**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

 

**FORM10-K**

 

**FORANNUAL AND TRANSITION REPORTS**

**PURSUANTTO SECTIONS 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 
| **ý** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|-------------------------------------------------------------------------------------------|

 

**For thefiscal year ended December 31, 2004**

 

**- or -**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**For the transition period from                                   to                                   **

 

**Commission file number:  0-24168**

 

**TFFINANCIAL CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

 
| **Delaware**                                                     | ** ** | **74-2705050**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State  or Other Jurisdiction of Incorporation  or Organization) |       | (I.R.S.  Employer Identification No.) |
|                                                             |       |                                  |
| **3 Penns Trail, Newtown, Pennsylvania**                         | ** ** | **18940**                             |
| (Address  of Principal Executive Offices)                        |       | (Zip  Code)                           |

 

Registrant’s telephone number, including areacode:  **(215)579-4000**

 

Securities registered pursuant to Section12(b) of the Act:  **None**

 

Securities registered pursuant to Section12(g) of the Act:

 

**Common Stock, par value $.10 per share**

(Title of Class)

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  YES ý**  **NO o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  o

 

Indicate by check mark whether the registrantis an accelerated filer as defined in Exchange Act Rule 12b-2.  YES o**  **NO ý

 

The aggregate market value ofthe voting common equity held by non-affiliates of the registrant, based on theclosing price of the registrant’s Common Stock as quoted on the Nasdaq Systemon June 30, 2004, was $60.7 million (2,023,641 shares at $30.00 per share).

 

As of March 21, 2005 therewere outstanding 2,950,463 shares of the registrant’s Common Stock.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

1.             Portions of the Annual Report to Stockholdersfor the Fiscal Year Ended December 31, 2004. (Parts I, II and IV)

2.             Portions of the Proxy Statement for the 2005Annual Meeting of Stockholders.  (PartIII)

 

 

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**PART I**

 

TF FINANCIAL CORPORATION (THE “COMPANY”) MAY FROM TIME TO TIME MAKEWRITTEN OR ORAL “FORWARD-LOOKING STATEMENTS”, INCLUDING STATEMENTS CONTAINED INTHE COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDINGTHIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS HERETO), IN ITS REPORTS TOSTOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE MADE IN GOODFAITH BY THE COMPANY PURSUANT TO THE “SAFE HARBOR” PROVISIONS OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995.

 

THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCHAS STATEMENTS OF THE COMPANY’S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES ANDINTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOMEOF WHICH ARE BEYOND THE COMPANY’S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE THE COMPANY’S FINANCIALPERFORMANCE TO DIFFER MATERIALLY FROM THE PLANS, OBJECTIVES, EXPECTATIONS,ESTIMATES AND INTENTIONS EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS: THESTRENGTH OF THE UNITED STATES ECONOMY IN GENERAL AND THE STRENGTH OF THE LOCALECONOMIES IN WHICH THE COMPANY CONDUCTS OPERATIONS; THE EFFECTS OF, AND CHANGESIN, MONETARY AND FISCAL POLICIES AND LAWS, INCLUDING INTEREST RATE POLICIES OFTHE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, INFLATION, INTERESTRATES, MARKET AND MONETARY FLUCTUATIONS; THE TIMELY DEVELOPMENT OF ANDACCEPTANCE OF NEW PRODUCTS AND SERVICES OF THE COMPANY AND THE PERCEIVEDOVERALL VALUE OF THESE PRODUCTS AND SERVICES BY USERS, INCLUDING THE FEATURES,PRICING AND QUALITY COMPARED TO COMPETITORS’ PRODUCTS AND SERVICES; THE IMPACTOF CHANGES IN FINANCIAL SERVICES’ LAWS AND REGULATIONS (INCLUDING LAWSCONCERNING TAXES, BANKING, SECURITIES AND INSURANCE); TECHNOLOGICAL CHANGES;ACQUISITIONS; CHANGES IN CONSUMER SPENDING AND SAVING HABITS; AND THE SUCCESSOF THE COMPANY AT MANAGING THE RISKS INVOLVED IN THE FOREGOING.

 

THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS ISNOT EXCLUSIVE.  THE COMPANY DOES NOTUNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL,THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

 

Item 1.  Business

 

**BUSINESS OF THE COMPANY**

 

On July 13, 1994, the Company consummated its public offering for5,290,000 shares of its common stock and acquired Third Federal Bank (the “Bank”)as part of the Bank’s mutual-to-stock conversion.  The Company was incorporated under Delawarelaw in March 1994.  The Company is asavings and loan holding company and is subject to regulation by the Office ofThrift Supervision (the “OTS”), the Federal Deposit Insurance Corporation (the “FDIC”)and the Securities and Exchange Commission (the “SEC”).  The Company does not transact any materialbusiness other than through its direct and indirect subsidiaries: Third FederalBank, TF Investments Corporation, Teragon Financial Corporation, Penns TrailDevelopment Corporation and Third Delaware Corporation. At December 31, 2004,the Company had total assets of $629 million, total liabilities of $568 millionand stockholders’ equity of $61 million.

 

**BUSINESS OF THE BANK**

 

The Bank is a federally-chartered stock savings bank, which wasoriginally chartered in 1921 as a Pennsylvania-chartered building and loanassociation.  The Bank’s deposits areinsured up to the maximum amount allowable by the FDIC.

 

The Bank is a community oriented savings institution offering a varietyof financial services to meet the needs of the communities it serves.  As of December 31, 2004 the Bank operatedfourteen branch offices in Bucks and

 

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Philadelphia counties,Pennsylvania and in Mercer County, New Jersey. A fifteenth branch is presentlyscheduled to open in Northeast Philadelphia during the second quarter of 2005.

 

The Bank attracts deposits from the general public and uses suchdeposits, together with borrowings and other funds primarily to originate orpurchase loans secured by first mortgages on owner-occupied, one-to-four familyresidences in its market area and to invest in mortgage-backed and investment securities.  At December 31, 2004, one-to-four familyresidential mortgage loans totaled $285 million or 64% of the Bank’s total loanportfolio.  At that same date, the Bankhad approximately $119 million or 19% of total assets invested in mortgage-backedsecurities and $25 million or 4% of total assets in investment securities. TheBank also originates commercial real estate and multi-family, construction andconsumer loans.  The Bank has twosubsidiaries, Third Delaware Corporation, which was incorporated in 1998 forthe purpose of holding and managing mortgage-backed securities and investmentsecurities for the Bank, and Teragon Financial Corporation which holds the Bank’s75% limited partnership interest in a captive title insurance agency, Third FedAbstract, L. P.

 

**Market Area**

 

The Bank offers a wide range of consumer and business products at itsfourteen full service branch offices located in Bucks and Philadelphia Countiesin Pennsylvania, and Mercer County in New Jersey. Five of the branch officesare located in Bucks County, the third wealthiest county in Pennsylvania. BucksCounty is a growing region offering opportunity for growth for the Bank. Sixbranches are located in the northeast section of Philadelphia where the Bankwas founded. Although Philadelphia County is experiencing population decline,the Bank’s branches in this section of Philadelphia represent a depositstronghold. The remaining three branches are in Mercer County, New Jersey whichhas an expanding population and represents another growth area for the Bank.

 

**Competition**

 

The Bank faces varying degrees of competition from banks, thriftinstitutions and credit unions at its various branch locations.  Stronger competition has come from local andvery large regional commercial banks based in and around the Philadelphiaarea.  At December 31, 2004 the Companybelieved that commercial banks held approximately 78% of the deposit market inPhiladelphia County, 65% in Bucks County and 77% in Mercer County. The Bank’s estimatedshare of the deposit market in Philadelphia, Bucks and Mercer Counties was0.7%, 1.6% and 1.0%, respectively, at December 31, 2004.

 

**Lending Activities**

 

**General.**  The Bank’s loan portfoliocomposition consists primarily of conventional adjustable-rate (“ARM”) and fixed-ratefirst mortgage loans secured by one- to four-family residences.  The Bank also makes commercial real estateand multi-family loans, construction loans and consumer and other loans.  At December 31, 2004, the Bank’s mortgageloans outstanding were $378 million, of which $285 million were secured byfirst mortgages on one- to four-family residential property.  Of the one- to four-family residentialmortgage loans outstanding at that date, 11% were ARM’s and 89% were fixed-rateloans.  Total ARM loans in the Bank’sportfolio at December 31, 2004 amounted to $32 million or 7% of total loans.  At that same date, commercial real estate andmulti-family residential and construction loans totaled $84 million and $10million, respectively.

 

Consumer and other loans held by the Bank totaled $34 million or 8% oftotal loans outstanding at December 31, 2004, of which $30 million or 7%consisted of home equity and second mortgages, and other consumer loans At thatsame date commercial business loans and leases totaled $31 million.

 

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The following table sets forth the composition of the Bank’s loanportfolio and mortgage-backed and related securities portfolios in dollaramounts and in percentages of the respective portfolios at the dates indicated.

