**SECURITIESAND 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 June 30,2007**

**- 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 Registrant asSpecified 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**

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):
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer 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 practicabledate:             August 1, 2007

| Class                        | ** ** | **Outstanding**  |
|------------------------------|------------|------------------|
| $.10 par value  common stock |       | 2,885,313 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 |   | 13 |
|                                                                          |       |                                                                                        |   |   |
| 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 |       |                                                                                        |
|                                                                          |       |                                                                                        |   |   |
| 32. Certification pursuant of Section 906 of the  Sarbanes-Oxley Act of 2002  |       |                                                                                        |

 

2

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**TFFinancial Corporation and Subsidiaries**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                                                                                 | ** ** | **Unaudited  June 30, 2007** | ** ** | **Audited  December 31,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                 | ** ** | **(in thousands)**                | ** ** |
| ASSETS                                                                                                                                                                                                                                                     |       |                                   |       |                                 |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                 |       | $                                      | 5,826      |                                 | $          | 12,364 |   |
| Certificates of deposit  in other financial institutions                                                                                                                                                                                                   |       | —                                 |       | 40                                   |       |
| Investment securities  available for sale—at fair value                                                                                                                                                                                               |       | 28,296                                 |       | 34,524                               |       |
| Investment securities  held to maturity (fair value of $685 and $681, respectively)                                                                                                                                                                        |       | 678                                    |       | 677                                  |       |
| Mortgage-backed  securities available for sale—at fair value                                                                                                                                                                                          |       | 82,410                                 |       | 74,338                               |       |
| Mortgage-backed  securities held to maturity (fair value of $6,771 and $7,788, respectively)                                                                                                                                                               |       | 6,729                                  |       | 7,697                                |       |
| Loans receivable, net                                                                                                                                                                                                                                      |       | 499,245                                |       | 483,570                              |       |
| Loans receivable held  for sale                                                                                                                                                                                                                            |       | 783                                    |       | 969                                  |       |
| Federal Home Loan Bank  stock—at cost                                                                                                                                                                                                                 |       | 6,875                                  |       | 7,130                                |       |
| Accrued interest  receivable                                                                                                                                                                                                                               |       | 2,938                                  |       | 3,030                                |       |
| Premises and equipment,  net                                                                                                                                                                                                                               |       | 6,481                                  |       | 6,544                                |       |
| Goodwill                                                                                                                                                                                                                                                   |       | 4,324                                  |       | 4,324                                |       |
| Bank-owned life  insurance                                                                                                                                                                                                                                 |       | 15,575                                 |       | 15,274                               |       |
| Other assets                                                                                                                                                                                                                                               |       | 3,872                                  |       | 2,122                                |       |
| TOTAL ASSETS                                                                                                                                                                                                                                               |       | $                                      | 664,032    |                                 | $          | 652,603 |   |
|                                                                                                                                                                                                                                                       |       |                                   |       |                                 |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                 |       |                                   |       |                                 |       |
| Liabilities                                                                                                                                                                                                                                                |       |                                   |       |                                 |       |
| Deposits                                                                                                                                                                                                                                                   |       | $                                      | 489,578    |                                 | $          | 478,087 |   |
| Borrowings from  the Federal Home Loan Bank                                                                                                                                                                                                                |       | 100,110                                |       | 101,701                              |       |
| Advances from  borrowers for taxes and insurance                                                                                                                                                                                                           |       | 2,734                                  |       | 1,866                                |       |
| Accrued interest  payable                                                                                                                                                                                                                                  |       | 3,322                                  |       | 3,177                                |       |
| Other  liabilities                                                                                                                                                                                                                                         |       | 2,089                                  |       | 2,133                                |       |
| Total  liabilities                                                                                                                                                                                                                                         |       | 597,833                                |       | 586,964                              |       |
|                                                                                                                                                                                                                                                       |       |                                   |       |                                 |       |
| Stockholders’ equity                                                                                                                                                                                                                                  |       |                                   |       |                                 |       |
| Preferred stock,  no par value; 2,000,000 shares authorized at June 30, 2007 and December 31,  2006, none issued                                                                                                                                           |       | —                                 |       | —                               |       |
| Common stock,  $0.10 par value; 10,000,000 shares authorized, 5,290,000 shares issued,  2,718,748 and 2,702,845 shares outstanding at June 30, 2007 and December 31,  2006, respectively, net of shares in treasury 2,405,417 and 2,415,766,  respectively |       | 529                                    |       | 529                                  |       |
| Retained  earnings                                                                                                                                                                                                                                         |       | 66,408                                 |       | 65,075                               |       |
| Additional  paid-in capital                                                                                                                                                                                                                                |       | 53,141                                 |       | 52,700                               |       |
| Unearned ESOP  shares                                                                                                                                                                                                                                      |       | (1,648                                 | )          | (1,703                               | )          |
| Treasury  stock—at cost                                                                                                                                                                                                                               |       | (49,708                                | )          | (48,980                              | )          |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                      |       | (2,523                                 | )          | (1,982                               | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                           |       | 66,199                                 |       | 65,639                               |       |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                                                                                           |       | $                                      | 664,032    |                                 | $          | 652,603 |   |

 

The accompanying notes are an integral part of thesestatements

3

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**TF FinancialCorporation and Subsidiaries**

**CONSOLIDATED STATEMENTS OF INCOME**

**(Unaudited)**

 
| ** **                                                     | ** ** | **For the three months  ended  June 30,**      | ** ** | **For the six months  ended  June 30,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2007**                                                           | ** ** | **2006**                                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                     | ** ** | **(in thousands, except per share data)** | ** ** |
| Interest income                                                |       |                                                               |       |                                                        |       |   |   |   |   |
| Loans, including fees                                          |       | $                                                                  | 7,986      |                                                        | $          | 8,167 |   | $ | 15,765 |   | $ | 15,838 |   |
| Mortgage-backed securities                                     |       | 1,006                                                              |       | 957                                                         |       | 1,939 |   | 1,969 |   |
| Investment securities                                          |       | 404                                                                |       | 489                                                         |       | 838 |   | 901 |   |
| Interest-bearing deposits and other                            |       | 19                                                                 |       | 14                                                          |       | 86 |   | 22 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL INTEREST INCOME                                          |       | 9,415                                                              |       | 9,627                                                       |       | 18,628 |   | 18,730 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Interest expense                                               |       |                                                               |       |                                                        |       |   |   |   |   |
| Deposits                                                       |       | 3,416                                                              |       | 2,560                                                       |       | 6,646 |   | 4,808 |   |
| Borrowings                                                     |       | 1,056                                                              |       | 1,388                                                       |       | 2,035 |   | 2,736 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL INTEREST EXPENSE                                         |       | 4,472                                                              |       | 3,948                                                       |       | 8,681 |   | 7,544 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| NET INTEREST INCOME                                            |       | 4,943                                                              |       | 5,679                                                       |       | 9,947 |   | 11,186 |   |
| Provision for  loan losses                                     |       | —                                                             |       | 60                                                          |       | — |   | 150 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES            |       | 4,943                                                              |       | 5,619                                                       |       | 9,947 |   | 11,036 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Non-interest  income                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Service fees, charges and other operating income               |       | 514                                                                |       | 521                                                         |       | 1,061 |   | 1,071 |   |
| Bank-owned life insurance                                      |       | 153                                                                |       | 126                                                         |       | 301 |   | 248 |   |
| Gain on sale of loans                                          |       | 63                                                                 |       | 29                                                          |       | 117 |   | 38 |   |
| Loss on sale of mortgage-backed securities available  for sale |       | —                                                             |       | (51                                                         | )          | — |   | (51 | ) |
| Other income                                                   |       | —                                                             |       | —                                                      |       | 777 |   | — |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL NON-INTEREST INCOME                                      |       | 730                                                                |       | 625                                                         |       | 2,256 |   | 1,306 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Non-interest  expense                                          |       |                                                               |       |                                                        |       |   |   |   |   |
| Compensation and benefits                                      |       | 2,680                                                              |       | 2,683                                                       |       | 5,348 |   | 5,322 |   |
| Occupancy and equipment                                        |       | 712                                                                |       | 694                                                         |       | 1,404 |   | 1,398 |   |
| Professional fees                                              |       | 133                                                                |       | 135                                                         |       | 357 |   | 347 |   |
| Marketing and advertising                                      |       | 163                                                                |       | 175                                                         |       | 326 |   | 352 |   |
| Other operating                                                |       | 580                                                                |       | 614                                                         |       | 1,423 |   | 1,252 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL NON-INTEREST EXPENSE                                     |       | 4,268                                                              |       | 4,301                                                       |       | 8,858 |   | 8,671 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                     |       | 1,405                                                              |       | 1,943                                                       |       | 3,345 |   | 3,671 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Income taxes                                                   |       | 368                                                                |       | 551                                                         |       | 910 |   | 1,024 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| NET INCOME                                                     |       | $                                                                  | 1,037      |                                                        | $          | 1,392 |   | $ | 2,435 |   | $ | 2,647 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Earnings per  share—basic                                 |       | $                                                                  | 0.38       |                                                        | $          | 0.52 |   | $ | 0.89 |   | $ | 0.98 |   |
| Earnings per  share—diluted                               |       | $                                                                  | 0.38       |                                                        | $          | 0.51 |   | $ | 0.89 |   | $ | 0.98 |   |
| Dividends paid                                                 |       | $                                                                  | 0.20       |                                                        | $          | 0.19 |   | $ | 0.40 |   | $ | 0.38 |   |

