SECURITIES AND EXCHANGE COMMISSION
                                 ---------------
                             WASHINGTON, D.C. 20549


                                    FORM lO-Q
(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended            March 31, 1997
                               -----------------------------------------

                                       OR

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

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

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

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



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

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

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

                                       N/A
--------------------------------------------------------------------------------
               Former name, former address and former fiscal year,
                         if changed since last report.

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


                      APPLICABLE ONLY TO CORPORATE ISSUERS:


      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock as of the latest practicable date May 12, 1997

         Class                                          Outstanding
-----------------------------                      ------------------------




<PAGE>




                    TF FINANCIAL CORPORATION AND SUBSIDIARIES

                                    FORM 1O-Q

                      FOR THE QUARTER ENDED March 31, 1997


                                      INDEX

<TABLE>
<CAPTION>
                                                                               Page
                                                                              Number
                                                                              ------
PART I - CONSOLIDATED FINANCIAL INFORMATION

<S>                                                                              <C>
Item    1.      Unaudited Consolidated Financial Statements and Notes Thereto     1
Item    2.      Management's Discussion and Analysis of Financial
                Condition and Results of Operations                               7

PART II- OTHER INFORMATION

Item    1.      Legal Proceedings                                                12
Item    2.      Changes in Securities                                            12
Item    3.      Defaults upon Senior Securities                                  12
Item    4.      Submission of Matters to a Vote of Security Holders              12
Item    5.      Other Materially Important Events                                12
Item    6.      Exhibits and Reports on Form 8-K                                 12
SIGNATURES

</TABLE>

<PAGE>



                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
            UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             (dollars in thousands)

<TABLE>
<CAPTION>


                                                                              March 31,  December 31,
ASSETS                                                                          1997        1996
                                                                            ----------   ------------
<S>                                                                         <C>          <C>      
Cash and cash equivalents                                                   $  18,571    $  54,132
Securities purchased under agreements to resell                                17,107       25,129
Certificates of deposit in other financial institutions                         4,695        4,220
Investment securities available for sale - at market value                     18,540       12,652
Investment securities held to maturity (market value of $55,589 and         $  56,116       43,462
   respectively, for the periods shown)
Mortgage-backed  securities  available for sale - at market  value             23,575       22,027
Mortgage-backed securities held to maturity (market value of $163,097 and
    $153,269 respectively, for the periods shown)                             165,049      153,758
Loans receivable, net                                                         317,967      309,570
Accrued interest receivable                                                     4,258        4,247
Goodwill/Core deposit intangible                                                8,987        9,232
Premises and equipment, net                                                     7,941        8,002
Other assets                                                                    1,562        1,422
                                                                            ---------    ---------
               Total Assets                                                 $ 644,368    $ 647,853
                                                                            =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
   Deposits                                                                 $ 460,910    $ 469,088
   Advances from the Federal Home Loan Bank                                   103,359       98,359
   Advances from borrowers for taxes and insurance                              2,093        2,364
   Accrued interest payable                                                     4,282        2,030
   Other liabilities                                                            3,861        3,437
                                                                            ---------    ---------
               Total Liabilities                                              574,505      575,278
                                                                            ---------    ---------

Commitments and contingencies                                                      --           --
Stockholders' Equity
   Preferred stock, no par value; 2,000,000 shares authorized
      and none issued                                                              --           --
   Common stock, $0.10 par value; 10,000,000 shares authorized,
       5,290,000 issued; 3,774,816 and 3,962,544 shares outstanding
       at March 31, 1997 and December 31, 1996, net of treasury shares of
       1,202,614 and 1,008,614 respectively                                       529          529
   Additional paid-in capital                                                  51,702       51,645
   Net unrealized gain (loss) on investment securities available for sale        (326)        (127)
   Unearned ESOP shares - at cost                                              (3,125)      (3,188)
   Shares acquired by MSBP                                                     (1,216)      (1,322)
   Treasury stock - at cost                                                   (18,225)     (14,712)
   Retained earnings                                                           40,524       39,750
                                                                            ---------    ---------
               Total Stockholders' Equity                                      69,863       72,575
                                                                            ---------    ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $ 644,368    $ 647,853
                                                                            =========    =========
</TABLE>

See notes to consolidated financial statements

                                        1

<PAGE>



                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
                  UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS

                      (in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                       For Three Months
                                                                        Ended March 31,
                                                                        1997       1996
                                                                       ------     ------

