**SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM 10-Q**

**x****                             ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the period ended September30, 2006**

**- or -**

**o****                                ****TRANSITION REPORT PURSUANT TOSECTION 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 Registrantas 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**

Securities registered pursuant to Section 12(b) of the Act:  **None**

Securities registered pursuant to Section 12(g) of the Act:

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

(Title of Class)

 

Indicate by check mark whether the registrant: (1) has filed all reportsrequired to 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 to suchfiling requirements for the past 90 days. YES x**  **NO o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):

Largeaccelerated filer o                    Acceleratedfiler o              Non-acceleratedfiler x

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

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock as of the latest practicable date:October 30, 2006

| Class                       | ** ** | **Outstanding**  |
|-----------------------------|------------|------------------|
| $.10 par value common stock |       | 2,871,493 shares |

 

 

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**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                                 |   | 20 |
|                                                                          |       |                                                                                        |   |   |
| Item 4.                                                                       |       | Controls and Procedures                                                                     |   | 20 |
|                                                                          |       |                                                                                        |   |   |
| **PART  II-OTHER INFORMATION**                                                |       |                                                                                        |
|                                                                          |       |                                                                                        |   |   |
| Item 1.                                                                       |       | Legal Proceedings                                                                           |   | 22 |
|                                                                          |       |                                                                                        |   |   |
| Item 1A.                                                                      |       | Risk  Factors                                                                               |   | 22 |
|                                                                          |       |                                                                                        |   |   |
| Item 2.                                                                       |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   | 22 |
|                                                                          |       |                                                                                        |   |   |
| Item 3.                                                                       |       | Defaults Upon  Senior Securities                                                            |   | 22 |
|                                                                          |       |                                                                                        |   |   |
| Item 4.                                                                       |       | Submission of  Matters to a Vote of Security Holders                                        |   | 22 |
|                                                                          |       |                                                                                        |   |   |
| Item 5.                                                                       |       | Other Information                                                                           |   | 22 |
|                                                                          |       |                                                                                        |   |   |
| Item 6.                                                                       |       | Exhibits                                                                                    |   | 22 |
|                                                                          |       |                                                                                        |   |   |
| **Signatures**                                                                |       | 23                                                                                          |
|                                                                          |       |                                                                                        |   |   |
| **Exhibits**                                                                  | ** ** | ** **                                                                                  |
|                                                                          |       |                                                                                        |   |   |
| 31. Certifications pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |       | 24                                                                                          |
|                                                                          |       |                                                                                        |   |   |
| 32. Certification pursuant of Section 906 of the  Sarbanes-Oxley Act of 2002  |       | 26                                                                                          |

 

2

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**TF FinancialCorporation and Subsidiaries**

**CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**
| ** **                                                                                                                                                                                                                                                      | ** ** | **Unaudited  September 30,  2006** | ** ** | **Audited  December 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                      | ** ** | **(in thousands)**                 | ** ** |
| ASSETS                                                                                                                                                                                                                                                          |       |                                    |       |                                 |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                      |       | $                                       | 6,492      |                                 | $          | 3,821 |   |
| Certificates of deposit  in other financial institutions                                                                                                                                                                                                        |       | 40                                      |       | 40                                   |       |
| Investment securities  available for sale—at fair value                                                                                                                                                                                                    |       | 34,471                                  |       | 30,401                               |       |
| Investment securities  held to maturity (fair value of $1,681 and $4,707 respectively)                                                                                                                                                                          |       | 1,676                                   |       | 4,690                                |       |
| Mortgage-backed  securities available for sale—at fair value                                                                                                                                                                                               |       | 66,614                                  |       | 83,511                               |       |
| Mortgage-backed  securities held to maturity (fair value of $8,124 and $10,385, respectively)                                                                                                                                                                   |       | 8,038                                   |       | 10,177                               |       |
| Loans receivable, net  (including loans held for sale of $660 and $68, respectively)                                                                                                                                                                            |       | 500,029                                 |       | 490,959                              |       |
| Federal Home Loan Bank  stock—at cost                                                                                                                                                                                                                      |       | 7,534                                   |       | 7,432                                |       |
| Accrued interest  receivable                                                                                                                                                                                                                                    |       | 2,782                                   |       | 3,048                                |       |
| Premises and equipment,  net                                                                                                                                                                                                                                    |       | 6,477                                   |       | 6,289                                |       |
| Core deposit intangible  asset, net of accumulated amortization of $2,824 and $2,741, respectively                                                                                                                                                              |       | —                                  |       | 83                                   |       |
| Goodwill                                                                                                                                                                                                                                                        |       | 4,324                                   |       | 4,324                                |       |
| Other assets                                                                                                                                                                                                                                                    |       | 16,300                                  |       | 16,064                               |       |
| TOTAL ASSETS                                                                                                                                                                                                                                                    |       | $                                       | 654,777    |                                 | $          | 660,839 |   |
|                                                                                                                                                                                                                                                            |       |                                    |       |                                 |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                      |       |                                    |       |                                 |       |
| Liabilities                                                                                                                                                                                                                                                     |       |                                    |       |                                 |       |
| Deposits                                                                                                                                                                                                                                                        |       | $                                       | 470,398    |                                 | $          | 470,521 |   |
| Advances from  the Federal Home Loan Bank                                                                                                                                                                                                                       |       | 111,366                                 |       | 121,260                              |       |
| Advances from  borrowers for taxes and insurance                                                                                                                                                                                                                |       | 1,284                                   |       | 1,915                                |       |
| Accrued interest  payable                                                                                                                                                                                                                                       |       | 3,761                                   |       | 2,052                                |       |
| Other  liabilities                                                                                                                                                                                                                                              |       | 2,581                                   |       | 2,443                                |       |
| Total  liabilities                                                                                                                                                                                                                                              |       | 589,390                                 |       | 598,191                              |       |
|                                                                                                                                                                                                                                                            |       |                                    |       |                                 |       |
| Stockholders’ equity                                                                                                                                                                                                                                       |       |                                    |       |                                 |       |
| Preferred stock,  no par value; 2,000,000 shares authorized at September 30, 2006 and December  31, 2005, none issued                                                                                                                                           |       | —                                  |       | —                               |       |
| Common stock,  $0.10 par value; 10,000,000 shares authorized, 5,290,000 shares issued,  2,700,121 and 2,714,173 shares outstanding at September 30, 2006 and December  31, 2005, respectively, net of shares in treasury 2,418,630 and 2,390,943,  respectively |       | 529                                     |       | 529                                  |       |
| Retained earnings                                                                                                                                                                                                                                               |       | 64,131                                  |       | 61,610                               |       |
| Additional  paid-in capital                                                                                                                                                                                                                                     |       | 52,787                                  |       | 53,048                               |       |
| Unearned  restricted stock                                                                                                                                                                                                                                      |       | —                                  |       | (1,080                               | )          |
| Unearned ESOP  shares                                                                                                                                                                                                                                           |       | (1,712                                  | )          | (1,849                               | )          |
| Treasury  stock—at cost                                                                                                                                                                                                                                    |       | (48,923                                 | )          | (47,920                              | )          |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                           |       | (1,425                                  | )          | (1,690                               | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                                |       | 65,387                                  |       | 62,648                               |       |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                |       | $                                       | 654,777    |                                 | $          | 660,839 |   |

 

The accompanying notes are an integral part of these statements

3

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**TF FinancialCorporation and Subsidiaries**

