SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 
20549  FORM 10-K  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  x
  
  ANNUAL REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008oro
  
  TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934  For the transition period
from                    to  Commission file number:  0-24168  TF FINANCIAL CORPORATION (Exact Name of
Registrant as Specified in Its Charter)  Delaware
  
  74-2705050(State
  or Other Jurisdiction of Incorporation
  or Organization)
  
  (I.R.S.
  Employer Identification No.)3 Penns Trail, Newtown, Pennsylvania
  
  18940(Address
  of Principal Executive Offices)
  
  (Zip
  Code)  Registrants
telephone number, including area code: (215) 579-4000  Securities
registered pursuant to Section 12(b) of the Act:  Title of each class
  
  Name of each exchange on which registeredCommon Stock, par value
  $.10 per share
  
  The Nasdaq Stock Market
  LLC  Securities
registered pursuant to Section 12(g) of the Act: None  Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.  YESo     NO x  Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act.  YESoNO x  Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.  YESxNO o  Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.x  Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act.  Large accelerated
  filer  o
  
  Accelerated
  filero
  
  Non-accelerated
  filero
  
  Smaller
  reporting companyx  Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).  YESoNO x  The aggregate market
value of the voting common equity held by non-affiliates of the registrant,
based on the closing price of the registrants Common Stock as quoted on the
Nasdaq System on June 30, 2008, was $41.2 million (1,917,272 shares at
$21.51 per share).  As of March 09, 2009
there were outstanding 2,662,871 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,
2008. (Parts I, II and IV) 2.Portions
of the Proxy Statement for the 2009 Annual Meeting of Stockholders. (Part III)


PART I  TF FINANCIAL CORPORATION
(THE COMPANY) MAY FROM TIME TO TIME MAKE WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS CONTAINED IN THE COMPANYS FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM 10-K
AND THE EXHIBITS HERETO), IN ITS REPORTS TO STOCKHOLDERS AND IN OTHER
COMMUNICATIONS BY THE COMPANY, WHICH ARE MADE IN GOOD FAITH BY THE COMPANY
PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.  THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANYS
PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS, THAT ARE SUBJECT TO
CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME OF WHICH ARE BEYOND THE COMPANYS
CONTROL).  THE FOLLOWING FACTORS, AMONG
OTHERS, COULD CAUSE THE COMPANYS FINANCIAL PERFORMANCE TO DIFFER MATERIALLY
FROM THE PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN
SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN
GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
OPERATIONS; THE EFFECTS OF, AND CHANGES IN, MONETARY AND FISCAL POLICIES AND
LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY FLUCTUATIONS;
THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND SERVICES OF THE
COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND SERVICES BY
USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO COMPETITORS
PRODUCTS AND SERVICES; THE IMPACT OF CHANGES IN FINANCIAL SERVICES LAWS AND
REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS
INVOLVED IN THE FOREGOING.  THE COMPANY CAUTIONS THAT
THE FOREGOING LIST OF IMPORTANT FACTORS IS NOT EXCLUSIVE.  THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY
FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM
TIME TO TIME BY OR ON BEHALF OF THE COMPANY.  Item
1.         Business  BUSINESS OF THE
COMPANY  On July 13, 1994,
the Company consummated its public offering of 5,290,000 shares of its common
stock and acquired Third Federal Bank (the Bank) as part of the Banks
mutual-to-stock conversion.  The Company
was incorporated under Delaware law in March 1994.  The Company is a savings and loan holding
company and is subject to regulation by the Office of Thrift Supervision (the OTS),
the Federal Deposit Insurance Corporation (the FDIC) and the Securities and
Exchange Commission (the SEC).  The
Company does not transact any material business other than through its direct
and indirect subsidiaries: Third Federal Bank, TF Investments Corporation,
Teragon Financial Corporation, Penns Trail Development Corporation and Third
Delaware Corporation. At December 31, 2008, the Company had total assets
of $733.7 million, total liabilities of $666.0 million and stockholders equity
of $67.7 million.  BUSINESS OF THE
BANK  The Bank is a
federally-chartered stock savings bank, which was originally chartered in 1921
as a Pennsylvania-chartered building and loan association.  The Banks deposits are insured up to the
maximum amount allowable by the FDIC.  The Bank is a community
oriented savings institution offering a variety of financial services to meet
the needs of the communities it serves. 
As of December 31, 2008 the Bank operated fourteen branch offices
in Bucks and Philadelphia Counties, Pennsylvania and in Mercer County, New
Jersey.  The Bank attracts
deposits from the general public and uses such deposits, together with
borrowings and other funds primarily to originate or purchase loans secured by
first mortgages on owner-occupied, one-to-four family residences in its market
area and to invest in mortgage-backed and investment securities.  At December 31, 2008, one-to-four family  2


residential mortgage
loans totaled $283.5 million or 52% of the Banks total loan portfolio.  At that same date, the Bank had approximately
$112.0 million or 15% of total assets invested in mortgage-backed securities
and $31.6 million or 4% of total assets in investment securities. The Bank also
originates commercial real estate and multi-family, construction and consumer
loans. The Bank has two subsidiaries, Third Delaware Corporation, which was
incorporated in 1998 for the purpose of holding and managing mortgage-backed
securities and investment securities for the Bank, and Teragon Financial
Corporation which holds a 75% limited partnership interest in a captive title
insurance agency, Third Fed Abstract, L. P. During 2006, Teragon Financial
Corporation was granted approval by the Commonwealth of Pennsylvania to conduct
business as an insurance agency.  Market Area  The Bank offers a wide
range of consumer and business products at its fourteen full service branch
offices located in Bucks and Philadelphia Counties in Pennsylvania, and Mercer
County in New Jersey. Five of the branch offices are located in Bucks County,
the third wealthiest county in Pennsylvania. Bucks County is a growing region
offering opportunity for growth for the Bank. Seven branches are located in the
northeast section of Philadelphia where the Bank was founded. Although
Philadelphia County is experiencing population decline, the Banks branches in
this section of Philadelphia represent a deposit stronghold. The remaining
two branches are in Mercer County, New Jersey which has an expanding population
and represents another growth area for the Bank.  Competition  The Bank faces varying
degrees of competition from banks, thrift institutions and credit unions at its
various branch locations.  Stronger
competition has come from local and very large regional commercial banks based
in and around the Philadelphia area. 
Based upon the latest available data, at June 30, 2008 the Companys
share of deposits in each of the counties in which it operates was as follows:  County, State
  
  Market Share for
  Entire County
  
  Market Share for ZIP Codes
  Including Company BranchesPhiladelphia, Pennsylvania
  
  0.48
  %
  11.09
  %Bucks, Pennsylvania
  
  1.56
  %
  5.71
  %Mercer, New Jersey
  
  0.42
  %
  7.54
  %  Lending Activities  General.The Banks
loan portfolio composition consists primarily of adjustable-rate (ARM) and
fixed-rate first mortgage loans secured by one-to-four family residences.  The Bank also makes commercial real estate
and multi-family loans, construction loans and consumer and other loans.  At December 31, 2008, the Banks
mortgage loans outstanding were $446.8 million, of which $283.5 million were
secured by first mortgages on one-to-four family residential property.  Of the one-to-four family residential
mortgage loans outstanding at that date, 24% were ARMs and 76% were fixed-rate
loans.  At that same date, commercial
real estate and multi-family residential loans totaled $132.6 million, and
construction loans totaled $30.6 million. The construction loans are predominately
floating-rate, prime-rate-based loans.  Consumer and other loans
held by the Bank totaled $58.5 million or 11% of total loans outstanding at December 31,
2008, of which $56.2 million consisted of home equity and second mortgage
loans. At that same date commercial business loans totaled $43.8 million or 8%
of total loans.  The following table sets
forth the composition of the Banks loan portfolio and mortgage-backed and
related securities portfolios in dollar amounts and in percentages of the
respective portfolios at the dates indicated.  3


At December 31,2008
  
  2007
  
  2006
  
  2005
  
  2004Amount
  
  Percent
  of Total
  
  Amount
  
  Percent
  of Total
  
  Amount
  
  Percent
  of Total
  
  Amount
  
  Percent
  of Total
  
  Amount
  
  Percent 
  of Total(Dollars in thousands)Loans held for investment:Mortgage loans:One-to-four family
  
  $
  281,870
  
  51.48
  %
  $
  272,840
  
  52.55
  %
  $
  266,789
  
  54.91
  %
  $
  289,678
  
  58.76
  %
  $
  283,965
  
  64.08
  %Commercial real estate and multi-family
  
  132,640
  
  24.23
  
  109,740
  
  21.14
  
  93,607
  
  19.26
  
  89,489
  
  18.15
  
  83,559
  
  18.86Construction
  
  30,633
  
  5.60
  
  35,507
  
  6.84
  
  34,944
  
  7.19
  
  24,888
  
  5.04
  
  10,286
  
  2.32Total mortgage loans
  
  445,143
  
  81.31
  
  418,087
  
  80.53
  
  395,340
  
  81.36
  
  404,055
  
  81.95
  
  377,810
  
  85.26Consumer loans:Home equity and second mortgage
  
  56,233
  
  10.27
  
  52,013
  
  10.02
  
  46,864
  
  9.65
  
  37,479
  
  7.60
  
  29,522
  
  6.66Other consumer
  
  2,287
  
  0.42
  
  2,244
  
  0.43
  
  3,206
  
  0.66
  
  2,836
  
  0.58
  
  4,384
  
  0.99Total consumer and other loans
  
  58,520
  
  10.69
  
  54,257
  
  10.45
  
  50,070
  
  10.31
  
  40,315
  
  8.18
  
  33,906
  
  7.65Commercial loans and leases:Commercial loans
  
  43,818
  
  8.00
  
  46,850
  
  9.02
  
  40,458
  
  8.33
  
  48,471
  
  9.83
  
  30,543
  
  6.90Commercial leases
  
  
  
