THE COMMUNITY IS OUR FOCUS



                            TF FINANCIAL CORPORATION
                            ------------------------
                               1999 ANNUAL REPORT

<PAGE>

Contents


Introduction                                 1

Letter to Shareholders                       2

Community Banking                            5

Board of Directors
   and Management Team                       8

Financial Statements
   and Supplementary Data                    9

Office Locations             Inside Back Cover

<PAGE>

                               [GRAPHICS OMITTED]

The demands on the financial  services industry have increasingly  moved towards
faster,  easier,  more  convenient  modes of  operation.  Here at Third  Federal
Savings Bank, we have worked to satisfy  those demands  without  losing sight of
our tradition of  personalized  service.  It is our continued  mission to remain
focused on delivering the quality services our customers desire and deserve. Our
reputation was built on a solid foundation of community values, and these values
will  continue to guide us as our community  grows.  We're proud of the customer
relationships we foster.


                         Your good neighbor since 1921
<PAGE>



To our stockholders:

This past year has been one of challenge  and change.  Interest  rates have been
rising on the anticipation of rate increases by the Federal Reserve Board.  Bank
stocks have fallen out of favor with equity pouring into technology  stocks.  We
have taken  advantage of the  depressed  market in our stock by  repurchasing  a
total of 10% of our outstanding shares during 1999. Furthermore,  on January 18,
2000 our Board  authorized  the  repurchase of an additional 5% of the Company's
stock.

During  1999,  our  total  assets  increased  8% to $721  million  and our loans
increased  19% to $288  million.  Our net  income  increased  by 9.5% to  $4.422
million compared to 1998 net income of $4.038 million.  Basic earnings per share
rose from $1.39 to $1.60 or 15% while  diluted  earnings per share rose 21% from
$1.26 to $1.52.

Many new products and services were introduced throughout the year including our
debit card, telephone banking and our Internet web page at www.thirdfedbank.com.
Scheduled for release in the coming months will be online  banking,  bill paying
services  and check  imaging.  While  maintaining  our  traditions  of community
banking we will continue to offer non-traditional banking products and services.
The  technology we select will focus on the customer as a way to develop new and
enhance existing relationships.  We will focus on determining what our customers
need and then implementing the technology or service to best serve those needs.

Two new branch  offices were opened in 1999. Our new  Lawrenceville,  New Jersey
branch office complements our Mercer County franchise.  The second branch office
was opened in Newtown Township, Bucks County, Pennsylvania.  We are proud of our
success  over the past year in  increasing  our  consumer  and  commercial  loan
portfolios while reducing our ratio of  non-performing  assets by 10% from 0.29%
to 0.26% of assets, both of which are substantially below industry average.

Management  and the Board of  Directors  are  committed to  increasing  earnings
growth and maximizing stockholder value as well as maintaining our commitment to
our customers and communities  throughout our branch network.

Thank you for your continued support, encouragement and the opportunity to serve
you.

/s/ John R. Stranford

President and Chief Executive Officer


2
<PAGE>



We work hard to  realize  our  customers'  vision  for  financial  services  and
security.  By looking  through their eyes, we have shaped a business that caters
directly to individual needs. Customer satisfaction is always priority one.

The customer's
perception is                      [GRAPHICS OMITTED]
our reality.

                                   TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 3
<PAGE>

                               [GRAPHIC OMITTED]

Our job is not just to listen,  but to  understand,  so we can help  provide the
right solutions.


4
<PAGE>
                               [GRAPHICS OMITTED]

                          ---------------------------
                               COMMUNITY BANKING

                        In matters of customer service,
                              we go the extra step.


In this fast paced world of change, our personal-service banking philosophy
is a welcome alternative to the often less-than-personal treatment you might get
from a "mega-bank." We know that our customers' financial needs are important to
them.  What  makes us  special  is that it's  also  important  to us.  Community
involvement is, and will continue to be, our most valued tradition.

The value of this tradition is more than just words. It is a working system that
our staff is  committed  to  providing  everyday.  We are proud of the  superior
performance  of our  employees  and  the  exceptional  quality  assistance  they
provide.  It is  through  them that we  understand  the  distinct  needs of each
community,  allowing us to continue  providing  the  personalized  service we so
greatly value. That is why we are careful to employ a team of professionals that
share our guiding  business  principle,  one that is dedicated to the  financial
success of our customers, and in turn, the success of our company.



                                   TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 5
<PAGE>
                               [GRAPHICS OMITTED]

--------------------
COMMUNITY BANKING


1999 has been a successful  year of growth.  We've  relied on our  shareholders,
customers,  and  employees  for our  continued  prosperity.  From  commercial to
personal banking,  we continue to work to generate profitable business endeavors
today so our shareholders' enjoy ongoing financial growth.

It is our philosophy to always keep both the shareholders and customers informed
of changing  banking  trends and services,  keeping  everyone  involved in their
financial futures and abreast of changing technologies. That is why we provide a
multitude of banking services to satisfy all of our customers' needs...

Senior Checking

Debit Cards

Direct Deposit

Investment Accounts

Loans Business Banking

Telephone Banking

Internet Banking



Our debit card provides convenient,
fast and secure access to funds...           [VISA CARD GRAPHICS OMITTED]
allowing one card for shopping
and obtaining cash.

6
<PAGE>
                               [GRAPHICS OMITTED]


At Third  Federal  Savings  Bank,  we uphold  traditional  banking  values while
providing  a wealth  of  non-traditional  products  and  services.  We strive to
maintain an atmosphere of stability,  dependability, trust and loyalty by always
matching customers' needs with the services that best suit those needs.


Soon Internet Baking will allow
customers to view their account,
manage cash and pay bills all online.

                                   TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 7
<PAGE>
                     --------------------------------------
                     BOARD OF DIRECTORS AND MANAGEMENT TEAM

                               [GRAPHICS OMITTED]

TF Financial Corporation
Board of Directors

Carl F. Gregory
Thomas J. Gola
John R. Stranford
George A. Olsen
Robert N. Dusek
  Chairman of the Board

Executive Officers

John R. Stranford
President and
Chief Executive Officer

Elizabeth Davidson Maier
Senior Vice President and Corporate Secretary

Dennis R. Stewart
Senior Vice President and
Chief Financial Officer

Third Federal Savings Bank
Board of Directors

John R. Stranford
Robert N. Dusek
George A. Olsen
Thomas J. Gola
Albert M. Tantala
William H. Yerkes, III
William J. Happ, Jr.
Carl F. Gregory
  Chairman of the Board

Executive Officers

John R. Stranford
President and
Chief Executive Officer

Elizabeth Davidson Maier
Senior Vice President and
Corporate Secretary

Thomas J. Sposito, II
Senior Vice President and
Retail Banking Officer

Earl A. Pace, Jr.
Senior Vice President and
Chief Information Officer

Floyd P. Haggar
Senior Vice President and
Chief Lending Officer

Dennis R. Stewart
Senior Vice President and
Chief Financial Officer

Independent Auditors
Grant Thornton, LLP
Two Commerce Square
2001 Market Street
Philadelphia, PA 19103-7080

Special Counsel
Malizia Spidi & Fisch, PC
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005

Transfer Agent and Registrar
American Securities
Transfer & Trust, Inc.
12039 West Alameda Parkway
Suite #Z-2
Lakewood, CO 80228


8
<PAGE>
Contents

Corporate Profile and Related Information                     10

Selected Financial Information and Other Data                 11

Management's Discussion and Analysis of
   Financial Condition and Results of Operations              13

Report of Independent Certified
   Public Accountants                                         19

Consolidated Statements of Financial Position                 20

Consolidated Statements of Earnings                           21

Consolidated Statement of Changes in
   Stockholders' Equity and Comprehensive Income              22

Consolidated Statements of Cash Flows                         24

Notes to Consolidated Financial Statements                    26


                                   TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 9
<PAGE>



Corporate Profile and Related Information

TF Financial  Corporation  (the  "Corporation")  is the parent  company of Third
Federal Savings Bank ("Third  Federal" or the "Savings Bank") and its subsidiary
Third  Delaware  Corporation,  TF  Investments  Corporation,  Teragon  Financial
Corporation and Penns Trail Development Corporation. At December 31, 1999, total
assets  were  approximately  $721.9  million.  The  Corporation  was formed as a
Delaware  corporation  in March 1994 at the  direction  of the  Savings  Bank to
acquire all of the capital stock that Third Federal  issued upon its  conversion
from the mutual to stock form of ownership  (the  "Conversion")  and  concurrent
$52.9 million initial public  offering  effective July 13, 1994. At December 31,
1999,  total  stockholders'   equity  was  approximately   $48.4  million.   The
Corporation is a unitary savings and loan holding company which,  under existing
laws,  generally is not restricted in the types of business  activities in which
it may engage,  provided  that Third Federal  retains a specified  amount of its
assets in housing-related investments.

Third  Federal is a federally  chartered  stock  savings bank  headquartered  in
Newtown,  Pennsylvania,  which was  originally  chartered in 1921 under the name
"Polish  American  Savings  Building  and Loan  Association."  Deposits of Third
Federal have been federally  insured since 1935 and are currently  insured up to
the maximum amount allowable by the Federal Deposit  Insurance  Corporation (the
"FDIC").  Third Federal is a community oriented savings  institution  offering a
variety  of  financial  services  to meet the needs of the  communities  that it
serves.  Third  Federal  expanded  its  operations  in  Philadelphia  and  Bucks
Counties,  Pennsylvania,  in June 1992  through its  acquisition  of  Doylestown
Federal Savings and Loan  Association  ("Doylestown").  In September 1996, Third
Federal  expanded its  operations  into Mercer County,  New Jersey,  through its
acquisition of three branch offices and  approximately  $143 million of deposits
from Cenlar Federal Savings Bank.  Third Federal added a fourth branch office in
Mercer County in December,  1999 with the  Corporation's  acquisition of Village
Financial Corporation  ("Village").  The Village acquisition was consistent with
Third  Federal's  strategic  goal of growing its market  share within its market
area and reaching  into  adjacent  market areas,  through  low-cost,  fill-in or
market-extension  acquisitions.  Third Federal currently operates fifteen branch
offices in Bucks and Philadelphia counties,  Pennsylvania and Mercer County, New
Jersey.  Third  Federal  expects to open its  sixteenth  branch  office in Bucks
County, Pennsylvania during the first quarter of 2000.

Third Federal attracts  deposits  (approximately  $401.7 million at December 31,
1999) from the general public and uses such deposits,  together with  borrowings
(approximately  $264.3 million at December 31, 1999) and other funds,  primarily
to invest in  mortgage-backed  and  investment  securities  and to  originate or
purchase loans secured by first mortgages on owner-occupied,  one-to-four family
residences.  To a lesser  extent,  Third Federal also  originates  and purchases
commercial real estate and multi-family  loans,  construction loans and consumer
loans.

Stock Market Information

Since its issuance in July 1994, the Corporation's  common stock has been traded
on the Nasdaq National Market.  The daily stock quotation for the Corporation is
listed in the Nasdaq National Market  published in The Wall Street Journal,  The
Philadelphia  Inquirer, and other leading newspapers under the trading symbol of
"THRD".

The number of  stockholders  of record of common stock as of March 20, 2000, was
approximately  635.  This does not reflect the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms. At March
20, 2000,  there were  2,843,874  shares of the common stock of the  Corporation
outstanding.

Dividend Policy

The Corporation's  ability to pay dividends to stockholders is dependent in part
upon the  dividends it receives  from Third  Federal.  Among other  limitations,
Third  Federal may not declare or pay a cash dividend on any of its stock if the
effect  thereof  would cause Third  Federal's  regulatory  capital to be reduced
below  (1) the  amount  required  for the  liquidation  account  established  in
connection with Third Federal's conversion from mutual to stock form, or (2) the
regulatory  capital  requirements  imposed by the  Office of Thrift  Supervision
("OTS").  It is the  Corporation's  policy  to pay  dividends  when it is deemed
prudent to do so. The Board of Directors will consider the payment of a dividend
on a quarterly basis, after giving consideration to the level of profits for the
previous quarter and other relevant information.

Stock Price and Dividend History

Quarter ended                       Quoted market price
-------------                       -------------------     Dividend
                                    High          Low    paid per share
                                    ----          ---    --------------
December 31, 1999                  $15.375      $12.500      $0.13
September 30, 1999                 $19.375      $14.500      $0.12
June 30, 1999                      $21.188      $15.500      $0.12
March 31,1999                      $19.000      $15.875      $0.12
December 31, 1998                  $20.375      $16.125      $0.12
September 30, 1998                 $26.500      $17.375      $0.12
June 30, 1998                      $30.000      $24.250      $0.12
March 31,1998                      $29.500      $24.750      $0.12


10
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                          ----------------------------
                 SELECTED FINANCIAL INFORMATION AND OTHER DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)                                     At December 31,
Financial condition                                              1999       1998       1997       1996       1995
                                                               ------------------------------------------------------
<S>                                                           <C>        <C>        <C>       <C>        <C>
Total assets                                                   $721,874   $665,608   $597,047   $647,853   $431,828
Loans receivable, net                                           287,979    240,841    250,711    309,570    238,275
Mortgage-backed securities available
  for sale, at fair value                                       132,515     75,285     36,847     22,027     29,640
Mortgage-backed securities held to maturity, at cost            159,888    180,964    144,074    153,758    137,841
Securities purchased under agreements to resell                      --         --     10,000     25,129        --
Investment securities available for sale, at fair value          21,930      9,042     32,037     12,652     15,044
Investment securities held to maturity, at cost                  66,760     80,895     52,822     38,544     23,640
Cash and cash equivalents(l)                                     16,715     42,703     41,625     54,132     27,032
Deposits                                                        401,698    438,913    450,429    469,088    337,069
Advances from the Federal Home Loan Bank
  and other borrowings                                          264,299    163,359     88,359     98,359     73,359
Retained earnings                                                48,760     45,762     43,176     39,750     37,529
Total stockholders' equity                                       48,447     52,660     50,095     72,575     73,332
Book value per common share                                    $  18.81   $  18.43   $  17.36   $  18.31   $  17.08
Tangible book value per common share                           $  16.26   $  15.84   $  14.49   $  15.99   $  17.08
                                                               ======================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                         At or for the year ended December 31,
 Summary of operations                                            1999       1998       1997       1996       1995
                                                               ------------------------------------------------------
<S>                                                           <C>        <C>        <C>        <C>        <C>
Interest income                                                $ 47,022   $ 43,579    $43,189    $38,989   $ 29,630
Interest expense                                                 27,974     26,195     24,080     20,797     14,403
Net interest income                                              19,048     17,384     19,109     18,192     15,227
Provision for loan losses                                           300         60        397        330         72
Non-interest income                                               1,593      1,579      2,327      1,794      1,161
Non-interest expense                                             13,533     12,766     13,583     13,745      9,975
Net income before cumulative effect
  of change in accounting method                                  4,422      3,830      4,874      3,479      3,871
Net income                                                        4,422      4,038      4,874      3,479      3,871
Earnings per common share - basic
Continuing operations                                          $   1.60   $   1.32   $   1.33   $   0.86   $   0.84
Cumulative effect of accounting changes                              --   $   0.07         --         --         --
Earnings per common share - basic                              $   1.60   $   1.39   $   1.33   $   0.86   $   0.84
Earnings per common share assuming dilution
Continuing operations                                          $   1.52   $   1.20   $   1.25   $   0.83   $   0.83
Cumulative effect of accounting changes                              --   $   0.06         --         --         --
Earnings per common share - assuming dilution                  $   1.52   $   1.26   $   1.25   $   0.83   $   0.83
                                                               ======================================================
</TABLE>

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 11
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                          ----------------------------
                 SELECTED FINANCIAL INFORMATION AND OTHER DATA
<TABLE>
<CAPTION>

Performance ratios and other selected data         1999       1998       1997       1996       1995
                                                   ------------------------------------------------------
<S>                                            <C>        <C>        <C>        <C>         <C>
Return on average assets                           0.62%      0.58%      0.77%      0.62%      0.88%
Return on average equity                           8.60%      7.39%      7.39%      4.74%      4.99%
Average equity to average assets                   7.17%      7.74%     10.46%     12.91%     17.54%
Average interest rate spread                       2.54%      2.44%      2.72%      2.76%      2.84%
Non-performing loans to total assets               0.18%      0.24%      0.23%      0.30%      0.37%
Non-performing loans to total loans                0.45%      0.65%      0.55%      0.64%      0.76%
Allowance for loan losses to
         non-performing loans                    145.56%    119.16%    146.82%     91.60%     82.31%
Allowance for loan losses to total loans           0.66%      0.78%      0.80%      0.58%      0.62%
Savings Bank regulatory capital
Core                                               5.76%      6.79%      7.16%      7.77%     12.21%
Tangible                                           5.76%      6.79%      7.16%      7.77%     12.21%
Risk-based                                        12.83%     17.73%     17.41%     17.68%     27.07%
Dividend payout ratio(4)                          32.24%     38.10%     32.00%     37.35%     28.92%
</TABLE>

(1)  Consists  of cash,  cash due from  banks,  interest-bearing  deposits  with
     maturities of less than three months, and federal funds sold.
(2)  Includes  a  $1.4  million  after  tax  one-time   special   assessment  to
     recapitalize the Savings Association Insurance Fund ("SAIF").
(3)  Income and income  related  ratios for the  year-ended  December  31,  1998
     include  the  cumulative  effect  of a change  in  accounting  for  certain
     investments of $208,000 (SFAS #133).
(4)  Payout  ratio is  dividends  paid for the period  divided by  earnings  per
     common  share  assuming  dilution  after  cumulative  effect of  accounting
     changes.

