SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM lO-Q

(Mark One)

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended September  30, 1997
                               -------------------

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

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

        Commission file number      0-24168
                                    -------

                            TF FINANCIAL CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)



           Delaware                                            74-2705050
-------------------------------                            ---------------------
(State or other jurisdiction of                             (I.R.S.  employer
 incorporation or organization)                            identification no.)

3 Penns Trail, Newtown, Pennsylvania                             18940
----------------------------------------                       ----------
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code            215-579-4000
                                                              ------------
                                       N/A
--------------------------------------------------------------------------------
               Former     name,  former  address  and  former  fiscal  year,  if
                          changed since last report.

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

APPLICABLE ONLY TO CORPORATE ISSUERS:


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest practicable date November 11, 1997

                    Class                              Outstanding
        ---------------------------                  ----------------
        $.10 par value common stock                  3,187,233 shares

<PAGE>



                   TF FINANCIAL CORPORATION AND SUBSIDIARIES

                                   FORM 1O-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997


                                     INDEX


                                                                           Page
                                                                          Number
                                                                          ------

PART I - CONSOLIDATED FINANCIAL INFORMATION

Item    1.      Unaudited Consolidated Financial Statements                  1
Item    2.      Management's Discussion and Analysis of Financial
                        Condition and Results of Operations                  7

PART II- OTHER INFORMATION

Item    1.      Legal Proceedings                                           16
Item    2.      Changes in Securities                                       16
Item    3.      Defaults upon Senior Securities                             16
Item    4.      Submission of Matters to a Vote of Security Holders         16
Item    5.      Other Materially Important Events                           16
Item    6.      Exhibits and Reports on Form 8-K                            16

SIGNATURES


<PAGE>

                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
            UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                               September 30, December 31,
                                                                                   1997         1996
                                                                               ------------- ------------
<S>                                                                             <C>          <C>
          ASSETS
Cash and cash equivalents                                                       $  71,286    $  54,132
Securities purchased under agreements to resell                                     6,000       25,129
Certificates of deposit in other financial institutions                             2,928        4,220
Investment securities available for sale - at market value                         41,793       12,652
Investment securities held to maturity (market value of $40,382 and $44,311     $  39,709       43,462
   respectively, for the periods shown)
Mortgage-backed securities available for sale - at market value                    33,324       22,027
Mortgage-backed securities held to maturity (market value of $149,691 and
    $153,269 respectively, for the periods shown)                                 148,599      153,758
Loans receivable, net                                                             259,500      309,570
Accrued interest receivable                                                         4,130        4,247
Goodwill/Core deposit intangible                                                    8,499        9,232
Premises and equipment, net                                                         7,708        8,002
Other assets                                                                        1,862        1,422
                                                                                ---------    ---------
        Total Assets                                                            $ 625,338    $ 647,853
                                                                                =========    =========

        LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
   Deposits                                                                     $ 443,584    $ 469,088
   Advances from the Federal Home Loan Bank                                        98,359       98,359
   Advances from borrowers for taxes and insurance                                  1,138        2,364
   Accrued interest payable                                                         5,005        2,030
   Other liabilities                                                                4,539        3,437
                                                                                ---------    ---------
        Total Liabilities                                                         552,625      575,278
                                                                                ---------    ---------

Commitments and contingencies                                                        --           --
Stockholders' Equity
   Preferred stock, no par value; 2,000,000 shares authorized
      and none issued                                                                --           --
   Common stock, $0.10 par value; 10,000,000 shares authorized,
       5,290,000 issued; 3,779,773 and 3,962,544 shares outstanding at September
       30, 1997 and December 31, 1996, net of treasury shares of
       1,201,568 and 1,008,614 respectively                                           529          529
   Additional paid-in capital                                                      51,802       51,645
   Net unrealized loss on investment securities available for sale                    250         (127)
   Unearned ESOP shares-at cost                                                    (3,033)      (3,188)
   Shares acquired by MSBP                                                         (1,002)      (1,322)
   Treasury stock - at cost                                                       (18,218)     (14,712)
   Retained earnings                                                               42,385       39,750
                                                                                ---------    ---------
        Total Stockholders' Equity                                                 72,713       72,575
                                                                                ---------    ---------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $ 625,338    $ 647,853
                                                                                =========    =========
</TABLE>

See notes to consolidated financial statement

                                       1
<PAGE>
                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
                  UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS

                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                             Nine Months          Three Months
                                                                                         Ended September 30,   Ended September 30,
                                                                                           1997     1996(1)      1997     1996(1)
<S>                                                                                         <C>       <C>       <C>        <C>
Interest income
   Loans                                                                                  $18,294   $17,019   $ 5,881    $ 6,117
   Mortgage-backed securities                                                               9,488     7,995     3,109      2,629
   Investment securities                                                                    4,291     1,840     1,336        612
   Interest bearing deposits and other                                                      1,126       930       592        353
                                                                                          -------   ------- ---------    -------
        TOTAL INTEREST INCOME                                                              33,199    27,784    10,918      9,711

Interest expense
   Deposits                                                                                13,820     9,892     4,500      3,495
   Borrowings                                                                               4,415     4,537     1,485      1,614
                                                                                          -------   ------- ---------    -------
        TOTAL INTEREST EXPENSE                                                             18,235    14,429     5,985      5,109

