SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


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

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

For the fiscal year ended       December 31, 1999
                          ------------------------------------

                                     - or -

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

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

                         Commission File Number: 0-24168

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

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

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

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

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

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

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

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

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant, based on the average bid and asked prices of the Registrant's
Common Stock as quoted on the Nasdaq System on March 20, 2000, was $31.0 million
(2,141,091 shares at $14.50 per share).

         As of March 20,  2000 there were  outstanding  2,843,874  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, 1999. (Parts I, II and IV)
2.   Portions  of  the  Proxy   Statement   for  the  2000  Annual   Meeting  of
     Stockholders. (Part III)
<PAGE>
                                     PART I

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

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

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

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

                             BUSINESS OF THE COMPANY

         On July  13,  1994,  the  Registrant,  TF  Financial  Corporation  (the
"Company")  consummated its public  offering for 5,290,000  shares of its common
stock and acquired Third Federal Savings Bank (the "Bank") as part of the Bank's
mutual-to-stock  conversion.  The Registrant was incorporated under Delaware law
in March  1994.  The  Registrant  is a savings and loan  holding  company and is
subject to

                                       1
<PAGE>

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 Registrant does not transact any material  business other than
through  its   subsidiaries:   Third  Federal   Savings  Bank,  TF   Investments
Corporation,  Teragon Financial Corporation, Penns Trail Development Corporation
and Third  Delaware  Corporation.  At December 31,  1999,  the Company had total
assets of $721.9 million,  total liabilities of $673.4 million and stockholders'
equity of $48.5 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.  The Bank
significantly  expanded  its  operations  in  Philadelphia  and Bucks  Counties,
Pennsylvania in June 1992 with its acquisition of Doylestown Federal Savings and
Loan  Association  ("Doylestown").  In  September  1996,  the Bank  expanded its
operations to include  Mercer County,  New Jersey with the  acquisition of three
branch offices,  certain assets and $143 million of deposits from Cenlar Federal
Savings Bank ("Cenlar").  The Bank added a fourth branch office in Mercer County
in  December,   1999  with  the  Company's   acquisition  of  Village  Financial
Corporation ("Village").  The Village acquisition was consistent with the Bank's
strategic  goal of growing its market  share within its market area and reaching
into  adjacent  market  areas,  through  low-cost,  fill-in or  market-extension
acquisitions.  The Bank currently  operates  fifteen branch offices in Bucks and
Philadelphia  counties,  Pennsylvania and in Mercer County, New Jersey. The Bank
expects to open its sixteenth branch office in Bucks County, Pennsylvania during
the first quarter of 2000.

         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, 1999, one- to four-family residential mortgage loans
totaled $168.1 million or 57.9% of the Bank's total loan portfolio. At that same
date,  the Bank  had  approximately  $292.4  million  or  40.5% of total  assets
invested  in  mortgage-backed  securities  and $88.7  million  or 12.3% of total
assets in investment  securities.  To a lesser extent,  the Bank also originates
commercial real estate and  multi-family,  construction  and consumer loans. The
Bank has one subsidiary,  Third Delaware Corporation,  which was incorporated in
August 1998 for the purpose of holding and managing  investment  securities  for
the Bank.

Market Area

         The Bank operates five offices in  Philadelphia  County and six offices
in Bucks County, Pennsylvania. These two counties cover the city of Philadelphia
and the northeast suburbs of Philadelphia.  The population of these two counties
totals over 2.1 million.  The Bank also operates  four branch  offices in Mercer
County,  New Jersey  including the recently opened branch office acquired in the
Village  acquisition  in  December  1999.  The  population  of Bucks and  Mercer
Counties has experienced  distinctly  different  economic and demographic trends
over recent decades.  Whereas  Philadelphia  County has experienced a population
decline and has offered very  limited  lending  opportunities,  Bucks and Mercer
Counties,  with growing populations,  have offered the Bank much greater lending
opportunities.


                                       2
<PAGE>

Competition

         The Bank faces varying  degrees of  competition  from local thrifts and
credit unions at its various branch  locations.  Stronger  competition  has come
from local and much larger  regional banks based in and around the  Philadelphia
area.  Commercial  banks  hold  approximately  80%  of  the  deposit  market  in
Philadelphia  County,  68% in Bucks County and 66% in Mercer County.  The Bank's
share of the deposit market in  Philadelphia,  Bucks and Mercer Counties is very
small, at .70%, 1.74% and 1.23%, respectively.

Lending Activities

         General.  The Bank's loan portfolio  composition  consists primarily of
conventional adjustable-rate ("ARM") and fixed-rate first mortgage loans secured
by one- to four-family  residences.  The Bank also makes  commercial real estate
and  multi-family  loans,  construction  loans and consumer and other loans.  At
December 31, 1999, the Bank's mortgage loans outstanding were $245.3 million, of
which $168.1 million were one- to four-family residential mortgage loans. Of the
one- to four-family  residential  mortgage loans outstanding at that date, 22.8%
were ARM's and 77.2% were  fixed-rate  loans.  Total ARM  mortgage  loans in the
Bank's  portfolio at December 31,  1999,  amounted to $95.8  million or 33.0% of
total mortgage loans. At that same date, commercial real estate and multi-family
residential  and  construction  loans totaled  $65.3 million and $12.1  million,
respectively.

         Consumer  and other  loans held by the Bank  totaled  $44.6  million or
15.4% of total loans outstanding at December 31, 1999, of which $16.8 million or
5.8% consisted of home equity and second mortgages. At that same date commercial
business  loans,  leases and other loans totaled $9.3 million,  $3.2 million and
$15.3 million, respectively.


