**SECURITIES AND EXCHANGECOMMISSION****Washington, D.C. 20549**

**FORM 10-Q**

**x****                             ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the period ended June 30,2006**

**- or -**

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from                                   to                                    **

**Commission file number:  0-24168**

**TF FINANCIAL CORPORATION**(Exact Name of Registrant as Specifiedin Its Charter)

| **Delaware**                                   |   | **74-2705050**                        |
|------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation |   | (I.R.S. Employer  Identification No.) |
| or Organization)                               |   |                                  |
|                                           |   |                                  |
| **3 Penns  Trail, Newtown, Pennsylvania**      |   | **18940**                             |
| (Address of  Principal Executive Offices)      |   | (Zip Code)                            |

 

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

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

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

**Common Stock, par value $.10 pershare**(Title of Class)

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

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

Largeaccelerated filer o                    Acceleratedfiler o              Non-acceleratedfiler x

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

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock as of the latest practicable date:August 7, 2006

| Class                       | ** ** | **Outstanding**  |
|-----------------------------|------------|------------------|
| $.10 par value common stock |       | 2,870,485 shares |

 

 

----

**CONTENTS**
| **PART I-CONSOLIDATED FINANCIAL INFORMATION**                                 | ** **                                                                                 |
|-------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|
|                                                                          |                                                                                       |
| Item 1.                                                                       | Consolidated Financial Statements                                                          |   |
|                                                                          |                                                                                       |   |
| Item 2.                                                                       | Management’s  Discussion and Analysis of Financial Position and Results of Operations |   |
|                                                                          |                                                                                       |   |
| Item 3.                                                                       | Quantitative  and Qualitative Disclosures about Market Risk                                |   |
|                                                                          |                                                                                       |   |
| Item 4.                                                                       | Controls and  Procedures                                                                   |   |
|                                                                          |                                                                                       |
| **PART II-OTHER  INFORMATION**                                                |                                                                                       |
|                                                                          |                                                                                       |
| Item 1.                                                                       | Legal Proceedings                                                                          |   |
|                                                                          |                                                                                       |   |
| Item 1A.                                                                      | Risk Factors                                                                               |   |
|                                                                          |                                                                                       |   |
| Item 2.                                                                       | Unregistered Sale of Equity  Securities and Use of Proceeds                                |   |
|                                                                          |                                                                                       |   |
| Item 3.                                                                       | Defaults Upon Senior Securities                                                            |   |
|                                                                          |                                                                                       |   |
| Item 4.                                                                       | Submission of Matters to a Vote  of Security Holders                                       |   |
|                                                                          |                                                                                       |   |
| Item 5.                                                                       | Other Information                                                                          |   |
|                                                                          |                                                                                       |   |
| Item 6.                                                                       | Exhibits                                                                                   |   |
|                                                                          |                                                                                       |
| **Signatures**                                                                |                                                                                       |
|                                                                          |                                                                                       |
| **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

----

**TF FinancialCorporation and Subsidiaries**

**CONSOLIDATED STATEMENTS OF FINANCIAL POSITION**
| ** **                                                                                                                                                                                                                                               | ** ** | **Unaudited  June  30,  2006** | ** ** | **Audited  December  31,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                                                                                                               | ** ** | **(in thousands)**        | ** ** |
| ASSETS                                                                                                                                                                                                                                                   |       |                           |       |                             |       |
| Cash and cash  equivalents                                                                                                                                                                                                                               |       | $                              | 6,013      |                             | $          | 3,821 |   |
| Certificates of  deposit in other financial institutions                                                                                                                                                                                                 |       | 40                             |       | 40                               |       |
| Investment  securities available for sale—at fair value                                                                                                                                                                                             |       | 31,885                         |       | 30,401                           |       |
| Investment  securities held to maturity (fair value of $2,018 and $4,707 respectively)                                                                                                                                                                   |       | 2,017                          |       | 4,690                            |       |
| Mortgage-backed  securities available for sale—at fair value                                                                                                                                                                                        |       | 69,019                         |       | 83,511                           |       |
| Mortgage-backed  securities held to maturity (fair value of $8,581 and $10,385, respectively)                                                                                                                                                            |       | 8,591                          |       | 10,177                           |       |
| Loans  receivable, net (including loans held for sale of $16,763 and $68,  respectively)                                                                                                                                                                 |       | 517,866                        |       | 490,959                          |       |
| Federal Home  Loan Bank stock—at cost                                                                                                                                                                                                               |       | 8,170                          |       | 7,432                            |       |
| Accrued interest  receivable                                                                                                                                                                                                                             |       | 2,837                          |       | 3,048                            |       |
| Premises and  equipment, net                                                                                                                                                                                                                             |       | 6,558                          |       | 6,289                            |       |
| Core deposit  intangible asset, net of accumulated amortization of $2,797 and $2,741,  respectively                                                                                                                                                      |       | 27                             |       | 83                               |       |
| Goodwill                                                                                                                                                                                                                                                 |       | 4,324                          |       | 4,324                            |       |
| Other assets                                                                                                                                                                                                                                             |       | 16,787                         |       | 16,064                           |       |
| TOTAL ASSETS                                                                                                                                                                                                                                             |       | $                              | 674,134    |                             | $          | 660,839 |   |
|                                                                                                                                                                                                                                                     |       |                           |       |                             |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                |       |                           |       |                             |       |
| Liabilities                                                                                                                                                                                                                                              |       |                           |       |                             |       |
| Deposits                                                                                                                                                                                                                                                 |       | $                              | 479,729    |                             | $          | 470,521 |   |
| Advances from the Federal Home Loan Bank                                                                                                                                                                                                                 |       | 123,013                        |       | 121,260                          |       |
| Advances from borrowers for taxes and insurance                                                                                                                                                                                                          |       | 2,271                          |       | 1,915                            |       |
| Accrued interest payable                                                                                                                                                                                                                                 |       | 3,021                          |       | 2,052                            |       |
| Other liabilities                                                                                                                                                                                                                                        |       | 3,227                          |       | 2,443                            |       |
| Total liabilities                                                                                                                                                                                                                                        |       | 611,261                        |       | 598,191                          |       |
|                                                                                                                                                                                                                                                     |       |                           |       |                             |       |
| Stockholders’  equity                                                                                                                                                                                                                               |       |                           |       |                             |       |
| Preferred stock, no par value; 2,000,000 shares  authorized at June 30, 2006 and December 31, 2005, none issued                                                                                                                                          |       | —                         |       | —                           |       |
| Common stock, $0.10 par value; 10,000,000 shares  authorized, 5,290,000 shares issued, 2,695,199 and 2,714,173 shares  outstanding at June 30, 2006 and December 31, 2005, respectively, net of  shares in treasury 2,419,515 and 2,390,943 respectively |       | 529                            |       | 529                              |       |
| Retained earnings                                                                                                                                                                                                                                        |       | 63,232                         |       | 61,610                           |       |
| Additional paid-in capital                                                                                                                                                                                                                               |       | 52,422                         |       | 53,048                           |       |
| Unearned restricted stock                                                                                                                                                                                                                                |       | —                         |       | (1,080                           | )          |
| Unearned ESOP shares                                                                                                                                                                                                                                     |       | (1,753                         | )          | (1,849                           | )          |
| Treasury stock—at cost                                                                                                                                                                                                                              |       | (48,941                        | )          | (47,920                          | )          |
| Accumulated other comprehensive loss                                                                                                                                                                                                                     |       | (2,616                         | )          | (1,690                           | )          |
| Total stockholders’ equity                                                                                                                                                                                                                          |       | 62,873                         |       | 62,648                           |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                         |       | $                              | 674,134    |                             | $          | 660,839 |   |