Interest income
<S>                                                                   <C>        <C>    
   Loans                                                              $ 6,192    $ 5,280
   Mortgage-backed securities                                           3,108      2,769
   Investment securities                                                1,567        632
   Interest bearing deposits and other                                    308        309
                                                                      -------    -------
                                         TOTAL INTEREST INCOME         11,175      8,990
Interest expense
   Deposits                                                             4,657      3,178
   Borrowings                                                           1,457      1,404
                                                                      -------    -------
                                        TOTAL INTEREST EXPENSE          6,114      4,582
   NET INTEREST INCOME                                                  5,061      4,408
Provision for loan losses                                                 105         30
                                                                      -------    -------
   NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                  4,956      4,378
Non-interest income
   Gain on sale of real estate acquired through foreclosure                 0        114
   Gain on sale of investment and mortgage-backed securities               73        223
   Gain (loss) on sale of loans                                            (1)         0
   Service fees, charges and other operating income                       318        354
                                                                      -------    -------
          TOTAL NON-INTEREST INCOME                                       390        691
Non-interest expense
   Employee compensation and benefits                                   1,673      1,423
   Occupancy and equipment                                                445        350
   Federal deposit insurance premium                                       77        196
   Data processing                                                        180        119
   Professional fees                                                      133        124
   Goodwill and other intangible amortization                             244          0
   Provision for losses on real estate acquired through foreclosure         0          0
   Advertising                                                             98         75
   Other operating                                                        558        459
                                                                      -------    -------
        TOTAL NON-INTEREST EXPENSE                                      3,408      2,746
        INCOME BEFORE INCOME TAX EXPENSE                                1,938      2,323
Income tax expense                                                        774        929
                                                                      -------    -------
   NET INCOME                                                         $ 1,164    $ 1,394
                                                                      =======    =======

Per share data
   Earnings  per share                                                   0.29       0.32
   Earnings  per share after cumulative changes                          0.29       0.32
Weighted average number of shares outstanding                           4,064      4,297

</TABLE>


See notes to consolidated financial statements


                                        2

<PAGE>



                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                        For the Three Months
                                                                           Ended March 31
                                                                        --------------------
                                                                          1997       1996
                                                                        --------   ---------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                    <C>         <C>     
Net Income                                                             $  1,164    $  1,394
Adjustments to reconcile net income to net cash provided by
operating activities:
   Amortization of:
      Mortgage loan servicing rights                                         23           0
      Deferred loan origination fees                                        (43)        (34)
         Premiums and discounts on investment securities, net                (7)         (8)
         Premiums and discounts on mortgage-backed securities and
         loans. net                                                         (11)         14
      Amortization of goodwill and core deposit intangible                  244           0
Provision for loan losses and provision for losses on real estate           105          30
   Depreciation of premises and equipment                                   173         132
   Recognition of ESOP and MSBP expenses                                    228         220
   (Gain)/Loss on sale of mortgage-backed securities -
    available for sale                                                      (73)          0
   (Gain) loss on the sale of investment securities                           0        (223)
   (Gain)/Loss on sale of real estate acquired through foreclosure            0        (114)
   (Gain)/Loss on sale of mortgage loans                                      1           0
   Decrease (increase) in
         Accrued interest receivable                                        (11)        153
         Other assets                                                      (120)       (273)
   Increase (decrease) in
         Accrued interest payable                                         2,251       1,726
         Other liabilities                                                  552         533
                                                                       --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                 4,476       3,550

CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments on loans, net                   (2,822)    (12,606)
Purchases of loans                                                      (12,211)    (35,158)
Proceeds from loan sales                                                  6,518           0
Purchases and maturities of certificates of deposit in other
   financial institutions, net                                             (475)        200
Purchases and maturities of securities purchased under
   agreements to resell, net                                              8,022           0
Purchases of investment securities - available for sale                  (6,982)          0
Purchases of mortgage-backed securities - available for sale             (4,935)          0
Purchases of investment securities held to maturity                     (45,425)     (3,724)
Purchase of mortgage-backed securities - held to maturity               (15,071)          0
Proceeds from maturities of investment securities held to maturity       30,680       4,297
Proceeds from maturities of investment securities available for sale      1,350       7,000
Principal repayments from maturities of mortgage-backed securities-
   held to maturity                                                       5,811       6,224
Principal repayments from maturities of mortgage-backed securities-
   available for sale                                                       571       1,041
Proceeds from the sale of mortgage-backed securities -
   available for sale                                                     2,647       5,338
</TABLE>


                                        3

<PAGE>






                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
           UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                  For the Three Months
                                                                                     Ended March 31,
                                                                                    1997        1996
                                                                                  --------    --------


