Table of Contents

 

 

 

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **
| **x**                                        | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                         |
| **For the period ended March 31, 2009** |
|                                         |
| **- or -**                                   |
|                                         |
| **o**                                        | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from                     to                     **

 

**Commission file number:  0-24168**

 

**TFFINANCIAL CORPORATION**

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

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

 

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

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. YES x**  **NO o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  YES o**  **NO o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer o                      |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company x |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 Exchange Act).YES o**  **NO x

 

Indicate the number of shares outstandingof each of the issuer’s classes of common stock as of the latest practicabledate: **May 8, 2009**

 

| **Class**                    | ** ** | **Outstanding**   |
|------------------------------|------------|-------------------|
| $.10  par value common stock |       | 2,663,121  shares |

 

 

 

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Table ofContents

 

**CONTENTS**

 
| **PART I-CONSOLIDATED  FINANCIAL INFORMATION**                                | ** ** | ** **                                                                                  |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|
|                                                                               |       |                                                                                        |   |   |
| Item 1.                                                                            |       | Consolidated  Financial Statements                                                          |   | 3 |
|                                                                               |       |                                                                                        |   |   |
| Item 2.                                                                            |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 12 |
|                                                                               |       |                                                                                        |   |   |
| Item 3.                                                                            |       | Quantitative  and Qualitative Disclosures about Market Risk                                 |   | 17 |
|                                                                               |       |                                                                                        |   |   |
| Item 4T.                                                                           |       | Controls and  Procedures                                                                    |   | 17 |
|                                                                               |       |                                                                                        |   |   |
| **PART II-OTHER  INFORMATION**                                                |       |                                                                                        |
|                                                                               |       |                                                                                        |   |   |
| Item 1.                                                                            |       | Legal Proceedings                                                                           |   | 18 |
|                                                                               |       |                                                                                        |   |   |
| Item 1A.                                                                           |       | Risk Factors                                                                                |   | 18 |
|                                                                               |       |                                                                                        |   |   |
| Item 2.                                                                            |       | Unregistered Sales of Equity Securities  and Use of Proceeds                                |   | 18 |
|                                                                               |       |                                                                                        |   |   |
| Item 3.                                                                            |       | Defaults Upon Senior Securities                                                             |   | 18 |
|                                                                               |       |                                                                                        |   |   |
| Item 4.                                                                            |       | Submission of Matters to a Vote of  Security Holders                                        |   | 19 |
|                                                                               |       |                                                                                        |   |   |
| Item  5.                                                                           |       | Other Information                                                                           |   | 19 |
|                                                                               |       |                                                                                        |   |   |
| Item 6.                                                                            |       | Exhibits                                                                                    |   | 19 |
|                                                                               |       |                                                                                        |   |   |
| **Signatures**                                                                     |       |                                                                                        |   | 20 |
|                                                                               |       |                                                                                        |   |   |
| **Exhibits**                                                                       | ** ** | ** **                                                                                  | ** ** | ** ** |
|                                                                               |       |                                                                                        |   |   |
| 31.  Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |       |                                                                                        |
|                                                                               |       |                                                                                        |
| 32.  Certification pursuant of Section 906 of the Sarbanes-Oxley Act of 2002  |       |                                                                                        |

 

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Tableof Contents

 

**TFFinancial Corporation and Subsidiaries**

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                                                                                           | ** ** | **Unaudited  March 31, 2009** | ** ** | **Audited  December 31,  2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                           | ** ** | **(in thousands)**                 | ** ** |
| ASSETS                                                                                                                                                                                                                                                               |       |                                    |       |                                 |       |
| Cash and cash equivalents                                                                                                                                                                                                                                            |       | $                                       | 3,896      |                                 | $          | 2,719 |   |
| Investment securities available for sale—at fair value                                                                                                                                                                                                          |       | 28,555                                  |       | 31,619                               |       |
| Mortgage-backed securities available for sale—at fair value                                                                                                                                                                                                     |       | 101,105                                 |       | 107,217                              |       |
| Mortgage-backed securities held to maturity (fair value of $4,854 and  $4,996, respectively)                                                                                                                                                                         |       | 4,573                                   |       | 4,774                                |       |
| Loans receivable, net                                                                                                                                                                                                                                                |       | 541,031                                 |       | 544,330                              |       |
| Loans receivable held for sale                                                                                                                                                                                                                                       |       | 1,463                                   |       | 1,659                                |       |
| Federal Home Loan Bank stock—at cost                                                                                                                                                                                                                            |       | 9,896                                   |       | 9,896                                |       |
| Accrued interest receivable                                                                                                                                                                                                                                          |       | 2,640                                   |       | 2,788                                |       |
| Premises and equipment, net                                                                                                                                                                                                                                          |       | 5,497                                   |       | 5,636                                |       |
| Goodwill                                                                                                                                                                                                                                                             |       | 4,324                                   |       | 4,324                                |       |
| Bank-owned life insurance                                                                                                                                                                                                                                            |       | 16,674                                  |       | 16,514                               |       |
| Other assets                                                                                                                                                                                                                                                         |       | 4,271                                   |       | 2,232                                |       |
| TOTAL ASSETS                                                                                                                                                                                                                                                         |       | $                                       | 723,925    |                                 | 733,708    |   |
|                                                                                                                                                                                                                                                                 |       |                                    |       |                                 |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                            |       |                                    |       |                                 |       |
| Liabilities                                                                                                                                                                                                                                                          |       |                                    |       |                                 |       |
| Deposits                                                                                                                                                                                                                                                             |       | $                                       | 504,515    |                                 | $          | 489,850 |   |
| Borrowings from the Federal Home Loan Bank                                                                                                                                                                                                                           |       | 131,576                                 |       | 158,148                              |       |
| Other short-term borrowings                                                                                                                                                                                                                                          |       | 10,000                                  |       | 10,000                               |       |
| Advances from borrowers for taxes and insurance                                                                                                                                                                                                                      |       | 2,112                                   |       | 2,315                                |       |
| Accrued interest payable                                                                                                                                                                                                                                             |       | 3,608                                   |       | 3,066                                |       |
| Other liabilities                                                                                                                                                                                                                                                    |       | 3,213                                   |       | 2,637                                |       |
| Total liabilities                                                                                                                                                                                                                                                    |       | 655,024                                 |       | 666,016                              |       |
|                                                                                                                                                                                                                                                                 |       |                                    |       |                                 |       |
| Stockholders’ equity                                                                                                                                                                                                                                            |       |                                    |       |                                 |       |
| Preferred stock, no par value; 2,000,000 shares authorized at  March 31, 2009 and December 31, 2008, none issued                                                                                                                                           |       | —                                  |       | —                               |       |
| Common stock, $0.10 par value; 10,000,000 shares authorized,  5,290,000 shares issued, 2,519,026 and 2,515,407 shares outstanding at  March 31, 2009 and December 31, 2008, respectively, net of shares  in treasury 2,627,129 and 2,627,752, respectively |       | 529                                     |       | 529                                  |       |
| Additional paid-in capital                                                                                                                                                                                                                                           |       | 53,935                                  |       | 53,897                               |       |
| Unearned ESOP shares                                                                                                                                                                                                                                                 |       | (1,438                                  | )          | (1,468                               | )          |
| Treasury stock-at cost                                                                                                                                                                                                                                               |       | (54,535                                 | )          | (54,538                              | )          |
| Retained earnings                                                                                                                                                                                                                                                    |       | 70,392                                  |       | 69,875                               |       |
| Accumulated other comprehensive income (loss)                                                                                                                                                                                                                        |       | 18                                      |       | (603                                 | )          |
| Total stockholders’ equity                                                                                                                                                                                                                                      |       | 68,901                                  |       | 67,692                               |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                      |       | $                                       | 723,925    |                                 | $          | 733,708 |   |