 

Theaccompanying notes are an integral part of these statements

3

----

**TF FinancialCorporation and Subsidiaries**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS****(Unaudited)**
| ** **                                                     | ** ** | **For the three months  ended  June 30,**      | ** ** | **For the six months  ended  June 30,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2006**                                                           | ** ** | **2005**                                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                     | ** ** | **(in thousands, except per share data)** | ** ** |
| Interest income                                                |       |                                                               |       |                                                        |       |   |   |   |   |
| Loans, including fees                                          |       | $                                                                  | 8,167      |                                                        | $          | 6,703 |   | $ | 15,838 |   | $ | 13,174 |   |
| Mortgage-backed securities                                     |       | 957                                                                |       | 1,292                                                       |       | 1,969 |   | 2,595 |   |
| Investment securities                                          |       | 489                                                                |       | 364                                                         |       | 901 |   | 677 |   |
| Interest-bearing deposits and other                            |       | 14                                                                 |       | 12                                                          |       | 22 |   | 22 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL INTEREST INCOME                                          |       | 9,627                                                              |       | 8,371                                                       |       | 18,730 |   | 16,468 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Interest expense                                               |       |                                                               |       |                                                        |       |   |   |   |   |
| Deposits                                                       |       | 2,560                                                              |       | 1,831                                                       |       | 4,808 |   | 3,367 |   |
| Borrowings                                                     |       | 1,388                                                              |       | 966                                                         |       | 2,736 |   | 1,897 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL INTEREST EXPENSE                                         |       | 3,948                                                              |       | 2,797                                                       |       | 7,544 |   | 5,264 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| NET INTEREST INCOME                                            |       | 5,679                                                              |       | 5,574                                                       |       | 11,186 |   | 11,204 |   |
| Provision for  loan losses                                     |       | 60                                                                 |       | 150                                                         |       | 150 |   | 300 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES            |       | 5,619                                                              |       | 5,424                                                       |       | 11,036 |   | 10,904 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Non-interest  income                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Service fees, charges and other operating income               |       | 647                                                                |       | 669                                                         |       | 1,319 |   | 1,309 |   |
| Gain on sale of loans                                          |       | 29                                                                 |       | 8                                                           |       | 38 |   | 30 |   |
| Loss on sale of mortgage-backed securities available  for sale |       | (51                                                                | )          | —                                                      |       | (51 | ) | — |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL NON-INTEREST INCOME                                      |       | 625                                                                |       | 677                                                         |       | 1,306 |   | 1,339 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Non-interest  expense                                          |       |                                                               |       |                                                        |       |   |   |   |   |
| Employee compensation and benefits                             |       | 2,683                                                              |       | 2,303                                                       |       | 5,322 |   | 4,694 |   |
| Occupancy and equipment                                        |       | 694                                                                |       | 640                                                         |       | 1,398 |   | 1,301 |   |
| Federal deposit insurance premium                              |       | 15                                                                 |       | 16                                                          |       | 30 |   | 33 |   |
| Professional fees                                              |       | 135                                                                |       | 211                                                         |       | 347 |   | 437 |   |
| Marketing and advertising                                      |       | 175                                                                |       | 186                                                         |       | 352 |   | 362 |   |
| Other operating                                                |       | 571                                                                |       | 553                                                         |       | 1,166 |   | 1,179 |   |
| Amortization of core deposit intangible asset                  |       | 28                                                                 |       | 34                                                          |       | 56 |   | 68 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| TOTAL NON-INTEREST EXPENSE                                     |       | 4,301                                                              |       | 3,943                                                       |       | 8,671 |   | 8,074 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                     |       | 1,943                                                              |       | 2,158                                                       |       | 3,671 |   | 4,169 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Income taxes                                                   |       | 551                                                                |       | 553                                                         |       | 1,024 |   | 1,088 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| NET INCOME                                                     |       | $                                                                  | 1,392      |                                                        | $          | 1,605 |   | $ | 2,647 |   | $ | 3,081 |   |
|                                                           |       |                                                               |       |                                                        |       |   |   |   |   |
| Earnings per  share—basic                                 |       | $                                                                  | 0.52       |                                                        | $          | 0.59 |   | $ | 0.98 |   | $ | 1.12 |   |
| Earnings per  share—diluted                               |       | $                                                                  | 0.51       |                                                        | $          | 0.57 |   | $ | 0.98 |   | $ | 1.09 |   |
| Dividends paid                                                 |       | $                                                                  | 0.19       |                                                        | $          | 0.18 |   | $ | 0.38 |   | $ | 0.36 |   |

 

The accompanying notes are an integral part of these statements

4

----

**TF FinancialCorporation and Subsidiaries**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS****(Unaudited)**
| ** **                                                                                  | ** ** | **For the six months ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **June 30,**                                | ** ** |
| ** **                                                                                  | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                                                                  | ** ** | **(in thousands)**                          | ** ** |
| OPERATING  ACTIVITIES                                                                       |       |                                             |       |   |   |
| Net income                                                                                  |       | $                                                | 2,647      |   | $ | 3,081 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities           |       |                                             |       |   |   |
| Amortization of                                                                             |       |                                             |       |   |   |
| Mortgage loan servicing rights                                                              |       | 11                                               |       | 2 |   |
| Deferred loan origination fees                                                              |       | (43                                              | )          | (31 | ) |
| Premiums and discounts on investment securities, net                                        |       | 33                                               |       | 42 |   |
| Premiums and discounts on mortgage-backed securities,  net                                  |       | 149                                              |       | 236 |   |
| Premiums and discounts on loans, net                                                        |       | 85                                               |       | 60 |   |
| Discount on brokered deposits                                                               |       | 5                                                |       | — |   |
| Core deposit intangibles                                                                    |       | 56                                               |       | 68 |   |
| Provision for loan losses                                                                   |       | 150                                              |       | 300 |   |
| Depreciation of premises and equipment                                                      |       | 472                                              |       | 468 |   |
| Increase in value of bank-owned life insurance                                              |       | (248                                             | )          | (252 | ) |
| Stock grant expense                                                                         |       | 181                                              |       | — |   |
| Stock option expense                                                                        |       | 189                                              |       | — |   |
| Stock-based benefit programs: ESOP                                                          |       | 282                                              |       | 258 |   |
| Tax benefit arising from stock compensation                                                 |       | 102                                              |       | 110 |   |
| Proceeds from sale of loans originated for sale                                             |       | 4,855                                            |       | 3,311 |   |
| Origination of loans held for sale                                                          |       | (5,473                                           | )          | (3,385 | ) |
| (Gain)/loss on sale of                                                                      |       |                                             |       |   |   |
| Mortgage loans available for sale                                                           |       | (38                                              | )          | (30 | ) |
| Mortgage-backed securities available for sale                                               |       | 51                                               |       | — |   |
| Real estate acquired through foreclosure                                                    |       | (26                                              | )          | — |   |
| Loss from mortgage loan derivatives                                                         |       | 13                                               |       | — |   |
| Income associated with forward loan sales                                                   |       | (13                                              | )          | — |   |
| (Increase) decrease in                                                                      |       |                                             |       |   |   |
| Accrued interest receivable                                                                 |       | 211                                              |       | (90 | ) |
| Other assets                                                                                |       | (641                                             | )          | (249 | ) |
| Increase (decrease) in                                                                      |       |                                             |       |   |   |
| Accrued interest payable                                                                    |       | 969                                              |       | 346 |   |
| Other liabilities                                                                           |       | 682                                              |       | 789 |   |
|                                                                                        |       |                                             |       |   |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                   |       | 4,661                                            |       | 5,034 |   |
|                                                                                        |       |                                             |       |   |   |
| INVESTING  ACTIVITIES                                                                       |       |                                             |       |   |   |
| Loan originations                                                                           |       | (84,115                                          | )          | (57,895 | ) |
| Loan principal payments                                                                     |       | 55,153                                           |       | 35,484 |   |
| Principal repayments on mortgage-backed securities  held to maturity                        |       | 1,583                                            |       | 2,377 |   |
| Principal repayments on mortgage-backed securities  available for sale                      |       | 8,320                                            |       | 16,484 |   |
| Proceeds from sale of loan participations                                                   |       | 2,452                                            |       | — |   |
| Purchases and (maturities) of certificates of  deposit in other financial institutions, net |       | —                                           |       | (2 | ) |
| Purchase of investment securities available for sale                                        |       | (1,917                                           | )          | (5,985 | ) |
| Purchase of mortgage-backed securities available for  sale                                  |       | —                                           |       | (8,956 | ) |
| Proceeds from maturities of investment securities  held to maturity                         |       | 2,673                                            |       | — |   |
| Proceeds from the sale of mortgage-backed securities  available for sale                    |       | 4,971                                            |       | — |   |
| (Purchase)/redemption of Federal Home Loan Bank  stock                                      |       | (738                                             | )          | 641 |   |
| Purchase of premises and equipment                                                          |       | (741                                             | )          | (437 | ) |
| Proceeds from the sale of real estate acquired  through foreclosure                         |       | 726                                              |       | — |   |
| NET CASH USED IN  INVESTING ACTIVITIES                                                      |       | (11,633                                          | )          | (18,289 | ) |
|                                                                                             |            |                                                  |            |  |  |  |  |