<S>                                                                               <C>         <C>      
  Purchase of premises and equipment                                              $   (112)   $    (22)
                                                                                  --------    --------
  Purchases and redemptions of Federal Home Loan Bank Stock, net                      (250)     (1,250)
  Proceeds from sales of real estate acquired through foreclosure                        0         439
  NET CASH PROVIDED BY (USED IN)
  INVESTING ACTIVITIES                                                             (32,684)    (28,221)


CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase (decrease) in demand deposits/NOW accounts,
  passbook savings accounts and certificates of deposit                           $ (8,178)   $    923
  Advances from Federal Home Loan Bank - net                                         5,000      25,000
  Net (decrease) increase in advances from borrowers for taxes
     and insurance                                                                    (271)       (103)
  Purchase of treasury stock                                                        (3,513)         (0)
  Common stock cash dividend                                                          (391)       (288)

  NET CASH PROVIDED BY (USED IN)
        FINANCING ACTIVITIES                                                        (7,353)     25,532

  NET INCREASE (DECREASE) IN CASH
        AND CASH EQUIVALENTS                                                       (35,561)        861

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

  Cash and cash equivalents at end of period                                      $ 18,571    $ 27,893
                                                                                  --------    --------

  Supplemental disclosure of cash flow information
     Cash paid for
        Interest on deposits and advances                                         $  3,863    $  2,856
        Income taxes                                                              $     47    $    296
     Non-cash transactions
       Transfers from loans to real estate acquired
        through foreclosure                                                       $     39    $     32

</TABLE>



See notes to consolidated financial statements

                                        4

<PAGE>




                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - PRINCIPLES OF CONSOLIDATION

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

NOTE 2 - BASIS OF PRESENTATION

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

NOTE 3 - IMPAIRED LOANS

      On  January  1,  1995  the  Corporation  adopted  Statement  of  Financial
      Accounting  Standards  (SFAS)  No.  114,  "Accounting  for  Creditors  for
      Impairment  of a  Loan,"  as  amended  by SFAS  No.  118,  "Accounting  by
      Creditors for Impairment of a Loan - Income  Recognition and Disclosures."
      SFAS No. 114  requires  that a creditor  measure  impairment  based on the
      present  value of  expected  future  cash flows  discounted  at the loan's
      effective interest rate, except that as a practical expedient,  a creditor
      may measure  impairment based on a loan's  observable market price, or the
      fair  value  of  the  collateral  if the  loan  is  collateral  dependent.
      Regardless of the measurement  method, a creditor must measure  impairment
      based on the fair value of the  collateral  when the  creditor  determines
      that  foreclosure  is  probable.  SFAS No.  118  allows  creditors  to use
      existing methods for recognizing interest income on impaired loans.

      The Savings  Bank has  identified  a loan as impaired  when it is probable
      that  interest  and  principal  will  not be  collected  according  to the
      contractual  terms of the loan  agreement.  The  accrual  of  interest  is
      discontinued  on such loans,  and cash  payments  received  are applied to
      reduce  principal to the extent necessary to eliminate any doubt as to the
      ultimate collectibility of principal either in whole or in part.

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

               (in thousands)           March 31, 1997
Principal amount of impaired loans           603
Accrued interest                              --
Deferred loan costs                           --
                                            ----
     Subtotal                               $603
                                            ----
Less valuation allowance                     128
                                            ----
     Total                                  $475
                                            ====

                                        5

<PAGE>




       The average  recorded  investment  in impaired  loans  during the quarter
       ended March 31, 1997 was $606,000. Total cash collected on impaired loans
       during the quarter  ended March 31, 1997 was $10,000 of which  $7,000 was
       credited to the principal  balance  outstanding  on such loans and $3,000
       was recognized as interest income.  Interest that would have been accrued
       on  impaired  loans  during the  quarter  was  $13,000.  Interest  income
       recognized during the quarter was $3,000.

NOTE 4 -  CONTINGENCIES

      The  Corporation,  from time to time,  is a party to  routine  litigation,
      which  arise  in  the  normal  course  of  business.  In  the  opinion  of
      management,  the  resolution of these  lawsuits  would not have a material
      adverse effect on the Corporation's  consolidated  financial  condition or
      results of operations.

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

NOTE 5 -ACQUISITIONS

      On September 20, 1996, the Savings Bank acquired three Mercer County,  New
      Jersey offices and related  deposits of Cenlar  Federal  Savings Bank. The
      Savings  Bank  assumed  $137.6  million in deposits in exchange for $126.5
      million in cash. This transaction added a core deposit  intangible of $2.9
      million and goodwill of $6.6 million.