 
| ** **                                                     | ** ** | **At  December 31,**        | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                     | ** ** | **Amount**                  | ** ** | **Percent  of Total** | ** ** | **Amount** | ** ** | **Percent  of Total** | ** ** | **Amount** | ** ** | **Percent  of Total** | ** ** | **Amount** | ** ** | **Percent  of Total** | ** ** | **Amount** | ** ** | **Percent  of Total** | ** ** |
| ** **                                                     | ** ** | **(Dollars  in thousands)** | ** ** |
| **Loans:**                                                     | ** ** | ** **                  | ** ** |
|  Mortgage loans:                                          |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family                                             |       | $                           | 284,645    |   | 64.14 | % | $ | 276,849 |   | 68.22 | % | $ | 227,953 |   | 61.33 | % | $ | 222,016 |   | 58.42 | % | $ | 211,065 |   | 57.89 | % |
|                                                           |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial real  estate and multi-family                       |       | 83,559                      |       | 18.83 |   | 74,109 |   | 18.26 |   | 85,493 |   | 23.00 |   | 93,572 |   | 24.62 |   | 77,486 |   | 21.25 |   |
| Construction                                                   |       | 10,286                      |       | 2.31 |   | 6,591 |   | 1.62 |   | 12,026 |   | 3.23 |   | 9,824 |   | 2.59 |   | 13,950 |   | 3.82 |   |
| Total mortgage  loans                                          |       | 378,490                     |       | 85.28 |   | 357,549 |   | 88.10 |   | 325,472 |   | 87.56 |   | 325,412 |   | 85.63 |   | 302,501 |   | 82.96 |   |
| Consumer loans:                                                |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Home equity and  second mortgage                               |       | 29,522                      |       | 6.66 |   | 25,199 |   | 6.21 |   | 25,480 |   | 6.87 |   | 25,640 |   | 6.75 |   | 20,887 |   | 5.73 |   |
| Other consumer                                                 |       | 4,384                       |       | 0.99 |   | 6,532 |   | 1.61 |   | 10,490 |   | 2.82 |   | 16,154 |   | 4.25 |   | 23,113 |   | 6.34 |   |
| Total consumer  and other loans                                |       | 33,906                      |       | 7.65 |   | 31,731 |   | 7.82 |   | 35,970 |   | 9.69 |   | 41,794 |   | 11.00 |   | 44,000 |   | 12.07 |   |
| Commercial loans  and leases:                                  |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial loans                                               |       | 30,543                      |       | 6.88 |   | 15,185 |   | 3.74 |   | 8,005 |   | 2.15 |   | 9,285 |   | 2.44 |   | 14,630 |   | 4.01 |   |
| Commercial leases                                              |       | 857                         |       | 0.19 |   | 1,371 |   | 0.34 |   | 2,246 |   | 0.60 |   | 3,544 |   | 0.93 |   | 3,493 |   | 0.96 |   |
| Total commercial  loans and leases                             |       | 31,400                      |       | 7.07 |   | 16,556 |   | 4.08 |   | 10,251 |   | 2.75 |   | 12,829 |   | 3.37 |   | 18,123 |   | 4.97 |   |
| Total loans                                                    |       | 443,796                     |       | 100.00 | % | 405,836 |   | 100.00 | % | 371,693 |   | 100.00 | % | 380,035 |   | 100.00 | % | 364,624 |   | 100.00 | % |
| Less:                                                          |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unearned  discount,(premium), deferred loan fees, net          |       | (706                        | )          |   |   | (924 | ) |   |   | (446 | ) |   |   | 428 |   |   |   | 1,104 |   |   |   |
| Allowance for loan  losses                                     |       | 2,307                       |       |   |   | 2,111 |   |   |   | 2,047 |   |   |   | 1,972 |   |   |   | 1,714 |   |   |   |
| Total loans, net                                               |       | $                           | 442,195    |   |   |   | $ | 404,649 |   |   |   | $ | 370,092 |   |   |   | $ | 377,635 |   |   |   | $ | 361,806 |   |   |   |   |
|                                                           |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Mortgage-backed  securities held-to-maturity:**              |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLMC                                                          |       | $                           | 5,195      |   | 34.87 | % | $ | 8,407 |   | 35.58 | % | $ | 21,870 |   | 40.10 | % | $ | 35,000 |   | 37.50 | % | $ | 45,971 |   | 34.03 | % |
| FNMA                                                           |       | 5,182                       |       | 34.77 |   | 7,205 |   | 30.49 |   | 11,781 |   | 21.60 |   | 15,739 |   | 16.90 |   | 20,756 |   | 15.36 |   |
| GNMA                                                           |       | 4,516                       |       | 30.31 |   | 8,007 |   | 33.88 |   | 18,278 |   | 33.40 |   | 29,877 |   | 32.00 |   | 41,090 |   | 30.41 |   |
| Real estate  investment mortgage conduit                       |       | 7                           |       | 0.05 |   | 11 |   | 0.05 |   | 2,519 |   | 4.60 |   | 12,550 |   | 13.40 |   | 27,043 |   | 20.02 |   |
| Other  mortgage-backed securities                              |       | —                      |       | —- |   | — |   | —- |   | 144 |   | 0.30 |   | 201 |   | 0.20 |   | 282 |   | 0.18 |   |
| Total mortgage-backed  and related securities held-to-maturity |       | $                           | 14,900     |   | 100.00 | % | $ | 23,630 |   | 100.00 | % | $ | 54,592 |   | 100.00 | % | $ | 93,367 |   | 100.00 | % | $ | 135,142 |   | 100.00 | % |
|                                                           |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Mortgage-backed  securities available-for-sale:**            |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLMC                                                          |       | $                           | 6,614      |   | 6.38 | % | $ | 8,525 |   | 7.98 | % | $ | 699 |   | 0.60 | % | $ | 1,108 |   | 1.10 | % | $ | 1,431 |   | 1.46 | % |
| FNMA                                                           |       | 15,108                      |       | 14.58 |   | 18,385 |   | 17.22 |   | 11,878 |   | 10.30 |   | 22,459 |   | 22.50 |   | 25,679 |   | 26.23 |   |
| GNMA                                                           |       | —-                     |       | —- |   | —- |   | —- |   | —- |   | —- |   | 5,515 |   | 5.50 |   | 7,561 |   | 7.72 |   |
| Real estate  investment mortgage conduit                       |       | 81,888                      |       | 79.04 |   | 79,864 |   | 74.80 |   | 102,666 |   | 89.10 |   | 70,681 |   | 70.90 |   | 63,243 |   | 64.59 |   |
| Total                                                          |       | $                           | 103,610    |   | 100.00 | % | $ | 106,774 |   | 100.00 | % | $ | 115,243 |   | 100.00 | % | $ | 99,763 |   | 100.00 | % | $ | 97,914 |   | 100.00 | % |
|                                                                |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Loan Maturity and Repricing Information.**  Thefollowing table sets forth certain information at December 31, 2004,regarding the dollar amount of loans maturing in the Bank’s loan andmortgage-backed securities portfolios based on their maturity date.  Demand loans, loans having no stated scheduleof repayments and no stated maturity, overdrafts and delinquent loans maturingprior to December 31, 2005, are reported as due in one year or less.  The table does not include prepayments orscheduled principal repayments.

 
| ** **                              | ** ** | **Due 1/1/05 -  12/31/05** | ** ** | **Due 1/1/06 -  12/31/09** | ** ** | **Due After  12/31/09** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **(In thousands)**         | ** ** |
| Available for sale:                     |       |                       |       |                       |       |                    |       |
| Mortgage-backed securities              |       | $                          | —     |                       | $          | 6,744                   |       | $ | 96,866 |   |
| Loans receivable                        |       | —                     |       | —                     |       | 683                     |       |
|                                    |       |                       |       |                       |       |                    |       |
| Held to Maturity:                       |       |                       |       |                       |       |                    |       |
| One-to-four family                      |       | $                          | 34         |                       | $          | 4,622                   |       | $ | 279,306 |   |
| Commercial real estate and multi-family |       | 6,376                      |       | 15,637                     |       | 61,546                  |       |
| Construction                            |       | 5,136                      |       | 5,150                      |       | —                  |       |
| Consumer and other                      |       | 1,664                      |       | 4,610                      |       | 27,632                  |       |
| Commercial loans and leases             |       | 15,433                     |       | 6,764                      |       | 9,203                   |       |
| Total loans receivable                  |       | 28,643                     |       | 36,783                     |       | 377,687                 |       |
| Mortgage-backed securities              |       | 2                          |       | 1,947                      |       | 12,951                  |       |
| Total                                   |       | $                          | 28,645     |                       | $          | 38,730                  |       | $ | 390,638 |   |

 

The following table sets forth the dollar amount of all loans andmortgage-backed securities due after December 31, 2005, which havepredetermined interest rates and which have floating or adjustable interestrates.

 
| ** **                              | ** ** | **Predetermined  Rates** | ** ** | **Floating or  Adjustable Rate** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|----------------------------------|------------|
| ** **                              |       | **(In  thousands)**      |       |
| Available for sale:                     |       |                     |       |                             |       |
| Mortgage-backed securities              |       | $                        | 103,610    |                             | $          | — |   |
| Loans                                   |       |                     | 495        |                             |       | 188 |   |
| Total                                   |       | $                        | 104,105    |                             | $          | 188 |   |
|                                    |       |                     |       |                             |       |
| Held to Maturity:                       |       |                     |       |                             |       |
| One-to-four family                      |       | $                        | 251,618    |                             | $          | 32,310 |   |
| Commercial real estate and multi-family |       | 7,857                    |       | 69,326                           |       |
| Construction                            |       | —                   |       | 5,150                            |       |
| Consumer and other                      |       | 31,910                   |       | 356                              |       |
| Commercial loans and leases             |       | 11,524                   |       | 4,419                            |       |
| Total loans receivable                  |       | 302,909                  |       | 111,561                          |       |
| Mortgage-backed securities              |       | 14,835                   |       | 65                               |       |
| Total                                   |       | $                        | 317,744    |                             | $          | 111,626 |   |

 

**One-to-Four Family Mortgage Lending.**  TheBank offers first mortgage loans secured by one-to-four family residences inthe Bank’s lending area.  Typically, suchresidences are single-family homes that serve as the primary residence of theowner.  The Bank generally originates andinvests in one-to-four family residential mortgage loans in amounts up to 80%of the lesser of the appraised value or selling price of the mortgagedproperty.  Loans originated in amountsover 80% of the lesser of the appraised value or selling price of the mortgagedproperty, other than loans to

 

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facilitate the sale of realestate acquired through foreclosure, must be owner-occupied and privatemortgage insurance must be provided on the amount in excess of 80%.

 

Loan originations are obtained from existing or past customers, membersof the local community, and referrals from established builders and realtorswithin the Bank’s lending area using direct advertising in local newspapers,branch signage and promotions, and word of mouth referrals.

 

The Bank offers a variety of ARM loans with terms of 30 years whichadjust at the end of 6 months, one, three, five, seven and ten years and adjustby a maximum of 1% to 2% per adjustment with a lifetime cap of 5% to 6% overthe life of the loan.

 

The Bank offers fixed-rate mortgage loans with terms of 10 to 30 years,which are payable monthly.  Interestrates charged on fixed-rate mortgage loans are competitively priced based onmarket conditions.  The origination feesfor fixed-rate loans range from 0% to 3% depending on the underlying loancoupon. Generally, the Bank’s standard underwriting guideline for fixed-ratemortgage loans conform to the FHLMC and FNMA guidelines and may be sold in thesecondary market. The Bank sells a small portion of its conforming fixed-ratemortgage loan originations in the secondary market to FHLMC and FNMA whileretaining the servicing rights on these loans. The Bank also brokers a smallportion of its loan applications to correspondents. However, the Bank isprimarily a portfolio lender.  As ofDecember 31, 2004, the Bank’s portfolio of loans serviced for FHLMC or FNMAtotaled approximately $2.3 million.

 

Beginning in December 2003 the Bank initiated a mortgage lendingdepartment that is separate as to its sales efforts from the consumer lendingarea of the Bank. In connection with this initiative, the Bank has hired amortgage lending manager and several commissioned loan officers. The Bank nowoffers, in addition to its standard portfolio loan products, other types ofmortgage loans that will be originated in the name of, or sold on a servicingreleased basis to, third party investors. The mortgage loan officers supportthe Bank’s branches and customers, and additionally engage in calling effortsdirected toward realtors, builders, and others that can be sources of lendingbusiness for the Bank. While these activities are a small part of the Company’soverall lending activities, the Company expects to grow this line of businessin the future.

 

**Commercial Real Estate and Multi-Family Lending.**  TheBank originates loans secured by commercial real estate including non-owneroccupied residential multi-family dwelling units (more than four units)primarily secured by professional office buildings and apartment complexes. TheBank generally originates commercial real estate and multi-family loans up to75% of the appraised value of the property securing the loan.  Currently, it is the Bank’s philosophy tooriginate commercial real estate and multi-family loans primarily on propertiesin its general market area.  Thecommercial real estate and multi-family loans in the Bank’s portfolio consistof fixed-rate, ARM and balloon loans which were originated at prevailing marketrates for terms of up to 25 years.  TheBank’s current policy is to originate commercial real estate and multi-familyloans as ARM’s that amortize over a 20 to 25 year period and either balloon orare callable by the Bank after a 5 to 10 year period.