12
<PAGE>

                    Management's discussion and analysis of
                 financial condition and results of operations

General

The following  discussion and analysis  should be read in  conjunction  with the
Corporation's  consolidated  financial  statements  and is intended to assist in
understanding  and evaluating  the major changes in the financial  condition and
results of operations of the Corporation  with a primary focus on an analysis of
operating results.

This  document  contains  statements  that project the future  operations of the
Corporation  which involve risks and  uncertainties.  The  Corporation's  actual
results  may  differ   significantly   from  the  results   discussed  in  these
forward-looking   statements.    Statements   concerning   future   performance,
developments,  events,  expectations  for growth and market  forecasts,  and any
other guidance on future periods,  constitute  forward-looking  statements which
are  subject to a number of risks and  uncertainties,  including  interest  rate
fluctuations  and  government  and  regulatory  actions which might cause actual
results to differ materially from stated expectations or estimates.

The Corporation's  income on a consolidated basis is derived  substantially from
its investment in its subsidiary,  Third Federal.  The earnings of Third Federal
depend primarily on its net interest income.  Net interest income is affected by
the interest  income that Third Federal  receives from its loans and investments
and by the  interest  expense  that the Third  Federal  incurs on its  deposits,
borrowings  and  other  sources  of  funds.  In  addition,  the mix of the Third
Federal's  interest bearing assets and liabilities can have a significant effect
on the Third Federal's net interest  income;  loans generally have higher yields
than securities;  retail deposits generally have lower interest rates than other
borrowings.

Third  Federal  also  receives  income from  service  charges and other fees and
occasionally  from sales of investment  securities and real estate owned.  Third
Federal incurs expenses in addition to interest  expense in the form of salaries
and benefits,  deposit insurance premiums,  property operations and maintenance,
advertising and other related business expenses.

Changes to Financial Condition

The  Corporation's  total  assets at  December  31, 1999 and  December  31, 1998
totaled $721.9 million and $665.6  million,  respectively,  an increase of $56.3
million or 8.5%. This increase was primarily as a result of the $36.2 million or
14.1%  increase in  mortgaged-backed  securities,  and a $47.1  million or 19.6%
increase in loans receivable.  These increases were offset by a decrease in cash
and cash  equivalents  of $26.0  million.  Deposit  balances  decreased by $37.2
million,  mainly as a result  of  decreased  certificates  of  deposit  balances
resulting  from  management's  decision to price  certificates  of deposit  less
aggressively. The net increase in assets and decrease in deposits were funded by
the  increase in advances  from the Federal Home Loan Bank (the "FHLB") of $85.2
million and a $15.8 million increase in other borrowings.

Total consolidated  stockholders' equity decreased $4.2 million to $48.4 million
at December 31, 1999.  The decrease is largely the result of $4.4 million in net
income  offset by a $3.2 million  decrease in  accumulated  other  comprehensive
income and a $4.6  million  increase in the cost of treasury  stock.  During the
year the  Corporation  repurchased  approximately  304,000  shares of its common
stock in order to  benefit  from what  management  perceived  to be a  depressed
market value of the Corporation's common stock.


                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 13
<PAGE>
Average Balance Sheet

The following table sets forth  information  (dollars in thousands)  relating to
the Corporation's average balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated.  The yields and costs
are  computed  by  dividing   income  or  expense  by  the  average  balance  of
interest-earning  assets or interest-bearing  liabilities,  respectively for the
periods indicated.
<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                             1999                            1998                          1997
                               --------------------------------------------------------------------------------------------
                                Average              Average     Average             Average   Average             Average
                                Balance    Interest  Yld/Cost    Balance   Interest Yld/Cost    Balance  Interest  Yld/Cost
                                -------------------------------------------------------------------------------------------
<S>                            <C>         <C>        <C>     <C>          <C>        <C>     <C>        <C>        <C>
Assets
Interest-earning assets:
Loans receivable (4)            $285,439    $21,843    7.65%   $232,924     $18,657    8.01%   $293,023   $23,050    7.87%
Mortgage-backed
securities                       278,537     17,831    6.40%    251,785      16,357    6.50%    185,391    12,514    6.75%
Investment securities            113,731      6,646    5.84%    115,801       6,918    5.97%     90,708     5,683    6.27%
Other interest-
earning assets(1)                 14,331        702    4.90%     40,413       1,647    4.08%     42,457     1,942    4.57%
                                 ------------------             -------------------             -----------------
Total interest-
earning assets                   692,038      47,022   6.79%    640,923      43,579    6.80%    611,579    43,189    7.06%
                                              ------                         ------                        ------
Non interest-earning assets       25,803                         22,428                          18,987
                                 -------                        -------                         -------
Total assets                     717,841                        663,351                         630,566
                                 =======                        =======                         =======
Liabilities and
stockholders' equity
Interest-bearing liabilities:
Deposits                         416,514      14,645   3.52%    447,995      17,397    3.46%    456,345    18,211    3.99%
Advances from the
FHLB and borrowings              240,371      13,329   5.55%    152,942       8,798    5.75%     97,942     5,869    5.99%
                                 ------------------             -------------------             -----------------
Total interest-
bearing liabilities              656,885      27,974   4.26%    600,937      26,195    4.36%    554,287    24,080    4.34%
                                              ------                         ------                        ------
Non interest-
bearing liabilities                9,514                         10,582                          10,293
                                --------                       --------                        --------
Total liabilities                666,399                        611,519                         564,580
Stockholders' equity              51,442                         51,832                          65,986
                                --------                       --------                        --------
Total liabilities and
stockholders' equity            $717,841                       $663,351                        $630,566
                                ========                       ========                        ========
Net interest income                         $ 19,048                       $ 17,384                        $ 19,109
                                            ========                       ========                        ========
Interest rate spread (2)                               2.53%                           2.44%                         2.72%
Net yield on interest-
earning assets (3)                                     2.75%                           2.71%                         3.12%
Ratio of average interest-
earning assets to average
interest bearing liabilities                            105%                            107%                          110%

</TABLE>

(1)  Includes interest-bearing deposits in other banks.
(2)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(3)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.
(4)  Nonaccrual loans have been included in the appropriate average loan balance
     category,  but  interest  on  nonaccrual  loans has not been  included  for
     purposes of determining interest income.

14
<PAGE>

Rate/Volume Analysis

The following table presents, for the periods indicated,  the change in interest
income and interest  expense (in thousands)  attributed to (i) changes in volume
(changes in the weighted average balance of the total interest earning asset and
interest bearing  liability  portfolios  multiplied by the prior year rate), and
(ii) changes in rate (changes in rate multiplied by prior year volume).  Changes
attributable  to the  combined  impact  of volume  and rate have been  allocated
proportionately based on the absolute value of changes due to volume and changes
due to rate.
<TABLE>
<CAPTION>
                                              1999 vs 1998                      1998 vs 1997
                                     ----------------------------------------------------------------
                                           Increase (decrease)                Increase (decrease)
                                                 due to                            due to
                                     ----------------------------------------------------------------
                                      Volume        Rate      Net      Volume       Rate      Net
                                      ---------------------------------------------------------------
<S>                                 <C>        <C>        <C>        <C>         <C>       <C>
Interest income:
Loans receivable, net                $ 4,055    $  (869)   $ 3,186    $(4,810)    $  417    $(4,393)
Mortgage-backed securities             1,727       (253)     1,474      3,483        360      3,843
Investment securities                   (123)      (149)      (272)     1,053        182      1,235
Other interest-earning assets         (1,226)       281       (945)        91       (386)      (295)
                                     --------------------------------------------------------------
Total interest-earning assets          4,433       (990)     3,443       (183)       573       (390)
                                     ==============================================================
Interest expense:
Deposits                              (1,186)    (1,566)    (2,752)       325     (1,139)      (814)
Advances from the
FHLB and borrowings                    4,848       (317)     4,531      2,734        195      2,929
                                     --------------------------------------------------------------
Total interest-bearing liabilities     3,662     (1,883)     1,779      3,059       (944)     2,115
                                     ==============================================================
Net change in net interest income    $   771    $   893    $ 1,664    $(3,242)    $1,517    $(1,725)
                                     ==============================================================
</TABLE>


       Comparison of Years Ended December 31, 1999 and December 31, 1998

Net Income.  Net income was $4.4 million for the fiscal year ended  December 31,
1999, an increase of $384,000 or 9.5% compared with the year ended  December 31,
1998.

The increase in earnings is mainly the result of a $1.7 million  increase in net
interest income, offset by an increase of $240,000 in the provision for possible
loan losses,  and a $767,000  increase in  non-interest  expenses.  In addition,
during 1998 the Corporation  recorded $208,000 (after tax) income related to the
adoption of Statement of Financial  Accounting  Standards No. 133, while no such
income was recorded during 1999.

Total  Interest  Income.  For the year ended  December 31, 1999,  total interest
income  increased to $47.0 million compared to $43.6 million from the year ended
December 31, 1998. The $3.4 million  increase in interest  income was mainly the
result of a $52.5  increase in the  average  balance of loans  receivable  which
occurred as a result of the purchase of $83.6  million of loans during the year,
offset  by net  reductions  in loans  receivable  of  $35.6  million  caused  by
repayments of existing loans having exceeded new loan originations.

Interest  income also  increased due to a $26.8 million  increase in the average
balance of  mortgage-backed  securities.  Offsetting  these items  which  caused
interest income to increase was the reduction caused by a $26.1 million decrease
in the average balance of the Corporation's other  interest-earning  assets that
were low yielding and short-term in nature. Also having a negative effect on the
Corporation's  1999 interest income was the high level of loan prepayments early
in the year,  the result of  relatively  low market rates of interest that cause
borrowers to seek to refinance their existing loans.

Total Interest  Expense.  Total interest expense  increased to $28.0 million for
the year ended December 31, 1999. This increase is mainly the result of an $87.4
million  increase in the average balance of FHLB advances and other  borrowings.
Offsetting  this increase were the reductions  attributable  to a lower level of
deposits at a lower  average  cost.  Each of these  elements was the result of a
lowering of certificate of deposit  balances caused by management's  decision to
price such deposits less aggressively.

Allowance For Loan Losses.  The allowance for loan losses was approximately $1.9
million at December 31, 1999 and 1998.  Non-performing  loans were approximately
$1.3  million at December  31, 1999  compared  to $1.6  million a year  earlier.
Charge-off's  were  $292,000  during 1999  compared to $180,000  during 1998. At
December  31, 1999 the  allowance  for loan losses was 145.6% of  non-performing
loans as compared to 119.2% of non-performing  loans at December 31, 1998. While
management  maintains Third  Federal's  allowance for losses at a level which it
considers  to be  adequate  to provide  for  potential  losses,  there can be no
assurance that further additions will not be made to the allowance and that such
losses will not exceed the estimated amounts.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 15
<PAGE>

Non-Interest  Income.  Total  non-interest  income was $1.6 million  during 1999
compared with $1.6 million  during 1998.  During 1999 the  Corporation  recorded
gains on the sale of real estate of $354,000  compared to $44,000  during  1998.
The 1999 gains included $350,000 related to the sale of the  Corporation's  real
estate held for investment,  and $4,000 related to real estate acquired  through
foreclosure.  During 1998 the Corporation  recorded a total of $440,000 from the
sales of loans and  securities,  while there were no such gains recorded  during
1999.

Non-Interest  Expense.  Total non-interest  expense increased by $767,000 during
1999 compared to 1998. This increase occurred mainly from a $569,000 increase in
employee compensation and benefits, the result of a new branch office,  lending,
sales and support  staff  associated  with the  expansion  of the  Corporation's
retail banking facilities and efforts. In addition, during 1998, the Corporation
ceased  outsourcing its information  technology  needs,  resulting in a shift of
expenses out of data processing and into other non-interest expense categories.

Income Tax Expense.  The Corporation's  effective tax rate was 35.1% during 1999
compared to 39.6% during 1998. The decrease  occurred as a result of certain tax
reduction efforts initiated during 1998.

       Comparison of Years Ended December 31, 1998 and December 31, 1997

Net Income.  Net Income of $4.0  million for the fiscal year ended  December 31,
1998  decreased  $836,000,  or 17.2%,  over net income of $4.9  million  for the
fiscal year ended December 31, 1997.

The decrease in earnings is primarily due to the $1.7 million, or 9.0%, decrease
in net interest income, the $748,000, or 32.1%, decrease in non-interest income,
partially offset by the $817,000 decrease in non-interest  expense, the $275,000
decrease in income tax expense and the $208,000  cumulative effect of accounting
changes.

Total  Interest  Income.  For the fiscal year ended  December  31,  1998,  total
interest  income  increased to $43.6 million from $43.2 million  compared to the
fiscal year ended December 31, 1997. This increase of $390,000,  or 0.9%, is due
primarily to the $3.8 million,  or 30.7%,  increase in income on mortgage-backed
securities,  a $1.2 million, or 21.7%, increase in interest income on investment
securities,  offset by a $4.4 million,  or 19.1% decrease in interest  income on
loans. The average balance of mortgage-backed securities increased $66.4 million
to $251.8  million  from  $185.4  million  while the  average  balance  of loans
decreased by $60.1  million.  In  addition,  the average  balance of  investment
securities  increased by $25.1  million to $115.8 during 1998 million from $90.7
million during 1997.

Total Interest  Expense.  Total interest expense  increased to $26.2 million for
the fiscal year ended  December 31, 1998 from $24.1  million for the fiscal year
ended  December 31,  1997.  This  increase of $2.1  million,  or 8.8%,  in total
interest  expense is a result of the  increase  in the  average  balance of FHLB
advances to $152.9 million from $97.9 million for the fiscal year ended December
31, 1997.  The increase in total  interest  expense was  partially  offset by an
$814,000 decrease in interest expense on deposits,  mainly attributable to lower
market interest rates.  The increase in FHLB advances was used primarily to fund
the purchase of mortgage-backed securities.

Allowance For Loan Losses. The allowance for loan losses decreased $120,000,  or
5.9%,  to $1.9  million at December  31, 1998 from $2.0  million at December 31,
1997.  Non-performing  loans increased to $1.6 million at December 31, 1998 from
$1.4 million at December 31, 1997. The decrease in the allowance for loan losses
resulted from $180,000 of net charge-off's,  partially offset by the addition of
$60,000 to the allowance. While management maintains its allowance for losses at
a level which it considers to be adequate to provide for potential losses, there
can be no assurance that further additions will not be made to the allowance and
that such losses will not exceed the estimated amounts.

Non-Interest Income. Total non-interest income decreased $748,000,  or 32.1%, to
$1.6  million for the fiscal year ended  December 31, 1998 from $2.3 million for
the same  period  in 1997.  This  decrease  can be  attributed  to the  $330,000
decrease in the gain on the sale of loan servicing rights,  the $58,000 decrease
in gain on the sale of investment  securities,  the $296,000 decrease in gain on
sale of loans and the decrease in other operating income of $108,000,  partially
offset  by the  increase  in  gain  on sale  of  real  estate  acquired  through
foreclosure of $44,000.