        NET INTEREST INCOME                                                                14,964    13,355     4,933      4,602

Provision for loan losses                                                                     382       210       202        120
                                                                                          -------   ------- ---------    -------
        NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                14,582    13,145     4,731      4,482
                                                                                          -------   ------- ---------    -------
Non-interest income
   Gain on sale of real estate acquired through foreclosure                                     0       114         0          0
   Gain on sale of mortgage-backed securities                                                 276       223        88          0
   Gain on sale of loans                                                                      288        37       249         30
   Gain on sale of servicing                                                                  330         0       330          0
   Service fees, charges and other operating income                                           929       916       278        266
                                                                                          -------   ------- ---------    -------
               TOTAL NON-INTEREST INCOME                                                    1,823     1,290       945        296
                                                                                          -------   ------- ---------    -------
Non-interest expense
   Employee compensation and benefits                                                       4,854     4,261     1,555      1,455
   Occupancy and equipment                                                                  1,497       996       593        339
   Federal deposit insurance premium                                                          226     2,808        73      2,418
   Data processing                                                                            509       360       163        123
   Professional fees                                                                          424       437       148        160
   Goodwill and other intangible amortization                                                 732         0       244          0
   Provision for losses on real estate acquired through foreclosure                             0         3         0          0
   Advertising                                                                                278       230        90         75
   Other operating                                                                          1,712     1,397       640        519
                                                                                          -------   ------- ---------    -------
        TOTAL NON-INTEREST EXPENSE                                                         10,232    10,492     3,506      5,089
                                                                                          -------   ------- ---------    -------
             INCOME BEFORE INCOME TAXES                                                     6,173     3,943     2,170       (311)
                                                                                          -------   ------- ---------    -------
Income taxes                                                                                2,377     1,656       803       (102)
                                                                                          -------   ------- ---------    -------
        NET INCOME                                                                        $ 3,796   $ 2,287 $   1,367    $  (209)
                                                                                          =======   ======= =========    =======

Per share data

Earnings per share                                                                            .93       .54       .33       (.05)

Weighted average number of shares outstanding                                               4,065     4,243     4,065      4,243

(1)  Non-interest  expense for the three and nine month periods ended  September
     30, 1996 includes a $2.2 million  one-time  assessment by the FDIC mandated
     by Federal  Legislation in order to  recapitalize  the Savings  Association
     Insurance Fund


See notes to consolidated financial statement

                                       2
</TABLE>

<PAGE>

                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                      Nine Months
                                                                                   Ended September 30,
                                                                                ----------------------
                                                                                    1997        1996
                                                                                ----------   ---------

<S>                                                                              <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                                       $  3,796    $  2,287
Adjustments   to  reconcile  net  income  to  net  cash  provided  by  operating
activities:
        Amortization of:
                Mortgage loan servicing rights                                         65           2
                Deferred loan origination fees                                       (112)       (151)
                Premiums and discounts on investment securities. net                   50         (18)
                Premiums and discounts on mortgage-backed securities and
                loans.,net                                                            168          59
                Amortization of goodwill and core deposit intangible                  732           0
        Provision for loan losses and provision for losses on real estate             382         213
        Depreciation of premises and equipment                                        532         397
        Recognition of ESOP and MSBP expenses                                         632         660
        Gain (loss) on sale of mortgage-backed securities - available for sale       (269)       (223)
        Gain on sale of investment securities  available for sale                      (8)          0
        Gain on sale of real estate acquired through foreclosure                        0        (114)
        Gain on sale of mortgage servicing rights                                    (330)          0
        (Gain)/loss on sale of mortgage loans                                        (288)        (37)
        Decrease (increase) in
                Accrued interest receivable                                           117        (120)
                Other assets                                                       (1,155)       (666)
        Increase (decrease) in
                Accrued interest payable                                            2,975       2,332
                Other liabilities                                                     862       3,226
                                                                                   ------     -------
                NET CASH PROVIDED BY OPERATING ACTIVITIES                           8,149       7,847

CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments on loans. net                            (13,842)    (31,807)
Purchases of loans                                                                (13,623)    (62,205)
Proceeds from loan sales                                                           77,194      10,566
Purchases and maturities of certificates of deposit in other
   financial institutions. net                                                      1,292           3
Purchases and maturities of securities purchased under
   agreements to resell, net                                                       19,129           0
Purchases of investment securities - available for sale                           (48,665)     (8,976)
Purchases of investment securities - held to maturity                             (82,088)     (7,708)
Purchases of mortgage-backed securities - available for sale                      (28,418)     (4,943)
Purchase of mortgage-backed securities - held to maturity                         (15,071)    (11,626)
Proceeds from maturities of investment securities - held to maturity               82,680       8,432
Proceeds from maturities of investment securities - available for sale             22,540       9,000
Principal repayments from maturities of mortgage-backed securities-
   held to maturity                                                                20,201      20,836
Principal repayments from maturities of mortgage-backed securities-
   available for sale                                                               1,520       2,627
Proceeds from the sale of mortgage-backed securities  available for sale           16,320       5,338
Proceeds from the sale of investment securities  available for sale                   510           0
Purchases and redemptions of Federal Home Loan Bank Stock, net                          0      (2,250)
Proceeds from sales of real estate acquired through foreclosure                         0         439
Proceeds from the sale of loan servicing rights                                       981           0
Premium paid for deposit liabilities                                                    0      (9,476)
Purchase of premises and equipment                                                   (238)     (1,576)
                                                                                   ------     -------
         NET CASH PROVIDED BY (USED IN)  INVESTING ACTIVITIES                      40,422     (83,326)
</TABLE>