**CONSOLIDATEDSTATEMENTS OF INCOME****(Unaudited)**
| ** **                                                     | ** ** | **For the three months  ended  September 30,** | ** ** | **For the nine months  ended  September 30,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2006**                                                           | ** ** | **2005**                                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                     | ** ** | **(in thousands, except per share data)** | ** ** |
| Interest income                                                |       |                                                               |       |                                                              |       |   |   |   |   |
| Loans, including  fees                                         |       | $                                                                  | 8,243      |                                                              | $          | 7,032 |   | $ | 24,081 |   | $ | 20,206 |   |
| Mortgage-backed  securities                                    |       | 872                                                                |       | 1,135                                                             |       | 2,841 |   | 3,730 |   |
| Investment  securities                                         |       | 453                                                                |       | 383                                                               |       | 1,354 |   | 1,060 |   |
| Interest-bearing  deposits and other                           |       | 43                                                                 |       | 20                                                                |       | 65 |   | 42 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| TOTAL INTEREST  INCOME                                         |       | 9,611                                                              |       | 8,570                                                             |       | 28,341 |   | 25,038 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| Interest expense                                               |       |                                                               |       |                                                              |       |   |   |   |   |
| Deposits                                                       |       | 2,949                                                              |       | 2,052                                                             |       | 7,757 |   | 5,419 |   |
| Borrowings                                                     |       | 1,144                                                              |       | 935                                                               |       | 3,880 |   | 2,832 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| TOTAL INTEREST  EXPENSE                                        |       | 4,093                                                              |       | 2,987                                                             |       | 11,637 |   | 8,251 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| NET INTEREST  INCOME                                           |       | 5,518                                                              |       | 5,583                                                             |       | 16,704 |   | 16,787 |   |
| Provision for loan  losses                                     |       | —                                                             |       | 150                                                               |       | 150 |   | 450 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| NET INTEREST  INCOME AFTER PROVISION FOR LOAN LOSSES           |       | 5,518                                                              |       | 5,433                                                             |       | 16,554 |   | 16,337 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| Non-interest income                                            |       |                                                               |       |                                                              |       |   |   |   |   |
| Service fees,  charges and other operating income              |       | 661                                                                |       | 632                                                               |       | 1,980 |   | 1,941 |   |
| Gain on sale of  loans                                         |       | 152                                                                |       | 110                                                               |       | 190 |   | 140 |   |
| Loss on sale of  mortgage-backed securities available for sale |       | —                                                             |       | —                                                            |       | (51 | ) | — |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| TOTAL  NON-INTEREST INCOME                                     |       | 813                                                                |       | 742                                                               |       | 2,119 |   | 2,081 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| Non-interest expense                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| Employee  compensation and benefits                            |       | 2,693                                                              |       | 2,322                                                             |       | 8,015 |   | 7,016 |   |
| Occupancy and equipment                                        |       | 772                                                                |       | 651                                                               |       | 2,170 |   | 1,952 |   |
| Federal deposit  insurance premium                             |       | 15                                                                 |       | 15                                                                |       | 45 |   | 48 |   |
| Professional  fees                                             |       | 128                                                                |       | 211                                                               |       | 475 |   | 648 |   |
| Marketing and  advertising                                     |       | 176                                                                |       | 191                                                               |       | 528 |   | 553 |   |
| Other operating                                                |       | 559                                                                |       | 660                                                               |       | 1,725 |   | 1,839 |   |
| Amortization of  core deposit intangible asset                 |       | 27                                                                 |       | 34                                                                |       | 83 |   | 102 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| TOTAL  NON-INTEREST EXPENSE                                    |       | 4,370                                                              |       | 4,084                                                             |       | 13,041 |   | 12,158 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| INCOME BEFORE  INCOME TAXES                                    |       | 1,961                                                              |       | 2,091                                                             |       | 5,632 |   | 6,260 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| Income taxes                                                   |       | 549                                                                |       | 546                                                               |       | 1,573 |   | 1,634 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| NET INCOME                                                     |       | $                                                                  | 1,412      |                                                              | $          | 1,545 |   | $ | 4,059 |   | $ | 4,626 |   |
|                                                           |       |                                                               |       |                                                              |       |   |   |   |   |
| Earnings per  share—basic                                 |       | $                                                                  | 0.52       |                                                              | $          | 0.57 |   | $ | 1.50 |   | $ | 1.69 |   |
| Earnings per  share—diluted                               |       | $                                                                  | 0.52       |                                                              | $          | 0.55 |   | $ | 1.49 |   | $ | 1.64 |   |
| Dividends paid                                                 |       | $                                                                  | 0.19       |                                                              | $          | 0.18 |   | $ | 0.57 |   | $ | 0.54 |   |

 

The accompanying notes are an integral part of these statements

4

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**TF FinancialCorporation and Subsidiaries**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS****(Unaudited)**
| ** **                                                                                  | ** ** | **For the nine months  ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                  | ** ** | **September 30,**                        | ** ** |
| ** **                                                                                  | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| ** **                                                                                  | ** ** | **(in thousands)**                       | ** ** |
| OPERATING ACTIVITIES                                                                        |       |                                          |       |   |   |
| Net income                                                                                  |       | $                                             | 4,059      |   | $ | 4,626 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities           |       |                                          |       |   |   |
| Amortization of                                                                             |       |                                          |       |   |   |
| Mortgage loan  servicing rights                                                             |       | 23                                            |       | 3 |   |
| Deferred loan  origination fees                                                             |       | (151                                          | )          | (44 | ) |
| Premiums and  discounts on investment securities, net                                       |       | 49                                            |       | 59 |   |
| Premiums and discounts  on mortgage-backed securities, net                                  |       | 201                                           |       | 354 |   |
| Premiums and  discounts on loans, net                                                       |       | 129                                           |       | 85 |   |
| Discount on  brokered deposits                                                              |       | 12                                            |       | — |   |
| Core deposit  intangibles                                                                   |       | 83                                            |       | 102 |   |
| Provision for  loan losses                                                                  |       | 150                                           |       | 450 |   |
| Provision for  decline in market value of MSR’s                                        |       | 5                                             |       | — |   |
| Depreciation of  premises and equipment                                                     |       | 708                                           |       | 713 |   |
| Increase in  value of bank-owned life insurance                                             |       | (373                                          | )          | (377 | ) |
| Stock grant  expense                                                                        |       | 271                                           |       | — |   |
| Stock option  expense                                                                       |       | 287                                           |       | — |   |
| Stock-based  benefit programs: ESOP                                                         |       | 402                                           |       | 376 |   |
| Tax benefit  arising from stock compensation                                                |       | 102                                           |       | 110 |   |
| Proceeds from  sale of loans originated for sale                                            |       | 8,380                                         |       | 7,388 |   |
| Origination of  loans held for sale                                                         |       | (8,911                                        | )          | (7,160 | ) |
| (Gain) loss on  the sale of                                                                 |       |                                          |       |   |   |
| Mortgage loans  available for sale                                                          |       | (60                                           | )          | (57 | ) |
| Mortgage-backed  securities available for sale                                              |       | 51                                            |       | — |   |
| Real estate  acquired through foreclosure                                                   |       | (29                                           | )          | — |   |
| Mortgage loans  held to maturity                                                            |       | (130                                          | )          | (83 | ) |
| Income from  mortgage loan derivatives                                                      |       | (1                                            | )          | — |   |
| Loss associated  with forward loan sales                                                    |       | 3                                             |       | — |   |
| (Increase)  decrease in                                                                     |       |                                          |       |   |   |
| Accrued interest  receivable                                                                |       | 266                                           |       | (2 | ) |
| Other assets                                                                                |       | (731                                          | )          | (259 | ) |
| Increase in                                                                                 |       |                                          |       |   |   |
| Accrued interest  payable                                                                   |       | 1,709                                         |       | 661 |   |
| Other  liabilities                                                                          |       | 138                                           |       | 834 |   |
|                                                                                        |       |                                          |       |   |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                  |       | 6,642                                         |       | 7,779 |   |
|                                                                                        |       |                                          |       |   |   |
| INVESTING ACTIVITIES                                                                        |       |                                          |       |   |   |
| Loan  originations                                                                          |       | (101,166                                      | )          | (118,330 | ) |
| Loan principal  payments                                                                    |       | 71,412                                        |       | 86,718 |   |
| Principal  repayments on mortgage-backed securities held to maturity                        |       | 2,133                                         |       | 3,506 |   |
| Principal  repayments on mortgage-backed securities available for sale                      |       | 11,754                                        |       | 23,254 |   |
| Proceeds from  loan sales                                                                   |       | 16,251                                        |       | 1,108 |   |
| Proceeds from  sale of loan participations                                                  |       | 5,027                                         |       | — |   |
| (Purchases) and  maturities of certificates of deposit in other financial institutions, net |       | —                                        |       | (2 | ) |
| Purchase of  investment securities available for sale                                       |       | (3,795                                        | )          | (10,821 | ) |
| Purchase of  mortgage-backed securities available for sale                                  |       | —                                        |       | (8,956 | ) |
| Proceeds from  maturities of investment securities held to maturity                         |       | 3,018                                         |       | 1,280 |   |
| Proceeds from  the sale of mortgage-backed securities available for sale                    |       | 4,971                                         |       | — |   |
| Purchase of Federal  Home Loan Bank stock                                                   |       | (102                                          | )          | (273 | ) |
|                                                                                             |            |                                               |            |  |  |  |  |