      The core deposit intangible  acquired is being amortized on an accelerated
      basis  over 10  years  pursuant  to a core  deposit  study.  The  goodwill
      acquired is being amortized on a straight line basis over 15 years.



                                        6

<PAGE>




                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  ---------------------------------------------

GENERAL

The  Corporation's  total assets at March 31, 1997 and December 31, 1996 totaled
$644.4 million and $647.9 million,  respectively, a decrease of $3.5 million, or
 .5%, for the three month period.  This decrease was primarily as a result of the
$35.5 million,  or 65.6%,  decrease in cash and cash equivalents  along with the
$8.0 million,  or 31.9%,  decrease in securities  purchased under  agreements to
resell.  The  decrease  was  partially  offset  by the  increase  in  investment
securities of $18.6  million or 33.2%,  along with the $12.8  million,  or 7.3%,
increase in mortgage-backed  securities coupled with the $8.4 million,  or 2.7%,
increase in loans  receivable  for the three month  period ended March 31, 1997.
This net  decrease in assets was  primarily  the result of the decrease in total
savings  deposits at March 31, 1997 of $8.2 million or, 1.8%, to $460.9  million
as compared to savings  deposits of $469.1 million as of December 31, 1996. This
decrease was partially offset by $5.0 million increase in Federal Home Loan Bank
advances.  The decrease in cash and cash  equivalents  and securities  purchased
under  agreements  to resell  funded the  increases  in  investment  securities,
mortgage-backed  securities and loans  receivable in addition to funding the net
decrease in deposits for the period.

The increase in loans receivable of $8.4 million,  or 2.7%, to $318.0 million at
March 31, 1997 from $309.6 million at December 31, 1996 was primarily the result
of the  origination of $11.9 million in mortgage loans coupled with the purchase
of $12.1 million in mortgage loans, partially offset by the sale of $6.6 million
in mortgage loans coupled with the repayment of $9.0 million in mortgage loans.

The increase in  mortgage-backed  securities  of $12.8 million or 7.3% to $188.6
million at March 31, 1997 from $175.8 million at December 31, 1996 was primarily
the result of the purchase of $20.0 million of mortgage-backed  securities which
was partially offset by principal repayments from maturities along with the sale
of the mortgage-backed securities.

Investment securities at March 31, 1997, totaled $74.7 million, which represents
a increase of $18.6  million or 33.2% as  compared to $56.1  million at December
31, 1996.

Total  consolidated  stockholders'  equity  of the  Corporation  decreased  $2.7
million to $69.9  million at March 31, 1997 from $72.6  million at December  31,
1996.  The 3.7% decrease is primarily  attributed  to the  repurchase of 194,000
shares of the  Corporation's  outstanding  common stock in the open market, at a
total cost of $3.5 million  coupled with the payment of $390,800 in dividends to
shareholders, partially offset by the addition of $1.2 million of net income for
the  period.  The  decrease  in  total  consolidated   stockholders'  equity  in
conjunction  with the  decrease of $3.5  million in total  assets  resulted in a
decrease in consolidated stockholders' equity as a percentage of total assets to
10.8% at March 31, 1997 from 11.2 % at December 31, 1996.

On January 1, 1995,  the  Corporation  adopted the  provisions  of  Statement of
Financial  Accounting  Standards No. 114 and 118 (SFAS 114 & 118) "Accounting by
Creditors  for  Impairment  of a Loan"  which  generally  applies  to all  loans
including loans that are restructured as a troubled debt restructuring involving
a  modification  of terms.  The  adoption of SFAS 114 & 118 was  mandated by the
Statement of Financial  Accounting  Standards  Board.  According to SFAS 114 and
118,  impairment of a loan occurs when it is probable that the Savings Bank will
not be able to collect all amounts due according to the contractual terms of the
loan agreements.

The  measurement of impaired loans is generally  based upon the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral  dependent loans may be measured for impairment based
upon the fair value of the  collateral.  The  accounting of SFAS 114 and 118 did
not have a material impact on the financial position or results of operations of
the Corporation during the three or three month period ended March 31, 1997.




                                        7

<PAGE>



Average Balance Sheet

The following tables set forth information relating to the Corporation's average
balance  sheet and  reflects  the average  yield on assets and  average  cost of
liabilities  for the  periods  indicated.  The yields and costs are  computed by
dividing income or expense by the monthly  average  balance of  interest-earning
assets or interest-bearing liabilities, respectively for the periods indicated.