 

The accompanying notes are an integral part of these statements

 

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**TF Financial Corporation and Subsidiaries**

 

**CONSOLIDATED STATEMENTS OF INCOME**

 
| ** **                                          | ** ** | **For the three months ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2009**                                                           | ** ** | **2008** | ** ** |
| ** **                                          | ** ** | **(in thousands, except  per share data)**     | ** ** |
| Interest income                                     |       |                                                               |       |   |   |
| Loans, including fees                               |       | $                                                                  | 7,655      |   | $ | 8,183 |   |
| Mortgage-backed securities                          |       | 1,385                                                              |       | 1,231 |   |
| Investment securities                               |       | 277                                                                |       | 413 |   |
| Interest-bearing deposits and other                 |       | —                                                             |       | 6 |   |
| TOTAL INTEREST INCOME                               |       | 9,317                                                              |       | 9,833 |   |
| Interest expense                                    |       |                                                               |       |   |   |
| Deposits                                            |       | 2,513                                                              |       | 3,286 |   |
| Borrowings                                          |       | 1,285                                                              |       | 1,632 |   |
| TOTAL INTEREST EXPENSE                              |       | 3,798                                                              |       | 4,918 |   |
| NET INTEREST INCOME                                 |       | 5,519                                                              |       | 4,915 |   |
| Provision for loan losses                           |       | 665                                                                |       | — |   |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |       | 4,854                                                              |       | 4,915 |   |
| Non-interest income                                 |       |                                                               |       |   |   |
| Service fees, charges and other operating income    |       | 437                                                                |       | 693 |   |
| Bank owned life insurance                           |       | 160                                                                |       | 159 |   |
| Gain on sale of investments                         |       | 190                                                                |       | — |   |
| Gain on sale of loans                               |       | 148                                                                |       | 62 |   |
| Other income                                        |       | —                                                             |       | 197 |   |
| TOTAL NON-INTEREST INCOME                           |       | 935                                                                |       | 1,111 |   |
| Non-interest expense                                |       |                                                               |       |   |   |
| Employee compensation and benefits                  |       | 2,671                                                              |       | 2,538 |   |
| Occupancy and equipment                             |       | 710                                                                |       | 728 |   |
| Professional fees                                   |       | 273                                                                |       | 254 |   |
| Marketing and advertising                           |       | 148                                                                |       | 144 |   |
| Other operating                                     |       | 622                                                                |       | 598 |   |
| TOTAL NON-INTEREST EXPENSE                          |       | 4,424                                                              |       | 4,262 |   |
| INCOME BEFORE INCOME TAXES                          |       | 1,365                                                              |       | 1,764 |   |
| Income tax expense                                  |       | 345                                                                |       | 483 |   |
| NET INCOME                                          |       | $                                                                  | 1,020      |   | $ | 1,281 |   |
| Earnings per share—basic                       |       | $                                                                  | 0.41       |   | $ | 0.48 |   |
| Earnings per share—diluted                     |       | $                                                                  | 0.41       |   | $ | 0.48 |   |
| Dividends paid per share                            |       | $                                                                  | 0.20       |   | $ | 0.20 |   |

 

The accompanying notes are an integral part of these statements.

 

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**TF Financial Corporation and Subsidiaries**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited****)**

 
| ** **                                                                                  | ** ** | **For the three months  ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2009**                                                       | ** ** | **2008** | ** ** |
| ** **                                                                                  | ** ** | **(in thousands)**                                        | ** ** |
| OPERATING ACTIVITIES                                                                        |       |                                                           |       |   |   |
| Net income                                                                                  |       | $                                                              | 1,020      |   | $ | 1,281 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities           |       |                                                           |       |   |   |
| Amortization of:                                                                            |       |                                                           |       |   |   |
| Mortgage loan servicing rights                                                              |       | 81                                                             |       | 13 |   |
| Deferred loan origination fees                                                              |       | 11                                                             |       | (20 | ) |
| Premiums and discounts on investment securities, net                                        |       | 22                                                             |       | 22 |   |
| Premiums and discounts on mortgage-backed securities, net                                   |       | (95                                                            | )          | (59 | ) |
| Premiums and discounts on loans, net                                                        |       | 49                                                             |       | 21 |   |
| Provision for loan losses                                                                   |       | 665                                                            |       | — |   |
| Depreciation of premises and equipment                                                      |       | 222                                                            |       | 242 |   |
| Increase in value of bank-owned life insurance                                              |       | (160                                                           | )          | (159 | ) |
| Restricted stock grant expense                                                              |       | 4                                                              |       | 90 |   |
| Stock option expense                                                                        |       | 14                                                             |       | 94 |   |
| Stock-based benefit programs: ESOP                                                          |       | 53                                                             |       | 71 |   |
| Proceeds from sale of loans receivable held for sale                                        |       | 12,505                                                         |       | 5,123 |   |
| Origination of loans held for sale                                                          |       | (12,296                                                        | )          | (4,870 | ) |
| (Gain) loss on sale of                                                                      |       |                                                           |       |   |   |
| Loans receivable held for sale                                                              |       | (148                                                           | )          | (62 | ) |
| Investments                                                                                 |       | (190                                                           | )          | — |   |
| Expense from loans receivable held for sale                                                 |       | 13                                                             |       | — |   |
| Expense (income) from mortgage loan derivatives                                             |       | 18                                                             |       | (10 | ) |
| (Income)expense associated with forward loan sales                                          |       | (35                                                            | )          | 17 |   |
| Decrease (increase) in                                                                      |       |                                                           |       |   |   |
| Accrued interest receivable                                                                 |       | 148                                                            |       | 163 |   |
| Other assets                                                                                |       | 187                                                            |       | (243 | ) |
| Increase in                                                                                 |       |                                                           |       |   |   |
| Accrued interest payable                                                                    |       | 542                                                            |       | 277 |   |
| Other liabilities                                                                           |       | 293                                                            |       | 242 |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                   |       | 2,923                                                          |       | 2,233 |   |
|                                                                                        |       |                                                           |       |   |   |
| INVESTING ACTIVITIES                                                                        |       |                                                           |       |   |   |
| Loan originations                                                                           |       | (22,963                                                        | )          | (47,228 | ) |
| Loan principal payments                                                                     |       | 23,372                                                         |       | 23,031 |   |
| Principal repayments on mortgage-backed securities held to maturity                         |       | 205                                                            |       | 255 |   |
| Principal repayments on mortgage-backed securities available for sale                       |       | 7,201                                                          |       | 4,910 |   |
| Proceeds from sale of investment securities available for sale                              |       | 3,135                                                          |       | — |   |
| Purchases of Federal Home Loan Bank stock, net                                              |       | —                                                         |       | (547 | ) |
| Purchase of premises and equipment                                                          |       | (83                                                            | )          | (33 | ) |
| NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES                                          |       | 10,867                                                         |       | (19,612 | ) |
|                                                                                        |       |                                                           |       |   |   |
| FINANCING ACTIVITIES                                                                        |       |                                                           |       |   |   |
| Net increase in deposits                                                                    |       | 14,665                                                         |       | 6,570 |   |
| Net (decrease) increase in short-term borrowings from the Federal  Home Loan Bank and other |       | (13,619                                                        | )          | 7,551 |   |
| Proceeds of long-term Federal Home Loan Bank borrowings                                     |       | —                                                         |       | 7,900 |   |
| Repayment of long-term Federal Home Loan Bank borrowings                                    |       | (12,953                                                        | )          | (5,071 | ) |
| Net decrease in advances from borrowers for taxes and insurance                             |       | (203                                                           | )          | (191 | ) |
| Treasury stock acquired                                                                     |       | (101                                                           | )          | (253 | ) |
| Exercise of stock options                                                                   |       | 101                                                            |       | 8 |   |
| Common stock dividends paid                                                                 |       | (503                                                           | )          | (534 | ) |
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                         |       | (12,613                                                        | )          | 15,980 |   |
|                                                                                        |       |                                                           |       |   |   |
| NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS                                         |       | 1,177                                                          |       | (1,399 | ) |
|                                                                                        |       |                                                           |       |   |   |
| Cash and cash equivalents at beginning of period                                            |       | 2,719                                                          |       | 5,680 |   |
|                                                                                        |       |                                                           |       |   |   |
| Cash and cash equivalents at end of period                                                  |       | $                                                              | 3,896      |   | $ | 4,281 |   |
|                                                                                        |       |                                                           |       |   |   |
| Supplemental disclosure of cash flow information                                            |       |                                                           |       |   |   |
| Cash paid for                                                                               |       |                                                           |       |   |   |
| Interest on deposits and borrowings                                                         |       | $                                                              | 3,256      |   | $ | 4,641 |   |
| Income taxes                                                                                |       | $                                                              | 55         |   | $ | 22 |   |
| Non-cash transactions                                                                       |       |                                                           |       |   |   |
| Capitalization of mortgage servicing rights                                                 |       | $                                                              | 121        |   | $ | 65 |   |
| Transfers from loans to real estate acquired through foreclosure                            |       | $                                                              | 2,164      |   | $ | 306 |   |