 

5

----

 
| ** **                                                                                          | ** ** | **For the six months ended** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                          | ** ** | **June 30,**                                | ** ** |
| ** **                                                                                          | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                                                                          | ** ** | **(in thousands)**                          | ** ** |
| FINANCING  ACTIVITIES                                                                               |       |                                             |       |   |   |
| Net increase in demand deposit/NOW accounts,  passbook savings accounts and certificates of deposit |       | 9,203                                            |       | 19,676 |   |
| Net decrease in short-term Federal Home Loan Bank  advances from Federal Home Loan Bank             |       | (4,655                                           | )          | (5,529 | ) |
| Proceeds of long-term Federal Home Loan Bank  advances                                              |       | 15,535                                           |       | 11,367 |   |
| Repayment of long-term Federal Home Loan Bank  advances                                             |       | (9,127                                           | )          | (7,455 | ) |
| Net increase in advances from borrowers for taxes  and insurance                                    |       | 356                                              |       | 358 |   |
| Treasury stock acquired                                                                             |       | (1,421                                           | )          | (1,668 | ) |
| Exercise of stock options                                                                           |       | 298                                              |       | 565 |   |
| Common stock dividends paid                                                                         |       | (1,025                                           | )          | (989 | ) |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                                           |       | 9,164                                            |       | 16,325 |   |
|                                                                                                |       |                                             |       |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                |       | 2,192                                            |       | 3,070 |   |
|                                                                                                |       |                                             |       |   |   |
| Cash and cash  equivalents at beginning of period                                                   |       | 3,821                                            |       | 7,900 |   |
|                                                                                                |       |                                             |       |   |   |
| Cash and cash  equivalents at end of period                                                         |       | $                                                | 6,013      |   | $ | 10,970 |   |
|                                                                                                |       |                                             |       |   |   |
| Supplemental  disclosure of cash flow information                                                   |       |                                             |       |   |   |
| Cash paid for                                                                                       |       |                                             |       |   |   |
| Interest on deposits and advances from Federal Home  Loan Bank                                      |       | $                                                | 6,575      |   | $ | 4,918 |   |
| Income taxes                                                                                        |       | $                                                | 1,015      |   | $ | 60 |   |

 

The accompanying notes are an integral part of these statements

6

----

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

**NOTE 1 - PRINCIPLES OF CONSOLIDATION**

Theconsolidated financial statements as of June 30, 2006 (unaudited) and December31, 2005 and for the six-month periods ended June 30, 2006 and 2005 (unaudited)include the accounts of TF Financial Corporation (the “Company”) and its whollyowned subsidiaries Third Federal Bank (the “Bank”), TF Investments Corporationand Penns Trail Development Corporation. The Company’s business is conductedprincipally through the Bank. All significant intercompany accounts andtransactions have been eliminated in consolidation.

**NOTE 2 - BASIS OF PRESENTATION**

Theaccompanying unaudited consolidated financial statements were prepared in accordancewith instructions for Form 10-Q and, therefore, do not include all of thedisclosures or footnotes required by accounting principles generally acceptedin the United States of America. In the opinion of management, all adjustments,consisting of normal recurring accruals, necessary for fair presentation of theconsolidated financial statements have been included. The results of operationsfor the period ended June 30, 2006 are not necessarily indicative of theresults which may be expected for the entire fiscal year or any other period.For further information, refer to consolidated financial statements andfootnotes thereto included in the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2005.

**NOTE 3 – CONTINGENCIES**

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

**NOTE 4 - OTHER COMPREHENSIVE INCOME**

The Company’s other comprehensive incomeconsists of net unrealized losses on investment securities and mortgage-backedsecurities available for sale. Total comprehensive income for the three-monthperiods ended June 30, 2006 and 2005 was $1,161,000 and $2,546,000, net ofapplicable income tax expense of $432,000 and $1,037,000, respectively. Totalcomprehensive income for the six-month periods ended June 30, 2006 and2005 was $1,721,000 and $2,915,000, net of applicable income tax expense of$545,000 and $1,003,000, respectively.

**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, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                       | ** ** | **Weighted average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                                          |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                                             | 1,392      |   | 2,695,094 |   | $ | 0.52 |   |
| Effect of  dilutive securities                                              |       |                                                          |       |   |   |   |   |
| Stock options                                                               |       | —                                                        |       | 19,108 |   | (0.01 | ) |
|                                                                        |       |                                                          |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                                          |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                                             | 1,392      |   | 2,714,202 |   | $ | 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      |   | 2,696,236 |   | $ | 0.98 |   |
| Effect of  dilutive securities                                              |       |                                                        |       |   |   |   |   |
| Stock options                                                               |       | —                                                      |       | 17,077 |   | — |   |
|                                                                        |       |                                                        |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                                        |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                                           | 2,647      |   | 2,713,313 |   | $ | 0.98 |   |

 