  
  
  
  
  
  
  36
  
  
  
  186
  
  0.04
  
  857
  
  0.19Total commercial loans and leases
  
  43,818
  
  8.00
  
  46,850
  
  9.02
  
  40,494
  
  8.33
  
  48,657
  
  9.87
  
  31,400
  
  7.09Total loans
  
  547,481
  
  100.00
  %
  519,194
  
  100.00
  %
  485,904
  
  100.00
  %
  493,027
  
  100.00
  %
  443,116
  
  100.00
  %Net of:Deferred loan origination costs and unamortized premiums
  
  704
  
  
  
  675
  
  
  
  531
  
  
  
  505
  
  
  
  706Allowance for loan losses
  
  (3,855
  )
  
  
  (2,842
  )
  
  
  (2,865
  )
  
  
  (2,641
  )
  
  
  (2,307
  )Total loans, held for investment, net
  
  $
  544,330
  
  
  
  $
  517,027
  
  
  
  $
  483,570
  
  
  
  $
  490,891
  
  
  
  $
  441,515Loans held for sale:Mortgage loans:One-to-four family
  
  $
  1,659
  
  100.00
  %
  $
  1,040
  
  100.00
  %
  $
  969
  
  100.00
  %
  $
  68
  
  100.00
  %
  $
  680
  
  100.00
  %Total loans held for sale
  
  $
  1,659
  
  100.00
  %
  $
  1,040
  
  100.00
  %
  $
  969
  
  100.00
  %
  $
  68
  
  100.00
  %
  $
  680
  
  100.00
  %Mortgage-backed securities held-to-maturity:FHLMC
  
  $
  1,100
  
  23.04
  %
  $
  1,657
  
  26.90
  %
  $
  2,297
  
  29.84
  %
  $
  3,161
  
  31.06
  %
  $
  5,195
  
  34.87
  %FNMA
  
  2,141
  
  44.85
  
  2,634
  
  42.76
  
  3,084
  
  40.07
  
  3,969
  
  39.00
  
  5,182
  
  34.77GNMA
  
  1,533
  
  32.11
  
  1,869
  
  30.34
  
  2,316
  
  30.09
  
  3,040
  
  29.87
  
  4,516
  
  30.31Real estate investment mortgage conduit
  
  
  
  
  
  
  
  
  
  
  
  
  
  7
  
  0.07
  
  7
  
  0.05Total mortgage-backed and related securities held-to-maturity
  
  $
  4,774
  
  100.00
  %
  $
  6,160
  
  100.00
  %
  $
  7,697
  
  100.00
  %
  $
  10,177
  
  100.00
  %
  $
  14,900
  
  100.00
  %Mortgage-backed securities available-for-sale:FHLMC
  
  $
  4,504
  
  4.20
  %
  $
  5,434
  
  5.54
  %
  $
  7,888
  
  10.61
  %
  $
  9,686
  
  11.60
  %
  $
  6,614
  
  6.38
  %FNMA
  
  12,320
  
  11.49
  
  11,183
  
  11.39
  
  10,330
  
  13.90
  
  12,173
  
  14.58
  
  15,108
  
  14.58Real estate investment mortgage conduit
  
  90,393
  
  84.31
  
  81,561
  
  83.07
  
  56,120
  
  75.49
  
  61,652
  
  73.82
  
  81,888
  
  79.04Total mortgage-backed and related securities available-for-sale
  
  $
  107,217
  
  100.00
  %
  $
  98,178
  
  100.00
  %
  $
  74,338
  
  100.00
  %
  $
  83,511
  
  100.00
  %
  $
  103,610
  
  100.00
  %  4


Loan
Maturity and Repricing Information.  The
following table sets forth certain information at December 31, 2008,
regarding the dollar amount of loans maturing in the Banks loan and
mortgage-backed securities portfolios based on their maturity date.  Demand loans, loans having no stated
schedule of repayments and no stated maturity, overdrafts and delinquent
loans maturing prior to December 31, 2008, are reported as due in one year
or less.  The table does not include
prepayments or scheduled principal repayments.  Due 1/1/09 -
  12/31/09
  
  Due 1/1/10 -
  12/31/13
  
  Due After
  12/31/13(In thousands)Available for sale:Mortgage-backed securities
  
  $
  2
  
  $
  6,575
  
  $
  100,640Loans receivable
  
  
  
  
  
  1,659Total
  
  $
  2
  
  $
  6,575
  
  $
  102,299Held to Maturity:One-to-four family
  
  $
  138
  
  $
  6,298
  
  $
  275,434Commercial real estate and multi-family
  
  5,223
  
  5,407
  
  122,010Construction
  
  30,633
  
  
  
  Consumer and other
  
  176
  
  4,789
  
  53,555Commercial loans
  
  28,980
  
  7,074
  
  7,764Total loans receivable
  
  65,150
  
  23,568
  
  458,763Mortgage-backed securities
  
  18
  
  94
  
  4,662Total
  
  $
  65,168
  
  $
  23,662
  
  $
  463,425  The following table sets forth the dollar
amount of all loans and mortgage-backed securities due after December 31,
2009, which have predetermined interest rates and which have floating or
adjustable interest rates. Loans which have rate adjustments after ten years
are considered to have predetermined rates.  Predetermined
  Rates
  
  Floating or
  Adjustable Rate(In thousands)Available for sale:Mortgage-backed securities
  
  $
  107,215
  
  $
  Loans
  
  1,659
  
  Total
  
  $
  108,874
  
  $
  Held to Maturity:One-to-four family
  
  $
  229,331
  
  $
  52,401Commercial real estate and multi-family
  
  3,019
  
  124,398Construction
  
  
  
  Consumer and other
  
  36,107
  
  22,237Commercial loans and leases
  
  8,006
  
  6,832Total loans receivable
  
  276,463
  
  205,868Mortgage-backed securities
  
  4,737
  
  19Total
  
  $
  281,200
  
  $
  205,887  One-to-Four
Family Mortgage Lending.The Bank offers first mortgage loans secured
by one-to-four family residences in the Banks lending area.  Typically, such residences are single-family
homes that serve as the primary residence of the owner.  The Bank generally originates and invests in
one-to-four family residential mortgage loans in amounts up to 80% of the
lesser of the appraised value or selling price of the mortgaged property.  Loans originated in amounts over 80% of the
lesser of the appraised value or selling price of the mortgaged property, other
than loans to facilitate the sale of real estate acquired through foreclosure,
must be owner-occupied and private mortgage insurance is typically required.  5


Loan originations are obtained through the
Banks retail banking channels, the local community, and referrals from
established builders and realtors within the Banks lending area using direct
advertising in local newspapers, branch signage and promotions, and word of
mouth referrals. The Bank also has a mortgage lending department that is
separate as to its sales efforts from the consumer lending area of the Bank.
This department employs a lending manager and several commissioned loan
officers. The mortgage loan officers support the Banks branches and customers,
and additionally engage in calling efforts directed toward realtors, builders,
other loan originators and others that can be sources of lending business for
the Bank.  The Bank offers a variety of ARM loans with
terms of 30 years which adjust at the end of 6 months, one, three, five, seven
and ten years and adjust by a maximum of 3% to 5% per adjustment with a
lifetime cap of 5% to 6% over the life of the loan.  The Bank offers fixed-rate mortgage loans
with terms of 10 to 30 years, which are payable monthly.  Interest rates charged on fixed-rate mortgage
loans are competitively priced based on market conditions.  The origination fees for fixed-rate loans
range from 0% to 3% depending on the underlying loan coupon. Generally, the
Banks standard underwriting guidelines for fixed-rate mortgage loans conform
to the FHLMC and FNMA guidelines. The Bank sells a portion of its conforming
fixed-rate mortgage loan originations in the secondary market to FHLMC or FNMA
while retaining the servicing rights on these loans. As of December 31,
2008, the Banks portfolio of loans serviced for FHLMC or FNMA totaled
approximately $49.3 million. The Bank also brokers a small portion of its loan
closings to correspondents on a servicing released basis. However, the Bank is
primarily a portfolio lender.  Commercial Real
Estate and Multi-Family Lending.  The Bank originates permanent loans secured
by commercial real estate including non-owner occupied residential,
multi-family dwelling units, professional office buildings and hotels/motels.
The Bank generally originates commercial real estate and multi-family loans up
to 75% of the appraised value of the property securing the loan.  Currently, it is the Banks philosophy to
originate commercial real estate and multi-family loans primarily on properties
in its general market area.  The
commercial real estate and multi-family loans in the Banks portfolio consist
of fixed-rate, ARM and balloon loans originated at prevailing market rates for
terms of up to 25 years and typically either have a scheduled interest rate
reset or are callable by the Bank, after a 5 to 10 year period.  Loans secured by commercial and multi-family
real estate are generally larger and involve a greater degree of risk than
one-to-four family residential mortgage loans. 
Of primary concern in commercial and multi-family real estate lending is
the borrowers creditworthiness and the feasibility and cash flow potential of
the project.  Loans secured by income
properties are generally larger and involve greater risks than residential
mortgage loans because payments on loans secured by income properties are often
dependent on successful operation or management of the properties.  As a result, repayment of such loans may be
subject to a greater extent than residential real estate loans to adverse
conditions in the real estate market or the economy.  In order to monitor cash flows on income
properties, the Bank requires borrowers and loan guarantors, if any, to provide
annual financial statements and rent rolls on multi-family loans.  Similarly, on commercial office buildings and
hotel properties, the Bank requires minimum debt service coverage and obtains
operating statements of such properties. At December 31, 2008, the five
largest commercial real estate and multi-family loans totaled $27.2 million
with no single loan larger than $7.5 million. 
At December 31, 2008, all such loans were current and the
properties securing such loans are in the Banks market area.  Construction and Land
Acquisition Lending. 
At December 31, 2008, the Banks construction and land acquisition
loans were $30.6 million or 6% of the Banks total loan portfolio.  Construction financing is generally
considered to involve a higher degree of risk of loss than long-term financing
on improved, occupied real estate.  Risk
of loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the propertys value at completion of construction or
development and the estimated cost (including interest) of construction.  During the construction phase, a number of
factors could result in delays and cost overruns.  If the estimate of construction costs proves
to be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the construction.  If the estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project having a value which is insufficient to assure full repayment.
Land acquisition lending is susceptible to the risks of obtaining necessary
approvals and permits, and the feasibility of the project once such approvals
are obtained. At December 31, 2008, the five largest construction land
acquisition loans totaled $17.9 million with no single loan larger than $5.8
million.  Consumer and Other
Loans.  The Bank
also offers consumer and other loans in the form of home equity and second
mortgage loans (referred to hereinafter collectively as second mortgage loans),
automobile loans and student loans. 
These loans totaled $58.5 million or 11% of the Banks total loan
portfolio at December 31, 2008.  The
Bank originates consumer loans through its retail banking channel and mortgage
loan department.  6