 

5

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| ** **                                                                                                      | ** ** | **For the nine months ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **September 30,**                            | ** ** |
| ** **                                                                                                      | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| ** **                                                                                                      | ** ** | **(in thousands)**                           | ** ** |
|                                                                                                            |       |                                              |       |   |   |
| Proceeds from  the sale of real estate acquired through foreclosure                                             |       | 729                                               |       | — |   |
| Purchase of  premises and equipment                                                                             |       | (896                                              | )          | (869 | ) |
|                                                                                                            |       |                                              |       |   |   |
| NET CASH  PROVIDED (USED) BY INVESTING ACTIVITIES                                                               |       | 9,336                                             |       | (23,385 | ) |
|                                                                                                            |       |                                              |       |   |   |
| FINANCING ACTIVITIES                                                                                            |       |                                              |       |   |   |
| Net increase  (decrease) in demand deposit/NOW accounts, passbook savings accounts and  certificates of deposit |       | (135                                              | )          | 4,983 |   |
| Net increase  (decrease) in short-term Federal Home Loan Bank advances                                          |       | (11,436                                           | )          | 6,499 |   |
| Proceeds of  long-term Federal Home Loan Bank advances                                                          |       | 15,535                                            |       | 16,367 |   |
| Repayment of  long-term Federal Home Loan Bank advances                                                         |       | (13,993                                           | )          | (11,303 | ) |
| Net decrease in advances  from borrowers for taxes and insurance                                                |       | (631                                              | )          | (548 | ) |
| Treasury stock  acquired                                                                                        |       | (1,421                                            | )          | (1,773 | ) |
| Exercise of  stock options                                                                                      |       | 312                                               |       | 602 |   |
| Common stock  dividends paid                                                                                    |       | (1,538                                            | )          | (1,479 | ) |
|                                                                                                            |       |                                              |       |   |   |
| NET CASH  PROVIDED (USED) BY FINANCING ACTIVITIES                                                               |       | (13,307                                           | )          | 13,348 |   |
|                                                                                                            |       |                                              |       |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                           |       | 2,671                                             |       | (2,258 | ) |
|                                                                                                            |       |                                              |       |   |   |
| Cash and cash  equivalents at beginning of period                                                               |       | 3,821                                             |       | 7,900 |   |
|                                                                                                            |       |                                              |       |   |   |
| Cash and cash  equivalents at end of period                                                                     |       | $                                                 | 6,492      |   | $ | 5,642 |   |
|                                                                                                            |       |                                              |       |   |   |
| Supplemental disclosure  of cash flow information                                                               |       |                                              |       |   |   |
| Cash paid for                                                                                                   |       |                                              |       |   |   |
| Interest on  deposits and advances from Federal Home Loan Bank                                                  |       | $                                                 | 9,928      |   | $ | 7,590 |   |
| Income taxes                                                                                                    |       | $                                                 | 1,415      |   | $ | 910 |   |

 

The accompanying notes are an integral part of these statements

 

6

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**TF FINANCIAL CORPORATION AND SUBSIDIARIESNOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 - PRINCIPLES OF CONSOLIDATION**

Theconsolidated financial statements as of September 30, 2006 (unaudited) andDecember 31, 2005 and for the nine-month periods ended September 30, 2006 and2005 (unaudited) include the accounts of TF Financial Corporation (the “Company”)and its wholly owned subsidiaries Third Federal Bank (the “Bank”), TFInvestments Corporation and Penns Trail Development Corporation. The Company’sbusiness is conducted principally through the Bank. All significantintercompany accounts and transactions have been eliminated in consolidation.

**NOTE 2 - BASIS OF PRESENTATION**

Theaccompanying unaudited consolidated financial statements were prepared inaccordance with instructions for Form 10-Q and, therefore, do not include allof the disclosures or footnotes required by accounting principles generallyaccepted in the United States of America. In the opinion of management, alladjustments, consisting of normal recurring accruals, necessary for fairpresentation of the consolidated financial statements have been included. Theresults of operations for the period ended September 30, 2006 are notnecessarily indicative of the results which may be expected for the entirefiscal year or any other period. For further information, refer to consolidatedfinancial statements and footnotes thereto included in the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2005.

**NOTE 3 — CONTINGENCIES**

TheCompany, from time to time, is a party to routine litigation that arises in thenormal course of business. In the opinion of management, the resolution of thislitigation, if any, would not have a material adverse effect on the Company’sconsolidated financial position or results of operations.

**NOTE 4 - OTHER COMPREHENSIVE INCOME**

The Company’s other comprehensive incomeconsists of net unrealized losses on investment securities and mortgage-backedsecurities available for sale. Total comprehensive income for the three-monthperiods ended September 30, 2006 and 2005 was $2,603,000 and $506,000, net ofapplicable income tax expense of $1,163,000 and $11,000 respectively. Totalcomprehensive income for the nine-month periods ended September 30, 2006 and2005 was $4,324,000 and $3,421,000, net of applicable income tax expense of$1,708,000 and $1,014,000, respectively.

7

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**NOTE 5—EARNINGS PER SHARE**

The following tables illustrate thereconciliation of the numerators and denominators of the basic and dilutedearnings per share computations (dollars in thousands, except per share data):
| ** **                                                                  | ** ** | **Three months ended September 30, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                            | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                                               |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                                                  | 1,412      |   | 2,698,490 |   | $ | 0.52 |   |
| Effect of  dilutive securities                                              |       |                                                               |       |   |   |   |   |
| Stock options                                                               |       | —                                                             |       | 21,858 |   | — |   |
|                                                                        |       |                                                               |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                                               |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                                                  | 1,412      |   | 2,720,348 |   | $ | 0.52 |   |

 
| ** **                                                                  | ** ** | **Nine months ended September 30, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                  | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                     |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                        | 4,059      |   | 2,697,629 |   | $ | 1.50 |   |
| Effect of  dilutive securities                                              |       |                                     |       |   |   |   |   |
| Stock options                                                               |       | —                                   |       | 18,972 |   | (0.01 | ) |
|                                                                        |       |                                     |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                     |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                        | 4,059      |   | 2,716,601 |   | $ | 1.49 |   |

 

There were options to purchase 20,768 sharesof common stock at a price of $34.14 per share which were outstanding duringthe nine months ended September 30, 2006 that were not included in thecomputation of diluted earnings per share because the options’ exercise priceswere greater than the average market price of the common shares.
| ** **                                                                  | ** ** | **Three months ended September 30, 2005** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                   | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                      |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                         | 1,545      |   | 2,732,451 |   | $ | 0.57 |   |
| Effect of  dilutive securities                                              |       |                                      |       |   |   |   |   |
| Stock options                                                               |       | —                                    |       | 63,247 |   | (0.02 | ) |
|                                                                        |       |                                      |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                      |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                         | 1,545      |   | 2,795,698 |   | $ | 0.55 |   |

 

8

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| ** **                                                                  | ** ** | **Nine months ended September 30, 2005** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                           | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                                              |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                                                 | 4,626      |   | 2,741,848 |   | $ | 1.69 |   |
| Effect of  dilutive securities                                              |       |                                                              |       |   |   |   |   |
| Stock options                                                               |       | —                                                            |       | 70,671 |   | (0.05 | ) |
|                                                                        |       |                                                              |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                                              |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                                                 | 4,626      |   | 2,812,519 |   | $ | 1.64 |   |

 

There were options topurchase 41,284 shares of common stock at a weighted average price of $32.00per share which were outstanding during the nine months ended September 30,2005 that were not included in the computation of diluted earnings per sharebecause the options’ exercise prices were greater than the average market priceof the common shares.

**NOTE 6- STOCK BASED COMPENSATION**

The Company has stock benefitplans that allow the Company to grant options and stock to employees anddirectors. The options, which have a term of up to 10 years when issued,vest over a three to five year period. The exercise price of each option equalsthe market price of the Company’s stock on the date of the grant.