                                       3
<PAGE>
         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.
<TABLE>
<CAPTION>
                                                                         At December 31,
                                        1999                1998              1997                1996               1995
                                --------------------  ----------------  ------------------  -----------------  -----------------
                                            Percent           Percent            Percent             Percent            Percent
                                  Amount     Total     Amount of Total   Amount  of Total    Amount  of Total  Amount   of Total
                                  ------    -------    ------ --------   ------  --------    ------  --------  ------   --------
                                                                      (Dollars in thousands)
<S>                            <C>         <C>      <C>      <C>      <C>        <C>      <C>       <C>    <C>         <C>
Mortgage loans:
  One- to four-family........   $168,057     57.93%  $152,819  62.93%  $198,328    78.43% $265,618    85.16% $204,430    85.00%
  Commercial real estate
    and multi-family.........     65,346     22.53     55,208   22.73    26,653    10.54    20,427     6.55    10,294     4.28
  Construction...............     12,074      4.16      5,352    2.20     5,052     2.00     4,720     1.51     3,604     1.50
                                 -------    ------    -------  ------   -------   ------   -------   ------   -------     ----
       Total mortgage loans..    245,477     84.63    213,379   87.86   230,033    90.97   290,765    93.22   218,328    90.78
Consumer and other loans:
  Home equity and second
    mortgage.................     16,816      5.80     12,995    5.35    12,147     4.80     9,661     3.10    10,635     4.42
  Commercial business........      9,339      3.22      6,666    2.74     2,798     1.11     3,126     1.00     2,887     1.20
  Leases.....................      3,195      1.10      2,305    0.95     1,671     0.66     3,093     0.99     3,590     1.49
  Other......................     15,249      5.26      7,521    3.10     6,230     2.46     5,261     1.69     5,072     2.11
                                 -------    ------    -------  ------   -------   ------   -------   ------   -------   ------
       Total consumer and
         other loans.........     44,599     15.37     29,487   12.14    22,846     9.03    21,141     6.78    22,184     9.22
                                 -------    ------     ------  ------   -------   ------   -------   ------   -------   ------
       Total loans...........    290,076    100.00%   242,866  100.00%  252,879   100.00%  311,906   100.00%  240,512   100.00%
                                 =======    ======    =======  ======   =======   ======   =======   ======   =======   ======
Less:
  Unearned discount, premium,
    deferred loan fees, net..        180                  116               139                530                753
  Allowance for loan losses..      1,917                1,909             2,029              1,806              1,484
                                 -------              -------           -------            -------            -------
      Total loans, net.......   $287,979             $240,841          $250,711           $309,570           $238,275
                                 =======              =======           =======            =======            =======
Mortgage-backed securities
held-to-maturity:
  FHLMC......................     52,625     32.91    $47,239   26.10%  $76,523    53.12%  $90,016    58.54% $ 65,834    47.76%
  FNMA.......................     24,983     15.63     12,726    7.03    22,927    15.91    27,547    17.92    33,150    24.05
  GNMA.......................     46,651     29.18     56,318   31.12     7,483     5.19     6,043     3.93     7,644     5.55
  Real estate investment
    mortgage conduit.........     35,271     22.06     64,180   35.47    36,389    25.26    29,220    19.00    30,033    21.79
  Collateralized mortgage
    obligations..............         --        --         --                --                 --                 19     0.01
  Other mortgage-backed
    securities...............        358      0.22        501    0.28       752     0.52       932     0.61     1,161     0.84
                                 -------    ------    -------  ------   -------   ------   -------   ------    ------   ------
    Total mortgage-backed and
      related securities
      held-to-maturity.......   $159,888    100.00%  $180,964  100.00% $144,074   100.00% $153,758   100.00% $137,841   100.00%
                                 =======    ======    =======  ======   =======   ======   =======   ======   =======   ======
Mortgage-backed
securities
available-for-sale:
    FHLMC....................      7,233      5.46   $ 13,214   17.55% $ 19,223    52.17% $  8,905    40.43% $ 15,422    52.03%
    FNMA.....................     27,963     21.10     32,178   42.74     7,863    21.34     3,240    14.71     4,010    13.53
    GNMA.....................      8,338      6.29     10,284   13.66        --                 --                 --
    Real estate investment
      mortgage conduit.......     88,981     67.15     19,609   26.05     9,761    26.49     9,882    44.86    10,208    34.44
                                 -------    ------    -------  ------   -------   ------   -------   ------   -------   ------
      Total..................   $132,515    100.00%  $ 75,285  100.00% $ 36,847   100.00% $ 22,027   100.00% $ 29,640   100.00%
                                 =======    ======    =======  ======   =======   ======   =======   ======   =======   ======
</TABLE>

                                       4
<PAGE>

         Loan Maturity and Repricing Information. The following table sets forth
certain  information at December 31, 1999,  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, 2000,  are reported as due in one year or less.  The table does not
include prepayments or scheduled principal repayments.
<TABLE>
<CAPTION>
                                                 Due 1/1/00 -  Due 1/1/01 -     Due After
                                                   12/31/00      12/31/04         1/1/05
                                                   --------      --------         ------
                                                             (In thousands)
<S>                                              <C>               <C>          <C>
Available for sale:
  Mortgage-backed securities ..................         --       $  6,637       $125,878

Held to Maturity:
  One-to-four family ..........................   $    127          2,986        164,944
  Commercial real estate and multi-family .....          8          5,953         59,385
  Construction ................................     10,483          1,591           --
  Consumer and other ..........................      1,564         23,472         19,259
                                                  --------       --------       --------
  Total loans receivable ......................     12,182         34,002        243,588
  Mortgage-backed securities ..................      2,289          4,551        153,048
                                                  --------       --------       --------
  Totals ......................................   $ 14,471       $ 38,553       $396,636
                                                  ========       ========       ========
</TABLE>

         The  following  table  sets  forth the  dollar  amount of all loans and
mortgage-backed securities due after December 31, 2000, which have predetermined
interest rates and which have floating or adjustable interest rates.

                                             Predetermined       Floating or
                                                 Rates         Adjustable Rate
                                               ----------      ---------------
                                                      (In thousands)
Available for sale:
  Mortgage-backed securities ...............   $132,515                 --
  Totals

Held to Maturity:
  One-to-four family .......................   $129,569           $ 38,361
  Commercial real estate and multi-family ..     34,220             31,118
  Construction .............................       --                1,591
  Consumer and other .......................     29,126             13,605
                                               --------           --------
  Total loans receivable ...................    192,915             84,675
  Mortgage-backed securities ...............    157,381                218
                                               --------           --------
  Totals ...................................   $350,296           $ 84,893
                                               ========           ========

         One- to  Four-Family  Mortgage  Loans.  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

                                       5
<PAGE>

four-family residential mortgage loans in amounts up to 80% of the lesser of the
appraised value or selling price of the mortgaged property.  Loans originated in
amounts over 80% of the lesser of the  appraised  value or selling  price of the
mortgaged  property,  other than  loans to  facilitate  the sale of real  estate
acquired  through  foreclosure,  must be  owner-occupied  and  private  mortgage
insurance must be provided on the amount in excess of 80%.

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

         At December  31,  1999,  68.5% of mortgage  loans  consisted of one- to
four-family residential loans, of which 22.8% were ARM loans.

         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 1 to 2 % per adjustment  with a lifetime cap of 5 to 6% over the
life of the loan. The ARM loans  acquired as a result of the  Doylestown  merger
adjust  at the end of one or three  years and  adjust by a maximum  of 2.00% per
adjustment with a lifetime cap of 5.00% over the life of the loan.

         The 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  and the Bank's  cost of
funds. The origination fees for fixed-rate loans were generally 3.0% at December
31, 1999. Generally,  the Bank's standard underwriting  guideline for fixed-rate
mortgage  loans conform to the FHLMC and FNMA  guidelines and may be sold in the
secondary  market.  While it does not  presently do so, the Bank has in the past
sold a portion of its  conforming  fixed-rate  mortgage  loans in the  secondary
market to federal agencies while retaining the servicing rights certain loans.

         The Bank,  however, is primarily a portfolio lender. As of December 31,
1999, the Bank's  portfolio of loans  serviced for others totaled  approximately
$15.9 million.

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

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

         Loans secured by commercial and multi-family  real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary  concern in commercial and  multi-family  real estate
lending is the borrower's  creditworthiness  and the  feasibility  and cash flow
potential of the  project.  Loans  secured by income  properties  are  generally
larger  and  involve  greater  risks than

                                       6
<PAGE>

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. At December
31, 1999, the five largest commercial real estate and multi-family loans totaled
$12.5  million  with no single loan larger than $3.3  million.  At December  31,
1999, all such loans were current and the properties  securing such loans are in
the Bank's market area.

         Construction Loans. At December 31, 1999, the Bank had $12.1 million of
construction  loans or 4.2% 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 development.  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.

         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"),  commercial business loans, automobile
loans and student  loans.  These  loans  totaled  $44.6  million or 15.4% of the
Bank's total loan  portfolio at December 31, 1999.  Federal  regulations  permit
federally  chartered thrift  institutions to make secured and unsecured consumer
loans up to 35% of an institution's  assets.  In addition,  a federal thrift has
lending  authority above the 35% category for certain  consumer loans,  property
improvement  loans, and loans secured by savings  accounts.  The Bank originates
consumer  loans in order to provide a wide range of  financial  services  to its
customers and because the shorter terms and normally  higher  interest  rates on
such loans help maintain a profitable  spread between its average loan yield and
its cost of funds.

