain reports with,
and otherwise comply with, the rules and regulations of the OTS and the SEC.

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

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


                                       27

<PAGE>



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

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted  assets and (3) a risk-based  capital  requirement
equal to 8.0% of total risk-weighted assets.

         The following  table sets forth the Savings Bank's  compliance with its
regulatory capital requirements as of December 31, 1997:

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

Tangible capital..........................     $ 42,544                7.16%
Tangible capital requirement..............        8,902                1.50
                                               --------               -----

Excess over requirement...................     $ 33,642                5.66%
                                               ========               =====

Core Capital..............................     $ 42,544                7.16%
Core Capital requirement..................       17,804                3.00
                                               --------               -----

Excess over requirement...................     $ 24,740                4.16%
                                               ========               =====

Risk-based capital........................     $ 44,573               17.41%
Risk-based capital requirement............       20,487                8.00
                                               --------               -----

Excess over requirement...................     $ 24,086                9.41%
                                               ========               =====



         Dividend and Other Capital  Distribution  Limitations.  OTS regulations
require the Savings Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory  powers to prohibit  the payment of  dividends  to the  Company.  In
addition, the Savings Bank may not declare or pay a cash dividend on its capital
stock if the effect  thereof  would be to reduce the  regulatory  capital of the
Savings  Bank  below the  amount  required  for the  liquidation  account  to be
established pursuant to the Savings Bank's Plan of Conversion.

         In January 1998, the OTS proposed amendments to its current regulations
with  respect  to  capital  distributions  by  savings  associations.  Under the
proposed regulation,  savings associations that would remain at least adequately
capitalized  following the capital  distribution,  and that meet other specified
requirements,  would not be required to file a notice or application for capital
distributions (such as cash dividends)  declared below specified amounts.  Under
the proposed  regulation,  savings associations which are eligible for expedited
treatment  under current OTS regulations are not required to file a notice or an
application  with the OTS if (i) the savings  association  would remain at least
adequately capitalized following the capital distribution and (ii) the amount of
the  capital  distribution  does not  exceed  an  amount  equal  to the  savings
association's  net income for that year to date, plus the savings  association's
retained  net  income  for the  previous  two years.  Thus,  under the  proposed
regulation,  only  undistributed  net  income  for the  prior  two  years may be
distributed in addition to the current year's  undistributed  net income without
the filing of an application  with the OTS.  Savings  associations  which do not
qualify for

                                       28

<PAGE>



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.   Under  certain  other
circumstances,  savings  associations will be required to file a notice with OTS
prior to making  the  capital  distribution.  The OTS  proposed  limitations  on
capital  distributions  are similar to the  limitations  imposed  upon  national
banks.  The Bank is unable to predict  whether or when the  proposed  regulation
will become effective.

         Qualified  Thrift Lender Test.  The Home Owners' Loan Act ("HOLA"),  as
amended,  requires savings  institutions to meet a QTL test. If the Savings Bank
maintains  an  appropriate  level of  Qualified  Thrift  Investments  (primarily
residential mortgages and related investments, including certain mortgage-backed
securities) ("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy
full borrowing  privileges from the FHLB of Pittsburgh.  The required percentage
of QTIs is 65% of  portfolio  assets  (defined  as all assets  minus  intangible
assets,  property used by the  institution in conducting its business and liquid
assets equal to 10% of total assets). Certain assets are subject to a percentage
limitation of 20% of portfolio  assets.  In addition,  savings  associations may
include  shares of stock of the FHLBs,  FNMA and FHLMC as qualifying  QTIs.  The
FDICIA also amended the method for measuring  compliance with the QTL test to be
on a monthly  basis in nine out of every 12 months,  as opposed to on a daily or
weekly  average of QTIs.  As of  December  31,  1997,  the  Savings  Bank was in
compliance with its QTL requirement with 82.8% of its assets invested in QTIs .

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

         Liquidity  Requirements.  All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At the present  time,  the required  liquid
asset ratio is 5%. At December 31, 1997, the Savings Bank's  liquidity ratio was
19.3%.