On January 1, 2006, theCompany adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)123R, “Share-Based Payment,” using the modified prospective transition method.Under this transition method, compensation cost to be recognized beginning inthe first quarter of 2006 includes: (a) compensation cost for allshare-based payments granted prior to, but not yet vested as of January 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS 123, and (b) compensation cost for allshare-based payments granted subsequent to January 1, 2006, based on thegrant-date fair value estimated in accordance with the provisions of SFAS 123R.Stock-based compensation expense included in net income related to stockoptions was $98,000, resulting in a tax benefit of $29,000, for the threemonths ended September 30, 2006. Stock-based compensation expense included innet income related to stock options was $287,000, resulting in a tax benefit of$86,000, for the nine months ended September 30, 2006. Results for priorperiods have not been restated. As of September 30, 2006, there was $909,000 oftotal unrecognized compensation cost, net of estimated forfeitures, related tonon-vested options under the Plan. That cost is expected to be recognized overa weighted average period of 27.5 months

Prior to 2006, the Companydisclosed pro forma compensation expense quarterly and annually by calculatingthe stock option grant’s fair value using the intrinsic value method under APBOpinion No. 25, “Accounting for Stock Issued to Employees”, as permitted bySFAS No. 123 “Accounting for Stock-Based Compensation,” which contains a fairvalue-based method for valuing stock-based compensation that entities may use,which measures compensation cost at the grant date based on the fair value ofthe award. Compensation is then recognized over the service period, which isusually the vesting period. No stock-based compensation expense related tostock options was reflected in net income in 2005, as all options granted underthe plans had an exercise price equal to the market value of the underlyingcommon stock on the date of the grant.

9

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The tables below reflect the estimated impact thefair value method would have had on the Company’s net income and net income pershare if SFAS 123R had been in effect for the three and nine months endedSeptember 30, 2005 (dollars in thousands except per share data):
| **Three months ended September 30, 2005**                                            | ** ** | **Net  income** | ** ** | **Basic  earnings  per share** | ** ** | **Diluted  earnings  per share** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|-------------------------------------|------------|---------------------------------------|------------|
| As reported                                                                                                   |       | $               | 1,545      |                                | $          | 0.57                                  |       | $ | 0.55 |   |
| Deduct:  stock-based compensation expense determined using the fair value method, net  of related tax effects |       | 17              |       | 0.01                                |       | —                                |       |
| Pro forma                                                                                                     |       | $               | 1,528      |                                | $          | 0.56                                  |       | $ | 0.55 |   |
|                                                                                                          |       |            |       |                                |       |                                  |       |
| **Nine  months ended September 30, 2005**                                                                     |       |            |       |                                |       |                                  |       |
| As reported                                                                                                   |       | $               | 4,626      |                                | $          | 1.69                                  |       | $ | 1.64 |   |
| Deduct:  stock-based compensation expense determined using the fair value method, net  of related tax effects |       | 51              |       | 0.02                                |       | —                                |       |
| Pro forma                                                                                                     |       | $               | 4,575      |                                | $          | 1.67                                  |       | $ | 1.64 |   |

 

Option activity under theCompany’s stock option plan as of September 30, 2006 is as follows:

|                                            | ** ** | **2006**                   | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **Number  of shares** | ** ** | **Weighted  average  exercise  price per  share** | ** ** | **Weighted  average  remaining  contractual  term (in  years)** | ** ** | **Aggregate  intrinsic  value ($000)** | ** ** |
| Outstanding at  January 1, 2006            |       | 384,848                    |       | $ | 23.18 |   |   |   |   |   |
| Options granted                            |       | 11,000                     |       | 27.20 |   |   |   |   |   |
| Options  exercised                         |       | 20,717                     |       | 15.07 |   |   |   |   |   |
| Options  forfeited                         |       | 8,509                      |       | 29.69 |   |   |   |   |   |
| Outstanding at  September 30, 2006         |       | 366,622                    |       | $ | 23.61 |   | 3.56 |   | $ | 2,577 |   |
| Options exercisable at  September 30, 2006 |       | 179,391                    |       | $ | 18.48 |   | 3.33 |   | $ | 2,181 |   |

 

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 third quarter of 2006 and the exercise price,multiplied by the number of in-the money options).

Stockoptions outstanding were 366,622 and 255,138 at September 30, 2006 and 2005, respectively.The aggregate intrinsic value of options exercised during the nine months endedSeptember 30, 2006 and 2005 was $311,000 and $549,000, respectively. Exerciseof stock options during the nine months ended September 30, 2006 and 2005resulted in cash receipts of $312,000 and $602,000, respectively.

Stock-basedcompensation expense included in net income related to stock grants was $90,000for the three months ended September 30, 2006. Stock-based compensation expenseincluded in net income related to the Company’s employee stock ownership plantotaled $88,000 and $91,000 for the three-month periods ended September 30,2006 and 2005, respectively.

Stock-basedcompensation expense included in net income related to stock grants was$271,000 for the nine months ended September 30, 2006. Stock-based compensationexpense included in net income related to the Company’s employee stockownership plan totaled $303,000 and $295,000 for the nine-month periods endedSeptember 30, 2006 and 2005, respectively.

10

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**NOTE 7-EMPLOYEE BENEFIT PLANS**

Netperiodic defined benefit pension cost included the following (in thousands):
|                                          | ** ** | **Three months ended  September 30** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
|                                     |       |                                                |       |   |   |
| Components of  net periodic benefit cost |       |                                                |       |   |   |
| Service cost                             |       | $                                                   | 77         |   | $ | 78 |   |
| Interest cost                            |       | 53                                                  |       | 53 |   |
| Expected return on plan assets           |       | (81                                                 | )          | (56 | ) |
| Amortization of prior service cost       |       | 16                                                  |       | 16 |   |
| Recognized net actuarial (gain) loss     |       | 12                                                  |       | 11 |   |
|                                     |       |                                                |       |   |   |
| Net periodic  benefit cost               |       | $                                                   | 77         |   | $ | 102 |   |

 
|                                               | ** ** | **Nine months ended  September 30** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
|                                          |       |                                               |       |   |   |
| Components of  net periodic benefit cost      |       |                                               |       |   |   |
| Service cost                                  |       | $                                                  | 231        |   | $ | 234 |   |
| Interest cost                                 |       | 158                                                |       | 159 |   |
| Expected return on plan assets                |       | (242                                               | )          | (159 | ) |
| Amortization of prior service cost            |       | 47                                                 |       | 48 |   |
| Amortization of transition obligation (asset) |       | —                                             |       | — |   |
| Recognized net actuarial (gain) loss          |       | 38                                                 |       | 33 |   |
|                                          |       |                                               |       |   |   |
| Net periodic  benefit cost                    |       | $                                                  | 232        |   | $ | 315 |   |

 

The employer contributions made for the nine months ended September 30,2006 and 2005 were $620,000 and $1,015,000, respectively. It is thepolicy of the Company to fund the maximum amount allowable under the individualaggregate cost method to the extent deductible under existing federal incometax regulations. The Company expects to make a contribution of $1.3 millionprior to year-end.

**NOTE 8-RECLASSIFICATIONS**

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

 

11

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**TF FINANCIAL CORPORATIONAND SUBSIDIARIES**

**MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**GENERAL**

The Company may from time to time make written ororal “forward-looking statements”, including statements contained in theCompany’s filings with the Securities and Exchange Commission (including thisQuarterly Report on Form 10-Q and the exhibits thereto), in its reports tostockholders and in other communications by the Company, which are made in goodfaith by the Company pursuant to the “Safe Harbor” Provisions of the PrivateSecurities Litigation Reform Act of 1995.