 

Theaccompanying notes are an integral part of these statements

4

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**TFFinancial Corporation and Subsidiaries**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                        | ** ** | **For the six months ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                        | ** ** | **June 30,**                                | ** ** |
| ** **                                                                        | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                        | ** ** | **(in thousands)**                          | ** ** |
| OPERATING  ACTIVITIES                                                             |       |                                             |       |   |   |
| Net income                                                                        |       | $                                                | 2,435      |   | $ | 2,647 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities |       |                                             |       |   |   |
| Amortization of                                                                   |       |                                             |       |   |   |
| Mortgage loan servicing rights                                                    |       | 22                                               |       | 11 |   |
| Deferred loan origination fees                                                    |       | (53                                              | )          | (43 | ) |
| Premiums and discounts on investment securities, net                              |       | 46                                               |       | 33 |   |
| Premiums and discounts on mortgage-backed  securities, net                        |       | 45                                               |       | 149 |   |
| Premiums and discounts on loans, net                                              |       | 67                                               |       | 85 |   |
| Discount on wholesale deposits                                                    |       | 12                                               |       | 5 |   |
| Core deposit intangibles                                                          |       | —                                           |       | 56 |   |
| Provision for loan losses                                                         |       | —                                           |       | 150 |   |
| Provision for decrease in fair value of mortgage  servicing rights                |       | 1                                                |       | — |   |
| Depreciation of premises and equipment                                            |       | 442                                              |       | 472 |   |
| Increase in value of bank-owned life insurance                                    |       | (301                                             | )          | (248 | ) |
| Stock grant expense                                                               |       | 180                                              |       | 181 |   |
| Stock option expense                                                              |       | 195                                              |       | 189 |   |
| Stock-based benefit programs: ESOP                                                |       | 168                                              |       | 282 |   |
| Proceeds from sale of loans originated for sale                                   |       | 10,523                                           |       | 4,855 |   |
| Origination of loans held for sale                                                |       | (10,370                                          | )          | (5,473 | ) |
| Tax benefit arising from stock compensation                                       |       | 363                                              |       | 102 |   |
| (Gain) loss on sale of                                                            |       |                                             |       |   |   |
| Mortgage loans available for sale                                                 |       | (117                                             | )          | (38 | ) |
| Mortgage-backed securities available for sale                                     |       | —                                           |       | 51 |   |
| Real estate acquired through foreclosure                                          |       | —                                           |       | (26 | ) |
| (Income) expense from mortgage loan derivatives                                   |       | (9                                               | )          | 13 |   |
| (Income) expense associated with forward loan sales                               |       | 1                                                |       | (13 | ) |
| (Increase) decrease in                                                            |       |                                             |       |   |   |
| Accrued interest receivable                                                       |       | 92                                               |       | 211 |   |
| Other assets                                                                      |       | (1,284                                           | )          | (641 | ) |
| Increase (decrease) in                                                            |       |                                             |       |   |   |
| Accrued interest payable                                                          |       | 145                                              |       | 969 |   |
| Other liabilities                                                                 |       | (44                                              | )          | 682 |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |       | 2,559                                            |       | 4,661 |   |
|                                                                              |       |                                             |       |   |   |
| INVESTING  ACTIVITIES                                                             |       |                                             |       |   |   |
| Loan originations                                                                 |       | (75,392                                          | )          | (84,115 | ) |
| Loan principal payments                                                           |       | 58,950                                           |       | 55,153 |   |
| Principal repayments on mortgage-backed securities  held to maturity              |       | 964                                              |       | 1,583 |   |
| Principal repayments on mortgage-backed securities  available for sale            |       | 5,310                                            |       | 8,320 |   |
| Proceeds from sale of loan participations                                         |       | 753                                              |       | 2,452 |   |
| Purchase of investment securities available for sale                              |       | (771                                             | )          | (1,917 | ) |
| Purchase of mortgage-backed securities available for  sale                        |       | (13,798                                          | )          | — |   |
| Proceeds from the sale of mortgaged-backed  securities available for sale         |       | —                                           |       | 4,971 |   |
| Proceeds from maturities of investment securities  held to maturity               |       | 6,455                                            |       | 2,673 |   |
| Redemption (purchases) of Federal Home Loan Bank  stock, net                      |       | 255                                              |       | (738 | ) |
| Purchase of premises and equipment                                                |       | (379                                             | )          | (741 | ) |
| Proceeds from the sale of real estate acquired  through foreclosure               |       | —                                           |       | 726 |   |
| Maturities of certificates of deposit in other  financial institutions            |       | 40                                               |       | — |   |
| NET CASH USED IN  INVESTING ACTIVITIES                                            |       | (17,613                                          | )          | (11,633 | ) |
|                                                                                   |            |                                                  |            |  |  |  |  |

 