See notes to consolidated financial statement

3
<PAGE>



                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
           UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                      For the Nine Months
                                                                                      Ended September 30,
                                                                                      ---------------------
                                                                                      1997          1996
                                                                                -------------  ------------

<S>                                                                                <C>          <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits/NOW accounts,
  passbook savings accounts and certificates of deposit                            $ (25,504)   $ 139,350
Advances from Federal Home Loan Bank - net                                                 0       30,000
Net (decrease) increase in advances from borrowers for taxes
        and insurance                                                                 (1,226)        (310)
Purchase of treasury stock                                                            (3,677)      (3,340)
Common stock cash dividend                                                            (1,010)        (942)

        NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                          (31,417)     164,758

        NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          17,154       89,279

Cash and cash equivalents at beginning of period                                      54,132       27,032

Cash and cash equivalents at end of period                                         $  71,286    $ 116,311
                                                                                   =========    =========

Supplemental disclosure of cash flow information
        Cash paid for
                Interest on deposits and advances                                  $  15,260    $  12,098

                Income taxes                                                       $   1,421    $   1,578

        Non-cash transactions
                Transfers from loans to real estate acquired through foreclosure   $     231    $     275

                Securitization of mortgage loans held for investment               $       0    $  27,854
</TABLE>







See notes to consolidated financial statement

                                       4
<PAGE>

                   TF FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - PRINCIPLES OF CONSOLIDATION

                The  consolidated  financial  statements as of December 31, 1996
and as of and for the three and nine month periods ended  September 30, 1997 and
1996 include the accounts of TF Financial  Corporation (the  "Corporation")  and
its wholly owned  subsidiaries  Third Federal Savings Bank (the "Savings Bank"),
TF Investments  Corporation,  Penns Trail  Development  Corporation  and Teragon
Financial  Corporation.  The  Corporation's  business is  conducted  principally
through the Savings Bank. All significant intercompany accounts and transactions
have been eliminated in consolidation.

NOTE 2 - BASIS OF PRESENTATION

The accompanying  unaudited  consolidated  financial statements were prepared in
accordance  with  instructions  for Form 10-Q  and,  therefore,  do not  include
information or footnotes  necessary for a complete  presentation of consolidated
financial  condition,  results of operations,  and cash flows in conformity with
generally accepted accounting principles.  However, all adjustments,  consisting
of normal recurring accruals, which, in the opinion of management, are necessary
for  fair  presentation  of the  consolidated  financial  statements  have  been
included. The results of operations for the periods ended September 30, 1997 are
not  necessarily  indicative of the results which may be expected for the entire
fiscal year or any other period. For further information,  refer to consolidated
financial  statements and footnotes thereto included in the Corporations  Annual
Report on Form 10-K for the fiscal year ended
        December 31, 1996.

NOTE 3 - IMPAIRED LOANS

On January 1, 1995 the  Corporation  adopted  Statement of Financial  Accounting
Standards  (SFAS) No. 114,  "Accounting for Creditors for Impairment of a Loan,"
as amended by SFAS No. 118,  "Accounting by Creditors for Impairment of a Loan -
Income  Recognition  and  Disclosures."  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 Savings  Bank has  identified  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  to the  extent
necessary to eliminate any doubt as to the ultimate  collectibility of principal
either in whole or in part.  Loan  impairment  is  measured  by  estimating  the
expected  future  cash flow 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.  The recorded
investment in impaired loans and the valuation for credit losses are as follows:

                (in thousands)                       September 30, 1997
                                                     ------------------

        Principal amount of impaired loans               $     143
        Accrued interest                                         -
        Deferred loan costs                                      -
                                                         ---------
             Subtotal                                    $     143
                                                         ---------
        Less valuation allowance                                22
                                                         ---------
             Total                                       $     121
                                                         =========

                                       5
<PAGE>
                                                
The average  recorded  investment  in impaired  loans  during the quarter  ended
September 30, 1997 was $460,000.  Total cash  collected on impaired loans during
the quarter  ended  September 30, 1997 was $14,000 of which $11,000 was credited
to the principal balance  outstanding on such loans and $3,000 was recognized as
interest income.  Interest that would have been accrued on impaired loans during
the quarter  was  $13,000.  Interest  income  recognized  during the quarter was
$3,000.  Management  believes the level of impaired  loans is  immaterial to the
Corporation's financial position or results of operations.

NOTE 4 -  CONTINGENCIES

The  Corporation,  from time to time,  is a party to routine  litigation,  which
arise 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 condition or results of operations.

A petition  for  resettlement  has been  filed by the  Savings  Bank  protesting
assessment of certain prior years'  Pennsylvania Mutual Thrift Institutions Tax.
Management  believes that the  resolution of this  liability,  if any, would not
have a  material  adverse  effect on the  Corporation's  financial  position  or
results of operations.


                                       6
<PAGE>
                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  ---------------------------------------------

GENERAL

The  Corporation's  total  assets at  September  30, 1997 and  December 31, 1996
totaled $625.3  million and $647.9  million,  respectively,  a decrease of $22.6
million or 3.5% for the nine month  period.  This  decrease  was  primarily as a
result of a $25.5 million or 5.4% decrease in savings  deposits which was funded
by reductions  in  securities  purchased  under  agreements  to resell.  Savings
deposits  decreased  over the period as a result of general  market  conditions.
Loans receivable  decreased by $50.1 million,  or 16.2%,  from $309.6 million at
December  31, 1996 to $259.5  million at September  30,  1997.  During this same
period,  cash  and  cash  equivalents  increased  by $17.2  million,  or  31.8%,
investment  securities  increased $25.4 million,  or 45.2%,  and mortgage backed
securities  increased  by $6.1  million or 3.5%.  The  increases  in these asset
categories was funded by the decrease in loans receivable.