In connection with consumer loan
applications, the Bank verifies the borrowers income and reviews a credit
bureau report.  In addition, the
relationship of the loan to the value of the collateral is evaluated.  All automobile loan applications are reviewed
and approved by the Bank.  The Bank
reviews the credit report of the borrower as well as the value of the vehicle
which secures the loan.  Consumer loans tend to be originated at
higher interest rates than conventional residential mortgage loans and for
shorter terms, thus facilitating the Banks interest rate risk management.  Consumer loans can have a higher risk of
default than residential mortgage loans. 
However, at December 31, 2008, $126,000 or 0.2% of the Banks
consumer loans were delinquent more than 90 days, compared to $780,000 or 0.02%
of residential one-to-four family loans.  The Bank offers second mortgage loans on
one-to-four family residences.  At December 31,
2008, second mortgage and home equity loans totaled $56.2 million, or 10% of
the Banks total loan portfolio.  Second
mortgage loans are offered as fixed-rate loans for a term not to exceed 15
years or prime-rate-based floating rate loans with amortization periods up to
15 years and in some cases, an interest-only period of up to the first 60
months of the loan term.  Such loans are
only made on owner-occupied one-to-four family residences and are subject to a
90% combined loan to value ratio.  The
underwriting standards for second mortgage loans are the same as the Banks
standards applicable to one-to-four family residential loans.  Business Lending.  The Bank makes commercial business loans
predominantly on a secured or guaranteed basis. 
The terms of these loans generally do not exceed five years. These loans
can have floating interest rates which adjust with changes in market interest
rates, usually the prime rate, or have a fixed rate related to their term to
maturity.  The Banks commercial business
loans primarily consist of short-term loans for equipment, working capital,
business expansion and inventory financing, and typically have some real estate
collateral.  The Bank customarily
requires a personal guaranty of payment by the principals of any borrowing
entity and reviews the financial statements and income tax returns of the
guarantors.  At December 31, 2008,
the Bank had approximately $43.8 million outstanding in commercial business
loans, which represented approximately 8% of its total loan portfolio. At December 31,
2008, the five largest commercial business loans totaled $19.7 million with no
single loan larger than $5.2 million.  Loan Approval
Authority and Underwriting.  The Board of Directors of the Bank sets the
authority to approve loans based on the amount, type of loan (i.e., secured or
unsecured) and total exposure to the borrower. 
Where there are one or more existing loans to a borrower, the level of
approval required is governed by the proposed total exposure including the new
loan.  The Board has approved loan
authority and limits for certain of the Banks lending personnel and senior
officers, including the president of the Bank. 
Approval authority ranges from $75,000 to $750,000 for secured loans,
and $25,000 to $100,000 for unsecured loans. Members of an in-house loan
committee comprising four senior members of management can approve in certain
combinations all loans over $750,000 up to $2.0 million. The committee has the
authority to approve secured loans up to $2.0 million and unsecured loans up to
$200,000. All loans greater than $2.0 million through $5.0 million require the
approval of a Board Loan Committee composed of four members of the Board of
Directors of the Bank. All loans over $5 million or loans that cause the
aggregate lending relationship to exceed $5.0 million must be approved by the
Banks Board of Directors.  One-to-four family residential mortgage loans are generally
underwritten according to FHLMC and FNMA guidelines.  For all loans originated by the Bank, upon
receipt of a completed loan application from a prospective borrower, a credit
report is ordered, income and certain other information is verified and, if
necessary, additional financial information is requested.  The Bank does not engage in sub-prime, stated
income or no-doc style portfolio lending. An appraisal of the real estate
intended to secure the proposed loan is required and is performed by an
independent appraiser designated and approved by the Bank.  The Bank makes construction/permanent loans
on individual properties.  Funds advanced
during the construction phase are held in a loan-in-process account and
disbursed based upon various stages of completion.  An independent appraiser or loan officer
determines the stage of completion based upon a physical inspection of the
construction and funds are advanced only for work in place.  It is the Banks policy to obtain title
insurance or a title opinion on all real estate first mortgage loans in excess
of $500,000.  Borrowers must also obtain
hazard or flood insurance (for loans on property located in a flood zone) prior
to closing the loan.  For loans in excess
of 80% of the loan to value ratio, borrowers are generally required to advance
funds on a monthly basis together with each payment of principal and interest to
an escrow account from which the Bank makes disbursements for items such as
real estate taxes and hazard insurance premiums.  Loans to One
Borrower. 
Current regulations limit loans to one borrower in an amount equal to
15% of unimpaired capital and retained income on an unsecured basis and an
additional amount equal to 10% of unimpaired capital and retained income if the
loan is secured by readily marketable collateral (generally, financial
instruments, not real estate) or $500,000, whichever is higher.  Penalties for violations of the loan-to-one
borrower statutory and regulatory restrictions include cease and desist orders,
the imposition of a supervisory agreement and civil money penalties.  The Banks maximum loan-to-one borrower limit
was approximately $9.7 million as of December 31, 2008.  7


At December 31, 2008, the Banks five
largest aggregate lending relationships pursuant to the loans to one borrower
regulations had balances ranging from $6.6 to $8.6 million.  At December 31, 2008, all of these loans
were current.  Mortgage-Backed Securities  To supplement lending activities, the Bank
invests in residential mortgage-backed securities.  Although the majority of such securities are
held to maturity, they can serve as collateral for borrowings and, through
repayments, as a source of liquidity.  The mortgage-backed securities portfolio as
of December 31, 2008, consisted of pass-through certificates issued by the
Federal Home Loan Mortgage Corporation (FHLMC) ($5.6 million), Government
National Mortgage Association (GNMA), ($1.5 million), Federal National
Mortgage Association (FNMA) ($14.5 million), real estate mortgage investment
conduits (REMICs) formed from pass-through certificates issued by these same
agencies ($87.1 million), and issued by private issuers ($3.3 million).  At December 31, 2008, the amortized cost
of mortgage-backed securities totaled $110.6 million, or 15% of total assets,
and the fair value of such securities totaled approximately $112.2 million.  The Banks mortgage-backed securities which
are so-called pass-through represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments on
which are passed through intermediaries (generally quasi-governmental agencies)
to investors such as the Bank.  Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, include FHLMC, FNMA and GNMA. The REMIC securities are
composed of the same loan types as the pass through certificates, but offer
differing characteristics as to their expected cash flows depending on the
class of such securities purchased. The Banks REMICs are primarily planned
amortization classes (PAC) and very accurately defined maturity (VADM)
classes that, when purchased, offered a high probability of predictable cash
flows.  Mortgage-Backed Securities Carrying Value.
The following table sets forth the carrying value of the Banks mortgage-backed
securities held in portfolio at the dates indicated.  At December 31,2008
  
  2007
  
  2006(In thousands)Held to
  maturity:GNMA-fixed rate
  
  $
  1,533
  
  $
  1,869
  
  $
  2,316FHLMC ARMs
  
  19
  
  27
  
  40FHLMC-fixed rate
  
  1,081
  
  1,630
  
  2,257FNMA-fixed rate
  
  2,141
  
  2,634
  
  3,084Total mortgage-backed securities held to maturity
  
  $
  4,774
  
  $
  6,160
  
  $
  7,697Available-for-sale:FHLMC
  
  $
  4,504
  
  $
  5,434
  
  $
  7,888FNMA
  
  12,320
  
  11,183
  
  10,330REMICs
  
  90,393
  
  81,561
  
  56,120Total mortgage-backed securities available-for-sale
  
  $
  107,217
  
  $
  98,178
  
  $
  74,338
  8


Mortgage-Backed Securities Maturity.  The following table sets forth the maturity
and the weighted average coupon (WAC) of the Banks mortgage-backed securities
portfolio at December 31, 2008.  The
table does not include estimated prepayments. 
Adjustable-rate mortgage-backed securities are shown as maturing based
on contractual maturities.  Contractual Held
  To Maturity
  Maturities Due
  
  WAC
  
  Contractual
  Available
  -For-Sale
  Maturities Due
  
  WAC(Dollars in thousands)Less than 1 year
  
  $
  18
  
  7.89
  %
  $
  2
  
  7.41
  %1 to 3 years
  
  59
  
  6.79
  
  
  