5

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| ** **                                                                                          | ** ** | **For the six months ended** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                          | ** ** | **June 30,**                                | ** ** |
| ** **                                                                                          | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                                          | ** ** | **(in thousands)**                          | ** ** |
| FINANCING ACTIVITIES                                                                                |       |                                             |       |   |   |
| Net increase in demand  deposit/NOW accounts, passbook savings accounts and certificates of deposit |       | 11,479                                           |       | 9,203 |   |
| Net increase (decrease)  in short-term borrowings from the Federal Home Loan Bank                   |       | 8,366                                            |       | (4,655 | ) |
| Proceeds of long-term  Federal Home Loan Bank borrowings                                            |       | —                                           |       | 15,535 |   |
| Repayment of long-term  Federal Home Loan Bank borrowings                                           |       | (9,957                                           | )          | (9,127 | ) |
| Net increase in  advances from borrowers for taxes and insurance                                    |       | 868                                              |       | 356 |   |
| Treasury stock acquired                                                                             |       | (2,909                                           | )          | (1,421 | ) |
| Exercise of stock  options                                                                          |       | 1,771                                            |       | 298 |   |
| Common stock dividends  paid                                                                        |       | (1,102                                           | )          | (1,025 | ) |
| NET CASH PROVIDED BY  FINANCING ACTIVITIES                                                          |       | 8,516                                            |       | 9,164 |   |
|                                                                                                |       |                                             |       |   |   |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                               |       | (6,538                                           | )          | 2,192 |   |
|                                                                                                |       |                                             |       |   |   |
| Cash and cash equivalents at beginning of period                                                    |       | 12,364                                           |       | 3,821 |   |
|                                                                                                |       |                                             |       |   |   |
| Cash and cash equivalents at end of period                                                          |       | $                                                | 5,826      |   | $ | 6,013 |   |
|                                                                                                |       |                                             |       |   |   |
| Supplemental disclosure of cash flow information                                                    |       |                                             |       |   |   |
| Cash paid for                                                                                       |       |                                             |       |   |   |
| Interest on deposits  and borrowings from Federal Home Loan Bank                                    |       | $                                                | 8,536      |   | $ | 6,575 |   |
| Income taxes                                                                                        |       | $                                                | 180        |   | $ | 1,015 |   |

 

The accompanyingnotes 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 June 30, 2007 (unaudited) and December31, 2006 and for the three and six-month periods ended June 30, 2007 and 2006(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 June 30, 2007 are not necessarilyindicative of the results which may be expected for the entire fiscal year orany other period. For further information, refer to consolidated financialstatements and footnotes thereto included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006.

**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**

TheCompany follows SFAS No. 130, “Reporting Comprehensive Income.” SFASNo. 130 establishes standards to provide prominent disclosure ofcomprehensive income items. Comprehensive income is the change in equity of abusiness enterprise during a period from transactions and other events andcircumstances from non-owner sources. The components of other comprehensiveloss are as follows for the three months ended:
|                                                                            | ** ** | **June 30, 2007** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                 | ** ** | **Before tax  amount** | ** ** | **Tax  (expense)  benefit** | ** ** | **Net of tax  amount** | ** ** |
| ** **                                                                 | ** ** | **(in thousands)**     | ** ** |
| Unrealized losses on securities                                            |       |                        |       |   |   |   |   |
| Unrealized holding  losses arising during period                           |       | $                           | (1,122     | ) | $ | 381 |   | $ | (741 | ) |
| Pension plan benefit adjustment related to prior service costs and  losses |       | 55                          |       | (19 | ) | 36 |   |
|                                                                       |       |                        |       |   |   |   |   |
| Other comprehensive loss, net                                              |       | $                           | (1,067     | ) | $ | 362 |   | $ | (705 | ) |

 
|                                                  | ** ** | **June 30, 2006** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **Before tax  amount** | ** ** | **Tax  (expense)  benefit** | ** ** | **Net of tax  amount** | ** ** |
| ** **                                       | ** ** | **(in thousands)**     | ** ** |
| Unrealized losses on securities                  |       |                        |       |   |   |   |   |
| Unrealized holding  losses arising during period |       | $                           | (401       | ) | $ | 137 |   | $ | (264 | ) |
| Reclassification adjustment for losses realized  |       | 51                          |       | (18 | ) | 33 |   |
|                                             |       |                        |       |   |   |   |   |
| Other comprehensive loss, net                    |       | $                           | (350       | ) | $ | 119 |   | $ | (231 | ) |

 

7

----

The components of other comprehensive loss are as follows for the sixmonths ended:

 
|                                                                            | ** ** | **June 30, 2007** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                 | ** ** | **Before tax  amount** | ** ** | **Tax  (expense)  benefit** | ** ** | **Net of tax  amount** | ** ** |
| ** **                                                                 | ** ** | **(in thousands)**     | ** ** |
| Unrealized losses on securities                                            |       |                        |       |   |   |   |   |
| Unrealized holding  losses arising during period                           |       | $                           | (872       | ) | $ | 295 |   | $ | (577 | ) |
| Pension plan benefit adjustment related to prior service costs and  losses |       | 55                          |       | (19 | ) | 36 |   |
|                                                                       |       |                        |       |   |   |   |   |
| Other comprehensive loss, net                                              |       | $                           | (817       | ) | $ | 276 |   | $ | (541 | ) |

 
|                                                  | ** ** | **June 30, 2006** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **Before tax  amount** | ** ** | **Tax  (expense)  benefit** | ** ** | **Net of tax  amount** | ** ** |
| ** **                                       | ** ** | **(in thousands)**     | ** ** |
| Unrealized losses on securities                  |       |                        |       |   |   |   |   |
| Unrealized holding  losses arising during period |       | $                           | (1,456     | ) | $ | 497 |   | $ | (959 | ) |
| Reclassification adjustment for losses realized  |       | 51                          |       | (18 | ) | 33 |   |
|                                             |       |                        |       |   |   |   |   |
| Other comprehensive loss, net                    |       | $                           | (1,405     | ) | $ | 479 |   | $ | (926 | ) |

 

**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 June 30, 2007** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                       | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                                          |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                                             | 1,037      |   | 2,727,121 |   | $ | 0.38 |   |
| Effect of  dilutive securities                                              |       |                                                          |       |   |   |   |   |
| Stock options and grants                                                    |       | —                                                        |       | 4,610 |   | — |   |
|                                                                        |       |                                                          |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                                          |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                                             | 1,037      |   | 2,731,731 |   | $ | 0.38 |   |

 

8

----

 
|                                                                             | ** ** | **Six months ended June 30, 2007** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**            | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings per share                                                    |       |                               |       |   |   |   |   |
| Income available to  common stockholders                                    |       | $                                  | 2,435      |   | 2,732,964 |   | $ | 0.89 |   |
| Effect of dilutive securities                                               |       |                               |       |   |   |   |   |
| Stock options and  grants                                                   |       | —                             |       | 3,502 |   | — |   |
|                                                                        |       |                               |       |   |   |   |   |
| Diluted earnings per share                                                  |       |                               |       |   |   |   |   |
| Income available to  common stockholders plus effect of dilutive securities |       | $                                  | 2,435      |   | 2,736,466 |   | $ | 0.89 |   |

 

Therewere 20,128 options to purchase shares of common stock at a price of $34.14 pershare which were outstanding during the first six months of 2007 that were notincluded in the computation of diluted earnings per share because the options’exercise prices were greater than the average market price of the commonshares.

 
|                                                                             | ** ** | **Three months ended June 30, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**              | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings per share                                                    |       |                                 |       |   |   |   |   |
| Income available to  common stockholders                                    |       | 1,392                                |       | 2,694,988 |   | $ | 0.52 |   |
| Effect of dilutive securities                                               |       |                                 |       |   |   |   |   |
| Stock options and  grants                                                   |       | —                               |       | 19,108 |   | (0.01 | ) |
|                                                                        |       |                                 |       |   |   |   |   |
| Diluted earnings per share                                                  |       |                                 |       |   |   |   |   |
| Income available to  common stockholders plus effect of dilutive securities |       | $                                    | 1,392      |   | 2,714,096 |   | $ | 0.51 |   |
|                                                                             |            |                                      |            |  |  |  |  |  |  |

 
|                                                                             | ** ** | **Six months ended June 30, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**            | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings per share                                                    |       |                               |       |   |   |   |   |
| Income available to  common stockholders                                    |       | 2,647                              |       | 2,696,758 |   | $ | 0.98 |   |
| Effect of dilutive securities                                               |       |                               |       |   |   |   |   |
| Stock options and  grants                                                   |       | —                             |       | 16,055 |   | — |   |
|                                                                        |       |                               |       |   |   |   |   |
| Diluted earnings per share                                                  |       |                               |       |   |   |   |   |
| Income available to  common stockholders plus effect of dilutive securities |       | $                                  | 2,647      |   | 2,712,813 |   | $ | 0.98 |   |
|                                                                             |            |                                    |            |  |  |  |  |  |  |

 

Therewere 21,018 options to purchase shares of common stock at a price of $34.14 pershare which were outstanding during the six months ended June 30, 2006that were not included in the computation of diluted earnings per share becausethe options’ exercise prices were greater than the average market price of thecommon shares.