 

The accompanying notes are an integral part of these statements

 

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**TF FINANCIAL CORPORATION ANDSUBSIDIARIES**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE 1 -PRINCIPLES OF CONSOLIDATION**

 

The consolidated financial statements asof March 31, 2009 (unaudited) and December 31, 2008 and for the threemonths ended March 31, 2009 and 2008 (unaudited) include the accounts ofTF Financial Corporation (the “Company”) and its wholly owned subsidiariesThird Federal Bank (the “Bank”), TF Investments Corporation and Penns TrailDevelopment Corporation. The Company’s business is conducted principallythrough the Bank. All intercompany accounts and transactions have beeneliminated in consolidation.

 

**NOTE 2 - BASISOF PRESENTATION**

 

The accompanying unaudited consolidated financial statements wereprepared in accordance with instructions for Form 10-Q and, therefore, donot include all of the disclosures or footnotes required by accountingprinciples generally accepted in the United States of America (“GAAP”). In theopinion of management, all adjustments, consisting of normal recurringaccruals, necessary for fair presentation of the consolidated financialstatements have been included. The results of operations for the period ended March 31,2009 are not necessarily indicative of the results which may be expected forthe entire fiscal year or any other period. For further information, refer toconsolidated financial statements and footnotes thereto included in the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31,2008.

 

**NOTE 3 -CONTINGENCIES**

 

The Company, from time to time, is a partyto routine litigation that arises in the normal course of business. In theopinion of management, the resolution of this litigation, if any, would nothave a material adverse effect on the Company’s consolidated financial positionor results of operations.

 

**NOTE 4 - OTHERCOMPREHENSIVE INCOME**

 

The Company follows Statement of FinancialAccounting Standard (SFAS) No. 130, “Reporting Comprehensive Income.” SFAS130 establishes standards to provide prominent disclosure of comprehensiveincome items. Comprehensive income is the change in equity of a businessenterprise during a period from transactions and other events and circumstancesfrom non-owner sources. The components of other comprehensive income are asfollows for the three months ended:

 
| ** **                                                                           | ** ** | **March 31, 2009** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                           | ** ** | **Before tax  amount**  | ** ** | **Tax  benefit  (expense)** | ** ** | **Net of tax  amount** | ** ** |
| ** **                                                                           | ** ** | **(in thousands)**      | ** ** |
| Unrealized gains on securities                                                       |       |                         |       |   |   |   |   |
| Unrealized holding gains arising during period                                       |       | $                            | 1,090      |   | $ | (372 | ) | $ | 718 |   |
| Reclassification adjustment for gains realized in net income                         |       | (190                         | )          | 65 |   | (125 | ) |
| Pension plan benefit adjustment related to prior service costs and  actuarial losses |       | 46                           |       | (18 | ) | 28 |   |
|                                                                                 |       |                         |       |   |   |   |   |
| Other comprehensive income, net                                                      |       | $                            | 946        |   | $ | (325 | ) | $ | 621 |   |

 
| ** **                                                                           | ** ** | **March 31, 2008** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                           | ** ** | **Before tax  amount**  | ** ** | **Tax  expense** | ** ** | **Net of tax  amount** | ** ** |
| ** **                                                                           | ** ** | **(in thousands)**      | ** ** |
| Unrealized gains on securities                                                       |       |                         |       |   |   |   |   |
| Unrealized holding gains arising during period                                       |       | $                            | 1,690      |   | $ | (575 | ) | $ | 1,115 |   |
| Pension plan benefit adjustment related to prior service costs and  actuarial losses |       | 22                           |       | (8 | ) | 14 |   |
|                                                                                 |       |                         |       |   |   |   |   |
| Other comprehensive income, net                                                      |       | $                            | 1,712      |   | $ | (583 | ) | $ | 1,129 |   |

 

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**NOTE 5 -EARNINGS PER SHARE**

 

Thefollowing tables illustrate the reconciliation of the numerators anddenominators of the basic and diluted earnings per share computations (dollarsin thousands, except per share data):

 
| ** **                                                                  | ** ** | **Three months ended March 31, 2009** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                        | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings per share                                                    | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income available to common stockholders                                     |       | $                                                              | 1,020      |   | 2,516,962 |   | $ | 0.41 |   |
| Effect of dilutive securities                                               |       |                                                           |       |   |   |   |   |
| Stock options and grants                                                    |       | —                                                         |       | — |   | — |   |
|                                                                        |       |                                                           |       |   |   |   |   |
| Diluted earnings per share                                                  |       |                                                           |       |   |   |   |   |
| Income available to common stockholders plus effect of dilutive  securities |       | $                                                              | 1,020      |   | 2,516,962 |   | $ | 0.41 |   |

 

Therewere 256,893 options to purchase shares of common stock at an average pricerange of $20.30 to $34.14 per share which were outstanding for the three monthsended March 31, 2009 that were not included in the computation of dilutedearnings per share because the options’ exercise prices were greater than theaverage market price of the common shares.

 
| ** **                                                                  | ** ** | **Three months ended March 31, 2008** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                        | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings per share                                                    |       |                                                           |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                                              | 1,281      |   | 2,670,513 |   | $ | 0.48 |   |
| Effect of dilutive securities                                               |       |                                                           |       |   |   |   |   |
| Stock options and grants                                                    |       | —                                                         |       | — |   | — |   |
|                                                                        |       |                                                           |       |   |   |   |   |
| Diluted earnings per share                                                  |       |                                                           |       |   |   |   |   |
| Income available to common stockholders plus effect of dilutive  securities |       | $                                                              | 1,281      |   | 2,670,513 |   | $ | 0.48 |   |

 

Therewere 209,883 options to purchase shares of common stock at an average pricerange of $24.71 to $34.14 per share which were outstanding for the three monthsended March 31, 2008 that were not included in the computation of dilutedearnings per share because the options’ exercise prices were greater than theaverage market price of the common shares.