Non-Interest Expense.  Total non-interest expense decreased to $12.8 million for
the fiscal year ended  December 31, 1998 when  compared to $13.6 million for the
same  period  in  1997.  This  decrease  of  $817,000,  or  6.0%,  is  primarily
attributable to the $244,000 decrease in employee compensation and benefits, the
$208,000  decrease  in  data  processing  and the  $125,000  decrease  in  other
operating expense.  The decrease in non-interest expense is, in part, the result
of  management's  implementation  of certain  cost cutting  measures  during the
fiscal year ended December 31, 1998.

Income Tax Expense.  For the fiscal year ended  December 31, 1998,  income taxes
decreased to $2.3  million  from $2.6 million for the same period in 1997.  This
decrease of $275,000 is primarily  attributed  to the decrease in income  before
taxes to $6.1  million  from $7.5  million  for the fiscal  year  periods  ended
December 31, 1998 and 1997, respectively.

16
<PAGE>
                        Liquidity and Capital Resources

Liquidity.  The  Savings  Bank's  liquidity  is a measure of its ability to fund
loans,  pay  withdrawals  of deposits,  and other cash outflows in an efficient,
cost-effective manner. The Savings Bank's primary sources of funds are deposits,
borrowings,   and   scheduled   amortization   and   prepayment   of  loan   and
mortgage-backed  security principal.  During the past several years, the Savings
Bank has used such funds  primarily to fund maturing time deposits,  pay savings
withdrawals, fund lending commitments, purchase new investments,  repurchase its
common stock,  and increase the Savings  Bank's,  along with the  Corporation's,
liquidity.  The Savings Bank is currently able to fund its operations internally
but has, when deemed  prudent,  borrowed funds from the FHLB. As of December 31,
1999, such borrowed funds totaled $248.5  million.  Loan  prepayments,  maturing
investments and mortgage-backed  security  prepayments are greatly influenced by
general interest rates, economic conditions and competition.

The Savings  Bank is required  under  federal  regulations  to maintain  certain
specified  levels of "liquid  investments",  which include certain United States
government  obligations  and other  approved  investments.  Current  regulations
require the Savings  Bank to maintain  liquid  assets of not less than 4% of its
net withdrawable  accounts plus short term borrowings.  Short-term liquid assets
must consist of not less than 1% of such accounts and  borrowings,  which amount
is also  included  within the 4%  requirement.  These levels may be changed from
time to time by the  regulators  to reflect  current  economic  conditions.  The
Savings  Bank  was in  compliance  with  all of its  liquidity  requirements  at
December 31, 1999.

The amount of  certificate  accounts  that are  scheduled  to mature  during the
twelve months ending December 31, 2000, is approximately  $90.7 million.  To the
extent that these deposits do not remain at the Savings Bank upon maturity,  the
Savings Bank  believes  that it can replace  these funds with  deposits,  excess
liquidity,  FHLB advances or other  borrowings.  It has been the Savings  Bank's
experience  that  substantial  portions of such maturing  deposits remain at the
Savings Bank.

At December 31, 1999, the Savings Bank had outstanding  commitments to originate
loans or fund unused lines of credit of $54.8  million.  Funds  required to fill
these  commitments  will be derived  primarily  from current  excess  liquidity,
deposit  inflows or loan and security  repayments.  At December  31,  1999,  the
Savings Bank had no outstanding commitments to sell loans.

Capital.  Under  current  regulations,  the Savings  Bank must have core capital
equal to 4% of  adjusted  total  assets and  risk-based  capital  equal to 8% of
risk-weighted assets, of which 1.5% must be tangible capital, excluding goodwill
and certain other intangible  assets. On December 31, 1999, the Savings Bank met
its three regulatory capital requirements.

Management  believes  that under  current  regulations,  the  Savings  Bank will
continue to meet its minimum capital  requirements  in the  foreseeable  future.
However,  events  beyond the  control of the  Savings  Bank,  such as  increased
interest  rates or a downturn in the economy in areas in which the Savings  Bank
operates, could adversely affect future earnings and as a result, the ability of
the Savings Bank to meet its future minimum capital requirements.

                         Asset And Liability Management

The Savings Bank has established an Asset/Liability  Management Committee (ALCO)
for the purpose of monitoring and managing market risk,  which is defined as the
risk of loss arising from changes in market rates and prices.

The  type  of  market  risk  which  most  affects  the  Corporation's  financial
instruments  is interest  rate risk,  which is best  quantified by measuring the
change in net  interest  income  that  would  occur  under  specific  changes in
interest rates.  Substantially all of the Savings Bank's interest bearing assets
and liabilities are exposed to interest rate risk.

Because the Corporation's  bank subsidiary is a savings bank and is regulated by
the OTS, it has policies or  procedures  in place for  measuring  interest  rate
risk. These policies and procedures stipulate acceptable levels of interest rate
risk.

Net Interest Income ("NII").  In order to measure interest rate risk internally,
the Corporation  uses computer  programs which enable it to simulate the changes
that will occur to the Savings  Bank's NII over several  interest rate scenarios
which are developed by "shocking"  interest rates (i.e.  moving them immediately
and permanently) basis points up and down in 100 basis point increments from the
current  level of interest  rates,  and by  "ramping"  interest  rates in such a
manner as to adversely  affect the Savings Bank's simulated net interest income.
In  addition  to the  level of  interest  rates,  the most  critical  assumption
regarding  the  estimated  amount  of the  Savings  Bank's  NII is the  expected
prepayment speed of the Savings Bank's 1-4 family residential loans, and related
mortgage backed securities,  the book value of which comprises approximately 64%
of the  Corporation's  total assets.  For this prepayment  speed  assumption the
Corporation  uses median  expected  prepayment  speeds which are obtained from a
reliable  third  party  source.  The  Corporation  also  incorporates  into  its
simulations  the effects of the interest rate caps and interest rate floors that
are part of the majority of the Savings Bank's variable rate loans.

The  Corporation  uses its business  planning  forecast as the basis for its NII
simulations.  Therefore,  planned business  activities are incorporated into the
measurement  horizon.  Such activities include assumptions about substantial new
loan and deposit volumes,  the pricing of loan and deposit  products,  and other
assumptions about future activities that may or may not be realized. In order to
quantify  the  Corporation's  NII  exposure,  the  Corporation  focuses  on  the
simulation  of net  interest  income in the "ramped up 100 basis  points over 12
months" scenario. ALCO evaluates the simulation results and makes adjustments to
the Savings Bank's

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 17
<PAGE>

planned  activities  if in its view  there is a need to do so. At  December  31,
1999,  the change in net  interest  income over a one-year  horizon  using these
methodologies was a $511,000 or a 2.3% decrease in expected net interest income.
However, these measurements are highly subjective in nature and are not intended
to be a forecast  interest  income under any rate  scenario for the year 2000 or
for any other period.

                    Impact of Inflation and Changing Prices

The  consolidated  financial  statements  and related data have been prepared in
accordance  with  generally  accepted  accounting  principles  which require the
measurement of financial  position and operating  results in terms of historical
dollars,  without  consideration for changes in the relative purchasing power of
money over time caused by inflation.

Unlike  industrial  companies,  nearly all of the assets  and  liabilities  of a
financial institution are monetary in nature. As a result, interest rates have a
more significant  impact on a financial  institution's  performance than general
levels  of  inflation.  Interest  rates  do not  necessarily  move  in the  same
direction  or in the same  magnitude as the price of goods and  services,  since
such goods and services are affected by inflation.  In the current interest rate
environment,  liquidity and the maturity  structure of the Savings Bank's assets
and  liabilities  are  critical to the  maintenance  of  acceptable  performance
levels.

                   Impact of Future Accounting Pronouncements

Future  accounting  pronouncements  being  presently  discussed  have  not  been
formulated in detail sufficient to enable the Corporation to assess their impact
on the future financial condition or results of operations of the Corporation.

                                   Year 2000

Like many financial institutions, the Corporation relies on computers to conduct
its business and information systems processing. Industry experts were concerned
that on January 1, 2000,  some computers  might not be able to interpret the new
year properly,  causing  computer  malfunctions.  Some banking  industry experts
remain  concerned  that some  computers may not be able to interpret  additional
dates in the year 2000 properly.  The Corporation has operated and evaluated its
computer systems  following January 1, 2000 and has not identified any errors or
experienced any computer system  malfunctions.  The Corporation will continue to
monitor  its  information  systems to assess  whether its systems are at risk of
misinterpreting any future dates and will develop appropriate  contingency plans
to prevent any potential system malfunction or correct any system failures.  The
Corporation has not been informed of any such problem  experienced by any of its
vendors or customers, nor by any of the municipal agencies that provide services
to the Corporation.

Nevertheless,  it is too soon to  conclude  that there will not be any  problems
arising from the Year 2000 problem,  particularly  at some of the  Corporation's
vendors.  The Corporation  will continue to monitor its  significant  vendors of
goods and services  with  respect to Year 2000  problems  they may  encounter as
those  issues  may  affect  the  Corporation's  financial  position,  results of
operations and cash flows.  The  Corporation  does not believe at this time that
these potential  problems will materially  impact the ability of the Corporation
to continue its operations; however, no assurance can be given that this will be
the case.

18
<PAGE>
Accountants and
Management Consultants                                     GRANT THORNTON [LOGO]
The US Member Firm of                                      GRANT THORNTON LLP
Grant Thornton International



               Report of Independent Certified Public Accountants

Board of Directors
TF Financial Corporation

         We have audited the accompanying  consolidated  statements of financial
position of TF Financial  Corporation  and  Subsidiaries as of December 31, 1999
and 1998,  and the  related  consolidated  statements  of  earnings,  changes in
stockholders'  equity  and  comprehensive  income and cash flows for each of the
three years in the period ended December 31, 1999.  These  financial  statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TF Financial  Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.


/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
January 13, 2000

Suite 300
Two Commerce Square
2001 Market Street
Philadelphia, PA 19103-7080
Tel: 215 561-4200
Fax: 215 561-1066

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 19
<PAGE>
TF Financial Corporation and Subsidiaries

                        -------------------------------
                 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(in thousands)                                                                 Year ended December 31,
Assets                                                                             1999          1998
                                                                               -------------------------
<S>                                                                            <C>            <C>
Cash and cash  equivalents                                                      $ 16,715       $ 42,703
Certificates  of deposit in other
  financial  institutions                                                            847          2,238
Investment  securities available for sale - at market value                       21,930          9,042
Investment  securities held to maturity (market value
  of $64,538 and $81,094 as of December  31, 1999 and 1998,  respectively)        66,760         80,895
Mortgage-backed  securities available for sale - at market value                 132,515         75,285
Mortgage-backed securities held to maturity
  (market value of $154,188 and $182,560
  as of December 31, 1999 and 1998,  respectively)                               159,888        180,964
Loans receivable,  net                                                           287,979        240,841
Federal Home Loan Bank stock - at cost                                            13,042          9,168
Accrued interest receivable                                                        4,958          4,558
Premises and equipment,  net                                                       9,177          9,017
Goodwill and other intangible assets, net                                          6,570          7,389
Real estate held for investment                                                        -          2,348
Other  assets                                                                      1,493          1,160
                                                                                -----------------------
Total  assets                                                                   $721,874       $665,608
                                                                                =======================


Liabilities and stockholders' equity

Liabilities
Deposits                                                                        $401,698       $438,913
Advances from the Federal Home Loan Bank                                         248,533        163,359
 Other borrowings                                                                 15,766              -
Advances from borrowers for taxes and insurance                                    1,198          1,204
Accrued  interest  payable                                                         3,749          4,166
Other  liabilities                                                                 2,483          5,306
                                                                                -----------------------
Total  liabilities                                                               673,427        612,948
                                                                                -----------------------
Stockholders'  equity
Preferred  stock, no par value;  2,000,000 shares
  authorized at December 31, 1999 and 1998,  none issued                               -              -
Common  stock,  $0.10 par value; 10,000,000 shares authorized,
  5,290,000 shares issued, 2,576,160 and 2,857,932 shares outstanding
  at December 31, 1999 and 1998, respectively, net of shares in treasury:
  1999 - 2,437,226; 1998 - 2,143,298                                                 529            529
Retained earnings                                                                 48,760         45,762
Additional  paid-in  capital                                                      52,076         51,957
Unearned ESOP shares                                                              (2,766)        (2,888)
Shares  acquired by MSBP                                                             (71)          (468)
Treasury  stock - at cost                                                        (46,996)       (42,386)
Accumulated  other  comprehensive  income (loss)                                  (3,085)           154
                                                                                -----------------------
Total  stockholders'  equity                                                      48,447         52,660
                                                                                -----------------------
Total  liabilities and  stockholders' equity                                    $721,874       $665,608
                                                                                =======================
</TABLE>

The accompanying  notes are an integral part of these statements.

20
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                        --------------------------------
                      CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
                                                              Year Ended December 31,
(in thousands except per share data)                          1999      1998      1997
                                                            ---------------------------
<S>                                                        <C>       <C>       <C>
Interest income
Loans, including fees                                       $21,843   $18,657   $23,050
Mortgage-backed securities                                   17,831    16,357    12,514
Investment securities                                         6,646     6,918     5,683
Interest-bearing deposits and other                             702     1,647     1,942
                                                            ---------------------------
Total interest income                                        47,022    43,579    43,189
                                                            ---------------------------
Interest expense
Deposits                                                     14,645    17,397    18,211
Borrowings                                                   13,329     8,798     5,869
                                                            ---------------------------
Total interest expense                                       27,974    26,195    24,080
                                                            ---------------------------
Net interest income                                          19,048    17,384    19,109
Provision for possible loan losses                              300        60       397
                                                            ---------------------------
Net interest income after provision
for possible loan losses                                     18,748    17,324    18,712
                                                            ---------------------------
Non-interest income
Gain on sale of real estate                                     354        44        --
Gain on sale of investment and mortgage-backed securities        --       349       407
Gain on sale of loans                                            --        91       387
Gain on sale of loan servicing rights                            --        --       330
Service fees, charges and other operating income              1,239     1,095     1,203
                                                            ---------------------------
Total non-interest income                                     1,593     1,579     2,327
                                                            ---------------------------
Non-interest expense
Employee compensation and benefits                            6,770     6,201     6,445
Occupancy and equipment                                       2,055     1,854     1,952
Federal deposit insurance premium                               258       275       299
Data processing                                                  19       459       667
Professional fees                                               718       554       579
Advertising                                                     320       333       354
Other operating                                               2,572     2,205     2,330
Amortization of goodwill and other intangible assets            821       885       957
                                                            ---------------------------
Total non-interest expense                                   13,533    12,766    13,583
                                                            ---------------------------
Income before income taxes and
cumulative effect of accounting change                        6,808     6,137     7,456
Income taxes                                                  2,386     2,307     2,582
                                                            ---------------------------
Income before cumulative effect of
accounting change                                             4,422     3,830     4,874
Cumulative effect of accounting change                           --       208        --
                                                            ---------------------------
Net income                                                  $ 4,422   $ 4,038   $ 4,874
                                                            ===========================
Earnings per common share - basic                           $  1.60   $  1.39   $  1.33
Earnings per common share - assuming dilution               $  1.52   $  1.26   $  1.25
</TABLE>

The accompanying notes are an integral part of these statements.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 21
<PAGE>
TF Financial Corporation and Subsidiaries

                        --------------------------------
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME

                   Years ended December 31, 1999, 1998, 1997
<TABLE>
<CAPTION>
                                                                                                    Accumu-
                                                                                                    lated
                                                                                                    Other
                                                    Addi-              Shares                        Compre-
                                  Common Stock     tional   Unearned  acquired                      hensive
                                           Par     paid-in   ESOP       by     Treasury   Retained   income            Comprehensive
(in thousands, except share data)Shares   value    capital   shares    MSBP     stock     earnings   (loss)       Total     income
                                 ---------------------------------------------------------------------------------------------------
<S>                           <C>       <C>      <C>       <C>      <C>      <C>       <C>     <C>          <C>         <C>
Balance at January 1, 1997     3,962,544 $  529   $ 51,645  $(3,188) $(1,322) $(14,712) $39,750 $  (127)     $   72,575
Allocation of ESOP shares         17,860     --        173      178       --        --       --       --            351
Amortization of MSBP expense          --     --         31       --      427        --       --       --            458
Purchase of treasury stock    (1,100,068)    --        (74)      --       --   (27,027)      --       --        (27,101)
Cash dividends on
  common stock                        --     --         --       --       --        --   (1,433)      --         (1,433)
Exercise of stock options          5,915     --         --       --       --        90      (15)      --             75
Other comprehensive income,
  net of reclassification
  adjustments and taxes               --     --         --       --       --        --       --      296            296      296
Net income for the year
  ended December 31, 1997             --     --         --       --       --        --    4,874       --          4,874    4,874
                               --------------------------------------------------------------------------------------------------
Comprehensive income                                                                                                      $5,170
                               ==================================================================================================

Balance at December 31, 1997   2,886,251    529     51,775   (3,010)    (895)  (41,649)  43,176      169         50,095
Allocation of ESOP shares         12,233     --        166      122       --        --       --       --            288
Amortization of MSBP                  --     --         33       --      427        --       --       --            460
Purchase of treasury stock       (50,000)    --        (17)      --       --      (924)      --       --           (941)
Cash dividends -
  common stock                        --     --         --       --       --        --   (1,387)      --         (1,387)
Exercise of options                9,448     --         --       --       --       187      (65)      --            122
Other comprehensive loss,
  net of reclassification
  adjustments and taxes               --     --         --       --       --        --       --      (15)           (15)  $  (15)
Net income for the year ended
  December 31, 1998                   --     --         --       --       --        --    4,038       --          4,038    4,038
                               --------------------------------------------------------------------------------------------------
Comprehensive income                                                                                                      $4,023
                               ==================================================================================================
Balance at December 31, 1998   2,857,932    529     51,957   (2,888)    (468)  (42,386)  45,762      154         52,660
</TABLE>
                                                                     (Continued)
22
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                        --------------------------------
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      AND COMPREHENSIVE INCOME - CONTINUED

                   Years ended December 31, 1999, 1998, 1997
<TABLE>
<CAPTION>
                                                                                                    Accumu-
                                                                                                    lated
                                                                                                    Other
                                                   Addi-                Shares                      Compre-
                                  Common Stock     tional    Unearned  acquired                    hensive
                                           Par     paid-in     ESOP       by    Treasury  Retained  income           Comprehensive
(in thousands, except share data)Shares   value    capital    shares     MSBP    stock    earnings  (loss)   Total      income
                               ----------------------------------------------------------------------------------------------------
<S>                           <C>        <C>    <C>        <C>         <C>    <C>       <C>      <C>       <C>        <C>
Balance at December 31, 1998   2,857,932   $529   $ 51,957   $(2,888)   $(468) $(42,386) $45,762  $ (154)   $52,660
Allocation of ESOP shares         12,156     --         86       122       --        --       --      --        208
Shares awarded by MSBP                --     --         --        --       --        --       --      --         --
Amortization of MSBP expense          --     --         33        --      397        --       --      --        430
Purchase of treasury stock      (303,578)    --         --        --       --    (4,800)      --      --     (4,800)
Cash dividends on
  common stock                        --     --         --        --       --        --   (1,359)     --     (1,359)
Exercise of options                9,650     --         --        --       --       190      (65)     --        125
Other comprehensive loss,
  net of taxes                        --     --         --        --       --        --       --  (3,239)   $(3,239)     (3,239)
Net income for the year
  ended December 31, 1999             --     --         --        --       --        --    4,422      --      4,422       4,422
                               ------------------------------------------------------------------------------------------------
Comprehensive income                                                                                                    $ 1,183
                               ================================================================================================
Balance at December 31, 1999   2,576,160   $529   $ 52,076   $(2,766)   $ (71) $(46,996) $48,760  $3,085    $48,447
                               ================================================================================================
</TABLE>

The accompanying notes are an integral part of this statement.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 23
<PAGE>
TF Financial Corporation and Subsidiaries

                   ------------------------------------------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(in thousands)                                                                     Year ended December 31,
                                                                            1999          1998         1997
                                                                        ------------------------------------
<S>                                                                    <C>          <C>          <C>
Cash flows from operating activities
  Net income                                                            $   4,422    $   4,038    $   4,874
  Adjustments to reconcile net income to net cash provided
      by operating activities
    Amortization of
      Mortgage loan servicing rights                                           14           16           68
      Deferred loan origination fees                                          (75)        (118)        (156)
      Premiums and discounts on investment securities, net                     36          100           63
      Premiums and discounts on mortgage-backed securities
        and loans, net                                                        607          705          208
      Goodwill and other intangibles                                          819          677          957
    Deferred income taxes                                                      99         (135)        (233)
    Provision for loan losses and provision for losses on real estate         306           60          402
    Depreciation of premises and equipment                                    903          847          708
    Stock-based benefit programs                                              637          748          809
    Gain on sale of
      Investment securities                                                    --         (681)        (407)
      Real estate acquired through foreclosure                                 (5)         (44)          --
      Sale of real estate held for investment                                (350)          --           --
      Mortgage loans                                                           --          (91)        (387)
      Loan servicing rights                                                    --           --         (330)
    (Increase) decrease in
      Accrued interest receivable                                            (400)        (601)         290
      Other assets                                                           (208)          30          (56)
    Increase (decrease) in
      Accrued interest payable                                               (417)       1,696          440
      Other liabilities                                                    (2,822)       1,338          477
                                                                        ------------------------------------
          Net cash provided by operating
            activities                                                      3,566        8,585        7,727
                                                                        ------------------------------------
Cash flows from investing activities
  Loan originations and principal payments on loans, net                   35,634       30,983      (22,672)
  Principal repayments on mortgage-backed securities
    held to maturity                                                       56,448       60,899       33,732
  Principal repayments on mortgage-backed securities available
    for sale                                                               20,258       19,292        2,746
  Purchases of loans                                                      (83,643)     (40,708)     (13,927)
  Proceeds from loan sales                                                     --       19,496       95,261
  Purchases and maturities of certificates of deposit in other
    financial institutions, net                                             1,391          499        1,483
  Purchases of investment and mortgage-backed securities
    held to maturity                                                     (189,650)    (293,959)    (125,219)
  Purchase of investment securities and mortgage-backed
    securities available for sale                                        (108,882)    (251,164)    (140,694)
</TABLE>
                                                                     (Continued)
24
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                    ----------------------------------------
               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
(in thousands)                                                              Year ended December 31,
                                                                          1999        1998         1997
                                                                       -----------------------------------
<S>                                                                   <C>          <C>          <C>
  Purchase and maturities of securities purchased under
    agreement to resell, net                                           $      --    $  10,000    $  15,129
  Proceeds from maturities of investment securities
    held to maturity                                                     174,104      123,842       83,007
  Proceeds from maturities of investment securities
    available for sale                                                     6,000      223,376       86,225
  Proceeds from the sale of investment and mortgage-backed
    securities available for sale                                          3,145       37,373       22,126
  Proceeds from the sale of loan servicing rights                             --           --          981
  Purchase of Federal Home Loan Bank stock                                (3,874)      (4,250)          --
  Sale (purchase) of real estate held for investment                       2,698       (2,348)          --
  Proceeds from sales of real estate acquired through foreclosure            195          246           --
  Purchase of premises and equipment                                      (1,063)      (1,975)        (595)
                                                                       -----------------------------------
          Net cash (used in) provided by
            investing activities                                         (87,239)     (68,398)      37,583
                                                                       -----------------------------------
Cash Flows from financing activities
  Net decrease in demand deposit/NOW accounts, passbook
    savings accounts and certificates of deposit                         (37,215)     (11,516)     (18,659)
  Net increase (decrease) in advances from Federal Home
    Loan Bank                                                             85,174       75,000      (10,000)
  Net increase in securities sold under agreements to repurchase          15,766           --           --
  Net decrease in advances from borrowers for taxes and insurance             (6)        (387)        (773)
  Treasury stock acquired                                                 (4,800)        (941)     (27,027)
  Exercise of stock options                                                  125          122           75
  Common stock dividends paid                                             (1,359)      (1,387)      (1,433)
                                                                       -----------------------------------
          Net cash provided by (used in)
            financing activities                                          57,685       60,891      (57,817)
                                                                       -----------------------------------
          Net increase (decrease) in cash and
            cash equivalents                                             (25,988)       1,078      (12,507)
Cash and cash equivalents at beginning of year                            42,703       41,625       54,132
                                                                       -----------------------------------
Cash and cash equivalents at end of year                               $  16,715    $  42,703    $  41,625
                                                                       ===================================
Supplemental disclosure of cash flow information
  Cash paid for
    Interest on deposits and advances                                  $  28,391    $  24,498    $  23,640
    Income taxes                                                       $   1,988    $   2,651    $   2,436
  Non-cash transactions
    Transfers from loans to real estate acquired through foreclosure   $     434    $     159    $     231
</TABLE>

The accompanying notes are an integral part of these statements.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 25
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1999 and 1998

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

TF Financial  Corporation  (TF Financial) is a unitary  savings and loan holding
company,  organized under the laws of the State of Delaware,  which conducts its
consumer banking  operations  primarily  through its wholly owned  subsidiaries,
Third  Federal  Savings  Bank  (Third  Federal  or the Bank) and TF  Investments
Corporation  (TF  Investments).  Third  Federal is a  federally  chartered-stock
savings bank insured by the Federal Deposit Insurance Corporation. Third Federal
is a  community-oriented  savings institution which conducts operations from its
main office in Newtown, Pennsylvania, ten full-service branch offices located in
Philadelphia  and Bucks counties,  Pennsylvania,  and four  full-service  branch
offices  located in Mercer  County,  New Jersey.  The Bank  competes  with other
banking and financial institutions in its primary market communities,  including
financial  institutions  with  resources  substantially  greater  than  its own.
Commercial banks,  savings banks,  savings and loan associations,  credit unions
and money market funds actively compete for savings and time deposits and loans.
Such institutions,  as well as consumer finance and insurance companies,  may be
considered  competitors  of the Bank with respect to one or more of the services
it renders.

The Bank is subject to  regulations  of certain state and federal  agencies and,
accordingly,  it is periodically examined by those regulatory authorities.  As a
consequence of the extensive  regulation of commercial banking  activities,  the
Bank's  business  is  particularly  susceptible  to being  affected by state and
federal legislation and regulations.

1. Principles of Consolidation and Basis of Presentation
   -----------------------------------------------------

The consolidated  financial  statements include the accounts of TF Financial and
its wholly owned subsidiaries:  Third Federal,  and its wholly owned subsidiary,
Third Delaware  Corporation,  TF Investments,  Teragon Financial Corporation and
Penns  Trail  Development  Corporation  (collectively,   the  Corporation).  All
material   intercompany  balances  and  transactions  have  been  eliminated  in
consolidation.

The  accounting  policies  of the  Corporation  conform  to  generally  accepted
accounting principles and predominant practices within the banking industry. The
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual  results  could  differ  from  those  estimates.   The  more  significant
accounting policies are summarized below.

2. Cash and Cash Equivalents
   -------------------------

The  Corporation  considers  cash,  due  from  banks,  federal  funds  sold  and
interest-bearing  deposits in other financial institutions,  with original terms
to maturity of less than three  months,  as cash  equivalents  for  presentation
purposes in the consolidated statements of financial position and cash flows.

3. Investment and Mortgage-Backed Securities
   -----------------------------------------

The  Corporation  accounts for  investment  and  mortgage-backed  securities  in
accordance  with  Statement of Financial  Accounting  Standards  (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. This statement
requires  the  Corporation  to  classify  its  investment,  mortgage-backed  and
marketable  equity  securities  in one of three  categories:  held to  maturity,
trading,  or available for sale. The  Corporation  does not presently  engage in
security trading activities.

Investment,  mortgage-backed and marketable equity securities available for sale
are stated at fair value,  with net  unrealized  gains and losses  excluded from
income and reported in other comprehensive income.  Realized gains and losses on
the sale of securities are recognized using the specific  identification method.

Investment and mortgage-backed  securities held to maturity are carried at cost,
net of  unamortized  premiums and  discounts,  which are  recognized in interest
income  using the interest  method.  The  Corporation  has the ability and it is
management's intention to hold such assets to maturity.

26
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

4. Loans Receivable
   ----------------

Loans receivable are stated at unpaid principal  balances less the allowance for
loan losses and net deferred loan  origination  fees and  unamortized  premiums.
Loan origination  fees and unamortized  premiums on mortgage loans are amortized
to income using the interest  method over the  remaining  period to  contractual
maturity, adjusted for actual prepayments.

Management's  periodic  evaluation of the adequacy of the loan loss allowance is
based on the Bank's historical loss experience,  known and inherent risks in the
portfolio,  adverse  situations that may affect the borrower's ability to repay,
the  estimated  value  of  any  underlying   collateral  and  current   economic
conditions.  Actual losses may be higher or lower than historical trends,  which
vary.  The  allowance  for loan  losses is  increased  by  charges to income and
decreased by charge-offs (net of recoveries).

The Bank  provides an allowance  for accrued but  uncollected  interest when the
loan becomes more than ninety days past due or is  identified  as impaired.  The
allowance is  established  by a charge to interest  income equal to all interest
previously  accrued,  and income is  subsequently  recognized only to the extent
that cash payments are received until, in management's  judgment, the borrower's
ability to make periodic interest and principal  payments is no longer impaired,
in which case the loan is returned to accrual status.

The Corporation  accounts for loans in accordance with SFAS No. 114,  Accounting
by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures.

5. Premises and Equipment
   ----------------------

Land is carried at cost.  Buildings  and  furniture,  fixtures and equipment are
carried at cost less accumulated  depreciation.  Depreciation is provided by the
straight-line method over the estimated useful lives of the assets.

The  Corporation  accounts for impairment of assets in accordance  with SFAS No.
121,  Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed of, which  provides  guidance on when to recognize and how
to measure  impairment  losses of  long-lived  assets and  certain  identifiable
intangibles,  and how to value long-lived  assets to be disposed of. No impaired
assets existed at December 31, 1999 and 1998.

6. Goodwill and Other Intangible Assets
   ------------------------------------

In 1996, the Bank acquired  three Mercer County,  New Jersey offices and related
deposits of Cenlar  Federal  Savings Bank.  The Bank assumed  $137.6  million in
deposits in exchange for $126.5 million in cash. As a result of the acquisition,
the Bank recorded  core deposit  intangible of $2.9 million and goodwill of $6.6
million.

The core deposit intangible  acquired is being amortized on an accelerated basis
over 10 years. The goodwill acquired is being amortized on a straight-line basis
over 15  years.  Amortization  expense  for  1999,  1998 and 1997 was  $819,000,
$677,000 and $957,000, respectively.

7. Real Estate Held for Investment
   -------------------------------

Real estate held for investment is carried at the lower of cost or market value.

8. Transfers of Financial Assets
   -----------------------------

The Corporation accounts for the transfer of financial assets in accordance with
SFAS No. 125,  Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishments  of  Liabilities,  as amended by SFAS No.  127,  Deferral of the
Effective  Date of Certain  Provisions  of SFAS No. 125.  SFAS No. 125 applies a
control-oriented,  financial  components  approach to financial  asset  transfer
transactions whereby the Corporation: (1) recognizes the financial and servicing
assets  it  controls  and the  liabilities  it has  incurred;  (2)  derecognizes
financial  assets  when  control  has  been  surrendered;  and (3)  derecognizes
liabilities once they are extinguished.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 27
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Under SFAS No. 125,  control is considered to have been surrendered only if: (i)
the transferred assets have been isolated from the transferor and its creditors,
even in bankruptcy or other  receivership;  (ii) the transferee has the right to
pledge or exchange the  transferred  assets or is a  qualifying  special-purpose
entity, and the holders of beneficial interests in that entity have the right to
pledge or exchange those  interests;  and (iii) the transferor does not maintain
effective  control over the  transferred  assets through an agreement which both
entitles  and  obligates  it to  repurchase  or  redeem  those  assets  prior to
maturity,  or through an agreement  which  entitles it to  repurchase  or redeem
those  assets if they were not  readily  obtainable  elsewhere.  If any of these
conditions are not met, the  Corporation  accounts for the transfer as a secured
borrowing.