9

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**NOTE 6- STOCK BASED COMPENSATION**

The Company has stock benefitplans that allow the Company to grant options and stock to employees anddirectors. The awards, which have a term of up to 10 years when issued,vest over a three to five year period. The exercise price of each award equalsthe market price of the Company’s stock on the date of the grant. There was$613,000 and $927,000 of total unrecognized compensation cost, net of estimatedforfeitures, related to non-vested awards under the Plan at June 30, 2007 and2006, respectively. That cost is expected to be recognized over a weightedaverage period of 19.3 months and 29.8 months at June 30, 2007 and 2006,respectively.

Stock-based compensationexpense included in net income related to stock options was $96,000 and$94,000, resulting in a tax benefit of $30,000 and $28,000, for the threemonths ended June 30, 2007 and 2006, respectively. Stock-based compensationexpense included in net income related to stock options was $195,000 and$189,000, resulting in a tax benefit of $60,000 and $57,000, for the six monthsended June 30, 2007 and 2006, respectively.

Option activity under theCompany’s stock option plan as of June 30, 2007 and 2006 is as follows:
|                                       | ** ** | **2007**                   | ** ** |
|---------------------------------------|------------|----------------------------|------------|
| ** **                            | ** ** | **Number  of shares** | ** ** | **Weighted  average  exercise  price per  share** | ** ** | **Weighted  average  remaining  contractual  term (in  years)** | ** ** | **Aggregate  intrinsic  value ($000)** | ** ** |
| Outstanding at  January 1, 2007       |       | 365,734                    |       | $ | 23.62 |   |   |   |   |   |
| Options granted                       |       | —                     |       | — |   |   |   |   |   |
| Options exercised                     |       | (106,908                   | )          | 16.56 |   |   |   |   |   |
| Options  forfeited                    |       | (730                       | )          | 31.49 |   |   |   |   |   |
| Options expired                       |       | —                     |       | — |   |   |   |   |   |
| Outstanding at  June 30, 2007         |       | 258,096                    |       | $ | 26.49 |   | 4.11 |   | $ | 960 |   |
| Options exercisable at  June 30, 2007 |       | 128,554                    |       | $ | 24.35 |   | 3.92 |   | $ | 758 |   |

 
|                                      | ** ** | **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                      |       | —                     |       | — |   |   |   |   |   |
| Options exercised                    |       | (19,832                    | )          | 15.01 |   |   |   |   |   |
| Options forfeited                    |       | (8,094                     | )          | 29.66 |   |   |   |   |   |
| Options expired                      |       | —                     |       | — |   |   |   |   |   |
| Outstanding at June 30, 2006         |       | 356,922                    |       | $23.49 |   | 3.72 |   | $1,913 |   |
| Options exercisable at June 30, 2006 |       | 175,494                    |       | $18.21 |   | 3.20 |   | $1,867 |   |

 

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 second quarter and the exercise price, multipliedby the number of in-the money options).

Theaggregate intrinsic value of options exercised during the six months ended June30, 2007 and 2006 was $1,084,000 and $299,000, respectively. Exercise of stockoptions during the six months ended June 30, 2007 and 2006 resulted in cashreceipts of $1,771,000 and $298,000, respectively.

Stock-basedcompensation expense included in net income related to stock grants was $90,000for each of the quarters ended June 30, 2007 and 2006. Stock-based compensationexpense included in net income related to the Company’s employee stockownership plan totaled $77,000 and $108,000 for the three-month periods endedJune 30, 2007 and 2006, respectively.

Stock-basedcompensation expense included in net income related to stock grants was$180,000 and $181,000 the six months ended June 30, 2007 and 2006,respectively. Stock-based compensation expense included in net income relatedto the Company’s employee stock ownership plan totaled $137,000 and $215,000for the six-month periods ended June 30, 2007 and 2006, respectively.

10

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**NOTE 7-EMPLOYEE BENEFIT PLANS**

Netperiodic defined benefit pension cost included the following (in thousands):
|                                          | ** ** | **Three months ended  June 30** | ** ** |
|------------------------------------------|------------|------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
|                                     |       |                                           |       |   |   |
| Components of net  periodic benefit cost |       |                                           |       |   |   |
| Service cost                             |       | $                                              | 84         |   | $ | 77 |   |
| Interest cost                            |       | 53                                             |       | 52 |   |
| Expected return  on plan assets          |       | (100                                           | )          | (80 | ) |
| Amortization of  prior service cost      |       | 16                                             |       | 15 |   |
| Recognized net  actuarial (gain) loss    |       | 13                                             |       | 13 |   |
|                                     |       |                                           |       |   |   |
| Net periodic benefit  cost               |       | $                                              | 66         |   | $ | 77 |   |

 
|                                         | ** ** | **Six months ended  June 30** | ** ** |
|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                              | ** ** | **2007**                                | ** ** | **2006** | ** ** |
|                                    |       |                                    |       |   |   |
| Components of net periodic benefit cost |       |                                    |       |   |   |
| Service cost                            |       | $                                       | 168        |   | $ | 154 |   |
| Interest cost                           |       | 106                                     |       | 105 |   |
| Expected return on plan  assets         |       | (200                                    | )          | (161 | ) |
| Amortization of prior  service cost     |       | 30                                      |       | 31 |   |
| Recognized net  actuarial (gain) loss   |       | 25                                      |       | 26 |   |
|                                    |       |                                    |       |   |   |
| Net periodic benefit  cost              |       | $                                       | 129        |   | $ | 155 |   |

 

Theemployer contribution made for the six months ended June 30, 2007 and 2006 was$1,107,000 and $620,000, respectively.

11

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**NOTE 8- NEW ACCOUNTINGPRONOUNCEMENTS**

InSeptember 2006,  the Financial Accounting Standards Board(FASB) Issued Statement No. 157 (SFAS 157), “Fair ValueMeasurements” which is effective for fiscal years beginning afterNovember 15, 2007 and for interim periods within those years. Thisstatement defines fair value, establishes a framework for measuring fair valueand expands 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, the Emerging Issues Task Force(EITF) finalized Issue No. 06-5, “Accounting for Purchases of LifeInsurance—Determining the Amount That Could Be Realized in Accordance with FASBTechnical Bulletin No. 85-4 (Accounting for Purchases of LifeInsurance)”.**This issue requires that a policyholderconsider contractual terms of a life insurance policy in determining the amountthat could be realized under the insurance contract. It also requires that ifthe contract provides for a greater surrender value if all individual policiesin a group are surrendered at the same time, that the surrender value bedetermined based on the assumption that policies will be surrendered on anindividual basis. Lastly, the issue discusses whether the cash surrender valueshould be discounted when the policyholder is contractually limited in itsability to surrender a policy. This issue is effective for fiscal yearsbeginning after December 15, 2006. Application of this issue has not madea material impact on the financial statements.