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

         As a member,  the Savings  Bank is required  to purchase  and  maintain
stock  in the  FHLB of  Pittsburgh  in an  amount  equal  to at  least 1% of its
aggregate unpaid residential  mortgage loans, home purchase contracts or similar
obligations  at the  beginning of each year.  At December 31, 1997,  the Savings
Bank  had  $4.9  million  in FHLB  stock,  which  was in  compliance  with  this
requirement.


                                       29

<PAGE>



         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity  requirements  that are imposed by the OTS. At December
31, 1997, the Savings Bank's total transaction accounts required a reserve level
of $750,000 which was entirely offset by the Bank's vault cash on hand.

         Savings  associations have authority to borrow from the Federal Reserve
Bank "discount  window," but Federal Reserve policy  generally  requires savings
associations  to exhaust  all OTS  sources  before  borrowing  from the  Federal
Reserve System. The Savings Bank had no such borrowings at December 31, 1997.

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

         The  Company is located and  conducts  its  business at 3 Penns  Trail,
Newtown,  Pennsylvania.  The Savings Bank  operates  from its main office and 13
branch offices located in  Philadelphia  and Bucks  Counties,  Pennsylvania  and
Mercer County, New Jersey. The Savings Bank also owns two lots, one of which has
a building,  behind its Doylestown  branch  office.  The building is leased to a
third-party  and the other is used as a parking lot for employees and tenants of
Third  Federal.  The net book value of the two lots was $117,000 at December 31,
1997.  In addition,  the Savings Bank owns a vacant lot at Newtown  Yardley Road
and Friends  Lane,  Newtown,  Pennsylvania.  This lot was  purchased in 1993 for
future expansion and had a net book value of $1.6 million at December 31, 1997.

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

<TABLE>
<CAPTION>
                                      Leased or                                                  Leased or
    Location                            Owned                  Location                            Owned
  -------------                        -------                 --------                          ---------

<S>                                     <C>                <C>                                     <C>
MAIN OFFICE
  Newtown Office
  3 Penns Trail
  Newtown, PA 18940                     Owned



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





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

</TABLE>


                                       30

<PAGE>


<TABLE>
<CAPTION>

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


  Hamilton Office                                        Mayfair Office
  1850 Route 33                                          Roosevelt Blvd. at Unruh
  Hamilton Square, NJ 08690                Owned         Philadelphia, PA 19149                    Owned


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

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

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

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


  New Britain Office
  100 Town Center
  New Britain, PA 18901                    Leased
</TABLE>

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


Item 3.  Legal Proceedings
--------------------------

         Neither the Company nor its  subsidiaries  are  involved in any pending
legal  proceedings,  other than routine legal matters  occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated  financial  condition or results
of operations of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

         None.


                                       31

<PAGE>



                                     PART II

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

         Information  relating to the market for Registrant's  common equity and
related  stockholder  matters  appears under "Stock Market  Information"  in the
Registrant's  1997  Annual  Report  to  Stockholders  on  pages 2 and 3,  and is
incorporated herein by reference.

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

         The  above-captioned  information appears under "Selected Financial and
Other Data" in the  Registrant's  1997 Annual Report to Stockholders on pages 4
and 5, and is incorporated herein by reference.


                                       32

<PAGE>



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

Rate/Volume Analysis

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

<TABLE>
<CAPTION>

                                   Years Ended                        Years Ended                       Twelve Months Ended
                        ------------------------------------ ----------------------------------- ----------------------------------
                           December 31      December 31        December 31      December 31          December 31,     June 30
                               1997      vs     1996               1996      vs    1995                  1995    vs    1994
                        ------------------------------------ ----------------------------------- ----------------------------------
                                 Increase (Decrease)                Increase (Decrease)                  Increase (Decrease)
                                        Due to                            Due to                               Due to
                        ------------------------------------ ----------------------------------  ----------------------------------
                            Volume        Rate         Net     Volume      Rate          Net       Volume       Rate        Net
                        -------------  -------     --------- ------------ -------     ---------  ---------   ----------- ----------
<S>                      <C>         <C>         <C>          <C>        <C>         <C>         <C>         <C>         <C>
Interest income: .......                                               (In thousands)
 Loans receivable ......     (510)        443         (67)   $ 11,645    $    (30)   $ 11,615    $    853    $   (315)   $    538
 Mortgage-backed
  securities(1) ........    1,443          31       1,474        (699)       (137)       (836)      3,506         474       3,980
 Investment
  securities(1) ........    2,887          68       2,955        (982)         --        (982)       (401)        211        (190)
 Securities purchased
 under agreements to
  resell ...............      325          70         395          --          --          --          --          --          --
 Other interest-earning
  assets ...............      443       (1000)       (557)        (14)       (424)       (438)         50         736         786
                         --------    --------    --------    --------    --------    --------    --------    --------    --------