 

Loans secured by commercial and multi-family real estate are generallylarger and involve a greater degree of risk than one- to four-familyresidential mortgage loans.  Of primaryconcern in commercial and multi-family real estate lending is the borrower’screditworthiness and the feasibility and cash flow potential of theproject.  Loans secured by incomeproperties are generally larger and involve greater risks than residentialmortgage loans because payments on loans secured by income properties are oftendependent on successful operation or management of the properties.  As a result, repayment of such loans may besubject to a greater extent than residential real estate loans to adverseconditions in the real estate market or the economy.  In order to monitor cash flows on incomeproperties, the Bank requires borrowers and loan guarantors, if any, to provideannual financial statements and rent rolls on multi-family loans.  At December 31, 2004, the five largestcommercial real estate and multi-family loans totaled $18.9 million with nosingle loan larger than $6.2 million.  AtDecember 31, 2004, all such loans were current and the properties securing suchloans are in the Bank’s market area.

 

**Construction Lending.**  AtDecember 31, 2004, the Bank had $10 million of construction loans or 2% of theBank’s total loan portfolio. Construction financing is generally considered to involve a higherdegree of risk of loss than long-term financing on improved, occupied realestate.  Risk of loss on a constructionloan is dependent largely upon the accuracy of the initial estimate of theproperty’s value at completion of construction or development and the estimatedcost (including interest) of construction. During the construction phase, a number of factors could result indelays and

 

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cost overruns.  If the estimate of construction costs provesto be inaccurate, the Bank may be required to advance funds beyond the amountoriginally committed to permit completion of the development.  If the estimate of value proves to beinaccurate, the Bank may be confronted, at or prior to the maturity of theloan, with a project having a value which is insufficient to assure fullrepayment.

 

**Consumer and Other Loans.**  TheBank also offers consumer and other loans in the form of home equity and secondmortgage loans (referred to hereinafter collectively as “second mortgage loans”),automobile loans and student loans.  Theseloans totaled $34 million or 8% of the Bank’s total loan portfolio at December31, 2004.  Federal regulations permitfederally chartered thrift institutions to make secured and unsecured consumerloans 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 securedby savings accounts.  The Bank originatesconsumer loans in order to provide a wide range of financial services to itscustomers and because the shorter terms and normally higher interest rates onsuch loans help maintain a profitable spread between its average loan yield andits cost of funds.

 

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

 

The Bank focuses on the origination of consumer loans. Consumer loanstend to be originated at higher interest rates than conventional residentialmortgage loans and for shorter terms which benefits the Bank’s interest raterisk management.  Consumer loans,however, tend to have a higher risk of default than residential mortgageloans.  At December 31, 2004, $85,000 or0.3% of the Bank’s consumer loans were delinquent more than 90 days.

 

The Bank offers second mortgage loans on one- to four-familyresidences.  At December 31, 2004,second mortgage and home equity loans totaled $30 million, or 7% of the Bank’stotal loan portfolio.  Second mortgageloans are offered as fixed-rate loans for a term not to exceed 15 years.  Such loans are only made on owner-occupiedone- to four-family residences and are subject to a 75% combined loan to valueratio.  The underwriting standards forsecond mortgage loans are the same as the Bank’s standards applicable to one-to four-family residential loans.

 

**Business Lending.** Federal thrift institutions are permitted tomake secured or unsecured loans for commercial, corporate, business oragricultural purposes, including the issuance of letters of credit secured byreal estate, business equipment, inventories, accounts receivable and cashequivalents. The aggregate amount of such loans outstanding may not exceed 10%of such institution’s assets.

 

The Bank makes commercial business loans on a secured basis.  The terms of such loans generally do notexceed five years.  The majority of theseloans have floating interest rates which adjust with changes in market drivenindices.  The Bank’s commercial businessloans 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 theprincipals of any borrowing entity and reviews the financial statements andincome tax returns of the guarantors.  AtDecember 31, 2004, the Bank had approximately $31 million outstanding incommercial business loans, which represented approximately 7% of its total loanportfolio.

 

Prior to 2002 the Bank purchased commercial leases; the Bank no longerengages in this activity. These lessees are generally small medicalpractitioners located throughout the United States. The average lease amount isless than $100,000. At December 31, 2004 the purchased lease portfolio totaled$0.9 million or 0.2% of total assets.

 

**Loan Approval Authority and Underwriting.**  TheBoard of Directors of the Bank sets the authority to approve loans based on theamount, type of loan (i.e., secured or unsecured) and total exposure to theborrower.  Where there are one or moreexisting loans to a borrower, the level of approval required is governed by theproposed total exposure including the new loan. The Board has approved loan authority and limits for certain of the Bank’slending personnel and senior officers, including the president of the Bank.  Approval authority ranges from $25,000 to$750,000 for secured loans, and $5,000 to $100,000 for unsecured loans. Membersof an in-house loan committee comprising the four most senior members ofmanagement approve all loans over $500,000. Any two members may combine theirlending authority. The committee has the authority to approve secured loans upto $2.5 million and unsecured loans up to $200,000. All loans greater than $2.5million through $5 million require the approval of a Board Loan Committee

 

7

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composed of four members of theBoard of Directors of the Bank. All loans over $5 million or loans that causethe aggregate lending relationship to exceed $5 million must be approved by theBank’s Board of Directors.

 

One- to four-family residential mortgage loans are generallyunderwritten according to FHLMC and FNMA guidelines.  For all loans originated by the Bank, uponreceipt of a completed loan application from a prospective borrower, a creditreport is ordered, income and certain other information is verified and, ifnecessary, additional financial information is requested.  An appraisal of the real estate intended tosecure the proposed loan is required which currently is performed by anindependent appraiser designated and approved by the Bank.  The Bank makes construction/permanent loanson individual properties.  Funds advancedduring the construction phase are held in a loan-in-process account anddisbursed based upon various stages of completion.  The independent appraiser or loan officerdetermines the stage of completion based upon its physical inspection of theconstruction.  It is the Bank’s policy toobtain title insurance or a title opinion on all real estate first mortgageloans.  Borrowers must also obtain hazardor flood insurance (for loans on property located in a flood zone) prior toclosing the loan.  For loans in excess of80% of the loan to value ratio, borrowers are generally required to advancefunds on a monthly basis together with each payment of principal and interestto an escrow account from which the Bank makes disbursements for items such asreal estate taxes and hazard insurance premiums.

 

**Loans to One Borrower.** Current regulations limit loans to one borrower in an amount equal to15% of unimpaired capital and retained income on an unsecured basis and anadditional amount equal to 10% of unimpaired capital and retained income if theloan is secured by readily marketable collateral (generally, financialinstruments, not real estate) or $500,000, whichever is higher.  Penalties for violations of the loan-to-oneborrower 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 limitwas approximately $8.0 million as of December 31, 2004.

 

At December 31, 2004, the Bank’s five largest aggregate lending relationshipshad balances ranging from $4.7 to $7.2 million. At December 31, 2004, all of these loans were current.

 

**Mortgage-Backed Securities**

 

To supplement lending activities, the Bank invests in residentialmortgage-backed securities.  Although themajority of such securities are held to maturity, they can serve as collateralfor borrowings and, through repayments, as a source of liquidity.

 

The mortgage-backed securities portfolio as of December 31, 2004,consisted of pass-through certificates issued by the Federal Home Loan MortgageCorporation (“FHLMC”) ($12 million), Government National Mortgage Association (“GNMA”),($4 million) Federal National Mortgage Association (“FNMA”) ($21 million), andreal estate mortgage investment conduits formed by these same agencies (“REMICs”)($82 million).

 

At December 31, 2004, the amortized cost of mortgage-backed securitiestotaled $119 million, or 19% of total assets, and the market value of suchsecurities totaled approximately $119 million.

 

The Bank’s mortgage-backed securities are so-called “pass-throughs”which represent a participation interest in a pool of single-family ormulti-family mortgages, the principal and interest payments on which are passedfrom the mortgage originators, through intermediaries (generallyquasi-governmental agencies) that pool and repackage the participationinterests in the form of securities, to investors such as the Bank.  Such quasi-governmental agencies, whichguarantee the payment of principal and interest to investors, primarily includeFHLMC, FNMA and GNMA. The REMIC securities are composed of the same loan typesas the pass through certificates, but offer differing characteristics as totheir expected cash flows depending on the class of such securities purchased.The Bank’s REMICs are primarily “planned amortization classes” and “veryaccurately defined maturity classes” that, when purchased, offered a highprobability of predictable cash flows.

 

8

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**Mortgage-Backed Securities Carrying Value.** The following table sets forth the carryingvalue of the Bank’s mortgage-backed securities held in portfolio at the datesindicated.

 

| ** **                                           | ** ** | **At December 31,** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|
| ** **                                           | ** ** | **2004**            | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                           |       | **(In  thousands)** |       |
| Held to maturity:                                    |       |                |       |   |   |   |   |
| GNMA-fixed rate                                      |       | $                   | 4,516      |   | $ | 8,007 |   | $ | 18,278 |   |
| FHLMC ARMs                                           |       | 65                  |       | 71 |   | 91 |   |
| FHLMC-fixed rate                                     |       | 5,130               |       | 8,336 |   | 21,779 |   |
| FNMA-fixed rate                                      |       | 5,182               |       | 7,205 |   | 11,781 |   |
| REMICs                                               |       | 7                   |       | 11 |   | 2,519 |   |
| Other mortgage-backed securities                     |       | —              |       | — |   | 144 |   |
| Total mortgage-backed securities held to  maturity   |       | $                   | 14,900     |   | $ | 23,630 |   | $ | 54,592 |   |
| Available-for-sale:                                  |       |                |       |   |   |   |   |
| FHLMC                                                |       | $                   | 6,614      |   | $ | 8,525 |   | $ | 699 |   |
| FNMA                                                 |       | 15,108              |       | 18,385 |   | 11,878 |   |
| GNMA                                                 |       | —              |       | — |   | — |   |
| REMICs                                               |       | 81,888              |       | 79,864 |   | 102,666 |   |
| Total mortgage-backed securities  available-for-sale |       | $                   | 103,610    |   | $ | 106,774 |   | $ | 115,243 |   |

 

**Mortgage-Backed Securities Maturity.**  Thefollowing table sets forth the maturity and the weighted average coupon (“WAC”)of the Bank’s mortgage-backed securities portfolio at December 31, 2004.  The table does not include estimatedprepayments.  Adjustable-ratemortgage-backed securities are shown as maturing based on contractualmaturities.

 
| ** **                       | ** ** | **Contractual Held  To Maturity  Maturities Due** | ** ** | **WAC** | ** ** | **Contractual  Available  -For-Sale  Maturities Due** | ** ** | **WAC** | ** ** |
|----------------------------------|------------|---------------------------------------------------|------------|---------|------------|-------------------------------------------------------|------------|---------|------------|
| ** **                       | ** ** | **(Dollars in thousands)**                        | ** ** |
|                             |       |                                              |       |    |       |                                                  |       |    |       |
| Less than 1 year                 |       | $                                                 | 2          |    | 8.30       | %                                                     | $          | —  |       | — | % |
| 1 to 3 years                     |       | 893                                               |       | 7.28    |       | 2,753                                                 |       | 4.00    |       |
| 3 to 5 years                     |       | 1,054                                             |       | 7.56    |       | 3,991                                                 |       | 5.99    |       |
| 5 to 10 years                    |       | 486                                               |       | 7.13    |       | 30,373                                                |       | 5.13    |       |
| 10 to 20 years                   |       | 1,889                                             |       | 5.42    |       | 41,432                                                |       | 4.60    |       |
| Over 20 years                    |       | 10,576                                            |       | 6.48    |       | 25,061                                                |       | 4.64    |       |
| Total mortgage-backed securities |       | $                                                 | 14,900     |    | 6.49       | %                                                     | $          | 103,610 |       | 4.80 | % |

 

9

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**Non-Performing and Problem Assets**

 

**Loan Collection.**  Whena borrower fails to make a required payment on a loan, the Bank takes a numberof steps to have the borrower cure the delinquency and restore the loan tocurrent status.  In the case ofresidential mortgage loans and consumer loans, the Bank generally sends theborrower a written notice of non-payment after the loan is 15 days pastdue.  In the event payment is not thenreceived, additional letters and phone calls are made.  If the loan is still not brought current andit becomes necessary for the Bank to take legal action, which typically occursafter a loan is delinquent more than 90 days, the Bank will commenceforeclosure proceedings against any real property that secures the loan andattempt to repossess any personal property that secures a consumer loan.  If a foreclosure action is instituted and theloan is not brought current, paid in full, or refinanced before the foreclosuresale, the real property securing the loan generally is sold at foreclosure.