These forward-looking statements involve risks anduncertainties, such as statements of the Company’s plans, objectives,expectations, estimates and intentions that are subject to change based onvarious important factors (some of which are beyond the Company’s control). Thefollowing factors, among others, could cause the Company’s financialperformance to differ materially from the plans, objectives, expectations,estimates and intentions expressed in such forward-looking statements: thestrength of the United States economy in general and the strength of the localeconomies in which the Company conducts operations; the effects of, and changesin, trade, monetary and fiscal policies and laws, including interest ratepolicies of the Board of Governors of the Federal Reserve System, inflation,interest rate, market and monetary fluctuations; the timely development of andacceptance of new products and services of the Company and the perceivedoverall value of these products and services by users, including the features,pricing and quality compared to competitors’ products and services; thewillingness of users to substitute competitors’ products and services for theCompany’s products and services; the success of the Company in gainingregulatory approval of its products and services, when required; the impact ofchanges in financial services’ laws and regulations (including laws concerningtaxes, banking, securities and insurance); technological changes, acquisitions;changes in consumer spending and saving habits; and the success of the Companyat managing the risks involved in the foregoing.

The Company cautions that the foregoing list ofimportant factors is not exclusive. The Company does not undertake to updateany forward-looking statement, whether written or oral, that may be made fromtime to time by or on behalf of the Company.

**Financial Position**

The Company’s total assets at September 30, 2006 and December 31, 2005were $654.8 million and $660.8 million, respectively, a decrease of $6.0million, or 0.9%, during the nine-month period. Cash and cash equivalentsincreased by $2.7 million. Investment securities available for sale increasedby $4.1 million due to purchases of $3.8 million of tax free municipal bondsand a $0.3 million increase in the market value of investment securitiesavailable for sale. Investment securities held to maturity decreased by $3.0million as a result of security maturities. Mortgage-backed securitiesavailable for sale decreased by $16.9 million due to sales of $5.0 million,principal repayments of $11.8 million, and amortization of net premiumstotaling $0.2 million offset by an increase in the market value of thesesecurities of $0.1 million. Mortgage-backed securities held to maturitydecreased by $2.1 million as a result of principal repayments.

Loans receivable increased by $9.1 million during the first nine monthsof 2006. Consumer and single-family residential mortgage loans of $49.9 millionand commercial loans of $51.3 million were originated during the first ninemonths of 2006. Principal repayments of loans receivable were $71.4 million andproceeds from sales of loan participations totaled $5.0 million in the first ninemonths of 2006. Additionally, the Company sold $16.3 million of previouslypurchased loans. Loans originated for sale during this period totaled $8.9million, and there were $8.4 million in proceeds from the sale of these loansin the secondary market during this period. In June 2006, the Company sold for$0.7 million the sole parcel of foreclosed real estate owned at December 31,2005.

12

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Total liabilities decreased by $8.8 million. Deposit balances decreasedby $0.1 million during the first nine months of 2006. Savings, money market,interest-bearing, and non-interest bearing checking accounts decreased by acombined $43.4 million. Retail certificates of deposit increased by $31.6million and broker originated deposits received during the second quarter of2006 totaled $11.7 million. Advances from the Federal Home Loan Bank decreasedby $9.9 million due to scheduled amortization payments of $14.0 million andrepayments of $11.4 million of short term advances offset by a $15.5 millionincrease in long-term fixed rate advances,.

Total consolidated stockholders’ equity of theCompany was $65.4 million or 10.0% of total assets at September 30, 2006.During the first nine months of 2006 the Company repurchased 48,404 shares ofits common stock and issued 20,717 shares pursuant to the exercise of stockoptions. As of September 30, 2006, there were approximately 76,000 sharesavailable for repurchase under the previously announced share repurchase plan.

###### **Asset Quality**

During the first nine months of 2006 and 2005, the Company’s provisionfor loan losses was $150,000 and $450,000, respectively. Management of theCompany believes that there has not been any significant deterioration in itsasset quality during the first nine months of 2006.

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

|                                                             | ** ** | **September 30,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **2006**               | ** ** | **2005**              | ** ** | **2005**               | ** ** |
| ** **                                                  | ** ** | ** **             | ** ** | ** **            | ** ** | ** **             | ** ** |
| Non-performing loans                                        |       | $                      | 1,131      |                  | $          | 1.588                  |       | $ | 570 |   |
| Ratio of non-performing loans to gross loans                |       | 0.22                   | %          | 0.32                  | %          | 0.12                   | %          |
| Ratio of non-performing loans to total assets               |       | 0.17                   | %          | 0.24                  | %          | 0.09                   | %          |
| Foreclosed property                                         |       | $                      | 0          |                  | $          | 700                    |       | $ | 700 |   |
| Foreclosed property to total assets                         |       | N/A                    |       | 0.11                  | %          | 0.11                   | %          |
| Ratio of total non-performing assets to total assets        |       | 0.17                   | %          | 0.35                  | %          | 0.20                   | %          |
| Ratio of allowance for loan losses to total loans           |       | 0.56                   | %          | 0.54                  | %          | 0.53                   | %          |
| Ratio  of allowance for loan losses to non-performing loans |       | 248.45                 | %          | 166.31                | %          | 176.12                 | %          |

 

Management maintains an allowance for loan losses atlevels that are believed to be adequate; however, there can be no assurancesthat further additions will not be necessary or that losses inherent in theexisting loan portfolio will not exceed the allowance. The following table setsforth the activity in the allowance for loan losses during the periodsindicated (in thousands):

|                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Beginning balance, January 1,             |       | $        | 2,641      |     | $          | 2,307 |   |
| Provision                                 |       | 150      |       | 450      |       |
| Less: charge-off’s (recoveries), net |       | (19      | )          | 249      |       |
| Ending  balance, September 30,            |       | 2,810    |       | 2,508    |       |
|                                           |            |          |            |          |            |  |  |

 

13

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**RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND2005**

**Net Income**.The Company recorded net income of $1,412,000, or $0.52 per diluted share, forthe three months ended September 30, 2006 as compared to net income of $1,545,000,or $0.55 per diluted share, for the three months ended September 30, 2005.

### **Average Balance Sheet**

The following table sets forth information (dollarsin thousands) relating to the Company’s average balance sheet and reflects theaverage yield on assets and average cost of liabilities for the periodsindicated. Yield and cost are computed by dividing income or expense by theaverage daily balance of interest-earning assets or interest-bearingliabilities, respectively, at-or for the three-month periods indicated.
| ** **                                                                         | ** ** | **September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **2006**               | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | **Average  balance**   | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** |
| **ASSETS**                                                                         |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning  assets:**                                                      |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Loans  receivable(1)                                                               |       | $                      | 501,012    |   | $ | 8,243 |   | 6.53 | % | $ | 465,712 |   | $ | 7,032 |   | 5.99 | % |
| Mortgage-backed  securities                                                        |       | 75,620                 |       | 872 |   | 4.57 | % | 104,148 |   | 1,135 |   | 4.32 | % |
| Investment  securities(2)                                                          |       | 41,957                 |       | 555 |   | 5.25 | % | 39,553 |   | 466 |   | 4.67 | % |
| Other  interest-earning assets(3)                                                  |       | 2,987                  |       | 43 |   | 5.71 | % | 2,631 |   | 20 |   | 3.02 | % |
| Total  interest-earning assets                                                     |       | 621,576                |       | 9,713 |   | 6.20 | % | 612,044 |   | 8,653 |   | 5.61 | % |
| Non  interest-earning assets                                                       |       | 35,058                 |       |   |   |   |   | 33,179 |   |   |   |   |   |
| Total assets                                                                       |       | $                      | 656,634    |   |   |   |   |   | $ | 645,223 |   |   |   |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                     |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**                                                 |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                           |       | $                      | 471,556    |   | 2,949 |   | 2.48 | % | $ | 473,801 |   | 2,052 |   | 1.72 | % |
| Advances from  the FHLB                                                            |       | 114,070                |       | 1,144 |   | 3.98 | % | 104,918 |   | 935 |   | 3.54 | % |
| Total  interest-bearing liabilities                                                |       | 585,626                |       | 4,093 |   | 2.77 | % | 578,719 |   | 2,987 |   | 2.05 | % |
| Non  interest-bearing liabilities                                                  |       | 7,297                  |       |   |   |   |   | 6,469 |   |   |   |   |   |
| Total  liabilities                                                                 |       | 592,923                |       |   |   |   |   | 585,188 |   |   |   |   |   |
| Stockholders’  equity                                                         |       | 63,711                 |       |   |   |   |   | 60,035 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                                   |       | $                      | 656,634    |   |   |   |   |   | $ | 645,223 |   |   |   |   |   |
| Net interest  income                                                               |       |                   |       | $ | 5,620 |   |   |   |   |   | $ | 5,666 |   |   |   |
| Interest rate  spread(4)                                                           |       |                   |       |   |   | 3.43 | % |   |   |   |   | 3.56 | % |
| Net yield on  interest-earning assets(5)                                           |       |                   |       |   |   | 3.59 | % |   |   |   |   | 3.67 | % |
| Ratio of average  interest-earning assets to average interest- bearing liabilities |       |                   |       |   |   | 106 | % |   |   |   |   | 106 | % |

----

(1)             Nonaccrual loans havebeen included in the appropriate average loan balance category, but interest onnonaccrual loans has not been included for purposes of determining interestincome.