9. Benefit Plans
   -------------

The Corporation has established an Employee Stock Ownership Plan (ESOP) covering
eligible  employees  with six months of  service,  as  defined by the ESOP.  The
Corporation  accounts for the ESOP in accordance with the American  Institute of
Certified  Public  Accountants'  Statement  of Position  (SOP) 93-6,  Employers'
Accounting for Employee Stock Ownership Plans. SOP 93-6 addresses the accounting
for shares of stock issued to employees by an ESOP.  SOP 93-6  requires that the
employer  record  compensation  expense in the amount equal to the fair value of
shares  committed to be released  from the ESOP to employees.  In addition,  the
Corporation  established a Management  Stock Bonus Plan (MSBP) for directors and
key personnel.

The Corporation  accounts for  stock-based  compensation in accordance with SFAS
No.  123,  Accounting  for  Stock-Based  Compensation,  which  contains  a  fair
value-based method for valuing  stock-based  compensation that entities may use,
which  measures  compensation  cost at the grant date based on the fair value of
the award.  Compensation is then  recognized  over the service period,  which is
usually the vesting  period.  Alternatively,  the standard  permits  entities to
continue  accounting  for employee stock options and similar  instruments  under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Entities that continue to account for stock options using APB Opinion
No. 25 are required to make pro forma disclosures of net income and earnings per
share, as if the fair value-based  method of accounting  defined in SFAS No. 123
had been applied. The Corporation's  employee stock option plan is accounted for
under APB Opinion No. 25.

On January 1, 1998, the corporation adopted SFAS No. 132, Employers' Disclosures
about  Pensions  and  Other  Postretirement   Benefits.  SFAS  No.  132  revises
employers'  disclosures about pension and other postretirement benefit plans. It
eliminates certain disclosures and requires additional information about changes
in the benefit  obligation  and the fair values of plan  assets.  The  financial
statement  disclosures  have been revised to reflect the  provisions of SFAS No.
132.

10. Income Taxes
    ------------

The Corporation  accounts for income taxes under the liability  method specified
in SFAS No. 109,  Accounting  for Income  Taxes.  Under SFAS No.  109,  deferred
income taxes are recognized for the tax consequences of "temporary  differences"
by  applying  enacted   statutory  tax  rates  applicable  to  future  years  to
differences  between the financial  statement carrying amounts and the tax bases
of existing assets and  liabilities.  Under SFAS No. 109, the effect on deferred
taxes of a change  in tax rates is  recognized  in  income  in the  period  that
includes the enactment date.

11. Advertising Costs
    -----------------

The Corporation expenses advertising costs as incurred.

12. Earnings Per Share
    ------------------

The Corporation follows the provisions of SFAS No. 128, Earnings Per Share. SFAS
No. 128  eliminates  primary and fully  diluted  earnings per share and requires
presentation  of basic and diluted  earnings per share in  conjunction  with the
disclosure of the methodology  used in computing such earnings per share.  Basic
earnings  per  share  excludes  dilution  and is  computed  by  dividing  income
available  to  common   shareholders  by  the  weighted  average  common  shares
outstanding during the period. Diluted earnings per share takes into account the
potential  dilution that could occur if  securities or other  contracts to issue
common stock were exercised and converted into common stock.

28
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

13. Comprehensive Income

On  January  1,  1998,  the   Corporation   adopted  SFAS  No.  130,   Reporting
Comprehensive  Income.  SFAS 130  establishes  standards  to  provide  prominent
disclosure of comprehensive income items.  Comprehensive income is the change in
equity of a business  enterprise  during a period  from  transactions  and other
events  and  circumstances  from  non-owner  sources.  The  Corporation's  other
comprehensive  income consists of net unrealized  gains and losses on investment
securities available for sale.  Comprehensive income for 1999, 1998 and 1997 was
$1,183,000 and $4,023,000 and $5,170,000,  respectively. The components of other
comprehensive income (loss) are as follows (in thousands):
<TABLE>
<CAPTION>
                                                           December 31, 1999
                                                     -------------------------------
                                                     Before tax    Tax    Net of tax
                                                       amount    benefit    amount
                                                      ----------------------------
<S>                                                  <C>        <C>       <C>
Unrealized losses on securities
    Unrealized holding losses arising during period   $(4,927)   $ 1,688   $(3,239)
                                                      ----------------------------
    Other comprehensive loss, net                     $(4,927)   $ 1,688   $(3,239)
                                                      ============================
</TABLE>

<TABLE>
<CAPTION>
                                                            December 31, 1998
                                                                    Tax
                                                     Before tax   (expense) Net of tax
                                                        amount     benefit    amount
                                                        ----------------------------
<S>                                                    <C>        <C>        <C>
Unrealized losses on securities
    Unrealized holding losses arising during period     $ 324      $(126)     $ 198
Reclassification adjustment for gains realized
    in net income                                        (349)       136       (213)
                                                        ---------------------------
Other comprehensive income, net                         $ (25)     $  10      $ (15)
                                                        ===========================
</TABLE>

<TABLE>
<CAPTION>
                                                             December 31, 1997
                                                                    Tax
                                                     Before tax   (expense)   Net of tax
                                                       amount      benefit      amount
                                                       -------------------------------
<S>                                                    <C>         <C>         <C>
Unrealized gains on securities
    Unrealized holding gains arising during period      $ 892       $(348)      $ 544
Reclassification adjustment for gains realized
    in net income                                        (407)        159        (248)
                                                        -----------------------------
Other comprehensive income, net                         $(485)      $(189)      $ 296
                                                        =============================
</TABLE>

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 29
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued


14. Segment Reporting
    -----------------

On January 1, 1998,  the  Corporation  adopted SFAS No. 131,  Disclosures  about
Segments of an Enterprise  and Related  Information.  SFAS No. 131 redefines how
operating segments are determined and requires  disclosures of certain financial
and descriptive information about a company's operating segments. Management has
determined  that,  under current  conditions,  the  Corporation  will report one
business segment.

15. Derivatives
    -----------

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133,  Accounting for Derivative  Instruments and Hedging Activity.  SFAS No. 133
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  imbedded in other contracts,  and for
hedging  activities.  It requires that an entity  recognize all  derivatives  as
either assets or liabilities in the statement of financial  position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be  specifically  designated as a hedge.  The accounting for changes in the fair
value of a derivative  instrument (gains and losses) depends on the intended use
of the derivative and resulting  designation.  SFAS No. 133 is effective for all
fiscal  quarters  of  fiscal  years  beginning  after  June  15,  1999.  Earlier
application  is permitted  only as of the  beginning of any fiscal  quarter.  On
October 1, 1998,  the  Corporation  adopted  SFAS No. 133.  Concurrent  with the
adoption, the Corporation transferred $23,198,000 of mortgage-backed  securities
from the held to  maturity  category  to the  available  for sale  category  and
recorded  $349,000,   net  of  taxes,  of  unrealized  holding  gains  in  other
comprehensive   income.   The  Corporation  also   transferred   $19,671,000  of
mortgage-backed  securities  to the trading  category  and reported a cumulative
effect  adjustment  of $208,000,  net of taxes,  resulting  from the  accounting
change.

16.  Reclassifications
     -----------------

Certain  prior year  amounts  have been  reclassified  to conform to the current
period presentation.

NOTE B - CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following (in thousands):

                                                               December 31,
                                                              1999      1998
                                                            -----------------

Cash and due from banks                                     $11,578   $25,509
Interest-bearing deposits in other financial institutions     5,037    16,444
Federal funds sold                                              100       750
                                                            -----------------
                                                            $16,715   $42,703
                                                            =================

30
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE C - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

The Bank  enters  into  purchases  of  securities  under  agreements  to  resell
substantially  identical  securities.   There  were  no  outstanding  securities
purchased under agreements to resell at December 31, 1999 or 1998.

The amounts advanced under these agreements  represent  short-term loans and are
reflected as a receivable in the consolidated  statements of financial position.
The securities underlying the agreements are book-entry  securities.  During the
period,  the securities  were delivered by appropriate  entry into a third-party
custodian's  account designated by the Bank under a written custodial  agreement
that explicitly  recognizes the Bank's  interest in the  securities.  Securities
purchased  under  agreements  to resell  averaged  $1.4 million and $3.6 million
during 1999 and 1998,  respectively,  and the maximum amounts outstanding at any
month-end   during  1999  and  1998,   was  $10.3  million  and  $10.0  million,
respectively.

NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES

The amortized cost,  gross  unrealized  gains and losses,  and estimated  market
value of the Corporation's investment and mortgage-backed securities at December
31, 1999 and 1998, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                         December 31, 1999
                                                        Gross        Gross        Estimated
                                            Amortized unrealized    unrealized     market
                                               cost     gains        losses        value
                                           -----------------------------------------------
<S>                                       <C>         <C>          <C>          <C>
Investment securities held to maturity
    U.S Government and federal agencies    $  57,455   $      12    $  (1,967)   $  55,500
    State and political subdivisions           4,284          22         (138)       4,168
    Corporate debt securities                  5,021          --         (151)       4,870
                                           -----------------------------------------------
                                              66,760          34       (2,256)      64,538
Mortgage-backed securities
    held to maturity                         159,888         159       (5,859)     154,188
                                           -----------------------------------------------
                                           $ 226,648   $     193    $  (8,115)   $ 218,726
                                           ===============================================
Investment securities available for sale
    U.S. Government and federal agencies   $  11,994   $      --    $    (436)   $  11,558
    State and political subdivisions           3,783          --          (87)       3,696
    Corporate debt securities                  6,053          --         (220)       5,833
    Mutual funds                                 500          --           (7)         493
    Other                                        500          --         (150)         350
                                           -----------------------------------------------
                                              22,830          --         (900)      21,930
Mortgage-backed securities
    available for sale                       136,291          16       (3,792)     132,515
                                           -----------------------------------------------
                                           $ 159,121   $      16    $  (4,692)   $ 154,445
                                           ===============================================
</TABLE>

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 31
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued
<TABLE>
<CAPTION>
                                                         December 31, 1998
                                                        Gross        Gross        Estimated
                                            Amortized unrealized    unrealized     market
                                               cost     gains        losses        value
                                           -------------------------------------------------
<S>                                       <C>         <C>          <C>          <C>
Investment securities held to maturity
    U.S Government and federal agencies    $  73,612   $     197    $     (62)   $  73,747
    State and political subdivisions           4,283          78           --        4,361
    Corporate debt securities                  3,000          --          (14)       2,986
                                           -------------------------------------------------
                                              80,895         275          (76)      81,094
Mortgage-backed securities
    held to maturity                         180,964       1,937         (341)     182,560
                                           -------------------------------------------------
                                           $ 261,859   $   2,212    $    (417)   $ 263,654
                                           ===============================================
Investment securities available for sale
    U.S. Government and federal agencies   $   8,000   $      45    $      --    $   8,045
    Mutual funds                                 500          --           (3)         497
    Other                                        500          --           --          500
                                           -------------------------------------------------
                                               9,000          45           (3)       9,042
Mortgage-backed securities
    available for sale                        75,075         316         (106)      75,285
                                           -------------------------------------------------
                                           $  84,075   $     361    $    (109)   $ (84,327)
                                           ===============================================
</TABLE>


Gross  realized  gains were $-0- and  $349,000  and $407,000 for the years ended
December 31, 1999,  1998 and 1997,  respectively.  These gains resulted from the
sale of investment and mortgage-backed securities of $3.1 million, $37.4 million
and  $22.1  million  for the  years  ended  December  31,  1999,  1998 and 1997,
respectively.

The amortized cost and estimated market value of investment and  mortgage-backed
securities, by contractual maturity, are shown below.
<TABLE>
<CAPTION>

                                                       December 31, 1999
                                              Held to maturity     Available for sale
                                           -------------------------------------------
                                                      Estimated              Estimated
                                            Amortized   market    Amortized    market
                                               cost     value        cost      value
                                           -------------------------------------------
<S>                                        <C>        <C>       <C>         <C>
Investment securities
    Due in one year or less                 $  5,389   $  5,402  $   1,000   $    843
    Due after one year through five years     48,012     46,415     16,047     15,465
    Due after five years through 10 years     11,090     10,531      2,000      1,926
    Due after ten years                        2,269      2,190      3,783      3,696
                                           ------------------------------------------
                                              66,760     64,538     22,830     21,930
    Mortgage-backed securities               159,888    154,188    136,291    132,515
                                           ------------------------------------------
                                            $226,648   $218,726  $ 159,121   $154,445
                                           ==========================================
</TABLE>

32
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

<TABLE>
<CAPTION>
                                                            December 31, 1998
                                                 -----------------------------------------
                                                   Held to maturity     Available for sale
                                                 -----------------------------------------
                                                           Estimated              Estimated
                                                 Amortized   market    Amortized    market
                                                    cost     value        cost      value
                                                 -----------------------------------------
<S>                                             <C>        <C>       <C>         <C>
Investment securities
         Due in one year or less                 $ 32,829   $ 32,781   $  1,000   $    997
         Due after one year through five years     23,961     24,085      8,000      8,045
         Due after five years through 10 years     19,077     19,106         --         --
         Due after 10 years                         5,028      5,122         --         --
                                                 -----------------------------------------
                                                   80,895     81,094      9,000      9,042
Mortgage-backed securities                        180,964    182,560     75,075     75,285
                                                 -----------------------------------------
                                                 $261,859   $263,654   $ 84,075   $ 84,327
                                                 =========================================
</TABLE>

The amortized cost,  gross  unrealized  gains and losses,  and estimated  market
value of mortgage-backed securities, by issuer, are summarized as follows:
<TABLE>
<CAPTION>

                                                              December 31, 1999
                                                               Gross      Gross     Estimated
                                                  Amortized  unrealized  unrealized    market
                                                     cost      gains       losses      value
                                                 --------------------------------------------
<S>                                              <C>         <C>        <C>         <C>
Mortgage-backed securities held to maturity
         FHLMC certificates                       $  52,625   $     94   $ (1,742)   $ 50,977
         FNMA certificates                           24,983         28     (1,066)     23,945
         GNMA certificates                           46,651         37     (2,011)     44,677
         Real estate mortgage investment conduit     35,271         --     (1,036)     34,235
         Other mortgage-backed securities               358         --         (4)        354
                                                 --------------------------------------------
                                                  $ 159,888   $    159   $ (5,859)   $154,188
                                                  ===========================================

Mortgage-backed securities available for sale
         FHLMC certificates                       $   7,331   $      5   $   (103)   $  7,233
         FNMA certificates                           29,780         10     (1,827)     27,963
         GNMA certificates                            8,759         --       (421)      8,338
         Real estate mortgage investment conduit     90,421          1     (1,441)     88,981
                                                 --------------------------------------------
                                                  $ 136,291   $     16   $ (3,792)   $132,515
                                                 ============================================
</TABLE>

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 33
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE D - INVESTMENT AND MORTGAGE-BACKED SECURITIES - Continued

<TABLE>
<CAPTION>

                                                                December 31, 1998
                                                    ----------------------------------------------
                                                                 Gross      Gross       Estimated
                                                    Amortized  unrealized  unrealized      market
                                                       cost      gains       losses        value
                                                   -----------------------------------------------
<S>                                               <C>         <C>          <C>          <C>
Mortgage-backed securities held to maturity
         FHLMC certificates                        $  47,239   $   1,172    $      (7)   $  48,404
         FNMA certificates                            12,726         143          (13)      12,856
         GNMA certificates                            56,318         474           --       56,792
         Real estate mortgage investment conduit      64,180         148         (312)      64,016
         Other mortgage-backed securities                501          --           (9)         492
                                                   -----------------------------------------------
                                                   $ 180,964   $   1,937    $    (341)   $ 182,560
                                                   ===============================================

Mortgage-backed securities available for sale
         FHLMC certificates                        $  13,110   $     106    $      (2)   $  13,214
         FNMA certificates                            32,119          81          (22)      32,178
         GNMA certificates                            10,194          90           --       10,284
         Real estate mortgage investment conduit      19,652          39          (82)      19,609
                                                   -----------------------------------------------
                                                   $  75,075   $     316    $    (106)   $  75,285
                                                   ===============================================
</TABLE>

Investment  securities having an aggregate  amortized cost of approximately $5.0
million and $5.0 million were pledged to secure public  deposits at December 31,
1999 and 1998, respectively.