 

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

 

On mortgage loans or loan participations purchased by the Bank, theBank receives monthly reports from its loan servicers with which it monitorsthe loan portfolio.  Based upon servicingagreements with the servicers of the loan, the Bank relies upon the servicer tocontact delinquent borrowers, collect delinquent amounts and to initiateforeclosure proceedings, when necessary, all in accordance with applicablelaws, regulations and the terms of the servicing agreements between the Bankand its servicing agents. At December 31, 2004 the Bank used third-partyservicers to service $64.7 million in mortgage loans, including one servicerthat serviced $52.8 million. All of the Bank’s third-party mortgage loanservicers are regulated financial institutions or are approved by either HUD,FNMA, or FHLMC to service loans on their behalf.

 

**Delinquent Loans.** Generally, the Bank reserves for uncollected interest on loans past duemore than 90 days; these loans are included in the table of nonaccrual loansbelow.  Loans also are placed on anonaccrual status when, in the judgment of management, the probability ofcollection of interest is deemed to be insufficient to warrant furthercollection.  When a loan is placed onnonaccrual status, previously accrued but unpaid interest is deducted frominterest income and the further accrual of interest ceases unless theunderlying facts that prompted a nonaccrual determination are deemed to haveimproved significantly.

 

**Non-Performing Assets.** Thefollowing table sets forth information regarding non-accrual loans and realestate owned by the Bank at the dates indicated.  The Bank had no loans contractually past duemore than 90 days for which accrued interest has been recorded.

 

10

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**Non-performingassets**

 
| ** **                                  | ** ** | **At December 31,**        | ** ** |
|---------------------------------------------|------------|----------------------------|------------|
| ** **                                  | ** ** | **2004**                   | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                  | ** ** | **(Dollars in thousands)** | ** ** |
| Loans accounted for on a non-accrual basis: |       |                       |       |   |   |   |   |   |   |   |   |
| Mortgage loans:                             |       |                       |       |   |   |   |   |   |   |   |   |
| One- to four-family                         |       | $                          | 536        |   | $ | 1,549 |   | $ | 1,013 |   | $ | 1,821 |   | $ | 687 |   |
| Commercial real estate and multi-family     |       | 23                         |       | 296 |   | 1,677 |   | 1,725 |   | 297 |   |
| Consumer and other                          |       | 84                         |       | 135 |   | 245 |   | 227 |   | 486 |   |
| Commercial loans and leases                 |       | 317                        |       | 369 |   | 887 |   | 3 |   | — |   |
| Total non-accrual loans                     |       | 960                        |       | 2,348 |   | 3,822 |   | 3,776 |   | 1,470 |   |
|                                        |       |                       |       |   |   |   |   |   |   |   |   |
| Real estate owned, net                      |       | 700                        |       | 868 |   | 84 |   | 30 |   | 176 |   |
| Total non-performing assets                 |       | $                          | 1,660      |   | $ | 3,216 |   | $ | 3,906 |   | $ | 3,806 |   | $ | 1,646 |   |
| Total non-accrual loans to loans            |       | 0.22                       | %          | 0.58 | % | 1.03 | % | 0.99 | % | 0.41 | % |
| Total non-accrual loans to total assets     |       | 0.15                       | %          | 0.39 | % | 0.53 | % | 0.53 | % | 0.20 | % |
| Total non-performing assets to total assets |       | 0.26                       | %          | 0.53 | % | 0.54 | % | 0.54 | % | 0.23 | % |

 

At December 31, 2004, the Bank had no foreign loans and no loanconcentrations exceeding 10% of total loans not disclosed in above the table. “Loanconcentrations” are considered to exist when there are amounts loaned to amultiple number of borrowers engaged in similar activities that would causethem to be similarly impacted by economic or other conditions.  Loans recorded in the category of other realestate owned are valued at the lower of book value of loans outstanding or fairmarket value less cost of disposal.

 

At December 31, 2004, the Bank was not aware of any potential problemloans that are not otherwise included in the foregoing table.  “Potential problem loans” are loans whereinformation about possible credit problems of borrowers has caused managementto have serious doubts about the borrowers’ ability to comply with presentrepayment terms.

 

**Classified Assets.**  OTSregulations provide for a classification system for problem assets of insuredinstitutions which covers all problem assets. Under this classification system, problem assets of insured institutionsare classified as “substandard,” “doubtful,” or “loss.”  An asset is considered “substandard” if it isinadequately protected by the current net worth and paying capacity of theobligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinctpossibility” that the insured institution will sustain “some loss” if thedeficiencies are not corrected.  Assetsclassified as “doubtful” have all of the weaknesses inherent in thoseclassified “substandard,” with the added characteristic that the weaknessespresent make “collection or liquidation in full,” on the basis of currentlyexisting facts, conditions and values, “highly questionable and improbable.”  Assets classified as “loss” are thoseconsidered “uncollectible” and of such little value that their continuance asassets without the establishment of a specific loss reserve is notwarranted.  Assets designated “specialmention” by management are assets included on the Bank’s internal watchlistbecause of potential weakness but that do not currently warrant classificationin one of the aforementioned categories.

 

11

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When an insured institution classifies problem assets as eithersubstandard or doubtful, it may establish general allowances for loan losses inan amount deemed prudent by management. General allowances represent loss allowances which have been establishedto recognize the inherent risk associated with lending activities, but which,unlike specific allowances, have not been allocated to particular problemassets.  When an insured institutionclassifies all or a portion of a problem asset as “loss,” it is required eitherto establish a specific allowance for losses equal to 100% of that portion ofthe asset so classified or to charge off such amount.  An institution’s determination as to theclassification of its assets and the amount of its valuation allowances issubject to review by the OTS, which may order the establishment of additionalgeneral or specific loss allowances.  Aportion of general loss allowances established to cover possible losses relatedto assets classified as substandard or doubtful may be included in determiningan institution’s regulatory capital, while specific valuation allowances forloan losses generally do not qualify as regulatory capital.

 

The following table provides further information in regard to the Bank’sclassified assets as of December 31, 2004.

 

| ** **              | ** ** | **At December 31, 2004** | ** ** |
|-------------------------|------------|--------------------------|------------|
| ** **              | ** ** | **(In thousands)**       | ** ** |
|                    |       |                     |       |
| Special mention assets  |       | $                        | 7,295      |   |
| Substandard             |       | 1,393                    |       |
| Doubtful assets         |       | 64                       |       |
| Loss                    |       | —                   |       |
| Total classified assets |       | $                        | 8,752      |   |

 

**Real Estate Owned.**  Realestate acquired by the Bank as a result of foreclosure, judgment or by deed inlieu of foreclosure is classified as real estate owned (“REO”) until it issold.  When property is acquired it isrecorded at the lower of fair value, minus estimated cost to sell, orcost.  If the property subsequentlydecreases in estimated value from the initial recorded amount, the Bank willprovide an additional valuation allowance, through a charge to earnings, if thedecrease is judged by management to be temporary, or the Bank will write theproperty down, through a charge to earnings, to the new estimated value if thedecrease is judged by management to be permanent.

 

The Bank records loans as in substance foreclosures if the borrower haslittle or no equity in the property based upon its documented current fairvalue and if the borrower has effectively abandoned control of the collateralor has continued to retain control of the collateral but because of the currentfinancial status of the borrower it is doubtful the borrower will be able torepay the loan in the foreseeable future. In substance foreclosures are accounted for as loans until such timethat title to the collateral is acquired by the Bank.  There may be significant other expensesincurred such as attorney and other extraordinary servicing costs involved within substance foreclosures.

 

**Allowances for Loan Losses.**  TheBank provides valuation allowances for estimated losses from uncollectibleloans. Management determines the adequacy of the allowance on a quarterly basisto ensure that a provision for loan losses has been charged against earnings inan amount necessary to maintain the allowance at a level that is appropriatebased on management’s estimate of probable losses. Several sources of data areused in making the evaluation as to the appropriateness of the allowance.

 

The Bank’s watch list contains all loans which because of past paymenthistory, a review of recent financial information, or other facts regarding thecredit, pose a higher than normal amount of perceived risk of collection. Oncea loan is deemed to pose other than a normal level of risk of collection, itmoves to the classified asset list as either special mention, substandard,doubtful, or loss as required by regulatory guidelines. Classified assets alsoinclude all loans over 90 days past due according to the contractual repaymentterms. These loans are automatically considered at least substandard. All loansnot on the classified asset list are assigned a reserve factor that is based onthe Company’s actual loss experience over the last three years, with a smallfactor assigned to loans current as to their contractual payments, and anincreased factor if the loan is 30 or 60 days past due. Classified loans withbalances under $100,000 are typically pooled according to their underlyingcollateral, and a reserve factor assigned based on historical loss experience.Classified loans are evaluated on an individual basis if the loan balance exceeds$100,000. In such a case, the value of the underlying collateral, which isordinarily real estate because of the nature of the Bank’s predominant pastlending

 

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activities, the cost of collection and disposition, and other factorsare considered and an estimated reserve level is established. In establishingestimated reserves, current and projected economic conditions as they mayaffect the borrower and the collateral are considered. If prospects appear poorwith respect to collateral disposition, for example, because of economicfactors, a lower disposition value and thus a higher reserve level would beestablished. Similarly, the credit may be guaranteed by a governmental agency,or the collateral value may greatly exceed the loan balance such that noreserve is indicated for these loans that are nevertheless consideredclassified assets because of their delinquency. If a loan or a portion of aloan is judged to be unrecoverable, that amount is charged off. The calculatedreserve determined using the methodologies described above is compared to theactual level of reserves; the difference reflects the imprecision of themultitude of assumptions that are made combined with the variability that can occurwith a relatively small amount of troubled assets, and the reserve ismaintained at reasonable levels by adjusting the provision that is charged toearnings.