<TABLE>
<CAPTION>
                                                     For Three Months Ended March 31,
                                      -----------------------------------------------------------------
                                                1997 (4)                         1996 (4)
                                      ------------------------------    -------------------------------

(Dollars in thousands)                Average              Average      Average               Average
                                      Balance   Interest  Yield/Cost    Balance   Interest  Yield/Cost
                                      -------   --------  ----------    -------   --------  -----------

Assets:
Interest earning assets:
<S>                                  <C>        <C>         <C>        <C>        <C>         <C>  
  Loans receivable, net...........   $310,389   $ 6,192     7.98%      $280,911   $ 5,280     7.52%
  Mortgage-backed securities......    185,167     3,108     6.71%       159,029     2,769     6.96%
  Investment securities...........    101,023     1,567     6.20%        41,850       632     6.04%
  Other interest-earning assets(1)     24,130       308     5.11%        24,401       309     5.07%
                                     --------    ------     ----       --------    ------     ---- 
    Total interest-earning assets.   $620,709   $11,175     7.20%      $506,191    $8,990     7.10%
                                     ========    ======     ====       ========    ======     ==== 
Non interest-earning assets.......     22,540                             9,338
                                     --------                          --------    
    Total assets..................   $643,249                          $515,529
                                     ========                          ========   

Liabilities and Stockholders' 
 Equity:
  Interest-bearing liabilities:
    Savings deposits..............   $462,572    $4,657     4.03%      $335,155   $ 3,178     3.79%
    Borrowed money................    100,026     1,457     5.83%        98,359     1,404     5.71%
                                     --------    ------     ----       --------    ------     ---- 
    Total interest-bearing 
      liabilities.................   $562,598    $6,114     4.35%      $433,514    $4,582     4.23%
                                     ========    ======     ====       ========    ======     ==== 
Non interest-bearing liabilities..      9,327                             7,979
      Total liabilities...........    571,925                           441,493
Stockholders' equity..............     71,324                            74,037
                                     --------                          --------   
      Total liabilities and 
       stockholders' equity.......   $643,249                          $515,530
                                     ========                          ========    
Net interest income...............               $5,061                            $4,408
                                                 ======                            ======
Interest rate spread (2)..........                          2.85%                             2.87%
Net yield on interest-earning 
  assets (3)......................                          3.26%                             3.48%
Ratio of average interest-earning 
  assets to average  interest-
  bearing liabilities.............                           110%                              117%
</TABLE>

---------------------------------------
(1)   Includes interest-bearing deposits in other banks.
(2)   Interest-rate  spread represents the difference  between the average yield
      on  interest-earning  assets  and the  average  cost  of  interest-bearing
      liabilities.
(3)   Net yield on  interest-earning  assets represents net interest income as a
      percentage of average interest-earning assets.
(4)   Ratios have been annualized where applicable.



                                        8

<PAGE>
RESULTS OF OPERATIONS

Net Income. The Corporation  recorded a net income of $1.2 million for the three
months  ended March 31,  1997 as compared to net income of $1.4  million for the
three months ended March 31,  1996.  This  decrease of $.2 million in net income
for this period is primarily  attributable to the increase in total non-interest
expense of $662,000,  or 24.1%, to $3.4 million for the three months ended March
31, 1997 as compared to $2.7  million for the three months ended March 31, 1996,
and a decrease in total non-interest  income of $301,000,  or 43.6%, to $390,000
from  $691,000 for the same periods.  The decrease was  partially  offset by the
increase in net interest  income before  provisions for loan losses of $653,000,
or 14.8%,  to $5.1 million for the three months ended March 31, 1997 as compared
to $4.4  million for the same  period in 1996.  This  increase  in net  interest
income is a result of an increase in core earnings. The increase in non-interest
expense  is  primarily  attributable  to  increased  costs  associated  with the
acquisition  of $137.6 in deposits  along with three branch  offices from Cenlar
Federal  Savings Bank in  September  1996,  while the  decrease in  non-interest
income was attributed to the gains  associated  with the sale of the real estate
and mortgage-backed securities which totalled $73,000 for the period ended March
31, 1997 as compared to $337,000 for the period ended March 31, 1996.  For these
same  periods,  total  interest  income  was  $11.2  million  and $9.0  million,
respectively,  while total  interest  expense was $6.1 million and $4.6 million,
respectively.