The decrease in loans receivable of $50.1 million or, 16.2%, from $309.6 million
at December 31, 1996 to $259.5 million at September 30, 1997 was a result of the
sale of $43.6 million of mortgage loans coupled with mortgage loan amortization.

Cash and cash equivalent  balances increased by $17.2 million from $54.1 million
at December  31, 1996 to $71.3  million at  September  30, 1997  primarily  as a
result of the sale of mortgage loans.

Investment  securities  at September  30, 1997,  totaled  $81.5  million,  which
represents  an  increase of $25.4  million or 45.2% as compared to December  31,
1996.  This increase is primarily due to the  reinvestment of cash received from
the sale of mortgage loans.

Mortgage-backed  securities  totaled  $181.9  million at  September  30, 1997 as
compared to $175.8  million at December 31, 1996.  This increase of $6.1 million
or 32.8% is also attributed mainly to the reinvestment of cash received from the
sale of mortgage loans.

Total consolidated stockholders' equity of the Corporation increased $138,000 to
$72.7  million,  or 11.6% of total  assets,  at September  30, 1997,  from $72.6
million or 11.2 % of total  assets at December 31,  1996,  primarily  due to the
$3.6 million in stock repurchases, partially offset by the $2.6 million increase
to retained  earnings for the nine month period.  The increase in net unrealized
gain on investment  securities available for sale of $377,000 from ($127,000) at
December  31,  1996  to  $250,000  at  September   30,  1997  coupled  with  the
amortization  of stock  incentive  plans of $632,000  also  contributed  to this
increase in stockholders  equity. On October 23, 1996 the Corporation  announced
its intent to  repurchase up to 5% of its  outstanding  common stock in the open
market.  The repurchase was completed on April 9, 1997,  with a total of 214,869
shares,  approximately 5% of outstanding  common shares,  repurchased at a total
cost of $3.6 million.

On  September  26, 1997,  the  Corporation  announced an offer to purchase  (the
"Offer to Purchase") up to 900,000 shares of its Common Stock at a cash purchase
price not in excess of $26.00 per share or less than $22.50 per share. The Offer
to Purchase  expired at 5:00 p.m.  Eastern Time on October 27, 1997.  Based on a
final count, 901,199 shares tendered were purchased,  representing approximately
22% of the common  shares  outstanding,  and the price at which such shares were
purchased was $26.00 per share. Odd lots tendered at or below the purchase price
totaling 520 shares were  purchased in their  entirety.  The  remaining  900,679
shares were purchased on a 83.24% pro rata basis from  shareholders who tendered
a total of 1,081,094  shares to the  Corporation.  All shares not purchased were
returned  to  tendering  shareholders.  As a result of this  transaction,  total
stockholders' equity of the Corporation is expected to decrease by approximately
$23.4 million to $49.3 million. Repurchased shares are expected to be treated as
treasury 

                                       7
<PAGE>

stock.  As a result of the  utilization  of $23.4 million for the  repurchase of
shares, the Corporation will no longer have such funds available for investment.
This is  expected  to  result  in  decreased  aggregate  core  earnings  for the
Corporation.  


                                       8
<PAGE>
Average Balance Sheet

The following tables set forth information 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 monthly  average  balance of  interest-earning
assets or interest-bearing liabilities, respectively for the periods indicated.


<TABLE>
<CAPTION>
                                                                        For Three Months Ended September 30
                                                       -------------------------------------------------------------------------
                                                                      1997 (4)                             1996(4)
                                                       ------------------------------------- -----------------------------------
(Dollars in thousands)
                                                         Average                   Average       Average              Average
                                                         Balance      Interest    Yield/Cost     Balance   Interest  Yield/Cost
                                                         -------      --------    ----------     -------   --------  ----------
<S>                                                    <C>           <C>           <C>       <C>          <C>        <C>   
Assets:
Interest earning assets: 
Loans receivable, net                                  $  291,374    $    5,881      8.07%    $  308,985  $   6,117    7.92% 
Mortgage-backed securities                                181,513         3,109      6.85%       162,134      2,629    6.49% 
Investment securities                                      87,645         1,336      6.10%        39,533        612    6.19% 
Other interest-earning assets(1)                           60,063           592      3.94%        51,955        353    2.72%  
                                                       ----------    ----------               ----------  ---------           
     Total interest-earning assets                     $  620,595    $   10,918      7.04%    $  562,607  $   9,711    6.90%
                                                       ==========    ==========               ==========  =========         
Non interest-earning assets                                 8,635                                 13,118              
                                                       ----------                             ----------              
 Total assets                                          $  629,230                             $  575,725              
                                                       ==========                             ==========              
Liabilities and Stockholders' Equity:                                                                                 
  Interest-bearing liabilities:                                                                                       
  Savings deposits                                     $  447,731    $   4,500       4.02%    $  386,945  $   3,495    3.61%
  Borrowed money                                           98,359        1,485       6.04%       106,692      1,614    6.05%    
                                                       ----------    ---------                ----------  ---------             
  Total interest-bearing liabilities                   $  546,090    $   5,985       4.38%    $  493,637  $   5,109    4.14
                                                       ==========    =========                =========   =========         
Non interest-bearing liabilities                           10,930                                 10,034              
                                                       ----------                             ----------              
  Total liabilities                                    $  557,020                             $  503,671              
                                                       ----------                             ----------              
Stockholders' equity                                       72,210                                 72,054              
Total liabilities and stockholders' equity             $  629,230                             $  575,725              
                                                       ==========                             ==========              
Net interest income                                                  $   4,933                            $   4,602   
                                                                      ========                             ========   
Interest rate spread (2)                                                             2.66%                             2.76%
Net  yield on  interest-earning  assets  (3)                                         3.18%                             3.27%
Ratio  of average interest-earning assets to average                                                          
Interest-bearing liabilities                                                          114%                              114%
</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)  Ratios have been annualized where applicable.                