 

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

 
| ** **                                                                                                              | ** ** | **For the Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2004**                             | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                                                                              | ** ** | **(Dollars in thousands)**           | ** ** |
|                                                                                                                    |       |                                 |       |   |   |   |   |   |   |   |   |
| Balance at beginning of period                                                                                          |       | $                                    | 2,111      |   | $ | 2,047 |   | $ | 1,972 |   | $ | 1,714 |   | $ | 1,917 |   |
| Provision for loan losses                                                                                               |       | 600                                  |       | 330 |   | 988 |   | 500 |   | 410 |   |
| Charge-offs:                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |
| One-to-four family                                                                                                      |       | —                               |       | (16 | ) | (13 | ) | — |   | — |   |
| Commercial and multi-family real estate  loans                                                                          |       | (112                                 | )          | — |   | — |   | — |   | — |   |
| Consumer and other loans                                                                                                |       | (186                                 | )          | (219 | ) | (303 | ) | (430 | ) | (634 | ) |
| Commercial loans and leases                                                                                             |       | (161                                 | )          | (322 | ) | (625 | ) | —- |   | —- |   |
| Recoveries:                                                                                                             |       |                                 |       |   |   |   |   |   |   |   |   |
| One-to-four family                                                                                                      |       | —                               |       | — |   | 3 |   | — |   | — |   |
| Commercial and multi-family real estate  loans                                                                          |       | —                               |       | — |   | — |   | — |   | — |   |
| Consumer and other loans                                                                                                |       | 55                                   |       | 36 |   | 25 |   | 188 |   | 21 |   |
| Commercial loans and leases                                                                                             |       | —                               |       | 255 |   | — |   | — |   | — |   |
| Balance at end of year                                                                                                  |       | $                                    | 2,307      |   | $ | 2,111 |   | $ | 2,047 |   | $ | 1,972 |   | $ | 1,714 |   |
|                                                                                                                    |       |                                 |       |   |   |   |   |   |   |   |   |
| Ratio of net charge-offs during the period  to average loans outstanding during the period                              |       | 0.09                                 | %          | 0.07 | % | 0.25 | % | 0.07 | % | 0.20 | % |
| Ratio of allowance for loan losses to  non-performing loans at the end of the period                                    |       | 240.3                                | %          | 89.91 | % | 53.56 | % | 52.22 | % | 116.0 | % |
| Ratio of allowance for loan losses to loans  receivable at the end of the period                                        |       | 0.52                                 | %          | 0.52 | % | 0.55 | % | 0.52 | % | 0.47 | % |
| Ratio of allowance for loan losses and  foreclosed real estate to total non-performing assets at the end of the  period |       | 181.1                                | %          | 92.63 | % | 52.41 | % | 52.60 | % | 114.8 | % |

 

13

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

 
| ** **                              | ** ** | **At December 31,**        | ** ** |
|-----------------------------------------|------------|----------------------------|------------|
| ** **                              | ** ** | **2004**                   | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                              | ** ** | **Amount**                 | ** ** | **Percent of  Loans to  Total Loans** | ** ** | **Amount** | ** ** | **Percent of  Loans to  Total Loans** | ** ** | **Amount** | ** ** | **Percent of  Loans to  Total Loans** | ** ** | **Amount** | ** ** | **Percent of  Loans to  Total Loans** | ** ** | **Amount** | ** ** | **Percent of  Loans to  Total Loans** | ** ** |
| ** **                              | ** ** | **(Dollars in thousands)** | ** ** |
| At end of period allocated to:          |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family                      |       | $                          | 176        |   | 64.2 | % | $ | 277 |   | 68.2 | % | $ | 119 |   | 61.3 | % | $ | 216 |   | 58.4 | % | $ | 97 |   | 57.9 | % |
| Commercial real estate and multi-family |       | 1,035                      |       | 18.8 |   | 1,230 |   | 18.3 |   | 1,021 |   | 23.0 |   | 1,100 |   | 24.6 |   | 835 |   | 21.3 |   |
| Construction                            |       | 121                        |       | 2.3 |   | 109 |   | 1.6 |   | 90 |   | 3.2 |   | 74 |   | 2.6 |   | 105 |   | 3.8 |   |
| Consumer and other loans                |       | 554                        |       | 7.7 |   | 246 |   | 7.8 |   | 271 |   | 9.7 |   | 380 |   | 11.0 |   | 499 |   | 12.1 |   |
| Commercial loans and leases             |       | 421                        |       | 7.1 |   | 249 |   | 4.1 |   | 546 |   | 2.8 |   | 202 |   | 3.4 |   | 178 |   | 4.9 |   |
| Total allowance                         |       | $                          | 2,307      |   | 100.0 | % | $ | 2,111 |   | 100.0 | % | $ | 2,047 |   | 100.0 | % | $ | 1,972 |   | 100.0 | % | $ | 1,714 |   | 100.0 | % |

 

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**Investment Activities**

 

The investment policy of the Bank, which is established by the Board ofDirectors and implemented by the Asset Liability Committee, is designedprimarily to provide and maintain liquidity, to generate a favorable return oninvestments without incurring undue interest rate and credit risk, and tocomplement the Bank’s lending activities. In establishing its investment strategies, the Bank considers itsbusiness and growth plans, the economic environment, the types of securities tobe held and other factors.  Federallychartered savings institutions have the authority to invest in various types ofassets, including U.S. Treasury obligations, securities of various federalagencies, certain certificates of deposit of insured banks and savingsinstitutions, certain bankers acceptances, repurchase agreements, loans onfederal funds, and, subject to certain limits, commercial paper and mutualfunds.

 

The following table sets forth certain information regarding theamortized cost and fair values of the Bank’s investments at the datesindicated.

 
| ** **                              | ** ** | **At December 31,** | ** ** |
|-----------------------------------------|------------|---------------------|------------|
| ** **                              | ** ** | **2004**            | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                              | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
| ** **                              | ** ** | **(In thousands)**  | ** ** |
|                                    |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Interest-earning deposits               |       | $                   | 252        |   | $ | 252 |   | $ | 508 |   | $ | 508 |   | $ | 93,143 |   | $ | 93,143 |   |
|                                    |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Investment securities held-to-maturity: |       |                |       |   |   |   |   |   |   |   |   |   |   |
| U.S. government and agency obligations  |       | $                   | —     |   | $ | — |   | $ | 2,000 |   | $ | 2,011 |   | $ | 4,000 |   | $ | 4,125 |   |
| State and political subdivisions        |       | 1,326               |       | 1,395 |   | 1,609 |   | 1,735 |   | 3,700 |   | 3,880 |   |
| Corporate debt securities               |       | 5,701               |       | 5,793 |   | 6,780 |   | 7,069 |   | 6,863 |   | 7,182 |   |
| Total                                   |       | $                   | 7,027      |   | $ | 7,188 |   | $ | 10,389 |   | $ | 10,815 |   | $ | 14,563 |   | $ | 15,187 |   |
|                                    |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Securities available-for-sale:          |       |                |       |   |   |   |   |   |   |   |   |   |   |
| U.S. government and agency obligations  |       | $                   | 2,978      |   | $ | 2,958 |   | $ | 2,972 |   | $ | 2,947 |   | $ | 15,964 |   | $ | 16,084 |   |
| State and political subdivisions        |       | 13,704              |       | 13,675 |   | 10,677 |   | 10,493 |   | 453 |   | 464 |   |
| Corporate Debt Securities               |       | 1,000               |       | 992 |   | 1,000 |   | 993 |   | 10,034 |   | 10,197 |   |
| Mutual funds                            |       | —              |       | — |   | — |   | — |   | 500 |   | 498 |   |
| Total                                   |       | $                   | 17,682     |   | $ | 17,625 |   | $ | 14,649 |   | $ | 14,433 |   | $ | 26,951 |   | $ | 27,243 |   |

 

15

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**Investment Portfolio Maturities**

 

The following table sets forth certain information regarding theamortized cost, weighted average yields and maturities of the Bank’s investmentsecurities portfolio, exclusive of interest-earning deposits, at December 31,2004.  Yields on tax exempt obligationshave been computed on a tax equivalent basis.

 
| ** **              | ** ** | **One Year  or Less**       | ** ** | **One to  Five Years** | ** ** | **Five to  Ten Years** | ** ** | **More  than Ten Years** | ** ** | **Total  Investment Securities(1)** | ** ** |
|-------------------------|------------|-----------------------------|------------|------------------------|------------|------------------------|------------|--------------------------|------------|-------------------------------------|------------|
| ** **              | ** ** | **Amortized  Cost**         | ** ** | **Average  Yield**     | ** ** | **Amortized  Cost**    | ** ** | **Average  Yield**       | ** ** | **Amortized  Cost**                 | ** ** | **Average  Yield** | ** ** | **Amortized  Cost** | ** ** | **Average  Yield** | ** ** | **Amortized  Cost** | ** ** | **Average  Yield** | ** ** | **Fair  Value** | ** ** |
| ** **              | ** ** | **(Dollars  in thousands)** | ** ** |
|                    |       |                        |       |                   |       |                   |       |                     |       |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. government  agency |       | $                           | —     |                   | —     | %                      | $          | 2,978                    |       | 3.50                                | %          | $ | — |   | — | % | $ | — |   | — | % | $ | 2,978 |   | 3.50 | % | $ | 2,958 |   |
| Municipal  obligations  |       | —                      |       | —                 |       | 1,111                  |       | 9.12                     |       | 3,855                               |       | 5.07 |   | 10,064 |   | 5.81 |   | 15,030 |   | 5.87 |   | 15,070 |   |
| Corporate  obligations  |       | 3,668                       |       | 4.91                   |       | 3,033                  |       | 3.51                     |       | —                              |       | — |   | — |   | — |   | 6,701 |   | 4.28 |   | 6,785 |   |
| Total                   |       | $                           | 3,668      |                   | 4.91       | %                      | $          | 7,122                    |       | 4.38                                | %          | $ | 3,855 |   | 5.07 | % | $ | 10,064 |   | 5.81 | % | $ | 24,709 |   | 5.15 | % | $ | 24,813 |   |

 

----

(1)           Includes $17.625 million of U.S. government agency, municipal and corporateobligations which are carried as available-for-sale at December 31, 2004.  Investmentsecurities available-for-sale are carried at fair value.

 

16

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**Sources of Funds**

 

**General**.  Deposits, borrowings, loanrepayments and cash flows generated from operations are the primary sources ofthe Bank’s funds for use in lending, investing and other general purposes.

 

**Deposits.**  The Bank offers a variety ofdeposit accounts having a range of interest rates and terms.  The Bank’s deposits consist of regularsavings, non-interest bearing checking, NOW checking, money market, andcertificate accounts.  Of the depositaccounts, $30 million or 6.6% consist of IRA, Keogh or SEP retirement accountsat December 31, 2004.

 

The flow of deposits is influenced significantly by general economicconditions, changes in money market and prevailing interest rates andcompetition.  The Bank’s deposits areprimarily obtained from areas surrounding its offices, and the Bank reliesprimarily on customer service and long-standing relationships with customers toattract and retain these deposits.  TheBank has maintained a high level of core deposits consisting of regularsavings, money market, non-interest-bearing checking, and NOW checking, whichhas contributed to a low cost-of-funds. At December 31, 2004, core deposits amounted to 68% of total deposits.