Total Interest  Income.  Total  interest  income  increased by $2.2 million,  or
24.3%,  to $11.2  million for the three months  ended March 31, 1997,  from $9.0
million for the three months ended March 31, 1996 due  primarily to increases in
the average  balance of loans  receivable,  investment  securities  and mortgage
backed  securities.  The average balance of loans receivable  increased 10.5% to
$310.4 million from $280.9 million for the three months ended March 31, 1997 and
1996, respectively. Interest attributable to loans receivable increased $912,000
or 17.3% to $6.2 million from $5.3 million for these same periods. This increase
is  primarily  attributed  to the  increase  in the  average  balance  of  loans
receivable  in  conjunction  with an  increase  in the  average  yield  on loans
receivable  from 7.52% for the three months end March 31, 1996, to 7.98% for the
period ended March 31, 1997.  Interest on mortgage-backed  securities  increased
$339,000 (12.2%) primarily as a result of the increase in the average balance of
$26.2  million,  or 16.4%,  to $185.2  million from $159.0 million for the three
months  ended  March  31,  1997  and 1996  respectively.  The  average  yield on
mortgage-backed  securities  decreased to 6.71% for the three months ended March
31,  1997  compared  to  6.96%  for the  similar  period  in 1996.  Interest  on
investment  securities  increased  by $935,000  for the three month period ended
March 31,  1997 as  compared  to the  similar  period in 1996 as a result of the
increase in the average balance of $59.1 million,  or 141.1%,  to $101.0 million
from $41.9 million for the periods  ended March 31, 1997 and 1996  respectively.
The average  yield on  investment  securities  increased  to 6.20% for the three
months  ended March 31, 1997  compared to 6.04% for the similar  period in 1996.
Interest on other interest earning assets remained level at $308,000 as compared
to $309,000 for the two periods respectively.

Total Interest Expense. Total interest expense increased to $6.1 million for the
three  months  ended March 31, 1997 from $4.6 million for the three months ended
March 31, 1996. This increase of $1.5 million or 32.6% in total interest expense
is a result of the increase in the average balance of savings deposits of $127.4
million or 38.0%  during the  quarter  ended  March 31,  1997.  The  increase in
savings  deposits was primarily a result of the acquisition of $137.6 million in
deposit  balances.  The average  balance of total interest  bearing  liabilities
increased  to $562.6  million  during the three months ended March 31, 1997 from
$433.5  million  during the three  months  ended March 31, 1996  primarily  as a
result of the acquisition of these deposit balances.

Net Interest Income.  Net interest income for the three month period ended March
31, 1997  increased  by $653,000 or 14.8% to $5.1  million from $4.4 million for
the same period in 1996.  This  increase  is  primarily  due to the  increase in
interest  earning assets  partially  offset by the increase to interest  bearing
liabilities. The average balances of interest-earning assets increased to $620.1
million for the three  months  ended March 31, 1997 from $506.2  million for the
similar  period in 1996.  During  these same  periods,  the average  balances on
interest-bearing  liabilities  increased to $562.6 million from $433.5  million.
The cost of interest-bearing liabilities increased from 4.23% to 4.35% while the
yield on  interest-earning  assets  increased  from 7.10% to 7.20% for the three
month periods ended March 31, 1997 and 1996 respectively.

Allowance for Loan Losses.  The allowance for loan losses  increased by $397,000
to  approximately  $1.9 at March 31, 1997 from $1.5  million at March 31,  1996.
Such totals correlate to non-performing  loans of $2.0 million at March 31, 1997
and $1.6  million at March 31,  1996.  The  increase in the  allowance  for loan
losses  resulted  from the addition of $405,000 to the provision for loan losses
and the  deduction  of  $8,000 of net  charge  offs for  losses  on  loans.  The
provision for losses on loans is the method by which the allowance for losses is
adjusted during the period. The provision for losses on loans was $105,000 for

                                        9

<PAGE>

the three months ended March 31, 1997. At March 31, 1997, the allowance for loan
losses was 95.6% of non-performing  loans as compared to 94.9% of non-performing
loans at March 31, 1996. While management  maintains its allowance for losses at
a level which it considers to be adequate to provide for potential losses, there
can be no assurance that further additions will not be made to the allowance and
that such losses will not exceed the estimated amounts.

Non-interest  Income.  Total  non-interest  income decreased to $390,000 for the
three month period ended March 31, 1997 from $691,000 for the similar  period in
1996. This decrease can be attributed to the decrease in the gain on the sale of
real estate  acquired  through  foreclosure of $114,000 in conjunction  with the
$150,000  decrease  in the  gain  on the  sale  of  investment  securities.  The
remainder of the decrease can be attributed to an decrease of $36,000 in service
fee income, which was a result of decreased loan origination activity during the
period.