 

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**NOTE 6 - FAIR VALUE MEASUREMENTS**

 

On January 1,2008, the Company adopted Financial Accounting Standards Board (FASB) StatementNo. 157 (SFAS 157), “Fair Value Measurements”. SFAS 157 defines fairvalue, establishes a framework for measuring fair value and expands the relateddisclosure requirements. SFAS 157 clarifies that fair value is an exit price,representing the amount that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants.SFAS 157 establishes a fair value measurement hierarchy for inputs in valuationtechniques used to measure fair value. The hierarchy gives the highest priorityto unadjusted quoted prices in active markets for identical assets orliabilities (level 1 measurements) and the lowest priority to unobservableinputs (level 3 measurements).

 

Thefair value hierarchy levels are summarized below:

 

·                  Level1 inputs are quoted prices (unadjusted) in active markets for identical assetsor liabilities.

 

·                  Level2 inputs are inputs that are observable for the asset or liability, eitherdirectly or indirectly.

 

·                  Level3 inputs are unobservable and contain assumptions of the party fair valuing theasset or liability.

 

Determinationof the appropriate level within the fair value hierarchy is based on the lowestlevel of input that is significant to the fair value measurement for theinstrument or security.  Assets andliabilities measured at fair value on a recurring basis segregated by valuehierarchy level are summarized below (dollars in thousands):

 
| ** **                                    | ** ** | **Quoted  Prices in  Active  Markets  for  Identical  Assets  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** | **Balance as of  March 31,  2009** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| **Assets**                                    | ** ** | ** **                                                                          | ** ** | ** **                                                 | ** ** | ** **                                            | ** ** | ** **                                        | ** ** |
| Investment securities available for sale      |       | $                                                                                   | 165        |                                                       | $          | 28,390                                                |       | $                                                 | —     |   | $ | 28,555 |   |
| Mortgage-backed securities available for sale |       | —                                                                              |       | 101,105                                                    |       | —                                                |       | 101,105                                           |       |
| Loans receivable held for sale                |       | 1,463                                                                               |       | —                                                     |       | —                                                |       | 1,463                                             |       |
| Impaired loans                                |       | —                                                                              |       | —                                                     |       | 3,486                                                 |       | 3,486                                             |       |
|                                          |       |                                                                                |       |                                                       |       |                                                  |       |                                              |       |
| **Liabilities**                               |       |                                                                                |       |                                                       |       |                                                  |       |                                              |       |
| Forward loan sales/derivatives                |       |                                                                                |       |                                                       |       | 7                                                     |       | 7                                                 |       |
|                                               |            |                                                                                     |            |                                                            |            |                                                       |            |                                                   |            |  |  |  |  |

 

Investment securitiesavailable for sale and mortgage-backed securities available for sale are valuedprimarily by a third party pricing agent. Active listed equities are generallyclassified within Level 1 of the fair value hierarchy.  Government-sponsored agency debt securitiesand corporate bonds are primarily priced through a multi-dimensional relationalmodel, a level 2 hierarchy, which incorporates dealer quotes and other marketinformation including, defined sector breakdown, benchmark yields, base spread,yield to maturity, and corporate actions. Municipal securities are also measured within the level 2 hierarchyusing inputs with a series of matrices that reflect benchmark yields, ratingsupdates, and spread adjustments. Mortgage-backed securities include FNMA andFHLMC certificates and real estate mortgage investment conduits which arevalued under a level 2 hierarchy using a matrix correlation to benchmarkyields, spread analysis, and prepayment speeds. Loans originated and held forsale in the secondary market are carried at fair value on an individual basis.

 

Impaired loans are evaluatedand valued at the time the loan is identified as impaired, at the lower of therecorded investment in the loan or market value. The loans identified asimpaired are real estate secured.  Marketvalue is determined by using the value of the collateral securing the loans andis therefore classified as a level 3 hierarchy. The value of the real estate is determined by qualified independentlicensed appraisers contracted by the Company to perform the assessment.  The appraised value is then discounted basedupon management’s experience, which includes estimated disposal costs,understanding of the customer and the customer’s business as well as economicconditions.  Impaired loans are reviewedand evaluated on a quarterly basis for additional impairment and adjustedaccordingly, based upon the pertinent conditions.

 

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Thefair value of derivative loan commitments and forward loan sales are determinedat the time the underlying loan is identified as held for sale with changes infair value correlated to the change in secondary market loan pricing. The valueis adjusted to reflect the Company’s historical loan “fallout” experience whichincorporates such factors as changes in market rates, origination channels andloan purpose.

 

Thefollowing table presents additional information about assets measured at fairvalue on a recurring basis for which the Company has utilized Level 3inputs to determine fair value (in thousands):

 
| ** **                               | ** ** | **Derivative loan  commitments** | ** ** |
|------------------------------------------|------------|---------------------------------------|------------|
| Beginning balance December 31, 2008 |       | $                                     | 18         |   |
| Total losses—realized/unrealized:   |       |                                  |       |
| Included in earnings                     |       | (18                                   | )          |
| Included in other comprehensive income   |       | —                                |       |
| Purchases, issuances, and settlements    |       | —                                |       |
| Ending balance, March 31, 2009      |       | $                                     | —     |   |

 
| ** **                               | ** ** | **Forward loan  sales** | ** ** |
|------------------------------------------|------------|------------------------------|------------|
| Beginning balance December 31, 2007 |       | $                            | 42         |   |
| Total gains—realized/unrealized:    |       |                         |       |
| Included in earnings                     |       | (35                          | )          |
| Included in other comprehensive income   |       | —                       |       |
| Purchases, issuances, and settlements    |       | —                       |       |
| Ending balance March 31, 2009       |       | $                            | 7          |   |

 

The Company also measurescertain other financial assets at fair value on a non-recurring basis inaccordance with GAAP.  Adjustments mayresult from application of lower-of-cost or fair value accounting.

 

**NOTE 7 - STOCK BASED COMPENSATION**

 

TheCompany has stock benefit plans that allow the Company to grant options andrestricted stock to employees and directors. The awards, which have a term ofup to 10 years when issued, vest over a three to five year period. Theexercise price of each award equals the market price of the Company’s stock onthe date of the grant. At March 31, 2009, there was $185,197 of totalunrecognized compensation cost, net of estimated forfeitures, related tonon-vested awards under the Plan. That cost is expected to be recognized over aweighted average period of 27.6 months. Option activity under the Company’sstock option plan as of March 31, 2009 is as follows:

 
| ** **                                 | ** ** | **2009**                   | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **Number  of shares** | ** ** | **Weighted  average  exercise  price per  share** | ** ** | **Weighted  average  remaining  contractual  term (in  years)** | ** ** | **Aggregate  intrinsic  value ($ 000)** | ** ** |
| Outstanding at January 1, 2009        |       | 287,336                    |       | $ | 25.67 |   |   |   |   |   |
| Options granted                            |       | —                     |       | — |   |   |   |   |   |
| Options exercised                          |       | (5,000                     | )          | 20.88 |   |   |   |   |   |
| Options forfeited                          |       | (175                       | )          | 31.88 |   |   |   |   |   |
| Options expired                            |       | —                     |       | — |   |   |   |   |   |
| Outstanding at March 31, 2009         |       | 282,161                    |       | $ | 25.75 |   | 3.08 |   | $ | 114 |   |
| Options exercisable at March 31, 2009 |       | 229,364                    |       | $ | 26.62 |   | 2.39 |   | $ | 114 |   |

 

Theaggregate intrinsic value in the table above represents the total pre-taxintrinsic value (the difference between the Company’s closing stock price onthe last trading day of the first quarter and the exercise price, multiplied bythe number of in-the money options).