 

The following table sets forth the distribution of the Bank’s depositaccounts at the dates indicated and the weighted average nominal interest rateson each category of deposits presented. The Bank does not have significant amount of deposits from out-of-statesources.  Management does not believethat the use of year end balances instead of average balances resulted in anymaterial difference in the information presented.

 
| ** **                              | ** ** | **At  December 31,**        | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                              | ** ** | **Amount**                  | ** ** | **Percent  of Total Deposits** | ** ** | **Weighted  Average  Nominal  Rate** | ** ** | **Amount** | ** ** | **Percent  of  Total  Deposits** | ** ** | **Weighted  Average  Nominal  Rate** | ** ** | **Amount** | ** ** | **Percent  of Total  Deposits** | ** ** | **Weighted  Average  Nominal  Rate** | ** ** |
| ** **                              | ** ** | **(Dollars  in thousands)** | ** ** |
| Transaction Accounts                    |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  checking accounts     |       | $                           | 54,887     |   | 11.93 |   | 0.47 | % | $ | 52,647 |   | 11.46 |   | 0.47 | % | $ | 48,496 |   | 10.96 |   | 0.60 | % |
| Money market  accounts                  |       | 42,496                      |       | 9.24 |   | 1.00 |   | 44,688 |   | 9.73 |   | 0.91 |   | 43,677 |   | 9.87 |   | 1.00 |   |
| Non-interest-bearing  checking accounts |       | 32,636                      |       | 7.10 |   | 0.00 |   | 26,375 |   | 5.74 |   | 0.00 |   | 20,810 |   | 4.70 |   | 0.00 |   |
| Total transaction  accounts             |       | 130,019                     |       | 28.27 |   |   |   | 123,710 |   | 26.93 |   |   |   | 112,983 |   | 25.53 |   |   |   |
|                                    |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Passbook accounts                       |       | 182,945                     |       | 39.78 |   | 0.98 |   | 188,673 |   | 41.07 |   | 0.94 |   | 182,813 |   | 41.31 |   | 1.51 |   |
|                                    |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates of  deposit                |       | 146,939                     |       | 31.95 |   | 2.42 |   | 146,960 |   | 32.00 |   | 2.43 |   | 146,762 |   | 33.16 |   | 2.84 |   |
| Total deposits                          |       | $                           | 459,903    |   | 100.00 | % | 1.31 | % | $ | 459,343 |   | 100.00 | % | 1.31 | % | $ | 442,558 |   | 100.00 | % | 1.73 | % |

 

17

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At December 31, 2004, the Bank had outstanding certificates of depositin amounts of $100,000 or more maturing as follows:

 
| **Maturing  Period**          | ** ** | **Amount**         | ** ** |
|-------------------------------|------------|--------------------|------------|
| ** **                    | ** ** | **(In thousands)** | ** ** |
| Three months or less          |       | $                  | 3,506      |   |
| Over three through six months |       | 3,135              |       |
| Over six through 12 months    |       | 9,166              |       |
| Over 12 months                |       | 10,752             |       |
| Total                         |       | $                  | 26,559     |   |

 

**Borrowings**

 

Deposits are the primary source of funds of the Bank’s lending andinvestment activities and for its general business purposes.  The Bank may obtain advances from the FHLB ofPittsburgh to supplement its supply of lendable funds.  Advances from the FHLB of Pittsburgh aretypically secured by a pledge of the Bank’s stock in the FHLB of Pittsburgh anda portion of the Bank’s first mortgage loans and certain other assets.  The Bank, if the need arises, may also accessthe Federal Reserve Bank discount window. The following tables set forth the maximum month-end balance, periodending balance, and weighted average balance of outstanding FHLB advances atthe dates and for the periods indicated, together with the applicable weightedaverage interest rates.

 
| ** **                         | ** ** | **At December 31,**        | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **2004**                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                         | ** ** | **(Dollars in thousands)** | ** ** |
|                               |       |                       |       |   |   |   |   |
| FHLB advances and other borrowings |       | $                          | 102,747    |   | $ | 86,853 |   | $ | 207,359 |   |
|                               |       |                       |       |   |   |   |   |
| Weighted average interest rate     |       | 3.32                       | %          | 3.01 | % | 5.46 | % |
|                                    |            |                            |            |  |  |  |  |  |  |  |

 
| ** **                                                                  | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                  | ** ** | **2004**                     | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                  | ** ** | **(Dollars in thousands)**   | ** ** |
| Maximum balance of FHLB advances and other  borrowings outstanding          |       | $                            | 108,078    |   | $ | 207,359 |   | $ | 222,359 |   |
| Weighted average balance of FHLB advances  and other borrowings outstanding |       | $                            | 91,660     |   | $ | 162,695 |   | $ | 218,578 |   |
| Weighted average interest rate of FHLB  advances and other borrowings       |       | 3.21                         | %          | 5.08 | % | 5.46 | % |

 

18

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**Subsidiary Activity**

 

The Bank is permitted to invest up to 2% of its assets in the capitalstock of, or secured or unsecured loans to, subsidiary corporations, with anadditional investment of 1% of assets when such additional investment isutilized primarily for community development purposes.  Under such limitations, as of December 31,2004, the Bank was authorized to invest up to approximately $12.9 million inthe stock of, or loans to, service corporations (based upon the 2% limitation). In addition, the Bank can designate asubsidiary as an operating subsidiary, in which there is no percentage ofassets investment limitation, if it engages only in activities in which itwould be permissible for the Bank to engage. At December 31, 2004, the Bank had two wholly-owned subsidiaries,Third Delaware Corporation and Teragon Financial Corporation.  Third Delaware Corporation was formed in 1998for the purpose of investing in marketable securities.  At December 31, 2004, the Bank had $121.3million invested in Third Delaware Corporation. Teragon Financial Corporation (“Teragon”)was formerly a subsidiary of the Company and had been dormant for several yearsuntil 2004, at which time the Company contributed its interest to the Bank.Shortly thereafter, Teragon invested $7,500 in a limited partnership entitled ThirdFed Abstract, L. P., whose purpose is to operate a title insurance agency,primarily to capture certain title insurance premiums generated by the Bank’slending activities. At December 31, 2004 the Bank had an investment of $36,000in Teragon which, in turn, had an investment of $7,500 in Third Fed Abstract L.P.

 

**Personnel**

 

As of December 31, 2004, the Company had 156 full-time and 38 part-timeemployees.  None of the Company’semployees are represented by a collective bargaining group.  The Company believes that its relationshipwith its employees is good.

 

**Executive Officers of the Registrant**

 

Executive Officers of the Company and the Bank:

 

**Kent C. Lufkin** currently serves as President and ChiefExecutive Officer of the Company and the Bank and was appointed to such officeseffective June 30, 2003. Mr. Lufkin joined the Bank in 2000 and formerly servedas Senior Vice President and Retail Banking Officer. Prior to that, Mr. Lufkinwas President and Chief Executive Officer of Roebling Bank in Roebling, NewJersey since 1996.

 

**Dennis R. Stewart** has been Executive Vice President and ChiefFinancial Officer of the Bank and the Company since July 2003, and Senior VicePresident and Chief Financial Officer of the Bank and the Company since1999.  Prior to that, Mr. Stewart servedas Executive Vice President and Chief Financial Officer of First Coastal Bankin Virginia Beach, Virginia, where he had been employed since 1990.

 

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

 

**Cynthia G. Mullen** has been Senior Vice President and RetailBanking Officer of the Bank since July 2003. Previously she was a twenty-threeyear employee of Commonwealth Bank in Norristown, Pennsylvania, holding avariety of positions, including Vice President of Traditional Banking.

 

The remaining information relating to Directors and Executive Officersof the Registrant is incorporated herein by reference to the Registrant’s ProxyStatement for the 2005 Annual Meeting of Stockholders.

 

 

19

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**REGULATION**

 

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

 

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Actof 2002 (the “Act”).  The Securities andExchange Commission (the “SEC”) has promulgated new regulations pursuant to theAct and may continue to propose additional implementing or clarifyingregulations as necessary in furtherance of the Act. The passage of the Act byCongress and the implementation of new regulations by the SEC subject publicly-tradedcompanies to additional and more cumbersome reporting regulations anddisclosure. Compliance with the Act and corresponding regulations may increasethe Company’s expenses.

 

**Company Regulation**

 

**General.**  The Company is a unitarysavings and loan holding company subject to regulatory oversight by theOTS.  As such, the Company is required toregister and file reports with the OTS and is subject to regulation andexamination by the OTS.  In addition, theOTS has enforcement authority over the Company and its non-savings associationsubsidiaries, should such subsidiaries be formed, which also permits the OTS torestrict or prohibit activities that are determined to be a serious risk to thesubsidiary savings association.  Thisregulation and oversight is intended primarily for the protection of thedepositors of the Bank and not for the benefit of stockholders of theCompany.  The Company is also required tofile certain reports with, and otherwise comply with, the rules and regulationsof the OTS and the SEC.

 

**Financial Modernization.**  TheGramm-Leach-Bliley Act (“GLB”) permits qualifying bank holding companies tobecome financial holding companies and thereby affiliate with securities firmsand insurance companies and engage in other activities that are financial innature.  GLB defines “financial in nature”to include securities underwriting, dealing and market making; sponsoringmutual funds and investment companies; insurance underwriting and agency;merchant banking activities; and activities that the Federal Reserve Board hasdetermined to be closely related to banking. A qualifying national bank also may engage, subject to limitations oninvestment, in activities that are financial in nature, other than insuranceunderwriting, insurance company portfolio investment, real estate development,and real estate investment, through a financial subsidiary of the bank.

 

GLB also prohibits new unitary thrift holding companies from engagingin nonfinancial activities or from affiliating with a nonfinancial entity.  As a grandfathered unitary thrift holdingcompany, the Company has retained its authority to engage in nonfinancialactivities.

 

**QTL Test.**  As a unitary savings and loanholding 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 aseparate subsidiary, it would become a multiple savings and loan holdingcompany, and the activities of the Company and any of its subsidiaries (otherthan the Bank or any other SAIF-insured savings association) would becomesubject to restrictions applicable to bank holding companies unless such otherassociations each also qualify as a QTL and were acquired in a supervisoryacquisition.

 

**Bank Regulation**

 

**General.**  As a federally chartered, SAIF-insuredsavings association, the Bank is subject to extensive regulation by the OTS andthe FDIC.  Lending activities and otherinvestments must comply with various federal statutory and regulatory requirements.  The Bank is also subject to certain reserverequirements promulgated by the Federal Reserve Board.

 

The OTS, in conjunction with the FDIC, regularly examines the Bank andprepares reports for the consideration of the Bank’s Board of Directors on anydeficiencies that they find in the Bank’s operations.  The Bank’s relationship with its depositorsand borrowers is also regulated to a great extent by federal law, especially insuch matters as the ownership of savings accounts and the form and content ofthe Bank’s mortgage documents.

 

20

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The Bank must file reports with the OTS and the FDIC concerning itsactivities and financial condition, in addition to obtaining regulatoryapprovals prior to entering into certain transactions such as mergers with oracquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework ofactivities in which an institution can engage and is intended primarily for theprotection of the SAIF and depositors. The regulatory structure also gives the regulatory authorities extensivediscretion in connection with their supervisory and enforcement activities andexamination policies, including policies with respect to the classification ofassets and the establishment of adequate loan loss reserves for regulatorypurposes.  Any change in suchregulations, whether by the OTS, the FDIC or the Congress could have a materialadverse impact on the Company, the Bank and their operations.  The Company is also required to file certainreports with, and otherwise comply with, the rules and regulations of the OTSand the SEC.