The Company adopted the provisions ofFASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in IncomeTaxes”, on January 1, 2007. Previously, the Company had accounted for taxcontingencies in accordance with SFAS 5, “Accounting for Contingencies”. As required by FIN 48, whichclarifies SFAS 109, “Accounting for Income Taxes”, the Company recognizes thefinancial statement benefit of a tax position only after determining that therelevant tax authority would more likely than not sustain the positionfollowing an audit. For tax positions meeting the more-likely-than-not**threshold, the amount recognized in the financialstatements is the largest benefit that has a greater than 50 percent likelihoodof being realized upon ultimate settlement with the relevant tax authority.  The Company is subject to income taxes in theU.S. federal jurisdiction, and the states of Pennsylvania and New Jersey. Taxregulations within each jurisdiction are subject to the interpretation of therelated tax laws and regulations and require significant judgment toapply.  The Company appliedInterpretation 48 to all tax positions for which the statute of limitationsremained open. The adoption of FIN 48 did not have a material impact on theresults operations or financial condition of the Company.

In February 2007, FASB issued Statement No. 159 (SFAS 159), “TheFair Value Option for Financial Assets and Financial Liabilities, including anamendment of FASB Statement No. 115”. The statement permits entities to chooseto measure many financial instruments and certain other items at fairvalue.  SFAS 159 provides an opportunityto mitigate volatility in reporting earnings caused by measuring related assetsand liabilities differently without having to apply complex hedge accountingprovisions. This statement is effective as of the beginning of an entity’sfirst fiscal year that begins after November 15, 2007.  Early adoption is permitted as of thebeginning of a fiscal year that begins on or before November 15, 2007, providedthe entity also elects to apply the provisions of FASB Statement No. 157 (SFAS157), “Fair Value Measurements”. Although the Company has decided against early adoption, the Companywill adopt SFAS No. 159 and does not anticipate any material impact on itsconsolidated financial statements.

**NOTE 9- RECLASSIFICATIONS**

Certain priorperiod amounts have been reclassified to conform to the current periodpresentation.

12

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**TF FINANCIAL CORPORATION AND SUBSIDIARIES**

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

**GENERAL**

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

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

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

**FinancialPosition**

The Company’stotal assets at June 30, 2007 and December 31, 2006 were $664.0 million and$652.6 million, respectively, an increase of $11.4 million, or 1.8%, during thesix-month period. Cash and cash equivalents decreased by $6.5 million.Investment securities available for sale decreased by $6.2 million due to maturitiesof agency and corporate notes totaling $6.5 million and a $0.5 million decreasein the market value of these securities, offset by purchases of $0.8 million oftax-exempt municipal bonds. Mortgage-backed securities available for saleincreased by $8.1 million due to $13.8 million of purchases reduced by $5.3million in principal repayments received and a decrease in the market value ofthe securities of $0.4 million. Mortgage-backed securities held to maturitydecreased by $1.0 million as a result of principal repayments.

Loans receivableincreased by $15.5 million during the first six months of 2007. Consumer andsingle-family residential mortgage loans of $41.1 million and commercial loansof $34.3 million were originated during the first six months of 2007. Principalrepayments of loans receivable were $59.0 million. Loans originated for saleduring the first six months of 2007 totaled $10.4 million, and there were $10.5million in proceeds from the sale of loans in the secondary market during thisperiod.

13

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Total liabilitiesincreased by $10.9 million. Deposit balances increased by $11.5 million duringthe first six months of 2007. Non-interest checking, savings, and money marketaccounts increased by a combined $13.3 million while interest-bearing checkingaccounts decreased $2.0 million during the period. Retail certificates ofdeposit increased $5.4 million which offset maturities of broker originatedcertificates of deposit of $5.2 million, a net increase of $0.2 million duringthe first six months of 2007. Borrowings from the Federal Home Loan Bankdecreased by $1.6 million, a result of an $8.4 million increase of short-termborrowings, less scheduled amortization payments of $10.0 million.

Totalconsolidated stockholders’ equity of the Company was $66.2 million or 10.0% oftotal assets at June 30, 2007. During the first six months of 2007 the Companyrepurchased 96,559 shares of its common stock and issued 106,908 sharespursuant to the exercise of stock options. As of June 30, 2007, there wereapproximately 31,000 shares available for repurchase under the previouslyannounced share repurchase plan.

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

During the sixmonths of 2007 and 2006, the Company’s provision for loan losses was $0 and$150,000, respectively. The increase in non-performing loans during the firstsix months of 2007 is largely due to the addition of two real estate securedcredits. Subsequent to June 30, 2007, both of the credits totaling $2.3 millionresumed performing status. The Company is diligently working on each of theremaining non-performing loans, all of which are real estate secured to resolvethe individual situations.

The following table setsforth information regarding the Company’s asset quality (dollars in thousands):
|                                                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                  | ** ** | **2007**          | ** ** | **2006**              | ** ** | **2006**          | ** ** |
| ** **                                                  | ** ** | ** **        | ** ** | ** **            | ** ** | ** **        | ** ** |
| Non-performing loans                                        |       | $                 | 4,965      |                  | $          | 2,110             |       | $ | 1,314 |   |
| Ratio of non-performing loans to gross loans                |       | 0.99              | %          | 0.43                  | %          | 0.25              | %          |
| Ratio of non-performing loans to total assets               |       | 0.75              | %          | 0.32                  | %          | 0.19              | %          |
| Ratio of total non-performing assets to total assets        |       | 0.75              | %          | 0.32                  | %          | 0.19              | %          |
| Ratio of allowance for loan losses to total loans           |       | 0.57              | %          | 0.59                  | %          | 0.54              | %          |
| Ratio  of allowance for loan losses to non-performing loans |       | 57.40             | %          | 135.78                | %          | 212.18            | %          |
|                                                             |            |                   |            |                       |            |                   |            |  |  |  |

 

Managementmaintains an allowance for loan losses at levels that are believed to beadequate; however, there can be no assurances that further additions will notbe necessary or that losses inherent in the existing loan portfolio will notexceed the allowance. The following table sets forth the activity in theallowance for loan losses during the periods indicated (in thousands):
|                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Beginning balance, January 1,             |       | $        | 2,865      |     | $          | 2,641 |   |
| Provision                                 |       | —   |       | 150      |       |
| Less: charge-off’s (recoveries), net |       | 15       |       | 3        |       |
| Ending  balance, June 30,                 |       | 2,850    |       | 2,788    |       |
|                                           |            |          |            |          |            |  |  |

 

14

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**RESULTSOF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006**

**NetIncome**. The Company recorded net income of $1,037,000, or$0.38 per diluted share, for the three months ended June 30, 2007 as comparedto net income of $1,392,000, or $0.51 per diluted share, for the three monthsended June 30, 2006.