Non-interest  Expense.  Total non-interest expense increased by $662,000 to $3.4
million for the three  months  ended March 31, 1997 as compared to $2.7  million
for the similar  period in 1996.  This  increase is primarily  attributed to the
$250,000 increase in employee compensation and benefits, the $95,000 increase in
office occupancy and equipment, the $61,000 increase in data processing expense,
the $9,000 increase in professional  fees, the $244,000 increase in goodwill and
other  intangible  amortization,  the $23,000  increase in  advertising  and the
$99,000  increase in other operating  costs.  The increases in compensation  and
benefits,  office occupancy and equipment,  data processing,  goodwill and other
intangible  amortization  and other operating costs, are primarily the result of
increased costs associated with the acquisition and continued operation of three
branch offices along with $137.6  million in deposit's.  Benefit costs were also
increased due to the increases in costs associated with Employee Stock Ownership
Plans  utilizing  Corporation  stock  (portions  of the costs of  benefit  plans
utilizing  Corporation  stock change as the market value of the stock  changes).
The increase in  compensation  and benefit  costs also  increased as a result of
salary increases resulting from annual performance reviews.

Income Tax Expense. Income taxes decreased by $155,000 to $774,000 for the three
month  period  ended March 31,  1997,  from  $929,000 for the three months ended
March 31,  1996.  The primary  reason for this  decrease was the decrease in net
income  before taxes to $1.9 from $2.3 million for the three month periods ended
March 31, 1997 and 1996, respectively.


Liquidity and Capital Resources

Under current Office of Thrift Supervision (OTS)  regulations,  the Savings Bank
must have core capital equal to 3% of total assets and risk-based  capital equal
to 8% of risk-weighted assets, of which 1.5% must be tangible capital, excluding
goodwill and certain other intangible  assets. The OTS has proposed amending its
regulations in such a manner that would  increase the core capital  requirements
for  most  thrift  institutions  from  3%  to  4%  or  5%,  depending  upon  the
institutions  financial condition and other factors.  Although the final form of
the  regulation  cannot be foreseen,  if adopted as  proposed,  the Savings Bank
would expect its core capital requirements to increase to at least 4%.

On March 31, 1997, the Savings Bank was in compliance with its three  regulatory
capital requirements as follows:

                                                    Amount          Percent
                                                    ------          -------
                                                     (dollars in thousands)
Tangible capital                                    $51,427             8.0%
Tangible capital requirement                          9,663             1.5
                                                    -------            ---- 
Excess over requirement                             $41,764             6.5%
                                                    =======            ==== 

Core capital                                        $51,427             8.0%
Core capital requirement                             19,326             3.0
                                                    -------            ---- 
Excess over requirement                             $32,101             5.0%
                                                    =======            ==== 

Risk based capital                                  $53,337            18.4%
Risk based capital requirement                       23,245             8.0
                                                    -------            ---- 
Excess over requirement                             $30,092            10.4%
                                                    =======            ==== 

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

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<PAGE>



Savings Bank to meet its future minimum capital requirements.

The Savings  Bank's  liquidity  is a measure of its  ability to fund loans,  pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner.  The Savings  Bank's  primary source of funds are deposits and scheduled
amortization  and prepayment of loan and mortgage backed  principal.  During the
past  several  years,  the Savings  Bank has used such funds  primarily  to fund
maturing  time  deposits,  pay savings  withdrawals,  fund lending  commitments,
purchase new investments,  and increase liquidity. The Savings Bank is currently
able to fund its operations  internally but has, when deemed  prudent,  borrowed
funds from the Federal Home Loan Bank of Pittsburgh.  As of March 31, 1997, such
borrowed funds total $103.4  million.  Loan payments,  maturing  investments and
mortgage-backed  security prepayments are greatly influenced by general interest
rates, economic conditions and competition.

The Savings  Bank is required  under  federal  regulations  to maintain  certain
specified  levels of "liquid  investments",  which include certain United States
government  obligations  and other  approved  investments.  Current  regulations
require the Savings  Bank to maintain  liquid  assets of not less than 5% of its
net withdrawable  accounts plus short term borrowings.  Short term liquid assets
must consist of not less than 1% of such accounts and  borrowings,  which amount
is also  included  within the 5%  requirement.  These levels may be changed from
time to time by the  regulators  to reflect  current  economic  conditions.  The
Savings Bank has  generally  maintained  liquidity  far in excess of  regulatory
requirements.  The Savings  Bank's  regulatory  liquidity was 26.6% and 12.9% at
March 31, 1997 and 1996,  respectively,  and its short term  liquidity was 19.1%
and 9.2%, at such dates, respectively.