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

         The Bank intends to continue to emphasize the  origination  of consumer
loans.  Consumer  loans  tend to be  originated  at higher  interest  rates than
conventional residential mortgage loans and for shorter terms which benefits the
Bank's interest rate gap management.  Consumer  loans,  however,  tend to have a
higher risk of default than  residential  mortgage  loans. At December 31, 1999,
$413,000,  or .9%, of the Bank's  consumer  loans were  delinquent  more than 90
days.

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

         The  Bank  offers  second   mortgage   loans  on  one-  to  four-family
residences.  At December 31, 1999, second mortgage and home equity loans totaled
$16.8 million, or 5.8% of the Bank's total loan portfolio. Second mortgage loans
are offered as  fixed-rate  loans for a term not to exceed 15 years.  Such loans
are

                                       7
<PAGE>

only made on owner-occupied one- to four-family  residences and are subject to a
75% combined loan to value ratio. The underwriting standards for second mortgage
loans are the same as the Bank's  standards  applicable  to one- to  four-family
residential loans.

         The Bank  makes  commercial  business  loans  on a  secured  basis  and
generally requires additional collateral consisting of real estate. The terms of
such loans generally do not exceed five years.  The majority of these loans have
floating interest rates which adjust with changes in market driven indices.  The
Bank's  commercial  business  loans  primarily  consist of short-term  loans for
equipment, working capital, business expansion and inventory financing. 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, 1999, the Bank had  approximately  $9.3 million
outstanding in commercial  business loans, which represented  approximately 3.2%
of its total loan portfolio.

         Loan Approval  Authority and Underwriting.  The Board of Directors 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. A Lending Vice  President may
approve  a secured  loan up to  $250,000  and an  unsecured  loan up to  $50,000
individually.  Each In-House Loan Committee member may approve a secured loan up
to  $500,000  and an  unsecured  loan  up to  $100,000.  Any two  In-House  Loan
Committee  members  may  combine  their  secured  lending  authority  up to $1.0
million. A majority of the In-House Loan Committee members may approve a secured
loan up to $4.0 million and an unsecured  loan up to  $250,000.  Generally,  all
loans over $4.0  million,  or loans that cause the  proposed  total  exposure to
exceed $4.0 million, require approval by the Board Loan Committee.

         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.  An
appraisal of the real estate  intended to secure the  proposed  loan is required
which currently is performed by an independent appraiser designated and approved
by  the  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.
The  independent  appraiser or loan officer  determines  the stage of completion
based upon its physical inspection of the construction.  It is the Bank's policy
to obtain title  insurance or a title opinion on all real estate first  mortgage
loans.  Borrowers  must also  obtain  hazard or flood  insurance  (for  loans on
property located in a flood zone) prior to closing the loan. For loans in excess
of 80% of the loan to value ratio,  borrowers are generally  required to advance
funds on a monthly basis together with each payment of principal and interest to
an escrow account from which the 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 $6.6 million as of December 31, 1999.

         At  December  31,  1999,  the Bank's  five  largest  aggregate  lending
relationships  had balances  ranging from $6.1 to $3.2 million.  At December 31,
1999, all of these loans were current.

                                       8
<PAGE>

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,  1999,
consisted of certificates  issued by the Federal Home Loan Mortgage  Corporation
("FHLMC") ($59.9 million),  Government National Mortgage  Association  ("GNMA"),
($55.0 million) Federal National Mortgage  Association ("FNMA") ($52.9 million),
real estate mortgage investment conduits ("REMICs") ($124.2 million),  and other
mortgage-backed securities ($358,000).

         At December 31, 1999, the carrying value of mortgage-backed  securities
totaled  $292.4  million,  or 40.5% of total  assets.  The market  value of such
securities totaled approximately $286.7 million at December 31, 1999.

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

         FHLMC  issues   participation   certificates   backed   principally  by
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate return of principal  within one year. FHLMC securities are indirect
obligations  of the  United  States  Government.  FNMA is a private  corporation
chartered  by  Congress  with a mandate  to  establish  a  secondary  market for
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest,  and FNMA  securities  are indirect  obligations  of the United States
Government.  GNMA is a government  agency  within the  Department of Housing and
Urban Development  ("HUD") which is intended to help finance government assisted
housing programs.  GNMA guarantees the timely payment of principal and interest,
and GNMA securities are backed by the full faith and credit of the United States
Government.  Since FHLMC,  FNMA and GNMA were established to provide support for
low- and  middle-income  housing,  there are limits to the maximum size of loans
that qualify for these programs. Currently, GNMA limits its maximum loan size to
$240,050 for Veterans  Administration  ("VA") loans and on average  $240,050 for
Federal  Housing  Authority  ("FHA") loans.  FNMA and FHLMC limit their loans to
$240,000. To accommodate  larger-sized loans, and loans that, for other reasons,
do not conform to the agency  programs,  a number of private  institutions  have
established their own home-loan origination and securitization programs.

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


                                       9
<PAGE>
         CMOs and REMICs are typically issued by a  special-purpose  entity (the
"issuer"),  which may be organized in a variety of legal forms, such as a trust,
a corporation,  or a partnership.  The entity  aggregates  pools of pass-through
securities,  which are used to collateralize  the mortgage  related  securities.
Once  combined,  the cash flows can be divided into  "tranches"  or "classes" of
individual  securities,  thereby creating more predictable average durations for
each security than the underlying  pass-through pools.  Accordingly,  under this
security they structure all principal pay downs from the various  mortgage pools
are allocated to a mortgage-related class or classes structured to have priority
until it has been paid off.  Thus these  securities  are intended to address the
reinvestment concerns associated with mortgage-backed  securities  pass-through,
namely that (i) they tend to pay off when interest  rates fall,  thereby  taking
their relatively high coupon with them, and (ii) their expected average life may
vary significantly among the different tranches.

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

         The CMOs and REMICs held by the Bank at December  31,  1999,  consisted
solely of fixed-rate notes and adjustable-rate notes with contractual maturities
ranging from .8 to 29.4 years.  The portfolio of CMOs and REMICs held within the
Bank's  mortgage-backed  securities  portfolio  at December  31,  1999,  did not
include any  residual  interests.  Further,  at December  31,  1999,  the Bank's
mortgage-backed  securities  portfolio did not include any  "stripped"  CMOs and
REMICs,  i.e. CMOs and REMICs that pay interest only and do not repay  principal
or CMOs that repay principal only and do not pay interest.