7

----

There were options to purchase 21,018 sharesof common stock at a price of $34.14 per share which were outstanding duringthe six months ended June 30, 2006 that were not included in thecomputation of diluted earnings per share because the options’ exercise priceswere greater than the average market price of the common shares.
| ** **                                                                  | ** ** | **Three months ended June 30, 2005** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                       | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                                          |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                                             | 1,605      |   | 2,744,223 |   | $ | 0.59 |   |
| Effect of  dilutive securities                                              |       |                                                          |       |   |   |   |   |
| Stock options                                                               |       | —                                                        |       | 74,383 |   | (0.02 | ) |
|                                                                        |       |                                                          |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                                          |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                                             | 1,605      |   | 2,818,606 |   | $ | 0.57 |   |

 
| ** **                                                                  | ** ** | **Six months ended June 30, 2005** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Income  (numerator)**                                     | ** ** | **Weighted  average  shares  (denominator)** | ** ** | **Per share  Amount** | ** ** |
| Basic earnings  per share                                                   |       |                                                        |       |   |   |   |   |
| Income available to common stockholders                                     |       | $                                                           | 3,081      |   | 2,746,625 |   | $ | 1.12 |   |
| Effect of  dilutive securities                                              |       |                                                        |       |   |   |   |   |
| Stock options                                                               |       | —                                                      |       | 74,444 |   | (0.03 | ) |
|                                                                        |       |                                                        |       |   |   |   |   |
| Diluted earnings  per share                                                 |       |                                                        |       |   |   |   |   |
| Income available  to common stockholders plus effect of dilutive securities |       | $                                                           | 3,081      |   | 2,821,069 |   | $ | 1.09 |   |

 

There were options topurchase 27,594 shares of common stock at a price of $34.14 per share whichwere outstanding during the the six months ended June 30, 2005 that werenot included in the computation of diluted earnings per share because theoptions’ exercise prices were greater than the average market price of thecommon shares.

**NOTE 6- STOCK BASED COMPENSATION**

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

On January 1, 2006, theCompany adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)123R, “Share-Based Payment,” using the modified prospective transition method.Under this transition method, compensation cost to be recognized beginning inthe first quarter of 2006 includes: (a) compensation cost for allshare-based payments granted prior to, but not yet vested as of January 1,2006, based on the grant date fair value estimated in accordance with the originalprovisions of SFAS 123, and (b) compensation cost for all share-basedpayments granted subsequent to January 1, 2006, based on the grant-datefair value estimated in accordance with the provisions of SFAS 123R.Stock-based compensation expense included in net income related to stockoptions was $94,000, resulting in a tax benefit of $28,000, for the threemonths ended June 30, 2006. Stock-based compensation expense included in netincome related to stock options was $189,000, resulting in a tax benefit of$57,000, for the six months ended June 30, 2006. Results for prior periods havenot been restated. As of June 30, 2006, there was $927,000 of totalunrecognized compensation cost, net of estimated forfeitures, related tonon-vested options under the Plan. That cost is expected to be recognized overa weighted average period of 29.8 months

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

8

----

The tables below reflect the estimated impact thefair value method would have had on the Company’s net income and net income pershare if SFAS 123R had been in effect for the three and six months ended June30, 2005 (dollars in thousands except per share data):
| Three months ended June 30,  2005                                                                            | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Net income                                                                                                   |       |       |       |
| As reported                                                                                                  |       | $          | 1,605      |   |
| Deduct: stock-based compensation expense determined  using the fair value method, net of related tax effects |       | 15         |       |
| Pro forma                                                                                                    |       | $          | 1,590      |   |
|                                                                                                         |       |       |       |
| Basic earnings  per share                                                                                    |       |       |       |
| As reported                                                                                                  |       | $          | 0.59       |   |
| Deduct: stock-based compensation expense determined  using the fair value method, net of related tax effects |       | 0.01       |       |
| Pro forma                                                                                                    |       | $          | 0.58       |   |
|                                                                                                         |       |       |       |
| Diluted earnings  per share                                                                                  |       |       |       |
| As reported                                                                                                  |       | $          | 0.57       |   |
| Deduct: stock-based compensation expense determined  using the fair value method, net of related tax effects |       | —     |       |
| Pro forma                                                                                                    |       | $          | 0.57       |   |

 
| Six months ended June 30,  2005                                                                              | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Net income                                                                                                   |       |       |       |
| As reported                                                                                                  |       | $          | 3,081      |   |
| Deduct: stock-based compensation expense determined  using the fair value method, net of related tax effects |       | 34         |       |
| Pro forma                                                                                                    |       | $          | 3,047      |   |
|                                                                                                         |       |       |       |
| Basic earnings  per share                                                                                    |       |       |       |
| As reported                                                                                                  |       | $          | 1.12       |   |
| Deduct: stock-based compensation expense determined  using the fair value method, net of related tax effects |       | 0.01       |       |
| Pro forma                                                                                                    |       | $          | 1.11       |   |
|                                                                                                         |       |       |       |
| Diluted earnings  per share                                                                                  |       |       |       |
| As reported                                                                                                  |       | $          | 1.09       |   |
| Deduct: stock-based compensation expense determined  using the fair value method, net of related tax effects |       | —     |       |
| Pro forma                                                                                                    |       | $          | 1.09       |   |

 

Option activity under theCompany’s stock option plan as of June 30, 2006 is as follows:
|                                       | ** ** | **2006**               | ** ** |
|---------------------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **Number  of  shares** | ** ** | **Weighted  average  exercise  price per  share** | ** ** | **Weighted  average  remaining  contractual  term (in  years)** | ** ** | **Aggregate  intrinsic  value ($000)** | ** ** |
| Outstanding at  beginning of year     |       | 384,848                |       | $ | 23.18 |   |   |   |   |   |
| Options granted                       |       | —                 |       | — |   |   |   |   |   |
| Options  exercised                    |       | (19,832                | )          | 15.01 |   |   |   |   |   |
| Options  forfeited                    |       | (8,094                 | )          | 29.66 |   |   |   |   |   |
| Outstanding at  end of quarter        |       | 356,922                |       | $ | 23.49 |   | 3.72 |   | $ | 1,913 |   |
| Options exercisable at  June 30, 2006 |       | 175,494                |       | $ | 18.21 |   | 3.20 |   | $ | 1,867 |   |

 

The aggregate intrinsic value in the table aboverepresents the total pre-tax intrinsic value (the difference between theCompany’s closing stock price on the last trading day of the second quarter of2006 and the exercise price, multiplied by the number of in-the money options).

9

----

Stockoptions outstanding were 356,922 and 244,412 at June 30, 2006 and 2005,respectively. The aggregate intrinsic value of options exercised during the sixmonths ended ended June 30, 2006 and 2005 was $299,000 and $524,000,respectively. Exercise of stock option during the six months ended June 30,2006 and 2005 resulted in cash receipts of $298,000 and $565,000, respectively.

Stock-basedcompensation expense included in net income related to stock grants was $90,000for the three months ended June 30, 2006. Stock-based compensation expenseincluded in net income related to the Company’s employee stock ownership plantotaled $108,000 and $96,000 for the three-month periods ended June 30, 2006and 2005, respectively.

Stock-basedcompensation expense included in net income related to stock grants was$180,000 for the six months ended June 30, 2006. Stock-based compensationexpense included in net income related to the Company’s employee stockownership plan totaled $215,000 and $204,000 for the six-month periods endedJune 30, 2006 and 2005, respectively.