  3 to 5 years
  
  34
  
  7.96
  
  6,575
  
  4.785 to 10 years
  
  757
  
  5.03
  
  40,993
  
  4.6710 to 20 years
  
  2,457
  
  6.77
  
  32,444
  
  4.75Over 20 years
  
  1,449
  
  5.62
  
  27,203
  
  4.76Total mortgage-backed securities
  
  $
  4,774
  
  6.15
  %
  $
  107,217
  
  4.72
  %  9


Non-Performing and
Problem Assets  Loan Collection.  When a borrower fails to make a required
payment on a loan, the Bank takes a number of steps to have the borrower cure
the delinquency and restore the loan to current status.  In the case of residential mortgage loans and
consumer loans, the Bank generally sends the borrower a written notice of
non-payment after the loan is 15 days past due. 
In the event payment is not then received, additional letters and phone
calls are made.  If the loan is still not
brought current and it becomes necessary for the Bank to take legal action,
which typically occurs after a loan is delinquent more than 90 days, the Bank
will commence foreclosure proceedings against any real property that secures
the loan and attempt to repossess any personal property that secures a consumer
loan.  If a foreclosure action is
instituted and the loan is not brought current, paid in full, or refinanced
before the foreclosure sale, the real property securing the loan generally is
obtained by the Bank at foreclosure.  In the case of commercial real estate and
multi-family loans, and construction loans, the Bank generally attempts to
contact the borrower by telephone after any loan payment is ten days past due
and a senior loan officer reviews all collection efforts made if payment is not
received after the loan is 30 days past due. 
Decisions as to when to commence foreclosure actions for commercial real
estate and multi-family loans and construction loans are made on a case by case
basis.  The Bank may consider loan
work-out arrangements with these types of borrowers in certain circumstances.  On mortgage loans or loan participations
purchased by the Bank and serviced by others, the Bank receives monthly reports
from its loan servicers with which it monitors the loan portfolio.  Based upon servicing agreements with the
servicers of the loan, the Bank relies upon the servicer to contact delinquent
borrowers, collect delinquent amounts and to initiate foreclosure proceedings,
when necessary, all in accordance with applicable laws, regulations and the terms
of the servicing agreements between the Bank and its servicing agents. At December 31,
2008 the Bank used third-party servicers to service $7.2 million in mortgage
loans. All of the Banks third-party mortgage loan servicers are regulated
financial institutions or are approved by either HUD, FNMA, or FHLMC to service
loans on their behalf.  Delinquent Loans.  Generally, the Bank reserves for uncollected
interest on loans past due more than 90 days; these loans are included in the
table of nonaccrual loans below.  Loans
also are placed on a nonaccrual status when, in the judgment of management, the
probability of collection of interest is deemed to be insufficient to warrant
further collection.  When a loan is
placed on nonaccrual status, previously accrued but unpaid interest is deducted
from interest income and the further accrual of interest ceases unless the
underlying facts that prompted a nonaccrual determination are deemed to have
improved significantly.  Non-Performing
Assets. The
following table sets forth information regarding non-accrual loans and real
estate owned by the Bank at the dates indicated.  The Bank had no loans contractually past due
more than 90 days for which accrued interest has been recorded.  Non-performing
assets  At December 31,2008
  
  2007
  
  2006
  
  2005
  
  2004(Dollars in thousands)Loans accounted for on a non-accrual basis:Mortgage loans:One-to-four family
  
  $
  780
  
  $
  165
  
  $
  141
  
  $
  392
  
  $
  536Commercial real estate and multi-family
  
  606
  
  39
  
  61
  
  877
  
  23Construction
  
  3,017
  
  3,280
  
  
  
  
  
  Consumer and other
  
  126
  
  34
  
  68
  
  170
  
  84Commercial loans and leases
  
  750
  
  1,840
  
  1,840
  
  150
  
  317Total non-accrual loans
  
  5,279
  
  5,358
  
  2,110
  
  1,589
  
  960Real estate owned, net
  
  
  
  
  
  
  
  700
  
  700Total non-performing assets
  
  $
  5,279
  
  $
  5,358
  
  $
  2,110
  
  $
  2,289
  
  $
  1,660Total non-accrual loans to loans
  
  0.96
  %
  1.03
  %
  0.43
  %
  0.32
  %
  0.22
  %Total non-accrual loans to total assets
  
  0.72
  %
  0.76
  %
  0.32
  %
  0.24
  %
  0.15
  %Total non-performing assets to total assets
  
  0.72
  %
  0.76
  %
  0.32
  %
  0.35
  %
  0.26
  %  10


At December 31, 2008, the Bank had no foreign loans and no loan
concentrations exceeding 10% of total loans not disclosed in above the table. Loan
concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause
them to be similarly impacted by economic or other conditions.  At December 31, 2008, the Bank was not aware of any potential
problem loans that are not otherwise included in the foregoing table.  Potential problem loans are loans where
information about possible credit problems of borrowers has caused management
to have serious doubts about the borrowers ability to comply with present
repayment terms.  Classified Assets.  OTS regulations provide for a classification
system for problem assets of insured institutions which covers all problem
assets.  Under this classification
system, problem assets of insured institutions are classified as substandard,
doubtful, or loss.  An asset is
considered substandard if it may be inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if
any.  Substandard assets include those
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.  Assets classified as doubtful have all of
the weaknesses inherent in those classified substandard, with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable.  Assets classified
as loss are those considered uncollectible and of such little value that
the establishment of a specific loss reserve is warranted.  Assets designated special mention by
management are assets included on the Banks internal watchlist because of
potential weakness but that do not currently warrant classification in one of
the aforementioned categories.  When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. 
General allowances for OTS purposes represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets.  However, when
an insured institution classifies all or a portion of a problem asset as loss,
it is required either to establish a specific allowance for losses equal to
100% of that portion of the asset so classified or to charge off such
amount.  An institutions determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS, which may determine that general or
specific allowances are insufficient.  A
portion of general loss allowances established to cover possible losses related
to assets classified as substandard or doubtful may be included in determining
an institutions regulatory capital, while specific valuation allowances for
loan losses generally do not qualify as regulatory capital.  The following table provides further information in regard to the Banks
classified assets as of December 31, 2008.  At December 31, 2008(In thousands)Special mention assets
  
  $
  9,743Substandard
  
  16,534Doubtful assets
  
  Loss
  
  Total classified assets
  
  $
  26,277  Real Estate Owned.  Real estate acquired by the Bank as a result
of foreclosure, judgment or by deed in lieu of foreclosure is classified as
real estate owned (REO) until it is sold. 
When property is acquired it is  11


recorded at the lower of fair value, minus estimated cost to sell, or
cost.  If the property subsequently
decreases in estimated value from the initial recorded amount, the Bank will
provide a valuation allowance, through a charge to earnings, if the decrease is
judged by management to be temporary. If the decrease is judged to be
permanent, the Bank will reduce the recorded amount, through a charge to
earnings, to the new estimated value.  Allowances for Loan Losses.  The Bank provides valuation allowances for
estimated losses from uncollectible loans. Management determines the adequacy
of the allowance on a quarterly basis to ensure that a provision for loan losses
has been charged against earnings in an amount necessary to maintain the
allowance at a level that is appropriate based upon managements estimate of
probable losses. Several sources of data are used in making the evaluation as
to the appropriateness of the allowance.  In establishing reserves, a specific reserve is established for loans
which because of past payment history, a review of recent financial
information, or other facts regarding the credit, pose a higher than normal
amount of perceived risk of collection. In addition, a reserve is assigned
based upon qualitative and quantitative risk factors which are inherent in
segments of the loan portfolio.  Although the allowance has been allocated to determine the
appropriateness of the reserve, the total allowance is available to absorb any
and all losses from any segment of the loan portfolio. At December 31,
2008, management believes that the allowance for loan loss is at an acceptable
level.  The following table sets forth information with respect to the Banks
allowance for loan losses at the dates and for the periods indicated:  For the Years Ended December 31,2008
  
  2007
  
  2006
  
  2005
  
  2004(Dollars in thousands)Balance at beginning of period
  
  $
  2,842
  
  $
  2,865
  
  $
  2,641
  
  $
  2,307
  
  $
  2,111Provision for loan losses
  
  1,500
  
  
  
  150
  
  540
  
  600Charge-offs:One-to-four family
  
  (12
  )
  (27
  )
  
  
  
  
  Commercial and multi-family real estate
  loans
  
  
  
  
  
  
  
  
  
  (112
  )Construction
  
  (347
  )
  
  
  
  
  
  
  Consumer and other loans
  
  (55
  )
  (69
  )
  (55
  )
  (122
  )
  (186
  )Commercial loans and leases
  
  (160
  )
  (1
  )
  (1
  )
  (286
  )
  (161
  )Recoveries:Consumer and other loans
  
  19
  
  13
  
  65
  
  39
  
  55Commercial loans and leases
  
  68
  
  61
  
  65
  
  163
  
  Balance at end of year
  
  $
  3,855
  
  $
  2,842
  
  $
  2,865
  
  $
  2,641
  
  $
  2,307Ratio of net charge-offs (net recoveries)
  during the period to average loans outstanding during the period
  
  0.09
  %
  0.02
  %
  (0.01
  )%
  0.04
  %
  0.09
  %Ratio of allowance for loan losses to non-performing
  loans at the end of the period
  
  73.0
  %
  53.0
  %
  135.8
  %
  166.3
  %
  240.3
  %Ratio of allowance for loan losses to loans
  receivable at the end of the period
  
  0.71
  %
  0.55
  %
  0.59
  %
  0.54
  %
  0.52
  %Ratio of allowance for loan losses and
  foreclosed real estate to total non-performing assets at the end of the
  period
  
  73.0
  %
  53.0
  %
  135.8
  %
  115.4
  %
  139.0
  %  12


The following table sets forth the allocation of the
Banks allowance for loan losses by loan category and the percent of loans in
each category to total loans receivable, gross, at the dates indicated.  At December 31,2008
  