                                       9
<PAGE>                                                         


Average Balance Sheet  (continued)

<TABLE>
<CAPTION>
                                                                           For Nine Months Ended September 30 
                                                       -----------------------------------------------------------------------
                                                                     1997 (4)                              1996(4)
                                                       -----------------------------------------------------------------------
(Dollars in thousands)
                                                         Average                  Average      Average               Average
                                                         Balance     Interest   Yield/Cost     Balance    Interest  Yield/Cost
                                                         -------     --------   ----------     -------    --------  ----------
<S>                                                    <C>           <C>          <C>       <C>           <C>        <C>   
 
Assets:                                                                                         
Interest earning assets:                                                                        
Loans receivable, net                                 $   305,978    $ 18,294       7.97%   $   296,431   $ 17,019      7.66%
Mortgage-backed securities                                187,608       9,488       6.74%       151,181      7,995      7.05%
Investment securities                                      89,983       4,291       6.36%        39,842      1,840      6.16%
 Other interest-earning assets(1)                          35,585       1,126       4.22%        41,215        930      3.01%
                                                      -----------    --------               -----------   --------           
  Total interest-earning assets                       $   619,154    $ 33,199       7.15%   $   528,669   $ 27,784      7.01%
                                                      ===========    ========               ===========   ========           
Non interest-earning assets                                18,028                                10,579
                                                      -----------                           -----------
 Total assets                                         $   637,182                           $   539,248
                                                      ===========                           ===========
Liabilities and Stockholders' Equity:                                                           
  Interest-bearing liabilities:                                                                 
   Savings deposits                                   $   456,475    $ 13,820       4.04%   $   353,537   $  9,892      3.73%
   Borrowed money                                          98,915       4,415       5.95%       102,803      4,537      5.88%
                                                      -----------    --------               -----------   --------           
  Total interest-bearing liabilities                  $   555,390    $ 18,235       4.38%   $   456,340   $ 14,429      4.22
                                                      ===========    ========               ===========   ========          
Non interest-bearing liabilities                           10,427                                 9,252
  Total liabilities                                   $   565,817                           $   465,592
                                                      ===========                           ===========
Stockholders' equity                                       71,365                                73,656
                                                      -----------                           -----------
   Total liabilities and stockholders' equity         $   637,182                           $   538,248
                                                      ===========                           ===========
Net interest income                                                  $ 14,964                             $ 13,355
                                                                     ========                             ========
Interest rate spread (2)                                                            2.77%                               2.79%
Net yield on interest-earning assets (3)                                            3.22%                               3.37%
Ratio of average interest-earning assets to average                                             
  Interest-bearing liabilities                                                       111%                                116%
</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)  Ratios have been annualized where applicable.

                                       10
<PAGE>


RESULTS OF OPERATIONS

Net Income.  The  Corporation  recorded net income of $1.4 million for the three
months ended  September  30, 1997 as compared to a net loss of ($.2) million for
the three months ended  September 30, 1996.  Earnings for the three months ended
September  30, 1997  represent an increase of $1.6 million  compared to earnings
reported  for the same period in 1996.  The increase in earnings for this period
is  attributable  to an increase in net interest income coupled with the absence
of $2.2  million  one-time  fee  assessed  to  members  of  Savings  Association
Insurance  Fund (SAIF) for the  recapitalization  of SAIF which was reflected in
the September 30, 1996 statement. Net interest income before provisions for loan
losses was $4.9 million for the three month periods ended  September 30, 1997 as
compared to $4.6  million for the same period in 1996.  For these same  periods,
total  interest  expense  was  $6.0  million  and  $5.1  million,  respectively.
Non-interest  income was $945,000  and  $296,000,  respectively,  for these same
periods.  Operating expenses  (non-interest  expense) were $3.5 million and $5.1
million for the three month periods  ended  September 30, 1997 and September 30,
1996, respectively.

Net Income of $3.8  million,  for the nine  months  ended  September  30,  1997,
reflected a $1.5 million increase over net income of $2.3 million,  for the nine
months ended  September  30,  1996.  The increase in earnings for this period is
attributable  to an increase net interest  income  coupled with the $2.2 million
one-time  fee  assessed  to  members  of the SAIF  which  was  reflected  in the
September 30, 1996  statement.  Net interest  income before  provisions for loan
losses was $15.0  million for the nine month period ended  September 30, 1997 as
compared to $13.4  million for the same period in 1996.  For these same periods,
total  interest  expense  was $18.2  million  and $14.4  million,  respectively.
Non-interest  income was $1.8 million and $1.3 million,  respectively  for these
same  periods.  The  increase in  non-interest  income was  attributable  to the
increase  in gains on the sale of loans,  loan  servicing,  and  mortgage-backed
securities  for the nine  month  period  ended  September  30,  1997.  Operating
expenses  (non-interest  expense)  were $10.2  million and $10.5 million for the
nine  month   periods   ended   September  30,  1997  and  September  30,  1996,
respectively.