**NOTE 7-EMPLOYEE BENEFIT PLANS**

Netperiodic defined benefit pension cost included the following (in thousands):
|                                          | ** ** | **Three months ended  June 30** | ** ** |
|------------------------------------------|------------|------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
|                                     |       |                                           |       |   |   |
| Components of  net periodic benefit cost |       |                                           |       |   |   |
| Service cost                             |       | $                                              | 77         |   | $ | 78 |   |
| Interest cost                            |       | 52                                             |       | 53 |   |
| Expected return on plan assets           |       | (80                                            | )          | (56 | ) |
| Amortization of prior service cost       |       | 15                                             |       | 16 |   |
| Recognized net actuarial (gain) loss     |       | 13                                             |       | 11 |   |
|                                     |       |                                           |       |   |   |
| Net periodic  benefit cost               |       | $                                              | 77         |   | $ | 102 |   |

 
|                                          | ** ** | **Six months ended  June 30** | ** ** |
|------------------------------------------|------------|----------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                     | ** ** | **2005** | ** ** |
|                                     |       |                                         |       |   |   |
| Components of  net periodic benefit cost |       |                                         |       |   |   |
| Service cost                             |       | $                                            | 154        |   | $ | 156 |   |
| Interest cost                            |       | 105                                          |       | 106 |   |
| Expected return on plan assets           |       | (161                                         | )          | (103 | ) |
| Amortization of prior service cost       |       | 31                                           |       | 32 |   |
| Recognized net actuarial (gain) loss     |       | 26                                           |       | 22 |   |
|                                     |       |                                         |       |   |   |
| Net periodic  benefit cost               |       | $                                            | 155        |   | $ | 213 |   |

 

The employer contributions made for the six monthsended June 30, 2006 and 2005 were $620,000 and $1,015,000, respectively.

**NOTE 8-RECLASSIFICATIONS**

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

10

----

**TF FINANCIAL CORPORATIONAND SUBSIDIARIES**

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

**GENERAL**

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

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

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

**Financial Position**

The Company’s total assets at June 30, 2006 and December 31, 2005 were$674.1 million and $660.8 million, respectively, an increase of $13.3 million,or 2.0%, during the six-month period. Cash and cash equivalents increased by$2.2 million. Investment securities available for sale increased by $1.5million due to purchases of $1.9 million of tax free municipal bonds offset bya $0.4 million reduction in the market value of investment securities availablefor sale. Investment securities held to maturity decreased by $2.7 million as aresult of security maturities. Mortgage-backed securities available for saledecreased by $14.5 million due to sales of $5.0 million, principal repaymentsof $8.3 million, as well as a decrease in the market value of these securities andamortization of net premiums totaling $1.2 million. Mortgage-backed securitiesheld to maturity decreased by $1.6 million as a result of principal repayments.

Loans receivable increased by $26.9 million during the first six monthsof 2006. Consumer and single-family residential mortgage loans of $41.6 millionand commercial loans of $42.5 million were originated during the first sixmonths of 2006. Principal repayments of loans receivable were $55.2 million andproceeds from sales of loan participations totaled $2.5 million in the firsthalf of 2006. Additionally, the Company during June 2006 entered into anagreement to sell $16.0 million of previously purchased loans and, accordinglyhas reclassified these loans receivable as loans held for sale. Loans originatedfor sale during this period totaled $5.5 million, and there were $4.9 millionin proceeds from the sale of these loans in the secondary market during thisperiod. In June 2006, the Company sold for $0.7 million the sole parcel offoreclosed real estate owned at December 31, 2005.

11

----

Total liabilities increased by $13.1 million. Deposit balances increasedby $9.2 million during the first six months of 2006. Savings, money market,interest-bearing, and non-interest bearing checking accounts decreased by acombined $31.8 million. Retail certificates of deposit increased by $29.3million and broker originated deposits received during the second quarter of2006 totaled $11.7 million. Advances from the Federal Home Loan Bank increasedby $1.8 million due to a $15.5 million increase in long-term fixed rateadvances, less scheduled amortization payments of $9.1 million and repaymentsof $4.6 million of short term advances.

Total consolidated stockholders’ equity of theCompany was $62.9 million or 9.3% of total assets at June 30, 2006. During thefirst six months of 2006 the Company repurchased 48,404 shares of its commonstock and issued 19,832 shares pursuant to the exercise of stock options. As ofJune 30, 2006, there were approximately 76,000 shares available for repurchaseunder the previously announced share repurchase plan.

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

During the first six months of 2006 and 2005, the Company’s provisionfor loan losses was $150,000 and $300,000, respectively. Management of theCompany believes that there has not been any significant deterioration in itsasset quality during the first six months of 2006.

Thefollowing table sets forth information regarding the Company’s asset quality(dollars in thousands):
|                                                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                  | ** ** | **2006**          | ** ** | **2005**              | ** ** | **2005**          | ** ** |
| ** **                                                  | ** ** | ** **        | ** ** | ** **            | ** ** | ** **        | ** ** |
| Non-performing loans                                        |       | $                 | 1,314      |                  | $          | 1,588             |       | $ | 724 |   |
| Ratio of non-performing loans to gross loans                |       | 0.25              | %          | 0.32                  | %          | 0.16              | %          |
| Ratio of non-performing loans to total assets               |       | 0.19              | %          | 0.24                  | %          | 0.11              | %          |
| Foreclosed property                                         |       | $                 | —     |                  | $          | 700               |       | $ | 700 |   |
| Foreclosed property to total assets                         |       | —            | %          | 0.11                  | %          | 0.11              | %          |
| Ratio of total non-performing assets to total assets        |       | 0.19              | %          | 0.35                  | %          | 0.22              | %          |
| Ratio of allowance for loan losses to total loans           |       | 0.54              | %          | 0.54                  | %          | 0.53              | %          |
| Ratio  of allowance for loan losses to non-performing loans |       | 212.18            | %          | 166.31                | %          | 172.75            | %          |

 

Management maintains an allowance for loan losses atlevels that are believed to be adequate; however, there can be no assurancesthat further additions will not be necessary or that losses inherent in theexisting loan portfolio will not exceed the allowance. The following table setsforth the activity in the allowance for loan losses during the periodsindicated (in thousands):
|                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Beginning balance, January 1,             |       | $        | 2,641      |     | $          | 2,307 |   |
| Provision                                 |       | 150      |       | 300      |       |
| Less: charge-off’s (recoveries), net |       | 3        |       | 147      |       |
| Ending  balance, June 30,                 |       | 2,788    |       | 2,460    |       |
|                                           |            |          |            |          |            |  |  |

 

12

----

**RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005**

**Net Income**.The Company recorded net income of $1,392,000, or $0.51 per diluted share, forthe three months ended June 30, 2006 as compared to net income of $1,605,000,or $0.57 per diluted share, for the three months ended June 30, 2005.