There were no  securities  held other than U.S.  Government  and agencies from a
single issuer that represented more than 10% of stockholders' equity.


NOTE E - LOANS RECEIVABLE

Loans receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                December 31,
                                                                              1999       1998
                                                                            -------------------
<S>                                                                        <C>        <C>
First mortgage loans (principally conventional)
         Secured by one-to-four family residences                           $168,057   $152,819
         Secured by other non-residential properties                          65,346     55,208
         Construction loans                                                   12,074      5,352
                                                                            -------------------
                                                                             245,477    213,379
         Less net deferred loan origination fees and unamortized premiums         99         67
                                                                            -------------------
               Total first mortgage loans                                   $245,378   $213,312
                                                                            ===================
</TABLE>

34
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

                                                    December 31,
                                                  1999        1998
                                               ---------------------
Consumer and other loans
         Commercial                            $   9,339   $   6,666
         Home equity and second mortgage          16,816      12,995
         Leases                                    3,195       2,305
         Other                                    14,945       7,521
                                               ---------------------
                                                  44,295      29,487
Unearned premiums (discount)                         223         (49)
                                               ---------------------
              Total consumer and other loans      44,518      29,438

Less allowance for loan losses                     1,917       1,909
                                               ---------------------
              Total loans receivable           $ 287,979   $ 240,841
                                               =====================

Activity in the allowance for loan losses is summarized as follows:

                                        December 31,
                                 1999       1998       1997
                               -----------------------------
Balance at beginning of year   $ 1,909    $ 2,029    $ 1,806
Provision charged to income        300         60        397
Charge-offs, net                  (292)      (180)      (174)
                               -----------------------------
Balance at end of year         $ 1,917    $ 1,909    $ 2,029
                               =============================

Non-performing  loans, which include  non-accrual loans for which the accrual of
interest has been  discontinued and loan balances past due over 90 days that are
not on a non-accrual  status but that management expects will eventually be paid
in full,  totalled  approximately  $1.3 million and $1.6 million at December 31,
1999,  and 1998,  respectively.  Interest  income that would have been  recorded
under the  original  terms of such  loans  totalled  approximately  $70,000  and
$43,000  and  $19,000  for the years ended  December  31,  1999,  1998 and 1997,
respectively.  No interest income has been  recognized on non-accrual  loans for
any of the periods presented.

The  Corporation  accounts for loans in accordance with SFAS No. 114, as amended
by SFAS No. 118. SFAS No. 114 requires that a creditor measure  impairment based
on the present  value of expected  future  cash flows  discounted  at the loan's
effective  interest rate, except that as a practical  expedient,  a creditor may
measure  impairment based on a loan's observable market price, or the fair value
of the  collateral  if the  loan  is  collateral  dependent.  Regardless  of the
measurement  method, a creditor must measure  impairment based on the fair value
of the collateral  when the creditor  determines  that  foreclosure is probable.
SFAS No. 118 allows creditors to use existing  methods for recognizing  interest
income on impaired loans.

The Bank  identifies a loan as impaired  when it is probable  that  interest and
principal will not be collected  according to the contractual  terms of the loan
agreement.  The  accrual  of  interest  is  discontinued  on such loans and cash
payments received are applied to reduce principal.

Loan  impairment  is measured by estimating  the expected  future cash flows and
discounting  them at the  respective  effective  interest rate or by valuing the
underlying  collateral.  An allowance for credit losses has been established for
all loans identified as impaired.


                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 35
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE E - LOANS RECEIVABLE - Continued

The  Bank  has no  concentration  of  loans  to  borrowers  engaged  in  similar
activities  which  exceeded 10% of loans at December  31, 1999 and 1998.  In the
ordinary  course of business,  the Bank has granted  loans to certain  executive
officers, directors and their related interests. Related party loans are made on
substantially  the same  terms as those  prevailing  at the time for  comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility.  The aggregate dollar amount of these loans was approximately
$368,000 and $385,000 at December 31, 1999 and 1998, respectively.  For the year
ended  December 31, 1999,  principal  repayments of  approximately  $17,000 were
received and no funds were disbursed to executive  officers,  directors or their
related interests.

NOTE F - LOAN SERVICING

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated statements of financial position.

The unpaid  principal  balances  of these  loans are  summarized  as follows (in
thousands):

                                       December 31,
                                       1999      1998
                                     -----------------
Mortgage loan servicing portfolios
         FHLMC                       $11,944   $15,116
         Other investors               3,933     6,103
                                     -----------------
                                     $15,877   $21,219
                                     =================

Custodial  balances  maintained in connection  with the foregoing loan servicing
totalled  approximately  $437,000  and  $408,000 at December  31, 1999 and 1998,
respectively. The net servicing revenue on mortgage loans serviced for others is
immaterial for all periods presented.

NOTE G - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows (in thousands):


                                          Estimated          December 31,
                                         useful lives       1999      1998
                                         ----------------------------------
Buildings                                  30 years      $  5,723   $ 5,906
Leasehold improvements                      5 years         1,004       709
Furniture, fixtures and equipment         3-7 years         7,077     6,436
                                                         ------------------
                                                           13,804    13,051
Less accumulated depreciation                               8,128     7,293
                                                         ------------------
                                                            5,676     5,758
Land                                                        3,501     3,259
                                                         ------------------
                                                         $  9,177   $ 9,017
                                                         ==================


36
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE H - DEPOSITS

         Deposits are summarized as follows (in thousands):

                                             December 31,
        Deposit type                       1999        1998
-------------------------------------------------------------
Demand                                   $  7,033   $  6,231
NOW                                        45,804     44,971
Money Market                               32,793     32,556
Passbook savings - fixed rate             123,033    122,213
Passbook savings - adjustable rate         36,457     43,651
                                         -------------------
         Total demand, transaction and
         passbook deposits                245,120    249,622
Certificates of deposit                   156,578    189,291
                                         -------------------
                                         $401,698   $438,913
                                         ===================

The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000 was approximately  $12.2 million and $13.3 million at December 31, 1999
and 1998, respectively.

At December 31, 1999,  scheduled  maturities of  certificates  of deposit are as
follows:

                              Year ending December 31,
         2000       2001     2002     2003    2004     Thereafter        Total
         ----------------------------------------------------------------------
         $90,669   $52,701  $5,749   $5,694  $1,387    $      378      $156,578
         ======================================================================

NOTE I - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances  from  the  Federal  Home  Loan  Bank  consist  of  the  following  (in
thousands):

                                             December 31,
                                  1999                       1998
         -----------------------------------------------------------------------
         Contractual                 Weighted                     Weighted
         maturity date     Amount  average rate        Amount    average rate
         -----------------------------------------------------------------------
         1999             $     -         -%          $ 30,000      6.05%
         2000              35,174      5.53             25,000      6.13
         2001               5,000      6.52                  -         -
         2002              10,000      4.85                  -         -
         2003              20,000      5.60             20,000      5.60
         2004              45,000      5.03                  -         -
         2005              15,000      5.35             15,000      5.35
         2006              20,000      5.15                  -         -
         2008              70,000      5.62             70,000      5.62
         2009              25,000      4.86                  -         -
         2010               3,359      6.70              3,359      6.70
                         --------                    ---------
                         $248,533      5.77          $163,359       6.03
                         ========                    ========

The  advances  are  collateralized  by Federal  Home Loan Bank stock and certain
first mortgage loans and mortgage-backed  securities.  Unused lines of credit at
the Federal Home Loan Bank were $9.8 million at December 31, 1999.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 37
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE J - BENEFIT PLANS

The  Bank  maintains  a  401(k)  profit-sharing  plan  for  eligible  employees.
Participants may contribute up to 15% of pretax eligible compensation.  The Bank
makes  discretionary  matching  contributions  equal to 100% of the  first  $600
deferred. Contributions to the 401(k) plan totaled $40,000, $43,000, and $44,000
in 1999, 1998 and 1999, respectively.

The  Bank  has  a   non-contributory   defined  benefit  pension  plan  covering
substantially all full-time employees meeting certain eligibility  requirements.
The  benefits  are based on each  employee's  years of  service  and an  average
earnings formula. An employee becomes fully vested upon completion of five years
of qualifying  service.  It is the policy of the Bank to fund the maximum amount
allowable  under the individual  aggregate cost method to the extent  deductible
under existing federal income tax regulations.

The  following  table sets forth the pension  plan's  funded  status and amounts
recognized in the  consolidated  statements  of financial  position at the dates
indicated (in thousands).

                                                              December 31,
                                                          --------------------
                                                            1999        1998
                                                          --------------------
Change in benefit obligation
         Benefit obligation at beginning of year          $ 3,132     $ 2,609
         Service cost                                          46          62
         Interest cost                                        203         201
         Actuarial gain (loss)                               (394)        250
         Increase due to plan amendments                       --         171
         Benefits paid                                        (89)       (161)
                                                          --------------------
         Benefits obligation at end of year               $ 2,898     $ 3,132
                                                          ===================
Change in plan assets
         Fair value of plan assets at beginning of year   $ 1,961     $ 1,762
         Actual return on plan assets                          41         (50)
         Employer contribution                                 69         410
         Benefits paid                                        (89)       (161)
                                                          --------------------
         Fair value of plan assets at end of year         $ 2,382     $ 1,961
                                                          ===================
Funded status
         Unfunded accumulated benefits                    $  (516)     (1,171)
         Unrecognized transition obligation                    25          31
         Unrecognized net actuarial loss (gain)               (59)        201
         Unrecognized prior service cost                      305         543
                                                          --------------------
         Prepaid (accrued) benefit cost                   $  (245)    $  (396)
                                                          ===================
<TABLE>
<CAPTION>
                                                             1999        1998        1997
                                                            ------------------------------
<S>                                                         <C>         <C>         <C>
Weighted-average assumptions as of December 31
         Discount rate                                       6.50%       7.25%       6.00%
         Expected return on plan assets                      8.00        8.00        8.00
         Rate of compensation increase                       4.00        4.00        6.00

Components of net periodic benefit cost
         Service cost                                     $    47     $    62     $   157
         Interest cost                                        203         201         160
         Expected return on plan assets                      (176)       (157)       (116)
         Amortization of prior service cost                    65          52          52
                                                          -------------------------------
         Net periodic benefit cost                        $   139     $   158     $   253
                                                          ===============================
38
</TABLE>
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE J - BENEFIT PLANS - Continued

The Corporation also maintains the following benefit plans:

1.  Employee Stock Ownership Plan
    -----------------------------

In 1994, the Corporation  established an internally  leveraged ESOP for eligible
employees who have  completed six months of service with the  Corporation or its
subsidiaries.  The ESOP borrowed $4.2 million from the  Corporation  to purchase
423,200 newly issued shares of common stock. The Corporation makes discretionary
contributions  to the ESOP in order to service the ESOP's  debt.  Any  dividends
received by the ESOP will be used to pay debt service. The ESOP shares initially
were  pledged as  collateral  for its debt.  As the debt is  repaid,  shares are
released from  collateral  and allocated to  qualifying  employees  based on the
proportion of debt service paid in the year.  The  Corporation  accounts for its
ESOP in accordance with SOP 93-6. Accordingly,  the debt of the ESOP is recorded
as debt and the shares  pledged as  collateral  are  reported as  unearned  ESOP
shares in the  consolidated  statements  of  financial  position.  As shares are
released from collateral,  the Corporation reports compensation expense equal to
the current market price of the shares, and the allocated shares are included in
outstanding shares for earnings per share  computations.  Dividends on allocated
ESOP shares are  recorded as a reduction  of  retained  earnings;  dividends  on
unallocated  ESOP  shares  are  recorded  as a  reduction  of debt  and  accrued
interest. ESOP compensation expense was $151,000, $288,000 and $351,000 in 1999,
1998 and 1997, respectively.

                                       1999        1998
                                  -----------------------
Allocated shares                     122,000      119,500
Unreleased shares                    276,600      288,800
                                  -----------------------

         Total ESOP shares           398,600      408,300
                                  =======================

Fair value of unreleased shares   $3,665,000   $4,981,800
                                  =======================

2.  Management Stock Bonus Plan
    ---------------------------

The  Board  of  Directors  also  adopted  a  MSBP  which  was  approved  by  the
Corporation's  stockholders  on October 13, 1994.  The MSBP  provides that up to
211,600  shares of common stock may be granted,  at the discretion of the Board,
to directors  and key officers at no cost to the  individuals.  The  Corporation
granted 178,292 shares on November 18, 1994, 24,000 shares on December 18, 1995,
and 9,308 shares on December 15, 1997, in the form of  restricted  stock payable
over five years from the date of grant.  The recipients of the restricted  stock
are entitled to all voting and other stockholder rights, except that the shares,
while  restricted,  may not be sold,  pledged or  otherwise  disposed of and are
required to be held in escrow. In the event the recipient terminates association
with the  Corporation  for  reasons  other than death,  disability  or change in
control,  the  recipient  forfeits  all  rights to the  allocated  shares  under
restriction  which are cancelled and revert to the  Corporation  for  reissuance
under the plan.  Shares  acquired by MSBP of $2.1 million  were  recorded at the
date of award based on the market value of shares  acquired by the  Corporation.
Shares  acquired  by the  MSBP,  which  are  shown as a  separate  component  of
stockholders'  equity, are being amortized to expense over the five-year vesting
period;  $430,000,  $460,000 and $458,000 was amortized to expense in 1999, 1998
and 1997, respectively.  At December 31, 1998, there were no shares reserved for
future grants under the plan.

3.  Stock Option Plans
    ------------------

The Corporation has fixed stock option plans accounted for under APB Opinion No.
25 and related interpretations. The plans allow the Corporation to grant options
to  employees  and  directors  for up to  794,000  shares of common  stock.  The
options,  which have a term of 10 years when issued,  vest either immediately or
over a three to five year period.  The exercise  price of each option equals the
market price of the  Corporation's  stock on the date of grant. Had compensation
cost for the plans  been  determined  based on the fair  value of options at the
grant  dates  consistent  with  the  method  of SFAS  No.  123,  Accounting  for
Stock-Based  Compensation,  the  Corporation's net income and earnings per share
would have been  reduced to the pro forma  amounts  indicated  on the  following
page.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 39
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE J - BENEFIT PLANS - Continued


                                     1999      1998      1997
                                    --------------------------
         Net income (in thousands)
                  As reported       $4,422    $4,038    $4,874
                  Pro forma         $4,243    $3,885    $4,726

         Basic earnings per share
                  As reported       $1.60     $1.39     $1.33
                  Pro forma         $1.53     $1.34     $1.29

         Diluted earnings per share
                  As reported       $1.52     $1.26     $1.25
                  Pro forma         $1.46     $1.21     $1.21


These pro forma amounts may not be representative of future disclosures  because
they do not take into  effect  the pro forma  compensation  expense  related  to
grants before 1995.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions  used for grants in 1999,  1998 and 1997,  respectively:  a dividend
yield of 3.73%,  0% and 0%; expected  volatility of 30%, 34% and 21%,  risk-free
interest rate of 5.87%, 5.25% and 6.4%; and expected lives of six, five and five
years for all options.