  2007
  
  2006
  
  2005
  
  2004Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
  Total Loans
  
  Amount
  
  Percent of
  Loans to
  Total Loans(Dollars in thousands)At end of period
  allocated to:One-to-four
  family
  
  $
  1,461
  
  37.9
  %
  $
  504
  
  17.8
  %
  $
  332
  
  54.9
  %
  $
  154
  
  58.8
  %
  $
  176
  
  64.1
  %Commercial real
  estate and multi-family
  
  845
  
  21.9
  
  667
  
  23.5
  
  665
  
  19.3
  
  1,010
  
  18.2
  
  1,035
  
  18.8Construction
  
  953
  
  24.7
  
  1,018
  
  35.8
  
  621
  
  7.2
  
  738
  
  5.0
  
  121
  
  2.3Consumer and
  other loans
  
  259
  
  6.7
  
  246
  
  8.6
  
  248
  
  10.3
  
  115
  
  8.2
  
  554
  
  7.7Commercial loans
  and leases
  
  337
  
  8.8
  
  407
  
  14.3
  
  999
  
  8.3
  
  624
  
  9.8
  
  421
  
  7.1Total allowance
  
  $
  3,855
  
  100.0
  %
  $
  2,842
  
  100.0
  %
  $
  2,865
  
  100.0
  %
  $
  2,641
  
  100.0
  %
  $
  2,307
  
  100.0
  %  Investment
Securities  The purchase of investment securities is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement the Banks lending activities. 
In establishing its investment strategies, the Bank considers its
business and growth plans, the economic environment, the types of securities to
be held and other factors.  Federally
chartered savings institutions have the authority to invest in various types of
assets, including U.S. Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers acceptances, repurchase agreements, loans on federal
funds, and, subject to certain limits, commercial paper and mutual funds.  The following table sets forth certain information
regarding the amortized cost and fair values of the Banks investment
securities at the dates indicated.  At December 31,2008
  
  2007
  
  2006Amortized
  Cost
  
  Fair
  Value
  
  Amortized
  Cost
  
  Fair
  Value
  
  Amortized
  Cost
  
  Fair
  Value(In thousands)Interest-earning deposits
  
  $
  56
  
  $
  56
  
  $
  123
  
  $
  123
  
  $
  6,860
  
  $
  6,860Investment securities held-to-maturity:State and political subdivisions
  
  $
  
  
  $
  
  
  $
  244
  
  $
  246
  
  $
  677
  
  $
  681Total
  
  $
  
  
  $
  
  
  $
  244
  
  $
  246
  
  $
  677
  
  $
  681Securities available-for-sale:U.S. government and agency obligations
  
  $
  2,944
  
  $
  3,173
  
  $
  2,996
  
  $
  2,982
  
  $
  5,990
  
  $
  5,911State and political subdivisions
  
  24,532
  
  24,996
  
  24,628
  
  24,833
  
  24,406
  
  24,429Corporate debt securities
  
  3,340
  
  3,285
  
  4,340
  
  4,377
  
  4,003
  
  3,982Equities
  
  150
  
  165
  
  150
  
  171
  
  150
  
  202Total
  
  $
  30,966
  
  $
  31,619
  
  $
  32,114
  
  $
  32,363
  
  $
  34,549
  
  $
  34,524  13


Investment
Portfolio Maturities  The following table sets forth certain information
regarding the amortized cost, weighted average yields and maturities of the
Banks investment securities portfolio, exclusive of interest-earning deposits,
at December 31, 2008.  Yields on tax
exempt obligations have been computed on a tax equivalent basis.  One Year or Less
  
  One to Five Years
  
  Five to Ten Years
  
  More than Ten Years
  
  Total Investment Securities(1)Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Amortized
  Cost
  
  Average
  Yield
  
  Fair
  Value(Dollars in thousands)Equities
  
  $
  150
  
  
  %
  $
  
  
  
  %
  $
  
  
  
  %
  $
  
  
  
  %
  $
  150
  
  
  %
  $
  165U.S. government
  and agency obligations
  
  
  
  
  
  2,944
  
  4.18
  
  
  
  
  
  
  
  
  
  2,944
  
  4.18
  
  3,173State and
  political subdivisions
  
  
  
  
  
  3,005
  
  3.30
  
  16,209
  
  3.63
  
  5,318
  
  4.18
  
  24,532
  
  3.71
  
  24,996Corporate debt
  securities
  
  
  
  
  
  3,340
  
  5.50
  
  
  
  
  
  
  
  
  
  3,340
  
  5.50
  
  3,285Total
  
  $
  150
  
  
  %
  $
  9,289
  
  4.37
  %
  $
  16,209
  
  3.63
  %
  $
  5,318
  
  4.18
  %
  $
  30,966
  
  3.93
  %
  $
  31,619  Sources of Funds  General.Deposits, borrowings, loan repayments and cash flows
generated from operations are the primary sources of the Banks funds for use
in lending, investing and other general purposes.  Deposits.The Bank
offers a variety of deposit accounts having a range of interest rates and
terms. The Banks deposits consist of regular savings, non-interest bearing
checking, NOW checking, money market, and certificate accounts. Of the deposit
accounts, $36.4 million or 7% consist of IRA, Keogh or SEP retirement accounts
at December 31, 2008.  The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The Banks deposits are primarily obtained from areas surrounding
its offices, and the Bank relies primarily on customer service and
long-standing relationships with customers to attract and retain these
deposits. The Bank has historically 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,
2008, core deposits amounted to 58% of total deposits.  14


The following table sets forth the distribution of the Banks deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. The Bank does not have significant
amount of deposits from outside its market area. Management does not believe
that the use of year end balances instead of average balances resulted in any
material difference in the information presented.  At December 31,2008
  
  2007
  
  2006Amount
  
  Percent
  of Total
  Deposits
  
  Weighted
  Average
  Nominal
  Rate
  
  Amount
  
  Percent
  of Total
  Deposits
  
  Weighted
  Average
  Nominal
  Rate
  
  Amount
  
  Percent
  of Total
  Deposits
  
  Weighted
  Average
  Nominal
  Rate(Dollars in thousands)Transaction
  AccountsInterest-bearing
  checking accounts
  
  $
  46,907
  
  9.58
  
  0.45
  %
  $
  46,543
  
  9.85
  
  0.48
  %
  $
  51,272
  
  10.72
  %
  0.48
  %Money market
  accounts
  
  88,609
  
  18.09
  
  2.15
  
  79,267
  
  16.78
  
  3.69
  
  62,914
  
  13.16
  
  3.21Non-interest-bearing
  checking accounts
  
  36,871
  
  7.53
  
  
  
  35,904
  
  7.60
  
  
  
  36,991
  
  7.74
  
  Total transaction
  accounts
  
  172,387
  
  35.20
  
  
  
  161,714
  
  34.23
  
  
  
  151,177
  
  31.62Passbook accounts
  
  111,591
  
  22.77
  
  1.12
  
  130,423
  
  27.61
  
  1.79
  
  131,359
  
  27.48
  
  2.21Certificates of
  deposit
  
  205,872
  
  42.03
  
  3.58
  
  180,257
  
  38.16
  
  4.50
  
  195,551
  
  40.90
  
  4.35Total deposits
  
  $
  489,850
  
  100.00
  %
  2.19
  %
  $
  472,394
  
  100.00
  %
  2.88
  %
  $
  478,087
  
  100.00
  %
  2.86
  %  At December 31, 2008, the Bank had outstanding certificates of
deposit in amounts of $100,000 or more maturing as follows:  Maturing Period
  
  Amount(In thousands)Three months or less
  
  $
  14,016Over three through six months
  
  4,431Over six through 12 months
  
  5,496Over 12 months
  
  22,765Total
  
  $
  46,708  Borrowings  Deposits are the primary source of funds of the Banks
lending and investment activities and for its general business purposes. The
Bank may obtain advances from the Federal Home Loan Bank, (FHLB) of
Pittsburgh to supplement its supply of lendable funds. Advances from the FHLB
of Pittsburgh are typically secured by a pledge of the Banks stock in the FHLB
of Pittsburgh and a portion of the Banks first mortgage loans and certain
other assets. The Bank may also access the Federal Reserve Bank, (FRB)
discount window. The following tables set forth the maximum month-end balance,
period ending balance, and weighted average balance of outstanding FHLB and FRB
advances at the dates and for the periods indicated, together with the
applicable weighted average interest rates.  At December 31,2008
  
  2007
  
  2006(Dollars in thousands)FHLB advances
  
  $
  158,148
  
  $
  153,221
  
  $
  101,701FRB advances
  
  $
  10,000
  
  $
  
  
  $
  Total advances
  
  
  168,148
  
  
  153,221
  
  
  101,701Weighted average interest rate
  
  3.52
  %
  4.19
  %
  3.93
  %  Years Ended December 31,2008
  
  2007
  
  2005(Dollars in thousands)Maximum balance of FHLB/FRB advances
  
  $
  170,988
  
  $
  153,221
  
  $
  148,538Weighted average balance of FHLB/FRB
  advances
  
  $
  159,305
  
  $
  112,277
  
  $
  124,013Weighted average interest rate of FHLB/FRB
  advances
  
  3.90
  %
  4.17
  %
  4.02
  %  15


Subsidiary
Activity  The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 2008, the Bank was authorized to invest up to
approximately $14.7 million in the stock of, or loans to, service
corporations (based upon the 2% limitation). In addition, the Bank can
designate a subsidiary as an operating subsidiary, in which there is no
percentage of assets investment limitation, if it engages only in activities in
which it would be permissible for the Bank to engage. At December 31,
2008, the Bank had two wholly-owned subsidiaries, Third Delaware Corporation
and Teragon Financial Corporation. Third Delaware Corporation was formed in
1998 for the purpose of investing in marketable securities. At December 31,
2008, the Bank had $139.2 million invested in Third Delaware Corporation.
During 2004, Teragon Financial Corporation (Teragon) invested $7,500 in a
limited partnership entitled Third Fed Abstract, L. P., whose purpose is to
operate a title insurance agency, primarily to capture certain title insurance
premiums generated by the Banks lending activities. At December 31, 2008
the Bank had an investment of $42.8 in Teragon. During 2006, Teragon was
granted approval by the state of Pennsylvania to conduct business as an
insurance agency, and during 2008, Teragon received $21,000 of insurance
commissions.  Personnel  As of December 31, 2008, the Company had 163
full-time and 33 part-time employees. None of the Companys employees are
represented by a collective bargaining group. The Company believes that its
relationship with its employees is good.  REGULATION  Set forth below is a brief description of all material
laws and regulations which relate to the regulation of the Bank and the
Company. The description does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.  16