 

**Insurance of Deposit Accounts.**  TheBank’s deposit accounts are insured by the SAIF to a maximum of $100,000 foreach insured member (as defined by law and regulation).  The FDIC has the authority, should itinitiate proceedings to terminate an institution’s deposit insurance, tosuspend the insurance of any such institution without tangible capital.  However, if a savings association haspositive capital when it includes qualifying intangible assets, the FDIC cannotsuspend deposit insurance unless capital declines materially, the institutionfails to enter into and remain in compliance with an approved capital plan orthe institution is operating in an unsafe or unsound manner.

 

Regardless of an institution’s capital level, insurance of deposits maybe terminated by the FDIC upon a finding that the institution has engaged inunsafe or unsound practices, is in an unsafe or unsound condition to continueoperations or has violated any applicable law, regulation, rule, order orcondition imposed by the FDIC or the institution’s primary regulator.  The management of the Bank is unaware of anypractice, condition or violation that might lead to termination of its depositinsurance.

 

The FDIC charges an annual assessment for the insurance of depositsbased on the risk a particular institution poses to its deposit insurancefund.  This risk classification is basedon an institution’s capital group and supervisory subgroup assignment.

 

**Regulatory Capital Requirements.**  OTScapital regulations require savings institutions to meet three capitalstandards: (1) tangible capital equal to 1.5% of total adjusted assets,(2) a leverage ratio (core capital) equal to at least 4% of total adjustedassets and (3) a risk-based capital requirement equal to 8.0% of totalrisk-weighted assets.  In addition, theOTS prompt corrective action regulation provides that a savings institutionthat has a leverage capital ratio of less than 4% (3% for institutionsreceiving the highest examination rating) will be deemed to be “undercapitalized”and may be subject to certain restrictions.

 

At December 31, 2004, the Bank was in compliance with all of itsregulatory capital requirements.

 

**Dividend and Other Capital Distribution Limitations.**  TheBank may not declare or pay a cash dividend on its capital stock if the effectthereof would be to reduce the regulatory capital of the Bank below the amountrequired for the liquidation account established at the time of the Bank’smutual-to-stock conversion.

 

Savings associations that would remain at least adequately capitalizedfollowing 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 forexpedited treatment under current OTS regulations are not required to file anapplication with the OTS if (i) the savings association would remain at leastadequately capitalized following the capital distribution and (ii) the amountof capital distribution does not exceed an amount equal to the savingsassociation’s net income for that year to date, plus the savings association’sretained net income for the previous two calendar years.  Thus, only undistributed net income for theprior two years may be distributed in addition to the current year’sundistributed net income without the filing of an application with theOTS.  Savings associations which do notqualify for expedited treatment or which desire to make a capital distributionin excess of the specified amount, must file an application with, and obtain theapproval of, the OTS prior to making the capital distribution.  A savings association such as the Bank thatis a subsidiary of a savings and loan holding company, and under certain othercircumstances, must file a notice with OTS prior to making the capitaldistribution.

 

**Qualified Thrift Lender Test.**  TheHome Owners’ Loan Act (“HOLA”), as amended, requires savings institutions tomeet a QTL test.  If the Bank maintainsan appropriate level of Qualified Thrift Investments (primarily residentialmortgages and related investments, including certain mortgage-backedsecurities) (“QTIs”) and otherwise

 

21

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qualifies as a QTL, it will continue to enjoy full borrowing privilegesfrom the FHLB of Pittsburgh.  Therequired percentage of QTIs is 65% of portfolio assets (defined as all assetsminus intangible assets, property used by the institution in conducting itsbusiness and liquid assets equal to 10% of total assets).  Certain assets are subject to a percentage limitationof 20% of portfolio assets.  In addition,savings associations may include shares of stock of the FHLBs, FNMA and FHLMCas qualifying QTIs.  The FDICIA alsoamended the method for measuring compliance with the QTL test to be on amonthly basis in nine out of every 12 months, as opposed to on a daily orweekly average of QTIs.  As of December31, 2004, the Bank was in compliance with its QTL requirement with 76% of itsassets invested in QTIs.

 

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

 

As a member, the Bank is required to purchase and maintain aninvestment in the capital stock of the FHLB of Pittsburgh in an amount equal to5% of its advances outstanding from the FHLB plus 0.7% of its unused borrowingcapacity. At December 31, 2004, the Bank had $7.5 million in FHLB stock, whichwas in compliance with this requirement.

 

**Federal Reserve System.**  TheFederal Reserve Board requires all depository institutions to maintainnon-interest bearing reserves at specified levels against their transactionaccounts (primarily checking, NOW and Super NOW checking accounts) andnon-personal time deposits.  The balancesmaintained to meet the reserve requirements imposed by the Federal ReserveBoard may be used to satisfy the liquidity requirements that are imposed by theOTS.  At December 31, 2004, the Bank’stotal transaction accounts required a reserve level of $5.1 million which wasoffset by the Bank’s vault cash on hand and cash on deposit at the FederalReserve Bank of Philadelphia.

 

Savings associations have authority to borrow from the Federal ReserveBank “discount window,” but Federal Reserve policy generally requires savingsassociations to exhaust all other sources before borrowing from the FederalReserve System.  The Bank had no suchborrowings at December 31, 2004.

 

22

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**Item 2.  Properties**

 

The Company is located and conducts its business at 3 Penns Trail,Newtown, Pennsylvania.  At December 31,2004, the Bank operated from its administrative offices and fourteen branchoffices located in Philadelphia and Bucks Counties, Pennsylvania and MercerCounty, New Jersey.  The Bank also ownstwo parcels of land and a building behind its Doylestown branch office.  The parcel with the building is available tobe leased to a third-party and the other parcel is used as a parking lot foremployees of the Bank and tenants. The net book value of the two lots was$100,000. In addition, a subsidiary of the Company, Penns Trail DevelopmentCorporation, owns investment property with a book value of $761,000.

 

The following table sets forth certain information regarding the Bank’soperating properties:

 
| **Location**                                                                            | ** ** | **Leased or  Owned** | ** ** | **Location**                                                                  | ** ** | **Leased or  Owned** |
|-----------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------------------------------------------------------------------|------------|----------------------|
| **ADMINISTRATIVE  OFFICE**

Newtown  Office3 Penns TrailNewtown, PA 18940               |       | Owned                |       |                                                                          |       |                 |
| ** **                                                                              | ** ** | ** **           | ** ** | ** **                                                                    | ** ** | ** **           |
| **DEPOSIT  OPERATIONS**

828C  Newtown-Yardley Road

Suite  301B

Newtown,  PA 18940    |       | Leased               | ** ** | **PROCESSING  OPERATIONS**Operations Center62 Walker LaneNewtown, PA 18940(1) |       | Owned                |
| ** **                                                                              |       |                 | ** ** | ** **                                                                    |       |                 |
| **BRANCH  OFFICES**

Frankford  Office

4625  Frankford Avenue

Philadelphia,  PA 19124 |       | Leased               |       | Newtown Office950 Newtown Yardley Road  Newtown, PA 18940                     |       | Leased               |
|                                                                                    |       |                 |       |                                                                          |       |                 |
| Ewing  Office

2075  Pennington Road

Ewing,  NJ 08618                                  |       | Owned                |       | Mayfair OfficeRoosevelt Blvd. at Unruh  Philadelphia, PA 19149                |       | Owned                |
|                                                                                    |       |                 |       |                                                                          |       |                 |
| Hamilton  Office

1850  Route 33

Hamilton  Square, NJ 08690                            |       | Owned                |       | Doylestown Office

60 North Main StreetDoylestown, PA 18901                   |       | Owned                |
|                                                                                    |       |                 |       |                                                                          |       |                 |
| Fishtown  Office

York  & Memphis Streets

Philadelphia,  PA 19125                  |       | Owned                |       | Feasterville Office

Buck Hotel ComplexFeasterville, PA 19053                 |       | Leased               |
|                                                                                    |       |                 |       |                                                                          |       |                 |
| Cross  Keys Office

834  North Easton Highway

Doylestown,  PA 18901                    |       | Owned                |       | Quakerbridge Office

590 Lawrence Square Blvd.Lawrenceville, NJ 08648         |       | Leased               |
|                                                                                    |       |                 |       |                                                                          |       |                 |
| Bridesburg  Office  Orthodox & Almond Streets  Philadelphia, PA 19137               |       | Owned                |       | Woodhaven Office4014 Woodhaven RoadPhiladelphia, PA 19154                     |       | Leased               |
|                                                                                    |       |                 |       |                                                                          |       |                 |
| New  Britain Office  600 Town Center  New Britain, PA 18901                             |       | Leased               |       | Northern Liberties Office905 North 2nd  StreetPhiladelphia, PA 19123          |       | Leased               |

 

23

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**Item 3.  LegalProceedings**

 

Neither the Company nor its subsidiaries are involved in any pendinglegal proceedings, other than routine legal matters occurring in the ordinarycourse of business, which in the aggregate involve amounts which are believedby management to be immaterial to the consolidated financial condition orresults of operations of the Company.

 

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

 

None.

 

**PART II**

 

**Item 5.  Marketfor Registrant****’****s Common Equity and RelatedStockholder Matters and Issuer Purchases of Equity Securities**

 

Information relating to the market for Registrant’s common equity andrelated stockholder matters appears under the section captioned “Stock MarketInformation” in the Registrant’s 2004 Annual Report to Stockholders and isincorporated herein by reference.

 

The following table provides information on repurchases by the Companyof its common stock in each month for the three months ended December 31, 2004:

 
| **Month**                             | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plan of  Program** | ** ** | **Maximum Number of  Shares that may yet  be Purchased Under  the Plans or  Programs** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
|                                  |       |                                  |       |                              |       |                                                                                   |       |                                                                                   |       |
| October 1, 2004 -  October 31, 2004   |       | 16,697                                |       | $28.22                            |       | —                                                                                 |       | 114,082                                                                                |       |
|                                  |       |                                  |       |                              |       |                                                                                   |       |                                                                                   |       |
| November 1, 2004 -  November 30, 2004 |       | —                                |       | —                            |       | —                                                                                 |       | 114,082                                                                                |       |
|                                  |       |                                  |       |                              |       |                                                                                   |       |                                                                                   |       |
| December 1, 2004 -  December 31, 2004 |       | —                                |       | —                            |       | —                                                                                 |       | 114,082                                                                                |       |

 

The total number of shares repurchased during the quarter comprises16,697 shares repurchased in conjunction with the exercise of 26,237 stockoptions.  The repurchase poses nomodification to the rights of stockholders. Furthermore, there has been no change in the ability of the Company topay dividends or any material change in the working capital of the Company.  The stock repurchase did not alter thepreviously approved stock repurchase plan of the Company.

 

**Item 6. Selected Financial Data**

 

The above-captioned information appears under the section captioned “SelectedFinancial and Other Data” in the Registrant’s 2004 Annual Report toStockholders and is incorporated herein by reference.

 

**Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

The information under the section captioned “Management’s Discussionand Analysis of Financial Condition and Results of Operations” in the Registrant’s2004 Annual Report to Stockholders is incorporated herein by reference.

 

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**Item 7A. Quantitative and Qualitative Disclosures about Market Risk**

 

The information under the section captioned “Management’s Discussionand Analysis of Financial Condition and Results of Operations” in theRegistrant’s 2004 Annual Report to Stockholders is incorporated herein byreference.