Total Interest Income.  Total interest income increased by $1.2 million or 12.4%
to $10.9  million for the three  months  ended  September  30,  1997,  from $9.7
million for the three months ended September 30, 1996 due primarily to increases
in the average balance of mortgage-backed securities,  investment securities and
other  interest  earning  assets  offset  somewhat by  decreases  in the average
balances of loans receivable.  The average balance of loans receivable decreased
$17.6  million,  or 5.7%,  to $291.4  million from $309.0  million for the three
months ended September 30, 1997 and 1996, respectively. Interest attributable to
loans  receivable  decreased  $236,000 or 3.9% to $5.9 million from $6.1 million
for these same periods. This decrease is primarily  attributable to the decrease
in the average balance of loans  receivable  partially  offset by an increase in
the average  yield on loans  receivable  from 7.92% for the period end September
30,  1996,  to 8.07% for the  period  ended  September  30,  1997.  Interest  on
mortgage-backed securities increased $480,000, 18.3%, for the three month period
ended September 30, 1997, from $2.6 million at September 30, 1996 primarily as a
result of increases in the average  balances of these  securities in conjunction
with  increases  in the  average  yield.  The average  yield on  mortgage-backed
securities  increased to 6.85% for the three month period  ended  September  30,
1997 compared to 6.49 for the similar  period in 1996 while the average  balance
of mortgage-backed securities increased by $19.4 million or 12.0% when comparing
these two periods.  Interest on investment  securities  increased by $724,000 or
118.3% for the three month  period ended  September  30, 1997 as compared to the
similar period in 1996. This increase is primarily the result of the increase in
the average  balance of investment  securities to $87.6 million at September 30,
1997,  from 39.5  million at  September  30,  1996.  Interest on other  interest
earning assets  increased by $239,000 for the three month period ended September
30, 1997 compared to the similar period ended  September 30, 1996 primarily as a
result of the  average  balance  increasing  by $8.1  million to $60.1  million,
coupled with a increase in the average yield to 3.94% at September 30, 1997 from
2.72%  at  September  30,  1996.  The  increases  in  the  average  balances  of
mortgage-backed  securities,  investment  securities and other  interest-earning
assets are a result of the  reinvestment  of $43.6  million in proceeds from the
sale of mortgage loans.

Total  interest  income  increased by $5.4 million or 19.4% to $33.2 million for
the nine months ended September 30, 1997, from $27.8 million for the nine months
ended  September 30, 1996 due  primarily to increases in the average  balance of
mortgage-backed securities and investment securities. Interest income form loans
increased to $18.3 million for the nine

                                       11
<PAGE>

months ended September 30, 1997, from $17.0 million for the same period in 1996.
Interest on mortgage-backed  securities increased $1.5 million, or 18.7% for the
nine month period ended  September 30, 1997,  from $8.0 million at September 30,
1996  primarily  as a result  of  increases  in the  average  balances  of these
securities  in  conjunction  with  decreases in the average  yield.  The average
balance of mortgage-backed  securities  increased by $36.4 million or 24.1% when
comparing these two periods. Interest on investment securities increased by $2.5
million or 133.2% for the nine month period ended September 30, 1997 as compared
to the similar  period in 1996.  This  increase is  primarily  the result of the
increase in the average  balance of  investment  securities  to $90.0 million at
September 30, 1997, from $39.8 million at September 30, 1996.  Interest on other
interest  earning  assets  increased by $196,000 for the nine month period ended
September  30, 1997  compared to the similar  period  ended  September  30, 1996
primarily as a result of the increase in the average yield to 4.22% at September
30, 1997 from 3.01% at September 30, 1996. The increases in the average balances
of mortgage-backed securities,  investment securities and other interest-earning
assets are a result of the  reinvestment  of $43.6  million in proceeds from the
sale of mortgage loans.

Total Interest Expense. Total interest expense increased to $6.0 million for the
three month period ended  September  30, 1997 from $5.1 million at September 30,
1996.  This increase in total  interest  expense is a result of the increases in
the  average  balance  and average  rate paid on savings  deposits.  The average
balance of savings deposits  increased from $386.9 million at September 30, 1996
to $447.7  million at  September  30,  1997.  The  average  rate paid on savings
deposits  increased  from 3.61% in the September 30, 1996 period to 4.02% in the
September  30,  1997  period.  This  increase  was  mainly  attributable  to the
acquisition  of  deposits  from  the  Cenlar   Federal   Savings  Bank  (Cenlar)
acquisition. The average balance of total interest bearing liabilities increased
to $546.1 million  during the three months ended  September 30, 1997 from $493.6
million  for the  three  months  ended  September  30,  1996 as a result  of the
increase  in savings  deposits  partially  offset by  decreases  in the  average
balance and rate of Federal Home Loan Bank advances.

Total interest  expense of $14.4 million for the nine months ended September 30,
1996 increased  $3.8 million for the nine month period ended  September 30, 1997
to $18.2  million.  This increase in total  interest  expense is a result of the
increases  in the  average  balance and average  rate of savings  deposits.  The
average  balance  of total  interest  bearing  liabilities  increased  to $555.4
million  during the nine months  ended  September  30, 1997 from $456.3  million
during the nine months  ended  September  30, 1996  primarily as a result of the
increase in savings deposits.