Recent
Legislation  The
economy is experiencing significantly reduced business activity as a result of,
among other factors, disruptions in the financial system during the past year.
Declines in the housing market during the past year, due to falling home prices
and increased foreclosures and unemployment, have resulted in substantial
declines in mortgage-related asset values, which has had a dramatic negative
impact on government-sponsored entities and major commercial and investment
banks.  Reflecting
concern about the stability of the finance markets in general and the strength
of counterparties, many lenders and institutional investors have reduced, and
in some cases, ceased, to provide funding and liquidity to borrowers, including
other financial institutions. In response to the financial crisis affecting the
banking system and financial markets and going concern threats to investment
banks and other financial institutions, on October 3, 2008, the Emergency
Economic Stabilization Act of 2008 (the EESA) was signed into law.  Pursuant to the EESA, specifically the
Troubled Asset Relief Program (TARP) thereunder, the U.S. Treasury will have
the authority to, among other things, purchase up to $700 billion of mortgages,
mortgage-backed securities and certain other financial instruments from
financial institutions for the purpose of stabilizing and providing liquidity
to the U.S. financial markets.  On
October 14, 2008, the Secretary of the Department of the Treasury
announced the Department of the Treasury will purchase equity stakes in a wide
variety of banks and thrifts through TARPs Capital Purchase Program (CPP).
Under this program, from the $700 billion authorized by the EESA, the Treasury
made $250 billion of capital available to U.S. financial institutions in the
form of preferred stock. In conjunction with the purchase of preferred stock,
the Treasury received, from participating financial institutions, warrants to
purchase common stock with an aggregate market price equal to 15% of the
preferred stock investment. Participating financial institutions were required
to adopt the Treasurys standards for executive compensation and corporate governance
for the period during which the Treasury holds equity in such institution
issued under the CPP.  The Company did
not participate in the CPP  On February 17, 2009, the American Recovery and
Reinvestment Act of 2009 (ARRA) was signed into law by President Obama.  The ARRA includes a wide variety of programs
intended to stimulate the economy and provide for extensive infrastructure,
energy, health, and education needs. In addition, the ARRA imposes certain new
executive compensation and corporate expenditure limits on all current and
future TARP recipients until the institution has repaid the U.S. Treasury,
which is now permitted under the ARRA without penalty and without the need to
raise new capital, subject to the U.S. Treasurys consultation with the
recipients appropriate regulatory agency.  Company
Regulation  General.The Company
is a unitary savings and loan holding company subject to regulatory oversight
by the OTS. As such, the Company is required to register and file reports with
the OTS and is subject to regulation and examination by the OTS. In addition,
the OTS has enforcement authority over the Company and its non-savings
association subsidiaries, which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
association. This regulation and oversight is intended primarily for the
protection of the depositors of the Bank and not for the benefit of
stockholders of the Company. The Company is also required to file certain reports
with, and otherwise comply with, the rules and regulations of the OTS and
the SEC.  Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act of 2002 (the Act) implemented legislative reforms
intended to address corporate and accounting fraud and improve public company
reporting. The SEC has promulgated new regulations pursuant to the Act and may
continue to propose additional implementing or clarifying regulations as
necessary in furtherance of the Act. The passage of the Act by Congress and the
implementation of new regulations by the SEC subject publicly-traded companies
to additional and more cumbersome reporting regulations and disclosure.
Compliance with the Act and corresponding regulations may increase the Companys
expenses.  Financial Modernization.The
Gramm-Leach-Bliley Act (GLB) permits qualifying bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. GLB defines financial in nature to include securities underwriting,
dealing and market making; sponsoring mutual funds and investment companies;
insurance underwriting and agency; merchant banking activities; and activities
that the Federal Reserve Board has determined to be closely related to banking.
A qualifying national bank also may engage, subject to limitations on
investment, in activities that are financial in nature, other than insurance
underwriting, insurance company portfolio investment, real estate development,
and real estate investment, through a financial subsidiary of the bank.  GLB also prohibits new unitary thrift holding companies from engaging
in nonfinancial activities or from affiliating with a nonfinancial entity. As a
grandfathered unitary thrift holding company, the Company has retained its
authority to engage in nonfinancial activities.  Qualified Thrift Lender Test.As
a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions, provided the Bank satisfies the QTL test. See
Bank Regulation  Qualified Thrift
Lender Test.  If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank) would become
subject to restrictions applicable to bank holding companies unless such other
associations each also qualify as a QTL and were acquired in a supervisory
acquisition.  Bank
Regulation  General.As a
federally chartered, FDIC-insured savings association, the Bank is subject to
extensive regulation by the OTS and the FDIC. Lending activities and other
investments must comply with various federal statutory and regulatory
requirements. The Bank is also subject to certain reserve requirements
promulgated by the Federal Reserve Board.  The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Banks Board of Directors on any
deficiencies that they find in the Banks operations. The Banks relationship
with its depositors and borrowers is also regulated to a great extent by
federal law, especially in such matters as the ownership of savings accounts
and the form and content of the Banks mortgage documents.  The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of  17


activities in which an institution can engage and is intended primarily
for the protection of the FDIC and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulations, whether by the OTS, the FDIC or the Congress could have a material
adverse impact on the Company, the Bank and their operations. The Company is also
required to file certain reports with, and otherwise comply with, the rules and
regulations of the OTS and the SEC.  Loan Limitations.  Regulations limit the amount of
non-residential mortgage loans a savings institution may hold as a percentage
of assets or capital.  Separate from the
qualified thrift lender test, regulations limit a savings institution to a
maximum of 10% of its assets in large commercial loans (defined as loans in
excess of $2 million), with another 10% of assets permissible in small
business loans.  Commercial loans
secured by real estate can be made in an amount up to four times an institutions
capital.  An institution can also have
commercial leases, in addition to the above items, up to 10% of its assets.
Commercial paper, corporate bonds, and consumer loans cannot collectively
exceed 35% of an institutions assets. 
For this purpose, however, residential mortgage loans (including
securities backed by such loans) and credit card loans are not considered
consumer loans, and are both unlimited in amount.  Deposit Insurance.The
Banks deposits are insured to applicable limits by the FDIC.  As an FDIC-insured bank, the Bank is subject
to FDIC insurance assessments.  Following
enactment of the Federal Deposit Insurance Reform Act of 2005, the FDIC adopted
a revised risk-based assessment system to determine assessment rates to be paid
by FDIC-insured institutions.  Under this
revised assessment system, risk is defined and measured using an institutions
supervisory ratings as well as certain other risk measures, including certain
financial ratios.  The annual rates for
2008 for institutions in Risk Category I range from 5 to 7 basis points and the
rates for institutions in Risk Categories II, III and IV are 10, 28 and 43
basis points, respectively.  These rates
were offset by a one-time assessment credit held by an institution, based on
the assessment base of that institution as of December 31, 1996, and in
the future by dividends that may be declared by the FDIC if the reserve ratio
of the Deposit Insurance Fund (DIF) increases above a certain amount. Deposit
insurance premiums of $247,300 were offset during 2008.  The Company has $225,000 of credits remaining
to offset insurance premiums.  The FDIC
may raise or lower these assessment rates based on various factors to achieve
reserve ratio, which the FDIC currently has set at 1.25 percent of insured
deposits.  Due
to the recent difficult economic conditions, deposit insurance per account
owner has been raised to $250,000 for all types of accounts until January 1,
2010.  In addition, the FDIC adopted an
optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest
bearing transaction accounts would receive unlimited insurance coverage until December 31,
2009 and, for a fee, certain senior unsecured debt issued by institutions and
their holding companies between October 13, 2008 and June 30, 2009
would be guaranteed by the FDIC through June 30, 2012.  The Bank made the business decision to
participate in the unlimited noninterest bearing transaction account coverage.
The assessments for unlimited noninterest bearing transaction account coverage
will total 10 basis points per $100 of insured deposits during 2009.The Bank
and the Company elected not to participate in the unsecured debt guarantee
program.  On
October 16, 2008, the FDIC published a notice in the Federal Register
concerning its establishment of the Federal Deposit Insurance Corporation
Restoration Plan (the Restoration Plan). 
The Restoration Plan is a five year recapitalization plan for the DIF
(subsequently amended to cover a seven-year time frame, as discussed below)
based, in part, on significantly higher assessed DIF rates.  Concurrent with the publication of the Restoration
Plan, the FDIC issued a proposed rule to increase the DIF assessed rates
for the first quarter of 2009 by 7 bps and, effective April 1, 2009, to
make certain other changes regarding risk-based assessment and to set new
deposit insurance rates.  On December 22,
2008, the FDIC issued a final rule in which it invoked the good cause
exception of the Administrative Procedures Act to waive the requirement that
once finalized a rule must have a delayed effective date of 30 days from
the publication date and, effective January 1, 2009, raised the first
quarter 2009 DIF assessed rates by 7 bps. Under the final rule, for the first
quarter of 2009, the new rates were expected to range between 12 and 50 cents
per $100 in assessable deposits depending on the risk category to which an
insured depository institution was assigned. 
Institutions in Risk Category I were charged a rate between 12 and 14
cents per $100 in assessable deposits for the first quarter of 2009.  Such an increase in the DIF assessed rates
more than doubles the previous applicable rates for Tier I institutions.  On
February 27, 2009 the FDIC amended the Restoration Plan for the DIF.  Under the amended Restoration Plan, the FDIC
extended the horizon from five years to seven years to raise the DIF reserve
ratio to 1.15 percent, in recognition of the current significant strains on
banks and the financial system and the likelihood of a severe recession.  The amended Restoration Plan was accompanied
by a final rule that sets assessment rates and makes adjustments to
recognize how the assessment system differentiates for risk. Currently, most
banks are in the best risk category and pay anywhere from 12 cents per $100 of
deposits to 14 cents per $100 for insurance. 
Under the final rule, banks in this category will pay initial base rates
ranging from 12 cents per $100 to 16 cents per $100 on an annual basis,
beginning on April 1, 2009. Changes to the assessment system include
higher rates for institutions that rely significantly on secured liabilities,
which would increase the FDICs loss in the event of institutional failure,
without providing additional assessment revenue.  Under the final rule, assessments will be
higher for institutions that rely significantly on brokered deposits but, for
well-managed and well-capitalized institutions, only when accompanied by rapid
asset growth.  The final rule also
provides incentives in the form of a reduction in assessment rates for
institutions to hold long-term unsecured debt and, for smaller institutions,
high levels of Tier 1 capital.  On
February 27, 2009, the FDIC proposed an additional amendment to the
Restoration Plan for the DIF. This amendment proposes the imposition of a 20
basis point emergency special assessment on insured depository institutions as
of June 30, 2009. The assessment is proposed to be collected on September 30,
2009. The interim rule would also permit the FDIC to impose an emergency
special assessment after June 30, 2009, of up to ten basis points if
necessary to maintain public confidence in federal deposit insurance. On March 5,
2009, FDIC Chairman Sheila Bair announced that if Congress adopts legislation
expanding the FDICs line of credit with Treasury from $30 billion to $100
billion, the FDIC might have the flexibility to reduce the special emergency
assessment, possibly from 20 to 10 basis points.  This assessment will be in addition to the
new assessment rates which become effective April 1, 2009.  In addition to deposit insurance assessments, all FDIC-insured
institutions are required to pay special assessments to the FDIC to fund the
repayment of debt obligations of the Financing Corporation (FICO), a
government-sponsored entity that was formed in 1987 to recapitalize the Federal
Savings and Loan Insurance Corporation. 
At December 31, 2008, the annualized rate established by the FDIC
for the FICO assessment was 1.14 basis points per $100 of insured
deposits.  These assessments will
continue until the FICO bonds mature in 2017.  18