### **Average Balance Sheet**

The following table sets forth information (dollarsin thousands) relating to the Company’s average balance sheet and reflects theaverage yield on assets and average cost of liabilities for the periodsindicated. Yield and cost are computed by dividing income or expense by theaverage daily balance of interest-earning assets or interest-bearingliabilities, respectively, at-or for the three-month periods indicated.
| ** **                                                                         | ** ** | **June 30,**    | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** |
| **ASSETS**                                                                         |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning  assets:**                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Loans  receivable(1)                                                               |       | $                    | 512,542    |   | $ | 8,167 |   | 6.39 | % | $ | 457,289 |   | $ | 6,703 |   | 5.88 | % |
| Mortgage-backed  securities                                                        |       | 82,311               |       | 957 |   | 4.66 | % | 112,939 |   | 1,292 |   | 4.59 | % |
| Investment  securities(2)                                                          |       | 41,703               |       | 583 |   | 5.61 | % | 35,635 |   | 441 |   | 4.96 | % |
| Other interest-earning  assets(3)                                                  |       | 999                  |       | 14 |   | 5.62 | % | 2,368 |   | 12 |   | 2.03 | % |
| Total  interest-earning assets                                                     |       | 637,555              |       | 9,721 |   | 6.12 | % | 608,231 |   | 8,448 |   | 5.57 | % |
| Non  interest-earning assets                                                       |       | 35,757               |       |   |   |   |   | 36,599 |   |   |   |   |   |
| Total assets                                                                       |       | $                    | 673,312    |   |   |   |   |   | $ | 644,830 |   |   |   |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                     |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**                                                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                           |       | $                    | 467,570    |   | 2,560 |   | 2.20 | % | $ | 466,679 |   | 1,831 |   | 1.57 | % |
| Advances from  the FHLB                                                            |       | 135,399              |       | 1,388 |   | 4.11 | % | 111,734 |   | 966 |   | 3.47 | % |
| Total  interest-bearing liabilities                                                |       | 602,969              |       | 3,948 |   | 2.63 | % | 578,413 |   | 2,797 |   | 1.94 | % |
| Non  interest-bearing liabilities                                                  |       | 7,963                |       |   |   |   |   | 6,331 |   |   |   |   |   |
| Total  liabilities                                                                 |       | 610,932              |       |   |   |   |   | 584,744 |   |   |   |   |   |
| Stockholders’  equity                                                         |       | 62,380               |       |   |   |   |   | 60,086 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                                   |       | $                    | 673,312    |   |   |   |   |   | $ | 644,830 |   |   |   |   |   |
| Net interest  income                                                               |       |                 |       | $ | 5,773 |   |   |   |   |   | $ | 5,651 |   |   |   |
| Interest rate  spread(4)                                                           |       |                 |       |   |   | 3.49 | % |   |   |   |   | 3.63 | % |
| Net yield on  interest-earning assets(5)                                           |       |                 |       |   |   | 3.63 | % |   |   |   |   | 3.73 | % |
| Ratio of average  interest-earning assets to average interest- bearing liabilities |       |                 |       |   |   | 1.06 | % |   |   |   |   | 1.05 | % |

 

----

| (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  $94,000 and $77,000 for the quarters ended June 30, 2006 and 2005,  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.                                                                                                                    |

 

13

----

**Rate/Volume Analysis**

The following table presents, for the periodsindicated, the change in interest income and interest expense (in thousands)attributed to (i) changes in volume (changes in the weighted average balance ofthe total interest earning asset and interest bearing liability portfoliosmultiplied by the prior year rate), and (ii) changes in rate (changes in ratemultiplied by prior year volume). Changes attributable to the combined impactof volume and rate have been allocated proportionately based on the absolutevalue of changes due to volume and changes due to rate.
| ** **                          | ** ** | **Three months ended June 30,**                    | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2006 vs. 2005  Increase (decrease) due to** | ** ** |
| ** **                          | ** ** | **Volume**                                                             | ** ** | **Rate** | ** ** | **Net** | ** ** |
| **Interest  income:**               |       |                                                                   |       |   |   |   |   |
| Loans  receivable, net              |       | $                                                                      | 851        |   | $ | 613 |   | $ | 1,464 |   |
| Mortgage-backed  securities         |       | (476                                                                   | )          | 141 |   | (335 | ) |
| Investment  securities (1)          |       | 81                                                                     |       | 61 |   | 142 |   |
| Other  interest-earning assets      |       | (41                                                                    | )          | 43 |   | 2 |   |
| Total  interest-earning assets      |       | 415                                                                    |       | 858 |   | 1,273 |   |
| **Interest  expense:**              |       |                                                                   |       |   |   |   |   |
| Deposits                            |       | 4                                                                      |       | 725 |   | 729 |   |
| Advances from  the FHLB             |       | 225                                                                    |       | 197 |   | 422 |   |
| Total  interest-bearing liabilities |       | 229                                                                    |       | 922 |   | 1,151 |   |
| Net change in net  interest income  |       | $                                                                      | 186        |   | $ | (64 | ) | $ | 122 |   |

 

----

| (1) | Tax equivalent adjustments to interest on investment securities were  $94,000 and $77,000 for the quarters ended June 30, 2006 and 2005,  respectively. Tax equivalent interest income is based upon a marginal  effective tax rate of 34%. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Total Interest Income**. Total interest income, on a taxable equivalent basis, increased by$1.3 million or 15.1% to $9.7 million for the quarter ended June 30, 2006compared with the second quarter of 2005 primarily because of a $55.3 millionincrease in average loans outstanding combined with an increase of 51 basispoints on the average yield on these loans. The yield on both existing loansand new loans added to the portfolio increased during the intervening period inpart due to eight, 25 basis point increases in the Bank’s prime rate during theperiod June 30, 2005 through June 30, 2006 corresponding to identicalincreases in the federal funds interest rate of the Federal Reserve Bank. AtJune 30, 2006, the Bank had approximately $78.7 million in loans that areindexed to the prime rate primarily consisting of construction loans andcommercial and consumer lines of credit. Interest income from mortgage-backedsecurities was lower in the second quarter of 2006 in comparison to the sameperiod of 2005 due to the reduction of balances maintained in mortgage-backedsecurities.

**Total Interest Expense.**Total interest expense increased by $1.2 million to $3.9 million duringthe three-month period ended June 30, 2006 as compared with the second quarterof 2005. During 2005 and the first half of 2006, the Bank raised the interestrates paid on many of its deposit products due to the competitive pricingenvironment in the Bank’s deposit market. In addition, the Company had duringthe second quarter of 2006 but not during the second quarter of 2005, $31.7million of deposits that have interest rates tied to the change in the federalfunds rate. As a result, the average rate paid on deposits increased by 63basis points. Interest on advances from the Federal Home Loan Bank increased by$0.4 million during the second quarter of 2006 versus the second quarter of2005 as a result of a $23.7 million increase in the average balance ofborrowings as well as an increase of 64 basis points in the cost of these fundsdue, generally, to the amortization of lower cost advances and the higher costof new advances.

**Non-interest income.**Total non-interest income was $625,000 for the three-month period endedJune 30, 2006 compared with $677,000 for the same period in 2005. Loanprepayment penalties and other loan fees collected during the second quarter of2006 were lower by $99,000 as compared with the same quarter in 2005. Incontrast, overdraft fees collected on deposit accounts increased $19,000between the two periods. Loss on the sale of mortgage-backed securities in thesecond quarter of 2006 was $51,000 while there was no such sale in the secondquarter of 2005. Gain on the sale of property acquired through foreclosure was$26,000 during the second quarter of 2006. Additionally, the Company recognized$25,000 of non-interest income related to real estate held for developmentduring the second quarter of 2006. Net gain on the sale of loans totaled$29,000 during the second quarter of 2006 while the gain during the secondquarter of 2005 totaled $8,000.