A summary of the status of the  Corporation's  fixed  stock  option  plans as of
December 31, 1999,  and changes for each of the years in the  three-year  period
then ended was as follows:
<TABLE>
<CAPTION>
                                                    1999                      1998                 1997
                                            --------------------------------------------------------------------
                                                            Weighted              Weighted             Weighted
                                                            average               average              average
                                             Number         exercise    Number    exercise   Number    exercise
                                               of           price per     of      price per    of      price per
                                             shares           share     shares      share    shares    share
                                             -------------------------------------------------------------------
<S>                                        <C>              <C>      <C>          <C>      <C>         <C>
         Outstanding at beginning of year   696,019          $13.24    695,875     $13.08    551,833    $12.06
         Options granted                     17,515           16.31     13,325      22.46    170,155     16.62
         Options exercised                   (9,650)          13.00    (10,486)     12.85     (5,915)    11.50
         Options forfeited                   (6,017)          20.24     (2,695)     15.78    (20,198)    16.50
                                            -------                    -------               -------
         Outstanding at end of year         697,867          $13.26    696,019     $13.24    695,875    $13.08
                                            =======                    =======               =======

         Options exercisable at year-end    578,917                    524,813               478,919
                                            =======                    =======               =======
         Weighted average fair value of
           options granted during year     $   4.57                   $   8.72              $   5.42

</TABLE>

40
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE J - BENEFIT PLANS - Continued

The following table summarizes  information  about stock options  outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
                           Options outstanding                         Options exercisable
         ------------------------------------------------------------------------------------------

                                              Weighted
                                 Number       average        Weighted      Number         Weighted
                              outstanding at  remaining      average     exercisable at   average
         Range of exercise    December 31,   contractual     exercise     December 31,    exercise
              prices             1999        life (years)     price          1999          price
         ------------------------------------------------------------------------------------------

<S>     <C>                    <C>           <C>              <C>          <C>            <C>
         $11.50 to $17.25       675,423       5.5 years        $   13.00    574,038        $12.42
         $18.00 to $19.25        17,194       8.5 years            19.00      3,829         18.53
         $26.00 to $27.88         5,250       8.3 years            27.90      1,050         27.90
</TABLE>


Total compensation cost recognized for stock-based employee  compensation awards
was  approximately  $117,000,  $116,000  and  $99,000  for 1999,  1998 and 1997,
respectively.


NOTE K - INCOME TAXES

The components of income tax expense are summarized as follows (in thousands):

                                            Year ended December 31,
                                           1999      1998       1997
                                         ----------------------------
Federal
         Current                         $ 2,254   $ 2,162    $ 2,420
         Deferred                             99      (152)      (233)
                                         ----------------------------
                                           2,353     2,010      2,187

State and local - current                     33       297        395
                                         ----------------------------
Continuing operations                      2,386     2,307      2,582

Cumulative effect of accounting change        --       125         --
                                         ----------------------------
Income tax provision                     $ 2,386   $ 2,432    $ 2,582
                                         ============================


The  Corporation's  effective  income tax rate was different  than the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                          1999       1998           1997
                                                        ---------------------------------
<S>                                                      <C>        <C>            <C>
Statutory federal income tax                              34.0%      34.0%          34.0%
Increase (decrease) resulting from
                  Tax-exempt income                       (5.1)      (3.6)          (1.8)
                  State tax, net of federal benefit        0.3        3.1            3.5
                  Other                                    5.9        6.1           (1.1)
                                                        ---------------------------------
                                                          35.1%      39.6%          34.6
                                                        =================================

</TABLE>


                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 41
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE K - INCOME TAXES - Continued

Deferred  taxes are  included in the  accompanying  consolidated  statements  of
financial  position at December 31, 1999 and 1998, for the estimated  future tax
effects of  differences  between the financial  statement and federal income tax
bases of assets and liabilities according to the provisions of currently enacted
tax laws.  No valuation  allowance was recorded  against  deferred tax assets at
December 31, 1999 and 1998. The Corporation's net deferred tax asset at December
31, 1999 and 1998, was composed of the following:

                                                      December 31,
                                                     1999     1998
                                                   ---------------
Deferred tax assets
Deferred loan origination fees                     $   83   $  107
Deferred compensation                                 288      176
Allowance for loan losses, net                        202       79
Amortization                                          290      226
Unrealized loss on securities available for sale    1,590       --
Other                                                  --        3
                                                   ---------------
                                                    2,453      591
                                                   ---------------
Deferred tax liabilities
Accrued pension expense                               391       20
Unrealized gain on securities available for sale       --       98
                                                   ---------------
                                                      391      118
                                                   ---------------
Deferred tax asset                                 $2,062   $  473
                                                   ===============

The  Corporation  files its income tax returns on the basis of a fiscal tax year
ending June 30.

The Bank,  is required,  beginning  in 1998,  to  recapture  approximately  $2.4
million of its total tax bad debt  reserve of  approximately  $8.1  million into
taxable  income  over a six-year  period.  Deferred  tax  liabilities  have been
accrued in respect of the amount of the reserve to be recaptured.

The Bank is not required to recapture  approximately $5.7 million of its tax bad
debt reserve,  attributable to bad debt deductions taken by it prior to 1988, as
long as the Bank  continues to operate as a bank under  federal tax law and does
not use the reserve for any other purpose.  In accordance with SFAS No. 109, the
Bank has not recorded any deferred tax  liability on this portion of its tax bad
debt reserve.  The tax that would be paid were the Bank  ultimately  required to
recapture  that  portion of the  reserve,  would  amount to  approximately  $1.9
million.



42
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE L - REGULATORY MATTERS

The Bank is subject to minimum regulatory  capital standards  promulgated by the
Office of Thrift Supervision (OTS). Failure to meet minimum capital requirements
can initiate certain mandatory - and possible additional discretionary - actions
by regulators  that, if undertaken,  could have a direct  material effect on the
Corporation's   consolidated   financial  statements.   Under  capital  adequacy
guidelines and the regulatory  framework for prompt corrective  action, the Bank
must meet specific capital guidelines that involve quantitative  measures of the
Bank's assets,  liabilities,  and certain  off-balance sheet items as calculated
under regulatory  accounting  practices.  The Corporation's  capital amounts and
classification are also subject to qualitative judgments by the regulators about
components,  risk weightings,  and other factors. Such minimum capital standards
generally require the maintenance of regulatory  capital sufficient to meet each
of three tests,  hereinafter described as the tangible capital requirement,  the
core capital  requirement and the risk-based capital  requirement.  The tangible
capital   requirement   provides  for  minimum   tangible  capital  (defined  as
stockholders' equity less all intangible assets) equal to 1.5% of adjusted total
assets. The core capital requirement provides for minimum core capital (tangible
capital  plus  certain  forms  of  supervisory  goodwill  and  other  qualifying
intangible assets) equal to 4% of adjusted total assets at December 31, 1999.

As of  December  31,  1999,  management  believes  that the Bank met all capital
adequacy requirements to which it was subject.

<TABLE>
<CAPTION>
                                                              Regulatory capital

                                                              December 31, 1999

                                      Tangible                Core                 Risk-based
                                       capital     Percent   capital      Percent    capital    Percent
                                       ----------------------------------------------------------------
                                                            (dollars in thousands)
<S>                                   <C>          <C>      <C>           <C>      <C>          <C>
Capital under generally accepted
accounting principles                  $45,246       6.26%   $45,246        6.26%   $45,246       13.33%

Unrealized (loss) on certain
available-for-sale securities            2,987       0.41      2,987        0.41      2,987        0.88

Goodwill and other intangible assets    (6,570)     (0.91)    (6,570)      (0.91)    (6,570)      (1.94)

Additional capital items
General valuation allowances -
limited                                     --         --         --          --      1,917        0.56
                                       ----------------------------------------------------------------
Regulatory capital computed             41,663       5.76     41,663        5.76     43,580       12.83

Minimum capital requirement             10,843       1.50     28,916        4.00     27,156        8.00
                                       ----------------------------------------------------------------
Regulatory capital - excess            $30,820       4.26%   $12,747        1.76%   $16,424        4.83%
                                       ================================================================
</TABLE>

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 43
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE L - REGULATORY MATTERS - Continued
<TABLE>
<CAPTION>

                                                                  Regulatory capital
                                                                  December 31, 1998
                                        Tangible                  Core                 Risk-based
                                        capital    Percent       capital      Percent    capital    Percent
                                       ----------------------------------------------------------------------
                                                                (dollars in thousands)
<S>                                   <C>          <C>         <C>           <C>          <C>          <C>
Capital under generally accepted
         accounting principles         $52,577       7.93%       $52,577       7.93%       $52,577      19.86%

Unrealized gain on certain
         available-for-sale securities    (154)     (0.02)          (154)     (0.02)          (154)     (0.06)

Goodwill and other intangible assets    (7,389)     (1.12)        (7,389)     (1.12)        (7,389)     (2.79)

Additional capital items
         General valuation allowances -
         limited                            --         --             --         --          1,909       0.72
                                       ----------------------------------------------------------------------

Regulatory capital computed             45,034       6.79         45,034       6.79         46,943      17.73

Minimum capital requirement              9,943       1.50         26,515       4.00         21,178       8.00
                                       ----------------------------------------------------------------------

Regulatory capital - excess            $35,091       5.29%       $18,519       2.79%       $25,765       9.73%
                                       ======================================================================
</TABLE>


At  December  31,  1999,   the  Bank  met  all   regulatory   requirements   for
classification  as  a  "well-capitalized"   institution.   A  "well-capitalized"
institution  must have  risk-based  capital  of 10% and core  capital of 5%. The
Bank's capital  exceeded the minimum required  amounts for  classification  as a
"well-capitalized"  institution  by $10 million  and $5  million,  respectively.
There are no conditions or events which have occurred that  management  believes
have changed the Bank's classification as a "well-capitalized" institution.

The Bank  maintains a  liquidation  account for the benefit of eligible  savings
account  holders  who  maintained  deposit  accounts  in the Bank after the Bank
converted to a stock form of  ownership.  The Bank may not declare or pay a cash
dividend on or repurchase  any of its common shares if the effect  thereof would
cause the  Bank's  stockholders'  equity to be reduced  below  either the amount
required for the liquidation account or the regulatory capital  requirements for
insured institutions.

44
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Corporation is a party to financial instruments with  off-balance-sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These  financial  instruments  are  primarily  commitments  to extend credit and
standby  letters of credit.  Such  financial  instruments  are  recorded  in the
consolidated  financial statements when they become receivable or payable. Those
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in  excess of the  amount  recognized  in the  consolidated  statements  of
financial  position.  The  contract  or  notional  amounts of those  instruments
reflect the extent of the Bank's  involvement in particular classes of financial
instruments.

The Corporation's exposure to credit loss in the event of non-performance by the
other party to the financial  instrument  for  commitments  to extend credit and
standby  letters of credit is  represented  by the  contractual  amount of those
instruments. The Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.

Unless noted otherwise, the Corporation requires collateral to support financial
instruments with credit risk.

Financial instruments,  the contract amounts of which represent credit risk, are
as follows (in thousands):

                                  December 31,
                                 1999      1998
                               -----------------

Commitments to extend credit   $54,778   $30,341
Standby letters of credit        3,687     3,604
Loans sold with recourse           278       364
                               -----------------
                               $58,743   $34,309
                               =================

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require   payment  of  a  fee.  The   Corporation   evaluates  each   customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,  if
it is deemed necessary by the Corporation upon extension of credit,  is based on
management's  credit  evaluation  of the  borrower.  Collateral  held  generally
includes residential and some commercial property.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee  the  performance  of a customer  to a third  party.  The credit  risk
involved in issuing  letters of credit is essentially  the same as that involved
in extending loan facilities to customers. Typically, the Bank issues letters of
credit to other financial institutions and generally does not require collateral
for standby letters of credit.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 45
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE N - COMMITMENTS AND CONTINGENCIES

The Bank had no  commitments to sell mortgage loans to investors at December 31,
1999 and 1998.

The Bank leases branch  facilities for periods ranging up to seven years.  These
leases are  classified  as  operating  leases and  contain  options to renew for
additional  periods.  Rental expense was  approximately  $298,000,  $315,000 and
$296,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

The minimum  annual  rental  commitments  of the Bank under all  non-cancellable
leases with terms of one year or more are as follows:

         Year ending December 31,

         2000        $        138
         2001                 140
         2002                 140
         2003                 128
         2004                 103
         Thereafter           170
                     ------------
                     $        819
                     ============

The Bank has a contract with a third-party  computer  processor which expires in
2002 with an annual commitment of approximately $109,000.

The  Corporation  has employment  agreements  with certain key  executives  that
provide  severance  pay  benefits  if  there  is a  change  in  control  of  the
Corporation.  The  agreements  will continue in effect on a  year-to-year  basis
until  terminated or not renewed by the  Corporation or key  executives.  Upon a
change in control,  the  Corporation  shall continue to pay the key  executives'
salary  per the  agreements  and  certain  benefits  for one year.  The  maximum
contingent   liability   under  the   agreements  at  December  31,  1999,   was
approximately $2,003,000.

From time to time, the Corporation and its  subsidiaries  are parties to routine
litigation,  which arises in the normal  course of  business.  In the opinion of
management,  the resolution of these lawsuits would not have a material  adverse
effect on the  Corporation's  consolidated  financial  position  or  results  of
operations.


NOTE O - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

The Bank is  principally  engaged in  originating  and investing in  one-to-four
family residential and commercial real estate loans in eastern  Pennsylvania and
New Jersey. The Bank offers both fixed and adjustable rates of interest on these
loans which have amortization terms ranging to 30 years. The loans are generally
originated or purchased on the basis of an 80%  loan-to-value  ratio,  which has
historically  provided the Bank with more than adequate  collateral  coverage in
the event of default.  Nevertheless,  the Bank, as with any lending institution,
is  subject  to the risk that  residential  real  estate  values in the  primary
lending area will deteriorate,  thereby potentially  impairing collateral values
in the primary lending area.  However,  management believes that residential and
commercial  real estate values are presently  stable in its primary lending area
and that loan loss  allowances  have been  provided for in amounts  commensurate
with its current perception of the foregoing risks in the portfolio.

46
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107,  Disclosures about Fair Value of Financial  Instruments,  requires
all  entities  to  disclose  the  estimated  fair  value  of  their  assets  and
liabilities  considered to be financial  instruments.  For the Bank, as for most
financial  institutions,   the  majority  of  its  assets  and  liabilities  are
considered financial  instruments as defined in SFAS No. 107. However, many such
instruments lack an available trading market as characterized by a willing buyer
and  willing  seller  engaging  in an  exchange  transaction.  Also,  it is  the
Corporation's  general practice and intent to hold its financial  instruments to
maturity or available for sale and to not engage in trading or significant sales
activities.  Therefore,  the  Corporation  and the Bank  had to use  significant
estimations and present value calculations to prepare this disclosure.

Changes in the  assumptions  or  methodologies  used to estimate fair values may
materially  affect the estimated  amounts.  Also,  management is concerned  that
there may not be reasonable  comparability  between institutions due to the wide
range of  permitted  assumptions  and  methodologies  in the  absence  of active
markets.  This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.

Fair values have been estimated using data which management  considered the best
available, as generally provided by estimation methodologies deemed suitable for
the pertinent category of financial  instrument.  The estimation  methodologies,
resulting fair values and recorded carrying amounts are as follows:

Fair value of loans and  deposits  with  floating  interest  rates is  generally
presumed to approximate the recorded carrying amounts.

Fair value of financial  instruments  actively traded in a secondary  market has
been estimated using quoted market prices (in thousands).

                                                       December 31,
                                          --------------------------------------
                                                  1999             1998
                                          --------------------------------------

                                          Estimated           Estimated
                                             fair    Carrying   fair   Carrying
                                             value     value    value    value
                                          --------------------------------------

         Cash and cash equivalents        $ 16,715  $ 16,715  $ 42,703 $ 42,703
         Investment securities              86,468    88,690    90,136   89,937
         Mortgage-backed securities        286,703   292,403   257,845  256,249


                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 47
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

The  fair  value  of  financial  instruments  with  stated  maturities  has been
estimated   using  the  present  value  of  cash  flows,   discounted  at  rates
approximating current market rates for similar assets and liabilities.
<TABLE>
<CAPTION>
                                                                    December 31,
                                                             1999                  1998
                                                     -------------------------------------------
                                                     Estimated             Estimated
                                                       fair     Carrying     fair      Carrying
                                                       value     value       value       value
                                                     -------------------------------------------
<S>                                                 <C>        <C>        <C>        <C>
Assets
         Interest-bearing deposits with banks        $    845   $    847   $  2,244   $  2,238
Liabilities
         Deposits with stated maturities              155,952    156,578    187,816    189,291
         Borrowings with stated maturities
                  Short-term (due within 6 months)     40,937     40,940     14,978     15,000
                  Long-term                           202,554    223,359    145,303    148,359
</TABLE>

The fair value of financial instrument  liabilities with no stated maturities is
generally  presumed to  approximate  the carrying  amount (the amount payable on
demand).
<TABLE>
<CAPTION>
                                                       December 31,
                                                   1999                1998
                                          -----------------------------------------
                                           Estimated           Estimated
                                              fair    Carrying   fair      Carrying
                                              value     value    value      value
                                          -----------------------------------------
<S>                                        <C>       <C>       <C>       <C>
         Deposits with no stated maturities $245,120  $245,120  $249,622  $249,622
                                            ======================================
</TABLE>


The fair value of the net loan  portfolio has been  estimated  using the present
value of cash flows, discounted at the approximate current market rates adjusted
for  non-interest   operating  costs,  and  giving  consideration  to  estimated
prepayment risk and credit loss factors.