Regulatory Capital Requirements.OTS
capital regulations require savings institutions to meet three capital
standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a
leverage ratio (core capital) equal to at least 4% of total adjusted assets and
(3) a risk-based capital requirement equal to 8.0% of total risk-weighted
assets. In addition, the OTS prompt corrective action regulation provides that
a savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest examination rating) will be deemed to be undercapitalized
and may be subject to certain restrictions.  At December 31, 2008, the Bank was in compliance with all of its
regulatory capital requirements.  Dividend and Other Capital Distribution
Limitations.The Bank may not declare or pay a cash
dividend on its capital stock if the effect thereof would be to reduce the
regulatory capital of the Bank below the amount required for the liquidation
account established at the time of the Banks mutual-to-stock conversion.  Savings associations that would remain at least adequately capitalized
following the capital distribution, and that meet other specified requirements,
are not required to file a notice or application for capital distributions
(such as cash dividends) declared below specified amounts. Savings associations
which are eligible for expedited treatment under current OTS regulations are
not required to file an application with the OTS if (i) the savings
association would remain at least adequately capitalized following the capital
distribution and (ii) the amount of capital distribution does not exceed
an amount equal to the savings associations net income for that year to date,
plus the savings associations retained net income for the previous two
calendar years. Thus, only undistributed net income for the prior two years may
be distributed in addition to the current years undistributed net income
without the filing of an application with the OTS. Savings associations which
do not qualify for expedited treatment or which desire to make a capital
distribution in excess of the specified amount, must file an application with,
and obtain the approval of, the OTS prior to making the capital distribution. A
savings association such as the Bank that is a subsidiary of a savings and loan
holding company, and under certain other circumstances, must file a notice with
OTS prior to making the capital distribution.  Qualified Thrift Lender Test.The
Home Owners Loan Act (HOLA), as amended, requires savings institutions to
meet a QTL test. If the Bank maintains an appropriate level of Qualified Thrift
Investments (primarily residential mortgages and related investments, including
certain mortgage-backed securities) (QTIs) and otherwise qualifies as a QTL,
it will continue to enjoy full borrowing privileges from the FHLB of
Pittsburgh. The required percentage of QTIs is 65% of portfolio assets (defined
as all assets minus intangible assets, property used by the institution in
conducting its business and liquid assets equal to 10% of total assets).
Certain assets are subject to a percentage limitation of 20% of portfolio
assets. In addition, savings associations may include shares of stock of the
FHLBs, FNMA and FHLMC as qualifying QTIs. The method for measuring compliance
with the QTL test requires an institution to be in compliance nine out of every
12 months. As of December 31, 2008, the Bank was in compliance with its
QTL requirement with 73% of its assets invested in QTIs.  Federal Home Loan Bank System.The
Bank is a member of the FHLB of Pittsburgh, one of 12 regional FHLBs that
administer the home financing credit function of savings associations. Each
FHLB serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.  As a member, the Bank is required to purchase and maintain an
investment in the capital stock of the FHLB of Pittsburgh in an amount equal to
4.55% of its advances outstanding from the FHLB plus 0.55% of its unused
borrowing capacity. At December 31, 2008, the Bank had $10.0 million in
FHLB stock, which was in compliance with this requirement.  Federal Reserve System.The
Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts) and
non-personal time deposits. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy the
liquidity requirements that are imposed by the OTS. At December 31, 2008,
the Banks total transaction accounts required a reserve level of $50,000 which
was offset by the Banks vault cash on hand and cash on deposit at the Federal
Reserve Bank of Philadelphia.  Savings associations have authority to borrow from the Federal Reserve
Bank discount window, Other short-term borrowings at December 31, 2008
include advances from the Federal Reserve Bank totaling $10.0 million maturing
in three months with an interest rate of 0.50% .  19


Item 1A.Risk Factors  Not applicable.  Item 1B.Unresolved Staff
Comments  None.  Item 2.Properties  The Company is located and conducts its business at 3 Penns Trail,
Newtown, Pennsylvania. At December 31, 2008, the Bank operated from its
administrative offices and fourteen branch offices located in Philadelphia and
Bucks Counties, Pennsylvania and Mercer County, New Jersey. The Bank also owns
two parcels of land and a building behind its Doylestown branch office. The
parcel with the building is available to be leased to a third-party and the
other parcel is used as a parking lot for employees of the Bank and tenants.
The net book value of the two lots was $100,000. In addition, a subsidiary of
the Company, Penns Trail Development Corporation, owns investment property with
a book value of $738,000.  The following table sets forth certain information regarding the Banks
operating properties:  Location
  
  Leased or
  Owned
  
  Location
  
  Leased or
  OwnedADMINISTRATIVE
  OFFICE
  
  OwnedNewtown Office3 Penns TrailNewtown, PA
  18940DEPOSIT
  OPERATIONS
  
  Leased
  
  PROCESSING OPERATIONS
  
  Owned828C
  Newtown-Yardley Road
  
  
  
  Operations CenterSuite 301B
  
  
  
  62 Walker LaneNewtown, PA
  18940
  
  
  
  Newtown, PA 18940(1)BRANCH
  AND LOAN OFFICES
  
  Leased
  
  Newtown Office
  
  LeasedFrankford Office
  
  
  
  950 Newtown Yardley Road4625 Frankford
  Avenue
  
  
  
  Newtown, PA 18940Philadelphia, PA
  19124Ewing Office
  
  Owned
  
  Mayfair Office
  
  Owned2075 Pennington
  Road
  
  
  
  Roosevelt Blvd. at UnruhEwing, NJ 08618
  
  
  
  Philadelphia, PA 19149Hamilton Office
  
  Owned
  
  Doylestown Office
  
  Owned1850 Route 33
  
  
  
  60 North Main StreetHamilton Square,
  NJ 08690
  
  
  
  Doylestown, PA 18901Fishtown Office
  
  Owned
  
  Feasterville Office
  
  LeasedYork &
  Memphis Streets
  
  
  
  Buck Hotel ComplexPhiladelphia, PA
  19125
  
  
  
  Feasterville, PA 19053Cross Keys
  Office
  
  Owned
  
  Woodhaven Office
  
  Leased834 North Easton
  Highway
  
  
  
  4014 Woodhaven RoadDoylestown, PA
  18901
  
  
  
  Philadelphia, PA 19154Bridesburg
  Office
  
  Owned
  
  Girard Office
  
  LeasedOrthodox &
  Almond Streets
  
  
  
  136 West Girard
  AvenuePhiladelphia, PA
  19137
  
  
  
  Philadelphia, PA 19123  20


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


Item 3.Legal
Proceedings  Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business that in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.  Item 4.Submission
of Matters to a Vote of Security Holders  None.  PART II  Item 5.Market
for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities  Information relating to the market for Registrants common equity and
related stockholder matters appears under the section captioned Stock Market
Information in the Registrants 2008 Annual Report to Stockholders and is
incorporated herein by reference.  The following table provides information on
repurchases by the Company of its common stock in each month for the three
months ended December 31, 2008:  Month
  