The amount of  certificate  accounts  which are  scheduled to mature  during the
twelve months ending December 30, 1997, is approximately  $137.1 million. To the
extent that these deposits do not remain at the Savings Bank upon maturity,  the
Savings Bank  believes  that it can replace  these funds with  deposits,  excess
liquidity,  FHLB advances or outside borrowings.  It has been the Savings Bank's
experience  that a substantial  portion of such maturing  deposits remain at the
Savings Bank.

At March 31, 1997,  the Savings Bank had  outstanding  commitments  to originate
loans of $8.9 million.  Also  outstanding at March 31, 1997 were  commitments to
purchase  $277,000  of loans  from  correspondents  along  with  commitments  to
purchase  $3.0 million of  mortgage-backed  securities.  Funds  required to fill
these commitments are derived  primarily from current excess liquidity,  deposit
inflows or loan and security repayments. At March 31, 1997, the Savings Bank had
outstanding commitments to sell loans of $8.2 million.


Recent Developments

The FASB has  issued  Statement  of  Financial  Accounting  Standards  No.  128,
"Earnings Per Share",  which is effective for financial  statements issued after
December 15, 1997. Early adoption of the new standard is not permitted.  The new
standard  eliminated  primary and fully diluted  earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share  amounts were  computed.  The adoption of this new standard is
not expected to have a material  impact on the  disclosure of earnings per share
in the  financial  statements.  The effect of adopting this new standard has not
been determined.

In August 1996,  the  Internal  Revenue Code of 1986 (the "Code") was revised to
equalize the taxation of thrifts and banks.  Thrifts,  such as the Savings Bank,
no longer have a choice  between the percentage of taxable income method and the
experience  method in determining  additions to bad debt reserves.  Thrifts with
$500  million of assets or less may still use the  experience  method,  which is
generally  available  to small  banks  currently.  Larger  thrifts,  such as the
Savings Bank, must use the specific charge off method  regarding bad debts.  Any
reserve amounts added after 1987 will be taxed over a six year period  beginning
in 1996;  however,  bad debt  reserves set aside  through 1987 are generally not
taxed. An institution may delay  recapturing  into income its post-1987 bad debt
reserves for an  additional  two years if it meets a  residential-lending  test.
This law is not expected to have a material impact on the Savings Bank. At March
31, 1997, the Savings Bank had $326,000 of post 1987 bad debt reserves.

                                       11

<PAGE>



                    TF FINANCIAL CORPORATION AND SUBSIDIARIES

                                     PART II

ITEM 1.           LEGAL PROCEEDINGS

                  Neither the  Corporation  nor the Savings  Bank was engaged in
                  any legal  proceeding of a material  nature at March 31, 1997.
                  From  time  to  time,  the  Corporation  is a party  to  legal
                  proceedings  in the  ordinary  course of  business  wherein it
                  enforces its security interest in loans.

ITEM 2.           CHANGES IN SECURITIES

                  Not applicable.

ITEM 3.           DEFAULTS ON SENIOR SECURITIES

                  Not applicable.

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

                  Not applicable.

ITEM 5.           OTHER MATERIALLY IMPORTANT EVENTS



ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  (a)   Exhibits

                        None

                  (b)   Reports on Form 8-K

                  (i)   The Corporation filed a Current Report on Form 8-K dated
                        April  9,  1997  with  the   Securities   and   Exchange
                        Commission  ("SEC")  to report the  issuance  of a press
                        release  announcing  the  Corporation  had completed the
                        repurchase  in the open market of 214,869  shares of the
                        Corporation's common stock totalling approximately 5% of
                        its outstanding shares.



                                       12

<PAGE>





                                   SIGNATURES


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


                                    TF FINANCIAL CORPORATION



Date:      May 12, 1997             By:  /s/ John R. Stranford
        -----------------                -----------------------------------
                                         John R. Stranford
                                         President and CEO
                                         (Principal Executive Officer)



Date:      May 12, 1997             By:  /s/ William C. Niemczura
        -----------------                ------------------------------------
                                         William C. Niemczura
                                         Senior Vice President and
                                         Chief Financial Officer
                                         (Principal Financial & Accounting 
                                         Officer)




                                       13