Net  Interest  Income.  Net  interest  income for the three month  period  ended
September  30, 1997  increased  by $331,000  or 8.7% to $5.0  million  from $4.6
million  for the same period in 1996.  This  increase  is  primarily  due to the
increase in interest earning assets partially offset by the increase in interest
bearing liabilities. The average balance of interest earning assets increased to
$620.6 million for the three months ended September 30, 1997 from $562.6 million
for the similar period in 1996. During these same periods,  the average balances
on interest-bearing liabilities increased to $546.1 million from $493.6 million.
The cost of interest bearing liabilities increased from 4.14% to 4.38% while the
yield on interest  earning  assets  increased  from 6.90% to 7.04% for the three
month periods ended September 30, 1996 and 1997 respectively.

Net interest income for the nine month period ended September 30, 1997 increased
by $1.6 million or 11.9% to $15.0 million from $13.4 million for the same period
in 1996.  This  increase is primarily  due to the  increase in interest  earning
assets  partially offset by the increase in interest  earning  liabilities.  The
average  balances of interest earning assets increased to $619.2 million for the
nine months ended  September 30, 1997 from $528.7 million for the similar period
in 1996.  During these same periods,  the average  balances on interest  bearing
liabilities  increased  to  $555.4  million  from  $456.3  million.  The cost of
interest  bearing  liabilities  increased from 4.22% to 4.38% while the yield on
interest earning assets increased from 7.01% to 7.15% for the nine month periods
ended September 30, 1996 and 1997 respectively.

Allowance for Loan Losses.  The allowance for loan losses increased at September
30, 1997 to $2.1 million from $2.0  million at September  30, 1996.  Such totals
correlate to non-performing loans of $1.3 million at September 30, 1997 and $1.8
million at September 30, 1996.  The increase in the allowance for loan losses of
$160,000 resulted from the addition of $202,000 to the provision for loan losses
and the  deduction  of  $42,000  of net  charge  offs for  losses on loans.  The
provision for losses on loans is the method by which the allowance for losses is
adjusted  during the period.  The provision

                                       12
<PAGE>

for losses on loans was $202,000 for the three months ended  September 30, 1997.
At  September   30,  1997,   the   allowance  for  loan  losses  was  154.0%  of
non-performing  loans as compared to 95.8% of non-performing  loans at September
30, 1996. 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 increased to $945,000 for the
three months ended September 30, 1997 from $296,000 for the same period in 1996.
This increase of $649,000 can be primarily  attributable  to the increase to the
gain on sale of mortgage-backed  securities of $88,000,  the net increase to the
sale of loans of  $219,000  and the net  increase  to the sale of  servicing  of
$330,000.

Total  non-interest  income  increased to $1.8 million for the nine month period
ended  September 30, 1997 from $1.3 million for the similar period in 1996. This
increase  can  be   attributable  to  the  increase  to  the  gain  on  sale  of
mortgage-backed  securities of $53,000, the net increase to the sale of loans of
$251,000 and the net  increase to the sale of  servicing of $330,000,  partially
offset by the decrease in the gain on real estate acquired  through  foreclosure
of $114,000.

Non-interest  Expense.  Total non-interest  expense decreased by $1.6 million to
$3.5 million for the three months ended  September  30, 1997 as compared to $5.1
million for the similar period in 1996. This decrease is primarily attributed to
the decrease of $2.3 million in federal  deposit  insurance  premiums  partially
offset by a $100,000 increase in employee  compensation and benefits, a $254,000
increase in  occupancy  and  equipment,  a $40,000  increase in data  processing
expense,  a $244,000 increase in amortization of goodwill and other intangibles,
and a $121,000  increase  in other  operating  costs.  The  decrease  in federal
deposit  insurance  premiums  was the result of the $2.2  million  one-time  fee
assessed to members of the SAIF for the  recapitalization  of the SAIF which was
reflected in the September 30, 1996 statement. The increases in compensation and
benefit  costs were  primarily  as a result of increased  staffing  necessary to
support three  additional  retail offices which were acquired through the Cenlar
acquisition.  Benefit  costs were also  increased  due to the increases in costs
associated with benefit plans utilizing Corporation stock (portions of the costs
of benefit plans utilizing  Corporation  stock change as the market value of the
stock  changes).  Data  processing,  occupancy and equipment and other operating
expenses  were  also  increased  due  to  this  acquisition.  The  cost  of  the
acquisition of the three retail offices is being amortized over a 15 year period
and this amortization  resulted in additional expense of $244,000 for the period
ended September 30, 1997.

Total  non-interest  expense has  decreased to $10.2 million for the nine months
ended  September 30, 1997 as compared to $10.5 million for the similar period in
1996.  This decrease of $.3 million is primarily  attributable to a $2.6 million
decrease in Federal deposit  insurance  premiums  partially offset by a $593,000
increase in employee compensation and benefits, a $501,000 increase in occupancy
and equipment, a $149,000 increase in data processing costs, a $732,000 increase
in goodwill and other intangible amortization,  and a $315,000 increase in other
operating  costs.  These increases were partially  offset by. The increases were
mainly  due to the  increased  costs  associated  with the  Cenlar  acquisition.
Benefit costs were also increased due to the increases in costs  associated with
benefit  plans  utilizing  Corporation  stock  (portions of the costs of benefit
plans  utilizing  Corporation  stock  change  as the  market  value of the stock
changes).