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

                                                        At December 31,
                                                --------------------------------
                                                 1999        1998        1997
                                               ---------    --------    --------
                                                         (In thousands)
Held to maturity:
  GNMA-fixed rate ..........................    $ 46,651    $ 56,318    $  7,483
  FHLMC ARMs ...............................         218         269         281
  FHLMC-fixed rate .........................      52,407      46,970      76,242
  FNMA-fixed rate ..........................      24,983      12,726      22,927
  CMOs .....................................        --          --          --
  Remics ...................................      35,271      64,180      36,389
  Other mortgage-backed securities .........         358         501         752
                                                --------    --------    --------
   Total mortgage-backed securities ........    $159,888    $180,964    $144,074
                                                ========    ========    ========
Mortgage-backed securities
Available-for-sale:
  FHLMC ....................................    $  7,233    $ 13,214    $ 19,223
  FNMA .....................................      27,963      32,178       7,863
  GNMA .....................................       8,338      10,284        --
  Remics ...................................      88,981      19,609       9,761
                                                --------    --------    --------
    Total mortgage-backed securities
      available-for-sale ...................    $132,515    $ 75,285    $ 36,847
                                                ========    ========    ========

                                       10
<PAGE>

         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, 1999. The table does not include estimated
prepayments.  Adjustable-rate  mortgage-backed  securities are shown as maturing
based on contractual maturities.
<TABLE>
<CAPTION>
                                   Contractual
                                 Held Contractual             Available-For-
                                   To Maturity                    Sale
                                  Maturities Due     WAC     Maturities Due    WAC
                                  --------------     ---     --------------    ---
                                                  (Dollars in thousands)
<S>                                 <C>           <C>         <C>            <C>
Less than 1 year                     $  2,289       6.07%       $    --          --%
1 to 3 years                            2,594       6.99          5,519        7.07
3 to 5 years                            1,957       7.23          1,118        6.58
5 to 10 years                          17,681       7.34         16,048        6.75
10 to 20 years                         15,359       6.80         39,989        6.19
Over 20 years                         120,008       6.74         69,841        6.78
                                      -------       ----         ------        ----
Total mortgage-backed securities     $159,888       6.81%      $132,515        6.61%
                                      =======       ====        =======        ====
</TABLE>

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 90 days or more, 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 sold 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,  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.


                                       11
<PAGE>
         Delinquent Loans. Generally, the Bank reserves for uncollected interest
on loans past due 90 days or more. Loans also are placed on a nonaccrual  status
when, in the judgment of management,  the  probability of collection of interest
is deemed to be  insufficient  to  warrant  further  collection.  When a loan is
placed on nonaccrual status,  previously accrued but unpaid interest is deducted
from interest income.

         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 90 days or more or for
which accrued interest has been recorded.  At December 31, 1999, the Bank had no
significant impaired loans within the meaning of SFAS No. 114 and SFAS No. 118.

<TABLE>
<CAPTION>
                                                              At December 31,
                                               ---------------------------------------------
                                               1999      1998      1997      1996      1995
                                               -----    ------    ------    ------    ------
                                                            (Dollars in thousands)
<S>                                          <C>       <C>       <C>       <C>       <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One- to four-family .....................   $  880    $  896    $  776    $  922    $  999
  Commercial real estate and multi-family .       24        97        --        --        28
Consumer and other ........................      413       609       606     1,050       776
                                               -----    ------    ------    ------    ------
   Total non-accrual loans ................    1,317    $1,602    $1,382    $1,972    $1,803
                                               =====    ======    ======    ======    ======

Real estate owned, net ....................   $  546    $  308    $  351    $  112    $  129
Other non-performing assets ...............       --        --        --        --        --
                                               -----    ------    ------    ------    ------
Total non-performing assets ...............   $1,863    $1,910    $1,733    $2,084    $1,932
                                              ======    ======    ======    ======    ======
Total non-accrual loans to net loans ......     0.46%     0.67%     0.55%     0.64%     0.76%
                                              ======    ======    ======    ======    ======
Total non-accrual loans to total assets ...     0.18%     0.24%     0.23%     0.30%     0.37%
                                              ======    ======    ======    ======    ======
Total non-performing assets to total assets     0.26%     0.29%     0.29%     0.32%     0.39%
                                              ======    ======    ======    ======    ======
</TABLE>

         At  December  31,  1999,  the Bank  had no  foreign  loans  and no loan
concentrations  exceeding  10% of total loans not  disclosed in above the table.
"Loan concentrations" are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause them
to be similarly impacted by economic or other conditions.  Loans recorded in the
category  of other  real  estate  owned are valued at the lower of book value of
loans outstanding or fair market value less cost of disposal.

         At December 31, 1999,  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 is  inadequately  protected  by the  current  net worth and
paying  capacity  of  the  obligor  or  of  the  collateral   pledged,  if  any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that the insured  institution  will sustain "some loss" if the  deficiencies are
not  corrected.  Assets  classified  as  "doubtful"  have all of the  weaknesses
inherent in those classified  "substandard," with the added  characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently  existing  facts,  conditions  and values,  "highly  questionable  and
improbable."  Assets  classified as "loss" are those considered  "uncollectible"
and  of  such  little  value  that  their  continuance  as  assets  without  the
establishment  of a specific loss reserve is not  warranted.  Assets  designated
"special  mention" by

                                       12
<PAGE>

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  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets. When an insured  institution  classifies
problem  assets as  "loss,"  it is  required  either  to  establish  a  specific
allowance for losses equal to 100% of that portion of the asset so classified or
to  charge  off  such  amount.   An   institution's   determination  as  to  the
classification  of its  assets  and the amount of its  valuation  allowances  is
subject to review by the OTS,  which may order the  establishment  of additional
general or  specific  loss  allowances.  A portion of  general  loss  allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's  regulatory capital,
while specific valuation  allowances for loan losses generally do not qualify as
regulatory capital.
         The  following  table  provides  further  information  in regard to the
Bank's classified assets as of December 31, 1999.

                                                    At
                                                December 31,
                                                   1999
                                               -------------
                                                (In thousands)

                 Special mention assets .......   $  719
                 Substandard ..................    2,167
                 Doubtful assets ..............       --
                 Loss .........................       --
                                                  ------
                    Total classified assets....   $2,886
                                                  ======

-------------
(1)  Substandard assets include approximately $296,000 of performing assets that
     are less than 90 days  delinquent,  that are  classified  for reasons other
     than delinquency.

         Real  Estate  Owned.  Real  estate  acquired by the Bank as a result of
foreclosure,  judgment or by deed in lieu of  foreclosure  is classified as real
estate owned ("REO") until it is sold.  When property is acquired it is recorded
at the  lower of fair  value,  minus  estimated  cost to sell,  or cost.  If the
property  subsequently  decreases in estimated  value from the initial  recorded
amount,  the Bank will  provide an  additional  valuation  allowance,  through a
charge to earnings, if the decrease is judged by management to be temporary,  or
the Bank will write the property down, through a charge to earnings,  to the new
estimated value if the decrease is judged by management to be permanent.

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

                                       13
<PAGE>

         Allowances for Loan Losses. The Bank provides valuation  allowances for
estimated losses from uncollectible loans.  Management's  periodic evaluation of
the adequacy of the allowance for loan losses is based on loss experience, known
and  inherent  risk  in  the  portfolio,   prevailing  market  conditions,   and
management's  judgment as to collectibility.  The Bank's determination as to the
amount of its  allowance  for loan  losses is subject  to review of the  federal
regulatory  agencies,  the OTS and FDIC,  which can order the  establishment  of
additional general or specific loan loss reserves. The allowance for loan losses
is  increased  by charges to  earnings  and  decreased  by  charge-offs  (net of
recoveries).