### **Average Balance Sheet**

Thefollowing table sets forth information (dollars in thousands) relating to theCompany’s average balance sheet and reflects the average yield on assets andaverage cost of liabilities for the periods indicated. Yield and cost arecomputed by dividing income or expense by the average daily balance ofinterest-earning assets or interest-bearing liabilities, respectively, for thethree-month periods indicated.
|                                                                                    | ** ** | **June 30,**    | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **2007**             | ** ** | **2006** | ** ** |
| ** **                                                                         | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** |
| **ASSETS**                                                                         |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning  assets:**                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Loans  receivable(1)                                                               |       | $                    | 498,321    |   | $ | 7,986 |   | 6.43 | % | $ | 512,542 |   | $ | 8,167 |   | 6.39 | % |
| Mortgage-backed  securities                                                        |       | 86,619               |       | 1,006 |   | 4.66 | % | 82,311 |   | 957 |   | 4.66 | % |
| Investment  securities(2)                                                          |       | 37,474               |       | 512 |   | 5.48 | % | 41,703 |   | 583 |   | 5.61 | % |
| Other  interest-earning assets(3)                                                  |       | 1,195                |       | 19 |   | 6.38 | % | 1,375 |   | 14 |   | 4.08 | % |
| Total  interest-earning assets                                                     |       | 623,609              |       | 9,523 |   | 6.13 | % | 637,931 |   | 9,721 |   | 6.11 | % |
| Non  interest-earning assets                                                       |       | 34,032               |       |   |   |   |   | 35,381 |   |   |   |   |   |
| Total assets                                                                       |       | $                    | 657,641    |   |   |   |   |   | $ | 673,312 |   |   |   |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                     |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**                                                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                           |       | 481,084              |       | 3,416 |   | 2.85 | % | 467,570 |   | 2,560 |   | 2.20 | % |
| Borrowings from  the FHLB                                                          |       | 103,182              |       | 1,056 |   | 4.10 | % | 135,399 |   | 1,388 |   | 4.11 | % |
| Total  interest-bearing liabilities                                                |       | 584,266              |       | 4,472 |   | 3.07 | % | 602,969 |   | 3,948 |   | 2.63 | % |
| Non  interest-bearing liabilities                                                  |       | 8,260                |       |   |   |   |   | 7,963 |   |   |   |   |   |
| Total  liabilities                                                                 |       | 592,526              |       |   |   |   |   | 610,932 |   |   |   |   |   |
| Stockholders’  equity                                                         |       | 65,115               |       |   |   |   |   | 62,380 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                                   |       | $                    | 657,641    |   |   |   |   |   | $ | 673,312 |   |   |   |   |   |
| Net interest  income                                                               |       |                 |       | $ | 5,051 |   |   |   |   |   | $ | 5,773 |   |   |   |
| Interest rate  spread(4)                                                           |       |                 |       |   |   | 3.06 | % |   |   |   |   | 3.49 | % |
| Net yield on  interest-earning assets(5)                                           |       |                 |       |   |   | 3.25 | % |   |   |   |   | 3.63 | % |
| Ratio of average  interest-earning assets to average interest- bearing liabilities |       |                 |       |   |   | 107 | % |   |   |   |   | 106 | % |

 

----

| (1) |   | Nonaccrual loans have been included in the  appropriate average loan balance category, but interest on nonaccrual loans  has not been included for purposes of determining interest income.                                                 |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Tax equivalent adjustments to interest on investment  securities were $108,000 and $94,000 for the quarter ended June 30, 2007 and  2006, respectively. Tax equivalent interest income is based upon a marginal  effective tax rate of 34%. |
| (3) |   | Includes interest-bearing deposits in other banks.                                                                                                                                                                                          |
| (4) |   | Interest rate spread represents the difference  between the average yield on interest-earning assets and the average cost of  interest-bearing liabilities.                                                                                 |
| (5) |   | Net yield on interest-earning assets represents net  interest income as a percentage of average interest-earning assets.                                                                                                                    |

 

15

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**Rate/VolumeAnalysis**

Thefollowing table presents, for the periods indicated, the change in interestincome and interest expense (in thousands) attributed to (i) changes in volume(changes in the weighted average balance of the total interest earning assetand interest bearing liability portfolios multiplied by the prior year rate),and (ii) changes in rate (changes in rate multiplied by prior year volume).Changes attributable to the combined impact of volume and rate have beenallocated proportionately based on the absolute value of changes due to volumeand changes due to rate.
|                                     | ** ** | **Three months ended June 30,**                   | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2007 vs 2006  Increase (decrease) due to** | ** ** |
| ** **                          | ** ** | **Volume**                                                            | ** ** | **Rate** | ** ** | **Net** | ** ** |
| **Interest  income:**               |       |                                                                  |       |   |   |   |   |
| Loans  receivable, net              |       | $                                                                     | (462       | ) | $ | 281 |   | $ | (181 | ) |
| Mortgage-backed  securities         |       | 56                                                                    |       | (7 | ) | 49 |   |
| Investment  securities (1)          |       | (58                                                                   | )          | (13 | ) | (71 | ) |
| Other  interest-earning assets      |       | (11                                                                   | )          | 16 |   | 5 |   |
| Total  interest-earning assets      |       | (475                                                                  | )          | 277 |   | (198 | ) |
| **Interest  expense:**              |       |                                                                  |       |   |   |   |   |
| Deposits                            |       | 76                                                                    |       | 780 |   | 856 |   |
| Borrowings from  the FHLB           |       | (330                                                                  | )          | (2 | ) | (332 | ) |
| Total  interest-bearing liabilities |       | (254                                                                  | )          | 778 |   | 524 |   |
| Net change in net  interest income  |       | $                                                                     | (221       | ) | $ | (501 | ) | $ | (722 | ) |

 

----

| (1) |   | Tax equivalent adjustments  to interest on investment securities were $108,000 and $94,000 for the  quarters ended June 30, 2007 and 2006, respectively. Tax equivalent interest  income is based upon a marginal effective tax rate of 34%. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**TotalInterest Income**. Total interest income, on a taxableequivalent basis, decreased by $198,000 or 2.0% to $9.5 million for the quarterended June 30, 2007 compared with the second quarter of 2006. The averagebalance of loans outstanding decreased between the two periods largely becauseof the sale of $16.3 million of previously purchased loans during the thirdquarter of 2006. However, the average yield on loans increased 4 basis points,reflecting a rise in the yield on newloans added to the portfolio during the intervening period. During the quarterended June 30, 2007, the Bank reduced interest income by $111,000 for intereston non-accrual loans while there was no such adjustment in the prior yearperiod.  Interest income frommortgage-backed securities was higher in the second quarter of 2007 in comparisonto the same period of 2006 due to purchases of $23.9 million of thesesecurities during the intervening period. Interest income from investmentsecurities decreased as a result of maturities of $6.8 million in excess ofpurchases of $2.5 million during the intervening period.

**TotalInterest Expense.**Total interest expense increased by$524,000 to $4.5 million during the three-month period ended June 30, 2007 ascompared with the second quarter of 2006. During 2006 and the first half of2007, the Bank raised the interest rates paid on many of its deposit productsdue to the competitive pricing environment in the Bank’s deposit market.Additionally during the intervening period, the Bank offered new products withhigher rates which also contributed to deposit growth and a shift in thedeposit mix. Accordingly, the interest rate paid on deposits increased by 65basis points. Interest on borrowings from the Federal Home Loan Bank decreasedby $0.3 million during the second quarter of 2007 versus the same quarter of2006 as a result of a $32.2 million decrease in the average balance ofborrowings.

**Non-interestincome.**Total non-interest income was $730,000 for thethree-month period ended June 30, 2007 compared with $625,000 for the same periodin 2006. The increase is mainly attributable to the loss on the sale of mortgage-backed securities in the second quarter of2006 of $51,000 while there was no such loss in the second quarter of 2007.Additionally, net gain on the sale of loans totaled $63,000 during thesecond quarter of 2007, while the gain during the second quarter of 2006totaled $29,000 due to an increase between the two quarters in the dollaramount of loans sold. The increase in the value of the bank-owned lifeinsurance of $27,000 during the second quarter of 2007 versus 2006 is largelydue to an additional $2.0 million purchase during November of 2006.

**Non-interestexpense.**Total non-interest expense decreased by $33,000 to$4.3 million for the three months ended June 30, 2007 compared to the sameperiod in 2006. In 2006, other non-interest expense included core depositintangible amortization expense totaling $28,000 and as the asset is fullyamortized there was no such charge during the second quarter of 2007.

16

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**RESULTSOF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006**

**NetIncome**. The Company recorded net income of $2,435,000, or$0.89 per diluted share, for the six months ended June 30, 2007 as compared tonet income of $2,647,000, or $0.98 per diluted share, for the six months endedJune 30, 2006.