(2)             Tax equivalentadjustments to interest on investment securities were $102,000 and $83,000 forthe quarters ended September 30, 2006 and 2005, respectively. Tax equivalentinterest income is based upon a marginal effective tax rate of 34%.

(3)             Includesinterest-bearing deposits in other banks.

(4)             Interest rate spreadrepresents the difference between the average yield on interest-earning assetsand the average cost of interest-bearing liabilities.

(5)             Netyield on interest-earning assets represents net interest income as a percentageof average interest-earning assets.

14

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**Rate/Volume Analysis**

The following table presents, for the periods indicated,the change in interest income and interest expense (in thousands) attributed to(i) changes in volume (changes in the weighted average balance of the totalinterest earning asset and interest bearing liability portfolios multiplied bythe prior year rate), and (ii) changes in rate (changes in rate multiplied byprior year volume). Changes attributable to the combined impact of volume andrate have been allocated proportionately based on the absolute value of changesdue to volume and changes due to rate.
| ** **                          | ** ** | **Three months ended September 30,**               | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2006 vs. 2005  Increase (decrease) due to** | ** ** |
| ** **                          | ** ** | **Volume**                                                             | ** ** | **Rate** | ** ** | **Net** | ** ** |
| **Interest  income:**               |       |                                                                   |       |   |   |   |   |
| Loans  receivable, net              |       | $                                                                      | 555        |   | $ | 656 |   | $ | 1,211 |   |
| Mortgage-backed  securities         |       | (649                                                                   | )          | 386 |   | (263 | ) |
| Investment  securities (1)          |       | 29                                                                     |       | 60 |   | 89 |   |
| Other  interest-earning assets      |       | 3                                                                      |       | 20 |   | 23 |   |
| Total  interest-earning assets      |       | (62                                                                    | )          | 1,122 |   | 1,060 |   |
| **Interest  expense:**              |       |                                                                   |       |   |   |   |   |
| Deposits                            |       | (67                                                                    | )          | 964 |   | 897 |   |
| Advances from  the FHLB             |       | 86                                                                     |       | 123 |   | 209 |   |
| Total  interest-bearing liabilities |       | 19                                                                     |       | 1,087 |   | 1,106 |   |
| Net change in net  interest income  |       | $                                                                      | (81        | ) | $ | 35 |   | $ | (46 | ) |

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(1)             Taxequivalent adjustments to interest on investment securities were $102,000 and$83,000 for the quarters ended September 30, 2006 and 2005, respectively. Taxequivalent interest income is based upon a marginal effective tax rate of 34%.

**Total Interest Income**. Total interest income, on a taxable equivalent basis, increased by$1.1 million or 12.3% to $9.7 million for the quarter ended September 30, 2006compared with the third quarter of 2005 primarily because of a $35.3 millionincrease in average loans outstanding combined with an increase of 54 basispoints on the average yield on these loans. The yield on both existing loansand new loans added to the portfolio increased during the intervening period inpart due to six, 25 basis point increases in the Bank’s prime rate during theperiod September 30, 2005 through September 30, 2006 corresponding to identicalincreases in the federal funds interest rate of the Federal Reserve Bank. AtSeptember 30, 2006, the Bank had approximately $73.2 million in loans that areindexed to the prime rate primarily consisting of construction loans andcommercial and consumer lines of credit. Interest income from mortgage-backedsecurities was lower in the third quarter of 2006 in comparison to the sameperiod of 2005 due to the reduction of balances maintained in mortgage-backedsecurities.

**Total Interest Expense.**Total interest expense increased by $1.1 million to $4.1 million duringthe three-month period ended September 30, 2006 as compared with the thirdquarter of 2005. During 2005 and the first nine months of 2006, the Bank raisedthe interest rates paid on many of its deposit products due to the competitivepricing environment in the Bank’s deposit market. In addition, the Company hadduring the third quarter of 2006 but not during the third quarter of 2005,$24.7 million of certificates of deposit that have interest rates tied to thechange in the federal funds rate. As a result, the average rate paid ondeposits increased by 76 basis points. Interest on advances from the FederalHome Loan Bank increased by $0.2 million during the third quarter of 2006versus the third quarter of 2005 as a result of a $9.2 million increase in theaverage balance of borrowings as well as an increase of 44 basis points in thecost of these funds due, generally, to the amortization of lower cost advancesand the higher cost of new advances.

15

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**Non-interest income.**Total non-interest income was $813,000 for the three-month period endedSeptember 30, 2006 compared with $742,000 for the same period in 2005. TheCompany recognized $25,000 of non-interest income related to real estate heldfor development during the third quarter of 2006. Net gain on the sale ofpreviously purchased portfolio loans totaled $130,000 during the third quarterof 2006 while the gain associated with the sale of the credit card portfolio inthe third quarter of 2005 was $83,000.

**Non-interest expense.**Total non-interest expense increased by $286,000 to $4.4 million for thethree months ended September 30, 2006 compared to the same period in 2005.Stock-based compensation expense related to stock grants and the recognition ofoption expense associated with the new accounting standard SFAS 123R, “Share-BasedPayment” amounted to $188,000 for the third quarter of 2006 while there was nosuch expense for the third quarter of 2005. In addition, compensation and otherbenefit expenses were higher by $183,000 due to staffing and annual salaryincreases. Office and occupancy costs increased $121,000 between the twoquarters mainly as a result of costs associated with the relocation andrenovations of the Feasterville branch as well as the new branch opened inGirard during 2005. In addition, costs associated with technology-relatedmaintenance well as higher utilities costs contributed to the overall increase.Professional fees declined $83,000 in the third quarter of 2006 over the thirdquarter of 2005 which included employment recruitment fees as well as expensesassociated with technology-related compliance work which was completed in 2005.Other operating expenses decreased by $101,000 in the third quarter of 2006versus the third quarter of 2005 mainly due to $50,000 of deposit lossesincurred in 2005.

 

16

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**RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND2005**

**Net Income**.The Company recorded net income of $4,059,000, or $1.49 per diluted share, forthe nine months ended September 30, 2006 as compared to net income of$4,626,000, or $1.64 per diluted share, for the nine months ended September 30,2005.