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

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

<TABLE>
<CAPTION>
                                                     For the Years Ended December 31,
                                   ---------------------------------------------------------------
                                      1999          1998        1997           1996        1995
                                      ----          ----        ----           ----        ----
                                                       (Dollars in thousands)
<S>                               <C>         <C>           <C>         <C>            <C>
Balance at beginning of period .   $ 1,909     $   2,029     $ 1,806     $    1,484     $ 1,473
Provision for loan losses ......       300            60         397            330          72
Charge-offs:
  One- to four-family ..........        --            --          (1)            --         (48)
  Commercial and multi-family
  real estate loans ............        --            --          --             --          --
  Consumer and other loans .....      (296)         (180)       (173)            (8)        (13)
Recoveries:
  Commercial and multi-family
  real estate loans ............        --            --          --             --          --
  Consumer and other loans .....         4            --          --             --          --
                                   -------     ---------     -------     ----------     -------
Balance at end of year(1) ......   $ 1,917     $   1,909     $ 2,029     $    1,806     $ 1,484
                                   =======     =========     =======     ==========     =======

Ratio of net charge-offs during
  the period to average loans
  outstanding during the period       0.10%         0.08%       0.06%         0.003%       0.04%
Ratio of allowance for loan
  losses to non-performing
  loans at the end of the period    145.56%       119.16%      147.0%          91.6%       82.3%
Ratio of allowance for loan
  losses to net loans receivable
  at the end of period .........      0.67%         0.79%       0.81%          0.58%       0.62%
Ratio of allowance for loan
  losses and foreclosed real
  estate to total non-performing
  assets at the end of period ..    132.21%       116.07%     137.33%         92.03%       76.8%

</TABLE>
--------------
(1)      The Bank had not  incurred  any  material  charge-offs  or received any
         material  recoveries  on  the  one-to  four-family  and  consumer  loan
         portfolios for any of the periods presented.

                                       14
<PAGE>

         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.  The portion of the loan
loss  allowance  allocated to each loan  category  does not  represent the total
available for future  losses which may occur within the loan category  since the
total loan loss allowance is a valuation  reserve  applicable to the entire loan
portfolio.

<TABLE>
<CAPTION>
                                                                   At December 31,
                        ------------------------------------------------------------------------------------------------------------
                              1999                 1998                 1997                  1996                 1995
                        -------------------- ------------------  --------------------- -------------------- ------------------------
                                 Percent of          Percent of             Percent of           Percent of           Percent of
                                 Loans to             Loans to               Loans to             Loans to             Loans to
                                  Total                Total                  Total                Total                Total
                         Amount   Loans      Amount    Loans       Amount     Loans     Amount     Loans     Amount     Loans
                         ------   -----      ------    -----       ------     -----     ------     -----     ------     -----
                                                                 (Dollars in thousands)
<S>                     <C>       <C>      <C>         <C>       <C>         <C>      <C>         <C>      <C>         <C>
At end of period
 allocated to:
One- to four-family..... $1,098     57.9%    $1,205      62.9%     $1,503      78.4%    $1,330      73.7%    $1,042      85.1%
Commercial real estate
 and multi-family.......    426     22.5        508      22.8         202      10.5        102       5.7         46       4.1
Construction............     79      4.2         97       2.2          37       2.0         24       1.3         24       1.6
Consumer and
  other loans...........    314     15.4         99      12.1         287       9.1        350      19.3        372       9.2
                         ------    -----    -------     -----     -------     -----    -------     -----     ------     -----
Total allowance......... $1,917    100.0%   $ 1,909     100.0%    $ 2,029     100.0%   $ 1,806     100.0%    $1,484     100.0%
                         ======    =====    =======     =====     =======     =====    =======     =====     ======     =====

</TABLE>
                                       15
<PAGE>

Investment Activities

         The investment policy of the Bank, which is established by the Board of
Directors  and  implemented  by  the  Asset  Liability  Committee,  is  designed
primarily to provide and maintain  liquidity,  to generate a favorable return on
investments  without  incurring  undue  interest  rate and credit  risk,  and to
complement  the  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  market  values  of the  Bank's  investments  at the  dates
indicated.
<TABLE>
<CAPTION>
                                                     At December 31,
                                -----------------------------------------------------------
                                         1999              1998                1997
                                ------------------  ------------------  -------------------
                                Amortized   Market  Amortized   Market  Amortized   Market
                                  Cost      Value     Cost      Value     Cost      Value
                                 -------   -------   -------   -------   -------   -------
                                                                     (In thousands)
<S>                             <C>       <C>       <C>       <C>       <C>       <C>
Interest-earning deposits ....   $ 5,984   $ 5,984   $19,267   $19,267   $25,628   $25,628
                                 =======   =======   =======   =======   =======   =======

Investment securities
held-to-maturity:
  U.S. government and agency
    obligations ..............   $57,455   $55,500   $73,612   $73,747   $50,278   $50,433
  State and political
    subdivisions .............     4,284     4,168     4,283     4,361     2,544     2,593
  Corporate debt securities ..     5,021     4,870     3,000     2,986      --        --
                                 -------   -------   -------   -------   -------   -------
    Total ....................   $66,760   $64,538   $80,895   $81,094   $52,822   $53,026
                                 =======   =======   =======   =======   =======   =======

Securities available-for-sale:
  U.S. government and agency
    obligations ..............   $11,994   $11,558   $ 8,000   $ 8,045   $31,254   $31,327
  State and political
    subdivisions .............     3,783     3,696        --        --        --        --
  Corporate Debt
     Securities ..............     6,053     5,833        --        --        --        --
  Equity securities
    (SLMA stock) .............        --        --        --        --        10       210
  Mutual funds ...............       500       493       500       497       500       500
    Other ....................       500       350       500       500        --        --
                                 -------   -------   -------   -------   -------   -------
    Total ....................   $22,830   $21,930   $ 9,000   $ 9,042   $31,764   $32,037
                                 =======   =======   =======   =======   =======   =======
</TABLE>


                                       16

<PAGE>

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,
1999.

<TABLE>
<CAPTION>
                                                                                                                   Total
                  One Year or Less     One to Five Years        Five to Ten Years    More than Ten Years   Investment Securities (2)
                  -------------------  ---------------------  ---------------------  -------------------  -------------------------
                  Amortized  Average    Amortized   Average   Amortized    Average    Amortized   Average Amortized Average Market
                    Cost      Yield       Cost       Yield       Cost       Yield       Cost       Yield    Cost     Yield  Value
                    ----      -----       ----       -----       ----       -----       ----       -----    ----     -----  -----
                                                             (Dollars in thousands)
<S>              <C>          <C>       <C>          <C>      <C>           <C>      <C>          <C>     <C>        <C>   <C>
U.S. government
  obligations.... $5,007       6.18%     $    --        --%    $    --         --%    $     --        --%  $ 5,007    6.18% $ 5,019
U.S. agency
  obligations....     --         --       53,016      5.91      11,426       6.66           --        --    64,442    6.05   62,039
Municipal
  obligations....    425       4.49           --        --       1,590       4.72        6,052      5.56     8,067    5.34    7,864
Corporate
  obligations....     --         --       11,074      5.72          --         --           --        --    11,074    5.72   10,703
Other
  securities(1)..  1,000       4.91           --        --          --         --           --        --     1,000    4.91      843
                  ------       ----      -------      ----     -------       ----       ------      ----   -------    ----  -------
  Total           $6,432       5.90%     $64,090      5.88%    $13,016       6.43%      $6,052      5.56%  $89,590    5.94% $86,468
                  ======       ====      =======      ====     =======       ====       ======      ====   =======    ====  =======
</TABLE>

--------------------
(1)  Other   securities   consists   of   an   investment   in   adjustable-rate
     mortgage-backed  securities  mutual funds.  Such  investments do not have a
     stated  maturity and are  considered in the one year or less category based
     on quarterly repricing of the investment.
(2)  Includes $21.9 million of U.S.  government and agency obligations and other
     investments which are carried as  available-for-sale  at December 31, 1999.
     Investment securities available-for-sale are carried at market value.