 

Theaggregate intrinsic value of options exercised during the three months ended March 31,2009 and 2008 was 

 

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$14,000and $2,100, respectively. Exercise of stock options during the three monthsended March 31, 2009 and 2008 resulted in cash receipts of $101,000 and$8,000, respectively.

 

Stock-basedcompensation expense included in net income related to restricted stock grantswas $4,000 and $90,000 for the quarters ended March 31, 2009 and 2008,respectively. Stock-based compensation expense included in net income relatedto the Company’s employee stock ownership plan totaled $40,000 and $55,000 forthe quarter ended March 31, 2009 and 2008, respectively.

 

Stock-basedcompensation expense included in net income related to stock options was$14,000 and $94,000 for the quarters ended March 31, 2009 and 2008respectively, resulting in a tax benefit of $5,000 and $29,000, respectively.

 

**NOTE 8- EMPLOYEE BENEFIT PLANS**

 

Net periodic defined benefitpension cost included the following (in thousands):

 
| ** **                              | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                              | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
|                                    |       |                                             |       |   |   |
| Components of net periodic benefit cost |       |                                             |       |   |   |
| Service cost                            |       | $                                                | 118        |   | $ | 98 |   |
| Interest cost                           |       | 62                                               |       | 62 |   |
| Expected return on plan assets          |       | (93                                              | )          | (105 | ) |
| Amortization of prior service cost      |       | —                                           |       | 8 |   |
| Recognized net actuarial (gain) loss    |       | 46                                               |       | 14 |   |
|                                    |       |                                             |       |   |   |
| Net periodic benefit cost               |       | $                                                | 133        |   | $ | 77 |   |

 

Theemployer contribution made for the three months ended March 31, 2009 and2008 was $0 and $218,000, respectively.

 

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**NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS**

 

InDecember 2008, FASB issued FSP FAS (132) R-1, “Employers’ Disclosuresabout Postretirement Benefit Plan Assets” which amends SFAS 132(R), “Employers’Disclosures about Pensions and Other Postretirement Benefits” to require moredetailed disclosure about employer plan assets, including employer’s investmentstrategies, major categories of plan assets, concentrations of risk within planassets, and valuation techniques used to measure the fair value of plan assets.The new disclosures are required to be included in financial statements for fiscalyears ending after December 15, 2009 with early application permitted.This FSP only requires additional disclosures, and will not affect the Company’sfinancial position or results of operation or cash flows.

 

InApril 2009, FASB issued FASB Staff Position(FSP) FAS 157-4, “Determining Fair Value When the Volume and Level of Activityfor the Asset or Liability Have Significantly Decreased and IdentifyingTransactions That Are Not Orderly”. FAS 157-4 provides additional guidance on (a) determiningwhen the volume and level of activity for the asset or liability hassignificantly decreased; (b) identifying circumstances in which atransaction is not orderly; and (c) understanding the fair valueimplications of both (a) and (b). The objectives emphasized in SFAS 157, “FairValue Measurements” have not changed. FAS 157-4 is effective for interim andannual reporting periods ending after June 15, 2009 and is appliedprospectively.  Early adoption ispermitted for periods ending after March 15, 2009, however FAS 157-4 mustbe adopted at the same time as FAS 115-2/FAS 124-2 which is discussed below. The Company hasnot adopted FAS 157-4 as of March 31, 2009 and is evaluating the impactFAS 157-4 will have on its consolidated financial statements.

 

InApril 2009, FASB issued (FSP) FAS 115-2 andFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairment”.This FSP amends the other-than-temporary impairment guidance for debtsecurities to make the guidance more operational and to improve the presentationand disclosure of other-than-temporary impairments in the financial statements.Of significance is the revision to the other-than-temporary loss of a debtsecurity recorded in earnings. FAS 115-2/FAS 124-2 is effective for interim andannual reporting periods ending after June 15, 2009 and is appliedprospectively.  Early adoption ispermitted for periods ending after March 15, 2009, however FAS 115-2/FAS124-2 must be adopted at the same time as FAS 157-4 discussed above. The Company hasnot adopted FAS 115-2/FAS 124-2 as of March 31, 2009 and is evaluating theimpact FAS 115-2/FAS 124-2 will have on its consolidated financial statements.

 

InApril 2009, FASB issued (FSP) FAS 107-1 andAPB 28-1, “Interim Disclosures about Fair Value Instruments”. This FSP requiresdisclosures about fair value of financial instruments for interim reportingperiods as well as in annual financial statements of publicly traded companies.This FSP is effective for interim reporting periods ending after June 15,2009 with early adoption permitted for periods ending after March 15,2009. Early adoption of FAS 107-1 and APB 28-1 requires early adoption of FAS157-4 and FAS115-2 and FAS 124-2. The Company has not adopted FAS 107-1/APB 28-1as of March 31,2009 and is evaluating the impact FAS 107-1/APB28-1 will have onits consolidated financial statements

 

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**TF FINANCIAL CORPORATION ANDSUBSIDIARIES**

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL POSITION AND RESULTS OF OPERATIONS**

 

**GENERAL**

 

TheCompany may from time to time make written or oral “forward-looking statements”,including statements contained in the Company’s filings with the Securities andExchange Commission (including this Quarterly Report on Form 10-Q and theexhibits thereto), in its reports to stockholders and in other communicationsby the Company, which are made in good faith by the Company pursuant to the “SafeHarbor” Provisions of the Private Securities Litigation Reform Act of 1995.

 

Theseforward-looking statements involve risks and uncertainties, such as statementsof the Company’s plans, objectives, expectations, estimates and intentions thatare subject to change based on various important factors (some of which arebeyond the Company’s control). The following factors, among others, could causethe Company’s financial performance to differ materially from the plans,objectives, expectations, estimates and intentions expressed in suchforward-looking statements: the strength of the United States economy ingeneral and the strength of the local economies in which the Company conductsoperations; the effects of, and changes in, trade, monetary and fiscal policiesand laws, including interest rate policies of the Board of Governors of theFederal Reserve System, inflation, interest rate, market and monetaryfluctuations; the timely development of and acceptance of new products andservices of the Company and the perceived overall value of these products andservices by users, including the features, pricing and quality compared tocompetitors’ products and services; the willingness of users to substitutecompetitors’ products and services for the Company’s products and services; thesuccess of the Company in gaining regulatory approval of its products andservices, when required; the impact of changes in financial services’ laws andregulations (including laws concerning taxes, banking, securities andinsurance); technological changes, acquisitions; changes in consumer spendingand saving habits; and the success of the Company at managing the risksinvolved in the foregoing.

 

TheCompany cautions that the foregoing list of important factors is not exclusive.The Company does not undertake to update any forward-looking statement, whetherwritten or oral, that may be made from time to time by or on behalf of theCompany.

 

**Financial Position**

 

TheCompany’s total assets at March 31, 2009 and December 31, 2008 were$723.9 million and $733.7 million, respectively, a decrease of $9.8 million, or1.3% during the three-month period. Investment securities available for saledecreased $3.1 million due to the sale of a debt security. Mortgage-backedsecurities available for sale decreased by $6.1 million due to principalrepayments received of $7.2 million, offset by an increase in the fair value ofthe securities of $1.0 million and net discount accretion of $0.1 million.  Mortgage-backed securities held to maturitydecreased by $0.2 million mainly as a result of principal repayments.