### **Average Balance Sheet**

The following table sets forth information (dollarsin thousands) relating to the Company’s average balance sheet and reflects theaverage yield on assets and average cost of liabilities for the periodsindicated. Yield and cost are computed by dividing income or expense by theaverage daily balance of interest-earning assets or interest-bearingliabilities, respectively, at-or for the nine-month periods indicated.
| ** **                                                                         | ** ** | **September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **2006**               | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | **Average  balance**   | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** |
| **ASSETS**                                                                         |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning assets:**                                                       |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Loans receivable(1)                                                                |       | $                      | 503,971    |   | $ | 24,081 |   | 6.39 | % | $ | 456,596 |   | $ | 20,206 |   | 5.92 | % |
| Mortgage-backed  securities                                                        |       | 83,107                 |       | 2,841 |   | 4.57 | % | 111,914 |   | 3,730 |   | 4.46 | % |
| Investment  securities(2)                                                          |       | 41,767                 |       | 1,644 |   | 5.26 | % | 36,041 |   | 1,286 |   | 4.77 | % |
| Other interest-earning  assets(3)                                                  |       | 1,469                  |       | 65 |   | 5.92 | % | 2,050 |   | 42 |   | 2.74 | % |
| Total interest-earning  assets                                                     |       | 630,314                |       | 28,631 |   | 6.07 | % | 606,601 |   | 25,264 |   | 5.57 | % |
| Non interest-earning  assets                                                       |       | 34,851                 |       |   |   |   |   | 34,313 |   |   |   |   |   |
| Total assets                                                                       |       | $                      | 665,165    |   |   |   |   |   | $ | 640,914 |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                     |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**                                                  |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                           |       | $                      | 466,652    |   | 7,757 |   | 2.22 | % | $ | 465,333 |   | 5,419 |   | 1.56 | % |
| Advances from the FHLB                                                             |       | 128,381                |       | 3,880 |   | 4.04 | % | 109,487 |   | 2,832 |   | 3.46 | % |
| Total interest-bearing  liabilities                                                |       | 595,033                |       | 11,637 |   | 2.61 | % | 574,820 |   | 8,251 |   | 1.92 | % |
| Non interest-bearing  liabilities                                                  |       | 7,269                  |       |   |   |   |   | 5,961 |   |   |   |   |   |
| Total liabilities                                                                  |       | 602,302                |       |   |   |   |   | 580,781 |   |   |   |   |   |
| Stockholders’ equity                                                          |       | 62,863                 |       |   |   |   |   | 60,133 |   |   |   |   |   |
| Total liabilities and  stockholders’ equity                                   |       | $                      | 665,165    |   |   |   |   |   | $ | 640,914 |   |   |   |   |   |
| Net interest income                                                                |       |                   |       | $ | 16,994 |   |   |   |   |   | $ | 17,013 |   |   |   |
| Interest rate spread(4)                                                            |       |                   |       |   |   | 3.46 | % |   |   |   |   | 3.65 | % |
| Net yield on  interest-earning assets(5)                                           |       |                   |       |   |   | 3.60 | % |   |   |   |   | 3.76 | % |
| Ratio of average interest-earning assets to average interest- bearing  liabilities |       |                   |       |   |   | 106 | % |   |   |   |   | 106 | % |

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(1)             Nonaccrual loans havebeen included in the appropriate average loan balance category, but interest onnonaccrual loans has not been included for purposes of determining interestincome.

(2)             Tax equivalentadjustments to interest on investment securities were $290,000 and $226,000 forthe nine months ended September 30, 2006 and 2005, respectively. Tax equivalentinterest income is based upon a marginal effective tax rate of 34%.

(3)             Includesinterest-bearing deposits in other banks.

(4)             Interest rate spreadrepresents the difference between the average yield on interest-earning assetsand the average cost of interest-bearing liabilities.

(5)             Netyield on interest-earning assets represents net interest income as a percentageof average interest-earning assets.

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**Rate/Volume Analysis**

The following table presents, for the periods indicated,the change in interest income and interest expense (in thousands) attributed to(i) changes in volume (changes in the weighted average balance of the totalinterest earning asset and interest bearing liability portfolios multiplied bythe prior year rate), and (ii) changes in rate (changes in rate multiplied byprior year volume). Changes attributable to the combined impact of volume andrate have been allocated proportionately based on the absolute value of changesdue to volume and changes due to rate.
| ** **                          | ** ** | **Nine months ended September 30,**                | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2006 vs. 2005  Increase (decrease) due to** | ** ** |
| ** **                          | ** ** | **Volume**                                                             | ** ** | **Rate** | ** ** | **Net** | ** ** |
| **Interest  income:**               |       |                                                                   |       |   |   |   |   |
| Loans  receivable, net              |       | $                                                                      | 2,191      |   | $ | 1,684 |   | $ | 3,875 |   |
| Mortgage-backed  securities         |       | (1,041                                                                 | )          | 152 |   | (889 | ) |
| Investment  securities (1)          |       | 217                                                                    |       | 141 |   | 358 |   |
| Other  interest-earning assets      |       | (21                                                                    | )          | 44 |   | 23 |   |
| Total  interest-earning assets      |       | 1,346                                                                  |       | 2,021 |   | 3,367 |   |
| **Interest  expense:**              |       |                                                                   |       |   |   |   |   |
| Deposits                            |       | 15                                                                     |       | 2,323 |   | 2,338 |   |
| Advances from  the FHLB             |       | 530                                                                    |       | 518 |   | 1,048 |   |
| Total  interest-bearing liabilities |       | 545                                                                    |       | 2,841 |   | 3,386 |   |
| Net change in net  interest income  |       | $                                                                      | 801        |   | $ | (820 | ) | $ | (19 | ) |

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(1)             Taxequivalent adjustments to interest on investment securities were $290,000 and$226,000 for the nine months ended September 30, 2006 and 2005, respectively.Tax equivalent interest income is based upon a marginal effective tax rate of34%.

**Total Interest Income**. Total interest income, on a taxable equivalent basis, increased by$3.4 million or 13.3% to $28.6 million for the nine months ended September 30,2006 compared with the first nine months of 2005 primarily because of a $47.4million increase in average loans outstanding combined with an increase of 47basis points on the average yield on these loans. The yield on both existingloans and new loans added to the portfolio increased during the interveningperiod in part due to six, 25 basis point increases in the Bank’s prime rateduring the period September 30, 2005 through September 30, 2006 correspondingto identical increases in the federal funds interest rate of the FederalReserve Bank.  At September 30, 2006, theBank had approximately $73.2 million in loans that are indexed to the primerate primarily consisting of construction loans and commercial and consumerlines of credit. Interest income from mortgage-backed securities was lower inthe first nine months of 2006 in comparison to the same period of 2005 due tothe reduction of balances maintained in mortgage-backed securities.

**Total Interest Expense.**Total interest expense increased by $3.4 million to $11.6 million duringthe nine-month period ended September 30, 2006 as compared with the first ninemonths of 2005. During 2005 and the first nine months of 2006, the Bank raisedthe interest rates paid on many of its deposit products due to the competitivepricing environment in the Bank’s deposit market. In addition, the Company hadduring 2006 but not during 2005, $24.7 million of certificates of deposit thathave interest rates tied to the change in the federal funds rate.  As a result, the average rate paid ondeposits increased by 66 basis points. Interest on advances from the FederalHome Loan Bank increased by $1.0 million during the first nine months of 2006versus the first nine months of 2005 as a result of a $18.9 million increase inthe average balance of borrowings as well as an increase of 58 basis points inthe cost of these funds due, generally, to the amortization of lower costadvances and the higher cost of new advances.

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**Non-interest income.**Total non-interest income was $2,119,000 for the nine-month period endedSeptember 30, 2006 compared with $2,081,000 for the same period in 2005. Losson the sale of mortgage-backed securities was $51,000 during the first ninemonths of 2006 while there was no such loss during 2005. Loan prepayment andother loan-related charges decreased $112,000 in the first nine months of 2006versus the first nine months of 2005. Overdraft deposit fees increased $58,000during the same period. Gain on the sale of property acquired throughforeclosure was $29,000 during 2006 while there was no such gain in 2005. TheCompany recognized $50,000 of non-interest income related to real estate heldfor development during 2006. Additionally, net gain on the sale of previouslypurchased portfolio loans totaled $130,000 during the third quarter of 2006while the gain associated with the sale of the credit card portfolio in thethird quarter of 2005 was $83,000.

**Non-interest expense.**Total non-interest expense increased by $883,000 to $13.0 million forthe nine months ended September 30, 2006 compared to the same period in 2005.Stock-based compensation expense related to stock grants and the recognition ofoption expense associated with the new accounting standard SFAS 123R, “Share-BasedPayment” amounted to $558,000 for the first nine months of 2006 while there wasno such expense during 2005. In addition, compensation and other benefitexpenses were higher by $441,000 due to staffing related to the Girard Avenuebranch which opened in June 2005 as well as annual salary and other staffingincreases. Office and occupancy costs increased $218,000 between the twoperiods as a result of office and occupancy costs associated with the relocatedand renovated Feasterville branch and the new Girard Avenue branch.Additionally, rising expenses associated with depreciation expenses of recentrenovations, technology-related maintenance, and utility expenses alsocontributed to the overall increase. Professional fees incurred during thefirst nine months of 2006 decreased over fees incurred during the same periodof 2005 as technology-related initiatives were completed during 2005. Otheroperating expenses decreased $114,000 mainly due to $50,000 of deposit lossesincurred in 2005.