                                       17
<PAGE>


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,  $30.6 million or 7.6% consist of IRA, Keogh
or SEP retirement accounts at December 31, 1999.

         The flow of deposits is influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.  The Bank's deposits are primarily  obtained from areas surrounding
its offices, and the Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain these deposits.  The Bank has
maintained a high level of core deposits  consisting of regular  savings,  money
market,  non-interest-bearing  checking, and NOW checking, which has contributed
to a low  cost-of-funds.  At December 31, 1999, core deposits amounted to 61.02%
of total deposits.

         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 out-of-state  sources.  Management does not believe that
the use of year  end  balances  instead  of  average  balances  resulted  in any
material difference in the information presented.


<TABLE>
<CAPTION>
                                                                                At December 31,
                                      ----------------------------------------------------------------------------------------------
                                                   1999                              1998                         1997
                                      ------------------------------ ---------------------------------  ----------------------------

                                                           Weighted                           Weighted                      Weighted
                                                 Percent    Average               Percent      Average             Percent  Average
                                                 of Total   Nominal               of Total     Nominal             of Total  Nominal
                                       Amount    Deposits    Rate     Amount      Deposits      Rate     Amount    Deposits   Rate
                                       --------   ------     ----   --------       ------       ----   --------     ------     ----
                                                                       (Dollars in thousands)
<S>                                   <C>        <C>       <C>     <C>            <C>         <C>     <C>           <C>      <C>
  Transaction Accounts
  Interest-bearing checking accounts    $45,804    11.40%    1.20%  $ 44,971        10.25%      1.12%   $40,360       8.96%    1.01%
  Money market accounts                  32,793     8.16     3.59     32,556         7.42       3.37     32,777       7.28     3.32
  Non-interest-bearing checking
    accounts                              7,033     1.75     0.00      6,231         1.42       0.00      5,037       1.12     0.00
                                       --------   ------     ----   --------       ------       ----   --------     ------     ----
     Total transaction accounts          85,630    21.32              83,758        19.08                78,174      17.36

  Fixed-rate passbook accounts          123,033    30.63     2.47    122,213        27.84       2.50    122,952      27.30     2.50
  Adjustable-rate passbook accounts      36,457     9.08     4.14     43,651         9.95       4.13     51,277      11.38     4.97
                                       --------   ------     ----   --------       ------       ----   --------     ------     ----
      Total passbook accounts           159,490    39.70             165,864        37.79               174,229      38.68
  Certificates of deposit               156,578    38.98     4.90    189,291        43.13       5.02    198,026      43.96     5.38
                                       --------   ------     ----   --------       ------       ----   --------     ------     ----
      Total deposits                   $401,698   100.00%    3.47%  $438,913       100.00%      3.64%  $450,429     100.00%    3.95%
                                       ========   ======     ====   ========       ======       ====   ========     ======     ====
</TABLE>

                                       18
<PAGE>

At  December  31,  1999,  the Bank had  outstanding  certificates  of deposit in
amounts of $100,000 or more maturing as follows:


                                                 Amount
                                                 ------
                Maturing Period              (In thousands)
                ---------------
                Three months or less ........   $ 1,769
                Over three through six months       889
                Over six through 12 months ..     3,788
                Over 12 months ..............     5,771
                                                -------
                    Total ...................   $12,217
                                                =======

         The following table presents, by various rate categories, the amount of
time deposits  outstanding at December 31, 1999,  1998 and 1997, and the periods
to maturity of the certificate accounts outstanding at December 31, 1999.

<TABLE>
<CAPTION>

                                            Period to Maturity from
                                            December 31, 1999                             At December 31,
                                 --------------------------------------       ------------------------------------------
                                 Within          One to
                                 One Year      Three Years   Thereafter          1999            1998             1997
                                 --------      -----------   ----------          ----            ----             ----
                                                            (In thousands)
<S>                             <C>              <C>           <C>           <C>              <C>             <C>
Time deposits:
  2.00% to 2.99%                 $    --          $    --       $   --        $     --         $     --        $     18
  3.00% to 3.99%                  23,769              836           --          24,605           22,824          16,897
  4.00% to 4.99%                  44,430           14,618        2,882          61,930           57,733          37,455
  5.00% to 5.99%                  20,914           28,360        4,160          53,434           94,210         136,860
  6.00% to 6.99%                   1,505           14,513          365          16,383           14,048           5,944
  7.00% to 7.99%                       7              122           53             182              208             314
  8.00% to 8.99%                      44               --           --              44              221             453
  9.00% to 9.99%                      --               --           --              --               47              85
                                 -------          -------       ------        --------         --------        --------
       Total                     $90,669          $58,449       $7,460        $156,578         $189,291        $198,026
                                 =======          =======       ======        ========         ========        ========
</TABLE>

Borrowings

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

                                       19
<PAGE>



                                                      At December 31,
                                          --------------------------------------
                                            1999           1998            1997
                                            ----           ----            ----
                                                  (Dollars in thousands)

FHLB advances and other borrowings...     $264,299       $163,359       $88,359
                                           =======        =======        ======

Weighted average interest rate.......         5.37%          5.77%         6.03%



                                             Years Ended December 31,
                                         --------------------------------
                                           1999        1998        1997
                                         --------    --------    --------
                                               (Dollars in thousands)
Maximum balance of  FHLB advances and
  other borrowings outstanding .......   $268,128    $163,359    $ 98,359
                                         ========    ========    ========
Weighted average balance of FHLB
  advances and other borrowings
  outstanding ........................   $240,371    $163,359    $ 97,837
                                         ========    ========    ========
Weighted average interest rate of FHLB
  advances and other borrowings ......       5.37%       5.77%       6.03%
                                         ========    ========    ========

         The Bank uses  convertible  FHLB  advances for a portion of its funding
needs.  These  borrowings  are  fixed  rate,  fixed  term  advances  that can be
converted to  LIBOR-based  floating  rate advances at the option of the FHLB, on
each quarterly  interest  payment date,  after an initial period.  The following
table sets forth information related to these convertible advances.

<TABLE>
<CAPTION>
                                                 At December 31, 1999
                                                 --------------------
                                                (Dollars in thousands)
Date first convertible      Contractual Maturity                        Contractual
     (month/year)             Date (month/year)          Amount        Interest Rate
     ------------             -----------------          ------        -------------
<S>                              <C>                  <C>                 <C>
        Feb-00                     Feb-02               $10,000             4.85%
        Mar-00                     Mar-05                10,000             5.37
        May-00                     May-05                 5,000             5.30
        May-00                     May-03                10,000             5.59
        Aug-00                     Aug-03                 5,000             5.45
        Feb-01                     Feb-04                20,000             4.94
        May-01                     May-03                 5,000             5.75
        Feb-02                     Feb-09                15,000             4.74
        Feb-02                     Feb-04                25,000             5.10
        Apr-02                     Apr-08                10,000             5.41
        Jun-02                     Jun-08                15,000             5.63
        Jun-02                     Jun-08                10,000             5.61
        Feb-03                     Feb-06                20,000             5.15
        Mar-03                     Mar-08                10,000             5.61
        Mar-03                     Mar-08                25,000             5.70
        Feb-04                     Feb-09                10,000             5.05
                                                        -------             ----
                                                       $205,000             5.29
                                                        =======
</TABLE>
                                       20
<PAGE>

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, 1999, the Bank was  authorized to invest up to  approximately
$14.4 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 operative
subsidiary if it engages only in activities in which it would be permissible for
the Bank to engage.  At December 31, 1999,  the Bank had one  subsidiary,  Third
Delaware  Corporation.  Third Delaware  Corporation is a wholly-owned  operating
subsidiary  of the Bank and was formed in 1998 for the purpose of  investing  in
marketable securities. At December 31, 1999, the Bank had $55.6 million invested
in Third Delaware Corporation.