### **Average Balance Sheet**

Thefollowing table sets forth information (dollars in thousands) relating to theCompany’s average balance sheet and reflects the average yield on assets andaverage cost of liabilities for the periods indicated. Yield and cost arecomputed by dividing income or expense by the average daily balance ofinterest-earning assets or interest-bearing liabilities, respectively, for thesix-month periods indicated.
|                                                                                    | ** ** | **June 30,**    | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **2007**             | ** ** | **2006** | ** ** |
| ** **                                                                         | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** |
| **ASSETS**                                                                         |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning  assets:**                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Loans  receivable(1)                                                               |       | $                    | 493,038    |   | $ | 15,765 |   | 6.47 | % | $ | 505,475 |   | $ | 15,838 |   | 6.32 | % |
| Mortgage-backed  securities                                                        |       | 83,644               |       | 1,939 |   | 4.69 | % | 86,868 |   | 1,969 |   | 4.57 | % |
| Investment  securities(2)                                                          |       | 39,368               |       | 1,056 |   | 5.42 | % | 41,670 |   | 1,089 |   | 5.27 | % |
| Other  interest-earning assets(3)                                                  |       | 3,571                |       | 86 |   | 4.87 | % | 1,017 |   | 22 |   | 4.36 | % |
| Total  interest-earning assets                                                     |       | 619,621              |       | 18,846 |   | 6.15 | % | 635,030 |   | 18,918 |   | 6.01 | % |
| Non  interest-earning assets                                                       |       | 34,091               |       |   |   |   |   | 34,470 |   |   |   |   |   |
| Total assets                                                                       |       | $                    | 653,712    |   |   |   |   |   | $ | 669,500 |   |   |   |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                     |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**                                                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                           |       | 478,742              |       | 6,646 |   | 2.81 | % | 464,156 |   | 4,808 |   | 2.09 | % |
| Borrowings from  the FHLB                                                          |       | 101,237              |       | 2,035 |   | 4.06 | % | 135,656 |   | 2,736 |   | 4.07 | % |
| Total  interest-bearing liabilities                                                |       | 579,979              |       | 8,681 |   | 3.03 | % | 599,812 |   | 7,544 |   | 2.54 | % |
| Non  interest-bearing liabilities                                                  |       | 8,103                |       |   |   |   |   | 7,256 |   |   |   |   |   |
| Total liabilities                                                                  |       | 588,082              |       |   |   |   |   | 607,068 |   |   |   |   |   |
| Stockholders’  equity                                                         |       | 65,630               |       |   |   |   |   | 62,432 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                                   |       | $                    | 653,712    |   |   |   |   |   | $ | 669,500 |   |   |   |   |   |
| Net interest  income                                                               |       |                 |       | $ | 10,165 |   |   |   |   |   | $ | 11,374 |   |   |   |
| Interest rate  spread(4)                                                           |       |                 |       |   |   | 3.12 | % |   |   |   |   | 3.47 | % |
| Net yield on  interest-earning assets(5)                                           |       |                 |       |   |   | 3.32 | % |   |   |   |   | 3.61 | % |
| Ratio of average  interest-earning assets to average interest- bearing liabilities |       |                 |       |   |   | 107 | % |   |   |   |   | 106 | % |

 

----

| (1) |   | Nonaccrual loans have been included in the  appropriate average loan balance category, but interest on nonaccrual loans  has not been included for purposes of determining interest income.                                                     |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Tax equivalent adjustments to interest on investment  securities were $218,000 and $188,000 for the six months ended June 30, 2007  and 2006, respectively. Tax equivalent interest income is based upon a  marginal effective tax rate of 34%. |
| (3) |   | Includes interest-bearing deposits in other banks.                                                                                                                                                                                              |
| (4) |   | Interest rate spread represents the difference  between the average yield on interest-earning assets and the average cost of  interest-bearing liabilities.                                                                                     |
| (5) |   | Net yield on interest-earning assets represents net  interest income as a percentage of average interest-earning assets.                                                                                                                        |

 

17

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**Rate/VolumeAnalysis**

Thefollowing table presents, for the periods indicated, the change in interestincome and interest expense (in thousands) attributed to (i) changes in volume(changes in the weighted average balance of the total interest earning assetand interest bearing liability portfolios multiplied by the prior year rate),and (ii) changes in rate (changes in rate multiplied by prior year volume).Changes attributable to the combined impact of volume and rate have beenallocated proportionately based on the absolute value of changes due to volumeand changes due to rate.
|                                     | ** ** | **Six months ended June 30,**                     | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2007 vs 2006  Increase (decrease) due to** | ** ** |
| ** **                          | ** ** | **Volume**                                                            | ** ** | **Rate** | ** ** | **Net** | ** ** |
| **Interest income:**                |       |                                                                  |       |   |   |   |   |
| Loans receivable, net               |       | $                                                                     | (802       | ) | $ | 729 |   | $ | (73 | ) |
| Mortgage-backed  securities         |       | (138                                                                  | )          | 108 |   | (30 | ) |
| Investment securities  (1)          |       | (106                                                                  | )          | 73 |   | (33 | ) |
| Other interest-earning  assets      |       | 61                                                                    |       | 3 |   | 64 |   |
| Total interest-earning  assets      |       | (985                                                                  | )          | 913 |   | (72 | ) |
| **Interest expense:**               |       |                                                                  |       |   |   |   |   |
| Deposits                            |       | 154                                                                   |       | 1,684 |   | 1,838 |   |
| Borrowings from the  FHLB           |       | (699                                                                  | )          | (2 | ) | (701 | ) |
| Total interest-bearing  liabilities |       | (545                                                                  | )          | 1,682 |   | 1,137 |   |
| Net change in net interest income   |       | $                                                                     | (440       | ) | $ | (769 | ) | $ | (1,209 | ) |

 

----

| (1) |   | Tax equivalent adjustments to interest on investment  securities were $218,000 and $188,000 for the six months ended June 30, 2007  and 2006, respectively. Tax equivalent interest income is based upon a  marginal effective tax rate of 34%. |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**TotalInterest Income**. Total interest income, on a taxableequivalent basis, decreased by $72,000 or 0.4% to $18.8 million for the sixmonths ended June 30, 2007 compared with the first six months of 2006. Theaverage balance of loans outstanding decreased between the two periods largelybecause of the sale of $16.3 million of previously purchased loans during thethird quarter of 2006. However, the average yield on loans increased 15 basispoints, reflecting a rise in the yieldon new loans added to the portfolio during the intervening period. During thesix months ended June 30, 2007, the Bank reduced interest income by $162,000for interest on non-accrual loans while there was no such adjustment in theprior year period. Interest income from mortgage-backed securities waslower in the first half of 2007 in comparison to the same period of 2006 due tonormal repayments and the sale of $5.0 million of these securities during themiddle of the second quarter of 2006. A 12 basis point increase in the averageyield in these securities is the result of purchases of $23.9 million in higheryielding securities during the intervening period. Interest income frominvestment securities decreased during the period as a result of maturities of$6.8 million in excess of purchases of $2.5 million during the intervening period.

**TotalInterest Expense.**Total interest expense increased by $1.1million to $8.7 million during the six-month period ended June 30, 2007 ascompared with the same period in 2006. During 2006 and the first half of 2007,the Bank raised the interest rates paid on many of its deposit products due tothe competitive pricing environment in the Bank’s deposit market. Additionallyduring the intervening period, the Bank offered new products with higher rateswhich also contributed to deposit growth and a shift in the deposit mix.Accordingly, the interest rate paid on deposits increased by 72 basis points.Interest on borrowings from the Federal Home Loan Bank decreased by $0.7million during the first six months of 2007 versus 2006 as a result of a $34.4million decrease in the average balance of borrowings.