 

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

 

The Consolidated Financial Statements of TF Financial Corporation andits subsidiaries included in the Registrant’s 2004 Annual Report toStockholders are incorporated herein by reference.

 

**Item 9.  Changesin and Disagreements with Accountants on Accounting and Financial Disclosure**

 

None.

 

**Item 9A. Controls and Procedures**

 

(a)           Evaluation of disclosure controls andprocedures.  Based on their evaluation of the Company’sdisclosure controls and procedures (as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934 (the “Exchange Act”)), the Company’s principalexecutive officer and principal financial officer have concluded that as of theend of the period covered by this Annual Report on Form 10-K such disclosurecontrols and procedures are effective to ensure that information required to bedisclosed by the Company in reports that it files or submits under the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in Securities and Exchange Commission rules and forms.

 

(b)           Changes in internal control over financialreporting. During the lastquarter of the year under report there was no change in the Company’s internalcontrol over financial reporting that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

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**Item 9B.  OtherInformation**

 

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 “— BiographicalInformation” and “Additional Information About Directors and Executive Officers— Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s definitiveproxy statement for the Registrant’s 2005 Annual Meeting of Stockholders (the “ProxyStatement”) is incorporated herein by reference.

 

Additional information concerning executive officers is included under “Item1.  Business — Executive Officers of theRegistrant.”

 

The Company has adopted a Code of Ethics that applies to its principalexecutive officer, principal financial officer, principal accounting officer orpersons performing such functions. The Code of Ethics can be obtained withoutcharge by sending a written request to the Corporate Secretary, TF FinancialCorporation, 3 Penns Trail, Newtown, Pennsylvania 18940.

 

**Item 11. Executive Compensation**

 

The information relating to executive compensation is incorporatedherein by reference to the information contained under the section captioned “Directorand Executive Officer Compensation” in the Registrant’s Proxy Statement.

 

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

 

(a)           Security Ownership of Certain Beneficial Owners

 

Information required by this item is incorporated herein by referenceto the Section captioned “Voting Securities and Principal Holders Thereof” inthe Registrant’s Proxy Statement.

 

(b)           Security Ownership of Management

 

Information required by this item is incorporated herein by referenceto the section captioned “Proposal 1 — Election of Directors” in the Registrant’sProxy Statement.

 

(c)           Management of the Company knows of no arrangements, including anypledge by any person of securities of the Company, the operation of which mayat a subsequent date result in a change in control of the registrant.

 

(d)           Securities Authorized for Issuance Under Equity Compensation Plans

 

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Set forth below is information as of December 31, 2004 with respect tocompensation plans under which equity securities of the Registrant areauthorized for issuance.

 

**EQUITY COMPENSATION PLAN INFORMATION**

 
| ** **                                                 | ** ** | **(a)  Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights** | ** ** | **(b)  Weighted-average  exercise price of  outstanding  options, warrants  and rights** | ** ** | **(c)  Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by  shareholders(1)     |       | 258,072                                                                                                  |       | $19.51                                                                                   |       | —                                                                                                                                                    |       |
| Equity compensation plans not approved by  shareholders(2) |       | 25,000                                                                                                   |       | 14.75                                                                                    |       | —                                                                                                                                                    |       |
| TOTAL                                                      |       | 283,072                                                                                                  |       | $19.09                                                                                   |       | —                                                                                                                                                    |       |

 

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(1)           Plans approved by stockholders include: TF Financial Corporation 1997Stock Option Plan.

(2)           Plans not approved by stockholders include: TF Financial Corporation1996 Directors Stock Option Plan

For information regarding the material features of these plans, seeNotes A9 and J2 to the Consolidated Financial Statements included as part ofExhibit 13 to this report.

 

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

 

The information relating to certain relationships and relatedtransactions is incorporated herein by reference to the information containedunder the section captioned  “AdditionalInformation About Directors and Executive Officers — Certain Relationships andRelated Transactions” in the Registrant’s Proxy Statement.

 

**Item 14. Principal Accountant Fees and Services**

 

The information relating to this item is incorporated herein byreference to the information contained under the section captioned “PrincipalAccounting Firm Fees” in the Registrant’s Proxy Statement.

 

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**PART IV**

 

**Item 15. Exhibits and Financial Statements**

 

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

 

(1)           The following financial statements and the report of the independentauditor of the Company included in the Company’s 2004 Annual Report toStockholders are incorporated herein by reference.

 
| Report of Independent Registered  Public Accounting Firm                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------|
| Consolidated Statements of  Financial Position as of December 31, 2004 and 2003                                                                      |
| Consolidated Statements of  Earnings For the Years Ended December 31, 2004, 2003  and 2002                                                      |
| Consolidated Statement of  Changes in Stockholders’ Equity and Comprehensive Income  for the Years Ended December 31, 2004, 2003  and 2002 |
| Consolidated Statements of  Cash Flows for the Years Ended December 31, 2004, 2003  and 2002                                                    |
| Notes to Consolidated  Financial Statements                                                                                                          |

 

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

 

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

 
| (3)    |   | Exhibits                                                                    |
|--------|--------|-----------------------------------------------------------------------------|
|   |   |                                                                        |
| (a)    |   | The  following exhibits are filed as part of this report.                   |
|   |   |                                                                        |
| 3.1    |   | Certificate  of Incorporation of TF Financial Corporation (1)               |
| 3.2    |   | Bylaws of TF  Financial Corporation (1)                                     |
| 4.0    |   | Stock  Certificate of TF Financial Corporation (1)                          |
| 4.1    |   | The  Company’s Rights Agreement dated November 22, 1995 (2)            |
| 10.1   |   | Third  Federal Savings and Loan Association Management Stock Bonus Plan (1) |
| 10.2   |   | Third  Federal Savings Bank Directors Consultation and Retirement Plan (3)  |
| 10.3   |   | Severance  Agreement with Kent C. Lufkin (4)                                |
| 10.4   |   | Severance  Agreement with Floyd P. Haggar (4)                               |
| 10.5   |   | Severance  Agreement with Dennis R. Stewart (5)                             |
| 10.6   |   | TF Financial  Corporation 1997 Stock Option Plan (6)                        |
| 10.7   |   | Severance  Agreement with Robert N. Dusek (7)                               |
| 10.8   |   | TF Financial  Corporation 1996 Directors Stock Option Plan (8)              |
| 10.9   |   | Retirement  and Non-Competition Agreement with John R. Stranford (9)        |
| 10.10  |   | Employment  Agreement with John R. Stranford (9)                            |
| 10.11  |   | TF Financial  Corporation Incentive Compensation Plan (10)                  |
| 13.0   |   | 2004 Annual  Report to Stockholders                                         |
| 21.0   |   | Subsidiary  Information                                                     |
| 23.0   |   | Consent of  Independent Registered Public Accounting Firm                   |
| 31.0   |   | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002    |
| 32.0   |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    |

 

28

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| (1)  |   | Incorporated  herein by reference to the Exhibits to Form S-1, Registration Statement, File  No. 33-76960.                                   |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | Incorporated  herein by reference to the Registrant’s Form 8-A filed with the Securities  and Exchange Commission on November 22, 1995. |
| (3)  |   | Incorporated  herein by reference to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 1995.          |
| (4)  |   | Incorporated  herein by reference to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2000.          |
| (5)  |   | Incorporated  herein by reference to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 1999.          |
| (6)  |   | Incorporated  herein by reference to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 1997.          |
| (7)  |   | Incorporated  herein by reference to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2001.          |
| (8)  |   | Incorporated  herein by reference to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2002.          |
| (9)  |   | Incorporated  herein by reference to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2003.          |
| (10) |   | Incorporated  herein by reference to the Registrant’s Form 8-K filed with the Securities  and Exchange Commission on October 20, 2004.  |

 

29

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**SIGNATURES**

 

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

 
| ** **             | ** ** | **TF  FINANCIAL CORPORATION** |
|------------------------|------------|-------------------------------|
| ** **             | ** ** | ** **                    | ** ** |
| ** **             | ** ** | ** **                    | ** ** |
| Dated: March  28, 2005 |       | By:                           | /s/ Kent  C. Lufkin |   |
|                   |       |                          | Kent C. Lufkin |
|                   |       |                          | President,  Chief Executive Officer |
|                   |       |                          | (Duly  Authorized Representative) |

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, asamended, this Report has been signed below by the following persons on behalfof the Registrant and in the capacities indicated as of March 28, 2005.

 

 
| By:    | /s/ Kent C.  Lufkin                 |   | By:                                            | /s/ Dennis  R. Stewart |   |
|--------|-------------------------------------|--------|------------------------------------------------|------------------------|--------|
|   | Kent C.  Lufkin                     |   | Dennis R.  Stewart                             |
|   | President,  Chief Executive Officer |   | Executive  Vice President, Chief               |
|   | (Principal  Executive Officer)      |   | Financial  Officer and Treasurer               |
|   |                                |   | (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/ Dennis  L. McCartney            |   | By:                                            | /s/ George  A. Olsen   |   |
|   | Dennis L.  McCartney                |   | George A.  Olsen                               |
|   | Director                            |   | Director                                       |
|   |                                |   |                                           |
|   |                                |   |                                           |
| By:    | /s/ Albert  M. Tantala              |   | By:                                            | /s/ John R.  Stranford |   |
|   | Albert M.  Tantala                  |   | John R.  Stranford                             |
|   | Director                            |   | Director                                       |
|        |                                     |        |                                                |                        |        |  |  |  |  |  |

 

30

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**SIGNATURES**

 

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

 
|                              |   | **TF  FINANCIAL CORPORATION**                     |
|-----------------------------------|--------|---------------------------------------------------|
|                              |   |                                              |
|                              |   |                                              |
| Dated:  March  28, 2005 | By:    |                                              |   |
|                              |   | Kent C. Lufkin                                    |
|                              |   | President, Chief Executive  Officer  and Director |
|                              |   | (Duly Authorized  Representative)                 |

 

Pursuant to the requirements of the Securities Exchange Act of 1934, asamended, this Report has been signed below by the following persons on behalfof the Registrant and in the capacities indicated as of March 28, 2005.

 

 
| By:    |                                |   | By:                                            |   |   |
|--------|-------------------------------------|--------|------------------------------------------------|--------|--------|
|   | Kent C.  Lufkin                     |   | Dennis R.  Stewart                             |
|   | President,  Chief Executive Officer |   | Executive Vice President, Chief                |
|   | (Principal  Executive Officer)      |   | Financial  Officer and Treasurer               |
|   |                                |   | (Principal  Financial and Accounting  Officer) |
|   |                                |   |                                           |
|   |                                |   |                                           |
| By:    |                                |   | By:                                            |   |   |
|   | Carl F.  Gregory                    |   | Robert N.  Dusek                               |
|   | Director                            |   | Chairman of  the Board                         |
|   |                                |   |                                           |
|   |                                |   |                                           |
| By:    |                                |   | By:                                            |   |   |
|   | Dennis L.  McCartney                |   | George A.  Olsen                               |
|   | Director                            |   | Director                                       |
|   |                                |   |                                           |
|   |                                |   |                                           |
| By:    |                                |   | By:                                            |   |   |
|   | Albert M.  Tantala, Sr.             |   | John R.  Stranford                             |
|   | Director                            |   | Director                                       |
|        |                                     |        |                                                |        |        |  |

 

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