    Total interest-
     earning assets..... $  4,588    $   (388)   $  4,200    $  9,950    $   (591)   $  9,359    $  4,008    $  1,106    $  5,114
                         ========    ========    ========    ========    ========    ========    ========    ========    ========

Interest expense:
 Savings deposits ...... $  2,922    $    550    $  3,472    $  1,734    $   (363)   $  1,371    $   (724)   $  1,547    $    823
 Borrowed money ........      145        (334)       (189)      4,866         157       5,023         848         (57)        791
                         --------    --------    --------    --------    --------    --------    --------    --------    --------
    Total interest
      bearing
      liabilities ...... $  3,067         216    $  3,283    $  6,600    $   (206)   $  6,394    $    124    $  1,490    $  1,614
                         ========    ========    ========    ========    ========    ========    ========    ========    ========

Net change in interest
  income ............... $  1,521        (604)   $    917    $  3,350    $   (385)   $  2,965    $  3,884    $   (384)   $  3,500
                         ========    ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>



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


                                       33

<PAGE>



         The remaining  above-captioned  information  appears under Management's
Discussion and Analysis of Financial  Condition and Results of Operations in the
Registrant's  1997 Annual  Report to  Stockholders  on pages 6 through 15 and is
incorporated herein by reference.

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

Asset and Liability Management

         Managing  Interest  Rate  Risk.  Interest  rate risk is  defined as the
sensitivity of the Company's  current and future earnings as well as its capital
to  changes  in the level of market  interest  rates.  The  Bank's  exposure  to
interest  rate  risk  results  from,  among  other  things,  the  difference  in
maturities in interest-earning  assets and interest-bearing  liabilities.  Since
the Bank's assets  currently have a longer  maturity than its  liabilities,  the
Bank's earnings could be negatively  impacted during a period of rising interest
rates and conversely,  positively  impacted during a period of falling  interest
rates.  The  relationship  between the interest rate  sensitivity  of the Bank's
assets and liabilities is continually  monitored by management.  In this regard,
the Bank  emphasizes the  origination of shorter term or adjustable  rate assets
for portfolio  while  originating  longer term fixed rate assets for resale.  At
December 31, 1997, approximately 77% of the Bank's loan portfolio were comprised
of loans with original  maturities of less than 15 years,  balloon  mortgages or
adjustable rate loans. Additionally,  the origination level of fixed rate assets
are continually  monitored and if deemed  appropriate,  the Bank will enter into
forward  commitments  for the sale of these  assets  to  ensure  the Bank is not
exposed to undue interest rate risk.

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

         A  significant  portion of the Bank's  assets has been  funded with CDs
including jumbo CDs. Unlike other deposit  products such as checking and savings
accounts,  CDs carry a high degree of interest rate  sensitivity  and therefore,
their  renewal  will vary based on the  competitiveness  of the Bank's  interest
rates.  The Bank has attempted to price its CDs to be competitive at the shorter
maturities (i.e., maturities of less than one year) in order to better match the
repricing   characteristics   of   portfolio   loans.   At  December  31,  1997,
approximately 44% of the Bank's deposits were CDs.

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

         The  nature of the  Bank's  current  operations  is such that it is not
subject to foreign  currency  exchange or  commodity  price risk.  Additionally,
neither the Company nor the Bank owns any trading assets.  At December 31, 1997,
the Bank did not have any hedging  transactions  in place such as interest  rate
swaps, caps, or floors.