  Total Number of
  Shares Purchased
  
  Average Price
  Paid per Share
  
  Total Number of
  Shares Purchased as
  Part of Publicly
  Announced Plan or
  Program
  
  Maximum Number of
  Shares that may yet
  be Purchased Under
  the Plans or
  ProgramsOctober 1,
  2008 - October 31, 2008
  
  120,450
  
  $
  18.84
  
  
  
  123,057November 1,
  2008 - November 30, 2008
  
  15,700
  
  $
  19.32
  
  15,700
  
  107,357December 1,
  2008 - December 31, 2008
  
  5,400
  
  $
  19.16
  
  5,400
  
  101,957  Item 6.Selected
Financial Data  The above-captioned information appears under the section captioned Selected
Financial and Other Data in the Registrants 2008 Annual Report to
Stockholders and is incorporated herein by reference.  Item 7.Managements
Discussion and Analysis of Financial Condition and Results of Operations  The information under the section captioned Managements Discussion
and Analysis of Financial Condition and Results of Operations in the
Registrants 2008 Annual Report to Stockholders is incorporated herein by
reference.  Item 7A.Quantitative and
Qualitative Disclosures about Market Risk  The information under the section captioned Managements Discussion
and Analysis of Financial Condition and Results of Operations in the
Registrants 2008 Annual Report to Stockholders is incorporated herein by
reference.  Item 8.Financial
Statements and Supplementary Data  The Consolidated Financial Statements of TF Financial Corporation and
its subsidiaries included in the Registrants 2008 Annual Report to
Stockholders are incorporated herein by reference.  22


Item 9.Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure  None.  Item 9A(T).  Controls and Procedures  (a)Disclosure
Controls and Procedures  Based on their evaluation of the Companys disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)), the Companys principal executive
officer and principal financial officer have concluded that as of the end of
the period covered by this Annual Report on Form 10-K such disclosure
controls and procedures are effective.  (b)Internal
Control Over Financial Reporting  Managements report on internal control over financial reporting is
included in the Registrants 2008 Annual Report to Stockholders and is
incorporated herein by reference. Neither this Annual Report on Form 10K
nor the Annual Report to Stockholders includes an attestation report of the
Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to the temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
managements report in this Annual Report on Form 10-K.  23


(c)  Changes in
Internal Control Over Financial Reporting.  During the last quarter of the year under report, there was no change
in the Companys internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.  Item 9B.Other Information  None.  PART III  Item 10.Directors,
Executive Officers and Corporate Governance  The information contained under the sections captioned Proposal 1 -
Election of Directors  General Information and Nominees and  Biographical
Information and Additional Information About Directors and Executive Officers
 Section 16(a) Beneficial Ownership Reporting Compliance in the
Registrants definitive proxy statement for the Registrants 2009 Annual
Meeting of Stockholders (the Proxy Statement) is incorporated herein by
reference.  The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
persons performing such functions. The Code of Ethics can be obtained without
charge by sending a written request to the Corporate Secretary, TF Financial
Corporation, 3 Penns Trail, Newtown, Pennsylvania 18940.  Item 11.Executive
Compensation  The information relating to executive compensation is incorporated
herein by reference to the information contained under the sections captioned Executive
Compensation and Director Compensation in the Registrants Proxy Statement.  Item 12.Security
Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters  (a)Security Ownership of
Certain Beneficial Owners  Information required by this item is incorporated herein by reference
to the Section captioned Voting Securities and Principal Holders Thereof
in the Registrants Proxy Statement.  (b)Security
Ownership of Management  Information required by this item is incorporated herein by reference
to the sections captioned Security Ownership of Certain Beneficial Owners and
Management and Proposal 1  Election of Directors in the Registrants Proxy
Statement.  (c)Management
of the Company knows of no arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the registrant.  (d)Securities
Authorized for Issuance Under Equity Compensation Plans  Set forth below is information as of December 31, 2008 with respect
to compensation plans under which equity securities of the Registrant are
authorized for issuance.  24


EQUITY COMPENSATION PLAN INFORMATION  (a)
  Number of securities
  to be issued upon
  exercise of
  outstanding options,
  warrants and rights
  
  (b)
  Weighted-average
  exercise price of
  outstanding
  options, warrants
  and rights
  
  (c)
  Number of securities
  remaining available for
  future issuance under
  equity compensation plans
  (excluding securities
  reflected in column (a))Equity compensation plans approved by
  shareholders(1)
  
  287,336
  
  $
  25.67
  
  2,000Equity compensation plans not approved by
  shareholders
  
  
  
  
  
  TOTAL
  
  287,336
  
  $
  25.67
  
  2,000  
 (1)Plans
approved by stockholders include: TF Financial Corporation 1997 Stock Option
Plan, and TF Financial Corporation 2005 Stock-Based Incentive Plan.  For
information regarding the material features of these plans, see Notes A10, A11,
J3 and J4 to the Consolidated Financial Statements included as part of Exhibit 13
to this report.  Item 13.Certain
Relationships and Related Transactions, and Director Independence  The information relating to certain relationships and related
transactions is incorporated herein by reference to the information contained
under the section captioned Additional Information About Directors and
Executive Officers  Certain Relationships and Related Transactions and
Director Independence in the Registrants Proxy Statement.  Item 14.Principal
Accountant Fees and Services  The information relating to this item is incorporated herein by
reference to the information contained under the section captioned Principal
Accounting Firm Fees in the Registrants Proxy Statement.  PART IV  Item 15.Exhibits and
Financial Statement Schedules  (a)The
following documents are filed as a part of this report:  (1)  The following financial statements and
the report of the independent auditor of the Company included in the Companys
2008 Annual Report to Stockholders are incorporated herein by reference.  Report of Independent
  Registered Public Accounting FirmConsolidated
  Statements of Financial Condition as of December 31, 2008 and 2007Consolidated
  Statements of Income For the Years Ended December 31, 2008 and 2007Consolidated
  Statements of Changes in Stockholders Equity and Comprehensive Income for
  the Years Ended December 31, 2008 and 2007Consolidated
  Statements of Cash Flows for the Years Ended December 31, 2008 and 2007Notes to Consolidated
  Financial Statements  25


(2)   All schedules are omitted because they
are not required or applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.  (3)   Exhibits  (a)           The
following exhibits are filed as part of this report.  3.1
  
  Certificate of
  Incorporation of TF Financial Corporation (1)3.2
  
  Bylaws of TF
  Financial Corporation (1)4.0
  
  Stock
  Certificate of TF Financial Corporation (1)10.1
  
  Third Federal
  Savings and Loan Association Management Stock Bonus Plan (1)10.2
  
  Third Federal
  Savings Bank Directors Consultation and Retirement Plan (2)10.3
  
  Severance
  Agreement with Kent C. Lufkin (3)10.4
  
  Severance
  Agreement with Floyd P. Haggar (3)10.5
  
  Severance
  Agreement with Dennis R. Stewart (4)10.6
  
  TF Financial
  Corporation 1997 Stock Option Plan (5)10.7
  
  Severance
  Agreement with Robert N. Dusek (6)10.8
  
  TF Financial
  Corporation 1996 Directors Stock Option Plan (7)10.9
  
  Retirement and
  Non-Competition Agreement with John R. Stranford (8)10.10
  
  Employment
  Agreement with John R. Stranford (8)10.11
  
  TF Financial
  Corporation Incentive Compensation Plan (9)10.12
  
  TF Financial
  Corporation 2005 Stock-Based Incentive Plan (10)10.13
  
  Severance
  Agreement with Elizabeth Kaspern (11)10.14
  
  TF Financial
  Corporation Stock Repurchase Plan (12)10.15
  
  TF Financial
  Corporation Amended and Restated Bylaws (13)13.0
  
  2008 Annual
  Report to Stockholders21.0
  
  Subsidiary
  Information23.0
  
  Consent of
  Independent Registered Public Accounting Firm31.1
  
  Certification
  pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
  
  Certification
  pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.0
  
  Certification pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002  
 (1)Incorporated
herein by reference to the Exhibits to Form S-1, Registration Statement,
File No. 33-76960.  (2)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.  (3)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.  (4)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.  (5)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.  (6)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.  (7)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.  (8)Incorporated
herein by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 2003.  (9)Incorporated
herein by reference to the Registrants Form 8-K filed with the Securities
and Exchange Commission on October 20, 2004.  26


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


SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.  TF FINANCIAL CORPORATIONDated: March 30,
  2009
  By:
  /s/ Kent C. LufkinKent C. LufkinPresident, Chief
  Executive Officer(Duly Authorized Representative)  Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated as of Dated: March 30,
2009.  By:
  /s/ Kent C. Lufkin
  
  By:
  /s/ Dennis R. StewartKent C. Lufkin
  
  
  Dennis R. StewartPresident, Chief
  Executive Officer
  (Principal Executive Officer)
  
  
  Executive Vice
  President, Chief Financial Officer and Treasurer(Principal Financial
  and Accounting Officer)By:
  /s/ Carl F. Gregory
  
  By:
  /s/ Robert N. DusekCarl F. Gregory
  
  
  Robert N. DusekDirector
  
  
  Chairman of the BoardBy:
  /s/ Dennis L. McCartney
  
  By:
  /s/ George A. OlsenDennis L. McCartney
  
  
  George A. OlsenDirector
  
  
  DirectorBy:
  /s/ Albert M. Tantala, Sr.
  
  By:
  /s/ John R. StranfordAlbert M. Tantala, Sr.
  
  
  John R. StranfordDirector
  
  
  Director  28