<TABLE>
<CAPTION>
                                                       December 31,
                                          -----------------------------------------
                                                   1999                1998
                                          -------------------- --------------------
                                           Estimated           Estimated
                                              fair    Carrying   fair      Carrying
                                              value     value    value      value
                                          -----------------------------------------

<S>                                       <C>       <C>       <C>         <C>
                  Net loans                $285,800  $287,979  $245,375    $240,841
                                           ========================================
</TABLE>


48
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

There is no material  difference  between the carrying  amount and the estimated
fair value of off-balance-sheet  items totalling approximately $58.7 million and
$34.3 million at December 31, 1999 and 1998,  respectively,  which are primarily
comprised of floating rate loan commitments priced to market at funding.

The  Bank's  remaining  assets  and  liabilities  are not  considered  financial
instruments.  No disclosure of the relationship  value of the Bank's deposits is
required by SFAS No. 107.

NOTE Q - SERVICE FEES,  CHARGES AND OTHER  OPERATING  INCOME AND OTHER OPERATING
EXPENSE
<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                                    1999     1998     1997
                                                                  ------------------------
<S>                                                              <C>      <C>      <C>
Service fees, charges and other operating income (in thousands)
         Loan servicing fees                                      $  358   $  317   $  512
         Late charge income                                           74       85       92
         Deposit service charges                                     548      435      471
         Other income                                                259      258      128
                                                                  ------------------------
                                                                  $1,239   $1,095   $1,203
                                                                  ========================

Other operating expense (in thousands)
         Employee education                                       $   36   $   34   $   49
         Insurance and surety bond                                   127      142      149
         Office supplies                                             202      233      318
         Postage                                                     137      163      218
         Telephone                                                   187      173      130
         Service charges on bank accounts                            385      280      111
         Supervisory examination fees                                139      140      144
         Other expenses                                            1,359    1,040    1,211
                                                                  ------------------------
                                                                  $2,572   $2,205   $2,330
                                                                  ========================
</TABLE>

NOTE R - SHAREHOLDER RIGHTS PLAN

The Corporation  adopted a Shareholder  Rights Plan (the Rights Plan) to protect
shareholders  from  attempts  to  acquire  control  of  the  Corporation  at  an
inadequate price. Under the Rights Plan, the Corporation  distributed a dividend
of one Preferred  Share  Purchase  Right (a Right) for each share of outstanding
common  stock.  The rights are  currently  not  exercisable  and will  expire on
November 22, 2005,  unless the expiration  date is extended or unless the Rights
are earlier redeemed by the Corporation.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 49
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE R - SHAREHOLDER RIGHTS PLAN - Continued

After the Rights become  exercisable,  under certain  circumstances,  the Rights
(other than rights held by a 15% beneficial owner or an "acquiring person") will
entitle the holders to purchase one  one-hundredth of a share of a new series of
junior  participating  preferred  stock at an exercise  price of $45 or purchase
either the  Corporation's  common  shares or the common  shares of the potential
acquirer at a substantially reduced price.

The Corporation is entitled to redeem the Rights at $0.01 per Right prior to the
acquisition  by a person or group of beneficial  ownership of 15% or more of the
Corporation's  common stock.  Following the  acquisition by a person or group of
beneficial  ownership of 15% or more of the Corporation's common stock and prior
to an acquisition of 50% or more, the Board of Directors may exchange the Rights
(other than Rights  owned by such person or group),  in whole or in part,  at an
exchange ratio of one share of common stock (or one  one-hundredth of a share of
the new series of junior participating preferred stock) per Right.

The Rights Plan was not adopted in  response to any  specific  effort to acquire
control of the Corporation.  The issuance of rights has no dilutive effect,  did
not affect the Corporation's reported earnings per share, and was not taxable to
the Corporation or its shareholders.

NOTE S - EARNINGS PER SHARE

The  following  table  illustrates  the  reconciliation  of the  numerators  and
denominators of the basic and diluted earnings per share  computations  (dollars
in thousands, except per share data):
<TABLE>
<CAPTION>
                                                              Weighted
                                                              average
                                                    Income   shares        Per share
                                                 (numerator)(denominator)   amount
                                                 ------------------------------------

<S>                                               <C>        <C>            <C>
Net income                                        $   4,422
                                                  =========
    Basic earnings per share
        Income available to common stockholders   $   4,422   2,759,690       $ 1.60
                                                                              ======
Effect of dilutive securities
    Stock options                                      --       158,666
Diluted earnings per share                        ----------------------
    Income available to common stockholders
        plus effect of dilutive securities        $   4,422   2,918,356       $ 1.52
                                                  ==================================

50
</TABLE>

<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE S - EARNINGS PER SHARE - Continued

There were  options to  purchase  246,109  shares of common  stock at a range of
$14.50 to $28.00 per share  which were  outstanding  during  1999 which were not
included in the  computation of diluted  earnings per share because the options'
exercise prices were greater than the average market price of the common shares.
The options,  which expire through October 31, 2009,  were still  outstanding at
December 31, 1999.

<TABLE>
<CAPTION>
                                                               Year ended December 31, 1998

                                                                           Weighted
                                                                           average
                                                            Income         shares     Per share
                                                          (numerator)    (denominator)  amount
                                                          -------------------------------------
<S>                                                       <C>            <C>         <C>
Basic earnings per share
    Income before cumulative effect of accounting change   $  3,830                   $   1.32
    Cumulative effect of accounting change                      208                       0.07
                                                           --------                   --------
    Income available to common stockholders                $  4,038       2,894,651   $   1.39
                                                           ========                   ========
Effect of diluted securities
    Stock options                                                           300,844
                                                                          ---------
Diluted earning per share
    Income before cumulative effect of accounting change   $  3,830                   $   1.20
    Cumulative effect of accounting change                      208                       0.06
                                                           --------                   --------
    Income available to common stockholders
        Plus effect of dilutive securities                 $  4,038       3,195,495   $   1.26
                                                           ===================================
</TABLE>

There were options to purchase 5,250 shares of common stock at a range of $26.00
to $28.00 per share which were  outstanding  during 1998 which were not included
in the computation of diluted  earnings per share because the options'  exercise
prices were greater  than the average  market  price of the common  shares.  The
options,  which expire  through  December 31, 2008,  were still  outstanding  at
December 31, 1998.
<TABLE>
<CAPTION>
                                                   Year ended December 31, 1997

                                                              Weighted
                                                              average
                                                    Income    shares      Per share
                                                 (numerator)(denominator)  amount
                                                 --------------------------------

<S>                                              <C>         <C>         <C>
Net income                                        $   4,874
                                                  =========
Basic earnings per share
        Income available to common stockholders   $   4,874   3,656,924   $   1.33
                                                                          ========
Effect of dilutive securities
    Stock options                                      --       251,667
                                                  ---------------------
Diluted earnings per share
    Income available to common stockholders
        effect of dilutive securities             $   4,874   3,908,591   $   1.25
                                                  ================================
</TABLE>

There were no antidilutive options at December 31, 1997.

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 51
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE T - SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATE (UNAUDITED)
<TABLE>
<CAPTION>
                                                                Three months ended
                                                      Dec. 31,  Sept. 30  June 30,  March 31,
                                                        1999      1999      1999      1999
                                                      ---------------------------------------
                                                       (in thousands, except per share data)
<S>                                                  <C>       <C>       <C>       <C>
Total interest income                                 $12,103   $11,882   $11,944   $11,093
Total interest expense                                  7,169     7,028     7,145     6,632
    Net interest income                                 4,934     4,854     4,799     4,461
Provision for possible loan losses                        120        90        60        30
                                                      ---------------------------------------
    Net interest income after provision                 4,814     4,764     4,739     4,431
Other income                                              674       298       297       324
Other expense                                           3,423     3,456     3,434     3,220
                                                      ---------------------------------------
    Income before taxes                                 2,065     1,606     1,602     1,535
Income taxes                                              707       551       577       551
                                                      ---------------------------------------
    Net income                                        $ 1,358   $ 1,055   $ 1,025   $   984
                                                      =======================================
Earnings per share - basic                            $  0.50   $  0.38   $  0.37   $  0.35
Earnings per share - assuming dilution                $  0.49   $  0.36   $  0.35   $  0.33

</TABLE>

52
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998




NOTE T - SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATE (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>

                                                                Three months ended
                                                      Dec. 31,  Sept. 30  June 30,  March 31,
                                                         1998      1998      1998      1998
                                                     ----------------------------------------
                                                       (in thousands, except per share data)
<S>                                                  <C>       <C>       <C>       <C>
Total interest income                                 $11,061   $11,379   $10,998   $10,141
Total interest expense                                  6,851     7,092     6,590     5,662
    Net interest income                                 4,210     4,287     4,408     4,479
Provision for possible loan losses                         15        15        15        15
                                                     ----------------------------------------
    Net interest income after provision                 4,195     4,272     4,393     4,464
Other income                                              135       338       686       420
Other expense                                           2,730     3,208     3,453     3,375
                                                     ----------------------------------------
    Income before income taxes and
    cumulative effect of accounting change              1,600     1,402     1,626     1,509
    Net income                                            620       534       637       516
                                                     ----------------------------------------
    Income before cumulative effect
    of accounting change                                  980       868       989       993
Cumulative effect of accounting change                    208        --        --        --
                                                     ----------------------------------------
    Net income                                        $ 1,188   $   868   $   989   $   993
                                                     ========================================
Earning per common share before cumulative
    effect of accounting change
    Basic                                             $  0.34   $  0.30   $  0.34   $  0.34
    Diluted                                           $  0.32   $  0.27   $  0.30   $  0.31
Cumulative effect of accounting change
    Basic                                                0.07      --        --        --
    Diluted                                              0.06      --        --        --
Earnings per common share
    Basic                                             $  0.41   $  0.30   $  0.34   $  0.34
    Diluted                                           $  0.38   $  0.27   $  0.30   $  0.31
</TABLE>

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 53
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE U - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

Condensed  financial  information for TF Financial  Corporation  (parent company
only) follows (in thousands):

         BALANCE SHEET
<TABLE>
<CAPTION>
                                                                     December 31,
                                                                    1999      1998
                                                                  ------------------
                     ASSETS
<S>                                                              <C>       <C>
Cash                                                              $ 2,387   $   990
Certificates of deposit - other institutions                          181       172
Investment securities available-for-sale                              350       500
Investment in Third Federal                                        42,409    49,221
Investment in TF Investments                                        2,564     2,439
Investment in Teragon                                                  19        23
Investment in Penns Trail Development                                 412       196
Other assets                                                          125        14
                                                                  ------------------
                     Total assets                                 $48,447   $53,555
                                                                  =================
                     LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Loan payable to TF Investments                                $    --   $    --
    Payable to Third Federal and other liabilities                     --   $   895
                                                                  ------------------
                     Total liabilities                                 --       895
Stockholders' equity                                               48,447   $52,660
                                                                  -----------------
                     Total liabilities and stockholders' equity   $48,447   $53,555
                                                                  =================
</TABLE>

54
<PAGE>
                                       TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE U - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - CONTINUED

         STATEMENT OF EARNINGS

                                          Year ended December 31,
                                          1999     1998     1997
                                          -----------------------
INCOME
    Equity in earnings of subsidiaries   $4,528   $4,203   $5,346
    Interest and dividend income            125       13       10
                                         ------------------------
            Total income                  4,653    4,216    5,356
                                         ------------------------
EXPENSES
    Interest                                 --        8      256
    Other                                   231      170      226
                                         ------------------------
            Total income                    231      178      482
                                         ------------------------
            NET INCOME                   $4,422   $4,038   $4,874
                                         ========================

                                  TF FINANCIAL CORPORATION 1999 ANNUAL REPORT 55
<PAGE>
TF Financial Corporation and Subsidiaries

                            -----------------------
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE U - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - CONTINUED

         STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
                                                                      December 31,
                                                              1999        1998        1997
                                                          -----------------------------------
<S>                                                       <C>         <C>         <C>
Cash flows from operating activities
    Net income                                             $  4,422    $  4,038    $  4,874
    Adjustments to reconcile net income to net cash
        provided by (used in) operating activities
        Equity in earnings of subsidiaries                   (4,528)     (4,203)     (5,346)
        Net change in assets and liabilities                   (954)        840      (3,732)
                                                          -----------------------------------
            Net cash provided by (used in) operating
            activities                                       (1,060)        675      (4,204)
                                                          -----------------------------------
Cash flows from investing activities
    Capital distribution from subsidiaries                    8,500       2,998      43,300
    Purchase of investment securities available for sale         --        (501)         --
    Purchase and maturities of certificates of deposit
        in other financial institutions, net                     (9)         (1)        (17)
                                                          -----------------------------------
            Net cash (used in) provided by investing
            activities                                        8,491       2,496      42,283
                                                          -----------------------------------
Cash flows from financing activities
    Cash dividends paid to stockholders                      (1,359)     (1,387)     (1,433)
    Net (decrease) increase in borrowing from
        TF Investments                                           --        (103)     (9,637)
    Treasury stock acquired                                  (4,800)       (941)    (27,027)
    Exercise of stock options                                   125         122          75
                                                          -----------------------------------
            Net cash used in financing activities            (6,034)     (2,309)    (38,022)
                                                          -----------------------------------
            NET INCREASE IN CASH                              1,397         863          57
Cash at beginning of year                                       990         127          70
                                                          -----------------------------------
Cash at end of year                                        $  2,387    $    990    $    127
                                                          ===================================
Supplemental disclosure of cash flow information
    Cash paid during the year for income taxes             $     57    $     63    $     63
                                                          ===================================
</TABLE>

56
<PAGE>
                            ------------------------
                           THIRD FEDERAL SAVINGS BANK

                                Corporate Office
                                 3 Penns Trail
                             Newtown, PA 18940-3433
                                  215.579.4000

                                   Operations
                                  215.579.4600
             www.thirdfedbank.com - e-mail: service@thirdfedbank.com
--------------------------------------------------------------------------------
                      Bucks County, Pennsylvania Branches

Feasterville Office
Buck Hotel Complex
Feasterville, PA 19053-2209
215.364.7096

New Britain Office
600 Town Center
New Britain, PA 18901-5199
215.345.5800

Cross Keys Office
834 North Easton Highway
Doylestown, PA 18901-1007
215.348.5566

Warminster Office
601 Louis Drive
Warminster, PA 18974-2843
215.672.7990

Newtown Office
950 Newtown-Yardley Road
Newtown, PA 18940-4018
215.968.4444

Doylestown Office
60 North Main Street
Doylestown, PA 18901-3730
215.348.9021


                               [GRAPHICS OMITTED]
--------------------------------------------------------------------------------
                   Philadelphia County, Pennsylvania Branches

Frankford Office
4625 Frankford Avenue
Philadelphia, PA 19124-5889
215.289.1400

Fishtown Office
York & Memphis Streets
Philadelphia, PA 19125-3029
215.423.2314

Mayfair Office
Roosevelt Blvd. at Unruh
Philadelphia, PA 19149-2494
215.332.7650

Bridesburg Office
Orthodox & Almond Streets
Philadelphia, PA 19137-1626
215.743.6673

Woodhaven Office
Knights Road Center
Knights & Woodhaven Roads
Philadelphia, PA 19154-2810
215.824.0151

--------------------------------------------------------------------------------
                       Mercer County, New Jersey Branches

Ewing Office
2075 Pennington Road
Trenton, NJ 08618-1003
609.883.7033

Princeton Office
Princeton Shopping Center
301 N. Harrison Street
Princeton, NJ 08540-3512
609.683.4488

Hamilton Square Office
1850 Route 33
Hamilton Square, NJ 08690-1712
609.890.1333

Quakerbridge Road Office
590 Lawrence Square Blvd.
Lawrenceville, NJ 08648-2674
609.689.1010