**Non-interestincome.**Total non-interest income was $2.3 million for thesix-month period ended June 30, 2007 compared with $1.3 million for the sameperiod in 2006. The increase is mainly attributable a $777,000 settlement awardrelated to a lease fraud which occurred prior to 2003. Net gain on the sale ofloans totaled $117,000 during the first six months of 2007 while the gainduring the first six months of 2006 totaled $38,000 due to an increase in thedollar amount of loans sold. The increase in the value of the bank-owned lifeinsurance of $53,000 during 2007 versus 2006 is due to the additional $2.0million purchase during November of 2006. Additionally, loss on sale of mortgage-backed securities in thesecond quarter of 2006 totaled $51,000 while there was no such loss in 2007.

18

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**Non-interestexpense.**Total non-interest expense increased by $187,000 to$8.9 million for the six months ended June 30, 2007 compared to the same periodin 2006. Other non-interest expense increased in 2007 as a result of a $281,000expense related to the bankruptcy of one of the Company’s loan servicingagents. On February 2, 2007, the Company became aware that one of its loanservicers which was servicing 43 loans totaling $15.4 million had filed forprotection and reorganization under Chapter 11 of the United States BankruptcyCode on December 20, 2006.  On March 2,2007 the bankruptcy filing was converted to a Chapter 7 liquidation and theCompany shortly thereafter obtained the servicing and began to directly servicethe loans. At the present time, the Company is seeking recovery of all moniescollected and held on its behalf by the servicer and bankruptcy trustee.Offsetting this increase was the core deposit intangible amortization expenseof $56,000 included in other non-interest expense in 2006, and as the asset isfully amortized there was no such charge during 2007.

19

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**LIQUIDITYAND CAPITAL RESOURCES**

**Liquidity**

The Company’sliquidity is a measure of its ability to fund loans, pay withdrawals ofdeposits, and other cash outflows in an efficient, cost-effective manner. TheCompany’s short-term sources of liquidity include maturity, repayment and salesof assets, excess cash and cash equivalents, new deposits, broker deposits,other borrowings, and new borrowings from the Federal Home Loan Bank. There hasbeen no material adverse change during six-month period ended June 30, 2007 inthe ability of the Company and its subsidiaries to fund their operations.

At June 30, 2007,the Company had commitments outstanding under letters of credit of $1.8million, commitments to originate loans of $13.8 million, and commitments tofund undisbursed balances of closed loans and unused lines of credit of $59.4million. At June 30, 2007, the Bank had $1.7 million outstanding commitments tosell loans. There hasbeen no material change during the six months ended June 30, 2007 in any of theCompany’s other contractual obligations or commitments to make future payments.

**CapitalRequirements**

The Bank was incompliance with all of its capital requirements as of June 30, 2007.

###### **QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

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

TheCompany’s market risk exposure is predominately caused by interest rate risk,which is defined as the sensitivity of the Company’s current and futureearnings, the values of its assets and liabilities, and the value of itscapital to changes in the level of market interest rates. Management of theCompany believes that there has not been a material adverse change in marketrisk during the six months ended June 30, 2007.

**CONTROLSAND PROCEDURES**

**Evaluation of Disclosure Controlsand Procedures**

Basedon their evaluation of the Company’s disclosure controls and procedures (asdefined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “ExchangeAct”)), the Company’s principal executive officer and principal financialofficer have concluded that as of the end of the period covered by thisQuarterly Report on Form 10-Q such disclosure controls and procedures areeffective.

**Changes in Internal Controls overFinancial Reporting**

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

20

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**CRITICALACCOUNTING POLICIES**

Certaincritical accounting policies of the Company require the use of significantjudgment and accounting estimates in the preparation of the consolidatedfinancial statements and related data of the Company. These accountingestimates require management to make assumptions about matters that are highlyuncertain at the time the accounting estimate is made. Management believes thatthe most critical accounting policy requiring the use of accounting estimatesand judgment is the determination of the allowance for loan losses. If thefinancial position of a significant amount of debtors should deteriorate morethan the Company has estimated, present reserves for loan losses may beinsufficient and additional provisions for loan losses may be required. Theallowance for loan losses was $2,850,000 at June 30, 2007.

21

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**TF FINANCIAL CORPORATION AND SUBSIDIARIES**

**PART II**
| **ITEM 1.**  | ** ** | **LEGAL PROCEEDINGS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         |       | On February 2, 2007, the Company became aware that  one of its loan servicers which was servicing 43 loans totaling $15.4 million  had filed for protection and reorganization under Chapter 11 of the United  States Bankruptcy Code on December 20, 2006. On March 2, 2007 the bankruptcy  filing was converted to a Chapter 7 liquidation and the Company shortly  thereafter obtained the servicing and began to directly service the loans. At  the present time, the Company is seeking recovery of all monies collected and  held on its behalf by the servicer and bankruptcy trustee. At June 30, 2007,  the Company reported an expense of $281,000 related to this matter. |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **ITEM 1A.** | ** ** | **RISK FACTORS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         |       | Management does not believe there have been any  material changes to the Risk Factors previously disclosed under Item 1A. on  the Company’s Form 10-K for the year ended December 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **ITEM 2.**  | ** ** | **UNREGISTERED SALE OF EQUITY  SECURITIES AND USE OF PROCEEDS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         |       | The following table provides information on  repurchases by the Company of its common stock in each month for the three  months ended June 30, 2007:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 
| 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** | ** ** |
|----------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
|                             |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| April 1, 2007 - April  30, 2007  |       | —                                               |       | $                                                | —     |                                                                                                                       | —     |                                                                                                                        | 75,773     |   |
|                             |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| May 1, 2007 – May 31,  2007 |       | 25,000                                               |       | $                                                | 30.19      |                                                                                                                       | 25,000     |                                                                                                                        | 50,773     |   |
|                             |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| June 1, 2007 - June 30, 2007     |       | 20,000                                               |       | $                                                | 30.05      |                                                                                                                       | 20,000     |                                                                                                                        | 30,773     |   |

 
| **ITEM 3.** | ** ** | **DEFAULTS UPON SENIOR SECURITIES**                      |
|-------------|------------|----------------------------------------------------------|
|        |       |                                                     |
|        |       | Not applicable.                                          |
|        |       |                                                     |
| **ITEM 4.** | ** ** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS** |
| ** **  | ** ** | ** **                                               |
|        |       | None                                                     |
| ** **  | ** ** | ** **                                               |
| **ITEM 5.** | ** ** | **OTHER INFORMATION**                                    |
| ** **  | ** ** | ** **                                               |
|        |       | None                                                     |
| ** **  | ** ** | ** **                                               |
| **ITEM 6.** | ** ** | **EXHIBITS**                                             |
|        |       |                                                     |
|        |       | (a)                                                      | Exhibits |
|        |       |                                                     | 31. | Certification  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|        |       |                                                     | 32. | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

22

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**TFFINANCIAL CORPORATION**

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized.
| Date:  | August 13, 2007 |                                            | /s/ Kent C. Lufkin     |   |
|--------|-----------------|-------------------------------------------------|------------------------|--------|
|   |            | Kent C. Lufkin                                  |
|   |            | President and CEO                               |
|   |            | (Principal  Executive Officer)                  |
|   |            |                                            |
|   |            |                                            |
| Date:  | August 13, 2007 |                                            | /s/ Dennis R.  Stewart |   |
|   |            | Dennis R.  Stewart                              |
|   |            | Executive Vice  President and                   |
|   |            | Chief Financial  Officer                        |
|   |            | (Principal Financial  & Accounting Officer) |
|        |                 |                                                 |                        |        |  |

 

23

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