                                       34
<PAGE>

         GAP analysis is a useful measurement of asset and liability management,
however,  it is difficult to predict the effect of changing interest rates based
solely on this measure. An additional analysis required by the OTS and generated
quarterly  is the OTS  Interest  Rate  Exposure  Report.  This report  forecasts
changes  in  the  Bank's  market  value  of  portfolio   equity  ("MVPE")  under
alternative  interest rate environments.  The MVPE is defined as the net present
value  of  the  Bank's  existing  assets,   liabilities  and  off-balance  sheet
instruments. The calculated estimates of change in MVPE at December 31, 1997 are
as follows:

                                      MVPE
--------------------------------------------------------------------------------

                                             Amount
Change in Interest Rate                 (In Thousands)             % Change


+400 Basis Points                            $35,571                 -37%
+300 Basis Points                             41,396                 -27%
+200 Basis Points                             47,259                 -16%
+100 Basis Points                             52,581                  -7%
Flat Rate                                     56,334
-100 Basis Points                             57,973                  +3%
-200 Basis Points                             58,074                  +3%
-300 Basis Points                             58,141                  +3%
-400 Basis Points                             60,381                  +7%

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

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

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

         The Consolidated  Financial Statements of TF Financial  Corporation and
its  subsidiaries  are  included  in the  Registrant's  1997  Annual  Report  to
Stockholders on pages 17 through 63 and are incorporated herein by reference.

                                       35
<PAGE>
Item 9. Change In and Disagreements with Accountants on Accounting and Financial
--------------------------------------------------------------------------------
Disclosure
----------

         None.

                                    PART III

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

         The information contained under the section captioned "Information with
Respect to Nominees for Director,  Directors  Continuing in Office and Executive
Officers  --  General  Information  and  Nominees"  at  pages  4  to  6  of  the
Registrant's definitive proxy statement for the Registrant's 1998 Annual Meeting
of Stockholders (the "Proxy Statement") is incorporated herein by reference.

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


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

         The  information  relating to executive  compensation  is  incorporated
herein by reference to the Registrant's Proxy Statement at pages 7 through 14.


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

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


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

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

                                       36

<PAGE>
                                     PART IV

Item 14.  Exhibits and Reports on Form 8-K
------------------------------------------

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

         (1) Financial  Statements of the Company are  incorporated by reference
to the following indicated pages of the 1997 Annual Report to Stockholders.
<TABLE>
                                                                                                               PAGE
                                                                                                               ----

<S>                                                                                                            <C>
Independent Auditors' Report.........................................................................             21
Consolidated Statements of Financial Position as of December 31, 1997 and 1996.......................             22
Consolidated Statements of Earnings For the Years Ended
  December 31, 1997, 1996 and 1995...................................................................             23
Consolidated Statement of Changes in Stockholders' Equity
  for the Years Ended December 31, 1997, 1996 and 1995...............................................          24-25
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1997, 1996 and 1995...................................................................          26-27
Notes to Consolidated Financial Statements...........................................................          28-63
</TABLE>


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

         (2)  All  schedules  are  omitted  because  they  are not  required  or
applicable,  or the required information is shown in the consolidated  financial
statements or the notes thereto.

         (3)      Exhibits

                  (a)   The following exhibits are filed as part of this report.

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

                                       37

<PAGE>




         23.0     Consent of Independent Auditor
         27.1     Financial Data Schedule - December 31, 1997
         27.2     Restated Financial Data Schedule - September 30, 1997
         27.3     Restated Financial Data Schedule - June 30, 1997
         27.4     Restated Financial Data Schedule - March 31, 1997
         27.5     Restated Financial Data Schedule - December 31, 1996
         27.6     Restated Financial Data Schedule - September 30, 1996
         27.7     Restated Financial Data Schedule - June 30, 1996
         27.8     Restated Financial Data Schedule - March 31, 1996
         27.9     Restated Financial Data Schedule - December 31, 1995

                  (b)      Reports on Form 8-K.

                           None

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







                                       38

<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>


                                                     TF FINANCIAL CORPORATION

<S>                                                  <C>
Dated: March 31, 1998                                By:/s/ John R. Stranford
       --------------                                   --------------------------------
                                                        John R. Stranford
                                                        President, Chief Executive
                                                        Officer and Director
                                                        (Duly Authorized Representative)

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

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

Date:    March 31, 1998                              Date:     March 31, 1998
         --------------                                       ---------------


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

Date:    March 31, 1998                              Date:     March 31, 1998
         --------------                                       ---------------


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

Date:    March 31, 1998                              Date:      March 31, 1998
         --------------                                       ----------------
</TABLE>