Income Tax Expense. Income taxes increased by $905,000 to $803,000 for the three
month period ended  September  30, 1997,  from  $(102,000)  for the three months
ended  September 30, 1996. The primary reason for this increase was the increase
in net income  before taxes to $2.2 million at  September  30, 1997,  from a net
loss of ($311,000) at September 30, 1996. The change was primarily the result of
the SAIF Assessment.

For the nine month period ended  September 30, 1997,  income taxes  increased to
$2.4 million from $1.7  million for the nine months  ended  September  30, 1996.
This increase of $721,000 is primarily  attributed to the increase in net income
before taxes to $6.2 million from $3.9 million for the nine month  periods ended
September 30, 1997 and 1996, respectively.

                                       13

<PAGE>


Liquidity and Capital Resources

Under current Office of Thrift Supervision (OTS)  regulations,  the Savings Bank
must have core capital equal to 3% of 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  September  30,  1997,  the  Savings  Bank was in  compliance  with its three
regulatory capital requirements as follows:

                                          Amount            Percent
                                          ------            -------
                                           (dollars in thousands)

Tangible capital                         $42,782              6.9%  
Tangible capital requirement               9,299              1.5
                                           -----              ---
Excess over requirement                  $33,483              5.4%
                                         =======              === 
                                                          
Core capital                             $42,782              6.9%
Core capital requirement                  18,598              3.0
                                          ------              ---
Excess over requirement                  $24,184              3.9%
                                         =======              === 
                                                          
Risk based capital                       $44,925             17.4%
Risk based capital requirement            20,615              8.0
                                          ------              ---
Excess over requirement                  $24,310              9.4%
                                         =======              === 
                                                  

Management  believes  that under  current  regulations,  the  Savings  Bank will
continue to meet its minimum capital  requirements  in the  foreseeable  future.
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.  Subsequent to the period
ended  September  30,  1997,  the Savings  Bank paid a dividend to TF  Financial
Corporation  totaling  $16.5  million,   proceeds  of  which  were  utilized  to
repurchase  shares tendered  through the modified dutch auction.  The regulatory
capital of the Savings Bank after the transaction will exceed regulatory capital
requirements.

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 source of funds are deposits and scheduled
amortization  and prepayment of loan and mortgage backed  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,  and increase liquidity. The Savings Bank is currently
able to fund its operations  internally but has, when deemed  prudent,  borrowed
funds from the Federal Home Loan Bank of  Pittsburgh.  As of September 30, 1997,
such borrowed funds total $98.4 million. Loan payments, 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 5% 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 5%  requirement.  These levels may be changed from
time to time by the  regulators  to reflect  current  economic  conditions.  The
Savings Bank has  generally  maintained  liquidity  far in excess of  regulatory
requirements.  The Savings  Bank's  regulatory  liquidity was 22.7% and 20.5% at
September  30, 1997 and 1996,  respectively,  and its short term  liquidity  was
16.7% and 16.3%, at such dates, respectively.

The amount of  certificate  accounts  which are  scheduled to mature  during the
twelve months ending September 30 1998, is approximately  $116.1 million. To the
extent that these deposits do not remain at the Savings Bank upon maturity,  the

                                       14
<PAGE>

Savings Bank  believes  that it can replace  these funds with  deposits,  excess
liquidity,  FHLB advances or outside borrowings.  It has been the Savings Bank's
experience  that a substantial  portion of such maturing  deposits remain at the
Savings Bank.

At September 30, 1997, the Savings Bank had outstanding commitments to originate
loans of $11.0  million.  Funds required to fill these  commitments  are derived
primarily from current excess  liquidity,  deposit  inflows or loan and security
repayments.  At September 30, 1997, the Savings Bank had outstanding commitments
to sell loans of $10.9 million.

                                       15
<PAGE>


                    TF FINANCIAL CORPORATION AND SUBSIDIARIES

                                     PART II

ITEM 1. LEGAL PROCEEDINGS

        Neither the Corporation nor the Savings Bank was  engaged  in any  legal
        proceeding of a material nature  at  September 30, 1997.  From  time  to
        time,  the  Corporation  is a party to legal proceedings in the ordinary
        course of business wherein it enforces its security interest in loans.

ITEM 2. CHANGES IN SECURITIES

        Not applicable.

ITEM 3. DEFAULTS ON SENIOR SECURITIES

        Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS

On September  26,  1997,  the  Corporation  commenced a Modified  Dutch  Auction
self-tender  offer for up to 900,000 common shares,  or approximately 22% of its
4,088,432  shares then  outstanding.  The offer allowed common  shareholders  to
specify  prices at which they were willing to tender their shares at a price not
greater  than  $26.00 and not less than  $22.50  per share.  The period in which
shares could be tendered  ended at 5:00 p.m. on October 31, 1997. As a result of
this tender offer,  901,199 shares were purchased by the  Corporation at a price
of $26.00 per share,  or $23,431,174.  The Corporation now has 3,187,233  common
shares outstanding.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)     Exhibits

        None

        (b)     Reports on Form 8-K

        None


                                       16


<PAGE>





                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                                   TF FINANCIAL CORPORATION



Date:      November 14, 1997       /s/ John R. Stranford 
           -----------------       --------------------- 
                                   John R. Stranford
                                   President and CEO
                                   (Principal Executive Officer)



Date:      November 14, 1997       /s/ William C. Niemczura
           -----------------       ------------------------
                                   Senior Vice President and
                                   Chief Financial Officer
                                   (Principal Financial & Accounting Officer)


                                       17