 

Loansreceivable decreased by $3.3 million during the first three months of 2009.Consumer and single-family residential mortgage loans of $15.0 million andcommercial loans of $8.0 were originated during the first quarter of 2009.Principal repayments of loans receivable totaled $23.4 million. During thefirst quarter of 2009, the Company increased the allowance for loan losses by$665,000 and also transferred $2.2 million from loans to real estate owned as aresult of real estate acquired through foreclosure. Loans originated for saleduring the first three months of 2009 totaled $12.3 million, and there was$12.5 million in proceeds from the sale of loans in the secondary market duringthis period.

 

Totalliabilities decreased by $11.0 million during the first quarter of 2009.Deposit balances grew by $14.7 million due to an increase of $6.2 million in retail certificates of deposit and anincrease in money marketand interest checking accounts of $12.3million during thistime period. Non-interest checking and savings accounts decreasedby $3.8 million. Advances from the Federal Home Loan Bank decreased by $26.6million in the first three months of 2009, the result of a $13.6 milliondecrease in short-term borrowings and scheduled amortization payments of $13.0million.

 

Totalconsolidated stockholder’s equity of the Company was $68.9 million or 9.5% oftotal assets at March 31, 2009. During the first three months of 2009, theCompany repurchased 4,377 shares of its common stock and issued 5,000 sharespursuant to the exercise of stock options. At March 31, 2009, there were approximately102,000 shares available for repurchase under the previously announced sharerepurchase plan.

 

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**Asset Quality**

 

At the end of the first quarter of 2009, the Company completedforeclosure proceedings on three parcels of real estate which have beenrecorded as real estate owned totaling $2.2 million and are included in otherassets in the consolidated balance sheet at March 31, 2009. These loanswere non-performing at December 31, 2008. As a result of theseforeclosures, the Bank recorded a charge-off in the amount of $94,000. Oneproperty with a carrying value of $750,000 has been sold at a sheriff’s saleand the Company is currently awaiting distribution of the proceeds which are inexcess of the carrying value of the property. During the first three months of 2009 and 2008, the Company’s provisionfor loan losses was $665,000 and $0, respectively. With respect to each of theremaining non-performing loans, all of which are real estate secured, the Bankis taking appropriate steps to resolve the individual situations.

 

Thefollowing table sets forth information regarding the Company’s asset quality(dollars in thousands):

 
| ** **                                                  | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** | **March 31,  2008** | ** ** |
|-------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|--------------------------|------------|
| ** **                                                  | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **               | ** ** |
| Non-performing loans                                        |       | $                        | 3,486      |                        | $          | 5,279                    |       | $ | 3,144 |   |
| Ratio of non-performing loans to gross loans                |       | 0.64                     | %          | 0.96                        | %          | 0.58                     | %          |
| Ratio of non-performing loans to total assets               |       | 0.48                     | %          | 0.72                        | %          | 0.44                     | %          |
| Ratio of total non-performing assets to total  assets       |       | 0.78                     | %          | 0.72                        | %          | 0.48                     | %          |
| Ratio of allowance for loan losses to total  loans          |       | 0.81                     | %          | 0.70                        | %          | 0.46                     | %          |
| Ratio of allowance for loan losses to  non-performing loans |       | 126.94                   | %          | 73.03                       | %          | 79.61                    | %          |
|                                                             |            |                          |            |                             |            |                          |            |  |  |  |

 

Managementmaintains an allowance for loan losses at levels that are believed to beadequate; however, there can be no assurances that further additions will notbe necessary or that losses inherent in the existing loan portfolio will notexceed the allowance. The following table sets forth the activity in theallowance for loan losses during the periods indicated (in thousands):

 
| ** **                         | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Beginning balance, January 1, |       | $        | 3,855      |     | $          | 2,842 |   |
| Provision                          |       | 665      |       | —   |       |
| Less: charge-off’s, net       |       | 95       |       | 339      |       |
| Ending balance, March 31,     |       | $        | 4,425      |     | $          | 2,503 |   |

 

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**RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2009AND 2008**

 

**Net Income**. The Company recorded net income of $1,020,000, or$0.41 per diluted share, for the three months ended March 31, 2009 ascompared to net income of $1,281,000, or $0.48 per diluted share, for the threemonths ended March 31, 2008.

 

### **Average Balance Sheet**

###  

Thefollowing table sets forth information (dollars in thousands) relating to theCompany’s average balance sheet and reflects the average yield on assets andaverage cost of liabilities for the periods indicated. Yield and cost are computedby dividing income or expense by the average daily balance of interest-earningassets or interest-bearing liabilities, respectively, for the three-monthperiods indicated.

 
| ** **                                                                        | ** ** | **March 31,**   | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                        | ** ** | **2009**             | ** ** | **2008** | ** ** |
| ** **                                                                        | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** |
| **ASSETS**                                                                        |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning assets:**                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Loans receivable(1)                                                               |       | $                    | 545,097    |   | $ | 7,655 |   | 5.70 | % | $ | 528,865 |   | $ | 8,183 |   | 6.22 | % |
| Mortgage-backed securities                                                        |       | 109,377              |       | 1,385 |   | 5.14 | % | 102,223 |   | 1,231 |   | 4.84 | % |
| Investment securities(2)                                                          |       | 39,458               |       | 379 |   | 3.90 | % | 41,783 |   | 519 |   | 5.00 | % |
| Other interest-earning assets(3)                                                  |       | 501                  |       | — | * | — | % | 971 |   | 6 |   | 2.49 | % |
| Total interest-earning assets                                                     |       | 694,433              |       | 9,419 |   | 5.50 | % | 673,842 |   | 9,939 |   | 5.93 | % |
| Non interest-earning assets                                                       |       | 34,984               |       |   |   |   |   | 34,879 |   |   |   |   |   |
| Total assets                                                                      |       | $                    | 729,417    |   |   |   |   |   | $ | 708,721 |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                     |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**                                                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                          |       | 494,969              |       | 2,513 |   | 2.06 | % | 473,160 |   | 3,286 |   | 2.79 | % |
| Borrowings from the FHLB and other borrowings                                     |       | 157,928              |       | 1,285 |   | 3.30 | % | 159,051 |   | 1,632 |   | 4.13 | % |
| Total interest-bearing liabilities                                                |       | 652,897              |       | 3,798 |   | 2.36 | % | 632,211 |   | 4,918 |   | 3.13 | % |
| Non interest-bearing liabilities                                                  |       | 8,471                |       |   |   |   |   | 8,531 |   |   |   |   |   |
| Total liabilities                                                                 |       | 661,368              |       |   |   |   |   | 640,742 |   |   |   |   |   |
| Stockholders’ equity                                                         |       | 68,049               |       |   |   |   |   | 67,979 |   |   |   |   |   |
| Total liabilities and stockholders’ equity                                   |       | $                    | 729,417    |   |   |   |   |   | $ | 708,721 |   |   |   |   |   |
| Net interest income—tax equivalent basis                                     |       |                 |       | $ | 5,621 |   |   |   |   |   | $ | 5,021 |   |   |   |
| Interest rate spread(4)-tax equivalent basis                                      |       |                 |       |   |   | 3.14 | % |   |   |   |   | 2.80 | % |
| Net yield on interest-earning assets(5) —tax equivalent basis                |       |                 |       |   |   | 3.28 | % |   |   |   |   | 3.00 | % |
| Ratio of average interest-earning assets to average interest-bearing  liabilities |       |                 |       |   |   | 106.36 | % |   |   |   |   | 106.58 | % |
| Less: tax—equivalent interest adjustment                                     |       |                 |       | (102 | ) |   |   |   |   | (106 | ) |   |   |
| Net interest income                                                               |       |                 |       | $ | 5,519 |   |   |   |   |   | $ | 4,915 |   |   |   |
| Interest rate spread(4)                                                           |       |                 |       |   |   | 3.08 | % |   |   |   |   | 2.74 | % |
| Net yield on interest-earning assets(5)                                           |       |                 |       |   |   | 3.23 | % |   |   |   |   | 2.93 | % |