Personnel

         As of December 31, 1999,  the Bank had 155  full-time  and 14 part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Bank believes that its relationship with its employees is
good.

Executive Officers of the Registrant

         Executive Officers of the Bank and the Company:

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

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

         Dennis R. Stewart has been Senior Vice  President  and Chief  Financial
Officer of the Bank and the Company since May 1999.  Prior to that,  Mr. Stewart
served as Executive Vice President and Chief Financial  Officer of First Coastal
Bank in Virginia Beach, Virginia, where he had been employed since 1990.

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

         Thomas J.  Sposito,  II has been with the Bank since 1996. He currently
serves as Senior Vice President and Retail Banking Officer.  Mr. Sposito's prior
experience includes 11 years as Manager of Retail Banking at Meridian/Corestates
Bank.

         Earl A.  Pace,  Jr.  is Senior  Vice  President  and Chief  Information
Officer of the Bank. Mr. Pace has been with the Bank since 1997. Previously,  he
was President and CEO of Pace Data Systems, an information technology consulting
firm.

                                       21
<PAGE>

         Floyd P. Haggar has been with the Bank since 1998. Mr. Haggar currently
serves as Senior Vice President and Chief Lending Officer of the Bank. His prior
experience  includes four years as Senior Vice President and Senior Loan Officer
at Carnegie Bank.

         The remaining  information relating to Directors and Executive Officers
of the Registrant is incorporated  herein by reference to the Registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders.

                                   REGULATION

         Set  forth  below  is a brief  description  of all  material  laws  and
regulations  which relate to the  regulation  of the 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.

         On  November  12,  1999,   President   Clinton   signed  into  law  the
Gramm-Leach-Bliley  Act (the "Act") which will, effective March 11, 2000, permit
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.  The Act 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.

         The Act 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 will
retain its authority to engage in nonfinancial activities.

Company Regulation

         General.  The  Company is a unitary  savings and loan  holding  company
subject to regulatory  oversight by the OTS. As such, the Company is required to
register  and  file  reports  with  the OTS and is  subject  to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Company and its non-savings association  subsidiaries,  should such subsidiaries
be formed,  which also permits the OTS to restrict or prohibit  activities  that
are determined to be a serious risk to the subsidiary savings association.  This
regulation  and  oversight  is  intended  primarily  for the  protection  of the
depositors of the 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.

         QTL 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. 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 or any  other  SAIF-insured  savings  association)  would  become
subject to restrictions  applicable to bank holding  companies unless such other
associations  each also  qualify  as a QTL and were  acquired  in a  supervisory
acquisition.


                                       22

<PAGE>

Bank Regulation

         General. As a federally  chartered,  SAIF-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 activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.  Any change in such  regulations,  whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations.  The Company is also  required to file  certain  reports  with,  and
otherwise comply with, the rules and regulations of the OTS and the SEC.

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

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

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

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

                                       23
<PAGE>

         At  December  31,  1999,  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 a notice  or an  application  with the OTS if (i) the  savings
association would remain at least adequately  capitalized  following the capital
distribution  and (ii) the  amount of  capital  distribution  does not exceed an
amount equal to the savings association's net income for that year to date, plus
the savings association's  retained net income for the previous two years. Thus,
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 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.  The OTS limitations on capital  distributions  are similar to the
limitations imposed upon national banks.

         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
FDICIA also amended the method for measuring  compliance with the QTL test to be
on a monthly  basis in nine out of every 12 months,  as opposed to on a daily or
weekly average of QTIs. As of December 31, 1999, the Bank was in compliance with
its QTL requirement with 91.8% of its assets invested in QTIs.

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

         Liquidity  Requirements.  All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may

                                       24
<PAGE>

vary from time to time (between 4% and 10%) depending  upon economic  conditions
and savings flows of all savings associations. At the present time, the required
liquid asset ratio is 4%. At December 31, 1999, the Bank's  liquidity  ratio was
17.4%.

         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 stock in the
FHLB of  Pittsburgh  in an amount equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year. At December 31, 1999,  the Bank had $13.0 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, 1999,  the Bank's total  transaction  accounts  required a reserve  level of
$1,837,000 which was entirely offset by the Bank's vault cash on hand.

         Savings  associations have authority to borrow from the Federal Reserve
Bank "discount  window," but Federal Reserve policy  generally  requires savings
associations  to exhaust  all OTS  sources  before  borrowing  from the  Federal
Reserve System. The Bank had no such borrowings at December 31, 1999.

Item  2.  Properties
--------------------

         The  Company is located and  conducts  its  business at 3 Penns  Trail,
Newtown,  Pennsylvania.  The Bank  operates  from its main  office and 15 branch
offices located in  Philadelphia  and Bucks  Counties,  Pennsylvania  and Mercer
County,  New Jersey.  The Bank also owns two lots,  one of which has a building,
behind its Doylestown branch office. The building is leased to a third-party and
the other is used as a parking lot for  employees  and tenants of the Bank.  The
net book value of the two lots was $102,000 at December  31, 1999.  In addition,
the Bank owns a vacant lot at Newtown  Yardley Road and Friends  Lane,  Newtown,
Pennsylvania.  This lot was purchased in 1993 for future expansion and had a net
book value of $1.1 million at December 31, 1999.

                                       25
<PAGE>

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

<TABLE>
<CAPTION>
                                 Leased or                                             Leased or
    Location                      Owned               Location                           Owned
    --------                      -----               --------                           -----
<S>                              <C>             <C>                                   <C>
MAIN OFFICE                                        OPERATIONS OFFICE
  Newtown Office                                   Operations Center
  3 Penns Trail                                    62 Walker Lane
  Newtown, PA 18940                Owned           Newtown, PA  18940(1)                 Owned

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

  Warminster Office                                Ewing Office
  601 Louis Drive                                  2075 Pennington Road
  Warminster, PA                   Leased          Trenton, NJ 08618                     Owned

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

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

  Cross Keys Office                                Feasterville Office
  834 North Easton Highway                         Buck Hotel Complex
  Doylestown, PA 18901             Owned           Feasterville, PA 19053                Leased

  Bridesburg Office                                Quakerbridge Office
  Orthodox & Almond Streets                        590 Lawrence Square Blvd.
  Philadelphia, PA 19137           Owned           Lawrenceville, NJ 08648               Leased

  New Britain Office                               Princeton Office
  100 Town Center                                  Princeton Shopping Center
  New Britain, PA 18901            Leased          301 N. Harrison Street                Leased
                                                   Princeton, NJ 08540
  Woodhaven Office
  Knights Road Center
  4014 Woodhaven Road
  Philadelphia, PA 19154           Leased
</TABLE>

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



                                       26

<PAGE>
Item 3.  Legal Proceedings
--------------------------

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

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

         None.

                                     PART II

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

         Information  relating to the market for Registrant's  common equity and
related  stockholder  matters  appears under "Stock Market  Information"  in the
Registrant's  1999 Annual Report to  Stockholders on page 10 and is incorporated
herein by reference.