**LIQUIDITY AND CAPITAL RESOURCES**

**Liquidity**

The Company’s liquidity is a measure of its ability to fund loans, paywithdrawals of deposits, and other cash outflows in an efficient,cost-effective manner. The Company’s short-term sources of liquidity includematurity, repayment and sales of assets, excess cash and cash equivalents, newdeposits, broker deposits, other borrowings, and new advances from the FederalHome Loan Bank. There has been no material adverse change during the nine-monthperiod ended September 30, 2006 in the ability of the Company and itssubsidiaries to fund their operations.

At September 30, 2006, the Company had commitments outstanding underletters of credit of $1.4 million, commitments to originate loans of $17.7million, and commitments to fund undisbursed balances of closed loans andunused lines of credit of $63.7 million. At September 30, 2006, the Bank had$1.9 million outstanding commitments to sell loans. There has been no materialchange during the nine months ended September 30, 2006 in any of the Company’sother contractual obligations or commitments to make future payments.

**Capital Requirements**

The Bank was in compliance with all of its capital requirements as ofSeptember 30, 2006.

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###### **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

###### **Asset and Liability Management**

The Company’s market risk exposure is predominatelycaused by interest rate risk, which is defined as the sensitivity of theCompany’s current and future earnings, the values of its assets andliabilities, and the value of its capital to changes in the level of marketinterest rates. Management of the Company believes that there has not been amaterial adverse change in market risk during the nine months ended September30, 2006.

**CONTROLS AND PROCEDURES**

**Evaluationof Disclosure Controls and Procedures**

Based on their evaluation of the Company’s disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)), the Company’s principal executiveofficer and principal financial officer have concluded that as of the end ofthe period covered by this Quarterly Report on Form 10-Q such disclosurecontrols and procedures are effective.

**Changesin Internal Controls over Financial Reporting**

During the quarter under report, there was no changein the Company’s internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

**CRITICAL ACCOUNTING POLICIES**

Certain critical accounting policies of the Companyrequire the use of significant judgment and accounting estimates in thepreparation of the consolidated financial statements and related data of theCompany. These accounting estimates require management to make assumptionsabout matters that are highly uncertain at the time the accounting estimate ismade. Management believes that the most critical accounting policy requiringthe use of accounting estimates and judgment is the determination of theallowance for loan losses. If the financial position of a significant amount ofdebtors should deteriorate more than the Company has estimated, presentreserves for loan losses may be insufficient and additional provisions for loanlosses may be required. The allowance for loan losses was $2,810,000 atSeptember 30, 2006.

**NEW ACCOUNTING PRONOUNCEMENTS**

In March 2006, the Financial Accounting Standards Board (FASB)issued Statement No. 156 (SFAS 156), “Accounting for Servicing ofFinancial Assets”. SFAS 156 amends SFAS No. 140, “Accounting for Transfersand Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 156permits, but does not require, an entity to choose either the amortizationmethod or the fair value measurement method for measuring each class ofseparately recognized servicing assets and servicing liabilities. SFAS 156 iseffective for fiscal years beginning after September 15, 2006 and is notexpected to have a material impact on the Company’s consolidated financialstatements.

In July 2006, FASB issued FASB Interpretation (FIN) 48, “Accounting for Uncertainty in Income Taxes:an interpretation of FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in an entity’s financial statementsin accordance with Statement of SFAS 

20

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No. 109.  FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. FIN 48 also providesguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure and transition. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006 andis currently under evaluation by the Company to determine the impact on theCompany’s consolidated financial statements.

In September 2006, FASB Issued Statement No. 157 (SFAS 157), “FairValue Measurements” which is effective for fiscal years beginning afterNovember 15, 2007 and for interim periods within those years. This statementdefines fair value, establishes a framework for measuring fair value andexpands the related disclosure requirements. The Company is currentlyevaluating the impact the adoption of SFAS No. 157 will have on itsconsolidated financial statements.

In September 2006, FASB Issued Statement No. 158 (SFAS 158),“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. SFAS 158requires an employer to recognize the overfunded or underfunded status of adefined benefit postretirement plan (other than a multiemployer plan) as anasset or liability in its statement of financial position and to recognizechanges in that funded status in the year in which the changes occur throughcomprehensive income. This Statement also improves financial reporting byrequiring an employer to measure the funded status of a plan as of the date ofits year-end statement of financial position, with limited exceptions. An employer with publicly traded equitysecurities is required to initially recognize the funded status of a definedbenefit postretirement plan and to provide the required disclosures as of theend of the fiscal year ending after December 15, 2006. The Company is currently evaluating the impactthe adoption of SFAS No. 158 will have on its consolidated financialstatements.

In September 2006, the SEC staff issued Staff Accounting Bulletin No.108“Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements”.  SAB 108 was issued to provide consistencyamong registrants in the quantification of financial statementmisstatements.  SAB 108 established anapproach that requires quantification of financial statement misstatementsbased on the effects of the misstatement on each of the company’s financialstatements and the related disclosures. SAB 108 allows registrants to initially apply the approach either by (1)retroactively adjusting prior financial statements as if the approach hadalways been used or (2) recording the cumulative effect of initially applyingthe approach as adjustments to the carrying values of assets and liabilities asof January 1, 2006 with the related offset recorded to the opening balance ofretained earnings. Use of the “cumulative effect” transition requires fulldisclosure as to the nature and amount of each individual error beingcorrected. The Company is currently evaluating the impact the adoption of SABNo. 108 will have on its consolidated financial statements. Because the Companyis not aware of any material misstatement, it does not believe that theadoption of SAB 108 will have a material effect on the financial statements.

 

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**TF FINANCIAL CORPORATIONAND SUBSIDIARIES**

**PART II**

**ITEM 1.****                 LEGAL PROCEEDINGS**

                               

                               Not applicable.

                               

**ITEM 1A.****              RISKFACTORS**

                               

                               Management does not believe there havebeen any material changes to the Risk Factors previously disclosed under Item1A. on the Company’s Form 10-K for the year ended December 31, 2005.

                               

**ITEM 2.****                 UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

                               

                               The following table providesinformation on repurchases by the Company of its common stock in each month forthe three months ended September 30, 2006:

 
| **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** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
|                                   |       |                                                 |       |                                             |       |                                                                                                                           |       |                                                                                                                        |       |
| July 1, 2006 — July 31,  2006     |       | —                                               |       | $                                                | —     |                                                                                                                           | —     |                                                                                                                        | 75,773     |   |
|                                   |       |                                                 |       |                                             |       |                                                                                                                           |       |                                                                                                                        |       |
| August 1, 2006 — August  31, 2006 |       | —                                               |       | —                                           |       | —                                                                                                                         |       | 75,773                                                                                                                      |       |
|                                   |       |                                                 |       |                                             |       |                                                                                                                           |       |                                                                                                                        |       |
| September 1, 2006 - September 30, 2006 |       | —                                               |       | —                                           |       | —                                                                                                                         |       | 75,773                                                                                                                      |       |
|                                        |            |                                                      |            |                                                  |            |                                                                                                                                |            |                                                                                                                             |            |  |

 

**ITEM 3.                 DEFAULTSUPON SENIOR SECURITIES**

                               

                               Not applicable.

                               

**ITEM 4.                 SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

                               None

                               

**ITEM 5.                 OTHER INFORMATION**

                               None

                               

**ITEM 6.                 EXHIBITS**

                               (a) Exhibits

                               31.    Certificationpursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

                               32.    Certificationpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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**TF FINANCIAL CORPORATION**

**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.
|        |              | /s/ Kent C. Lufkin                             |   |
|--------|-------------------|------------------------------------------------|--------|
| Date:  | November 13, 2006 | Kent C. Lufkin                                 |   |
|   |              | President and CEO                              |   |
|   |              | (Principal Executive Officer)                  |   |
|   |              |                                           |   |
|   |              |                                           |   |
|   |              | /s/ Dennis R. Stewart                          |   |
| Date:  | November 13, 2006 | Dennis R. Stewart                              |   |
|   |              | Executive Vice President and                   |   |
|   |              | Chief Financial Officer                        |   |
|   |              | (Principal Financial & Accounting Officer) |   |

 

 

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