 

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| (1) |   | 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.                                                        |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Tax  equivalent adjustments to interest on investment securities were $102,000 and  $106,000 for the quarter ended March 31, 2009 and 2008, respectively.  Tax equivalent interest income is based upon a marginal effective tax rate of  34%. |
| (3) |   | Includes  interest-bearing deposits in other banks.                                                                                                                                                                                                 |
| (4) |   | Interest  rate spread represents the difference between the average yield on  interest-earning assets and the average cost of interest-bearing liabilities.                                                                                         |
| (5) |   | Net  yield on interest-earning assets represents net interest income as a percentage  of average interest-earning assets.                                                                                                                           |
| *   |   | Is  less than $500 for period indicated.                                                                                                                                                                                                            |

 

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**Rate/Volume Analysis**

 

Thefollowing table presents, for the periods indicated, the change in interestincome and interest expense (in thousands) attributed to (i) changes involume (changes in the weighted average balance of the total interest earningasset and interest bearing liability portfolios multiplied by the prior yearrate), and (ii) changes in rate (changes in rate multiplied by prior yearvolume). Changes attributable to the combined impact of volume and rate havebeen allocated proportionately based on the absolute value of changes due tovolume and changes due to rate.

 
| ** **                                    | ** ** | **Three months ended March 31,**                  | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2009 vs 2008  Increase (decrease) due to** | ** ** |
| ** **                                    | ** ** | **Volume**                                                            | ** ** | **Rate** | ** ** | **Net** | ** ** |
| **Interest income:**                          |       |                                                                  |       |   |   |   |   |
| Loans receivable, net                         |       | $                                                                     | 1,343      |   | $ | (1,871 | ) | $ | (528 | ) |
| Mortgage-backed securities                    |       | 83                                                                    |       | 71 |   | 154 |   |
| Investment securities (1)                     |       | (28                                                                   | )          | (112 | ) | (140 | ) |
| Other interest-earning assets                 |       | (2                                                                    | )          | (4 | ) | (6 | ) |
| Total interest-earning assets                 |       | 1,396                                                                 |       | (1,916 | ) | (520 | ) |
| **Interest expense:**                         |       |                                                                  |       |   |   |   |   |
| Deposits                                      |       | 921                                                                   |       | (1,694 | ) | (773 | ) |
| Borrowings from the FHLB and other borrowings |       | (12                                                                   | )          | (335 | ) | (347 | ) |
| Total interest-bearing liabilities            |       | 909                                                                   |       | (2,029 | ) | (1,120 | ) |
| Net change in net interest income             |       | $                                                                     | 487        |   | $ | 113 |   | $ | 600 |   |

 

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| (1) |   | Tax  equivalent adjustments to interest on investment securities were $102,000 and  $106,000 for the quarters ended March 31, 2009 and 2008, respectively.  Tax equivalent interest income is based upon a marginal effective tax rate of  34%. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Total Interest Income**. Total interest income, ona tax equivalent basis, decreased by $520,000 for the quarter ended March 31,2009 compared with the first quarter of 2008. The average balance of loansoutstanding increased by $16.2 million between the two periods as a result ofloan originations added to the portfolio during the intervening period.However, the average yield on loans decreased 52 basis points primarily as aresult of the Bank’s reduction of its prime rate four times during the lastthree quarters of 2008 by a combined 200 basis points mirroring the actiontaken by the Federal Open Market Committee (FOMC) when it acted to reduce thefed funds rate. Interest income from mortgage-backed securities was higher inthe first quarter of 2009 versus the same period of 2008 as security purchasesin excess of principal repayments during the intervening period resulted inhigher average balances of these securities. Interest income from investmentsecurities decreased as a result of the suspension of dividends paid during thefirst quarter of 2009 on the Company’s $9.9 million required holdings of FHLBstock.

 

**TotalInterest Expense.**Totalinterest expense decreased by $1.1 million to $3.8 million during the quarterended March 31, 2009 as compared with the first quarter of 2008. Despitean increase in the average outstanding balance of deposits of $21.8 millionbetween the two quarters, interest rates paid on the Bank’s deposits weresignificantly lower during the 2009 period.

 

Interest expenseassociated with borrowings from the Federal Home Loan Bank and Federal ReserveBank was $347,000 lower in the first quarter of 2009 compared to the firstquarter of 2008. During the intervening period, the interest rate on short-termadvances decreased and advances with a higher cost matured which resulted in an83 basis point decline in the cost associated with borrowings from the FHLB andother borrowings.

 

**Non-interest income**. Total non-interest incomewas $935,000 for the first quarter of 2009 compared with $1,111,000 for thesame period in 2008.Amortization of mortgage servicing rights in the first quarter of 2009increased thereby reducing loan servicing income between the periods by$39,000. Overdraft fees earned in first three months of 2009 were $60,000 lowerthan the same period in 2008.  The firstquarter of 2008 included a $197,000 insurance claim recovery.Additionally, other income during the first quarter of 2008 included $100,000of non-recurring income recognized due to forfeited deposits on real estateheld for development.Offsetting these decreases was a gain on the sale of an investment security of$190,000 in the first quarter of 2009 while there was no such gain in the firstquarter of 2008. Also, during 2009, the gain on sale of loans rose $86,000 as aresult of the high level of residential loan refinancing activity whichoccurred in 2009.

 

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**Non-interest expense.**Total non-interest expenseincreased by $162,000 to $4.4 million for the three months ended March 31,2009 compared to the same period in 2008. Employee compensation increased by$217,000 the combined result of annual salary increases and decreasedcommercial loan originations which lowered the deferral of in-housecompensation costs. Also, costs associated with employee benefit plans rose$87,000 between the two quarters. Offsetting these increases was a decrease in compensation expenseassociated with stock options and grants of $166,000 as a result of substantialcompletion of the vesting period used for expense recognition in 2008. Thedecrease in occupancy and equipment costs is due to the closing of the branchoffice on Quakerbridge Road in Mercer County during the second quarter of 2008.Professional fees increased between the two periods as a result of higher legalcosts associated with non-performing loans during the 2009 quarter. Otheroperating expense during the first quarter of 2009 included an increase inrobbery and deposit related losses of $50,000.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

**Liquidity**

 

The Company’s liquidity is a measure of its ability tofund loans, pay withdrawals of deposits, and other cash outflows in anefficient, cost-effective manner. The Company’s short-term sources of liquidityinclude maturity, repayment and sales of assets, excess cash and cashequivalents, new deposits, broker deposits, other borrowings, and newborrowings from the Federal Home Loan Bank. There has been no material adversechange during the three-month period ended March 31, 2009 in the abilityof the Company and its subsidiaries to fund their operations.