**Non-interestexpense.**Totalnon-interest expense increased by $358,000 to $4.3 million for the three monthsended June 30, 2006 compared to the same period in 2005. Stock-basedcompensation expense related to stock grants and the recognition of optionexpense associated with the new accounting standard SFAS 123R, “Share-BasedPayment” amounted to $185,000 for the second quarter of 2006 while there was nosuch expense for the second quarter of 2005. In addition, compensation andother benefit expenses were higher by $195,000 due to staffing related to theGirard Avenue branch which opened in June 2005 as well as staffing and annualsalary increases. Office and occupancy costs increased $54,000 between the twoquarters mainly as a result of office and occupancy costs associated with theGirard Avenue branch. Professional fees incurred during the second quarter of 2006decreased over fees incurred during the second quarter of 2005 astechnology-related initiatives were completed during 2005.

14

----

**RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005**

**Net Income**.The Company recorded net income of $2,647,000, or $0.98 per diluted share, forthe six months ended June 30, 2006 as compared to net income of $3,081,000, or$1.09 per diluted share, for the six months ended June 30, 2005.

### **Average Balance Sheet**

The following table sets forth information (dollarsin thousands) relating to the Company’s average balance sheet and reflects theaverage yield on assets and average cost of liabilities for the periodsindicated. Yield and cost are computed by dividing income or expense by theaverage daily balance of interest-earning assets or interest-bearingliabilities, respectively, at-or for the six-month periods indicated.
| ** **                                                                         | ** ** | **June 30,**    | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  yld/cost** | ** ** |
| **ASSETS**                                                                         |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning  assets:**                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Loans  receivable(1)                                                               |       | $                    | 505,475    |   | $ | 15,838 |   | 6.32 | % | $ | 451,983 |   | $ | 13,174 |   | 5.88 | % |
| Mortgage-backed  securities                                                        |       | 86,868               |       | 1,969 |   | 4.57 | % | 115,861 |   | 2,595 |   | 4.52 | % |
| Investment  securities(2)                                                          |       | 41,670               |       | 1,089 |   | 5.27 | % | 34,256 |   | 820 |   | 4.83 | % |
| Other  interest-earning assets(3)                                                  |       | 697                  |       | 22 |   | 6.37 | % | 1,755 |   | 22 |   | 2.53 | % |
| Total  interest-earning assets                                                     |       | 634,710              |       | 18,918 |   | 6.01 | % | 603,855 |   | 16,611 |   | 5.55 | % |
| Non  interest-earning assets                                                       |       | 34,790               |       |   |   |   |   | 34,870 |   |   |   |   |   |
| Total assets                                                                       |       | $                    | 669,500    |   |   |   |   |   | $ | 638,725 |   |   |   |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                     |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**                                                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                           |       | $                    | 464,156    |   | 4,808 |   | 2.09 | % | $ | 461,028 |   | 3,367 |   | 1.47 | % |
| Advances from  the FHLB                                                            |       | 135,656              |       | 2,736 |   | 4.07 | % | 111,810 |   | 1,897 |   | 3.42 | % |
| Total  interest-bearing liabilities                                                |       | 599,812              |       | 7,544 |   | 2.54 | % | 572,838 |   | 5,264 |   | 1.85 | % |
| Non  interest-bearing liabilities                                                  |       | 7,256                |       |   |   |   |   | 5,703 |   |   |   |   |   |
| Total  liabilities                                                                 |       | 607,068              |       |   |   |   |   | 578,541 |   |   |   |   |   |
| Stockholders’  equity                                                         |       | 62,432               |       |   |   |   |   | 60,184 |   |   |   |   |   |
| Total  liabilities and stockholders’ equity                                   |       | $                    | 669,500    |   |   |   |   |   | $ | 638,725 |   |   |   |   |   |
| Net interest  income                                                               |       |                 |       | $ | 11,374 |   |   |   |   |   | $ | 11,347 |   |   |   |
| Interest rate  spread(4)                                                           |       |                 |       |   |   | 3.47 | % |   |   |   |   | 3.69 | % |
| Net yield on  interest-earning assets(5)                                           |       |                 |       |   |   | 3.61 | % |   |   |   |   | 3.80 | % |
| Ratio of average  interest-earning assets to average interest- bearing liabilities |       |                 |       |   |   | 106 | % |   |   |   |   | 105 | % |

 

----

| (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  $188,000 and $143,000 for the six months ended June 30, 2006 and 2005,  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

----

**Rate/Volume Analysis**

The following table presents, for the periodsindicated, the change in interest income and interest expense (in thousands)attributed to (i) changes in volume (changes in the weighted average balance ofthe total interest earning asset and interest bearing liability portfoliosmultiplied by the prior year rate), and (ii) changes in rate (changes in ratemultiplied by prior year volume). Changes attributable to the combined impactof volume and rate have been allocated proportionately based on the absolutevalue of changes due to volume and changes due to rate.
| ** **                          | ** ** | **Six months ended June 30,**                      | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **2006 vs. 2005  Increase (decrease) due to** | ** ** |
| ** **                          | ** ** | **Volume**                                                             | ** ** | **Rate** | ** ** | **Net** | ** ** |
| **Interest  income:**               |       |                                                                   |       |   |   |   |   |
| Loans  receivable, net              |       | $                                                                      | 1,631      |   | $ | 1,033 |   | $ | 2,664 |   |
| Mortgage-backed  securities         |       | (717                                                                   | )          | 91 |   | (626 | ) |
| Investment  securities (1)          |       | 189                                                                    |       | 80 |   | 269 |   |
| Other  interest-earning assets      |       | (38                                                                    | )          | 38 |   | — |   |
| Total  interest-earning assets      |       | 1,065                                                                  |       | 1,242 |   | 2,307 |   |
| **Interest  expense:**              |       |                                                                   |       |   |   |   |   |
| Deposits                            |       | 23                                                                     |       | 1,418 |   | 1,441 |   |
| Advances from  the FHLB             |       | 445                                                                    |       | 394 |   | 839 |   |
| Total  interest-bearing liabilities |       | 468                                                                    |       | 1,812 |   | 2,280 |   |
| Net change in net  interest income  |       | $                                                                      | 597        |   | $ | (570 | ) | $ | 27 |   |

 

----

| (1) | Tax equivalent adjustments to interest on investment securities were  $188,000 and $143,000 for the six months ended June 30, 2006 and 2005,  respectively. Tax equivalent interest income is based upon a marginal  effective tax rate of 34%. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Total Interest Income**. Total interest income, on a taxable equivalent basis, increased by$2.3 million or 13.9% to $18.9 million for the six months ended June 30, 2006compared with the first half of 2005 primarily because of a $53.5 millionincrease in average loans outstanding combined with an increase of 44 basispoints on the average yield on these loans. The yield on both existing loansand new loans added to the portfolio increased during the intervening period inpart due to eight, 25 basis point increases in the Bank’s prime rate during theperiod June 30, 2005 through June 30, 2006 corresponding to identicalincreases in the federal funds interest rate of the Federal Reserve Bank.  At June 30, 2006, the Bank had approximately$78.7 million in loans that are indexed to the prime rate primarily consistingof construction loans and commercial and consumer lines of credit. Interestincome from mortgage-backed securities was lower in the first six months of2006 in comparison to the same period of 2005 due to the reduction of balancesmaintained in mortgage-backed securities.