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

         The  above-captioned  information appears under "Selected Financial and
Other Data" in the  Registrant's  1999 Annual Report to  Stockholders on page 11
and is incorporated herein by reference.

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

         The  information  contained  in  the  section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Registrant's  1999  Annual  Report to  Stockholders  on pages 13  through  18 is
incorporated herein by reference.

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

Asset and Liability Management

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

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

                                       27
<PAGE>

         A  significant  portion of the Bank's  assets has been  funded with CDs
including jumbo CDs. Unlike other deposit  products such as checking and savings
accounts,  CDs carry a high degree of interest rate  sensitivity  and therefore,
their  renewal  will vary based on the  competitiveness  of the Bank's  interest
rates.  The Bank has attempted to price its CDs to be competitive at the shorter
maturities (i.e., maturities of less than one year) in order to better match the
repricing   characteristics   of   portfolio   loans.   At  December  31,  1999,
approximately 39.0% of the Bank's deposits were CDs.

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

         The  nature of the  Bank's  current  operations  is such that it is not
subject to foreign  currency  exchange or  commodity  price risk.  Additionally,
neither the Company nor the Bank owns any trading assets.  At December 31, 1999,
the Bank did not have any hedging  transactions  in place such as interest  rate
swaps, caps, or floors.

         As part of its  interest  rate  risk  management,  the  Bank  uses  the
Interest Rate Risk  Exposure  Report,  which is generated  quarterly by the OTS.
This report  forecasts  changes in the Bank's  market value of portfolio  equity
("MVPE") under alternative  interest rate  environments.  The MVPE is defined as
the net present value of the Bank's existing assets, liabilities and off-balance
sheet  instruments.  The calculated  estimates of change in MVPE at December 31,
1999 are as follows:

                                    MVPE
         -------------------------------------------------------
         Change in Interest Rate    Amount              % Change
         -----------------------    ------              --------
                                            (In Thousands)

         +300 Basis Points         $20,609                .57%
         +200 Basis Points         $31,887                -33%
         +100 Basis Points         $39,724                -16%
         Flat Rate                 $47,391                  0%
         -100 Basis Points         $50,160                 +6%
         -200 Basis Points         $48,208                 +2%
         -300 Basis Points         $43,169                 -9%

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

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

                                       28


<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

         The Consolidated  Financial Statements of TF Financial  Corporation and
its  subsidiaries  are  included  in the  Registrant's  1999  Annual  Report  to
Stockholders on pages 19 through 56 and are incorporated herein by reference.

Item 9.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure
         --------------------

         None.

                                    PART III

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

         The information  contained under the sections  captioned  "Proposal 1 -
Election of Directors -- General  Information and Nominees" and "-- Biographical
Information"  on pages 3 through 5 and "Additional  Information  About Directors
and  Executive  Officers  --  Section  16(a)  Beneficial   Ownership   Reporting
Compliance" on page 15 of the  Registrant's  definitive  proxy statement for the
Registrant's  2000 Annual  Meeting of  Stockholders  (the "Proxy  Statement") is
incorporated herein by reference.

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

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

         The  information  relating to executive  compensation  is  incorporated
herein by reference to the  information  contained  under the section  captioned
"Director  and  Executive  Officer  Compensation"  on pages 6 through  15 of the
Registrant's Proxy Statement.

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

         The information  relating to security  ownership of certain  beneficial
owners and  management is  incorporated  herein by reference to the  information
contained under the section captioned  "Voting  Securities and Principal Holders
Thereof" on pages 2 and 3 and in the first  table  under the  section  captioned
"Proposal  1 -  Election  of  Directors"  on  page 4 of the  Registrant's  Proxy
Statement.

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

         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" on page 15
of the Registrant's Proxy Statement.



                                       29
<PAGE>



                                     PART IV

Item 14.  Exhibits, Financial Statements and Reports on Form 8-K
----------------------------------------------------------------

(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 1999 Annual Report
to Stockholders are incorporated herein by reference.

Independent Auditors' Report
Consolidated Statements of Financial Position as of December 31, 1999 and 1998
Consolidated Statements of Earnings For the Years Ended
  December 31, 1999, 1998 and 1997
Consolidated  Statement  of Changes in  Stockholders'  Equity and  Comprehensive
  Income for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements

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

         (2)  All  schedules  are  omitted  because  they  are not  required  or
applicable,  or the required information is shown in the consolidated  financial
statements or the notes thereto.
<TABLE>
<CAPTION>
     <S>        <C>
         (3)      Exhibits

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

          3.1     Certificate of Incorporation of TF Financial Corporation*
          3.2     Bylaws of TF Financial Corporation*
          4.0     Stock Certificate of TF Financial Corporation*
          4.1     The Company's Rights Agreement dated November 22, 1995**
         10.1     Third Federal Savings and Loan Association Management Stock Bonus Plan*
         10.2     TF Financial Corporation 1994 Stock Option Plan*
         10.3     Third Federal Savings Bank Directors Consultation and Retirement Plan***
         10.4     TF Financial Corporation Incentive Compensation Plan***
         10.5     Severance Agreement with John R. Stranford***
         10.6     Severance Agreement with Thomas J. Sposito II****
         10.7     Severance Agreement with Earl A. Pace, Jr.*****
         10.8     Severance Agreement with Dennis R. Stewart
         10.9     TF Financial Corporation 1998 Stock Option Plan****
         13.0     1999 Annual Report to Stockholders
         21.0     Subsidiary Information
         23.0     Consent of Independent Auditor
         27.0     Financial Data Schedule
</TABLE>

                                       30
<PAGE>
--------------
*    Incorporated   herein  by   reference   from  the  Exhibits  to  Form  S-1,
     Registration Statement, File No. 33-76960.
**   Incorporated herein by reference to the Registrants Form 8-A filed with the
     Securities and Exchange Commission on November 22, 1995.
***  Incorporated  herein by reference to the Registrant's Annual Report on Form
     10-K for the fiscal year ended December 31, 1995.
**** Incorporated  herein by reference to the Registrant's Annual Report on Form
     10-K for the fiscal year ended December 31, 1997.
*****Incorporated  herein by reference to the Registrant's Annual Report on Form
     10-K for the fiscal year ended December 31, 1998.


        (b)      Reports on Form 8-K.

         During the quarter  ended  December 31, 1999,  the  Registrant  filed a
Current  Report on Form 8-K dated December 8, 1999 (Items 5 and 7) to report the
repurchase of shares of Common Stock  representing  approximately 6.4 percent of
the  outstanding  shares prior to the  commencement of the  Registrant's  latest
repurchase program.


<PAGE>

                                   SIGNATURES

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

                                   TF FINANCIAL CORPORATION



Dated:  March 29, 2000              By:      /s/ John R. Stranford
                                             ---------------------
                                             John R. Stranford
                                             President, Chief Executive Officer
                                               and Director
                                             (Duly Authorized Representative)


         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated as of March 29, 2000.

<TABLE>
<CAPTION>

<S>                                            <C>
By:      /s/ John R. Stranford                  By:      /s/ Dennis R. Stewart
         -------------------------------------           ---------------------
         John R. Stranford                               Dennis R. Stewart
         President, Chief Executive Officer              Senior Vice President, Chief
          and Director                                   Financial Officer and Treasurer
         (Principal Executive Officer)                   (Principal Financial and Accounting
                                                           Officer)


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



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

</TABLE>

                                       31