 

At March 31, 2009, the Company had commitmentsoutstanding under letters of credit of $1.3 million, commitments to originateloans of $20.3 million, and commitments to fund undisbursed balances of closedloans and unused lines of credit of $49.1 million. At March 31, 2009, theBank had $11.2 million outstanding commitments to sell loans. There has been no material change duringthe three months ended March 31, 2009 in any of the Company’s othercontractual obligations or commitments to make future payments.

 

**Capital Requirements**

 

The Bank was in compliance with all of its capitalrequirements as of March 31, 2009.

 

**CRITICAL ACCOUNTING POLICIES**

 

Certaincritical accounting policies of the Company require the use of significantjudgment and accounting estimates in the preparation of the consolidatedfinancial statements and related data of the Company. These accountingestimates require management to make assumptions about matters that are highlyuncertain at the time the accounting estimate is made. Management believes thatthe most critical accounting policy requiring the use of accounting estimatesand judgment is the determination of the allowance for loan losses. If thefinancial position of a significant amount of debtors should deteriorate morethan the Company has estimated, present reserves for loan losses may beinsufficient and additional provisions for loan losses may be required. Theallowance for loan losses was $4.4 million at March 31, 2009.

 

###### **ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

######  

Asa “smaller reporting company” as defined by Item 10 of Regulation S-K, theCompany is not required to provide the information required by this item.

 

**ITEM 4T. CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls and Procedures**

 

Basedon their evaluation of the Company’s disclosure controls and procedures (asdefined in Rule 13a-15(e) under the Securities Exchange Act of 1934(the “Exchange Act”)), the Company’s principal executive officer and principalfinancial officer have concluded that as of the end of the period covered bythis Quarterly Report on Form 10-Q such disclosure controls and proceduresare effective to ensure that information required to be disclosed by theCompany in the reports it files and submits pursuant to the rules andforms of the SEC is accumulated and communicated to the Company’s managementincluding the principal executive officer and principal financial officer, asappropriate, to allow timely decisions regarding required disclosures.

 

**Changes in Internal Controls over Financial Reporting**

 

Duringthe quarter under report, there was no change in the Company’s internal controlover financial reporting that has materially affected, or is reasonably likelyto materially affect, the Company’s internal control over financial reporting.

 

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**TF FINANCIAL CORPORATION ANDSUBSIDIARIES**

 

**PART II**

 
| **ITEM 1.**  | ** ** | **LEGAL  PROCEEDINGS**                                                                                                                                                                                                                                                                                                                              |
|--------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                          |
|         |       | Neither the  Company nor its subsidiaries are involved in any pending legal proceedings,  other than routine legal matters occurring in the ordinary course of business  that in the aggregate involve amounts which are believed by management to be  immaterial to the consolidated financial condition or results of operations  of the Company. |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                          |
| **ITEM 1A**. | ** ** | **RISK****FACTORS**                                                                                                                                                                                                                                                                                                                                 |
|         |       |                                                                                                                                                                                                                                                                                                                                                |
|         |       | As a “smaller reporting  company” as defined by Item 10 of Regulation S-K, the Company is not required  to provide the information required by this item.                                                                                                                                                                                 |
|         |       |                                                                                                                                                                                                                                                                                                                                                |
| **ITEM 2.**  | ** ** | **UNREGISTERED  SALE OF EQUITY SECURITIES AND USE OF PROCEEDS**                                                                                                                                                                                                                                                                                     |
|         |       |                                                                                                                                                                                                                                                                                                                                                |
|         |       | The following table  provides information on repurchases by the Company of its common stock in  each month for the three months ended March 31, 2009:                                                                                                                                                                                          |

 
| **Month**                                | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as  Part of Publicly  Announced Plan of  Program** | ** ** | **Maximum Number  of  Shares that may yet  be Purchased  Under  the Plans or  Programs** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
|                                     |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| January 1-January 31, 2009     |       | 4,377                                                |       | $                                                | 22.99      |                                                                                                                       | —     |                                                                                                                        | 101,957    |   |
|                                     |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| February 1- February 28, 2009  |       | —                                               |       | $                                                | —     |                                                                                                                       | —     |                                                                                                                        | 101,957    |   |
|                                     |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| March 1, 2009 - March 31, 2009 |       | —                                               |       | $                                                | —     |                                                                                                                       | —     |                                                                                                                        | 101,957    |   |
|                                     |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| Quarterly total                          |       | 4,377                                                |       | $                                                | 22.99      |                                                                                                                       | —     |                                                                                                                        |       |   |

 
| **ITEM  3.** | ** ** | **DEFAULTS UPON SENIOR SECURITIES** |
|--------------|------------|-------------------------------------|
|         |       |                                |
|         |       | Not applicable.                     |

 

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| **ITEM  4.** | ** ** | **SUBMISSION OF MATTERS TO A VOTE  OF SECURITY HOLDERS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         |       | The Annual  Meeting of Stockholders (the “Meeting”) of the Company was held on April 29,  2009. There were outstanding and entitled to vote at the Meeting 2,662,871  shares of Common Stock of the Company. There were present at the meeting or  by proxy the holders of 2,427,343 shares of Common Stock representing 91.16%  of the total eligible votes to be cast. Proposal 1 was to elect three  directors of the Company. Proposal 2 was to ratify the appointment of the  independent auditor for the December 31, 2009 fiscal year. The result of  the voting at the Meeting is as follows (percentages in terms of votes cast): |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |       | **Proposal 1**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |       | Election of three directors of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |       | Robert N. Dusek                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | FOR: |   | 2,340,223 |   | PERCENT FOR: |   | 96.41 | % |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | WITHHELD: |   | 87,120 |   | PERCENT WITHHELD: |   | 3.59 | % |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |
|         |       | Carl F. Gregory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | FOR: |   | 2,373523 |   | PERCENT FOR: |   | 97.78 | % |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | WITHHELD: |   | 53,820 |   | PERCENT WITHHELD: |   | 2.22 | % |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |
|         |       | Kent C. Lufkin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | FOR: |   | 2,210,605 |   | PERCENT FOR: |   | 91.07 | % |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | WITHHELD: |   | 216,738 |   | PERCENT WITHHELD: |   | 8.93 | % |
|         |       | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         |       | **Proposal 2**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |       | Ratification of the  appointment of Grant Thornton, LLP as independent auditor for the Company December 31,  2009 fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|         |       | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | ** ** |   |
|         |       | FOR:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | 2,390,111 | ** ** | PERCENT FOR: |   | 98.46 | % |
|         |       | AGAINST:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | 17,122 | ** ** | PERCENT AGAINST: |   | 0.71 | % |
|         |       | ABSTAIN:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | 20,110 | ** ** | PERCENT ABSTAIN |   | 0.83 | % |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |
| **ITEM 5.**  | ** ** | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ** **   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         |       | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **ITEM 6.**  | ** ** | **EXHIBITS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |       | (a)  Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |       | 31. Certification pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         |       | 32. Certification pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

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**TF FINANCIAL CORPORATION**

 

**SIGNATURES**

 

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

 
| Date:  | May 14, 2009 |   | /s/ Kent C. Lufkin                                   |
|--------|-------------------|--------|------------------------------------------------------|
|   |              |   | Kent C. Lufkin                                       |
|   |              |   | President and CEO                                    |
|   |              |   | (Principal  Executive Officer)                       |
|   |              |   |                                                 |
|   |              |   |                                                 |
| Date:  | May 14, 2009 |   | /s/ Dennis R.  Stewart                               |
|   |              |   | Dennis R.  Stewart                                   |
|   |              |   | Executive Vice  President and                        |
|   |              |   | Chief Financial  Officer                             |
|   |              |   | (Principal  Financial & Accounting Officer) |

 

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