**Total Interest Expense.**Total interest expense increased by $2.3 million to $7.5 million duringthe six-month period ended June 30, 2006 as compared with the first half of2005. During 2005 and the first half of 2006, the Bank raised the interestrates paid on many of its deposit products due to the competitive pricingenvironment in the Bank’s deposit market. In addition, the Company had during2006 but not during 2005, $31.7 million of deposits that have interest ratestied to the change in the federal funds rate. As a result, the average rate paid on deposits increased by 62 basispoints. Interest on advances from the Federal Home Loan Bank increased by $0.8million during the first six months of 2006 versus the first six months of 2005as a result of a $23.8 million increase in the average balance of borrowings aswell as an increase of 65 basis points in the cost of these funds due,generally, to the amortization of lower cost advances and the higher cost ofnew advances.

**Non-interest income.**Total non-interest income was $1,306,000 for the six-month period endedJune 30, 2006 compared with $1,339,000 for the same period in 2005. Loss on thesale of mortgage-backed securities was $51,000 during the first six months of2006 while there was no such sale during 2005. Loan prepayment and otherloan-related charges decreased $108,000 in the first half of 2006 versus thefirst half of 2005. Overdraft deposit fees increased $52,000 during the sameperiod. Gain on the sale of property acquired through foreclosure was $26,000during 2006 while there was no such disposition in 2005. Additionally, theCompany recognized $25,000 of non-interest income related to real estate heldfor development during the second quarter of 2006.

**Non-interest expense.**Total non-interest expense increased by $597,000 to $8.7 million for thesix months ended June 30, 2006 compared to the same period in 2005. Stock-basedcompensation expense related to stock grants and the recognition of optionexpense associated with the new accounting standard SFAS 123R, “Share-BasedPayment” amounted to $370,000 for the first half of 2006 while there was nosuch expense for the first half of 2005. In addition, compensation and otherbenefit expenses were higher by $258,000 due to staffing related to the GirardAvenue branch which opened in June 2005 as well as annual salary and otherstaffing increases. Office and occupancy costs increased $97,000 between thetwo periods mainly as a result of office and occupancy costs associated withthe Girard Avenue branch. Professional fees incurred during the first sixmonths of 2006 decreased over fees incurred during the same period of 2005 astechnology-related initiatives were completed during 2005.

16

----

**LIQUIDITY AND CAPITAL RESOURCES**

**Liquidity**

The Company’s liquidity is a measure of its ability to fund loans, paywithdrawals of deposits, and other cash outflows in an efficient,cost-effective manner. The Company’s short-term sources of liquidity include maturity,repayment and sales of assets, excess cash and cash equivalents, new deposits,broker deposits, other borrowings, and new advances from the Federal Home LoanBank. There has been no material adverse change during the six-month periodended June 30, 2006 in the ability of the Company and its subsidiaries to fundtheir operations.

At June 30, 2006, the Company had commitments outstanding under lettersof credit of $1.8 million, commitments to originate loans of $29.9 million, andcommitments to fund undisbursed balances of closed loans and unused lines ofcredit of $62.7 million. At June 30, 2006, the Bank had $18.8 millionoutstanding commitments to sell loans and commitments to purchase investmentsecurities of $0.5 million. There has been no material change during the sixmonths ended June 30, 2006 in any of the Company’s other contractualobligations or commitments to make future payments.

**Capital Requirements**

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

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

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

The Company’s market risk exposure is predominatelycaused by interest rate risk, which is defined as the sensitivity of theCompany’s current and future earnings, the values of its assets andliabilities, and the value of its capital to changes in the level of marketinterest rates. Management of the Company believes that there has not been amaterial adverse change in market risk during the six months ended June 30, 2006.

**CONTROLS AND PROCEDURES**

**Evaluationof Disclosure Controls and Procedures**

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

**Changesin Internal Controls over Financial Reporting**

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

17

----

**CRITICAL ACCOUNTING POLICIES**

Certain critical accounting policies of the Companyrequire the use of significant judgment and accounting estimates in thepreparation of the consolidated financial statements and related data of theCompany. These accounting estimates require management to make assumptionsabout matters that are highly uncertain at the time the accounting estimate ismade. Management believes that the most critical accounting policy requiringthe use of accounting estimates and judgment is the determination of theallowance for loan losses. If the financial position of a significant amount ofdebtors should deteriorate more than the Company has estimated, presentreserves for loan losses may be insufficient and additional provisions for loanlosses may be required. The allowance for loan losses was $2,788,000 at June30, 2006.

**NEW ACCOUNTING PRONOUNCEMENTS**

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

In July 2006, FASB issued FASB Interpretation (FIN) 48, “Accounting for Uncertainty in Income Taxes:an interpretation of FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 clarifies FASB 109, toindicate a criterion that an individual tax position would have to meet forsome or all of the benefit of that position to be recognized in an entity’sfinancial statements. In applying FIN 48, an entity is required toevaluate a tax position using a two-step process. First, the entity shouldevaluate the position for recognition. An entity should recognize the financialstatement benefit of a tax position if it determines that it is more likelythan not that the position will be sustained on examination. The term “morelikely than not” means “a likelihood of more than 50 percent.” In assessingwhether the more-likely-than-not criterion is met, the entity should assumethat the tax position will be reviewed by the applicable taxing authority.Additionally, if past administrative practices and precedents of the taxingauthority are widely understood, those practices and precedents should beconsidered in an entity’s assessment of the more-likely-than-not criterion.The second step is measurement: atax position that meets the more-likely-than-not recognition threshold ismeasured to determine the amount of benefit to recognize in the financialstatements. The tax position is measured at the largest amount of benefit thatis greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006 andis currently under evaluation by the Company to determine the impact on theCompany’s consolidated financial statements.

18

----

**TF FINANCIAL CORPORATIONAND SUBSIDIARIES**

**PART II**
| **ITEM 1.**  | **LEGAL PROCEEDINGS**                                                                                                                                                                            |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                             |
|         | Not applicable.                                                                                                                                                                                  |
|         |                                                                                                                                                                                             |
| **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, 2005. |
|         |                                                                                                                                                                                             |
| **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, 2006:                                              |

 
| **Month**                       | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of  Shares Purchased  as  Part of Publicly  Announced Plan of  Program** | ** ** | **Maximum Number  of  Shares that may yet  be Purchased  Under  the Plans or  Programs** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
|                            |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| April 1, 2006 -  April 30, 2006 |       | —                                               |       | $                                                | —     |                                                                                                                       | —     |                                                                                                                        | 81,273     |   |
|                            |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| May 1, 2006 -  May 31, 2006     |       | 5,504                                                |       | $                                                | 30.24      |                                                                                                                       | —     |                                                                                                                        | 81,273     |   |
|                            |       |                                                 |       |                                             |       |                                                                                                                       |       |                                                                                                                        |       |
| June 1, 2006 - June 30,  2006   |       | 5,500                                                |       | $                                                | 28.72      |                                                                                                                       | 5,500      |                                                                                                                        | 75,773     |   |

 
| **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. |

** **

19

----

**TF FINANCIAL CORPORATION**

**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.
|        |            | /s/ Kent C. Lufkin                             |              |
|--------|-----------------|------------------------------------------------|-------------------|
| Date:  | August 11, 2006 |                                           | Kent C. Lufkin    |
|   |            | President and CEO                              |
|   |            | (Principal Executive Officer)                  |
|   |            |                                           |
|   |            |                                           |
|   |            | /s/ Dennis R. Stewart                          |              |
| Date:  | August 11, 2006 |                                           | Dennis R. Stewart |
|   |            | Executive Vice President and                   |
|   |            | Chief Financial Officer                        |
|   |            | (Principal Financial & Accounting Officer) |
|        |                 |                                                |                   |  |  |

 

20

----